-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MmV5ROH+CFokpFWt5LPykoXUIfNWIM8NDL9w/Aaxxer7ahLWhp6VyvA4UvJ5np4a 6v/Edgziun7W55oJLvw48g== 0000950152-00-000817.txt : 20000211 0000950152-00-000817.hdr.sgml : 20000211 ACCESSION NUMBER: 0000950152-00-000817 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNOVA SOLUTIONS INC CENTRAL INDEX KEY: 0001090061 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 341897652 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-15147 FILM NUMBER: 530681 BUSINESS ADDRESS: STREET 1: 175 GHENT RD CITY: FAIRLAWN STATE: OH ZIP: 44333 BUSINESS PHONE: 3308694200 MAIL ADDRESS: STREET 1: 175 GHENT RD CITY: FAIRLAWN STATE: OH ZIP: 44333 10-K405 1 OMNOVA SOLUTIONS INC. 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 30, 1999 Commission File Number 1-15147 OMNOVA SOLUTIONS INC. (Exact name of registrant as specified in its charter) OHIO 34-1897652 (State of Incorporation) (I.R.S. Employer Identification No.)
175 GHENT ROAD, FAIRLAWN, OHIO 44333-3300 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (330) 869-4200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value 10c per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's common stock held by nonaffiliates of the registrant as of February 1, 2000, was $310,260,040. As of February 1, 2000, there were 41,273,251 outstanding shares of the Company's Common Stock, 10c par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2000 Proxy Statement of OMNOVA Solutions Inc. are incorporated by reference into Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 OMNOVA SOLUTIONS INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1999 TABLE OF CONTENTS
ITEM NUMBER PAGE ------ ---- PART I 1 Business.................................................... 1 2 Properties.................................................. 7 3 Legal Proceedings........................................... 8 4 Submission of Matters to a Vote of Security Holders......... 8 4A Executive Officers of the Registrant........................ 8 PART II 5 Market for Registrant's Common Equity and Related Stockholder Matters....................................... 10 6 Selected Financial Data..................................... 10 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 11 7A Quantitative and Qualitative Disclosures About Market Risk...................................................... 16 8 Consolidated Financial Statements and Supplementary Data.... 16 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 16 PART III 10 Directors and Executive Officers of the Registrant.......... 38 11 Executive Compensation...................................... 38 12 Security Ownership of Certain Beneficial Owners and Management................................................ 38 13 Certain Relationships and Related Transactions.............. 38 PART IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 38 Signatures.................................................. 41
3 PART I ITEM 1. BUSINESS INTRODUCTION OMNOVA Solutions Inc. (OMNOVA Solutions or Company) was organized in June 1999 as a wholly-owned subsidiary of GenCorp Inc. as part of a plan to spin-off GenCorp's Performance Chemicals and Decorative & Building Products businesses as a separate publicly traded company. On October 1, 1999 OMNOVA Solutions Inc. became an independent publicly-held company when GenCorp Inc. distributed a dividend payable in one share of OMNOVA Solutions common stock for each share of GenCorp common stock held on the September 27, 1999 record date (the "spin-off"). The Company's headquarters are at 175 Ghent Road, Fairlawn, Ohio 44333. OMNOVA Solutions operates two business segments, Performance Chemicals and Decorative & Building Products. The Performance Chemicals segment manufactures a broad range of emulsion polymers and specialty chemicals used as coatings, binders, adhesives, and additives for paper, carpet, textile and various other specialty chemical applications. Decorative & Building Products designs, manufactures and markets a comprehensive line of decorative and functional surface products including commercial wallcovering, coated fabrics, printed and solid color surface laminates, graphic arts and industrial films, and transfer printed products for furniture, transportation, cabinets, home furnishings, apparel, new construction and remodeling and other commercial applications, as well as membrane systems for commercial and industrial roofing. (Financial information relating to the Company's business segments appears on pages 34 through 36 of this report.) BACKGROUND The Performance Chemicals business was founded in 1952 as a segment of The General Tire & Rubber Company, GenCorp's predecessor, focusing primarily on the manufacture of latex, an emulsion polymer, for the paper industry and for tire cord adhesives in its Mogadore, Ohio facility. During the 1960s, the business began expanding its product lines for the paper and carpet industries, and in 1993 opened a latex plant in Green Bay, Wisconsin to better serve the needs of its paper customers in the upper Midwest. The Decorative & Building Products segment began in 1945 when The General Tire & Rubber Company purchased the Jeannette, Pennsylvania coated fabrics facility from the Pennsylvania Rubber Company. In 1963 the Company built a production facility in Columbus, Mississippi to increase its capacity and product offerings in coated fabrics. The manufacturing of commercial wallcovering was added at the plant in the early 1970s. Performance Chemicals' 1996 acquisition of Morton International's Lytron(R) plastic pigment product line broadened offerings to the paper industry. The 1998 acquisition of Goodyear's Calhoun, Georgia latex facility provided additional manufacturing capacity, a strong presence in the southeast and an expanded customer base. Performance Chemicals also acquired Sequa Chemicals' U.S. specialty chemicals business in 1998, gaining manufacturing facilities in Chester, South Carolina and Greensboro, North Carolina. This acquisition expanded existing emulsion polymer market positions and provided entry into new, related specialty chemical markets. The fiscal year 1999 acquisition of PolymerLatex's U.S. acrylics business in Fitchburg, Massachusetts provided a key northeast location while strengthening and diversifying served markets in acrylic emulsions and other specialty chemicals. The latest acquisition of Morton International's global floor care polymer business in April 1999 provided Performance Chemicals with a new and complementary product line and new customers, based on existing manufacturing technology. Performance Chemicals holds a strong number two market position in the domestic styrene butadiene latex industry. The number of Performance Chemicals facilities has increased from two to six in the past few years. Decorative & Building Products expanded its commercial wallcovering capabilities in 1991 through the acquisition of Canadian General Towers' commercial wallcovering business. With the 1998 acquisition of Walker Greenbank's U.K.-based Muraspec and Brymor commercial wallcovering businesses, Decorative & Building Products has grown to be a worldwide leader in this product category. Brymor provides a European manufacturing base. Muraspec, a distribution business with sales offices throughout the U.K. and Europe, serves as a key European distribution platform from which to market commercial wallcoverings and other decorative products. Goodyear's Reneer Films Division was acquired in 1993, increasing vinyl film and decorative laminate 4 capability for the Decorative & Building Products business and elevating its position in vinyl woodgrain laminates to number one in North America. In 1997, Decorative & Building Products acquired the Printworld business of Technographics, Inc., adding paper laminates to its vinyl laminate portfolio and gaining entry into transfer printing for home furnishings and apparel. Then in 1999, Decorative & Building Products formed a joint venture company with a subsidiary of Thailand-based Charoen Pokphand Group. The joint venture, CPPC Decorative Products Co., Ltd., will serve the decorative vinyl film and fabric product categories in the Asia-Pacific region and provide expanded product lines to North America and Europe. The GenFlex roofing products business was started in 1980 as a single product line (PVC) and has expanded over the years to include TPO and EPDM membrane systems for the domestic market. GENERAL OMNOVA Solutions develops, manufactures and markets emulsion polymers, specialty chemicals and decorative and building products for a variety of industrial, commercial and consumer markets. The Performance Chemicals segment manufactures a broad range of emulsion polymers and specialty chemicals used as coatings, binders, adhesives, and additives for paper, carpet, textile and various other specialty chemical applications. Decorative & Building Products designs, manufactures and markets a comprehensive line of decorative and functional surface products including commercial wallcovering, coated fabrics, printed and solid color surface laminates, graphic arts and industrial films, and transfer printed products for furniture, transportation, cabinets, home furnishings, apparel, new construction and remodeling and other commercial applications, as well as membrane systems for commercial and industrial roofing. The Company utilizes the OMNOVA Solutions Technology Center in Akron, Ohio to support its priorities of operational excellence and value-creating growth by developing new products and improving existing products and processes. The Center has a key role in the Company's technical activity and supports research and development efforts across the Company. The Technology Center teams with the business segments to develop high impact technologies that enable new business opportunities by leveraging core competencies in cross-cutting application disciplines such as: (i) adhesives, coatings and printing inks; (ii) graphics and information technology; and (iii) materials selection, substitution and fabrication. Design and development centers at segment locations focus on specific areas of segment businesses. (Information relating to research and development expense is set forth in Note G on page 28 of this report.) OMNOVA Solutions had approximately 2,700 employees at November 30, 1999 located at offices, plants and other facilities located principally throughout the United States and the United Kingdom. Of OMNOVA Solutions' 1999 revenues, approximately 42.2% were derived from the Performance Chemicals business and 57.8% from the Decorative & Building Products business. PRODUCTS AND SERVICES PERFORMANCE CHEMICALS Performance Chemicals manufactures a broad line of emulsion polymers and specialty chemicals for use in the paper, carpet, textile, nonwovens, construction, graphic arts, coatings, adhesives, floor care and transportation industries. Performance Chemicals' products for the paper industry improve the strength, gloss and printability of its customers' products. These products are primarily used in the manufacture of coated papers for applications such as magazines, photo papers and office forms. Paper coatings represented 17.4%, 17.8% and 17.9% of OMNOVA Solutions' consolidated revenues for fiscal 1999, 1998 and 1997, respectively. Latex formulations are also used to provide these same characteristics to paperboard packaging for food and household products. The business is also a leading producer of styrene butadiene latex for use as carpet backing adhesive, which secures carpet fibers to backing materials. Through the 1998 acquisition of Sequa Chemicals, Performance Chemicals significantly expanded its product line breadth to include specialty additives for coating formulations such as lubricants and insolubilizers and wet end opacifiers used in the making of paper. The acquisition significantly expanded total product offerings to paper customers and enabled Performance Chemicals to generate significant synergies through consolidated purchasing of acrylic monomers, cross-selling of polymers and auxiliary chemicals and enhanced applications development. Additionally, the acquisition added a diverse line of textile 2 5 processing, coating and finishing chemicals that provide water, stain and oil repellency and permanent press properties to natural and synthetic textile fibers for apparel, home furnishings and upholstery applications. Performance Chemicals' product portfolio includes a growing specialty segment that provides resins, binders, coatings, adhesives and saturants to a broad variety of markets that include nonwovens, graphic arts, industrial coatings, floor care and construction. These products provide greater strength, improved processibility and enhanced appearance and function for customer products. With a strong number two position in the latex industry, Performance Chemicals is recognized in all of its markets for its core capabilities in polymer technology, its ability to rapidly develop highly customized products and its ability to provide innovative, cost effective customer solutions. DECORATIVE & BUILDING PRODUCTS Decorative & Building Products is the leading global manufacturer of wallcoverings for commercial applications. Its product line includes a broad range of fabric-backed vinyl and paper-backed vinyl wallcovering designs. Its industry leading styling and design library covers a broad range of styles, patterns, textures, and colors, ranging from traditional to contemporary designs. Additionally, Decorative & Building Products has built its leading position in commercial wallcoverings by leveraging its reputation for product durability and quality, global distribution network, extensive emboss and print roll library, long-term customer relationships, and integrated manufacturing/distribution/sourcing value proposition. Well-known brands include Bolta(R), Essex(R), Genon(R), Lanark(R), Tower(TM) and X-Quest(R) in North America and Muralon and Muraspec in Europe. Key end user markets include the hospitality, healthcare and commercial office industries. Commercial wallcoverings represented 20.1%, 17.9% and 18.9% of OMNOVA Solutions' consolidated revenues for fiscal 1999, 1998 and 1997, respectively. Based on industry data and information, Decorative & Building Products believes that it is the leading North American supplier of vinyl coated fabrics and urethane fabrics for contract and residential home furnishings, transportation seating and marine applications as well as a variety of other industrial and commercial end use applications. Its coated fabrics offer durable, stain resistant and cost effective alternatives or complements to leather and textile coverings. Competitive advantages in the coated fabrics industry are leveraged through creative design and styling capabilities, performance enhancing coatings, innovative technical support programs, leading brand names and established distribution channels. Coated fabrics represented 10.4%, 12.0% and 13.1% of OMNOVA Solutions' consolidated revenues for fiscal 1999, 1998 and 1997, respectively. Decorative & Building Products believes that it is a leading supplier of decorative surfacing laminates for wood and metal applications and that it holds the number one North American position in combined paper and vinyl woodgrain laminates. Decorative laminate products are manufactured utilizing vinyls, lightweight papers and foils. Unique ultraviolet (UV) and electronic beam (EB) coatings provide scratch, stain and UV resistance. In addition, Decorative & Building Products has further differentiated itself in the decorative laminate market as a single source supplier of integrated vinyl and paper laminate designs for the furniture and cabinet industries, building a unique library of matched vinyl and paper laminate design patterns and textures and developing rapid make-to-order production capabilities. Important markets for these products include furniture, kitchen cabinets, manufactured housing, flooring laminates, consumer electronics and wrapped wood components. In particular, the growing ready-to-assemble furniture market provides an attractive market for Decorative & Building Products' unique decorative laminates product offerings. Double polished clear vinyl films for the graphic arts, office products and stationery markets are also produced. Decorative laminates represented 9.7%, 11.8% and 10.5% of OMNOVA Solutions' consolidated revenues for fiscal 1999, 1998 and 1997, respectively. Decorative & Building Products is also a leading North American manufacturer and marketer of single-ply roofing membrane systems for the commercial and industrial roofing market. Selling under the GenFlex(TM) brand name, it was the first in the industry and is one of few North American single-ply roofing suppliers that offers all three single-ply roofing systems, EPDM, TPO and PVC. This allows for a tailored solution for each type of roofing application requirement. Through the introduction of innovative products, GenFlex roofing systems has developed programs that reduce the time and cost of installation. GenFlex roofing systems represented 12.8%, 12.9% and 13.1% of OMNOVA Solutions' consolidated revenues for fiscal 1999, 1998 and 1997, respectively. 3 6 Through its Printworld operations, Decorative & Building Products manufactures heat-transfer prints on paper used to decorate apparel and home furnishings. Heat-transfer printing is an innovative, unique process for printing intricate patterns on synthetic fabrics that can be used widely in the home furnishing, commercial furnishing and apparel industries. Decorative & Building Products has established leading positions in all of its product categories by utilizing the Company's core competencies in design, compounding, calendering, printing, embossing and coating. Given similar core competencies and base technology requirements, the business is able to leverage its investments in manufacturing, process and design improvements across this broad set of product lines and benefit from economies of scale. In addition, its broad offering of decorative products uniquely positions it to provide integrated decorative solutions for its customers. BUSINESS STRATEGY ORGANIC GROWTH BY PROVIDING TOTAL SOLUTIONS. OMNOVA Solutions intends to grow organically by developing long-term customer relationships and positioning itself as the preferred total solutions partner. OMNOVA Solutions' strategy is to avoid commodity market segments and focus on products that are highly customized to meet specific customer requirements. These relationships have enabled OMNOVA Solutions to develop innovative products that provide superior functional performance, higher decorative content, and more efficient, lower cost production processes to meet customers' specific application needs and enhance the value of their products. For example, new roofing system developments have provided significant benefits to contractors and building owners by substantially reducing installation time and labor costs. PURSUE GROWTH THROUGH STRATEGIC ACQUISITIONS. OMNOVA Solutions' businesses have achieved significant growth through acquisitions of companies that build on existing markets and core product and process technologies. OMNOVA Solutions plans to continue to pursue acquisitions, strategic partnerships and joint ventures in the future, targeting technologies and products in high growth markets that are strategically related to its existing product portfolio, customer base and markets. LEVERAGE CORE COMPETENCIES ACROSS BUSINESSES. OMNOVA Solutions' expertise in high performance polymer-based chemistries, the design and development of customized product applications and polymer processing capabilities are shared across its business segments and provide a unique and differentiating competitive advantage. Performance Chemicals and Decorative & Building Products have identified common growth platforms to capitalize on these technology linkages. For example, Performance Chemicals has pursued the development and commercialization of new polymers and specialty chemical additives to meet the needs of its broadening market portfolio. These new formulations in advanced coatings, inks and adhesives are beginning to be leveraged in the Decorative & Building Products segment to enhance the performance of a number of its products. OMNOVA Solutions' aligned growth strategy targets opportunities for both businesses to team as customers or suppliers in the paper, textile, carpet, furniture and construction industries. EXPAND STRONG RESEARCH AND DESIGN CAPABILITIES. OMNOVA Solutions is an industry leader in research and development, as well as styling and design capabilities. The Performance Chemicals segment has recently made a major investment in a new high speed pilot paper coater, which will be used to accelerate OMNOVA Solutions' development and commercialization of new coating technologies in its core markets. OMNOVA Solutions started construction of a new pilot plant in 1998, which will support and accelerate new product development and customer qualification efforts for its Performance Chemicals business. The Decorative & Building Products segment maintains design centers in Salem, New Hampshire, New York, New York and Hertfordshire, England where designers combine traditional design techniques with state-of-the-art computer aided design equipment to create unique designs for incorporation across OMNOVA Solutions' decorative product spectrum. OMNOVA Solutions continues to strengthen its design capability through investments in digital archiving of designs and digital sampling. In addition, the business has increased its focus on technology and new product development to provide differentiated value-added products to customers. INCREASE TECHNOLOGY LINKAGES. By increasing technology linkages and materials utilization between the two segments, OMNOVA Solutions can aggressively pursue the development and commercialization of new 4 7 polymers as well as improve the functionality and performance of its decorative coatings. These technical and materials synergies allow Performance Chemicals and Decorative & Building Products to target and expand key markets. Technological linkages, purchasing, marketing and sales economies, and manufacturing economies will enable more cost effective development of new products and will increase the effectiveness of cost reduction initiatives at OMNOVA Solutions. For example, the OMNOVA Solutions business segments have a powerful collective knowledge base in paper, nonwovens, textiles, printing technology, ink systems and performance coatings, and the chemicals application skills to develop and supply advanced products in their respective served markets. BROADEN INTERNATIONAL OPERATIONS. OMNOVA Solutions plans to continue to increase its global supply capabilities and the markets it serves. For example, the acquisition of the Brymor and Muraspec U.K.-based commercial wallcovering business provided a European manufacturing, design and distribution platform for the Decorative & Building Products segment. Performance Chemicals recently opened a European business office outside London and completed a marketing alliance with PolymerLatex in Europe to serve global paper customers. Additionally, the 1999 formation of CPPC Decorative Products Co., Ltd., a Thailand-based joint venture, will serve the decorative vinyl film and fabric markets in the Asia-Pacific region and expand product lines to North America and Europe. The Company intends to continue to expand its international presence through a continued aggressive acquisition, joint venture and alliance strategy. IMPROVE PROFITABILITY THROUGH OPERATIONAL EXCELLENCE INITIATIVES. Operational excellence processes including Six Sigma quality, supply chain management and high performance workplace initiatives are utilized throughout OMNOVA Solutions' businesses. OMNOVA Solutions plans to continue to focus on operational excellence initiatives across the supply chain to drive improvements in productivity, quality cost and safety. MARKETS AND CUSTOMERS Management believes that Performance Chemicals is a leader in its targeted product categories. The polymer and chemical coating and binding categories are highly competitive based on price, quality, customer service, product performance and innovations. Performance Chemicals is a leading quality producer of latex for the paper and carpet industry. Major latex customers include industry leaders such as Champion International, Shaw and Consolidated Paper. Management believes that Decorative & Building Products is a leader in its targeted product categories. The wallcovering, coated fabrics, roofing and other Decorative & Building Products' categories are highly competitive based on decorative content, enhanced performance characteristics, price, quality, customer service, brand name recognition and reputation. Decorative & Building Products markets its products under numerous brand names to different industries. Major customers of this segment are Steelcase, Bradco and Ashley Furniture. DISTRIBUTION METHODS Methods of distribution used by OMNOVA Solutions vary widely depending on the nature of the products and the industry or market served. Products are sold either directly or through distributors. COMPETITION Performance Chemicals competes with several large global chemical companies including Dow, BASF and Rohm & Haas, some of which are vertically integrated in one or more major raw materials. Performance Chemicals also competes with small to mid-sized U.S.-focused suppliers of specialty chemicals including B.F. Goodrich, National Starch and S. C. Johnson Polymers. Depending on the products involved and markets served, the basis of competition varies among price, quality, customer and technical service, product performance and innovation, and industry recognition. Overall, Performance Chemicals regards its products to be competitive in its major categories and believes that it holds leading or strong number two positions in several North American categories including paper coatings, styrene butadiene latex carpet backing binders, textile permanent press resins, nonwoven binders, paper tape release coatings and saturants, and vinyl pyridine tire cord adhesives. 5 8 Decorative & Building Products competes with numerous companies, many of which are smaller and privately-owned. Key competitors in each product group include: - Commercial Wallcovering -- RJF International, Fidelity and paint systems - Coated Fabrics -- Haartz and Uniroyal - Decorative Laminates -- Chiyoda, Dai Nippon and Toppan - Building Systems -- Carlisle, Firestone, and Manville - Heat Transfer Printing -- Miroglio, Sublistatic and Transfertex INTELLECTUAL PROPERTY OMNOVA Solutions regards patents, trademarks, copyrights and other intellectual property as important to its success and relies on them, both in the United States and foreign countries, to protect its investment in products and technology. Patents to which OMNOVA Solutions has rights expire at various times but the Company believes that the loss or expiration of any patent would not materially affect the business of the Company. OMNOVA Solutions, like any other company, may be subject to claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties from time to time in the ordinary course of business. RAW MATERIALS Performance Chemicals utilizes a variety of raw materials, primarily monomers, in the manufacture of its products, all of which are generally available from several qualified suppliers. Monomer costs are a major component of the emulsion polymers produced by the business. Key monomers include styrene, butadiene, acrylonitrile, vinyl pyridine, acrylic acid, vinyl acetate, butyl acrylate, ethyl acrylate and methyl methacrylate. Decorative & Building Products also utilizes a variety of raw materials which are generally available from multiple suppliers. Key raw materials include polyvinyl chloride resins, textiles, plasticizers, paper, and titanium dioxide. Textiles and polyvinyl chloride resins represent approximately 44% of total raw materials purchased on a dollar basis. The cost of these raw materials has a significant impact on OMNOVA Solutions' profitability. A significant increase in the price of monomers or polyvinyl chloride resins could materially increase OMNOVA Solutions' operating costs and materially adversely affect its profit margins. OMNOVA Solutions generally attempts to pass increased raw materials prices on to its customers in the form of price increases. The success of attempted price increases depends on a variety of factors including the competitive environment. Under certain circumstances, OMNOVA is not able to pass along the increase. In addition, if accepted by customers, price increases generally lag the increase in raw material costs. ENVIRONMENTAL MATTERS The business operations of OMNOVA Solutions, like those of other companies in the industries in which OMNOVA Solutions operates, are subject to numerous foreign, federal, state and local environmental laws and regulations. These laws and regulations not only affect OMNOVA Solutions' current operations, but also could impose liability on OMNOVA Solutions for past operations that were conducted in compliance with then applicable laws and regulations. OMNOVA Solutions anticipates that these laws and regulations will become increasingly stringent. A discussion of capital and noncapital expenditures incurred in 1999 and forecasted for 2000 and 2001 for environmental compliance is included under the heading Environmental Matters beginning on page 14 of this report and is incorporated herein by reference. EMPLOYEES OMNOVA Solutions employed approximately 2,700 employees at November 30, 1999. Approximately 33% of these employees are covered by collective bargaining agreements. Of the covered employees, approximately 9% are covered by collective bargaining agreements that are due to expire within one year. A prolonged work 6 9 stoppage at any of OMNOVA Solutions' facilities could materially adversely affect the Company's business and results of operations. ITEM 2. PROPERTIES Significant operating, manufacturing, research, design and/or sales and marketing facilities of the Company are set forth below. CORPORATE HEADQUARTERS: OMNOVA Solutions Inc. *OMNOVA Solutions Overseas 175 Ghent Road 545 Orchard Road Fairlawn, OH 44333-3300 #09-05 Far East Shopping Centre 330/869-4200 Singapore 238882 (65) 733-7080 OMNOVA Solutions Technology Center 2990 Gilchrist Road Akron, OH 44305-4489 330/794-6300
PERFORMANCE CHEMICALS: Headquarters: Sales/Manufacturing/Technical/Distribution: 175 Ghent Road Akron, OH Fairlawn, OH 44333-3300 Calhoun, GA 330/869-4200 Chester, SC *Dalton, GA Fitchburg, MA Green Bay, WI Greensboro, NC Hertfordshire, England Mogadore, OH
DECORATIVE & BUILDING PRODUCTS: Headquarters: Manufacturing Facilities: Sales/Marketing/Design/Distribution: 175 Ghent Road Auburn, PA *Asnieres, France Fairlawn, OH 44333-3300 Columbus, MS *Bangkok, Thailand 330/869-4200 Jeannette, PA *Brussels, Belgium Kent, England *Charlotte, NC Monroe, NC Hertfordshire, England *Rayong, Thailand *Dubai, UAE *Maumee, OH *New York, NY *Paris, France *Pine Brook, NJ *Rayong, Thailand *Salem, NH *Sao Paulo, Brazil *Warsaw, Poland
- --------------- * An asterisk next to a facility listed above indicates that it is a leased property. In addition, the Company owns and leases properties (primarily warehouse and office facilities) in various regions of the United States for use in the ordinary course of its business. Data appearing in Note N on page 32 of this report with respect to leased properties is incorporated herein by reference. During 1999 the Company generally made effective use of its productive capacity. The Company believes that the quality and productive capacity of its properties are sufficient to maintain the Company's competitive position for the foreseeable future. 7 10 ITEM 3. LEGAL PROCEEDINGS OMNOVA Solutions is subject to various legal actions, governmental investigations, and proceedings relating to a wide range of matters. In the opinion of management, after reviewing the information which is currently available with respect to these matters and consulting with counsel, any liability which may ultimately be incurred with respect to these matters will not materially affect future results of operations, liquidity, capital resources or the consolidated financial condition of OMNOVA Solutions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of OMNOVA Solutions' public security holders, through the solicitation of proxies or otherwise, during the quarter ended November 30, 1999. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following information is given as of February 1, 2000, and except as otherwise indicated, each individual has held the same office during the preceding five-year period. JOHN B. YASINSKY, age 60, Chairman of the Board and Chief Executive Officer of the Company since January 4, 2000; Chairman, Chief Executive Officer and President from the Company's formation until January 2000; served as Chairman of the GenCorp Board from March 1995 until the spin-off and Chief Executive Officer and President of GenCorp since July 1994. He was President and Chief Operating Officer of GenCorp from November 1993 until July 1994. Previously, he was Group President, Westinghouse Electric Corporation, Pittsburgh, PA, a power generation and electrical equipment manufacturing company, from February 1993 until November 1993 and President, Westinghouse Power Systems from 1990 to 1993. He is also a director of CMS Energy Corporation, Dearborn, MI and Consumers Power Company, Jackson, MI. Mr. Yasinsky is Chairman of the Executive Committee of the OMNOVA Solutions Board. KEVIN M. MCMULLEN, age 39, President and Chief Operating Officer of the Company since January 4, 2000; Vice President of the Company; President, Decorative & Building Products from September 1999 until January 2000; served as Vice President of GenCorp and President of GenCorp's Decorative & Building Products business unit from September 1996 until the spin-off. He was previously General Manager of General Electric Corporation's Commercial & Industrial Lighting business from 1993 to 1996 and General Manager of General Electric Lightings' Business Development and Strategic Planning activities from 1991 to 1993. Prior to General Electric, he was Senior Engagement Manager at McKinsey and Company, a business consulting firm, from 1985 to 1991. MICHAEL E. HICKS, age 41, Senior Vice President and Chief Financial Officer; Treasurer of the Company from its formation; served as Senior Vice President, Chief Financial Officer and Treasurer of GenCorp from February 1999 until the spin-off. He was previously Treasurer of GenCorp since September 1994 and Director of Treasury of GenCorp from 1989 to 1994. JAMES C. LEMAY, age 43, Senior Vice President, Law; General Counsel of the Company from its formation; served as Assistant General Counsel of GenCorp since May 1997. He was previously Senior Counsel of GenCorp from May 1990 to May 1997. NATHANIEL J. MASS, age 49, Senior Vice President, Strategic Growth of the Company since September 1999; served as Senior Vice President, Strategic Growth of GenCorp from June 1996 until the spin-off. He was previously Partner and Director of the Business Dynamics Center, McKinsey and Company from 1994 to June 1996; Chief Executive Officer, Light Sciences Inc. from 1991 to 1993 and Director of Worldwide Strategic Planning, Exxon Chemical Company from 1988 to 1991. GREGORY T. TROY, age 44, Senior Vice President, Human Resources of the Company since September 1999; served as Director, Human Resources of GenCorp's Performance Chemicals unit from December 1996 until the spin-off. He was previously Director, Human Resources of Bosch Braking Systems (formerly AlliedSignal) from 8 11 1995 to December 1996; Employee Relations Area Manager, Manufacturing, of Mobil Corporation's Plastics Division from 1994 to 1995. KEVIN M. BYRNE, age 46, Vice President of the Company and President, Decorative Products since January 4, 2000; Vice President and Managing Director, Global Wallcovering, Decorative & Building Products from the spin-off until January 2000; served as Vice President and Managing Director, Global Wallcovering of GenCorp's Decorative & Building Products business unit from August 1998 until the spin-off and Vice President, Product Management and Marketing of Decorative & Building Products from June 1997 until August 1998. He was previously Director, Sales and Marketing, Plastics and Business Manager -- Fluorine Products of AlliedSignal, Inc., from August 1994 to May 1997 and Director, Sales and Marketing of Rexam -- Custom Division from April 1992 to August 1994. MARVIN W. ZIMA, age 62, Vice President of the Company and President, Performance Chemicals since September 1999; served as Vice President of GenCorp from August 1994 until the spin-off and President of GenCorp's Performance Chemicals business unit from 1991 until the spin-off. He was previously President and Chief Executive Officer of Uniroyal Engineered Products from 1987 to 1991 and held various other management positions with Uniroyal from 1982 to 1987. CYNTHIA A. SLACK, age 51, Secretary and Assistant General Counsel of the Company from its formation; served as Assistant Secretary and Senior Counsel, Finance and Securities of GenCorp from September 1997 until the spin-off. Previously, Ms. Slack was Assistant Secretary and Counsel, Finance and Securities of GenCorp from March 1997 to September 1997 and Counsel, Finance and Securities of GenCorp from February 1990 until March 1997. The Company's executive officers generally hold terms of office of one year and/or until their successors are elected. 9 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Prior to the spin-off, the Company's common stock was not publicly traded. The Company's common stock is currently listed on the New York Stock Exchange. At December 31, 1999, there were approximately 11,800 holders of record of the Company's common stock. On November 30, 1999, the Company paid a quarterly cash dividend on its common stock of $.05 per share. Information regarding the high and low quarterly sales prices of the Company's common stock for the fourth quarter of fiscal 1999 (beginning on October 1, 1999, the date "regular-way" trading began) is contained in the Quarterly Financial Data (Unaudited) which appears on page 37 of this report and is incorporated herein by reference. Information concerning long-term debt, including material restrictions and provisions relating to distributions and cash dividends on the Company's common stock (if any), appears in Note M on page 32 of this report and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER-SHARE DATA) NET SALES Decorative & Building Products................ $443.5 $398.6 $367.7 $340.0 $343.8 Performance Chemicals......................... 323.9 225.6 180.6 165.5 181.8 ------ ------ ------ ------ ------ $767.4 $624.2 $548.3 $505.5 $525.6 ====== ====== ====== ====== ====== SEGMENT OPERATING PROFIT Decorative & Building Products................ $ 51.4 $ 51.5 $ 44.2 $ 44.8 $ 18.2 Performance Chemicals......................... 31.2 35.0 21.9 25.2 24.1 ------ ------ ------ ------ ------ $ 82.6 $ 86.5 $ 66.1 $ 70.0 $ 42.3 ====== ====== ====== ====== ====== NET INCOME.................................... $ 34.4 $ 42.6 $ 34.3 $ 36.8 $ 25.2 ====== ====== ====== ====== ====== EARNINGS PER SHARE OF COMMON STOCK Basic......................................... $ .82 $ 1.03 $ .93 $ 1.09 $ .77 Diluted....................................... $ .82 $ 1.01 $ .91 $ 1.03 $ .77 GENERAL Cash dividends paid........................... $ .05 $ -- $ -- $ -- $ -- Capital expenditures.......................... $ 35.0 $ 18.0 $ 10.9 $ 14.6 $ 11.2 Depreciation and amortization................. $ 30.7 $ 21.5 $ 16.0 $ 13.8 $ 13.6 Total assets.................................. $722.5 $602.7 $277.1 $233.3 $225.9 Long-term debt................................ $190.0 $ -- $ -- $ -- $ --
You should keep the following in mind when reviewing this data: - OMNOVA Solutions Inc. was spun off from GenCorp Inc. as an independent public company as of October 1, 1999. - During fiscal 1997, OMNOVA Solutions acquired Printworld. During fiscal 1998, OMNOVA Solutions acquired (1) the U.S. speciality chemicals business of Sequa Chemicals, (2) the commercial wallcovering business of Walker Greenbank PLC, and (3) the Calhoun, Georgia latex facility of The Goodyear Tire & Rubber Company. During fiscal 1999, the Company acquired (1) the global latex floor care business of Morton International Inc., and (2) the U.S. acrylic emulsion polymers business of PolymerLatex. The historical income statement data reflects operations from these acquisitions from the date of purchase. 10 13 - During 1999, the Company recorded unusual income of $1.1 million related primarily to the gain recognized on the sale of the corporate jet, offset by charges associated with the restructuring of a Decorative & Building Products business and settlement of other contingent obligations. - During fiscal 1998, the Company recorded unusual expense of $3.4 million pre-tax related to exiting the residential wallcovering business. - During fiscal 1996, OMNOVA Solutions recorded unusual pre-tax income of $4.0 million from the sale of the structural urethane adhesives business. - For periods ended prior to the spin-off, earnings per share were calculated based on a one-for-one share distribution and equivalent stock options being granted to holders of GenCorp stock options. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OMNOVA Solutions operates two business segments, Performance Chemicals and Decorative & Building Products. The Performance Chemicals segment manufactures a broad range of emulsion polymers and specialty chemicals used as coatings, binders, adhesives, and additives for paper, carpet, textile and various other specialty chemical applications. Decorative & Building Products designs, manufactures and markets a comprehensive line of decorative and functional surface products including commercial wallcovering, coated fabrics, printed and solid color surface laminates, graphic arts and industrial films, and transfer printed products for furniture, transportation, cabinets, home furnishings, apparel, new construction and remodeling and other commercial applications, as well as membrane systems for commercial and industrial roofing. OMNOVA Solutions' sales are affected by numerous factors. In the Performance Chemicals segment, the key sales drivers are the ability to create custom polymer and specialty chemical solutions to enhance customer product performance; domestic demand for coated paper and carpeting; and trends in the textile and specialty chemical industries. In the Decorative & Building Products segment, commercial wallcovering and building systems' sales are driven by trends in refurbishment of commercial office buildings, hotels, hospitals and schools and, to a lesser degree, new construction cycles. Product design and styling are important product differentiators in the commercial wallcovering business. Sales trends in decorative laminates and coated fabrics are driven by both design and performance durability of the surface product. The Decorative & Building Products segment focuses on achieving sales growth by its ability to produce enhanced designs and styles and through technology in substrate and coating systems that provide enhanced stain and scratch resistance, along with improved durability to meet the needs of commercial and residential furniture customers, as well as customers in transportation upholstery and demountable office systems. OMNOVA Solutions is subject to changes in its operating costs arising from volatility in the price of several key raw materials including polyvinyl chloride resins, styrene and butadiene. OMNOVA Solutions' annual sales have grown from $525.6 million in 1995 to $767.4 million in 1999. During the same period, OMNOVA Solutions' segment operating profit increased from $42.3 million to $82.6 million in 1999. OMNOVA Solutions' revenue growth was due to both strategic acquisitions and growth in existing product lines. The significant growth in segment operating profit was due to acquisitions, operational improvement initiatives and aggressive cost containment. Recent strategic acquisitions of Performance Chemicals included the acquisition of The Goodyear Tire & Rubber Company's Calhoun, Georgia latex facility in 1998, which provided new manufacturing capacity, increased presence in the Southeastern U.S. and an expanded customer base; and the acquisition of Sequa Chemical's U.S. specialty chemicals business in 1998, which expanded existing emulsion polymer market positions and provided entry into new, related specialty chemical markets. In fiscal 1999, Performance Chemicals acquired PolymerLatex's U.S. acrylics business in Fitchburg, Massachusetts which strengthened and diversified markets in acrylic emulsions and other specialty chemicals; and Morton International's global polymer floor care business, which provided a complementary product line and new customer base. Recent strategic acquisitions of Decorative & Building Products included the purchase of Printworld in 1997, which added paper laminates to its vinyl laminate portfolio and provided entry into the transfer printing market for home furnishings and apparel; and the 1998 acquisition of Walker Greenbank's U.K.-based 11 14 commercial wallcovering business which provided a manufacturing plant, distribution business and numerous sales offices throughout Europe to serve as a platform from which to market other decorative and building products. In 1999, Decorative & Building Products continued its globalization efforts with the formation of a strategic joint venture with Thailand-based Charoen Pokphand Group. The joint venture, which included two manufacturing plants, is focused on serving the coated fabrics and decorative laminates markets in the Asia-Pacific region, providing expanded product lines to North America and Europe and serving as a platform for future growth in the region. Also during 1998, Decorative & Building Products sold its residential wallcovering business. RESULTS OF OPERATIONS FISCAL 1999 COMPARED TO FISCAL 1998 Net sales for the Company in 1999 increased 23 percent to $767.4 million compared to $624.2 million in fiscal 1998. Sales increased in both Decorative & Building Products and Performance Chemicals, primarily from sales attributable to acquisitions. Total segment operating profit decreased 5 percent to $82.6 million for fiscal 1999 versus $86.5 million in fiscal 1998. Operating margins decreased to 10.8 percent in fiscal 1999 compared to 13.9 percent in fiscal 1998, due primarily to lower average unit selling prices across certain Performance Chemicals product lines, and significant levels of raw material inflation that occurred in the second half of fiscal 1999. Net sales for Decorative & Building Products increased for fiscal 1999 by 11 percent to $443.5 million compared to $398.6 million in fiscal 1998. The increase was mainly related to the European wallcovering acquisition, GenFlex(TM) roofing systems and the coated fabrics businesses. Segment operating profit stayed the same during fiscal 1999 at $51.4 million versus $51.5 million in fiscal 1998 excluding unusual items. Segment operating margins declined to 11.6 percent for fiscal 1999 versus 12.9 percent for fiscal 1998. The decline was primarily due to significant increases in key raw materials, unfavorable product mix including lower commercial wallcovering volumes and costs associated with compliance of newly enacted federal environmental standards. Net sales for Performance Chemicals increased in fiscal 1999 by 44 percent to $323.9 million compared to $225.6 million in fiscal 1998. The increase in sales was attributable to the acquisition activity. Excluding the effect of acquired businesses, volume was flat compared to 1998 while pricing was down. Segment operating profit decreased to $31.2 million for fiscal 1999 versus $35.0 million in fiscal 1998. Segment operating margins declined to 9.6 percent in fiscal 1999 versus 15.5 percent in fiscal 1998. The decline was primarily due to lower pricing, increased raw material prices and integration costs related to acquisition activity in the latter half of 1998. During fiscal 1999, Performance Chemicals completed the $7.6 million acquisition of Morton International's global latex floor care business, adding a complementary product line and new customer base, and expanding its presence in Europe and the Far East. Also during the first half of 1999, Performance Chemicals acquired the U.S. acrylic emulsion polymers business of PolymerLatex located in Fitchburg, Massachusetts for $8.8 million. This acquisition strengthened and diversified markets in acrylic emulsions and other specialty chemicals. Also during fiscal 1999, Performance Chemicals announced that it had completed a strategic alliance agreement with Germany-based PolymerLatex (a joint venture between Bayer AG and Degussa-Huls AG) to serve the needs of OMNOVA Solutions' global paper customers. Interest expense allocated from GenCorp increased to $16.2 million in fiscal 1999 compared to $7.9 million in fiscal 1998. The increase in interest expense related to the increase in GenCorp's debt from November 30, 1998 to September 30, 1999 due primarily to acquisitions made for the OMNOVA Solutions businesses in 1998. In 1999, the Company recognized unusual income of $1.1 million. Unusual items included charges related to Decorative & Building Products of $3.9 million and Performance Chemicals of $0.5 million, offset by unusual income of $5.5 million related primarily to the gain recognized on the sale of the corporate jet. Decorative & Building Products' unusual expense of $3.9 million included charges of $2.8 million related to a restructuring of one of its businesses which is expected to be completed during the first half of fiscal 2000 and $1.1 million primarily associated with the write-off of obsolete equipment and other assets. Performance 12 15 Chemicals' unusual expense relates to the anticipated settlement of an asserted claim with one of the Company's vendors. During the fourth quarter of 1999, the Company recognized $2.2 million of spin-off costs which primarily related to the new corporate identity program, retention bonuses for key executives and certain franchise and property taxes associated with the spin-off. In 1998, the Company's Decorative & Building Products segment recognized unusual expense of $3.4 million related to exiting the residential wallcovering business. This business was sold to Blue Mountain Wallcoverings, Inc. for approximately $9.0 million on December 14, 1998. Assets disposed of consisted of equipment and inventory with carrying amounts of $7.9 million and $1.9 million, respectively. Trademarks and sample books totaling $2.1 million were written off since they no longer had a use and severance costs of $0.5 million were accrued. The severance costs related to termination benefits which were paid to employees in 1999. RESULTS OF OPERATIONS FISCAL 1998 COMPARED TO 1997 Total sales for the Company increased $75.9 million, or 14 percent, to $624.2 million in 1998 from $548.3 million in 1997. Total segment operating profit, excluding unusual items, in 1998 increased $20.4 million, or 31 percent to $86.5 million in 1998 from $66.1 million in 1997. Net income was $42.6 million in 1998 compared to $34.3 million in 1997, a 24 percent increase. Decorative & Building Products' sales increased $30.9 million, or 8 percent, to $398.6 million in 1998 from $367.7 million in 1997. The increase was primarily attributable to sales related to the commercial wallcovering business acquired in 1998 and higher sales in the building systems, decorative laminates and coated fabrics businesses. Segment operating profit increased by $7.3 million, or 17 percent, to $51.5 million in 1998 from $44.2 million in 1997. Segment operating profit margins for this segment increased to 12.9 percent in 1998 from 12.0 percent in 1997. These increases were related to the European wallcovering acquisition and the strong performance of building systems, decorative laminates and heat transfer product lines. Sales for Performance Chemicals increased $45.0 million, or 25 percent, to $225.6 million in 1998 from $180.6 million in 1997. The increase was attributable to acquisitions and volume growth in the existing product lines, partially offset by a modest decline in pricing. Segment operating profit for Performance Chemicals increased by $13.1 million, or 60 percent, to $35.0 million in 1998 from $21.9 million in 1997. The increase was also attributable to the acquisitions and volume growth in the existing product lines. Operating profit margins for Performance Chemicals increased to 15.5 percent in 1998 from 12.1 percent in 1997, resulting primarily from lower raw material pricing in 1998. Interest expense allocated from GenCorp increased to $7.9 million in 1998 compared to $3.7 million in 1997. The increase in interest expense related to the increase in GenCorp's debt during fiscal 1998 due primarily to the fiscal 1998 acquisitions. As compared to 1998, other (income) expense was favorably impacted in fiscal 1997 by the reimbursement of expenses related to an environmental settlement. OMNOVA Solutions recognized unusual expense of $3.4 million in 1998 related to exiting the residential wallcovering business. FINANCIAL RESOURCES AND CAPITAL SPENDING Cash flow provided by operating activities for fiscal 1999 was $35.0 million compared to $52.9 million in 1998 and $55.1 million in 1997. Working capital requirements for OMNOVA Solutions have remained relatively constant from year-to-year. In fiscal 1999, $29.0 million was used for investing activities, including the acquisitions of the global latex floor care business of Morton International Inc. for $7.6 million and the U.S. acrylic emulsion polymers business of PolymerLatex for $8.8 million, consisting of cash of $3.3 million and a note for $5.5 million, the investment of $2.6 million in the newly formed joint venture company, CPPC Decorative Products Co., Ltd., and capital expenditures of $35.0 million, offset by proceeds of $19.5 million from the sale of the residential wallcovering 13 16 business and the corporate jet. In fiscal 1998, $312.4 million was used for investing activities including $294.4 million for acquisitions and capital expenditures of $18.0 million. The acquisitions included Sequa Corporation's specialty chemicals unit for $108.0 million, Walker Greenbank's commercial wallcovering business for $112.6 million and The Goodyear Tire & Rubber Company's Calhoun, Georgia latex facility for $73.8 million. This is compared to $57.4 million used for investing activities in fiscal 1997, which included the acquisition of Technographics, Inc.'s Printworld business for $46.5 million and capital expenditures of $10.9 million. Cash flow provided by financing activities in fiscal 1999 was $1.0 million compared to $263.0 million in 1998 and $2.3 million in 1997. The increase in net transactions with GenCorp during fiscal 1998 was primarily due to cash required by OMNOVA Solutions for its fiscal 1998 acquisitions. Capital expenditures were made and are planned principally for capacity expansion and asset replacement, new product capability, cost reduction, safety and productivity improvements and environmental protection. Capital expenditures totaled $35.0 million for fiscal 1999, $18.0 million in 1998 and $10.9 million in 1997. OMNOVA Solutions' total capital expenditures in 1999 increased significantly due to $10 million of equipment upgrades and additions in Decorative & Building Products; $8 million for Performance Chemicals' capacity expansion and renovation of its pilot plant; and $12 million for improvements to recently acquired businesses. The Company plans to fund substantially all of its capital expenditures from cash flow from operations. If necessary, a portion of capital expenditures will be funded through borrowings under its new credit facility. On September 30, 1999, OMNOVA Solutions entered into a five-year unsecured $300 million revolving credit facility (Facility). OMNOVA Solutions pays a variable commitment fee, which is currently .30 of one percent, on the unused balance. Interest rates will be variable, primarily based on LIBOR, and were at an average rate of 6.9 percent at November 30, 1999. The Facility contains various debt, dividend and investment restrictions and provisions requiring maintenance of an earnings before interest, taxes, depreciation and amortization to interest coverage (EBITDA/Interest Expense) ratio of 3.50 to 1.00 and debt to earnings before interest, taxes, depreciation and amortization (Debt/EBITDA) ratio of 3.25 to 1.00. The Facility was utilized to fund a $200 million dividend paid to GenCorp at the time of the spin-off and will also be available for future working capital, capital expenditures and acquisition needs. Based upon current and anticipated levels of operations and plans for integrating recent acquisitions, the Company believes that its cash flow from operations, combined with borrowings that will be available under the Facility, will be sufficient to enable the Company to meet its current and anticipated cash operating requirements, including scheduled interest and principal payments, capital expenditures and working capital needs for the next 12 months. Substantially all of the debt of the Company bears interest at variable rates; therefore, its liquidity and financial condition is and will continue to be affected by changes in prevailing interest rates. STOCK REPURCHASE PLAN On November 29, 1999, OMNOVA Solutions announced that its Board of Directors authorized the purchase from time to time of up to $25 million of OMNOVA Solutions' common stock. The stock repurchases may be made over a period of up to 18 months, principally through open market transactions or in privately-negotiated transactions in accordance with applicable regulations of the Securities and Exchange Commission. Depending on market conditions and other factors, such purchases may be commenced or suspended at any time without prior notice. ENVIRONMENTAL MATTERS OMNOVA Solutions' policy is to conduct its businesses with due regard for the preservation and protection of the environment. OMNOVA Solutions devotes resources and management attention to environmental matters and actively manages its ongoing processes to comply with extensive environmental laws and regulations. OMNOVA Solutions' Consolidated Balance Sheet as of November 30, 1999 reflects environmental reserves of $1.2 million. 14 17 Capital expenditures for projects related to the environment were $2.1 million in 1999, $1.0 million in 1998 and $0.5 million in 1997. OMNOVA Solutions currently forecasts that capital expenditures for environmental projects will approximate $4.1 million in fiscal 2000. During 1999, noncapital expenditures for environmental compliance and protection totaled $5.2 million all of which were for recurring costs associated with managing hazardous substances and pollution abatement in ongoing operations. Similar noncapital expenditures were $3.9 million and $2.8 million in each of 1998 and 1997, respectively. It is presently expected that noncapital environmental expenditures for the next several years will be consistent with historical expenditure levels. Management believes, on the basis of presently available information, that resolution of environmental matters will not materially affect future results of operations, liquidity, capital resources or the consolidated financial condition of OMNOVA Solutions. INFORMATION SYSTEMS AND THE YEAR 2000 The Company completed a comprehensive project to upgrade its information, technology and manufacturing and facilities computer hardware and software programs to address the Year 2000 issue. The project consisted of an iterative process of remediating, testing and implementing new software as required. The Company spent approximately $4.5 million on the project and funded it through operating cash flows. The Company was also in contact with each of its major customers and vendors to make sure that they were also Year 2000 compliant. Based upon currently available information and considering the Company's diversified business base, decentralized systems and Year 2000 efforts, management believes that the most reasonably likely worst case scenario from a Year 2000 failure would result in a minor short-term business interruption. The Company has not yet experienced any material Year 2000 problems. ADOPTION OF THE EURO Management believes that the adoption of the Euro by the European Economic Community will not have a material impact on the Company's international businesses. The Company's foreign operations currently are small and each operation conducts the majority of its business in a single currency with minimal price variations between countries. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in fiscal year 2001. Because of OMNOVA Solutions' minimal use of derivatives, management does not anticipate that the adoption of this Statement will have a significant effect on earnings or the financial position of OMNOVA Solutions. In April 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-5, "Reporting the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 is effective for OMNOVA Solutions beginning on December 1, 1999, and requires that start-up costs capitalized prior to December 1, 1999 be written off and any future start-up costs to be expensed as incurred. OMNOVA Solutions has no capitalized start-up costs; therefore, the adoption of SOP 98-5 will not have an effect on the consolidated financial statements. FORWARD-LOOKING STATEMENTS This Form 10-K contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements present (without limitation) the expectations, beliefs, plans and objectives of management and future financial performance and/or assumptions underlying or judgments concerning matters discussed in this document. These discussions and any other discussions contained in this Form 10-K, except to the extent that they contain historical facts, are forward-looking and accordingly involve estimates, assumptions, judgments and uncertainties; in particular, this pertains to management's comments on financial resources and capital spending. The outcomes of forward-looking statements and material contingencies could differ materially from those discussed due to inherent economic risks and changes in prevailing governmental policies and regulatory actions. In addition to certain contingency matters and their respective cautionary statements discussed 15 18 elsewhere in this Form 10-K, the Forward-Looking Statements section of this Management's Discussion and Analysis indicates some important factors that could cause actual results or outcomes to differ materially from those addressed in the forward-looking statements. Some important factors that could cause OMNOVA Solutions' actual results or outcomes to differ from those expressed in its forward-looking statements include, but are not limited to, the following: - General economic trends affecting OMNOVA Solutions' markets - Governmental and regulatory policies including environmental regulations - OMNOVA Solutions' acquisition activities - Raw material prices for chemical feed stocks including polyvinyl chloride, styrene and butadiene - Fluctuations in exchange rates of foreign currencies and other risks associated with foreign operations Additional risk factors may be described from time to time in OMNOVA Solutions' filings with the Securities and Exchange Commission. All these risk factors are difficult to predict, contain material uncertainties that may affect actual results and may be beyond OMNOVA Solutions' control. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK OMNOVA Solutions is exposed to market risk from changes in interest rates on long-term debt obligations. OMNOVA Solutions' policy is to manage its interest rate exposures through the use of a combination of fixed and variable rate debt. Currently, OMNOVA Solutions does not use derivative financial instruments to manage its interest rate risk. Substantially all of OMNOVA Solutions' long-term debt of $190.0 million that was in place after the spin-off will mature in the year 2004 and will be variable. The average variable interest rate applicable to this debt was 6.9 percent as of November 30, 1999. OMNOVA Solutions' long-term debt under this debt agreement bears interest at market rates and therefore, any carrying value would approximate fair value. Although OMNOVA Solutions conducts business in foreign countries, international operations were not material to OMNOVA Solutions' consolidated financial position, results of operations or cash flows as of November 30, 1999. Additionally, foreign currency transaction gains and losses were not material to OMNOVA Solutions' results of operations for the year ended November 30, 1999. While international operations have not been significant in the past, OMNOVA Solutions could be subject to material foreign currency exchange rate risk with respect to future operations and cash flows due to OMNOVA Solutions' acquisition of the European wallcovering business in late 1998. To date, OMNOVA Solutions has not entered into any significant foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. OMNOVA Solutions is evaluating the future use of these financial instruments. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the financial statements listed under the heading "(a)(1) Consolidated Financial Statements" of Item 14 hereof, which financial statements are incorporated herein by reference in response to this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in accountants or disagreements with the Company's independent auditors regarding accounting and financial disclosure matters during the two most recent fiscal years of the Company and GenCorp Inc., its former parent, or during any period subsequent to the date of the Company's most recent consolidated financial statements. 16 19 REPORT OF MANAGEMENT TO THE SHAREHOLDERS OF OMNOVA SOLUTIONS INC.: Management of OMNOVA Solutions Inc. is responsible for preparing the accompanying consolidated financial statements and for assuring their integrity and objectivity. These financial statements were prepared in accordance with generally accepted accounting principles and fairly represent the transactions and financial condition of the Company in all material respects. The financial statements include amounts that are based on management's best estimates and judgments. The Company's financial statements have been audited by Ernst & Young LLP, independent auditors selected by the Board of Directors and approved by the shareholders. Management has made available to Ernst & Young LLP all of the Company's financial records and related data, as well as the minutes of shareholders' and directors' meetings. Management of the Company has established and maintains a system of internal accounting controls that is designed to provide reasonable assurance that assets are safeguarded, transactions are properly recorded and executed in accordance with management's authorization and the books and records accurately reflect the disposition of assets. The system of internal controls includes appropriate division of responsibility. The Company maintains an internal audit department that conducts an extensive program of internal audits and independently assesses the effectiveness of the internal controls. The Audit Committee is composed of directors who are not officers or employees of the Company. It meets regularly with members of management, the internal auditors and the independent auditors to discuss the adequacy of the Company's internal controls, financial statements and the nature, extent and results of the audit effort. Both the internal auditors and the independent auditors have free and direct access to the Audit Committee without the presence of management. /s/ John B. Yasinsky JOHN B. YASINSKY Chairman and Chief Executive Officer /s/ Michael E. Hicks MICHAEL E. HICKS Senior Vice President and Chief Financial Officer; Treasurer 17 20 REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF OMNOVA SOLUTIONS INC.: We have audited the accompanying consolidated balance sheets of OMNOVA Solutions Inc. as of November 30, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended November 30, 1999. These financial statements are the responsibility of OMNOVA Solutions Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OMNOVA Solutions Inc. at November 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Akron, Ohio January 13, 2000 18 21 OMNOVA SOLUTIONS INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED NOVEMBER 30, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN MILLIONS, EXCEPT PER-SHARE DATA) NET SALES................................................... $767.4 $624.2 $548.3 COSTS AND EXPENSES Cost of products sold....................................... 503.8 406.8 368.8 Selling, general and administrative......................... 156.0 116.3 105.4 Depreciation and amortization............................... 30.7 21.5 16.0 Interest expense allocated from GenCorp..................... 16.2 7.9 3.7 Interest expense after spin-off............................. 2.4 -- -- Other (income) expense, net................................. (1.3) (2.1) (2.6) Unusual items............................................... (1.1) 3.4 -- Spin-off related costs...................................... 2.2 -- -- ------ ------ ------ 708.9 553.8 491.3 ------ ------ ------ INCOME BEFORE INCOME TAXES.................................. 58.5 70.4 57.0 Income taxes................................................ 24.1 27.8 22.7 ------ ------ ------ NET INCOME............................................. $ 34.4 $ 42.6 $ 34.3 ====== ====== ====== EARNINGS PER SHARE OF COMMON STOCK Basic....................................................... $ .82 $ 1.03 $ .93 Diluted..................................................... $ .82 $ 1.01 $ .91
See notes to consolidated financial statements. 19 22 OMNOVA SOLUTIONS INC. CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, ---------------------- 1999 1998 --------- --------- (DOLLARS IN MILLIONS) ASSETS: CURRENT ASSETS Cash and cash equivalents................................... $ 10.5 $ 3.5 Accounts receivable, net.................................... 122.0 102.0 Inventories................................................. 68.4 56.6 Deferred income taxes....................................... 11.6 9.1 Prepaid expenses and other.................................. 9.3 2.3 ------ ------ TOTAL CURRENT ASSETS................................... 221.8 173.5 Property, plant and equipment, net.......................... 212.0 192.7 Goodwill, net............................................... 158.4 155.0 Patents and other intangible assets, net.................... 78.4 75.7 Prepaid pension............................................. 41.4 -- Other assets................................................ 10.5 5.8 ------ ------ TOTAL ASSETS........................................... $722.5 $602.7 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY: CURRENT LIABILITIES Notes payable............................................... $ 10.5 $ -- Accounts payable............................................ 82.9 72.5 Accrued payroll and personal property taxes................. 16.7 12.9 Other current liabilities................................... 20.3 3.9 ------ ------ TOTAL CURRENT LIABILITIES.............................. 130.4 89.3 Long-term debt.............................................. 190.0 -- Postretirement benefits other than pensions................. 51.7 -- Deferred income taxes....................................... 16.3 16.5 Other liabilities........................................... 19.4 8.8 SHAREHOLDERS' EQUITY Divisional equity........................................... -- 488.1 Preference stock -- $1.00 par value; 15.0 million shares authorized; none outstanding.............................. -- -- Common stock -- $.10 par value; 135.0 million shares authorized; 41.8 million shares outstanding............... 4.2 -- Additional contributed capital.............................. 308.5 -- Retained earnings........................................... 1.8 -- Accumulated other comprehensive income...................... .2 -- ------ ------ TOTAL SHAREHOLDERS' EQUITY............................. 314.7 488.1 ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $722.5 $602.7 ====== ======
See notes to consolidated financial statements. 20 23 OMNOVA SOLUTIONS INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN MILLIONS) DIVISIONAL EQUITY Balance at beginning of period.............................. $488.1 $181.9 $145.3 Activity to date of spin-off: Net income................................................ 30.5 42.6 34.3 Foreign currency translation adjustment................... (1.7) .8 -- Net transactions with GenCorp............................. (5.9) 262.8 2.3 Net assets transferred at spin-off........................ (511.0) -- -- ------ ------ ------ Balance at end of period.................................... $ -- $488.1 $181.9 ====== ====== ====== COMMON STOCK Balance at beginning of period.............................. $ -- $ -- $ -- Issuance of 41.8 million shares at spin-off................. 4.2 -- -- ------ ------ ------ Balance at end of period.................................... $ 4.2 $ -- $ -- ====== ====== ====== ADDITIONAL CONTRIBUTED CAPITAL Balance at beginning of period.............................. $ -- $ -- $ -- Contributed capital transferred at spin-off................. 508.5 -- -- Dividend paid to GenCorp.................................... (200.0) -- -- ------ ------ ------ Balance at end of period.................................... $308.5 $ -- $ -- ====== ====== ====== RETAINED EARNINGS Balance at beginning of period.............................. $ -- $ -- $ -- Net income from date of spin-off through November 30, 1999...................................................... 3.9 -- -- Cash dividends -- $.05 per share............................ (2.1) -- -- ------ ------ ------ Balance at end of period.................................... $ 1.8 $ -- $ -- ====== ====== ====== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance at beginning of period.............................. $ -- $ -- $ -- Accumulated currency adjustments............................ .4 -- -- Minimum pension liability adjustments....................... (.2) -- -- ------ ------ ------ Balance at end of period.................................... $ .2 $ -- $ -- ====== ====== ====== TOTAL SHAREHOLDERS' EQUITY............................. $314.7 $488.1 $181.9 ====== ====== ====== COMPREHENSIVE INCOME Net income.................................................. $ 34.4 $ 42.6 $ 34.3 Other comprehensive income (loss): Foreign currency translation adjustment................... (.4) .8 -- Minimum pension liability................................. (.2) -- -- ------ ------ ------ TOTAL COMPREHENSIVE INCOME............................. $ 33.8 $ 43.4 $ 34.3 ====== ====== ======
See notes to consolidated financial statements. 21 24 OMNOVA SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, ------------------------- 1999 1998 1997 ------ ------ ----- (DOLLARS IN MILLIONS) OPERATING ACTIVITIES Net income.................................................. $ 34.4 $ 42.6 $34.3 Adjustments to reconcile net income to net cash provided by operating activities: Unusual items.......................................... 4.1 3.4 -- Gain on sale of fixed assets........................... (5.2) -- -- Depreciation........................................... 23.2 18.0 15.0 Amortization........................................... 7.5 3.5 1.0 Deferred income taxes.................................. (2.7) 1.0 (.5) Changes in operating assets and liabilities net of effects of acquisitions and dispositions of businesses: Accounts receivable.................................. (20.0) (7.3) (1.9) Inventories.......................................... (10.2) 1.6 3.3 Other current assets................................. (7.0) (.2) -- Current liabilities.................................. 17.0 (6.8) 5.3 Other non-current assets............................. (14.3) (3.1) (1.9) Other long-term liabilities.......................... 8.2 .2 .5 ------ ------ ----- NET CASH PROVIDED BY OPERATING ACTIVITIES......... 35.0 52.9 55.1 INVESTING ACTIVITIES Capital expenditures........................................ (35.0) (18.0) (10.9) Proceeds from business and asset dispositions............... 19.5 -- -- Business acquisitions....................................... (10.9) (294.4) (46.5) Investment in joint venture................................. (2.6) -- -- ------ ------ ----- NET CASH USED IN INVESTING ACTIVITIES............. (29.0) (312.4) (57.4) FINANCING ACTIVITIES Net transactions with GenCorp prior to spin-off............. 7.9 262.8 2.3 Dividend paid to GenCorp.................................... (200.0) -- -- Long-term debt proceeds..................................... 210.0 -- -- Repayment of debt obligations............................... (20.0) -- -- Short-term debt proceeds.................................... 5.0 -- -- Dividends paid to shareholders.............................. (2.1) -- -- Other financing activities.................................. .2 .2 -- ------ ------ ----- NET CASH PROVIDED BY FINANCING ACTIVITIES......... 1.0 263.0 2.3 ------ ------ ----- NET INCREASE IN CASH AND CASH EQUIVALENTS................... 7.0 3.5 -- Cash and cash equivalents at beginning of period............ 3.5 -- -- ------ ------ ----- CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 10.5 $ 3.5 $ -- ====== ====== =====
See notes to consolidated financial statements. 22 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- BASIS OF PRESENTATION BASIS OF PRESENTATION -- OMNOVA Solutions Inc. (OMNOVA Solutions or the Company) develops, manufactures and markets emulsion polymers, specialty chemicals and decorative and building products for a variety of industrial, commercial and consumer markets. Prior to September 30, 1999, the OMNOVA Solutions businesses were operated as divisions of GenCorp Inc. (GenCorp). On September 30, 1999, GenCorp transferred to OMNOVA Solutions certain corporate assets and the assets related to these businesses and OMNOVA Solutions assumed liabilities related to the assets and businesses transferred and issued shares of common stock to GenCorp. On October 1, 1999, GenCorp distributed as a dividend to its shareholders one share of OMNOVA Solutions common stock for each share of GenCorp common stock held of record as of September 27, 1999 (the spin-off). As a result of the spin-off, OMNOVA Solutions became an independent, publicly held company and its operations ceased to be owned by GenCorp. GenCorp and OMNOVA Solutions have entered into a number of agreements with respect to the separation of the companies and to provide mechanisms for an orderly transition following the spin-off. PRE SPIN-OFF FINANCIAL INFORMATION -- Financial data included in the accompanying consolidated financial statements, for periods prior to the spin-off, were prepared on a combined basis; however, for financial statement reporting purposes, the financial statements for all periods presented are labeled as consolidated. They reflect an estimate of what the historical assets, liabilities and operations would have been if OMNOVA Solutions had been organized as a separate legal entity, owning certain net assets of GenCorp. The spin-off was accomplished through a Distribution Agreement which defined the assets that were contributed to OMNOVA Solutions and the liabilities that were assumed by OMNOVA Solutions along with a $200 million dividend payment to GenCorp which was financed through a new debt facility. GenCorp and OMNOVA Solutions also entered into an Agreement on Employee Matters that sets forth the manner in which assets and liabilities under employee benefit plans and other employment-related liabilities were divided between them. Certain assets and liabilities related to the plans have not been included in the accompanying Consolidated Balance Sheet at November 30, 1998. Items excluded were comprised principally of assets and liabilities for defined benefit pension plans as well as additional obligations for health care and other postretirement benefits that OMNOVA Solutions assumed for substantially all of its active and retired U.S. employees. The final determination of the assets contributed to OMNOVA Solutions and the liabilities assumed by OMNOVA Solutions was made pursuant to the agreements entered into between GenCorp and OMNOVA Solutions in connection with the spin-off. As of the date of the spin-off, a net asset transfer of $511.0 million to OMNOVA Solutions was affected directly through the "Divisional Equity" account in the Consolidated Balance Sheet. Prior to the spin-off, GenCorp provided certain general and administrative services to OMNOVA Solutions including administration, finance, legal, treasury, information systems and human resources. The cost for these services was allocated to OMNOVA Solutions by GenCorp based upon a formula that included sales, gross payroll and average invested capital. Management of the Company believes that the allocation of costs for these services was reasonable. These allocations were $9.5 million, $12.1 million, and $13.1 million in 1999, 1998 and 1997, respectively. Since the spin-off, OMNOVA Solutions has been required to perform these general and administrative services using its own resources or purchased services and has been responsible for the costs and expenses associated with the management of a public company. For the two month period ended November 30, 1999, these costs were $3.7 million. OMNOVA Solutions' management estimates that the costs of such general and administrative expenses on a stand-alone basis would have been approximately $22.5 million and $22.0 million in 1999 and 1998, respectively. As described in Note L, prior to the spin-off, OMNOVA Solutions' employees and retirees participated in various GenCorp pension, health care, savings and other benefit plans. The net expenses related to these plans were included in the OMNOVA Solutions consolidated financial statements generally based on historical pension 23 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED asset allocations and actuarial analyses for pension and retiree health care obligations and based on actual costs for active health care, savings and other benefit plans. GenCorp used a centralized approach to cash management and financing for its domestic operations. As a result, cash and cash equivalents and debt were not allocated to OMNOVA Solutions' domestic operations in the historical financial statements. The cash and cash equivalents included in the Consolidated Balance Sheets related to OMNOVA Solutions' foreign operations. Prior to the spin-off, OMNOVA Solutions generally had no borrowings except amounts due to GenCorp. Interest expense for periods prior to the spin-off was allocated to OMNOVA Solutions in the consolidated financial statements to reflect OMNOVA Solutions' pro rata share of the financing structure of GenCorp. The allocation in the consolidated financial statements was based upon the percentage relationship between the average net assets employed in OMNOVA Solutions' operations and GenCorp's overall average net assets. The allocation methodology followed in preparing the consolidated financial statements for periods prior to the spin-off may not necessarily reflect the results of operations, cash flows, or financial position of OMNOVA Solutions in the future, or what the results would have been had OMNOVA Solutions been a separate, stand-alone public entity for all periods presented. POST SPIN-OFF FINANCIAL INFORMATION -- Financial data included in the accompanying consolidated financial statements, for periods subsequent to the spin-off, have been prepared on a basis that reflects the historical value of the assets, liabilities, and operations of the businesses that were contributed to OMNOVA Solutions by GenCorp in accordance with the distribution and employee benefits and compensation allocation agreements described in the preceding paragraphs. Included in the OMNOVA Solutions' accounts receivable balance at November 30, 1999 is a net amount of $10.7 million due from GenCorp. NOTE B -- SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION -- Subsequent to the spin-off, the consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. Investments in 20 to 50 percent owned affiliates are accounted for using the equity method. Prior to the spin-off, the consolidated financial statements included the accounts of the businesses that comprise the Company when it was a division of GenCorp as described in Note A. REVENUE RECOGNITION -- Revenue from product sales is recognized when shipment to the customer has been made, which is when title passes. The Company estimates and records provisions for quantity rebates, sales returns, allowances and original warranties in the period the sale is recorded, based upon its experience. USE OF ESTIMATES -- The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. ENVIRONMENTAL COSTS -- The Company expenses, on a current basis, recurring costs associated with managing hazardous substances and pollution in ongoing operations. The Company accrues for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and its proportionate share of the amount can be reasonably estimated. The Company recognizes amounts recoverable from insurance carriers when the collection of such amounts is probable. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's cash equivalents bear interest at market rates and therefore their carrying values approximate their fair values. INVENTORIES -- Inventories are stated at the lower of cost or market, primarily using the last-in, first-out method. 24 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED LONG-LIVED ASSETS -- Property, plant and equipment are recorded at cost. Refurbishment costs are capitalized in the property accounts whereas ordinary maintenance and repair costs are expensed as incurred. Depreciation is computed principally using the straight-line method. Depreciable lives on buildings and improvements and machinery and equipment range from 10 to 40 years and 3 to 20 years, respectively. Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired and is amortized on a straight-line basis over periods ranging from 30 to 40 years. Identifiable intangible assets, such as patents, trademarks and licenses, are recorded at cost or when acquired as part of a business combination at their estimated fair value. Identifiable intangible assets are amortized over their estimated useful lives using the straight-line method over periods ranging from 3 to 15 years. Accumulated amortization of goodwill and identifiable intangible assets at November 30, 1999 and 1998 was $12.2 million and $4.7 million, respectively. Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset or related group of assets may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that time. Measurement of impairment may be based upon appraisal, market value of similar assets, or discounted cash flows. FOREIGN CURRENCY TRANSLATION -- The financial position and results of operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of operations denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at year-end, while revenues and expenses are translated at the weighted average exchange rates prevailing during the year. The resulting translation gains and losses on assets and liabilities are charged or credited directly to shareholders' equity, and are not included in net income until realized through sale or liquidation of the investment. INCOME TAXES -- Deferred income taxes are provided for temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes. NOTE C -- UNUSUAL ITEMS AND SPIN-OFF RELATED COSTS In 1999, the Company recognized unusual income of $1.1 million. Unusual items included charges related to Decorative & Building Products of $3.9 million and Performance Chemicals of $0.5 million, offset by unusual income of $5.5 million related primarily to the gain recognized on the sale of the corporate jet. Decorative & Building Products' unusual expense of $3.9 million included charges of $2.8 million related to a restructuring of one of its businesses which is expected to be completed during the first half of fiscal 2000 and $1.1 million primarily associated with the write-off of obsolete equipment and other assets. Performance Chemicals' unusual expense relates to the anticipated settlement of an asserted claim with one of the Company's vendors. During the fourth quarter of 1999, the Company recognized $2.2 million of spin-off costs which primarily related to the new corporate identity program, retention bonuses for key executives and certain franchise and property taxes associated with the spin-off. In 1998, the Company's Decorative & Building Products segment recognized unusual expense of $3.4 million related to exiting the residential wallcovering business. This business was sold to Blue Mountain Wallcoverings, Inc. for approximately $9.0 million on December 14, 1998. Assets disposed of consisted of equipment and inventory with carrying amounts of $7.9 million and $1.9 million, respectively. Trademarks and sample books totaling $2.1 million were written off since they no longer had a use and severance costs of $0.5 million were accrued. The severance costs related to termination benefits which were paid to employees in 1999. 25 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE D -- NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in fiscal year 2001. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of this Statement will have a significant effect on earnings or the financial position of the Company. In April 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-5, "Reporting the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 is effective beginning on December 1, 1999, and requires that start-up costs capitalized prior to December 1, 1999 be written off and any future start-up costs to be expensed as incurred. The Company has no capitalized start-up costs; therefore the adoption of SOP 98-5 will not have an effect on the consolidated financial statements. NOTE E -- ACQUISITIONS AND JOINT VENTURE ACQUISITIONS On April 27, 1999, the Company acquired the global latex floor care business of Morton International Inc. for $7.6 million. The preliminary purchase price allocation resulted in goodwill and other intangible assets of $6.9 million, which are being amortized over periods ranging from 5 to 40 years. On December 2, 1998, the Company acquired the U.S. acrylic emulsion polymers business of PolymerLatex, located in Fitchburg, Massachusetts, for $8.8 million, consisting of cash of $3.3 million and a note payable of $5.5 million due December 1, 1999. The purchase price allocation resulted in goodwill and other intangible assets of $2.3 million, which are being amortized over periods ranging from 5 to 40 years. On October 29, 1998, the Company acquired certain net assets of Sequa Chemicals, the specialty chemicals unit of Sequa Corporation, for $108.0 million in cash. This acquisition provided technology, customers and increased capacity for an array of emulsion polymers and polymer hybrids including acrylics and vinyl acetate. The acquisition resulted in goodwill and other intangible assets of approximately $61.2 million which are being amortized over periods ranging from 5 to 40 years. On August 14, 1998, the Company acquired the commercial wallcovering business of Walker Greenbank PLC, which is based in the United Kingdom, for $112.6 million in cash. The acquisition resulted in goodwill and other intangible assets of approximately $80.6 million which are being amortized over periods ranging from 5 to 40 years. On March 1, 1998, the Company acquired The Goodyear Tire & Rubber Company's Calhoun, Georgia latex facility for an aggregate consideration of $78.0 million, of which $73.8 million was paid in cash and $4.2 million was paid through the retention of receivables. The acquisition resulted in goodwill and other intangible assets of $59.4 million which are being amortized over periods ranging from 3 to 40 years. On May 7, 1997, the Company acquired certain net assets of Printworld from Technographics, Inc. for $46.5 million in cash. The acquisition resulted in goodwill and other intangible assets of $31.7 million which are being amortized over periods ranging from 3 to 30 years. All of the above acquisitions were accounted for using the purchase method and were included in the results of operations of the Company from the respective dates of acquisition. The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company as if the fiscal 1998 acquisitions had occurred at the beginning of fiscal 1997, with pro forma adjustments to reflect the amortization of goodwill and other intangible assets and interest expense on incurred debt together with the related income tax effects. The pro forma financial information is not necessarily indicative of the consolidated results of operations if the acquisitions had actually occurred at the beginning of fiscal 1997. 26 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1998 1997 --------- --------- (DOLLARS IN MILLIONS) NET SALES................................................... $766.2 $748.0 ====== ====== NET INCOME.................................................. $ 49.6 $ 35.0 ====== ======
JOINT VENTURE The Company formed a joint venture company with a subsidiary of Thailand-based Charoen Pokphand Group in 1999. The new company, CPPC Decorative Products Co., Ltd., will serve the decorative PVC film and fabric markets in the Asia-Pacific region and provide expanded product lines to North America and Europe. The Company's initial investment in this joint venture was $2.6 million and is being accounted for using the equity method. NOTE F -- EARNINGS PER SHARE For periods ended prior to the spin-off, the number of weighted average shares outstanding and common share equivalents used in the earnings per share calculation equal GenCorp's corresponding outstanding shares for the applicable periods. A reconciliation of the numerator and denominator used in the basic and diluted earnings per share computations is as follows:
YEARS ENDED NOVEMBER 30, ----------------------------- 1999 1998 1997 ------- ------- ------- (DOLLARS IN MILLIONS) NUMERATOR Numerator for basic earnings per share - income available to common shareholders....................................... $ 34.4 $ 42.6 $ 34.3 Effect of dilutive securities: 8% convertible subordinated debentures.................... -- -- 3.2 ------- ------- ------- Numerator for diluted earnings per share - income available to common shareholders after assumed conversions.......... $ 34.4 $ 42.6 $ 37.5 ======= ======= =======
(SHARES IN THOUSANDS) DENOMINATOR Denominator for basic earnings per share - weighted average shares outstanding........................................ 41,733 41,468 37,023 Effect of dilutive securities: 8% convertible subordinated debentures.................... -- -- 3,855 Employee stock options.................................... 445 549 468 Other..................................................... -- 16 16 ------- ------- ------- Dilutive potential common shares............................ 445 565 4,339 ------- ------- ------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions........... 42,178 42,033 41,362 ======= ======= ======= EARNINGS PER SHARE OF COMMON STOCK Basic Earnings Per Share.................................... $ .82 $ 1.03 $ .93 ======= ======= ======= Diluted Earnings Per Share.................................. $ .82 $ 1.01 $ .91 ======= ======= =======
27 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE G -- RESEARCH AND DEVELOPMENT EXPENSE Research and development (R&D) expenses were $10.3 million in 1999, $8.6 million in 1998 and $7.6 million in 1997. R&D expenses include the costs of technical activities that are useful in developing new products, services, processes or techniques, as well as those expenses for technical activities that may significantly improve existing products or processes. NOTE H -- INCOME TAXES
YEARS ENDED NOVEMBER 30, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN MILLIONS) INCOME TAX PROVISION (BENEFIT) CURRENT U.S. federal................................................ $21.1 $21.6 $18.8 State and local............................................. 4.1 5.2 4.4 Foreign..................................................... 1.6 -- -- ----- ----- ----- 26.8 26.8 23.2 DEFERRED U.S. federal................................................ (2.1) 1.0 (.5) State and local............................................. (.6) -- -- ----- ----- ----- (2.7) 1.0 (.5) ----- ----- ----- INCOME TAX PROVISION................................... $24.1 $27.8 $22.7 ===== ===== ===== EFFECTIVE INCOME TAX RATE Statutory federal income tax rate........................... 35.0% 35.0% 35.0% State and local income taxes, net of federal income tax benefit................................................... 4.9 5.0 5.0 Other, net.................................................. 1.3 -- -- ----- ----- ----- EFFECTIVE INCOME TAX RATE.............................. 41.2% 40.0% 40.0% ===== ===== =====
NOVEMBER 30, ------------------------------------------------ 1999 1998 --------------------- --------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- (DOLLARS IN MILLIONS) DEFERRED TAXES Accrued estimated costs.............................. $11.6 $ -- $12.4 $ -- Depreciation......................................... -- 21.7 -- 19.8 Pension.............................................. -- 18.1 -- -- Other................................................ 1.1 -- -- -- Postretirement employee benefits..................... 22.4 -- -- -- ----- ----- ----- ----- DEFERRED TAXES $35.1 $39.8 $12.4 $19.8 ===== ===== ===== =====
Prior to the spin-off, the Company was included in the consolidated income tax returns filed by GenCorp and its subsidiaries in various U.S. and foreign jurisdictions. The tax provisions reflected in the consolidated financial statements for the periods prior to the spin-off were computed as if OMNOVA Solutions was a separate 28 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED company. Under the provisions of the Tax Matters Agreement, GenCorp is generally responsible for all federal, state and local income taxes for all periods prior to October 1, 1999. Taxes currently payable and income tax payments were recorded directly by GenCorp and, as a result, amounts related to the Company are included in "Net transactions with GenCorp prior to spin-off" in the Consolidated Statements of Cash Flows. Taxes paid during the two month period following the spin-off were not significant. NOTE I -- ACCOUNTS RECEIVABLE The Company's accounts receivable are generally unsecured and are not backed by collateral from its customers. No one customer represented more than 10 percent of the Company's net trade receivables. The allowance for doubtful accounts was $3.5 million and $3.6 million at November 30, 1999 and 1998, respectively. Write-offs of uncollectible accounts receivable totaled $0.3 million in fiscal 1999, $0.1 million during fiscal 1998 and $0.8 million during fiscal 1997. The provision for bad debts totaled $0.2 million in fiscal 1999, $0.7 million in 1998 and $0.9 million in 1997. NOTE J -- INVENTORIES
NOVEMBER 30, -------------- 1999 1998 ----- ----- (DOLLARS IN MILLIONS) Raw materials and supplies.................................. $31.1 $24.6 Work-in-process............................................. 5.9 5.0 Finished products........................................... 65.6 60.1 ----- ----- Approximate replacement cost of inventories................. 102.6 89.7 Reserves, primarily LIFO.................................... (34.2) (33.1) ----- ----- INVENTORIES $68.4 $56.6 ===== =====
Inventories using the LIFO method represented 80 percent and 82 percent of total FIFO inventories at November 30, 1999 and 1998, respectively. The LIFO reserve was $25.7 million and $19.8 million at November 30, 1999 and 1998, respectively. NOTE K -- PROPERTY, PLANT AND EQUIPMENT, NET
NOVEMBER 30, ---------------------- 1999 1998 --------- --------- (DOLLARS IN MILLIONS) Land........................................................ $ 9.7 $ 7.0 Building and improvements................................... 89.5 70.9 Machinery and equipment..................................... 296.7 280.9 Construction in progress.................................... 16.3 15.0 ------- ------- 412.2 373.8 Accumulated depreciation.................................... (200.2) (181.1) ------- ------- PROPERTY, PLANT AND EQUIPMENT, NET $ 212.0 $ 192.7 ======= =======
29 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE L -- EMPLOYEE BENEFIT PLANS POSTRETIREMENT BENEFITS -- PENSIONS Prior to the spin-off, the Company's employees participated in GenCorp's noncontributory pension plans. In conjunction with the spin-off, OMNOVA Solutions assumed pension liabilities and received related assets from those plans for its active employees and for certain former employees who left GenCorp in earlier years. OMNOVA Solutions' plans are substantially identical to GenCorp's plans. Pension benefits are based on the employee's years of service and/or compensation level. The pension plans are funded in accordance with OMNOVA Solutions' long-range projections of the plans' financial conditions. These projections take into account benefits earned and expected to be earned, anticipated returns on pension plan assets, and income tax and other regulations. The Company's net pension costs were $6.1 million in 1999 and consisted of $(0.5) million of net pension costs incurred subsequent to the spin-off and $6.6 million of cost allocations from GenCorp. OMNOVA Solutions' net pension cost allocations from GenCorp were $6.1 million and $5.3 million in 1998 and 1997, respectively. Separate calculations of the components of OMNOVA Solutions' net pension costs and the funded status of the plans prior to the spin-off are not available. Subsequent to the spin-off, the Company's net pension costs were $(0.5) million and its components were as follows:
(DOLLARS IN MILLIONS) Service costs for benefits earned........................... $ .8 Interest costs on benefit obligation........................ 1.6 Assumed return on plan assets(1)............................ (2.8) Amortization of unrecognized net gain....................... (.1) ----- TOTAL.................................................. $ (.5) =====
(1) Actual return on plan assets was $11 million for the two months ended November 30, 1999. PLAN ASSETS AT FAIR VALUE................................... $ 219.9 Projected benefit obligation(1)............................. (140.6) -------- Excess of plan assets over projected benefit obligation..... 79.3 Less: Unrecognized transition amounts........................... 3.9 Unrecognized prior service costs.......................... (7.4) Additional liability...................................... 1.1 Unrecognized net gain..................................... 40.3 -------- NET PENSION ASSET AT NOVEMBER 30, 1999(2).............. $ 41.4 ========
(1) Included $2.9 million in 1999 for unfunded plans. (2) Included $2.4 million in 1999 for unfunded plans. Plan assets consist principally of common stocks and U.S. government and corporate obligations. Contributions to these plans were neither required nor made in 1999 because OMNOVA Solutions' plans are adequately funded, using assumed returns. 30 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The significant actuarial assumptions used to estimate the projected benefit obligation for the Company's pension plans were as follows: Discount rate............................................... 7.00% Assumed long-term rate of return on plan assets............. 8.75% Annual rates of salary increase............................. 4.50% (for plans that base benefits on final compensation level)
POSTRETIREMENT BENEFITS -- HEALTH CARE AND OTHER In connection with the spin-off, OMNOVA Solutions assumed retiree medical liabilities for its active employees and for certain former employees who left GenCorp in earlier years. The Company currently provides certain health care and life insurance benefits to most retired employees in the United States with varied coverage by employee groups. The health care plans generally provide for cost sharing in the form of employee contributions, deductibles and coinsurance between the Company and its retirees. Retirees in certain other countries are provided similar benefits by plans sponsored by their governments. These postretirement benefits are unfunded and are accrued by the date the employee becomes eligible for the benefits. OMNOVA Solutions' postretirement benefit costs in 1999 were $3.3 million, which consisted of $0.6 million of postretirement benefit costs incurred subsequent to the spin-off and $2.7 million of cost allocations from GenCorp. OMNOVA Solutions' postretirement benefit cost allocations from GenCorp were $3.2 million in 1998 and $3.1 million in 1997. Separate calculations of the components of OMNOVA Solutions' total costs for postretirement benefits and the status of the plans prior to the spin-off are not available. Subsequent to the spin-off, the Company's postretirement benefit costs were $0.6 million, and its components were as follows:
(DOLLARS IN MILLIONS) Service costs for benefits earned........................... $ .1 Interest costs on benefit obligation........................ .6 Amortization of unrecognized prior service costs............ (.1) ------- TOTAL............................................. $ .6 ======= ACCUMULATED BENEFIT OBLIGATION: Retirees.................................................. $ 31.5 Eligible active employees................................. 7.7 Other active employees.................................... 12.2 ------- TOTAL............................................. $ 51.4 Unrecognized benefits from prior service.................. 3.0 Unrecognized subsequent net loss.......................... 1.8 ------- ACCRUED LIABILITY AT AUGUST 31, 1999........................ $ 56.2 Benefits paid from September 1, 1999 to November 30, 1999................................................... (.9) ------- ACCRUED LIABILITY AT NOVEMBER 30, 1999...................... $ 55.3 Current portion........................................... (3.6) ------- Long-term portion......................................... $ 51.7 =======
31 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Postretirement benefit costs were determined using the following assumptions: Discount rate............................................... 7% Initial trend rate for health care costs.................... 9% Ultimate trend rate for health care costs................... 6% Year reached................................................ 2002
Because most employer benefits are capped, assumed health care cost trend rates have a minimal effect on the amounts reported for the health care plans. A one-percentage point increase/decrease in assumed health care cost trend rates would not significantly increase/decrease the benefit obligation at November 30, 1999 and would have no effect on the aggregate of the service and interest components of net periodic cost. The Company participates in multi-employer defined contribution pension plans sponsored jointly by GenCorp and OMNOVA Solutions. Participation in these plans is available to substantially all salaried employees and to certain groups of hourly employees. Contributions to these plans are based on either a percentage of employee contributions or on a specified amount per hour based on the provisions of each plan. The costs of these plans for the Company were approximately $2.2 million in 1999 and $2.0 million in 1998 and 1997, respectively. NOTE M -- LONG-TERM DEBT AND CREDIT LINES On September 30, 1999, the Company entered into a five-year unsecured $300 million revolving credit facility (Facility) which expires in September 2004. At November 30, 1999, the unused and available balance under this Facility was $110 million. The Company pays a variable commitment fee, which is currently .30 of one percent, on the unused balance. Interest rates are variable, primarily based on LIBOR, and were at an average rate of 6.9 percent at November 30, 1999. The Facility contains various debt, dividend and investment restrictions and provisions requiring maintenance of an earnings before interest, taxes, depreciation and amortization to interest coverage (EBITDA/Interest Expense) ratio of 3.50 to 1.00 and debt to earnings before interest, taxes, depreciation and amortization (Debt/EBITDA) ratio of 3.25 to 1.00. The Facility was utilized to fund a $200 million dividend paid to GenCorp at the time of the spin-off and will also be available for future working capital, capital expenditures and acquisition needs. At November 30, 1999, the Company had unsecured, uncommitted lines of credit with several banks for short-term borrowings aggregating $25.0 million, of which $5.0 million was outstanding. Interest rates for these lines of credit were variable and were at an average rate of 6.2 percent on November 30, 1999. Borrowings under such lines are payable on demand. The Company also had outstanding letters of credit totaling $0.7 million at November 30, 1999. Interest paid during the two month period following the spin-off was $1.8 million. NOTE N -- LEASE COMMITMENTS The Company leases certain facilities, machinery and equipment and office buildings under long-term, noncancelable operating leases. The leases generally provide for renewal options ranging from five to ten years and require the Company to pay for utilities, insurance, taxes and maintenance. Rent expense was $6.0 million in 1999, $3.8 million in 1998 and $2.9 million in 1997. Future minimum commitments at November 30, 1999 for existing operating leases were $12.2 million with annual amounts declining from $4.3 million in 2000 to $0.4 million in 2004. The Company's obligation for leases after 2004 is $0.7 million. NOTE O -- CONTINGENCIES The Company is subject to various legal actions, governmental investigations and proceedings relating to a wide range of matters. In the opinion of management, after reviewing the information which is currently available with respect to such matters and consulting with legal counsel, any liability which may ultimately be incurred 32 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED with respect to these matters will not materially affect future results of operations, liquidity, capital resources or the consolidated financial condition of the Company. NOTE P -- STOCK-BASED COMPENSATION PLANS OMNOVA Solutions' 1999 Equity and Performance Incentive Plan (the 1999 Plan) permits the Company to grant to officers, key employees and nonemployee directors of the Company, incentives directly linked to the price of OMNOVA Solutions' stock. The 1999 Plan authorizes up to 2.4 million shares of Company stock for grants of nonqualified stock options, stock appreciation rights, restricted stock awards, performance stock awards and deferred stock. Shares used may be either newly issued shares or treasury shares or both. All options granted under the 1999 Plan have been granted with the exercise price of the stock option equal to the fair market value of the Company's common stock on the grant date. Additionally, the 1999 Plan provides that the term of any stock option granted under the Plan may not exceed ten years. As of November 30, 1999, approximately 2.3 million shares of Company common stock remained available for grants under the 1999 Plan. Stock options granted under the GenCorp 1993 and 1997 Stock Option Plans (GenCorp Options) to OMNOVA Solutions employees and GenCorp employees prior to the spin-off were partially converted into OMNOVA Solutions options and partially into GenCorp options with adjustments to preserve their value. The OMNOVA Solutions options which were issued pursuant to the conversion process were granted under the OMNOVA Solutions Inc. Option Adjustment Plan (the "Adjustment Plan"). The Adjustment Plan authorized up to 4.0 million shares of Company stock solely for the purpose of accomplishing the conversion described above. Shares used may be either newly issued shares or treasury shares or both. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Due to OMNOVA Solutions' limited period of operations subsequent to its spin-off from GenCorp, it is impractical to determine the compensation cost of stock options based on the fair value method prescribed by FASB Statement No. 123 "Accounting for Stock-Based Compensation". A summary of the Company's stock option activity, and related information for the period subsequent to the spin-off through November 30, 1999 is as follows:
WEIGHTED OPTIONS AVERAGE ------------------------ EXERCISE EXERCISABLE TOTAL PRICE ----------- --------- -------- Outstanding at October 1, 1999............................. 2,623,352 4,033,748 $8.9215 Granted.................................................... -- 50,000 $7.0000 Exercised.................................................. (3,000) (3,000) $6.6701 --------- --------- Outstanding at November 30, 1999........................... 2,620,352 4,080,748 ========= =========
33 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table summarizes the range of exercise prices and weighted-average exercise prices for options outstanding and exercisable at November 30, 1999 under the Company's stock option plans:
WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AVERAGE OUTSTANDING EXERCISE CONTRACTUAL EXERCISABLE EXERCISE RANGE OF EXERCISE PRICE OPTIONS PRICE LIFE (YRS) OPTIONS PRICE ----------------------- ----------- -------- ----------- ----------- -------- $ 5.0764 - $5.7493 463,374 $ 5.2947 5.8 463,374 $ 5.2947 $ 5.7494 - $7.1867 590,464 $ 6.3620 5.4 540,464 $ 6.3030 $ 7.1868 - $8.6240 1,451,410 $ 8.1999 8.0 685,035 $ 7.9629 $ 8.6241 - $10.0613 722,043 $ 8.9971 7.3 512,032 $ 8.9924 $10.0614 - $11.4986 97,701 $10.7591 8.6 43,611 $10.5954 $11.4987 - $12.9360 57,846 $12.4329 8.2 41,003 $12.5780 $12.9361 - $14.3733 697,910 $14.2317 8.3 334,833 $14.2244 --------- --------- TOTAL................ 4,080,748 2,620,352 ========= =========
NOTE Q -- COMMON STOCK At November 30, 1999, 6,422,948 shares of $.10 par value common stock were reserved for future issuance for discretionary payments of the Company's portion of Retirement Savings Plan contributions, exercise of options and payments of awards under stock-based compensation plans. NOTE R -- BUSINESS SEGMENT INFORMATION In 1999, the Company adopted FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company operates two business segments, Performance Chemicals and Decorative & Building Products. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately based on fundamental differences in their operations. The Performance Chemicals segment manufactures a broad range of emulsion polymers and specialty chemicals used as coatings, binders, adhesives, and additives for paper, carpet, textile and various other specialty chemical applications. Decorative & Building Products designs, manufactures and markets a comprehensive line of decorative and functional surface products including commercial wallcovering, coated fabrics, printed and solid color surface laminates, graphic arts and industrial films, and transfer printed products for furniture, transportation, cabinets, home furnishings, apparel, new construction and remodeling and other commercial applications, as well as membrane systems for commercial and industrial roofing. Segment operating profit represents net sales less applicable costs and expenses relating to operations. Segment operating profit excludes corporate income and expenses, provisions for unusual items, interest expense and income taxes. No one customer accounts for 10 percent of consolidated sales. 34 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1999 1998 1997 ------ ------ ------ BUSINESS SEGMENT INFORMATION (DOLLARS IN MILLIONS) NET SALES Decorative & Building Products.............................. $443.5 $398.6 $367.7 Performance Chemicals....................................... 323.9 225.6 180.6 ------ ------ ------ $767.4 $624.2 $548.3 ====== ====== ====== INCOME Decorative & Building Products.............................. $ 51.4 $ 51.5 $ 44.2 Performance Chemicals....................................... 31.2 35.0 21.9 ------ ------ ------ SEGMENT OPERATING PROFIT.................................... 82.6 86.5 66.1 Interest expense allocated from GenCorp..................... (16.2) (7.9) (3.7) Interest expense after spin-off............................. (2.4) -- -- Corporate other income (expense)............................ (.5) (.2) (.3) Corporate expenses.......................................... (3.9) (4.6) (5.1) Unusual items............................................... 1.1 (3.4) -- Spin-off related costs...................................... (2.2) -- -- ------ ------ ------ INCOME BEFORE INCOME TAXES.................................. $ 58.5 $ 70.4 $ 57.0 ====== ====== ====== TOTAL ASSETS Decorative & Building Products.............................. $323.1 $313.0 $186.4 Performance Chemicals....................................... 319.2 289.7 90.7 Corporate................................................... 80.2 -- -- ------ ------ ------ $722.5 $602.7 $277.1 ====== ====== ====== CAPITAL EXPENDITURES Decorative & Building Products.............................. $ 20.7 $ 13.0 $ 5.3 Performance Chemicals....................................... 14.0 5.0 5.6 Corporate................................................... .3 -- -- ------ ------ ------ $ 35.0 $ 18.0 $ 10.9 ====== ====== ====== DEPRECIATION AND AMORTIZATION Decorative & Building Products.............................. $ 15.6 $ 13.4 $ 11.0 Performance Chemicals....................................... 14.8 8.0 5.0 Corporate................................................... .3 .1 -- ------ ------ ------ $ 30.7 $ 21.5 $ 16.0 ====== ====== ======
35 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The Company's operations are located primarily in the United States and Europe. Inter-area sales are not significant to the total sales of any geographic area.
1999 1998 1997 ------ ------ ------ GEOGRAPHIC INFORMATION (DOLLARS IN MILLIONS) NET SALES Europe...................................................... $ 68.7 $ 14.7 $ -- United States............................................... 654.3 572.0 512.4 United States export sales.................................. 44.4 37.5 35.9 ------ ------ ------ $767.4 $624.2 $548.3 ====== ====== ====== SEGMENT OPERATING PROFIT Europe...................................................... $ 7.2 $ 1.9 $ -- United States............................................... 75.4 84.6 66.1 ------ ------ ------ $ 82.6 $ 86.5 $ 66.1 ====== ====== ====== TOTAL ASSETS Europe...................................................... $139.1 $128.6 $ -- United States............................................... 503.3 474.1 277.1 Corporate................................................... 80.1 -- -- ------ ------ ------ $722.5 $602.7 $277.1 ====== ====== ====== LONG-LIVED ASSETS Europe...................................................... $100.3 $100.4 $ -- United States............................................... 340.2 323.0 156.7 Corporate................................................... 8.3 -- -- ------ ------ ------ $448.8 $423.4 $156.7 ====== ====== ======
36 39 OMNOVA SOLUTIONS INC. QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED ----------------------------------------------------- FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, ------------ ------- ---------- ------------ (DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1999 Net sales..................................... $171.2 $195.9 $202.9 $197.4 ------ ------ ------ ------ Segment operating profit...................... $ 17.3 $ 24.0 $ 22.1 $ 19.2 ------ ------ ------ ------ Income before income taxes.................... $ 11.3 $ 17.9 $ 16.9 $ 12.4 ------ ------ ------ ------ NET INCOME.................................... $ 6.8 $ 10.7 $ 10.1 $ 6.8 ------ ------ ------ ------ - ----------------------------------------------------------------------------------------------------- Earnings per share of common stock(1) Basic....................................... $ .16 $ .26 $ .25 $ .16 Diluted..................................... $ .16 $ .25 $ .24 $ .16 Common stock price range per share -- high.... N/A N/A N/A $11 1/8 -- low..... N/A N/A N/A $6 1/4 - -----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED ----------------------------------------------------- FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, ------------ ------- ---------- ------------ (DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1998 Net sales..................................... $133.7 $153.7 $160.8 $176.0 ------ ------ ------ ------ Segment operating profit...................... $ 14.9 $ 21.7 $ 22.6 $ 27.3 ------ ------ ------ ------ Income before income taxes.................... $ 12.8 $ 10.2 $ 19.4 $ 28.0 ------ ------ ------ ------ NET INCOME.................................... $ 7.7 $ 6.1 $ 11.7 $ 17.1 ------ ------ ------ ------ - ----------------------------------------------------------------------------------------------------- Earnings per share of common stock(1) Basic....................................... $ .19 $ .15 $ .28 $ .41 Diluted..................................... $ .18 $ .15 $ .28 $ .41 Common stock price range per share -- high.... N/A N/A N/A N/A -- low..... N/A N/A N/A N/A - -----------------------------------------------------------------------------------------------------
(1) The sum of the quarterly EPS amounts may not equal the annual amount due to changes in the number of shares outstanding during the year. CAPITAL STOCK The Company's common stock is listed on the New York Stock Exchange. At November 30, 1999 and December 31, 1999, there were approximately 11,800 holders of record of the Company's common stock. During the fourth quarter of 1999, the Company paid its first cash dividend on its common stock of $.05 per share. 37 40 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to nominees who will stand for election as a director of the Company at the March 29, 2000 Annual Meeting of Shareholders is set forth on pages 2 and 3 of the Company's 2000 Proxy Statement and is incorporated herein by reference. Information with respect to directors of the Company whose terms extend beyond the March 29, 2000 Annual Meeting of Shareholders is set forth on pages 3 and 4 of the Company's 2000 Proxy Statement and is incorporated herein by reference. Also, see Executive Officers of the Registrant on pages 8 and 9 of this report. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is set forth on pages 9 through 23 of the Company's 2000 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding the security ownership of certain beneficial owners and management is set forth on pages 5 and 6 of the Company's 2000 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain transactions and employment arrangements with management is set forth on pages 16 and 17 of the Company's 2000 Proxy Statement and is incorporated herein by reference. Information regarding certain related transactions with GenCorp Inc. is set forth on pages 25 and 26 of the Company's 2000 Proxy and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE NUMBER ------ (A)(1) CONSOLIDATED FINANCIAL STATEMENTS: The following consolidated financial statements of OMNOVA Solutions Inc. are included in Item 8: Consolidated Statements of Income for the years ended November 30, 1999, 1998 and 1997....................... 19 Consolidated Balance Sheets at November 30, 1999 and 1998................................................... 20 Consolidated Statements of Shareholders' Equity for the years ended November 30, 1999, 1998 and 1997........... 21 Consolidated Statements of Cash Flows for the years ended November 30, 1999, 1998 and 1997....................... 22 Notes to the Consolidated Financial Statements.............. 23
(A)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES: All consolidated financial statement schedules are omitted because they are inapplicable, not required by the instructions or the information is included in the consolidated financial statements or notes thereto. 38 41 (A)(3) EXHIBITS EXHIBIT INDEX
EXHIBIT DESCRIPTION - ------- ----------- ACQUISITION AGREEMENTS 2.1 Distribution Agreement between OMNOVA Solutions Inc. ("OMNOVA Solutions") and GenCorp Inc ("GenCorp"). CHARTER DOCUMENTS 3.1* Form of Amended and Restated Articles of Incorporation of OMNOVA Solutions. 3.2* Amended and Restated Code of Regulation of OMNOVA Solutions. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS 4.1 Credit Agreement dated September 30, 1999 by and among OMNOVA Solutions Inc., Bank of America, N.A. as Agent and as Lender and the Lenders party thereto from time to time. MATERIAL CONTRACTS 10.1*+ Employment Agreement dated October 15, 1993 (with amendments) between GenCorp and John B. Yasinsky, as assumed by OMNOVA Solutions. 10.2*+ Employment Agreement dated May 10, 1996 between GenCorp and Nathaniel J. Mass, as assumed by OMNOVA Solutions. 10.3*+ Employment Agreement dated July 16, 1996 between GenCorp and Kevin M. McMullen, as assumed by OMNOVA Solutions. 10.4*+ Severance Agreement granted to John B. Yasinsky by OMNOVA Solutions. 10.5*+ Severance Agreement granted to Nathaniel J. Mass by OMNOVA Solutions 10.6*+ Form of Severance Agreement granted to certain executive officers of OMNOVA Solutions (other than the officers identified above). 10.7*+ OMNOVA Solutions 1999 Equity and Performance Incentive Plan. 10.8*+ OMNOVA Solutions Deferred Compensation Plan for Nonemployee Directors. 10.9*+ Retirement Plan for Nonemployee Directors of OMNOVA Solutions. 10.10*+ OMNOVA Solutions Executive Incentive Compensation Program. 10.11*+ Benefits Restoration Plan for Salaried Employees of OMNOVA Solutions. 10.12*+ OMNOVA Solutions Deferred Bonus Plan. 10.13*+ 1999 GenCorp Key Employee Retention Plan. 10.14*+ Form of Key Employee Retention Letter Agreement. 10.15 Tax Matters Agreement between OMNOVA Solutions and GenCorp. 10.16 Alternative Dispute Resolution Agreement between OMNOVA Solutions and GenCorp. 10.17 Agreement on Employee Matters between OMNOVA Solutions and GenCorp. 10.18 Services and Support Agreement between OMNOVA Solutions and GenCorp. 10.19* Form of Director and Officer Indemnification Agreement. 10.20* Form of Director Indemnification Agreement. 10.21* Form of Officer Indemnification Agreement. SUBSIDIARIES OF THE REGISTRANT 21.1 Listing of Subsidiaries. CONSENTS OF EXPERTS 23.1 Consent of Ernst & Young LLP.
39 42
EXHIBIT DESCRIPTION - ------- ----------- POWER OF ATTORNEY 24.1 Powers of Attorney executed by E. P. Campbell, C. A. Corry, D. A. Daberko, B. G. Gower, D. E. McGarry, S. W. Percy, and R. B. Pipes, Directors of the Company. 27. FINANCIAL DATA SCHEDULE (Filed for EDGAR only) The Company will supply copies of any of the foregoing exhibits to any shareholder upon receipt of a written request addressed to OMNOVA Solutions Inc., 175 Ghent Road, Fairlawn, Ohio 44333-3300--Attention: Secretary, and payment of $1 per page to help defray the costs of handling, copying and return postage.
- --------------- * Incorporated by reference to the same-numbered exhibit to the Company's Registration Statement on Form 10 (File No. 1-15147). + Management contract or compensatory arrangement. 40 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. OMNOVA SOLUTIONS INC. February 10, 2000 By /s/ J. C. LEMAY ------------------------------------ J. C. LEMAY Senior Vice President, Law; General Counsel Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ J. B. YASINSKY Chairman and Chief Executive February 10, 2000 - ------------------------------------------------ Officer J. B. Yasinsky /s/ M. E. HICKS Senior Vice President and Chief February 10, 2000 - ------------------------------------------------ Financial Officer; Treasurer M. E. Hicks /s/ P. J. PARR Director-Audit, Accounting & Tax February 10, 2000 - ------------------------------------------------ (principal accounting officer) P. J. Parr * Director February 10, 2000 - ------------------------------------------------ E. P. Campbell * Director February 10, 2000 - ------------------------------------------------ C. A. Corry * Director February 10, 2000 - ------------------------------------------------ D. A. Daberko * Director February 10, 2000 - ------------------------------------------------ B. G. Gower * Director February 10, 2000 - ------------------------------------------------ D. E. McGarry * Director February 10, 2000 - ------------------------------------------------ S. W. Percy * Director February 10, 2000 - ------------------------------------------------ R. B. Pipes *Signed by the undersigned as attorney-in-fact and agent for the Directors indicated. /s/ C. A. SLACK February 10, 2000 - ------------------------------------------------ C. A. Slack
41 EX-2.1 2 EXHIBIT 2.1 1 Exhibit 2.1 Execution Copy DISTRIBUTION AGREEMENT Dated September 30, 1999 Between GENCORP INC. and OMNOVA SOLUTIONS INC. 2
CONTENTS Page ---- I. Definitions...................................................................................... 1 II. Contribution..................................................................................... 2 2.01. Assets Contibuted....................................................................... 10 2.02. Retained Assets......................................................................... 10 2.03. Assumed Liabilities..................................................................... 11 2.04. Retained Liabilities ................................................................... 12 2.05. Issuance of Shares...................................................................... 12 2.06. Closing ................................................................................ 12 2.07. Assignment of Assets ................................................................... 12 2.08. Termination of Certain Contracts........................................................ 13 2.09. Disclaimer.............................................................................. 13 III. Distribution 3.01. Distribution.............................................................................. 14 3.02. Delivery ............................................................................... 14 IV. Certain Covenants ............................................................................... 14 4.01. Interim Use of GenCorp's Corporate Name................................................. 14 4.02. Transition and Further Assurances....................................................... 15 4.03. Assets Administration................................................................... 15 4.04. Correspondence.......................................................................... 16 4.05. Interim Permit Operations............................................................... 16 4.06. Agreement for Exchange of Information................................................... 16 4.07. Witness Services........................................................................ 17 4.08. Confidentiality......................................................................... 17 4.09. Certain Tax Matters..................................................................... 18 4.10. Insurance Matters....................................................................... 19 V. Indemnification ............................................................................... 21 5.01. Indemnification by GenCorp Inc.......................................................... 21 5.02. Indemnification by OMNOVA............................................................... 21 5.03. Third Party Claim Procedures............................................................ 22 5.04. Insurance Recovery...................................................................... 24
3
VI. Miscellaneous Provisions......................................................................... 24 6.01. Notices ............................................................................... 24 6.02. Entire Agreement........................................................................ 25 6.03. Assignment.............................................................................. 25 6.04. Captions ............................................................................... 25 6.05. Waiver; Consent......................................................................... 25 6.06. No Third Party Beneficiaries............................................................ 25 6.07. Survival of Agreements.................................................................. 26 6.08. Expenses ............................................................................... 26 6.09. Group Performance....................................................................... 26 6.10. Counterparts............................................................................ 26 6.11. Gender ............................................................................... 26 6.12. Governing Law........................................................................... 26 6.13. Interpretation.......................................................................... 26 6.14. Blue Pencil............................................................................. 26 6.15. Conflicts............................................................................... 27 Schedules 1.01(a) Corporate Real Property 1.01(b) Certain Discontinued Operations 1.01(c) OMNOVA Real Property 1.01(d) OMNOVA Entities 1.01(e) OMNOVA Discontinued Operations 1.01(f) OMNOVA Intellectual Property 1.01(g) OMNOVA Balance Sheet
4 Execution Copy DISTRIBUTION AGREEMENT ---------------------- THIS DISTRIBUTION AGREEMENT (the "Agreement") dated September 30, 1999, is by and between OMNOVA SOLUTIONS INC., an Ohio corporation ("OMNOVA"), and GENCORP INC., an Ohio corporation ("GenCorp"). WHEREAS, the Board of Directors of GenCorp (the "GenCorp Board") has determined that it is in the best interests of GenCorp and its shareholders to transfer the Contributed Assets to OMNOVA in exchange for OMNOVA Common Stock and OMNOVA's assumption of the Assumed Liabilities, all as more fully described in this Agreement and the Ancillary Agreements (the "Separation"); WHEREAS, the GenCorp Board has further determined that it is appropriate and desirable, on the terms and conditions contemplated hereby, for GenCorp to distribute (the "Distribution") to the holders of GenCorp Common Shares, as a dividend, all of the outstanding common shares, $0.10 par value, of OMNOVA (the "OMNOVA Common Stock"); and WHEREAS, it is appropriate and desirable to set forth the principal transactions required to effect the Separation and the Distribution and certain other agreements that will govern certain matters relating to the Separation and the Distribution and the relationship between the GenCorp Group and the OMNOVA Group following the Distribution. NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, OMNOVA and GenCorp hereby agree as follows: ARTICLE I: DEFINITIONS ---------------------- Section 1.01. Terms used in this Agreement shall have the meanings ascribed to them by definition in this Agreement. "ACTION" means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal. "ADDITIONAL ASSETS" means the following assets, properties and rights of GenCorp and all rights and interests therein: (a) the real property described in Schedule 1.01(a), including all rights, easements and privileges appertaining or relating thereto and all buildings, fixtures and improvements located thereon and therein and all such items under construction; 5 2 (b) all plant, equipment, apparatus, computers and other electronic data processing equipment, fixtures, machinery, furniture, office equipment, automobiles, trucks, dies, molds, patterns, aircraft, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property (excluding Information and Records), wherever located, whether, owned or leased, licensed or otherwise which is used, held for use or being developed for use primarily for the GenCorp Corporate Headquarters, the GenCorp Corporate Technology Center or the GenCorp Flight Operations; (c) all inventories of materials, parts, raw materials, finished goods, products and supplies, wherever located, used, held for use or being developed for use primarily for the GenCorp Corporate Headquarters, the GenCorp Corporate Technology Center or the GenCorp Flight Operations; (d) all computer applications, programs and other software, user and system documentation and instructions, source code, functional and design specifications, network software, design software, design tools and all protocol/internet addresses, wherever located, used, held for use or developed for use primarily for the GenCorp Corporate Headquarters, the GenCorp Technology Center or the GenCorp Flight Operations, but excluding the PC based software for the Treasury and Shareholder Services function, and excluding one copy of any software code written by GenCorp for the Lawson human resource software package and all data pertaining to employee and employee benefit matters in respect of any employees who will not become employees of OMNOVA or an OMNOVA entity; (e) the Additional Technology; and (f) all Contracts, Leases, Intellectual Property, Records, Information and Claims which (i) pertain primarily to the items described in (a), (b), (c), (d) or (e) above, or (ii) pertain primarily to any Discontinued OMNOVA Operations. "ADDITIONAL TECHNOLOGY" means any Intellectual Property of GenCorp which is not included in the OMNOVA Business Assets and which pertains to coatings, adhesives, polymers (including, without limitation, polymer processing and surface modification and oxetane monomer and polymer compositions, structures, formulations, systems procedures and processing), blends or alloys of polymers and other materials, non-polymer substrates, or processing methods, but excluding any such Intellectual Property (other than Polyfox Intellectual Property) to the extent of vehicle sealing applications and to the extent it has been licensed by GenCorp to other Persons. "AFFILIATE" is defined in the Tax Matters Agreement. "AGREEMENT" means this Distribution Agreement, including all of the Schedules hereto. "ANCILLARY AGREEMENTS" mean (i) the Agreement on Employee Matters, the Tax Matters Agreement, the Services and Support Agreement, and the Alternative Dispute Resolution 6 3 Agreement by and between the parties and dated as of the date hereof and (ii) such deeds, stock powers, bills of sale, certificates of title, assignments, assumptions and other agreements, instruments and conveyances (including, without limitation, the License Agreement and the Non-Fluorinated Oxetane License Agreement, dated the date hereof, among OMNOVA and Aerojet-General Corporation and/or Aerojet Fine Chemicals LLC) as are executed and delivered by or on behalf of a party pursuant to this Agreement or any Ancillary Agreement described in (i). "ASSUMED LIABILITY" is defined in Section 2.03. "BUSINESS DAY" means any day on which commercial banks are not required or authorized by law to close in the City of New York, State of New York, U.S.A. "CAA" means the United States Clean Air Act. "CERCLA" means the United States Comprehensive Environmental Response, Compensation and Liability Act. "CWA" means the United States Clean Water Act. "CLAIM" means any cause of action, judgment, right of recovery, right of action, right of payment, set-off, credit, rebate, indemnity or other claim against other Persons, of whatever kind or nature, known or unknown, accrued or to accrue, including, without limitation, all rights of rescission, replevin and reclamation, all rights and claims in respect of past infringement, all credits or rebates due in respect of charges incurred, goods received or services rendered and all rights under any express or implied warranties, representations or guarantees made by suppliers, contractors or others. "CLOSING" is defined in Section 2.06. "CLOSING TIME" is defined in Section 2.06. "CODE" is defined in the Tax Matters Agreement. "CONSENT" is defined in Section 2.07. "CONTRACTS" means any agreements, contract rights, license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements, commitments or undertakings. "CONTRIBUTED ASSETS" is defined in Section 2.01. 7 4 "DISCONTINUED OMNOVA OPERATIONS" means any terminated, divested or discontinued business or operation of GenCorp or any OMNOVA Entity which is described on Schedule 1.01(e). "DISTRIBUTION AGENT" means Bank of New York, or such other trust company or bank designated by GenCorp, to act as the agent responsible for the distribution of the OMNOVA Common Stock in the Distribution. "DISTRIBUTION DATE" is defined in Section 3.01. "DISTRIBUTION " is defined in Section 3.01. "DISTRIBUTION RECORD DATE" is defined in Section 3.01. "DOLLARS" or "$" means United States dollars. "ENVIRONMENTAL LAW" means any federal, state, local, foreign or international statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, common law doctrine (including tort, contribution, strict liability, negligence, trespass and nuisance), order, judgment, decree, injunction, requirement or agreement with any Governmental Authority, now or hereafter in effect relating to health, safety, pollution or the environment (including ambient air, surface water, groundwater, land surface, subsurface strata and natural resources) or to emissions, discharges, releases or threatened releases of any substance currently or at any time hereafter listed, defined, designated or classified as hazardous, toxic, waste, radioactive or dangerous, or otherwise regulated, under any of the foregoing, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any such substances, including, without limitation, CERCLA, RCRA, CWA, CAA, TSCA and comparable provisions in state, local, foreign or international law. "ENVIRONMENTAL LIABILITIES" means all liabilities and obligations relating to, arising out of or resulting from any Environmental Law or contract or agreement relating to environmental, health or safety matters (including all removal, remediation or cleanup costs, investigatory costs, governmental response costs, natural resources damages, property damages, personal injury damages, costs of compliance with any settlement, judgment or other determination of liability and indemnity, contribution or similar obligations) and all costs and expenses (including allocated costs of in-house counsel and other personnel), interest, fines, penalties or other monetary sanctions in connection therewith. "EXCHANGE ACT" means the Securities Exchange Act of 1934, in effect from time to time. "FORM 10" means the registration statement on Form 10 filed by OMNOVA with the SEC to effect the registration of the OMNOVA Common Stock under the Exchange Act. 8 5 "GENCORP ENTITY" means any corporation, partnership, joint venture, limited liability company, alliance, association or legal entity in which GenCorp, directly or indirectly, has or had any equity, ownership, investment, profit, management or other interest, but excluding the OMNOVA Entities. "GENCORP GROUP" means GenCorp and the GenCorp Entities. "GENCORP COMMON STOCK" means the Common Shares, $.10 par value per share, of GenCorp. "GENCORP INSURANCE" is defined in Section 4.10. "GENCORP OVERSEAS" means GenCorp Overseas Inc., an Ohio corporation. "GOVERNMENTAL AUTHORITY" means (i) the United States of America, any State thereof, or any court, department, commission, board, bureau, agency or instrumentality of the United States of America, any State thereof, or political subdivision of any of them, (ii) any other body, authority or agency exercising any form of administrative or regulatory authority under any applicable Legal Requirement, (iii) any quasi-governmental court, body, agency or authority, (iv) any corporation established by or at the direction of any of the foregoing and authorized by statute to exercise regulatory authority, and (v) any foreign government or governmental authority comparable to any of the foregoing. "GROUP" means the OMNOVA Group or the GenCorp Group. "INDEMNIFIED PARTY" is defined in Section 5.03(a). "INDEMNIFYING PARTY" is defined in Section 5.03(a). "INDEMNITY NOTICE" is defined in Section 5.03(a). "INFORMATION" means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, trade secrets, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data. "INSURANCE PROCEEDS" means those monies (i) received by an insured from an insurance carrier on an insurance claim or (ii) paid by an insurance carrier on behalf of an insured on an 9 6 insurance claim, in either case net of any applicable deductibles, retentions, or costs paid by such insured, but such term does not refer to proceeds received from an insurer on an employee benefits group insurance policy. "INTELLECTUAL PROPERTY" means any and all United States and foreign: (a) patents (including, without limitation, utility patents, design patents, reissued and reexamined patents industrial designs and utility models), inventors' certificates and patent applications (including docketed patent disclosures awaiting filing determination or preparation, reissues, revisions, reexaminations, divisions, continuations, continuations-in-part and extensions), all extensions, the right to claim priority, and any improvements to any of the foregoing; (b) trademarks, trade names, service marks, service names, fictitious names, telephone numbers, trade dress, symbols, marks, logos, business and product names, slogans and rights to obtain renewals and extensions thereof and registrations and applications for registration thereof together with all translations, adaptations, derivations, and combinations thereof; (c) works of authorship (whether or not copyrightable and/or registerable and whether or not registered), including, without limitation, work of art and computer software, patterns and designs and copyright registrations, registration applications and right to obtain renewals and extensions thereof; (d) inventions (whether patentable or unpatentable and whether or not reduced to practice), processes, designs, formulae, trade secrets, proprietary knowledge, know-how, industrial models, technical information, manufacturing, engineering and technical drawings, product specifications, compositions, research and development, manufacturing and production processes and techniques; (e) mask work and other semiconductor chip rights and registrations thereof; (f) computer applications, programs and other software and all related data, user and system documentation and instructions, source code, functional and design specifications, network software, design software, design tools and, web sites and addresses; (g) intellectual property rights similar to any of the foregoing; (h) all books, records, documents, drawings, tapes, disks or other media or tangible embodiments of any of the foregoing (in whatever form or media, including electronic and magnetic media) and (i) all goodwill pertaining to any of the foregoing. "IRS" means the United States Internal Revenue Service and any successor department, agency or organization of the United States. "KNOWN" means the knowledge of any director or officer of the GenCorp Group or the OMNOVA Group and the knowledge of the manager of any GenCorp Group or OMNOVA Group location and the knowledge of any direct report to any such director, officer or manager and the knowledge which any of such persons would have after conducting a reasonable investigation within the scope of his or her job responsibility. "KNOWN LIABILITIES" means any actual or alleged liability or obligation of the GenCorp Group or the OMNOVA Group which is Known to any member of the GenCorp Group or the OMNOVA Group (which shall be deemed to include, without limitation, any matter as to which any person included in the definition of "Known" has received a notice claiming or alleging such liability or obligation, any matter as to which any member of either Group has paid any amounts 10 7 or entered into or became subject to any settlements, agreements, decrees, orders, judgments, or other obligations, and the matters and locations included on Section 1.01(b)), but the term "Known Liability" excludes any actual or alleged liability or obligation which: (i) is provided for on the OMNOVA Balance Sheet, (ii) arises from the condition of any facility listed on Schedule 1.01(c) (including, without limitation, Environmental Liabilities resulting from any such condition), or (iii) is an ordinary course liability or obligation arising from the OMNOVA Business (e.g. performance of contracts and payment of trade payables). "LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign or international, constitution, law, ordinance, principle of common law, regulation, statute, treaty or order, including, without limitation the Environmental Laws. "LOSSES" means all Actions and threatened Actions, and all damages, costs, expenses, losses, liabilities, judgments, awards, fines, sanctions, orders, consent decrees, diminution in value, penalties, charges and settlement payments, whether absolute or contingent, foreseen, unforeseen, accrued or unaccrued, known or unknown, liquidated or unliquidated, matured or unmatured, now existing or which may arise in the future (including, without limitation, all reasonable costs, fees and expenses of attorneys, experts, accountants, appraisers, consultants, witnesses, and investigators in connection with defending or settling an Action or threatened Action) and interest on cash disbursements in respect of any of the foregoing at the Reference Rate from the date each such cash disbursement is made until the party incurring the same shall have been indemnified in respect thereof. "NON-PROPOSING PARTY" is defined in Section 4.09. "NYSE" means the New York Stock Exchange. "OMNOVA BALANCE SHEET" means the OMNOVA balance sheet consisting of the column labeled "Adjusted OMNOVA Balance Sheet" on Schedule 1.01(g). "OMNOVA BUSINESS" means the business and operations of: (a) the Performance Chemicals Division of GenCorp as such business and operations are currently being conducted, (b) the Decorative & Building Products Division of GenCorp as such business and operations are currently being conducted, and (c) the OMNOVA Entities. "OMNOVA BUSINESS ASSETS" means any and all assets, properties and rights of GenCorp, Penn International and GenCorp Overseas that are used, held for use or being developed for use primarily for the OMNOVA Business and all rights and interests therein, wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of GenCorp, GenCorp International, or GenCorp Overseas, including, without limitation, the following: 11 8 (a) All real property of whatever nature, whether owned, leased, licensed or otherwise, including all rights, easements and privileges appertaining or relating thereto and all buildings, fixtures and improvements located thereon and therein and all such items under construction including, without limitation, the real property listed on Schedule 1.01(c); (b) All tangible personal property, plant, machinery and equipment, apparatus, computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, dies, molds, patterns, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property, whether owned, leased, licensed or otherwise; (c) All inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products including items purchased for distribution or resale; (d) All capital stock, minute books, stock records, corporate records, corporate seals and treasury shares of the OMNOVA Entities; (e) All rights, benefits and interests under any Contracts; (f) All rights under any deposits, letters of credit and performance and surety bonds; (g) All accounts, accounts receivable and any payments with respect thereto after the Closing Time, unpaid interest on accounts receivable and any security or collateral relating thereto, notes receivable, security and other deposits, advance payments, prepayments and credits, whether recorded or unrecorded; (h) All Intellectual Property including, without limitation, the items on Schedule 1.01(f); (i) All Information and Records; (j) All rights under any Claim to the extent pertaining to the OMNOVA Business, any OMNOVA Business Asset or any Assumed Liability; (k) All rights under insurance policies and all rights in the nature of insurance, indemnification or contribution which pertain exclusively to the OMNOVA Business; (l) all bank accounts, lock boxes and other deposit arrangements; and (m) all goodwill. "OMNOVA DIVIDEND" is defined in Section 4.12. 12 9 "OMNOVA Entities" means the entities listed on Schedule 1.01(d). "OMNOVA Group" means OMNOVA and the OMNOVA Entities. "PARTIES" means OMNOVA and GenCorp. "PENN INTERNATIONAL" means Penn International Inc., an Ohio corporation. "PERMITS" means any authorization, approval, franchise, orders, consent, license, permit, registration, waiver or certificate issued, granted, given, or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Legal Requirement. "PERSON" means any individual, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, estate, trust, organization, labor union, Governmental Authority or other legal entity of any kind, other than the parties or member of a Group. "POLYFOX" means fluorinated oxetane monomers having at least one fluorinated alkoxymethylene side chain; methods and materials for producing said fluorinated oxetane monomers; fluorinated polymers and prepolymers derived from said fluorinated oxetane monomers, and polymers derived from prepolymers of said fluorinated oxetane monomers including methods of producing said polymers and prepolymers and methods of using, and products formed from, said fluorinated oxetane monomers, polymers and prepolymers. "PROPOSING PARTY" is defined in Section 4.09. "RCRA" means the United States Resource Conservation and Recovery Act. "RECORDS" means books, records, files, plans, surveys, studies, reports, manuals, drawings, handbooks, catalogs, brochures, correspondence, documents, forms, accounts, lists, catalogs, promotional or marketing materials and other materials, whether in hard copy, electronic or any other form or media, including, without limitation, any of the same pertaining to accounting, sales, costs, pricing, marketing, advertising, promotions, suppliers, customers, personnel, human resources, dealers, distributors, inventory, engineering, equipment, manufacturing, business plans and strategies and product development. "REFERENCE RATE" means the interest rate equal to the prime rate as publicly announced by Citibank, N.A., New York, New York, from time to time. "RETAINED ASSETS" is defined in Section 2.02. "RETURN" is defined in the Tax Matters Agreement. 13 10 "RULING" is defined in the Tax Matters Agreement. "RULING REQUEST" is defined in the Tax Matters Agreement. "SEC" means the Securities and Exchange Commission. "SPIN-OFF" is defined in the Tax Matters Agreement. "SPIN-OFF TAXES" is defined in the Tax Matters Agreement. "TSCA" means the United States Toxic Substances Control Act. "TAX MATTERS AGREEMENT" means the Tax Matters Agreement dated the date hereof between GenCorp and OMNOVA. "TAXES" is defined in the Tax Matters Agreement. "TERMINATE" is defined in Section 4.10. "THIRD PARTY CLAIM" means with respect to any party, the assertion of a claim or demand or commencement of any Action against such party by any Person. "TRANSACTION DOCUMENTS" means this Agreement and the Ancillary Agreements. "TRANSFER" is defined in Section 2.07. ARTICLE II: CONTRIBUTION ---------- ------------ Section 2.01. ASSETS CONTRIBUTED. Upon the terms and subject to the conditions of this Agreement, GenCorp does hereby, and shall cause GenCorp Overseas and Penn International to hereby, contribute, assign, convey, transfer and deliver to OMNOVA, and OMNOVA or its designee does hereby accept and acquire from GenCorp, GenCorp Overseas, and Penn International all right, title and interest of GenCorp, GenCorp Overseas and Penn International in and to the following (collectively, the "Contributed Assets"): (a) the OMNOVA Business Assets; and (b) the Additional Assets. Section 2.02. RETAINED ASSETS. Upon the terms and subject to the conditions of this Agreement, notwithstanding Section 2.01, the following rights, properties, assets of GenCorp and 14 11 the GenCorp Entities are not included in and are excluded from the Contributed Assets (the "Retained Assets"): (a) All cash, other than petty cash held at any of the facilities listed on Schedule 1.01(c); (b) All minute books, stock records, corporation records, corporate seals, treasury shares and tax returns and supporting schedules of GenCorp and any GenCorp Entity; (c) Subject to Section 4.01 and to the trademarks included in the Contributed Assets, the name "GenCorp"; (d) Subject to Section 4.10 and item (k) in the definition of OMNOVA Business Assets, all rights of GenCorp under any GenCorp Insurance and Property Insurance; (e) Subject to the Agreement on Employee Matters, all employee benefit plans; (f) All of the capital stock of the GenCorp Entities; and (g) Any other right, property or asset not described in Section 2.01. Section 2.03. ASSUMED LIABILITIES. Upon the terms and subject to the conditions of this Agreement (including, without limitation, Section 2.04) OMNOVA does hereby absolutely and irrevocably assume and shall thereafter pay, perform and discharge, without any recourse to GenCorp or any GenCorp entity, the following liabilities and obligations to the extent not covered by GenCorp Insurance or Property Insurance (the "Assumed Liabilities"): (a) all liabilities and obligations, of any nature, of GenCorp, Penn International and GenCorp Overseas to the extent arising out of (i) the OMNOVA Business, (ii) the Discontinued OMNOVA Operations, or (iii) the locations listed on Schedule 1.01(c), whether arising under contract, tort or any other legal theory and whether absolute or contingent, foreseen or unforeseen, accrued or unaccrued, known or unknown, liquidated or unliquidated, matured or unmatured, now existing or which may arise in the future (including, without limitation, Environmental Liabilities so arising); and (b) all liabilities and obligations, of any nature, of GenCorp to the extent arising out of the assets, properties and rights included in the Additional Assets, whether arising under contract, tort or any other legal theory and whether absolute or contingent, foreseen or unforeseen, accrued or unaccrued, known or unknown, liquidated or unliquidated, matured or unmatured, now existing or which may arise in the future; 15 12 provided, however, that notwithstanding the foregoing Sections 2.03(a) and (b) the Known Liabilities shall be excluded from such assumed liabilities and obligations and the Known Liabilities shall be Retained Liabilities. Section 2.04. RETAINED LIABILITIES. Except for the Assumed Liabilities and notwithstanding anything to the contrary, OMNOVA and the OMNOVA Entities do not assume and GenCorp and the GenCorp Entities shall absolutely and irrevocably retain and be solely responsible for, without any recourse to OMNOVA or any OMNOVA Entity, any and all liabilities or obligations of any nature of GenCorp or any GenCorp Entity or claims of such liability or obligation, whether arising under contract, tort or any other legal theory and whether absolute or contingent, foreseen or unforeseen, accrued or unaccrued, known or unknown, liquidated or unliquidated, matured or unmatured, now existing or which may arise in the future including, without limitation, any and all liabilities or obligations arising out of or related to the Retained Assets, any Known Liabilities, any Environmental Liabilities (excluding Environmental Liabilities which are Assumed Liabilities) and the liabilities and obligations of GenCorp and any member of the GenCorp Group under this Agreement or under any Ancillary Agreements (collectively, the "Retained Liabilities"). For purposes of this Agreement, the Retained Liabilities shall be deemed to include all liabilities and obligations described in the previous sentence (other than the Assumed Liabilities) and for purposes of this Agreement no such liability or obligation shall be deemed a liability or obligation of OMNOVA or an OMNOVA Entity even if by operation of law any such liability or obligation is or becomes a liability or obligation of OMNOVA or an OMNOVA Entity. Section 2.05. ISSUANCE OF SHARES. In exchange for the contribution of the Contributed Assets and the assumption of the Assumed Liabilities, at the closing OMNOVA shall issue to GenCorp that number of shares of OMNOVA Common Stock, $0.10 par value per share, of OMNOVA (the "OMNOVA Common Stock") as is necessary to effect the Distribution in accordance with Section 3.02. The shares of OMNOVA Common Stock shall initially be represented by one stock certificate. Section 2.06. CLOSING. The closing of the transactions contemplated by this Article II shall take place simultaneously with the execution and delivery of this Agreement. The "Closing" shall mean the making of the deliveries to be made by OMNOVA and GenCorp respectively pursuant to this Section 2.06 and shall be deemed to have occurred at 12:00 p.m. on the date hereof (the "Closing Time"). At or prior to the Closing Time the parties will executive and deliver such deeds, stock powers, bills of sale, certificates of title, assignments, transfers, assumptions and other agreements, instruments and conveyances as are necessary to carry out this Agreement and the transactions contemplated hereby. Section 2.07. ASSIGNMENT OF ASSETS. Anything in this Agreement to the contrary notwithstanding, unless OMNOVA shall otherwise determine, this Agreement shall not constitute a sale, assignment, transfer or conveyance (a "Transfer") or an agreement to Transfer any Contributed Asset, or any claim, right or benefit arising thereunder or resulting therefrom (collectively, the "Interests") if an attempted Transfer thereof, without the consent, waiver, 16 13 confirmation, novation or approval (a "Consent") of a third party, would constitute a breach or other contravention thereof, be ineffective or in any way adversely affect any rights thereunder, unless and until such Interest can be effectively Transferred without such breach, contravention or adverse effect, at which time each such Interest shall be deemed to be so Transferred. Until such Transfer, all such Interests shall be held in trust by GenCorp for the sole benefit of OMNOVA. GenCorp shall use all reasonable efforts to promptly obtain all necessary Consents to Transfer all such Interests and GenCorp shall pay and discharge all costs of obtaining any such Consent whether before or after the Closing Time. To the extent any Consents necessary to Transfer any Interest have not been obtained or are not in effect as of the Closing Time, GenCorp and OMNOVA shall, during the remaining term of such Interest, use all reasonable efforts to (i) cooperate in any reasonable and lawful arrangements designed to provide the benefits of such Interest to OMNOVA, in which case OMNOVA shall pay or satisfy the corresponding obligations for the enjoyment of such benefits to the extent OMNOVA would have been responsible therefor if such Consent had been obtained and such Interest had been transferred to OMNOVA; and (ii) enforce, at the request of OMNOVA, any rights of GenCorp arising from such Interest against the issuer thereof or the other party or parties thereto (including the right to elect to terminate any such Interest in accordance with the terms thereof with the consent of OMNOVA). Nothing in this Section 2.07 shall be deemed a waiver by OMNOVA of its right to receive at the Closing Time an effective Transfer of all of the Contributed Assets nor shall this Section 2.07 be deemed to constitute an agreement to exclude any asset, property or right from the Contributed Assets. Section 2.08. TERMINATION OF CERTAIN CONTRACTS. Except with respect to this Agreement and the Ancillary Agreements (and agreements expressly contemplated herein or therein to survive the Distribution by their terms or which are included in the Contributed Assets), GenCorp and OMNOVA (on their own behalf and on behalf of the members of the GenCorp Group and OMNOVA Group, respectively) hereby terminate, any and all written or oral agreements, arrangements, commitments or understandings, between members of the GenCorp Group, on the one hand, and members of the OMNOVA Group, on the other, effective as of the Distribution Date. Each party shall, at the reasonable request of any other party, take, or cause to be taken, such other actions as may be necessary to effect such termination. Section 2.09. DISCLAIMER. (a) Each of the parties understands and agree that no party hereto nor any member of a Group is (whether in this Agreement, in any Ancillary Agreement or otherwise) making any representation or warranty, express, implied or otherwise, including any representation or warranty as to (i) the assets, businesses or liabilities retained, transferred or assumed, (ii) any consents, authorizations or approvals of third parties (including Governmental Authorities) required for the transfer or assumption by such party of any asset or liability, (iii) the value of any asset or freedom of any asset from any lien, claim, equity, encumbrance or other security interest or adverse claim, (iv) the absence of any defenses or right of set-off or freedom from counterclaim with respect to any claim or asset, or (v) the legal sufficiency to convey title to any asset. 17 14 (b) Each party hereto understands and agrees that there are no representations or warranties, express, implied or otherwise whatsoever, including, without limitation, no warranty, as to the merchantability or fitness of any of the Contributed Assets transferred to OMNOVA pursuant to this Agreement or any Ancillary Agreement, and all such Contributed Assets so transferred shall be transferred on an "AS IS, WHERE IS" basis. (c) Nothing contained in Section 2.09(a) or (b) shall alter, diminish or impair the obligations of the parties under any other provision of this Agreement or any Ancillary Agreement including, without limitation, under Article V hereof. ARTICLE III: DISTRIBUTION ----------- ------------ Section 3.01. DISTRIBUTION. On the date (the "Distribution Date") that has been established by the GenCorp Board for the distribution (the "Distribution") of the OMNOVA Common Stock, GenCorp shall distribute to each holder of record of shares of GenCorp Common Stock on the record date established by the GenCorp Board for the Distribution (the "Distribution Record Date") one share of OMNOVA Common Stock for every one share of GenCorp Common Stock so held. Section 3.02. DELIVERY. On the Distribution Date, GenCorp shall deliver to the Distribution Agent one or more stock certificates representing all the outstanding shares of OMNOVA Common Stock and shall instruct the Distribution Agreement to effect the Distribution. OMNOVA shall provide all stock certificates that the Distribution Agent may require in order to effect the Distribution. The Distribution shall be effective at 12:01 a.m. on the Distribution Date. ARTICLE IV: CERTAIN COVENANTS ---------- ----------------- Section 4.01. INTERIM USE OF GENCORP'S CORPORATE NAME. OMNOVA may, after the Closing Time, utilize without further obligation to compensate GenCorp, the trademarks or trade names "GenCorp" in connection with the items described below: (a) All stationery, forms, labels, product literature, invoices, purchase orders and other similar documents and supplies included in the Contributed Assets may be used by OMNOVA for a reasonable period after the Distribution Date not to exceed 12 months. (b) All inventory included in the Contributed Assets may be sold or otherwise disposed of by OMNOVA without remarking. (c) All molds, dies and similar items included in the Contributed Assets which produce products displaying GenCorp's trademark, trade name or corporate name, and all products produced using such molds or dies, may be used and produced until such time as such molds, dies and similar items are exhausted and replaced. 18 15 (d) All sample goods (tip cards, swatch books, loose swatches, binders and similar goods) both in stock and at distributors, specifiers, or others may be used until discontinuation of all product lines to which such sample goods pertain. (e) As the corporate name for any OMNOVA Entity for a reasonable period after the Distribution Date until a name change can be registered and approved by the applicable Governmental Authority but not to exceed 12 months. (f) As signage, e-mail addresses and similar uses for a reasonable period after the Distribution Date but not to exceed 12 months. Section 4.02. TRANSITION AND FURTHER ASSURANCES. (a) GenCorp shall, at any time and from time to time after the Closing Time, upon the reasonable request of OMNOVA and at GenCorp's expense, execute, acknowledge and deliver or cause to be executed, acknowledged and delivered all such further deeds, stock powers, bills of sale, certificates of title, assignments, transfers, conveyances, powers of attorney, notices of commencement and assurances and take such other action as may be reasonably requested by OMNOVA for the more effective assigning, transferring, granting, conveying, assuring and confirming to OMNOVA, or to its successors and assigns, of any of the Contributed Assets or aiding and assisting in collecting and reducing to possession by OMNOVA any or all of the Contributed Assets, and to protect the right, title and interest of OMNOVA therein and the enjoyment by OMNOVA thereof, and otherwise to carry out the purpose and intent of this Agreement. (b) Without limiting any provision hereof, GenCorp agrees that as of the Closing Time, OMNOVA shall be constituted and appointed the true and lawful attorney of GenCorp with respect to the Contributed Assets, with full power of substitution, in the name of OMNOVA or in the name of GenCorp or otherwise and for the sole benefit and at the sole expense of OMNOVA, to institute and prosecute all proceedings which OMNOVA may deem proper in order to collect, assert or enforce any claim, right or title of any kind in and to the Contributed Assets, to defend or compromise any and all suits and proceedings in respect of any of the Contributed Assets, and to do all such acts and things in relation thereto as OMNOVA in its sole discretion as may deem advisable. GenCorp acknowledges that the foregoing powers are coupled with an interest and shall not be revocable by GenCorp. OMNOVA shall be entitled to retain for its own account any amounts collected pursuant to the foregoing powers. Section 4.03. ASSETS ADMINISTRATION. If at any time or from time to time any party or member of such party's Group, shall receive or otherwise possess a right, property or asset that is owned by the other party or a member of the other party's Group, such party or member shall promptly notify the other party and transfer or cause to be transferred, such right, property or asset to such other party so entitled thereto without any hold back or set-off. Prior to such 19 16 transfer, such party or Group member receiving or possessing such right, property or asset shall hold such right, property or asset in trust for such other party. Section 4.04. CORRESPONDENCE. GenCorp hereby authorizes OMNOVA, on and after the Distribution Date, to receive and open mail addressed to GenCorp and to deal with the contents thereof in a responsible manner. OMNOVA shall promptly deliver to GenCorp any mail addressed to GenCorp that relates (or reasonably appears to relate) to the Retained Assets or Retained Liabilities. Section 4.05. INTERIM PERMIT OPERATIONS. Each party hereto shall prepare and file with the appropriate licensing and permitting authorities for the transfer or issuance, as may be necessary or advisable in connection with the transactions contemplated hereby, of all Permits required in order for OMNOVA to operate the Contributed Assets following the Closing Time. To the extent permitted by Legal Requirements, OMNOVA shall have the right to operate the Contributed Assets after the Closing Time under any Permits held by GenCorp which were not transferred to OMNOVA at the Closing Time and with respect to which notice has been given to the issuing Governmental Authority. Section 4.06. AGREEMENT FOR EXCHANGE OF INFORMATION. (a) Each of GenCorp and OMNOVA agrees to provide to the other, and to cause the members of its Group to provide, as soon as reasonably practicable after written request therefor, any Information in its possession or under its control which the requesting party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities or tax laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or other similar requirements, or (iii) to comply with its obligations under this Agreement or any Ancillary Agreement; provided, however, that in the event that any party determines that any such provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney-client privilege, the parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. (b) Any Information owned by GenCorp or OMNOVA that is provided to a requesting party pursuant to this Section 4.06 shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information. (c) If the party requested to provide such Information reasonably incurs more then nominal out-of-pocket costs to create, gather or copy such Information for the other party, then the providing party may request the other party to reimburse it for all reasonable out-of-pocket costs incurred to create, gather or copy such Information, which request shall not be 20 17 unreasonably denied. (d) The parties agree to use their reasonable efforts to retain all Information in their respective possession or control on the Distribution Date for a period of six years or such longer period as required by any applicable legal requirement and, with respect to the Information pertaining to Taxes, until the expiration of the applicable statute of limitations or as otherwise required by a Legal Requirement. No party will destroy or dispose of, or permit any member of its Group to destroy or disposal of, any Information which the other party may have the right to obtain pursuant to this Agreement prior to the sixth anniversary of the date hereof or the expiration of any such statute of limitations without first using its reasonable efforts to notify the other party of the proposed destruction or disposal and giving the other party the opportunity to take possession of such Information in lieu of such destruction. (e) The rights and obligations granted under this Section 4.06 are subject to any specific rights, obligations, limitations, qualifications or additional provisions regarding the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement. Section 4.07. WITNESS SERVICES. At all times from and after the Distribution Date, each of GenCorp and OMNOVA shall use its reasonable efforts to make available to the other party's Group, upon reasonable written request, the officers, directors, employees and agents of the members of its Group for the fact finding, consultation or interviews and as witnesses to the extent that such persons may reasonably be required in connection with the prosecution or defense of any action in which the requesting party or any member of its Group may from time to time be involved. If the party providing such services to the other party under this Section 4.07 reasonably incurs more than nominal out-of-pocket costs in providing such services, the providing party may request, which request shall not be unreasonably denied, the other party to shall reimburse it for all reasonable out-of-pocket costs incurred in providing such services. Section 4.08. CONFIDENTIALITY. Each of GenCorp and OMNOVA, on behalf of itself and each member of its Group, agrees to hold, and to cause its respective directors, officers, employees and agents to hold, in strict confidence, all Information owned by the other Group which is of a confidential or proprietary nature and which may be in its possession or which may hereafter be furnished by any member of such other Group or its respective directors, officers, employees or agents, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder, under an Ancillary Agreement or as otherwise agreed, except, in each case, to the extent that such Information (a) is in or later enters the public domain through no fault of such party or any member of its Group or any of their respective directors, officers, employees or agents, (b) later lawfully acquired from other sources by such party (or any member of such party's Group) which sources are not themselves bound by a confidentiality obligation, or (c) independently generated without reference to any proprietary or confidential Information of the other party. Each party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its directors, officers, employees and agents who need to know such Information (who shall be advised of their obligations hereunder 21 18 with respect to such Information). When any such Information is no longer needed for the purposes contemplated by this Agreement, any Ancillary Agreement or other agreement entered into by the parties, the party in possession thereof will promptly after request of the other party either return to the other party all Information in a tangible or electronic form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based thereon). Notwithstanding the immediately three preceding sentences, in the event that a member of a Group either determines on the advice of its counsel that it is required to disclose any Information pursuant to applicable law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of the other party (or any Group member of the other party) that is subject to the confidentiality provisions hereof, such party shall notify the other party prior to disclosing or providing such Information and shall cooperate at the expense of the requesting party in seeking any reasonable protective arrangements requested by such other party. Subject to the foregoing, the Person that received such request may thereafter disclose or provide Information to the extent required by such law (as so advised by counsel) or by lawful process or such Governmental Authority. Section 4.09. CERTAIN TAX MATTERS. (a) Neither the GenCorp Group nor the OMNOVA Group shall take any action inconsistent with, nor fail to take any action described in the Ruling Request or the Ruling, unless such Party (the "Proposing Party") has obtained the prior written consent of the other Party (the "Non-Proposing Party") which consent shall not be unreasonably withheld. The Non-Proposing Party shall grant its consent to an action proposed by the Proposing Party if the Proposing Party either (i) obtains a ruling with respect to the proposed action from the IRS or other applicable Tax Authority that is reasonably satisfactory, in form and substance, to the Non-Proposing Party and its tax counsel (except that the Proposing Party shall not submit any ruling request for the purpose of complying with this Section 4.09 if the Non-Proposing Party reasonably determines that filing such request might adversely affect the Non-Proposing Party), or (ii) obtains an opinion from tax counsel reasonably satisfactory to the Non-Proposing Party (both as to choice of counsel and the opinion given). Each of the parties covenants that it will cooperate in connection with any future submissions to the IRS in connection with the Ruling Request and the Ruling, and will certify to the extent it can do so, upon reasonable request, that the factual statements, representations and other similar conditions contained therein are true, correct and complete in all material respects. Each of the parties represents that neither it nor any of its Affiliates has any plan or intention to take any action which is inconsistent with any factual statements, representations or other similar conditions contained in the Ruling Request or in the Ruling. (b) ACTIVE BUSINESS; CONTINUITY OF BUSINESS ENTERPRISE. GenCorp and OMNOVA each represents that it has no plan or intent to reduce, eliminate or otherwise discontinue the businesses relied upon in the Ruling Request. Each of GenCorp and OMNOVA covenant that it will not take any action which might violate the "active trade or business" requirement under Section 355(b) of the Code or the "continuing of business enterprise" requirement for tax-free distributions under Section 355 of the Code within the two year period 22 19 beginning on the Distribution Date, without the prior written consent of the other party, which consent shall not be unreasonably withheld. (c) CHANGE IN CONTROL. GenCorp and OMNOVA each represents that, apart from the Spin-off, it has no plan or intention to engage in any transaction or transactions having the effect of a change in the ownership of 50% or more of its outstanding stock (by vote or value), within the meaning of Section 355(e) of the Code. Section 4.10. INSURANCE MATTERS. (a) With respect to any Losses suffered by OMNOVA or the OMNOVA Business relating to, resulting from or arising out of any events or occurrences prior to the Distribution Date (including, without limitation, in respect of the conduct of the OMNOVA Business or the ownership or operation of the Contributed Assets) for which GenCorp, any GenCorp Entity or any OMNOVA Entity would be entitled to assert, or cause any other Person to assert, a claim for recovery under any policy of insurance maintained by or for the benefit of GenCorp, any GenCorp Entity or any OMNOVA Entity (excluding insurance included in the Contributed Assets, first party property damage insurance, and any insurance which provides coverage exclusively to Aerojet-General and its subsidiaries and to no other member of the GenCorp Group or the OMNOVA Group) (collectively, "GenCorp Insurance"), at the request of OMNOVA, GenCorp will, in good faith, promptly assert and diligently prosecute one or more claims (an "Insurance Claim") under the GenCorp Insurance; provided that all of GenCorp's and any GenCorp Entities reasonable out-of-pocket costs and expenses incurred in connection with asserting and prosecuting such claim shall be promptly reimbursed by OMNOVA (including, without limitation, costs and expenses resulting from any deductible, policy limit, self-insurance retention, or retroactive or retrospective premium). Upon written request to GenCorp, OMNOVA shall have the right, at its expense, to take exclusive control of the prosecution and settlement of any Insurance Claim. GenCorp shall not settle any Insurance Claim without the consent of OMNOVA, which consent shall not be unreasonably withheld. GenCorp shall promptly pay to OMNOVA any amount received by GenCorp in respect of any Insurance Claim. The party not controlling the prosecution and settlement of an Insurance Claim shall reasonably cooperate with the other party and shall have the right, at its expense, to participate in, but not control the prosecution and settlement of any such Insurance Claim.. The party controlling the prosecution and settlement of an Insurance Claim shall keep the other party reasonably informed at all stages of the prosecution and/or settlement of such Insurance Claim. GenCorp shall not release, disseminate, commute or otherwise terminate (collectively,"Terminate") any policy of GenCorp Insurance unless: (i) GenCorp gives OMNOVA reasonable advance written notice of its intent to do so (which notice shall describe in reasonable detail the policy to be Terminated and the terms of the Termination sought to be entered into by GenCorp or any GenCorp Entity), (ii) GenCorp agrees in writing with OMNOVA to assume any and all liability that the insurer would have had in respect of any Loss which has or may be suffered by OMNOVA which but for such Termination would have been covered by the Terminated policy, and (iii) GenCorp provides OMNOVA with reasonable assurances of its ability to satisfy its obligations under (ii) above. 23 20 (b) With respect to any Losses suffered by OMNOVA or the OMNOVA Business relating to, resulting from or arising out of any events or occurrences prior to the Distribution Date (including, without limitation, in respect of the conduct of the OMNOVA Business or the ownership or operation of the Contributed Assets) for which GenCorp, any GenCorp Entity or any OMNOVA Entity would be entitled to assert, or cause any other Person to assert, a claim for recovery under any first party property damage policy of insurance maintained by or for the benefit of GenCorp, any GenCorp Entity or any OMNOVA Entity ("Property Insurance") at the request of OMNOVA, GenCorp will, in good faith, promptly assert and diligently prosecute one or more claims (a "Property Insurance Claim") under the Property Insurance; provided that all of GenCorp's and any GenCorp Entities reasonable out-of-pocket costs and expenses incurred in connection with asserting and prosecuting such claim shall be promptly reimbursed by OMNOVA (including, without limitation, costs and expenses resulting from any deductible, policy limit, self-insurance retention, or retroactive or retrospective premium). Upon written request to GenCorp, OMNOVA shall have the right, at its expense, to take exclusive control of the prosecution and settlement of any Property Insurance Claim. GenCorp shall not settle any Property Insurance Claim without the consent of OMNOVA, which consent shall not be unreasonably withheld. GenCorp shall promptly pay to OMNOVA any amount received by GenCorp in respect of any Property Insurance Claim. The party not controlling the prosecution and settlement of a Property Insurance Claim shall reasonably cooperate with the other party shall have the right, at its expense to participate in, but not control the prosecution or settlement of any such Property Insurance Claim. The party controlling the prosecution and settlement of a Property Insurance Claim shall keep the other party reasonably informed at all stages of the prosecution and/or settlement of such Property Insurance Claim. GenCorp shall not release, disseminate, commute or otherwise terminate any Property Insurance without the consent of OMNOVA, which consent shall not be unreasonably withheld. (c) Each of GenCorp and OMNOVA shall acquire and maintain in force for a period of three years (the "Initial Period") after the Distribution Date directors and officers insurance coverage equivalent to the directors and officers insurance coverage in force for GenCorp on the Distribution Date. If at any time and for any reason during the six years following the Initial Period a member of the GenCorp Group or OMNOVA Group decides to materially change, terminate or chooses not to renew such directors and officers insurance coverage in force at the end of the Initial Period, then the member deciding to materially change, terminate or choosing not to renew such coverage shall, at its expense, convert any such policy to a run-off policy that shall remain in force for not less than six years after the conversion date. Each of GenCorp and OMNOVA shall, upon the request of the other, from time to time, provide the other with a certificate of insurance evidencing such insurance coverage. (d) With respect to aircraft products produced by GenCorp prior to the date hereof, GenCorp and the members of its Group will include and maintain OMNOVA as a named insured under any Aircraft Products Liability Policy of GenCorp or of any member 24 21 of its Group which is in force as of the date hereof or which is hereafter obtained by GenCorp or any member of its Group. Upon OMNOVA's re quest, from time to time, GenCorp will provide OMNOVA with a certificate of insurance evidencing such insurance coverage. GenCorp will give OMNOVA reasonable advance written notice if GenCorp or a member of its Group ceases to maintain Aircraft Product Liability insurance which is substantially similar to the Aircraft Products Liability insurance in force as of the date hereof. ARTICLE V: INDEMNIFICATION --------- --------------- Section 5.01. INDEMNIFICATION BY GENCORP. Subject to Sections 5.03 and 5.04 GenCorp shall indemnify, defend and hold harmless OMNOVA, each OMNOVA Entity and each of their respective directors, officers, employees and agents, and each of the heirs, successors and assigns of any of the foregoing from and against all Losses arising out of, associated with, or resulting from: (a) any failure to perform or breach of any covenant or agreement made by GenCorp in this Agreement or in any Ancillary Agreement; (b) any failure to pay, perform or otherwise promptly discharge any Retained Liability; (c) any Spin-Off Taxes excluding any Spin-Off Taxes described in Section 5.02(c); or (d) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated in GenCorp's proxy statement dated July 2, 1999 (as the same was amended or modified, the "Proxy Statement") or necessary to make the statements made in the Proxy Statement not misleading. Section 5.02. INDEMNIFICATION BY OMNOVA. Subject to Sections 5.03 and 5.04, OMNOVA shall indemnify, defend and hold harmless GenCorp, each GenCorp Entity and each of their respective directors, officers, employees and agents, and each of the heirs, successors and assigns of any of the foregoing from and against all Losses arising out of, associated with, or resulting from: (a) any failure to perform or breach of any covenant or agreement made by OMNOVA in this Agreement or in any Ancillary Agreement; (b) any failure to pay, perform or otherwise promptly discharge any Assumed Liability; (c) any Spin-Off Taxes resulting from any member of the OMNOVA Group or any employee, officer or director of such member acting in his or her capacity as such, taking or failing to take any action following the Spin-Off (including any actions specified in Section 4.09) or any change in ownership of OMNOVA stock whether or not OMNOVA has acted or failed to 25 22 act in connection with such change, if such action or failure to act or such change in ownership causes the Spin-Off to fail to qualify as fully tax-free under Sections 368(a)(1)(D), 355, and 361, or any other provisions of the Code; or (d) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated in the Form 10 (or any amendment thereof) or necessary to make the statements made in the Form 10 (or any amendment thereof) not misleading. Section 5.03. THIRD PARTY CLAIM PROCEDURES. If a party receives notice of the assertion of any Third Party Claim in respect of which such party may have a claim under Section 5.01 or 5.02 then the following shall apply: (a) The party against whom any such Third Party Claim is made (the "Indemnified Party"), shall promptly provide written notice (an "Indemnity Notice") of such Third Party Claim to the other party (the "Indemnifying Party"). Such Indemnity Notice shall describe in reasonable detail the nature of the Third Party Claim and the basis for its claim under Section 5.01 or 5.02; provided that the failure to provide such notice shall not affect a party's rights under Section 5.01 or 5.02 except to the extent the other party is actually prejudiced by the failure to give such notice and then only to the extent of such actual prejudice. An Indemnity Notice by a party shall not preclude such party from giving subsequent Indemnity Notices with respect to other claims, whether arising before or after the claims for which prior notice is given. (b) Upon receipt of an Indemnity Notice, the Indemnifying Party shall have the right to promptly assume, at its sole cost and expense, the defense or settlement of such Third Party Claim with counsel reasonably acceptable to the Indemnified Party, provided that the Indemnifying Party has irrevocably agreed in writing to defend, indemnify and hold harmless the Indemnified Party in respect of all Losses arising or resulting from such Third Party Claim. The Indemnifying Party shall give prompt written notice to the Indemnified Party of its intent to enter into such agreement and assume the defense of any such Third Party Claim and shall conduct the defense and/or settlement of such Third Party Claim diligently and in good faith. If the Indemnifying Party enters into such agreement and assumes such defense then for so long as the Indemnifying Party is defending such Third Party Claim in accordance with its obligations hereunder then the Indemnified Party shall not admit any liability with respect to, or settle, any said Third Party Claim without the Indemnifying Party's prior written consent; provided, however, that the Indemnified Party shall have the right to settle, compromise or discharge such Third Party Claim without the consent of the Indemnifying Party if the Indemnified Party releases the Indemnifying Party from its indemnification obligation hereunder with respect to such Third Party Claim. If requested by the Indemnifying Party, the Indemnified Party shall cooperate fully in the defense or prosecution of any Third Party Claim the defense of which has been assumed by the Indemnifying Party, and the Indemnified Party shall furnish such records, information and testimony and attend all such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith, but if the Indemnified Party reasonably 26 23 incurs more than nominal out-of-pocket costs in so cooperating or acting at the request of the Indemnifying Party then the Indemnified Party may request, which request shall not be unreasonably denied, reimbursement from the Indemnifying Party for all reasonable out-of-pocket costs incurred by the Indemnified Party in so cooperating or acting. (c) Notwithstanding Section 5.03(b), if (i) an Indemnified Party is obligated to permit an insurer or other Person having liability therefore to assume the defense of a Third Party Claim, or (ii) an Indemnified Party determines in good faith that there is a reasonable possibility that a Third Party Claim may materially and adversely affect it or its assets or business other than as a result of the payment of monetary damages, or (iii) the Indemnifying Party and Indemnified Party are both named parties in a Third Party Claim and in the reasonable judgment of the Indemnified Party a conflict of interest (other than a dispute regarding the scope of the Indemnified Party's right to indemnification under this Agreement) between the Indemnified Party and the Indemnifying Party exists or (iv) if the Indemnifying Party fails, after reasonable notice from the Indemnified Party, to diligently and in good faith defend such Third Party Claim, then, at the option of the Indemnified Party, the Indemnifying Party shall not have the right to assume the defense of such Third Party Claim and the Indemnified Party may, by notice to the Indemnifying Party, reassume the defense of any such Third Party Claim previously assumed by the Indemnifying Party. No retention or reassumption of any such defense by the Indemnified Party shall prejudice any rights of the Indemnified Party under Section 5.01 or 5.02. (d) If the Indemnifying Party does not give notice and assume the defense of such Third Party Claim in accordance with Section 5.03(b) or is not entitled to assume or retain the defense thereof, the Indemnified Party shall have full authority to defend and/or settle any such Third Party Claim for the account of and at the sole risk, cost and expense of the Indemnifying Party. If the Indemnified Party undertakes the defense and/or settlement of any such Third Party Claim it shall do so diligently and in good faith and the Indemnifying Party shall from time to time upon the request of the Indemnified Party reimburse the Indemnified Party for the costs incurred by the Indemnified Party in defending and/or settling such Third Party Claim. The Indemnifying Party shall be bound by any settlement entered into by the Indemnified Party to the extent that such settlement is commercially reasonable measured in the context of the matter settled and by any judgment resulting from such Third Party Claim. If the Indemnifying Party had the right to assume the defense and settlement of such Third Party Claim and did not do so then, in any dispute between the Indemnifying Party and Indemnified Party regarding the defense or settlement of such Third Party Claim the Indemnifying Party shall have the burden to prove that the Indemnified Party did not defend such Third Party Claim diligently and in good faith and/or settle such claim in a commercially reasonable manner. (e) The Indemnifying Party shall not admit any liability, settle, compromise, pay or discharge, without the consent of the Indemnified Party, any Third Party Claim being defended by it, unless with respect to any settlement: (i) the Indemnified Party is not obligated to perform or to refrain from performing any act under such settlement and there is no encumbrance on any assets of the Indemnified Party; (ii) there is no finding or admission of any 27 24 violation of any Legal Requirement, violation of the rights of any Person by the Indemnified Party or any other liability or obligation of the Indemnified Party to any Person; and (iii) the Indemnified Party receives, as a part of such settlement, a complete release, in form and substance reasonably satisfactory to the Indemnified Party. (f) The party controlling the defense of a Third Party Claim shall keep the other party reasonably informed at all stages of the defense and/or settlement of such Third Party Claim. The party not controlling the defense of any such Third Party Claim shall have the right, at its sole cost and expense, to participate in, but not control, the defense of any such Third Party Claim. Section 5.04. INSURANCE RECOVERY. The amount that an Indemnifying Party is or may be required to pay to an Indemnified Party pursuant to Section 5.01 or 5.02 shall be reduced by any Insurance Proceeds or other amounts actually recovered by or on behalf of such Indemnified Party, in reduction of the related Loss. If an Indemnified Party shall have received the payment required by this Agreement from an Indemnifying Party in respect of any Loss and shall subsequently actually receive Insurance Proceeds or other amounts in respect of such Loss, then such Indemnified Party shall pay to such Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other amounts actually received (up to but not in excess of the amount of any indemnity payment made hereunder) less any costs reasonably incurred by the Indemnified Party to collect such Insurance Proceeds. No insurer or other Person shall: (a) be relieved of the responsibility to pay any claims which it would otherwise be obligated to pay in the absence of the foregoing indemnification provisions; (b) solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect to any claims which it would otherwise be obligated to pay or (c) be entitled to a benefit it would not be entitled to receive in the absence of the foregoing indemnification provisions. ARTICLE VI. MISCELLANEOUS PROVISIONS Section 6.01. NOTICES. All notices, demands and other communications which may or are required to be given to or made by either party to the other in connection with this Agreement shall be in writing (including telex, fax or other similar writing) and shall be deemed to have been duly given or made: (a) if sent by registered or certified mail, five days after the posting thereof with first class postage attached, (b) if sent by hand or overnight delivery, upon the delivery thereof and (c) if sent by telex or fax, upon confirmation of receipt of such telex or fax, in each case addressed to the respective parties as follows: GenCorp: GenCorp Inc. Highway 50 & Aerojet Road Rancho Cordova, CA 95670 Attn: Secretary OMNOVA: OMNOVA Solutions Inc. 28 25 175 Ghent Road Fairlawn, Ohio 44333 Attn: Secretary or to such other address and to the attention of such other persons as either party hereto may specify from time to time by notice to the other party. Section 6.02. ENTIRE AGREEMENT. This Agreement, the Schedules hereto and the Ancillary Agreements embody the entire agreement of the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements, oral or written, relative to said subject matter. Section 6.03. ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (other than by merger or pursuant to a sale of all or substantially all of a party's assets to one Person) by either of the parties hereto without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that no such assignment shall relieve the assigning party of any liabilities or obligations hereunder. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. Section 6.04. CAPTIONS. The Table of Contents and Article and Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. Section 6.05. WAIVER; CONSENT. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than by performance), in whole or in part, except by a writing executed by the parties hereto, and no waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given such waiver or consented thereto. Except to the extent that a party hereto may have otherwise agreed in writing, no waiver by that party of any breach by the other party of any of its obligations hereunder shall be deemed to be a waiver of any other subsequent or prior breach of the same or any other obligation by the other party, nor shall any forbearance by the first party to seek a remedy for any noncompliance or breach by the other party be deemed to be a waiver by the first party of its rights and remedies with respect to such noncompliance or breach. Section 6.06. NO THIRD PARTY BENEFICIARIES. Except as expressly provided in this Agreement, nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any Person any legal or equitable right, remedy, claim or other benefit under or by reason of this Agreement. 29 26 Section 6.07. SURVIVAL OF AGREEMENTS. All covenants and agreements of the parties contained in this Agreement shall survive the Closing Time and the Distribution Date. Section 6.08. EXPENSES. Except as otherwise set forth in this Agreement or any Ancillary Agreement, all costs and expenses incurred on or prior to the Distribution Date (whether or not paid on or prior to the Distribution Date) in connection with the preparation, execution, delivery and implementation of this Agreement and any Ancillary Agreement, the Separation, the Distribution and the consummation of the transactions contemplated hereby and thereby shall be charged to and paid by GenCorp. Except as otherwise set forth in this Agreement or any Ancillary Agreement, each party shall bear its own costs and expenses incurred after the Distribution Date. Section 6.09. GROUP PERFORMANCE. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein or in the Ancillary Agreements to be performed by a member of its Group. Section 6.10. COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Section 6.11. GENDER. Whenever the context requires, words used in the singular shall be construed to mean or include the plural and vice versa, and pronouns of any gender shall be deemed to include and designate the masculine, feminine or neuter gender. Section 6.12. GOVERNING LAW. This Agreement shall in all respects be construed in accordance with and governed by the laws of the State of Ohio exclusive of laws relating to conflicts of law. Section 6.13. INTERPRETATION. It is acknowledged by OMNOVA and GenCorp that this Agreement has undergone several drafts with the negotiated suggestions of each and, therefore, no presumptions shall arise favoring either party by virtue of the authorship of any provision of this Agreement. Section 6.14. BLUE PENCIL. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the court making the determination of invalidity or unenforceability shall have the power to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 30 27 Section 6.15. CONFLICTS. Notwithstanding any other provision of this Agreement, in the event of any conflict between this Agreement and the Employment Matters Agreement or this Agreement and the Tax Matters Agreement, the Employment Matters Agreement or the Tax Matters Agreement, as the case may be, shall control. Any Dispute under this Agreement shall be resolved as provided for in the Alternative Dispute Resolution Agreement, of even date, between GenCorp and OMNOVA. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. OMNOVA SOLUTIONS INC. GENCORP INC. By: /s/ James C. LeMay By: /s/ William R. Phillips ------------------------------- ----------------------------- Name: James C. LeMay Name: William R. Phillips ---------------------------- ---------------------- Title: Senior Vice President Title: Senior Vice President ---------------------------- --------------------------- 31 Schedule 1.01(a) Corporate Real Property GenCorp Corporate Headquarters 175 Ghent Road Fairlawn, Ohio 44333 GenCorp Technology Center 2990 Gilchrist Road Akron, Ohio 44305-44720 GenCorp Flight Operations Building #8 and lease of associated land 5430 Lauby Road North Canton, Ohio 44720 32 2 Schedule 1.01(b) Certain Discontinued Operations For the avoidance of doubt and notwithstanding Section 2.03, the following matters and locations and all liabilities and obligations arising or resulting therefrom shall be deemed to be, without limitation, Retained Liabilities: (i) FORMER FACILITY LOCATIONS: The following former facility locations:
1. Lawrence, Massachusetts - including, without 10. Troy, Michigan limitation, 70 General St. and 1 Marston St. 2. Ashtabula, Ohio 11. Montebello, California 3. Point Pleasant, West Virginia 12. Orange, California 4. Toledo, Ohio 13. Cranston, Rhode Island 5. Ada, Oklahoma 14. Compton, California 6. Cuba, Missouri 15. Southfield, Michigan 7. Shadeland, Texas 16. E. Rutherford, New Jersey 8. Reading, Massachusetts 9. Newman, Georgia
(ii) OTHER LOCATIONS: The following other locations: 1. Auburn Road Landfill, Londonderry, New Hampshire 2. Solvents Recovery Services of New England, Inc., Southington, Connecticut 3. Old Southington Landfill, Southington, Connecticut 4. Ashtabula River, Ashtabula County, Ohio 5. Fields Brook, Ashtabula County, Ohio 6. New Lyme Landfill, Ashtabula County, Ohio 7. Big D Landfill, Ashtabula, Ohio 8. Olin plant in Ashtabula, Ohio 33 3 9. Stickney/Tyler Road Landfills, Toledo, Ohio 10. Dura Avenue Landfill, Toledo, Ohio 11. Unnamed Tributary, Toledo, Ohio 12. King Road Landfill, East Sylvania Township, Lucas County, Ohio 13. Four County Landfill, Fulton County, Indiana 14. Industrial Excess Landfill, Uniontown, Ohio 15. Organic Chemical, Inc., Granville, Michigan 16. Diaz Refinery, Diaz, Arkansas 17. Chemical Recycling Inc., Wylie, Texas 18. Northside Sanitary Landfill, Marion, Indiana 19. PCB Treatment, Inc., Kansas City, Kansas and Kansas City, Missouri 20. Third Site, Zionsville, Indiana 21. Hardage/Criner Landfill, Criner, Oklahoma 22. Marion Bragg Dump, Marion, Indiana 23. Panasote, Pt. Pleasant, West Virginia 24. Randolph Dump Site, Columbus, Mississippi 25. Delta Chemical, North Buffalo Township, Pennsylvania (iii) OTHER MATTERS: All of the matters described in the Litigation Report (including the Appendices thereto) of W. R. Phillips to the Audit Committee dated August 31, 1999, excluding claims for defective commercial roofing described in Part 4.A., page 8 of Appendix B and page 2 of Appendix C of such report. 34 4 Schedule 1.01(c) OMNOVA Real Property -------------------- PERFORMANCE CHEMICALS - --------------------- Owned: - ----- 165 S. Cleveland Avenue 83 Authority Drive Mogadore, Ohio 44260 Fitchburg, MA 01420 1601 Highway 41 SW 1701 Cornell Road Calhoun, GA 30701-3651 Green Bay, WI 54313 One GenCorp Drive 6008 High Point Road Chester, SC 29706 Greensboro, NC 27407 Leased: - ------ 235 Brickyard Road Dalton, GA 30720 Wilson Street Warehouse Compartment Nos. 1 & 2 Chester, SC 35 5 DECORATIVE & BUILDING PRODUCTS - ------------------------------ Owned: - ----- Route 895 West, Hickory Drive Tonbridge Road, East Peckham Auburn, PA 17922-0429 Tonbridge, Kent England TN12 5JX 133 Yorkville Road East 5 Northeastern Blvd Columbus, MS 39702 Salem, NH 03079 Chambers Avenue 2011 Rocky River Rd., North Jeannette, PA 15644 Monroe, NC 28110 Leased: - ------ 14 Rue Des Parisiens Plejadenlaan 19 Anieres, France 19 Avenue des Pleiades 1200 Brussels, Belgium 2201 Coronation Boulevard 74-78 Wood Lane End Charlotte, NC Hemel Hempstead, Hertsfordshire England HP2 4 RF PO Box 34625 170 Rue De Javel Nr. GPO Umm Hureir Paris France 75015 Dubai, UAE 1359 Broadway 10 Bloomfield Avenue New York, New York 10018 Pine Brook, NJ 07058 1722 Indian Wood Circle Suite A 1414 West Randol Mill Suite 200-3 Maumee, OH 43537-4060 Arlington, TX 76012 516 Main Street - Apt B 302 N. El Camino Real - Suite 200-Unit 19 Loveland, OH 45140 San Clemente, CA 92672 2722 Chambers Drive 7403 East 6th Avenue - Suite 4 Monroe, NC 28110 Scottsdale, AZ 85251 Branch Estates 2000 E Lamar Blvd - Suite 600 - Office 36 3121 Route 22 Suite 214 Arlington, TX 76006 Somerville, NJ 08876-3500 36 6 20 Maylands Avenue 105-107 Dumbarton Road Hemel Hempstead Glasgow, Scotland G11 6PW Hertfordshire HP2 RF Parking Lot 1030 South LaGrange Road - Suite 3 Chambers Avenue-adjacent to mfg building LaGrange, IL 60525 Jeannette, PA 79/89 Pentonville Road Wira House Suite 4 Second Floor London, England N1 9LW West Park Ring Road Leeds, England LS16 6BD Lakeside Office Park 2710 Chambers Drive 591 North Avenue - Suite 2/1st Monroe, NC 28111 Wakefield, MA 01880 545 Orchard Road #09-05 131 Bradford Street - Suite 214 Far East Shopping Centre Bradford Court Singapore 238882 Birmingham, England B12 ONS 4/l Przy Bazantarni Street Paddock Wood Distribution Center Warsaw, Poland 02-793 Tonbridge Road, East Peckham Tonbridge, Kent England TN12 5JX 37 7 Schedule 1.01(d) OMNOVA Entities Decorative Products Thailand, Inc., an Ohio USA corporation CPPC - Decorative Products Company Limited, a Thailand limited company Decorative Products (Singapore) Pte, Ltd., a Singapore limited company GenCorp do Brasil Ltd., a Brazilian limited liability partnership GenCorp Services Inc., an Ohio USA corporation GenCorp Wallcovering (USA), Inc., an Ohio USA corporation GenCorp Wallcovering (UK) Limited, a United Kingdom limited company Muraspec SARL, a French societe a responsabilite limitee Muraspec Polska Sp. z.o.o., a Polish limited liability company GenCorp Wallcovering LLC, Dubai, an Emirate of Dubai limited liability company GenCorp Performance Chemicals (U.K.) Ltd. GenCorp Polymer Products SARL, a French societe a responsabilite limitee GenCorp Performance Chemicals (Singapore) Pte, Ltd., a Singapore limited company GenCorp Performance Chemicals Canada, a Canada corporation Sequa Chemicals, S.A., a Spanish public limited company Gen I Services, Inc., an Ohio USA corporation 38 8 Schedule 1.01(e) Discontinued OMNOVA Operations Any terminated, divested or discontinued business or operation of GenCorp or any OMNOVA Entity which: (i) is not a Known Liability AND (ii) is not included on Schedule 1.01(b) AND (iii) was terminated, divested or discontinued by GenCorp or an OMNOVA Entity on or after January 1, 1993 and prior to the Closing Time AND (iv) was, at the time of such termination, divestiture or discontinuance, engaged in the manufacture of specialty chemicals, coated fabrics, vinyl films, wallcovering, commercial roofing or other products or operations of the OMNOVA Business; provided, however, that the "Discontinued OMNOVA Operations" shall only include liabilities or obligations to the extent arising from the manufacture of specialty chemicals, coated fabrics, vinyl films, wallcovering, commercial roofing or other products or operations of the OMNOVA Business. The Discontinued OMNOVA Operations shall be deemed to include, without limitation, the divested residential wallcovering product line, the divested urethane adhesive product line and the divested Newcomerstown, Ohio facility. The inclusion of the divested residential wallcovering product line, divested urethane adhesive product line and the divested Newcomerstown, Ohio facility as Discontinued OMNOVA Operations shall not be considered in determining whether or not any other business or operation is included in or excluded from the Discontinued OMNOVA Operations. 39 9 Schedule 1.01(f) OMNOVA Intellectual Property EX-4.1 3 EXHIBIT 4.1 1 ================================================================================ CREDIT AGREEMENT by and among OMNOVA SOLUTIONS INC. as Borrower, BANK OF AMERICA, N.A., as Agent and as Lender and THE LENDERS PARTY HERETO FROM TIME TO TIME and BANC OF AMERICA SECURITIES, LLC as Sole Lead Arranger and Sole Book Manager and BANK ONE, MICHIGAN and KEYBANK NATIONAL ASSOCIATION as Co-Documentation Agents and THE BANK OF NEW YORK, THE INDUSTRIAL BANK OF JAPAN, LIMITED, MELLON BANK, N.A. and COMERICA BANK as Co-Agents September 30, 1999 ================================================================================ 2
TABLE OF CONTENTS Page ARTICLE I Definitions and Terms 1.1. Definitions..................................................................................................2 1.2. Rules of Interpretation.....................................................................................27 ARTICLE II The Credit Facilities 2.1. Revolving Loans.............................................................................................29 2.2. Use of Proceeds.............................................................................................32 2.3. Notes.......................................................................................................32 2.4. Swing Line..................................................................................................32 ARTICLE III Letters of Credit 3.1. Letters of Credit...........................................................................................34 3.2. Reimbursement and Participations............................................................................34 ARTICLE IV Eurodollar Funding, Fees, and Payment Conventions 4.1. Interest Rate Options.......................................................................................38 4.2. Conversions and Elections of Subsequent Interest Periods....................................................38 4.3. Payment of Interest.........................................................................................39 4.4. Prepayments of Eurodollar Rate Loans........................................................................39 4.5. Manner of Payment...........................................................................................39 4.6. Fees........................................................................................................40 4.7. Pro Rata Payments...........................................................................................41 4.8. Computation of Rates and Fees...............................................................................41 4.9. Deficiency Advances; Failure to Purchase Participations.....................................................41 4.10. Intraday Funding...........................................................................................42 ARTICLE V Change in Circumstances 5.1. Increased Cost and Reduced Return...........................................................................43
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5.2. Limitation on Types of Loans................................................................................44 5.3. Illegality..................................................................................................45 5.4. Treatment of Affected Loans.................................................................................45 5.5. Compensation................................................................................................45 5.6. Taxes.......................................................................................................46 ARTICLE VI Conditions to Making Loans and Issuing Letters of Credit 6.1. Conditions of Initial Advance...............................................................................48 6.2. Conditions of Revolving Loans and Letter of Credit..........................................................51 ARTICLE VII Representations and Warranties 7.1. Organization and Authority..................................................................................53 7.2. Transaction Documents.......................................................................................53 7.3. Governmental Authorization..................................................................................54 7.4. Capitalization; Subsidiaries; Investments...................................................................54 7.5. Financial Condition.........................................................................................55 7.6. Title to Properties.........................................................................................55 7.7. Litigation; Loss Contingencies..............................................................................55 7.8. No Default or Breach........................................................................................56 7.9. Material Contracts..........................................................................................56 7.10. Related Party Agreements...................................................................................56 7.11. Environmental Matters......................................................................................56 7.12. Compliance with Law........................................................................................57 7.13. Taxes......................................................................................................57 7.14. Employee Benefit Plans.....................................................................................58 7.15. Employment Matters.........................................................................................59 7.16. Intellectual Property......................................................................................59 7.17. Insurance..................................................................................................59 7.18. Books and Records..........................................................................................59 7.19. Judgments and Other Restrictions...........................................................................60 Investment Company; Margin Stock........................................................................60 7.21. Disclosure.................................................................................................60 7.22. Hedging Arrangements.......................................................................................60 7.23. Solvency...................................................................................................61 7.24. No Consents, Etc...........................................................................................61 7.25. Year 2000 Compliance.......................................................................................61 7.26. Tax Treatment of Spinoff...................................................................................61
ii 4 ARTICLE VIII Affirmative Covenants ---------------------
8.1. Financial Reports, Etc......................................................................................62 8.2. Maintain Properties.........................................................................................63 8.3. Existence, Qualification, Etc...............................................................................64 8.4. Regulations and Taxes.......................................................................................64 8.5. Insurance, Proceeds and Condemnation........................................................................64 8.6. True Books..................................................................................................64 8.7. Year 2000 Compliance........................................................................................64 8.8. Right of Inspection.........................................................................................65 8.9. Observe all Laws............................................................................................65 8.10. Governmental Licenses......................................................................................65 8.11. Covenants Extending to Other Persons.......................................................................65 8.12. Officer's Knowledge of Default.............................................................................65 8.13. Suits or Other Proceedings.................................................................................65 8.14. Environmental Laws.........................................................................................65 8.15. Further Assurances.........................................................................................66 8.16. Employee Benefit Plans.....................................................................................66 8.17. Continued Operations.......................................................................................67 8.18. New Subsidiaries...........................................................................................67 8.19. Compliance with Material Contracts.........................................................................68 ARTICLE IX Negative Covenants 9.1. Financial Covenants.........................................................................................69 9.2. Acquisitions................................................................................................69 9.3. Capital Expenditures........................................................................................69 9.4. Liens.......................................................................................................69 9.5. Indebtedness................................................................................................71 9.6. Transfer of Assets..........................................................................................71 9.7. Investments.................................................................................................72 9.8. Merger or Consolidation.....................................................................................72 9.9. Transactions with Affiliates................................................................................73 9.10. Compliance with ERISA, the Code and Foreign Benefit Laws...................................................73 9.11. Fiscal Year................................................................................................74 9.12. Dissolution, etc...........................................................................................74 9.13. Limitations on Sales and Leasebacks........................................................................74 9.14. Rate Hedging Obligations...................................................................................74 9.15. Negative Pledge Clauses....................................................................................74 9.16. Restricted Payments........................................................................................75 9.17. Redemption, Prepayment, or Amendment of Senior Notes and Other Indebtedness................................75 9.18. Amendment of Line of Business Transfer Documents and Spinoff Documents.....................................75
iii 5 ARTICLE X EVENTS OF DEFAULT AND ACCELERATION
10.1. Events of Default..........................................................................................76 10.2. Agent to Act...............................................................................................79 10.3. Cumulative Rights..........................................................................................79 10.4. No Waiver..................................................................................................80 10.5. Allocation of Proceeds.....................................................................................80 ARTICLE XI THE AGENT 11.1. Appointment, Powers, and Immunities........................................................................81 11.2. Reliance by Agent..........................................................................................81 11.3. Defaults...................................................................................................82 11.4. Rights as Lender...........................................................................................82 11.5. Indemnification............................................................................................82 11.6. Non-Reliance on Agent and Other Lenders....................................................................83 11.7. Resignation of Agent.......................................................................................83 ARTICLE XII Miscellaneous 12.1. Assignments and Participations.............................................................................84 12.2. Notices....................................................................................................86 12.3. Right of Set-off; Adjustments..............................................................................87 12.4. Survival...................................................................................................88 12.5. Expenses...................................................................................................88 12.6. Amendments and Waivers.....................................................................................88 12.7. Counterparts...............................................................................................89 12.8. Termination................................................................................................89 12.9. Indemnification; Limitation of Liability...................................................................90 12.10. Severability..............................................................................................90 12.11. Entire Agreement..........................................................................................91 12.12. Agreement Controls........................................................................................91 12.13. Usury Savings Clause......................................................................................91 12.14. Payments..................................................................................................91 12.15. Confidentiality...........................................................................................92 12.16. Governing Law; Waiver of Jury Trial.......................................................................92 12.17. Special Funding Option....................................................................................93 EXHIBIT A Applicable Commitment Percentages...................................................A-1
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EXHIBIT B Form of Assignment and Acceptance...................................................B-1 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative..................C-1 EXHIBIT D-1 Form of Borrowing Notice............................................................D-1-1 EXHIBIT D-2 Form of Borrowing Notice--Swing Line Loans..........................................D-2-1 EXHIBIT E Form of Interest Rate Selection Notice..............................................E-1 EXHIBIT F-1 Form of Revolving Note..............................................................F-1-1 EXHIBIT F-2 Form of Swing Line Note.............................................................F-2-1 EXHIBIT G Form of Opinion of Borrower's Counsel...............................................G-1 EXHIBIT H Compliance Certificate..............................................................H-1 EXHIBIT I Form of Facility Guaranty...........................................................I-1 EXHIBIT J Form of LC Account Agreement........................................................J-1 Schedule 7.4 Capital Stock, Subsidiaries and Investments in Other Persons........................S-1 Schedule 7.5 Indebtedness........................................................................S-2 Schedule 7.6 Liens and Real Property.............................................................S-3 Schedule 7.7 Litigation..........................................................................S-4 Schedule 7.8 Defaults............................................................................S-5 Schedule 7.10 Related Party Agreements............................................................S-6 Schedule 7.11 Environmental Matters...............................................................S-7 Schedule 7.14 Employee Benefit Plans..............................................................S-8 Schedule 7.15 Employment Matters..................................................................S-9 Schedule 7.16 Intellectual Property...............................................................S-10 Schedule 7.17 Insurance...........................................................................S-11 Schedule 7.22 Hedging Arrangements................................................................S-12
v 7 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of September 30, 1999 (the "Agreement"), is made by and among OMNOVA SOLUTIONS INC., an Ohio corporation having its principal place of business in Fairlawn, Ohio (the "Borrower"), BANK OF AMERICA, N.A., a national banking association organized and existing under the laws of the United States, in its capacity as a Lender ("Bank of America"), and each other financial institution executing and delivering a signature page hereto and each other financial institution which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to SECTION 12.1 (hereinafter such financial institutions may be referred to individually as a "Lender" or collectively as the "Lenders"), and BANK OF AMERICA, N.A., a national banking association organized and existing under the laws of the United States, in its capacity as agent for the Lenders (in such capacity, and together with any successor agent appointed in accordance with the terms of SECTION 11.7, the "Agent"); W I T N E S S E T H: -------------------- WHEREAS, the Borrower has requested that the Lenders make available to the Borrower a revolving credit facility in the maximum aggregate principal amount at any time outstanding of up to $300,000,000, the proceeds of which are to be used for working capital, capital expenditures, the making of the Special Distribution (as defined below), permitted acquisitions and other lawful general corporate purposes and which shall include a letter of credit facility of up to $25,000,000 for the issuance of standby and commercial letters of credit and a swing line facility of up to $10,000,000; and WHEREAS, the Lenders are willing to make such revolving credit, letter of credit and swing line facilities available to the Borrower upon the terms and conditions set forth herein; NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: 8 ARTICLE I Definitions and Terms 1.1. DEFINITIONS. For the purposes of this Agreement, in addition to the definitions set forth above, the following terms shall have the respective meanings set forth below: "Acquisition" means the acquisition of (i) a controlling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person which constitute all or any material part of the assets of such Person or of a line or lines of business conducted by such Person. "Advance" means a borrowing under the Revolving Credit Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan. "Affected Loans" and "Affected Type" have the meanings therefor provided in SECTION 5.4. "Affiliate" means any Person other than a wholly owned Subsidiary or an Employee Benefit Plan (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with the Borrower; or (ii) which beneficially owns or holds 10% or more of any class of the outstanding voting stock (calculated after giving effect pro forma to the conversion of all issued and outstanding capital stock convertible into voting stock of the Borrower) (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of the Borrower; or (iii) 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of which is beneficially owned or held by the Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise. "Applicable Commitment Percentage" means, for each Lender at any time, a fraction, with respect to the Revolving Credit Facility and the Letter of Credit Facility the numerator of which shall be such Lender's Revolving Credit Commitment and the denominator of which shall be the Total Revolving Credit Commitment, which Applicable Commitment Percentage for each Lender as of the Closing Date is as set forth in EXHIBIT A; PROVIDED that the Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with SECTION 12.1. "Applicable Lending Office" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for 2 9 such Type of Loan on the signature pages hereof or such other office of such Lender (or an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" means: (i) except as otherwise selected by the Borrower pursuant to clause (ii) below and applicable in accordance with the terms of clause (ii), that percent per annum set forth below, which shall be based upon the Consolidated Leverage Ratio for the Four-Quarter Period most recently ended as specified below: Applicable Level Consolidated Leverage Ratio Margin ----- --------------------------- ------ I Greater than 2.25 to 1.00 1.50% II Less than or equal to 2.25 to 1.00 but greater than 1.50 to 1.00 1.25% III Less than or equal to 1.50 to 1.00 but greater than 0.75 to 1.00 1.00% IV Less than or equal to 0.75 to 1.00 0.75% The Applicable Margin shall be established at the end of each fiscal quarter of the Borrower (each, a "Determination Date"). Any change in the Applicable Margin following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to SECTION 8.1(a)(ii) and SECTION 8.1(b)(ii), subject to review and approval of such computations by the Agent, and shall be effective commencing on the fifth Business Day following the date such certificate is received until the fifth Business Day following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur; PROVIDED HOWEVER, if the Borrower shall fail to deliver any such certificate within the time period required by SECTION 8.1, then the Applicable Margin shall be Level I for Eurodollar Rate Loans from the date such certificate was due until the appropriate certificate is so delivered. Subject to the proviso in the preceding sentence, from the Closing Date to and including the Determination Date as to which the Borrower has delivered the certificate described above demonstrating the Borrower's Consolidated Leverage Ratio for two Complete Fiscal Quarters occurring after the Spinoff (the "Fixed Margin Period"), the Applicable Margin for Eurodollar Rate Loans shall be no lower than Level III; or (ii) if the Borrower selects at any time after the Fixed Margin Period that the Applicable Margin shall be determined based on the Borrower's Debt Rating (as defined below), then at such time and at all times thereafter until the Revolving Credit 3 10 Termination Date, that percent per annum set forth below in the applicable column, which shall be (a) determined based upon the rating of each rated class of the Borrower's long-term, senior unsecured Indebtedness for Money Borrowed (the "Rated Debt"), assigned by S&P and Moody's (the "Debt Rating") as specified below and (b) applicable to all Eurodollar Loans existing on and after the first date a specific Debt Rating is effective and continuing until, but not including, the date any change in such Debt Rating is effective (the "Debt Rating Date"):
Applicable Level Debt Rating Margin ----- ----------- ------ I Less than or equal to BB by S&P and Ba2 by Moody's 1.50% II BB+ by S&P and Ba1 by Moody's 1.25% III BBB- by S&P and Baa3 by Moody's 1.00% IV BBB by S&P and Baa2 by Moody's 0.875% V Greater than or equal to BBB+ by S&P and Baa1 by Moody's 0.75%
In the event that the Debt Ratings assigned by S&P and Moody's differ by one rating level, the Applicable Margin shall be determined by reference to the rating level having the higher Debt Rating (and lower Applicable Margin) without regard to the lower Debt Rating. In the event that the Debt Ratings assigned by S&P and Moody's differ by more than one rating level, the Applicable Margin shall be determined by reference to the Debt Rating which is one rating level higher than the lower assigned Debt Rating without regard to the higher assigned Debt Rating. The final Debt Rating level by which the Applicable Margin is determined is referred to herein as a "Level". By way of illustration and not limitation, if S&P assigned a rating of BB+ (i.e., Level II) and Moody's assigns a rating of Baa3 (i.e., Level III), the Applicable Margin will be 1.00% (i.e. Level III); however if S&P assigns a rating of BB (i.e., Level I) and Moody's assigns a rating of Baa1 (i.e., Level V), the Applicable Margin will be 1.25% (i.e. Level II). In the event that both S&P and Moody's do not make a Debt Rating, the Applicable Margin shall be determined based on the Consolidated Leverage Ratio pursuant to clause (i) above. "Applicable Unused Fee" means: (i) except as otherwise selected by the Borrower pursuant to clause (ii) below and applicable in accordance with the terms of clause (ii), that percent per annum set forth below, which shall be based upon the Consolidated Leverage Ratio for the Four-Quarter Period most recently ended as specified below: 4 11 Applicable Unused Level Consolidated Leverage Ratio Fee ----- --------------------------- ---------- I Greater than 2.25 to 1.00 0.35% II Less than or equal to 2.25 to 1.00 but greater than 1.50 to 1.00 0.30% III Less than or equal to 1.50 to 1.00 but greater than 0.75 to 1.00 0.25% IV Less than or equal to 0.75 to 1.00 0.20% The Applicable Unused Fee shall be established at each Determination Date. Any change in the Applicable Unused Fee following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to SECTION 8.1(a)(ii) and SECTION 8.1(b)(ii), subject to review and approval of such computations by the Agent and shall be effective commencing on the fifth Business Day following the date such certificate is received until the fifth Business Day following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur; PROVIDED HOWEVER, if the Borrower shall fail to deliver any such certificate within the time period required by SECTION 8.1, then the Applicable Unused Fee shall be Level I from the date such certificate was due until the appropriate certificate is so delivered. Subject to the proviso in the preceding sentence, during the Fixed Margin Period the Applicable Unused Fee shall be no lower than Level III; or (ii) if the Borrower selects at any time after the Fixed Margin Period that the Applicable Margin shall be determined based on the Borrower's Debt Rating, then at such time and at all times thereafter until the Revolving Credit Termination Date, that percent per annum set forth below in the applicable column, which shall be (a) determined based upon the Debt Rating as specified below and (b) applicable on and after the first date a specific Debt Rating is effective and continuing until, but not including, the date any change in such Debt Rating is effective:
Applicable Level Debt Rating Unused Fee ----- ----------- ---------- I Less than or equal to BB by S&P and Ba2 by Moody's 0.30% II BB+ by S&P and Ba1 by Moody's 0.25% III BBB- by S&P and Baa3 by Moody's 0.20% IV BBB by S&P and Baa2 by Moody's 0.175%
5 12
V Greater than or equal to BBB+ by S&P and Baa1 by Moody's 0.15%
In the event that the Debt Ratings assigned by S&P and Moody's differ by one rating level, the Applicable Unused Fee shall be determined by reference to the rating level having the higher Debt Rating (and lower Applicable Unused Fee) without regard to the lower Debt Rating. In the event that the Debt Ratings assigned by S&P and Moody's differ by more than one rating level, the Applicable Unused Fee shall be determined by reference to the Debt Rating which is one rating level higher than the lower assigned Debt Rating without regard to the higher assigned Debt Rating. The final Debt Rating level by which the Applicable Unused Fee is determined is referred to herein as a "Level". By way of illustration and not limitation, if S&P assigned a rating of BB+ (i.e., Level II) and Moody's assigns a rating of Baa3 (i.e., Level III), the Applicable Unused Fee will be 0.20% (i.e. Level III); however if S&P assigns a rating of BB (i.e., Level I) and Moody's assigns a rating of Baa1 (i.e., Level V), the Applicable Unused Fee will be 0.25% (i.e. Level II). In the event that both S&P and Moody's do not make a Debt Rating, the Applicable Unused Fee shall be determined based on the Consolidated Leverage Ratio pursuant to clause (i) above. "Applications and Agreements for Letters of Credit" means, collectively, the Applications and Agreements for Letters of Credit, or similar documentation, executed by the Borrower from time to time and delivered to the Issuing Bank to support the issuance of Letters of Credit. "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of EXHIBIT B (with blanks appropriately filled in) delivered to the Agent in connection with an assignment of a Lender's interest under this Agreement pursuant to SECTION 12.1. "Authorized Representative" means the Chief Financial Officer of the Borrower, or any other Person expressly designated by a Responsible Officer or the Board of Directors of the Borrower (or the appropriate committee thereof) as an Authorized Representative of the Borrower, as set forth from time to time in a certificate in the form of EXHIBIT C. "Bank of America" means Bank of America, N.A. "BAS" means Banc of America Securities LLC and its successors. "Base Rate" means, for any day, the rate per annum equal to the higher of (i) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (ii) the Prime Rate for such day. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. 6 13 "Base Rate Loan" means a Loan for which the rate of interest is determined by reference to the Base Rate. "Base Rate Refunding Loan" means a Base Rate Loan or Swing Line Loan made either to (i) satisfy Reimbursement Obligations arising from a drawing under a Letter of Credit or (ii) pay Bank of America in respect of Swing Line Outstandings. "Board" means the Board of Governors of the Federal Reserve System (or any successor body). "Borrower's Account" means a demand deposit account number 3751372974 or any successor account with the Agent, which may be maintained at one or more offices of the Agent or an agent of the Agent. "Borrowing Notice" means the notice delivered by an Authorized Representative in connection with an Advance under the Revolving Credit Facility or a Swing Line Loan, in the forms of EXHIBITS D-1 AND D-2, respectively. "Business Day" means, (i) except as expressly provided in clause (ii), any day which is not a Saturday, Sunday or a day on which banks in the States of New York and North Carolina are authorized or obligated by law, executive order or governmental decree to be closed and, (ii) with respect to the selection, funding, interest rate, payment, and Interest Period of any Eurodollar Rate Loan, any day which is a Business Day, as described above, and on which the relevant international financial markets are open for the transaction of business contemplated by this Agreement in London, England, New York, New York and Charlotte, North Carolina. "Capital Expenditures" means, with respect to the Borrower and its Subsidiaries, for any period the SUM of (without duplication) (i) all expenditures (whether paid in cash or accrued as liabilities) by the Borrower or any Subsidiary during such period for items that would be classified as "property, plant or equipment" or comparable items on the consolidated balance sheet of the Borrower and its Subsidiaries, including without limitation all transactional costs incurred in connection with such expenditures provided the same have been capitalized, excluding, however, the amount of any Capital Expenditures paid for with proceeds of casualty insurance as evidenced in writing and submitted to the Agent together with any compliance certificate delivered pursuant to SECTION 8.1(a) or (b), and (ii) with respect to any Capital Lease entered into by the Borrower or its Subsidiaries during such period, the present value of the lease payments due under such Capital Lease over the term of such Capital Lease applying a discount rate equal to the interest rate provided in such lease (or in the absence of a stated interest rate, that rate used in the preparation of the financial statements described in SECTION 8.1(a), all the foregoing in accordance with GAAP applied on a Consistent Basis. 7 14 "Capital Leases" means all leases which have been or should be capitalized in accordance with GAAP as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof. "Change of Control" means, at any time: (i) any "person" or "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) either (A) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act ), directly or indirectly, of Voting Securities of the Borrower (or securities convertible into or exchangeable for such Voting Securities) representing thirty percent (30%) or more of the combined voting power of all Voting Securities of the Borrower (on a fully diluted basis) or (B) otherwise has the ability, directly or indirectly, to elect a majority of the board of directors of the Borrower; or (ii) during any period of up to 24 consecutive months, commencing on the Closing Date, individuals who at the beginning of such 24-month period were directors of the Borrower shall cease for any reason to constitute a majority of the board of directors of the Borrower, unless the nomination for election by the Borrower's stockholders of each new director of the Borrower was approved by a vote of at least two-thirds of the directors of the Borrower still in office who were directors of the Borrower at the beginning of any such period. "Closing Date" means the date as of which this Agreement is executed by the Borrower, the Lenders and the Agent and on which the conditions set forth in SECTION 6.1 have been satisfied. "Code" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. "Complete Fiscal Quarter" means a full fiscal quarter of the Borrower including the first and last days of such fiscal quarter. "Consistent Basis" in reference to the application of GAAP means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Borrower referred to as of the Closing Date in SECTION 7.6(a). "Consolidated Cash Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Borrower and its Subsidiaries paid in cash, including without limitation (i) all fees paid during such period and (ii) the portion of any payments made in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with GAAP applied on Consistent Basis. 8 15 "Consolidated EBITDA" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the SUM of, without duplication, (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) taxes on income, (iv) amortization, and (v) depreciation, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Interest Coverage Ratio" means with respect to the Borrower and its Subsidiaries, for any Four-Quarter Period ending on the date of computation thereof, the ratio of (i) Consolidated EBITDA for such period to (ii) Consolidated Cash Interest Expense for such period. "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Borrower and its Subsidiaries, including without limitation (i) the current amortized portion of debt discounts to the extent included in gross interest expense, (ii) the current amortized portion of all fees (including fees payable in respect of any Swap Agreement) payable in connection with the incurrence of Indebtedness to the extent included in gross interest expense and (iii) the portion of any payments made in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Leverage Ratio" means, as of the date of computation thereof, the ratio of (i) Consolidated Total Funded Debt (determined as at such date) to (ii) Consolidated EBITDA (for the Four-Quarter Period ending on (or most recently ended prior to) such date). "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of the Borrower and its Subsidiaries (including payments received by the Borrower and its Subsidiaries of (i) interest income, and (ii) dividends and distributions made in the ordinary course of their businesses by Persons in which investment is permitted pursuant to this Agreement and not related to an extraordinary event), less all operating and non-operating expenses of the Borrower and its Subsidiaries including taxes on income, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; but excluding as income: (i) net gains on the sale, conversion or other disposition of capital assets, (ii) net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of the Borrower or its Subsidiaries, (iii) net gains on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, and (v) any other net gain or credit of an extraordinary nature as determined in accordance with GAAP applied on a Consistent Basis; PROVIDED FURTHER, HOWEVER, that Consolidated Net Income shall be determined without giving effect to FASB 133 Adjustments as may be required by GAAP. "Consolidated Total Assets" means, as of any date on which the amount thereof is to be determined, the net book value of all assets of the Borrower and its Subsidiaries as 9 16 determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Total Funded Debt" means all Indebtedness for Money Borrowed of the Borrower and its Subsidiaries, all determined on a consolidated basis. "Contingent Obligation" of any Person means all contingent liabilities required to be included in the financial statements, or disclosed in the footnotes thereto, of such Person in accordance with GAAP applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, all Rate Hedging Obligations and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including the obligations of such Person however incurred: (1) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (2) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (3) to grant or convey any Lien on any property or assets of such Person to secure the payment of such Indebtedness or other obligation; (4) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (5) otherwise to assure the owner of such Indebtedness or such obligation of the primary obligor against loss in respect thereof. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to SECTION 4.2 hereof of a Eurodollar Rate Loan of one Type as a Eurodollar Rate Loan of the same Type from one Interest Period to the next Interest Period. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to SECTION 4.2 of one Type of Loan into another Type of Loan. "Credit Parties" means, collectively, the Borrower and each Guarantor. "Debt Rating" and "Debt Rating Date" shall have the meanings provided therefor in the definition of "Applicable Margin." 10 17 "Default" means any event or condition which, with the giving or receipt of notice or lapse of time or both, would constitute an Event of Default hereunder. "Default Rate" means (i) with respect to each Eurodollar Rate Loan, until the end of the Interest Period applicable thereto, a rate of two percent (2%) above the Eurodollar Rate applicable to such Loan, and thereafter at a rate of interest per annum which shall be two percent (2%) above the Base Rate, (ii) with respect to Base Rate Loans, Swing Line Loans, Reimbursement Obligations, fees, and other amounts payable in respect of Obligations (other than Obligations arising under or in connection with Swap Agreements) or (except as otherwise expressly provided therein) the obligations of any other Credit Party under any of the other Loan Documents, a rate of interest per annum which shall be two percent (2%) above the Base Rate and (iii) in any case, the maximum rate permitted by applicable law, if lower. "Determination Date" has the meaning therefor provided in the definition of "Applicable Margin." "Distribution Agreement" means the Distribution Agreement dated as of September 30, 1999 between GenCorp and the Borrower providing for the Line of Business Transfer and other related matters. "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America. "Domestic Material Subsidiary" means any Domestic Subsidiary which is also a Material Subsidiary. "Domestic Subsidiary" means any Subsidiary of the Borrower organized under the laws of the United States of America, any state or territory thereof or the District of Columbia. "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a Lender, and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with SECTION 12.1, the Borrower, in each case, such approval not to be unreasonably withheld (provided that the incurrence by the Borrower of additional costs pursuant to SECTION 5.6 as a result of such assignment shall constitute a reasonable basis for withholding such consent) or delayed by the Borrower and such approval to be deemed given by the Borrower (in the absence of notice to the contrary, effective upon receipt) within five Business Days after notice of such proposed assignment has been provided by the assigning Lender to the Borrower; PROVIDED, HOWEVER, that neither the Borrower nor an affiliate of the Borrower shall qualify as an Eligible Assignee. "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Agent: 11 18 (a) Government Securities; (b) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, expressed to mature not later than 92 days following the date of issuance thereof and rated in an investment grade rating category by S&P and Moody's; (c) interest bearing demand or time deposits issued by any Lender or certificates of deposit maturing within one year from the date of issuance thereof and issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $400,000,000 and being rated "A" or better by S&P or "A" or better by Moody's; (d) Repurchase Agreements; (e) Municipal Obligations; or (f) shares of mutual funds which invest in obligations described in paragraphs (a) through (e) above, the shares of which mutual funds are at all times rated "AAA" by S&P. "Employee Benefit Plan" means (i) any employee benefit plan, including any Pension Plan, within the meaning of Section 3(3) of ERISA which (A) is maintained for employees of the Borrower or any of its ERISA Affiliates, or any Subsidiary or is assumed by the Borrower or any of its ERISA Affiliates, or any Subsidiary in connection with any Acquisition or (B) has at any time within the previous six (6) years been maintained by the Borrower for the employees of the Borrower, any current or former ERISA Affiliate, or any Subsidiary and (ii) any plan, arrangement, understanding or scheme maintained by the Borrower or any Subsidiary that provides retirement, deferred compensation, employee or retiree medical or life insurance, severance benefits or any other benefit covering any employee or former employee and which is administered under any Foreign Benefit Law or regulated by any Governmental Authority other than the United States of America. "Employee Matters Agreement" means the Agreement on Employee Matters dated as of September 30, 1999 between GenCorp and the Borrower providing for the treatment of employee benefit matters and other compensation arrangements for former and current employees of the Borrower and its Subsidiaries. "Environmental Laws" means, collectively, any (i) Federal, state, local or foreign statute, law, ordinance, code, rule or regulation, or (ii) order or decree issued to or against the Borrower or any Subsidiary, in either case regulating, relating to, or imposing liability 12 19 or standards of conduct concerning, any environmental matters or conditions, environmental protection or conservation, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the Superfund Amendments and Reauthorization Act of 1986, as amended; the Resource Conservation and Recovery Act, as amended; the Toxic Substances Control Act, as amended; the Clean Air Act, as amended; the Clean Water Act, as amended; together with all regulations promulgated thereunder, and any other "Superfund" or "Superlien" law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. "ERISA Affiliate", as applied to the Borrower, means any Person or trade or business which is a member of a group which is under common control with the Borrower, who together with the Borrower, is treated as a single employer within the meaning of Section 414(b) and (c) of the Code. "Eurodollar Rate Loan" means a Loan for which the rate of interest is determined by reference to the Eurodollar Rate. "Eurodollar Rate" means the interest rate per annum calculated according to the following formula: Eurodollar = Interbank Offered Rate + Applicable ------------------------ Rate 1- Reserve Requirement Margin "Event of Default" means any of the occurrences set forth as such in SECTION 10.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. "Existing GenCorp Credit Agreement" means, collectively, (i) that certain Credit Agreement dated as of May 17, 1996 among GenCorp, NationsBank, N.A. (predecessor in interest to Bank of America) ("NationsBank") as agent and lender, and the other lenders party thereto, as amended. "Facility Guaranty" means each Guaranty Agreement substantially in the form of EXHIBIT I between one or more Guarantors and the Agent for the benefit of the Agent and the Lenders, delivered as of the Closing Date and otherwise pursuant to SECTION 8.18, as the same may be amended, modified or supplemented. "Facility Termination Date" means such date as all of the following shall have occurred: (a) the Borrower shall have permanently terminated the Revolving Credit Facility and the Swing Line by payment in full of all Revolving Credit Outstandings and Letter of Credit Outstandings and Swing Line Outstandings, together with all accrued and 13 20 unpaid interest thereon, except for the undrawn portion of Letters of Credit as have been fully cash collateralized in a manner consistent with the terms of SECTION 10.1(B), (b) all Swap Agreements shall have been terminated, expired or cash collateralized, (c) all Revolving Credit Commitments and Letter of Credit Commitments shall have terminated or expired and (d) the Borrower shall have fully, finally and irrevocably paid and satisfied in full all Obligations (other than Obligations consisting of continuing indemnities and other Contingent Obligations of the Borrower or any Guarantor that may be owing to the Lenders pursuant to the Loan Documents and expressly survive termination of this Agreement); "FASB 133 Adjustments" means entries on or adjustments to any balance sheet or statement of income in respect of derivatives or hedging instruments as required or permitted by Statement of Financial Accounting Standards No. 133. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fiscal Year" means the twelve month fiscal period of the Borrower and its Subsidiaries commencing on December 1 of each calendar year and ending on November 30 of the subsequent calendar year. "Fixed Margin Period" shall have the meaning therefor provided in the definition of "Applicable Margin." "Foreign Benefit Law" means any applicable statute, law, ordinance, code, rule, regulation, order or decree of any foreign nation or any province, state, territory, protectorate or other political subdivision thereof regulating, relating to, or imposing liability or standards of conduct concerning, any Employee Benefit Plan. "Four-Quarter Period" means a period of four full consecutive fiscal quarters of the Borrower and its Subsidiaries, taken together as one accounting period; PROVIDED, HOWEVER, (i) for each of the first three fiscal quarters ending after the Closing Date, the Four-Quarter Period ending on such date shall include so many of the most recent fiscal quarterly periods of the Borrower reflected in the Historical Unaudited Quarterly Statements as shall be necessary to result in a period of four full consecutive fiscal quarters, (ii) to the extent the first fiscal quarter ending after the Closing Date is included in any Four-Quarter Period for the purposes of determining financial or accounting 14 21 matters hereunder, all calculations with respect to such fiscal quarter shall be made on a pro forma basis giving effect to the Line of Business Transfer and the Spinoff as of the first day of such fiscal quarter, and (iii) the assets, liabilities and results of operations reflected in such Historical Unaudited Quarterly Statements shall be deemed to be the assets, liabilities and results of operations of the Borrower and its Subsidiaries for the purpose of making any determination or computation as to financial or accounting matters hereunder that includes any period of operations covered by the Historical Unaudited Quarterly Statements. "GAAP" or "Generally Accepted Accounting Principles" means generally accepted accounting principles, being those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report. "GenCorp" means GenCorp Inc. "GenCorp Prepayable Debt" means Indebtedness for Money Borrowed of GenCorp in the aggregate principal amount of approximately $188,000,000 and in no event to exceed $225,000,000 outstanding as of the Closing Date under the Existing GenCorp Credit Agreement. "Government Securities" means direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America. "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government. "Guaranties" means all obligations of the Borrower or any Subsidiary directly or indirectly guaranteeing, or in effect guaranteeing, any Indebtedness for Money Borrowed of any other Person. "Guarantors" means, at any date, the Domestic Subsidiaries in existence at the Closing Date together with each additional Domestic Material Subsidiary required to execute and deliver a Facility Guaranty by such date pursuant to SECTION 8.18. "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material the generation, handling, storage, disposal, treatment, release, discharge or emission of which is subject to any Environmental Law. 15 22 "Historical Unaudited Quarterly Statements" means the historical unaudited consolidated balance sheets and stockholders' equity as at and for each of the fiscal quarters ended February 28, 1999, May 31, 1999 and August 31, 1999, statements of income as at and or the fiscal quarter ended May 31, 1999 and cash flows as at and for each of the fiscal quarters ended February 28, 1999 and May 31, 1999, prepared by GenCorp and previously furnished to the Agent reflecting the assets, liabilities and results of operations of the Transferred Business. "Indebtedness" means as to any Person, without duplication, (a) all Indebtedness for Money Borrowed of such Person, (b) all Rate Hedging Obligations of such Person, (c) all indebtedness secured by any Lien on any property or asset owned or held by such Person regardless or whether the indebtedness secured thereby shall have been assumed by such Person or is non-recourse to the credit of such Person, and (d) all Contingent Obligations of such Person. "Indebtedness for Money Borrowed" means with respect to any Person, without duplication, all indebtedness in respect of money borrowed, including without limitation, all obligations under Capital Leases, the deferred purchase price of any property or services, the principal balance outstanding under any synthetic lease or tax retention operating lease, and payment and reimbursement obligations in respect of surety bonds, letters of credit, and bankers' acceptances, whether or not matured, evidenced by a promissory note, bond, debenture or similar written obligation for the payment of money (including reimbursement agreements and conditional sales or similar title retention agreements), other than trade payables and accrued expenses incurred in the ordinary course of business. "Intellectual Property" has the meaning therefor provided in SECTION 7.16. "Interbank Offered Rate" means, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary), to the nearest 1/100 of 1% appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Interbank Offered Rate" shall mean, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period, PROVIDED, HOWEVER; if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Interest Period" means, for each Eurodollar Rate Loan, a period commencing on the date such Eurodollar Rate Loan is made or Converted or Continued and ending, at the 16 23 Borrower's option, on the date one, two, three or six months thereafter as notified to the Agent by the Authorized Representative in accordance with the terms hereof; PROVIDED that, (i) if an Interest Period for a Eurodollar Rate Loan would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day (unless such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end on the next preceding Business Day); and (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Interest Rate Selection Notice" means the written notice delivered by an Authorized Representative in connection with the election of a subsequent Interest Period for any Eurodollar Rate Loan or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in the form of EXHIBIT E. "IRS Ruling Letter" has the meaning provided therefor in SECTION 6.1(a)(xix). "Issuing Bank" means initially Bank of America and thereafter any Lender which is successor to Bank of America as issuer of Letters of Credit under ARTICLE III. "LC Account Agreement" means the LC Account Agreement dated as of the date hereof between the Borrower and the Agent, as amended, modified or supplemented from time to time. "Lending Party" means, collectively, the Agent and each Lender. "Letter of Credit" means a standby or commercial letter of credit issued by the Issuing Bank pursuant to ARTICLE III hereof for the account of the Borrower in favor of a Person advancing credit or securing an obligation on behalf of the Borrower. "Letter of Credit Commitment" means, with respect to each Lender, the obligation of such Lender to acquire Participations in respect of Letters of Credit and Reimbursement Obligations up to an aggregate amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Letter of Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement. "Letter of Credit Facility" means the facility described in ARTICLE III hereof providing for the issuance by the Issuing Bank for the account of the Borrower of Letters 17 24 of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment minus outstanding Reimbursement Obligations. "Letter of Credit Outstandings" means, as of any date of determination, the aggregate amount available to be drawn under all Letters of Credit plus Reimbursement Obligations then outstanding. "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of this Agreement, the Borrower and any Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes. "Line of Business Transfer" means the transfer of the Transferred Business to Borrower by GenCorp on the Closing Date immediately prior to the closing of the Revolving Credit Facility. "Line of Business Transfer Documents" means all documentation (including all schedules and exhibits thereto) relating to the Line of Business Transfer, including without limitation the Distribution Agreement. "Loans" means, collectively, the Swing Line Loan and the Revolving Loans. "Loan Documents" means this Agreement, the Notes, the Facility Guaranties, the LC Account Agreement, the Applications and Agreements for Letter of Credit, and all other instruments and documents heretofore or hereafter executed or delivered to or in favor of any Lender or the Agent in connection with the Loans made and transactions contemplated under this Agreement, as the same may be amended, supplemented or replaced from time to time. "Material Adverse Effect" means a material adverse effect on (i) the business, properties, operations, or condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole, (ii) the ability of any Credit Party to pay or perform its respective obligations, liabilities and indebtedness under the Loan Documents as such payment or performance becomes due in accordance with the terms thereof, or (iii) the rights, powers and remedies of the Agent or any Lender under any Loan Document or the validity, legality or enforceability thereof. "Material Contracts" means, collectively, any contract, lease, agreement or commitment of the Borrower or any Subsidiary the expiration or termination of which could be reasonably likely to result in a Material Adverse Effect. 18 25 "Material Subsidiary" means, as of any date of determination, any direct or indirect Subsidiary of the Borrower which has assets equal to at least 10% of Consolidated Total Assets (calculated as of the most recent fiscal period with respect to which the Agent shall have received financial statements required to be delivered pursuant to SECTIONS 8.1(a) or (b) hereof (or if such determination shall be made prior to delivery of such financial statements, then calculated with respect to the Fiscal Year end financial statements referenced in SECTION 7.6(a) hereof)); provided, however, that notwithstanding the foregoing, if the Borrower and the Domestic Subsidiaries, as defined above, have less than 90% of domestic Consolidated Total Assets or have net income of less than 90% of domestic Consolidated Net Income, then the term "Material Subsidiaries" shall mean Domestic Subsidiaries of the Borrower, as specified by the Borrower, that together with the Borrower have assets equal to not less than 90% of domestic Consolidated Total Assets and net income of not less than 90% of domestic Consolidated Net Income. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, contributions or has made, or been obligated to make, contributions within the preceding six (6) Fiscal Years. "Municipal Obligations" means general obligations issued by, and supported by the full taxing authority of, any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated in the highest investment rating category by both S&P and Moody's. "Notes" means, collectively, the Swing Line Note and the Revolving Notes. "Obligations" means the obligations, liabilities and Indebtedness of the Borrower with respect to (i) the principal and interest on the Loans as evidenced by the Notes, (ii) the Reimbursement Obligations and otherwise in respect of the Letters of Credit, (iii) all liabilities of Borrower to any Lender (or any affiliate of any Lender) which arise under a Swap Agreement, and (iv) the payment and performance of all other obligations, liabilities and Indebtedness of the Borrower to the Lenders, the Agent or BAS hereunder, under any one or more of the other Loan Documents or with respect to the Loans. "Operating Documents" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the bylaws, operating agreement, partnership agreement, limited partnership agreement or other applicable documents relating to the operation, governance or management of such entity. 19 26 "Organizational Action" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, any corporate, organizational or partnership action (including any required shareholder, member or partner action), or other similar official action, as applicable, taken by such entity. "Organizational Documents" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the articles of incorporation, certificate of incorporation, articles of organization, certificate of limited partnership or other applicable organizational or charter documents relating to the creation of such entity. "Outstandings" means, collectively, at any date, the Letter of Credit Outstandings, Swing Line Outstandings and Revolving Credit Outstandings on such date. "Participation" means, (i) with respect to any Lender (other than the Issuing Bank) and a Letter of Credit, the extension of credit represented by the participation of such Lender hereunder in the liability of the Issuing Bank in respect of a Letter of Credit issued by the Issuing Bank in accordance with the terms hereof and (ii) with respect to any Lender (other than Bank of America) and a Swing Line Loan, the extension of credit represented by the participation of such Lender hereunder in the liability of Bank of America in respect of a Swing Line Loan made by Bank of America in accordance with the terms hereof. "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" means any employee pension benefit plan within the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (i) is maintained for employees of the Borrower or any of its ERISA Affiliates or is assumed by the Borrower or any of its ERISA Affiliates in connection with any Acquisition or (ii) has at any time within the previous six (6) years been maintained by the Borrower for the employees of the Borrower or any current or former ERISA Affiliate. "Permitted Asset Securitization" means any securitization of accounts receivable of the Borrower or its Subsidiaries having an aggregate contract value not exceeding $75,000,000 when added to all other securitization transactions consummated during the term of this Agreement and upon such terms as are acceptable to and approved in writing by the Required Lenders. "Person" means an individual, partnership, corporation, limited liability company, limited liability partnership, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof. 20 27 "Prime Rate" means the per annum rate of interest established from time to time by Bank of America as its prime rate, which rate may not be the lowest rate of interest charged by Bank of America to its customers. "Principal Office" means the principal office of Bank of America, presently located at 101 North Tryon Street, 15th Floor, NC1 001-15-04, Charlotte, North Carolina 28255, Attention: Agency Services, or such other office and address as the Agent may from time to time designate. "Proxy Statement" means the definitive proxy statement first mailed by GenCorp to its shareholders on or about July 7, 1999 describing the Spinoff and soliciting such shareholder vote to proceed therewith. "Rate Hedging Obligations" means, without duplication, any and all obligations of the Borrower or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, Dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as interest rate "swap" agreements; (ii) all other "derivative instruments" as defined in FASB 133 and which are subject to the reporting requirements of FASB 133; and (iii) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing. "Rated Debt" has the meaning therefor provided in the definition of "Applicable Margin." "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time. "Reimbursement Obligation" shall mean at any time, the obligation of the Borrower with respect to any Letter of Credit to reimburse the Issuing Bank and the Lenders to the extent of their respective Participations (including by the receipt by the Issuing Bank of proceeds of Loans pursuant to SECTION 2.1(c)(iii)) for amounts theretofore paid by the Issuing Bank pursuant to a drawing under such Letter of Credit. "Related LC Documents" has the meaning therefor provided in SECTION 3.2(i)(i). "Repurchase Agreement" means a repurchase agreement entered into with any financial institution whose debt obligations or commercial paper are rated "A" by either of S&P or Moody's or "A-1" by S&P or "P-1" by Moody's. 21 28 "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) aggregating greater than 50% of the aggregate Credit Exposures of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "CREDIT EXPOSURE" of each Lender shall be equal at all times (a) other than following the occurrence and during the continuance of an Event of Default, to its Revolving Credit Commitment, and (b) following the occurrence and during the continuance of an Event of Default, to the sum of (i) the aggregate principal amount of such Lender's Applicable Commitment Percentage of Revolving Credit Outstandings plus (ii) the amount of such Lender's Applicable Commitment Percentage of Letter of Credit Outstandings and Swing Line Outstandings; PROVIDED that, for the purpose of this definition only, (A) if any Lender shall have failed to fund its Applicable Commitment Percentage of any Advance, then the Revolving Credit Commitment of such Lender shall be deemed reduced by the amount it so failed to fund for so long as such failure shall continue and such Lender's Credit Exposure attributable to such failure shall be deemed held by any Lender making more than its Applicable Commitment Percentage of such Advance to the extent it covers such failure, (B) if any Lender shall have failed to pay to the Issuing Bank upon demand its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation (whether by funding its Participation therein or otherwise), such Lender's Credit Exposure attributable to all Letter of Credit Outstandings shall be deemed to be held by the Issuing Bank until such Lender shall pay such deficiency amount to the Issuing Bank together with interest thereon as provided in SECTION 4.9 and (C) if any Lender shall have failed to pay to Bank of America on demand its Applicable Commitment Percentage of any Swing Line Loan (whether by funding its Participation therein or otherwise), such Lender's Credit Exposure attributable to all Swing Line Outstandings shall be deemed to be held by Bank of America until such Lender shall pay such deficiency amount to Bank of America together with interest thereon as provided in SECTION 4.9. "Requirements of Law" means, with respect to a Person, the charter and bylaws or other organizational or governing documents of such Person, and any law, treaty, rule, regulation, right, privilege, qualification, license or franchise or final and nonappealable determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or to which any of its property is subject or pertaining to any or all of the transactions contemplated or referred to herein. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other 22 29 assets which include Eurodollar Rate Loans. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Responsible Officer" means the Chief Executive Officer, the Chief Financial Officer, any Senior Vice President, the Secretary or the Treasurer of the Borrower. "Restricted Payment" means (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Borrower or any of its Subsidiaries (other than those payable or distributable solely to the Borrower) now or hereafter outstanding, except a dividend payable solely in shares of a class of stock to the holders of that class; (b) any redemption, conversion, exchange, retirement or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Borrower or any of its Subsidiaries (other than those payable or distributable solely to the Borrower) now or hereafter outstanding; (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Borrower or any of its Subsidiaries now or hereafter outstanding. "Revolving Credit Commitment" means, with respect to each Lender, the obligation of such Lender to make Revolving Loans to the Borrower up to an aggregate principal amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Revolving Credit Commitment. "Revolving Credit Facility" means the facility described in SECTION 2.1 hereof providing for Loans to the Borrower by the Lenders in the aggregate principal amount of the Total Revolving Credit Commitment. "Revolving Credit Outstandings" means, as of any date of determination, the aggregate principal amount of all Revolving Loans then outstanding. "Revolving Credit Termination Date" means (i) the Stated Termination Date or (ii) such earlier date of termination of Lenders' obligations pursuant to SECTION 10.1 upon the occurrence of an Event of Default, or (iii) such date as the Borrower may voluntarily and permanently terminate the Revolving Credit Facility by payment in full of all Revolving Credit Outstandings, Swing Line Outstandings and Letter of Credit Outstandings and cancellation of all Letters of Credit, together with all accrued and unpaid interest thereon. "Revolving Loan" means any borrowing pursuant to an Advance under the Revolving Credit Facility in accordance with SECTION 2.1. "Revolving Notes" means, collectively, the promissory notes of the Borrower evidencing Revolving Loans executed and delivered to the Lenders as provided in SECTION 2.3 substantially in the form of EXHIBIT F-1, with appropriate insertions as to amounts, dates and names of Lenders. 23 30 "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill. "Senior Notes" means the senior notes of the Borrower to be issued in the aggregate principal amount not to exceed $150,000,000. "Solvent" means, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including Contingent Obligations; and (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Special Distribution" means the cash dividend of approximately $188,000,000 and in no event to exceed $225,000,000 paid on the Closing Date, immediately following the Line of Business Transfer and the effectiveness of this Agreement and immediately preceding the Spinoff, by the Borrower to GenCorp, the proceeds of which are to be used by GenCorp to repay the GenCorp Prepayable Debt substantially simultaneously with the receipt thereof by GenCorp. "Spinoff" means the special dividend of all outstanding shares of capital stock of the Borrower to the holders of the outstanding shares of GenCorp Common Stock on a pro rata basis and on the basis of one share of common stock of the Borrower for each share of common stock of GenCorp, all as described in the Proxy Statement. "Spinoff Documents" means (i) the Proxy Statement, (ii) the Registration Statement of the Borrower on Form 10, including all amendments thereto, initially filed on July 9, 1999 with the Securities and Exchange Commission and (iii) all other documentation (including all schedules and exhibits thereto) relating to the Spinoff, including without limitation the Tax Matters Agreement, the Employee Matters Agreement and the Transition Services Agreement. "Stated Termination Date" means September 30, 2004. "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding Voting Securities or more than 50% of all equity interests is owned directly or indirectly by the Borrower and/or by one or more of the Borrower's Subsidiaries. 24 31 "Swap Agreement" means one or more agreements between the Borrower and any Lender or any affiliate of any Lender with respect to Indebtedness evidenced by any or all of the Notes, on terms mutually acceptable to Borrower and such Person, which agreements create Rate Hedging Obligations. "Swing Line" means the revolving line of credit established by Bank of America in favor of the Borrower pursuant to SECTION 2.4. "Swing Line Loans" means loans made by Bank of America to the Borrower pursuant to SECTION 2.4. "Swing Line Note" means the promissory note of the Borrower evidencing the Swing Line executed and delivered to Bank of America as provided in SECTION 2.3 substantially in the form of EXHIBIT F-2. "Swing Line Outstandings" means, as of any date of determination, the aggregate principal amount of all Swing Line Loans then outstanding. "Tax Matters Agreement" means the Tax Sharing Agreement dated as of September 30, 1999 between GenCorp and the Borrower providing for matters regarding Federal, state, local and foreign tax liabilities for periods prior to and including the effective date of the Spinoff. "Taxes" has the meaning therefor provided in SECTION 5.6(a). "Termination Event" means, other than the reorganization of any Employee Benefit Plan in connection with the Spinoff or Line of Business Transfer, (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (unless the notice requirement has been waived by applicable regulation); or (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4062(e) of ERISA; or (iii) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA; or (iv) the institution of proceedings to terminate a Pension Plan by the PBGC; or (v) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (vi) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA; or (viii) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of ERISA, respectively; or (ix) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA; or (x) any event or condition with respect to any Employee Benefit Plan which is 25 32 regulated by any Foreign Benefit Law that results in the termination of such Employee Benefit Plan or the revocation of such Employee Benefit Plan's authority to operate under the applicable Foreign Benefit Law. "Total Letter of Credit Commitment" means an amount not to exceed $25,000,000. "Total Revolving Credit Commitment" means a principal amount equal to $300,000,000, as reduced from time to time in accordance with SECTION 2.1(e). "Transaction Documents" means, collectively, or individually as the context may dictate, the Loan Documents, the Spinoff Documents and the Line of Business Transfer Documents. "Transferred Business" means the assets, liabilities and operations of the Performance Chemicals and Decorative & Building Products businesses of GenCorp immediately prior to the Line of Business Transfer and includes the GenCorp Technology Center, corporate flight operations of GenCorp, the GenCorp corporate headquarters building in Fairlawn, Ohio and the tangible and intangible assets owned and leased for such businesses. "Transition Services Agreement" means the Services and Support Agreement dated as of September 30, 1999 between GenCorp and the Borrower providing for certain transitional administrative services and for reimbursement of all direct and indirect costs of providing such services. "Type" shall mean any type of Loan (i.e., a Base Rate Loan or a Eurodollar Rate Loan). "Voting Securities" means shares of capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Year 2000 Compliant" means all computer applications and other systems and operations of the Borrower and all of its Subsidiaries that are material to the Borrower's or any of its Subsidiaries' business and operations will on a timely basis be able to perform properly date-sensitive functions involving all dates on and after January 1, 2000; "Year 2000 Problem" means the risk that computer applications or other systems or operations used by the Borrower or any of its Subsidiaries, suppliers, vendors or customers may be unable to recognize and perform properly date-sensitive functions involving certain dates on and after January 1, 2000. 26 33 1.2. RULES OF INTERPRETATION. (a) All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with GAAP applied on a Consistent Basis. (b) Each term defined in Articles 1, 8 or 9 of the New York Uniform Commercial Code shall have the meaning given therein unless otherwise defined herein, except to the extent that the Uniform Commercial Code of another jurisdiction is controlling, in which case such terms shall have the meaning given in the Uniform Commercial Code of the applicable jurisdiction. (c) The headings, subheadings and table of contents used herein or in any other Loan Document are solely for convenience of reference and shall not constitute a part of any such document or affect the meaning, construction or effect of any provision thereof. (d) Except as otherwise expressly provided, references in any Loan Document to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules are references to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules in or to such Loan Document. (e) All definitions set forth herein or in any other Loan Document shall apply to the singular as well as the plural form of such defined term, and all references to the masculine gender shall include reference to the feminine or neuter gender, and vice versa, as the context may require. (f) When used herein or in any other Loan Document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document and not to any particular article, section, subsection, paragraph or clause thereof. (g) References to "including" means including without limiting the generality of any description preceding such term, and for purposes hereof the rule of ejusdem generis shall not be applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned. (h) Except as otherwise expressly provided, all dates and times of day specified herein shall refer to such dates and times at Charlotte, North Carolina. (i) Whenever interest rates or fees are established in whole or in part by reference to a numerical percentage expressed as "___%", such arithmetic expression shall be interpreted in accordance with the convention that 1% = 100 basis points. 27 34 (j) Any reference to an officer of the Borrower or any other Person by reference to the title of such officer shall be deemed to refer to each other officer of such Person, however titled, exercising the same or substantially similar functions. (k) All references to any agreement or document as amended, modified or supplemented, or words of similar effect, shall mean such document or agreement, as the case may be, as amended, modified or supplemented from time to time only as and to the extent permitted therein and in the Loan Documents. 28 35 ARTICLE II The Credit Facilities --------------------- 2.1. REVOLVING LOANS. (a) COMMITMENT. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrower under the Revolving Credit Facility from time to time from the Closing Date until the Revolving Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrower on any day determined by such Lender's Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, PROVIDED, however, that the Lenders will not be required and shall have no obligation to make any such Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of any of the Notes as a result of an Event of Default; PROVIDED further, however, that immediately after giving effect to each such Advance, the amount of Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing Line Outstandings shall not exceed the Total Revolving Credit Commitment. Within such limits and subject to the other terms and conditions of this Agreement, the Borrower may borrow, repay and reborrow under the Revolving Credit Facility on a Business Day from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date. (b) AMOUNTS. Except as otherwise permitted by the Lenders from time to time, the amount of Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing Line Outstandings shall not exceed at any time the Total Revolving Credit Commitment, and, in the event there shall be outstanding any such excess, the Borrower shall immediately make such payments and prepayments as shall be necessary to comply with this restriction. Each Advance under the Revolving Credit Facility, other than Base Rate Refunding Loans, shall be in an amount of at least $5,000,000, and, if greater than $5,000,000, an integral multiple of $1,000,000. (c) ADVANCES. (i) An Authorized Representative shall give the Agent (1) at least three (3) Business Days' irrevocable telephonic notice of each Eurodollar Rate Loan (whether representing an additional borrowing or the Continuation of a borrowing hereunder or the Conversion of a borrowing hereunder from a Base Rate Loan to a Eurodollar Rate Loan) prior to 11:00 A.M. and (2) irrevocable telephonic notice of each Base Rate Loan (other than Base Rate Refunding Loans to the extent the same are effected without notice pursuant to SECTION 2.1(c)(iii) and whether representing an additional borrowing hereunder or the Conversion of borrowing hereunder from Eurodollar Rate Loans to Base Rate Loans) prior to 11:00 A.M. on the day of such proposed Revolving Loan. Each such notice shall be effective upon receipt by the Agent, shall specify the amount of the borrowing, 29 36 the type of Revolving Loan (Base Rate or Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate Loan, the Interest Period to be used in the computation of interest. The Authorized Representative shall provide the Agent written confirmation of each such telephonic notice in the form of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions but failure to provide such confirmation shall not affect the validity of such telephonic notice. Notice of receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case may be, together with the amount of each Lender's portion of an Advance requested thereunder, shall be provided by the Agent to each Lender by telefacsimile transmission with reasonable promptness, but (provided the Agent shall have received such notice by 10:30 A.M.) not later than 1:00 P.M. on the same day as the Agent's receipt of such notice. (ii) Not later than 2:00 P.M. on the date specified for each borrowing under this SECTION 2.1, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amount of the Advance or Advances to be made by it on such day available by wire transfer to the Agent in the amount of its pro rata share, determined according to such Lender's Applicable Commitment Percentage of the Revolving Loan or Revolving Loans to be made on such day. Such wire transfer shall be directed to the Agent at the Principal Office and shall be in the form of Dollars constituting immediately available funds. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by delivery of the proceeds thereof to the Borrower's Account or otherwise as shall be directed in the applicable Borrowing Notice by the Authorized Representative and reasonably acceptable to the Agent. (iii) Notwithstanding the foregoing, if a drawing is made under any Letter of Credit, such drawing is honored by the Issuing Bank, and the Borrower shall not immediately fully reimburse the Issuing Bank in respect of such drawing from other funds available to the Borrower, (A) provided that the conditions to making a Revolving Loan as herein provided shall then be satisfied, the Reimbursement Obligation arising from such drawing shall be paid to the Issuing Bank by the Agent without the requirement of notice to or from the Borrower from immediately available funds which shall be advanced as a Base Rate Refunding Loan to the Agent at its Principal Office by each Lender under the Revolving Credit Facility in an amount equal to such Lender's Applicable Commitment Percentage of such Reimbursement Obligation, and (B) if the conditions to making a Revolving Loan as herein provided shall not then be satisfied, each of the Lenders shall fund by payment to the Agent (for the benefit of the Issuing Bank) at its Principal Office in immediately available funds the purchase from the Issuing Bank of their respective Participations in the related Reimbursement Obligation based on their respective Applicable Commitment Percentages of the Total Letter of Credit Commitment. If a drawing is presented under any Letter of Credit in accordance with the terms thereof and the Borrower 30 37 shall not immediately reimburse the Issuing Bank in respect thereof, then notice of such drawing or payment shall be provided promptly by the Issuing Bank to the Agent and the Agent shall provide notice to each Lender by telephone or telefacsimile transmission. If notice to the Lenders of a drawing under any Letter of Credit is given by the Agent at or before 12:00 noon on any Business Day, each Lender shall either make a Base Rate Refunding Loan or fund the purchase of its Participation as specified above in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:30 P.M. on the same Business Day. If such notice to the Lenders is given by the Agent after 12:00 noon on any Business Day, each Lender shall either make such Base Rate Refunding Loan or fund such purchase before 12:00 noon on the next following Business Day. (d) REPAYMENT OF REVOLVING LOANS. The principal amount of each Revolving Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Revolving Credit Termination Date, or earlier as specifically provided herein. The principal amount of any Revolving Loan may be prepaid in whole or in part on any Business Day, upon (A) at least three (3) Business Days' irrevocable telephonic notice, in the case of each Revolving Loan that is a Eurodollar Rate Loan, from an Authorized Representative (effective upon receipt) to the Agent prior to 10:30 A.M. and (B) irrevocable telephonic notice, in the case of each Revolving Loan that is a Base Rate Loan, from an Authorized Representative (effective upon receipt) to the Agent prior to 10:30 A.M. on the day of such proposed repayment. The Authorized Representative shall provide the Agent written confirmation of each such telephonic notice but failure to provide such confirmation shall not effect the validity of such telephonic notice. All prepayments of Revolving Loans made by the Borrower shall be in the amount of $10,000,000 or such greater amount which is an integral multiple of $5,000,000, or the amount equal to all Revolving Credit Outstandings, or such other amount as necessary to comply with SECTION 2.1(b). (e) REDUCTIONS. The Borrower shall, by notice from an Authorized Representative, have the right from time to time but not more frequently than once each calendar month, upon not less than three (3) Business Days' written notice to the Agent, effective upon receipt, to reduce the Total Revolving Credit Commitment. The Agent shall give each Lender, within one (1) Business Day of receipt of such notice, telefacsimile notice, or telephonic notice (confirmed in writing), of such reduction. Each such reduction shall be in the aggregate amount of $10,000,000 or such greater amount which is in an integral multiple of $5,000,000, or the entire remaining Total Revolving Credit Commitment, and shall permanently reduce the Total Revolving Credit Commitment. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Revolving Loans to the extent that the principal amount of Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing Line Outstandings exceeds the Total Revolving Credit Commitment after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. 31 38 2.2. USE OF PROCEEDS. The proceeds of the Loans made pursuant to the Revolving Credit Facility hereunder shall be used by the Borrower for general working capital needs and other corporate purposes, including the payment of the Special Distribution and the making of Acquisitions and Capital Expenditures permitted hereunder. 2.3. NOTES. (a) REVOLVING NOTES. Revolving Loans made by each Lender shall be evidenced by the Revolving Note payable to the order of such Lender in the respective amount of its Applicable Commitment Percentage of the Total Revolving Credit Commitment, which Revolving Note shall be dated the Closing Date or a later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrower. (b) SWING LINE NOTE. The Swing Line Outstandings shall be evidenced by a separate Swing Line Note payable to the order of the Bank of America in the amount of the Swing Line, which Note shall be dated the Closing Date and shall be duly completed, executed and delivered by the Borrower. 2.4. SWING LINE. (a) Notwithstanding any other provision of this Agreement to the contrary, in order to administer the Revolving Credit Facility in an efficient manner and to minimize the transfer of funds between the Agent and the Lenders, Bank of America shall make available Swing Line Loans to the Borrower prior to the Revolving Credit Termination Date. Bank of America shall not be obligated to make any Swing Line Loan pursuant hereto (i) if to the actual knowledge of Bank of America the Borrower is not in compliance with all the conditions to the making of Revolving Loans set forth in this Agreement, (ii) if after giving effect to such Swing Line Loan, the Swing Line Outstandings exceed $10,000,000, or (iii) if after giving effect to such Swing Line Loan, the sum of the Swing Line Outstandings, Revolving Credit Outstandings and Letter of Credit Outstandings exceeds the Total Revolving Credit Commitment. The Borrower may, subject to the conditions set forth in the preceding sentence, borrow, repay and reborrow under this SECTION 2.4. Unless notified to the contrary by Bank of America, borrowings under the Swing Line shall be made in the minimum amount of $1,000,000 or, if greater, in amounts which are integral multiples of $100,000, or in the amount necessary to effect a Base Rate Refunding Loan, upon written request by telefacsimile transmission, effective upon receipt, by an Authorized Representative of the Borrower made to Bank of America not later than 12:30 P.M. on the Business Day of the requested borrowing. Each such Borrowing Notice shall specify the amount of the borrowing and the date of borrowing, and shall be in the form of EXHIBIT D-2, with appropriate insertions. Unless notified to the contrary by Bank of America, each repayment of a Swing Line Loan shall be in an amount which is an integral multiple of $100,000 or the aggregate amount of all Swing Line Outstandings. 32 39 (b) The interest payable on Swing Line Loans is solely for the account of Bank of America. Swing Line Loans shall bear interest solely at the Base Rate or, if applicable, the Default Rate. All accrued and unpaid interest on Swing Line Loans shall be payable, on the dates and in the manner provided in SECTION 4.3 with respect to interest on Base Rate Loans. (c) Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from Bank of America a Participation therein in an amount equal to that Lender's Applicable Commitment Percentage of such Swing Line Loan. Upon demand made by Bank of America, each Lender shall, according to its Applicable Commitment Percentage of such Swing Line Loan, promptly provide to Bank of America its purchase price therefor in an amount equal to its Participation therein. Any Advance made by a Lender pursuant to demand of Bank of America of the purchase price of its Participation shall when made be deemed to be (i) provided that the conditions to making Revolving Loans shall be satisfied, a Base Rate Refunding Loan under SECTION 2.1, and (ii) in all other cases, the funding by each Lender of the purchase price of its Participation in such Swing Line Loan. The obligation of each Lender to so provide its purchase price to Bank of America shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or any other occurrence or event. The Borrower, at its option and subject to the terms hereof, may request an Advance pursuant to SECTION 2.1 in an amount sufficient to repay Swing Line Outstandings on any date and the Agent shall provide from the proceeds of such Advance to Bank of America the amount necessary to repay such Swing Line Outstandings (which Bank of America shall then apply to such repayment) and credit any balance of the Advance in immediately available funds in the manner directed by the Borrower pursuant to SECTION 2.1(c)(ii). The proceeds of such Advances shall be paid to Bank of America for application to the Swing Line Outstandings and the Lenders shall then be deemed to have made Loans in the amount of such Advances. The Swing Line shall continue in effect until the Revolving Credit Termination Date, at which time all Swing Line Outstandings and accrued interest thereon shall be due and payable in full. 33 40 ARTICLE III Letters of Credit ----------------- 3.1. LETTERS OF CREDIT. The Issuing Bank agrees, subject to the terms and conditions of this Agreement, upon request of the Borrower to issue from time to time for the account of the Borrower Letters of Credit upon delivery to the Issuing Bank of an Application and Agreement for Letter of Credit relating thereto in form and content acceptable to the Issuing Bank; PROVIDED, that (i) the Issuing Bank shall not be obligated to issue any Letter of Credit if it has been notified by the Agent or has actual knowledge that a Default or Event of Default has occurred and is continuing, (ii) the Letter of Credit Outstandings shall not exceed the Total Letter of Credit Commitment and (iii) no Letter of Credit shall be issued if, after giving effect thereto, Letter of Credit Outstandings plus Revolving Credit Outstandings plus Swing Line Outstandings shall exceed the Total Revolving Credit Commitment. No Letter of Credit shall have an expiry date (including all rights of the Borrower or any beneficiary named in such Letter of Credit to require renewal) or payment date occurring later than the seventh Business Day prior to the Stated Termination Date. 3.2. REIMBURSEMENT AND PARTICIPATIONS. (a) The Borrower hereby unconditionally agrees to pay to the Issuing Bank immediately on demand at the Principal Office all amounts required to pay all drafts drawn or purporting to be drawn under the Letters of Credit and all reasonable expenses incurred by the Issuing Bank in connection with the Letters of Credit, and in any event and without demand to place in possession of the Issuing Bank (which shall include Advances under the Revolving Credit Facility if permitted by SECTION 2.1 and Swing Line Loans if permitted by SECTION 2.4) sufficient funds to pay all debts and liabilities arising under any Letter of Credit. The Issuing Bank agrees to give the Borrower prompt notice of any request for a draw under a Letter of Credit. The Issuing Bank may charge any account the Borrower may have with it for any and all amounts the Issuing Bank pays under a Letter of Credit, plus charges and reasonable expenses as from time to time agreed to by the Issuing Bank and the Borrower; provided that to the extent permitted by SECTION 2.1(c)(iii) and SECTION 2.4, amounts shall be paid pursuant to Advances under the Revolving Credit Facility or, if the Borrower shall elect, by Swing Line Loans. The Borrower agrees to pay the Issuing Bank interest on any Reimbursement Obligations not paid when due hereunder at the Default Rate. (b) In accordance with the provisions of SECTION 2.1(c), the Issuing Bank shall notify the Agent of any drawing under any Letter of Credit promptly following the receipt by the Issuing Bank of such drawing. (c) Each Lender (other than the Issuing Bank) shall automatically acquire on the date of issuance thereof, a Participation in the liability of the Issuing Bank in respect of each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Borrower is obligated to pay the 34 41 Issuing Bank under SECTION 3.2(a), each Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to the Issuing Bank, its Applicable Commitment Percentage of the liability of the Issuing Bank under such Letter of Credit in the manner and with the effect provided in SECTION 2.1(c)(iii). (d) Simultaneously with the making of each payment by a Lender to the Issuing Bank pursuant to SECTION 2.1(c)(iii)(B), such Lender shall, automatically and without any further action on the part of the Issuing Bank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest accrued prior to the date the Lender made its payment) in the related Reimbursement Obligation of the Borrower. Each Lender's obligation to make payment to the Agent for the account of the Issuing Bank pursuant to SECTION 2.1(c)(iii) and SECTION 3.2(c), and the right of the Issuing Bank to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever. In the event the Lenders have purchased Participations in any Reimbursement Obligation as set forth above, then at any time payment (in fully collected, immediately available funds) of such Reimbursement Obligation, in whole or in part, is received by the Issuing Bank from the Borrower, the Issuing Bank shall promptly pay to each Lender an amount equal to its Applicable Commitment Percentage of such payment from the Borrower. (e) Promptly following the end of each calendar quarter, the Issuing Bank shall deliver to the Agent a notice describing the aggregate undrawn amount of all Letters of Credit at the end of such quarter. Upon the request of any Lender from time to time, the Issuing Bank shall deliver to the Agent, and the Agent shall deliver to such Lender, any other information reasonably requested by such Lender with respect to each Letter of Credit outstanding. (f) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in ARTICLE VI, be subject to the conditions that such Letter of Credit be in such form and contain such terms as shall be reasonably satisfactory to the Issuing Bank consistent with the then current practices and procedures of the Issuing Bank with respect to similar letters of credit, and the Borrower shall have executed and delivered such other instruments and agreements relating to such Letters of Credit as the Issuing Bank shall have reasonably requested consistent with such practices and procedures. All Letters of Credit shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 or, if the Issuing Bank shall elect by express reference in an affected Letter of Credit, the International Chamber of Commerce International Standby Practices commonly referred to as "ISP98", or any subsequent amendment or revision of either thereof. (g) The Borrower agrees that the Issuing Bank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit, any drafts or other 35 42 documents otherwise in order which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. (h) Without limiting the generality of the provisions of SECTION 12.9, the Borrower hereby agrees to indemnify and hold harmless the Issuing Bank, each other Lender and the Agent from and against any and all claims and damages, losses, liabilities, reasonable costs and expenses which the Issuing Bank, such other Lender or the Agent may incur (or which may be claimed against the Issuing Bank, such other Lender or the Agent) by any Person by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank, any other Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the party to be indemnified or (ii) caused by the failure of the Issuing Bank to pay under any Letter of Credit after the presentation to it of a request for payment strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree. The indemnification and hold harmless provisions of this SECTION 3.2(h) shall survive repayment of the Obligations, occurrence of the Revolving Credit Termination Date, the Facility Termination Date and expiration or termination of this Agreement. (i) Without limiting Borrower's rights as set forth in SECTION 3.2(h), the obligation of the Borrower to immediately reimburse the Issuing Bank for drawings made under Letters of Credit and the Issuing Bank's right to receive such payment shall be absolute, unconditional and irrevocable, and such obligations of the Borrower shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit and the related Application and Agreement for any Letter of Credit, under all circumstances whatsoever, including the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related LC Documents"); (ii) any amendment or waiver of or any consent to or departure from all or any of the Related LC Documents; (iii) the existence of any claim, setoff, defense (other than the defense of payment in accordance with the terms of this Agreement) or other rights which the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person, whether in connection with the Loan Documents, the Related LC Documents or any unrelated transaction; 36 43 (iv) any breach of contract or other dispute between the Borrower and any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person; (v) any draft, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by the Agent, with or without notice to or approval by the Borrower in respect of any of Borrower's Obligations under this Agreement; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; provided, however, that nothing contained herein shall be deemed to release the Issuing Bank or any other Lender of any liability for actual loss arising as a result of its gross negligence or willful misconduct; and provided further, however, that to the extent any conflict exists between this Agreement and any Application and Agreement for Letters of Credit or other document or agreement required by the Issuing Bank in connection with the issuance of Letters of Credit, the terms of this Agreement shall control. 37 44 ARTICLE IV EURODOLLAR FUNDING, FEES, AND PAYMENT CONVENTIONS 4.1. INTEREST RATE OPTIONS. Eurodollar Rate Loans and Base Rate Loans may be outstanding at the same time and, so long as no Default or Event of Default shall have occurred and be continuing, the Borrower shall have the option to elect the Type of Loan and the duration of the initial and any subsequent Interest Periods and to Convert Revolving Loans in accordance with SECTIONS 2.1(c)(i) AND 4.2, as applicable; PROVIDED, HOWEVER, (a) there shall not be outstanding at any one time Eurodollar Rate Loans having more than eight (8) different Interest Periods, (b) each Eurodollar Rate Loan (including each Conversion into and each Continuation as a Eurodollar Rate Loan) shall be in an amount of $5,000,000 or, if greater than $5,000,000 an integral multiple of $1,000,000 and (c) no Eurodollar Rate Loan shall have an Interest Period that extends beyond the Stated Termination Date. If the Agent does not receive a Borrowing Notice or an Interest Rate Selection Notice giving notice of election of the duration of an Interest Period or of Conversion of any Loan to or Continuation of a Loan as a Eurodollar Rate Loan by the time prescribed by SECTIONS 2.1(c)(i) AND 4.2, as applicable, the Borrower shall be deemed to have elected to obtain or Convert such Loan to (or Continue such Loan as) a Base Rate Loan until the Borrower notifies the Agent in accordance with SECTION 4.2. The Borrower shall not be entitled to elect to Continue any Loan as or Convert any Loan into a Eurodollar Rate Loan if a Default or Event of Default shall have occurred and be continuing. 4.2. CONVERSIONS AND ELECTIONS OF SUBSEQUENT INTEREST PERIODS. Subject to the limitations set forth in the definition of "Interest Period" and in SECTION 4.1 and ARTICLE V, the Borrower may: (a) upon delivery of telephonic notice to the Agent (which shall be irrevocable) on or before 10:30 A.M. on any Business Day, Convert any Eurodollar Rate Loan to a Base Rate Loan on the last day of the Interest Period for such Eurodollar Rate Loan; and (b) provided that no Default or Event of Default shall have occurred and be continuing, upon delivery of telephonic notice to the Agent (which shall be irrevocable) on or before 10:30 A.M. three (3) Business Days' prior to the date of such Conversion or Continuation: (i) elect a subsequent Interest Period for any Eurodollar Rate Loan to begin on the last day of the then current Interest Period for such Eurodollar Rate Loan; or (ii) Convert any Base Rate Loan to a Eurodollar Rate Loan on any Business Day. Each such notice shall be effective upon receipt by the Agent, shall specify the amount of the Eurodollar Rate Loan affected, and, if a Continuation as or Conversion into a 38 45 Eurodollar Rate Loan, the Interest Period to be used in the computation of interest. The Authorized Representative shall provide the Agent written confirmation of each such telephonic notice in the form of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions but failure to provide such confirmation shall not affect the validity of such telephonic notice. Notice of receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case may be, shall be provided by the Agent to each Lender by telefacsimile transmission with reasonable promptness, but (provided the Agent shall have received such notice by 10:30 A.M.) not later than 3:00 P.M. on the same day as the Agent's receipt of such notice. All such Continuations or Conversions of Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 4.3. PAYMENT OF INTEREST. The Borrower shall pay interest on the outstanding and unpaid principal amount of each Revolving Loan, commencing on the first date of such Revolving Loan until such Revolving Loan shall be repaid, at the applicable Base Rate or Eurodollar Rate as designated by the Borrower in the related Borrowing Notice or Interest Rate Selection Notice or as otherwise provided hereunder. Interest on each Revolving Loan shall be paid on the earlier of (a) in the case of any Base Rate Loan, quarterly in arrears of the last Business Day of each November, February, May and August, commencing on November 30, 1999, until the Revolving Credit Termination Date, at which date the entire principal amount of and all accrued interest on the Revolving Loans shall be paid in full, (b) in the case of any Eurodollar Rate Loan, on last day of the applicable Interest Period for such Eurodollar Rate Loan and if such Interest Period extends for more than three (3) months, at intervals of three (3) months after the first day of such Interest Period, and (c) upon payment in full of the related Revolving Loan; PROVIDED, HOWEVER, that if any Event of Default shall occur and be continuing, all amounts outstanding hereunder shall bear interest thereafter until paid in full at the Default Rate. 4.4. PREPAYMENTS OF EURODOLLAR RATE LOANS. Whenever any payment of principal shall be made in respect of any Loan hereunder, whether at maturity, on acceleration, by optional or mandatory prepayment or as otherwise required or permitted hereunder, with the effect that any Eurodollar Rate Loan shall be prepaid in whole or in part prior to the last day of the Interest Period applicable to such Eurodollar Rate Loan, such payment of principal shall be accompanied by the additional payment, if any, required by SECTION 5.5. 4.5. MANNER OF PAYMENT. (a) Each payment of principal (including any prepayment) and payment of interest and fees, and any other amount required to be paid by or on behalf of the Borrower to the Lenders, the Issuing Bank, the Agent, or Bank of America with respect to any Loan, Letter of Credit, Reimbursement Obligation, or Swing Line Loan, shall be made to the Agent at the Principal Office in Dollars in immediately available funds without condition or deduction or for any setoff, recoupment, deduction or counterclaim on or before 12:30 P.M. on the date such payment is due. The Agent may, but shall not 39 46 be obligated to, debit the amount of such payment from any one or more ordinary deposit accounts of the Borrower with the Agent. (b) Any payment made by or on behalf of the Borrower that is not made both in Dollars in immediately available funds and prior to 12:30 P.M. on the date such payment is to be made shall constitute a non-conforming payment. Any such non-conforming payment shall not be deemed to be received until the later of (i) the time such funds become available funds and (ii) the next Business Day. Any non-conforming payment may constitute or become a Default or Event of Default as otherwise provided herein. Interest shall continue to accrue at the Default Rate on any principal or fees as to which no payment or a non-conforming payment is made from the date such amount was due and payable until the later of (i) the date such funds become available funds or (ii) the next Business Day. (c) In the event that any payment hereunder or under any of the Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day unless provided otherwise under the definition of "Interest Period"; PROVIDED, however, that interest shall continue to accrue during the period of any such extension; and PROVIDED further, however, that in no event shall any such due date be extended beyond the Revolving Credit Termination Date. 4.6. FEES. (a) UNUSED FEE. For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date, the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a commitment fee equal to the Applicable Unused Fee multiplied by the average daily amount by which the Total Revolving Credit Commitment exceeds the sum of (i) Revolving Credit Outstandings without giving effect to Swing Line Outstandings plus (ii) Letter of Credit Outstandings. Such fees shall be due in arrears on the last Business Day of each November, February, May and August, commencing November 30, 1999 to and on the Revolving Credit Termination Date. Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment when required to do so in accordance with the terms hereof, such Lender shall not be entitled to receive payment of its pro rata share of such fee until such Lender shall make available such portion. (b) LETTER OF CREDIT FACILITY FEES. The Borrower shall pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee on the aggregate amount available to be drawn on each outstanding Letter of Credit at a rate equal to the Applicable Margin for Eurodollar Rate Loans. Such fees shall be due with respect to each Letter of Credit quarterly in arrears on the last day of each December, March, June and September, the first such payment to be made on the first such date occurring after the date of issuance of a Letter of Credit. 40 47 (c) LETTER OF CREDIT FRONTING AND ADMINISTRATIVE FEES. From and after the date on which there is more than one Lender, the Borrower shall pay to the Issuing Bank a fronting fee of one-eighth of one percent per annum (.125%) on the aggregate amount available to be drawn on each outstanding Letter of Credit, such fee to be payable quarterly in arrears with respect to each Letter of Credit on the dates established in SECTION 4.6(b) for the payment of Letter of Credit facility fees with respect to such Letter of Credit. The Borrower shall also pay to the Issuing Bank such administrative fee and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as the Issuing Bank and the Borrower shall agree from time to time. (d) AGENCY ADMINISTRATIVE FEES. The Borrower agrees to pay to the Agent, for the Agent's individual account, an annual administrative fee, such fee to be payable in such amounts and on such dates as from time to time agreed to by the Borrower and Agent in writing. 4.7. PRO RATA PAYMENTS. Except as otherwise specified herein, (a) each payment on account of the principal of and interest on Loans, the fees described in SECTION 4.6(a) AND (b), and Swing Line Loans and Reimbursement Obligations as to which the Lenders have funded their respective Participations which remain outstanding, shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, and (b) the Agent will promptly distribute to the Lenders in immediately available funds payments received in fully collected, immediately available funds from the Borrower. 4.8. COMPUTATION OF RATES AND FEES. Except as may be otherwise expressly provided, (i) the Base Rate shall be computed on the basis of the 365/366 day year and calculated for actual days elapsed, and (ii) all other interest rates (including each Eurodollar Rate, and the Default Rate) and fees shall be computed on the basis of a year of 360 days and calculated for actual days elapsed. 4.9. DEFICIENCY ADVANCES; FAILURE TO PURCHASE PARTICIPATIONS. No Lender shall be responsible for any default of any other Lender in respect to such other Lender's obligation to make any Loan or Advance hereunder or to fund its purchase of any Participation hereunder nor shall the Revolving Credit Commitment or Letter of Credit Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing or the provisions of SECTION 4.10, in the event any Lender shall fail to advance funds to the Borrower as herein provided, the Agent may in its discretion, but shall not be obligated to, advance under the applicable Note in its favor as a Lender all or any portion of such amount or amounts (each, a "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such Advance under its Note; provided that, (i) such defaulting Lender shall not be entitled to receive payments of principal, interest or fees with respect to such deficiency advance until such deficiency advance (together with interest thereon as provided in clause (ii)) shall be paid by such Lender and (ii) upon payment to the Agent from such other Lender of the entire outstanding amount of each such deficiency advance, together with accrued and unpaid interest thereon, from 41 48 the most recent date or dates interest was paid to the Agent by a Borrower on each Loan comprising the deficiency advance at the Federal Funds Rate, then such payment shall be credited against the applicable Note of the Agent in full payment of such deficiency advance and such Borrower shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by such Borrower thereon. In the event any Lender shall fail to fund its purchase of a Participation after notice from the Issuing Bank or Bank of America as the Swing Line lender, as applicable, such Lender shall pay to the Issuing Bank or Bank of America as the Swing Line lender, as applicable, such amount on demand, together with interest on the amount so due from the date of such notice at the Federal Funds Rate to the date such purchase price is received by the Issuing Bank or Bank of America as the Swing Line lender, as applicable. 4.10. INTRADAY FUNDING. Without limiting the provisions of SECTION 4.9, unless the Borrower or any Lender has notified the Agent not later than 12:00 Noon of the Business Day before the date any payment (including in the case of Lenders any Advance) to be made by it is due, that it does not intend to remit such payment, the Agent may, in its discretion, assume that Borrower or each Lender, as the case may be, has timely remitted such payment in the manner required hereunder and may, in its discretion and in reliance thereon, make available such payment (or portion thereof) to the Person entitled thereto as otherwise provided herein. If such payment was not in fact remitted to the Agent in the manner required hereunder, then: (i) if Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Lender to the date such amount is repaid to the Agent at the Federal Funds Rate; and (ii) if any Lender failed to make such payment, the Agent shall be entitled to recover such corresponding amount forthwith upon the Agent's demand therefor, the Agent promptly shall notify the Borrower, and the Borrower shall promptly pay such corresponding amount to the Agent in immediately available funds upon receipt of such demand. The Agent also shall be entitled to recover interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent, (A) from such Lender at a rate per annum equal to the daily Federal Funds Rate or (B) from the Borrower, at a rate per annum equal to the interest rate applicable to the Loan which includes such corresponding amount. Until the Agent shall recover such corresponding amount together with interest thereon, such corresponding amount shall constitute a deficiency advance within the meaning of SECTION 4.9. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder. 42 49 ARTICLE V Change in Circumstances ----------------------- 5.1. INCREASED COST AND REDUCED RETURN. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Rate Loans, its Note, or its obligation to make Eurodollar Rate Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Rate Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Revolving Credit Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Rate Loans, then the Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this SECTION 5.1(a), the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Loans of the Type with respect to which such compensation is requested, or to Convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of SECTION 43 50 5.4 shall be applicable); PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this SECTION 5.1 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this SECTION 5.1 shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 5.2. LIMITATION ON TYPES OF LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Rate Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify the Agent that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Rate Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Loans of such Type, Continue Loans of such Type, or to Convert Loans of any other Type into Loans of such Type and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the 44 51 affected Type, either prepay such Loans or Convert such Loans into another Type of Loan in accordance with the terms of this Agreement. 5.3. ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Rate Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make or Continue Eurodollar Rate Loans and to Convert other Types of Loans into Eurodollar Rate Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Rate Loans (in which case the provisions of SECTION 5.4 shall be applicable). 5.4. TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make a Eurodollar Rate Loan or to Continue, or to Convert Loans of any other Type into, Loans of a particular Type shall be suspended pursuant TO SECTION 5.1 OR 5.3 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by SECTION 5.3 hereof, on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in SECTION 5.1 OR 5.3 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Loans of the Affected Type shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Loans of the Affected Type shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in SECTION 5.1 OR 5.3 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this SECTION 5.4 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Revolving Credit Commitments. 5.5. COMPENSATION. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) 45 52 to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment, or Conversion of a Eurodollar Rate Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to SECTION 10.1) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in ARTICLE VI to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Rate Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. 5.6. TAXES. (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this SECTION 5.6) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Agent, at its address referred to in SECTION 12.2, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this SECTION 5.6) 46 53 paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to SECTION 5.6(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under SECTION 5.6(a) OR 5.6(b) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this SECTION 5.6, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this SECTION 5.6 shall survive the termination of the Revolving Credit Commitments, the payment in full of the Notes and the Facility Termination Date. 47 54 ARTICLE VI Conditions to Making Loans and Issuing Letters of Credit -------------------------------------------------------- 6.1. CONDITIONS OF INITIAL ADVANCE. The obligation of the Lenders to make the initial Advance under the Revolving Credit Facility, and of the Issuing Bank to issue any Letter of Credit, and of Bank of America to make any Swing Line Loan, is subject to the conditions precedent that: (a) the Agent shall have received on the Closing Date, in form and substance satisfactory to the Agent and Lenders, the following: (i) executed originals of each of this Agreement, the Notes, the initial Facility Guaranties, the LC Account Agreement and the other Loan Documents, together with all schedules and exhibits thereto; (ii) the favorable written opinion or opinions with respect to the Loan Documents and the transactions contemplated thereby of General Counsel to the Credit Parties dated the Closing Date, addressed to the Agent and the Lenders and satisfactory to Smith Helms Mulliss & Moore, L.L.P., special counsel to the Agent, substantially in the form of EXHIBIT G; (iii) resolutions of the boards of directors or other appropriate governing body (or of the appropriate committee thereof) of each Credit Party certified by its secretary or assistant secretary as of the Closing Date, (x) approving and adopting the Loan Documents to be executed by such Person, and authorizing the execution and delivery thereof, (y) declaring and authorizing the Special Distribution and (z) approving and adopting the Line of Business Transfer Documents and the Spinoff Documents, and authorizing the execution and delivery thereof; (iv) specimen signatures of officers or other appropriate representatives executing the Loan Documents on behalf of each of the Credit Parties, certified by the secretary or assistant secretary of such Credit Party; (v) the Organizational Documents of each of the Credit Parties certified as of a recent date by the Secretary of State of its state of organization; (vi) Operating Documents of each of the Credit Parties certified as of the Closing Date as true and correct by its secretary or assistant secretary; (vii) certificates issued as of a recent date by the Secretaries of State of the respective jurisdictions of formation of each of the Credit Parties as to the due existence and good standing of such Person; 48 55 (viii) appropriate certificates of qualification to do business, good standing and, where appropriate, authority to conduct business under assumed name, issued in respect of the Borrower as of a recent date by the Secretary of State or comparable official of each of Pennsylvania, Ohio, Mississippi, North Carolina, South Carolina, New Hampshire, Wisconsin and Massachussetts, and in respect of each of the Guarantors as of a recent date by the Secretary of State or comparable official of Ohio, in each case constituting all of the jurisdictions in which the failure to be qualified to do business or authorized so to conduct business could have a Material Adverse Effect; (ix) notice of appointment of the initial Authorized Representative(s); (x) certificate of an Authorized Representative dated the Closing Date demonstrating compliance with the financial covenants contained in SECTIONS 9.1(a) and 9.1(b) as of the end of the fiscal quarter of GenCorp and its subsidiaries most recently ended prior to the Closing Date and based on the historical pro forma financial statements furnished to the Agent reflecting the Transferred Business as at and for the four fiscal quarter period ended on such date, substantially in the form of EXHIBIT H; (xi) the Historical Unaudited Quarterly Statements and all other financial statements and projections referred to in SECTION 7.6(a); (xii) evidence that all notices required to be given to effect on the Closing Date the repayment of the GenCorp Prepayable Debt and termination of the Existing GenCorp Credit Agreement substantially simultaneously with payment of the Special Distribution shall have been given; (xiii) a certificate of an officer of the Borrower reasonably satisfactory to the Agent and the Lenders as to the matters set forth in SECTIONS 6.1(b)(i)(x) and 6.1(b)(ii) and 6.1(b)(iii) and, with respect to the operations, assets and affairs of the Borrower and its Subsidiaries only, SECTIONS 6.1(c)(i) through 6.1(c)(iii); (xiv) a certificate of an officer of GenCorp reasonably satisfactory to the Agent and the Lenders as to the matters set forth in SECTIONS 6.1(b)(i)(y), 6.1(b)(i)(z) and 6.1(b)(ii) and, with respect to the operations, assets and affairs of GenCorp and its subsidiaries only, SECTIONS 6.1(c)(i) through 6.1(c)(iii); (xv) evidence of all insurance required by the Loan Documents; (xvi) an initial Borrowing Notice, if any, and, if elected by the Borrower, Interest Rate Selection Notice; 49 56 (xvii) copies of the executed Line of Business Transfer Documents and Spinoff Documents certified by the secretary or an assistant secretary of the Borrower, which shall be satisfactory in form and substance to the Agent; (xviii) copies certified by an Authorized Representative of executed employment contracts by the Borrower with key executives of the Transferred Business, including Messrs. Yasinsky, McMullen and Mass; (xix) a copy, certified by a Responsible Officer of the Borrower, of the ruling letter dated June 30, 1999 from the Internal Revenue Service ("IRS") to the effect that Section 335 of the Code would apply to the Spinoff such that the Spinoff will constitute a tax-free distribution by GenCorp for U.S. Federal income tax purposes (the "IRS Ruling Letter"); (xx) such other documents, instruments, certificates and opinions as the Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the transactions contemplated hereby; and (xxi) evidence that all fees payable by the Borrower on the Closing Date to the Agent, BAS and the Lenders have been paid in full; (b) Each of the following shall have occurred or be true: (i) substantially simultaneously with the making of the initial Advance hereunder (x) the Borrower shall make the Special Distribution, (y) GenCorp shall prepay in full the GenCorp Prepayable Debt and terminate and cancel the Existing GenCorp Credit Agreement, and (z) the Spinoff and the Line of Business Transfer shall be effected in accordance with, and upon satisfaction of, each of the conditions to effectiveness thereof without any waiver thereof as set forth in the Spinoff Documents and the Line of Business Transfer Documents, respectively; (ii) there is no material asset or interest of GenCorp scheduled or described in the Distribution Agreement to be contributed to the Borrower in the Line of Business Transfer which has not been assigned or transferred by GenCorp to the Borrower as permitted pursuant to the Distribution Agreement; and (iii) there shall not have been any material amendment, revision, alteration or supplement to any of the Spinoff Documents or any of the Line of Business Transfer Documents from the forms thereof from time to time delivered to and reviewed by the Lenders without the written consent of the Agent. (c) In the good faith judgment of the Agent and the Lenders: (i) there shall not have occurred or become known to the Agent or the Lenders any event, condition, situation or status since the date of the information 50 57 contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Borrower and its Subsidiaries delivered to the Agent prior to the Closing Date that has had or could reasonably be expected to result in a Material Adverse Effect or adversely affect the consummation of the Spinoff or the Line of Business Transfer in accordance with the terms of the Spinoff Documents or the Line of Business Transfer Documents, respectively; (ii) no order, decree, judgment, ruling, injunction, litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding shall be pending or threatened, and there shall exist no order, decree, judgment, injunction or arbitral award or ruling, which could reasonably be likely to result in a Material Adverse Effect, or restrain or otherwise adversely affect the consummation of the Spinoff or the Line of Business Transfer in accordance with the terms of the Spinoff Documents or the Line of Business Transfer Documents, respectively; (iii) in connection with the Line of Business Transfer, the Spinoff and the transactions contemplated thereby, (A) each of GenCorp (or its applicable subsidiary) and the Credit Parties shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby (including the Spinoff and the Line of Business Transfer) without the occurrence of any default under, conflict with or violation of (I) any applicable law, rule, regulation, order or decree of any Governmental Authority or arbitral authority or (II) any agreement, document or instrument to which GenCorp, any of its subsidiaries, or any of the Credit Parties is a party or by which any of them or their properties is bound; and (B) such approvals, consents and waivers shall be in force and effect, (C) all waiting periods shall have expired without any action being taken to restrain or prevent or impose any adverse material conditions on the Line of Business Transfer, the Spinoff and the transactions contemplated thereby, and (D) no law or regulation shall be applicable which, in the sole judgment of the Agent, could restrain or prevent or impose any adverse material conditions on the Line of Business Transfer, the Spinoff and the transactions contemplated thereby or be violated by the consummation of any thereof; 6.2. CONDITIONS OF REVOLVING LOANS AND LETTER OF CREDIT. The obligations of the Lenders to make any Revolving Loans, and the Issuing Bank to issue Letters of Credit and Bank of America to make Swing Line Loans, hereunder on or subsequent to the Closing Date are subject to the satisfaction of the following conditions: (a) the Agent or, in the case of Swing Line Loans, Bank of America shall have received a Borrowing Notice if required by ARTICLE II; (b) the representations and warranties of the Credit Parties set forth in ARTICLE VII and in each of the other Loan Documents shall be true and correct in all material respects on and as of the date of such Advance, Swing Line Loan or Letter of Credit 51 58 issuance or renewal, with the same effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date (specifically, as to SECTION 7.4, Borrower agrees to provide an updated SCHEDULE 7.4 annually, and further specifically excepting the last sentence of SECTION 7.6 , all of Sections 7.7(b), 7.10, 7.11 AND 7.14(a), and the last sentence of SECTION 7.17) and except that the financial statements referred to in SECTION 7.5(a) shall be deemed (solely for the purpose of the representation and warranty contained in such SECTION 7.5(a) but not for the purpose of any cross reference to such SECTION 7.5(a) or to the financial statements described therein contained in any other provision of SECTION 7.5 or elsewhere in ARTICLE 7) to be those financial statements most recently delivered to the Agent and the Lenders pursuant to SECTION 8.1 from the date financial statements are delivered to the Agent and the Lenders in accordance with such Section; (c) in the case of the issuance of a Letter of Credit, the Borrower shall have executed and delivered to the Issuing Bank an Application and Agreement for Letter of Credit in form and content acceptable to the Issuing Bank together with such other instruments and documents as it shall request; (d) at the time of (and after giving effect to) each Advance, Swing Line Loan or the issuance of a Letter of Credit, no Default or Event of Default specified in ARTICLE X shall have occurred and be continuing; and (e) immediately after giving effect to: (i) a Revolving Loan, the aggregate principal balance of all outstanding Revolving Loans for each Lender shall not exceed such Lender's Revolving Credit Commitment; (ii) a Letter of Credit or renewal thereof, the aggregate principal balance of all outstanding Participations in Letters of Credit and Reimbursement Obligations (or in the case of the Issuing Bank, its remaining interest after deduction of all Participations in Letters of Credit and Reimbursement Obligations of other Lenders) for each Lender and in the aggregate shall not exceed, respectively, (X) such Lender's Letter of Credit Commitment or (Y) the Total Letter of Credit Commitment; (iii) a Swing Line Loan, the Swing Line Outstandings shall not exceed $10,000,000; and (iv) a Revolving Loan, Swing Line Loan or a Letter of Credit or renewal thereof, the sum of Letter of Credit Outstandings plus Revolving Credit Outstandings plus Swing Line Outstandings shall not exceed the Total Revolving Credit Commitment. 52 59 ARTICLE VII Representations and Warranties ------------------------------ The Borrower represents and warrants with respect to itself and to its Subsidiaries (which representations and warranties shall survive the delivery of the documents mentioned herein and the making of Loans), that: 7.1. ORGANIZATION AND AUTHORITY. (a) The Borrower and each Subsidiary is a corporation duly organized and validly existing under the laws of the jurisdiction of its formation; (b) The Borrower and each Subsidiary (i) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Transaction Documents, and (ii) is qualified to do business in every jurisdiction in which failure so to qualify would have a Material Adverse Effect; (c) The Borrower has the power and authority to execute, deliver and perform this Agreement and the Notes, and to borrow hereunder, and to execute, deliver and perform each of the other Transaction Documents to which it is a party; (d) Each Guarantor has the power and authority to execute, deliver and perform the Facility Guaranty and each of the other Transaction Documents to which it is a party; and (e) When executed and delivered, each of the Transaction Documents to which any Credit Party is a party will be the legal, valid and binding obligation or agreement, as the case may be, of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of remedies (whether considered in a proceeding at law or in equity). 7.2. TRANSACTION DOCUMENTS. The execution, delivery and performance by each Credit Party of each of the Transaction Documents to which it is a party: (a) have been duly authorized by all requisite Organizational Action of such Credit Party required for the lawful execution, delivery and performance thereof; (b) do not violate any provisions of (i) any applicable law, rule or regulation (ii) any judgment, writ, order, determination, decree or arbitral award of any Governmental Authority or arbitral authority binding on such Credit Party or its properties, (iii) the Organizational Documents or Operating Documents of such Credit 53 60 Party, in each case in clauses (i) and (ii) hereof, which violation could reasonably be expected to have a Material Adverse Effect; (c) does not and will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time or both, would constitute an event of default, under any contract, indenture, agreement or other instrument or document to which such Credit Party or GenCorp or any of its subsidiaries is a party, or by which the properties or assets of such Credit Party or GenCorp or any of its subsidiaries are bound which conflict, breach or event of default could reasonably be expected to have a Material Adverse Effect; and (d) does not and will not result in the creation or imposition of any Lien upon any of the properties or assets of such Credit Party except any Liens in favor of the Agent and the Lenders created by the Loan Documents. 7.3. GOVERNMENTAL AUTHORIZATION. Except as set forth in SCHEDULE 7.3, neither the respective businesses or properties of the Borrower or any Subsidiary, nor any relationship between the Borrower or any Subsidiary and any other Person, nor the execution, delivery and performance of the Transaction Documents and the transactions contemplated hereby, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or other authority or any other Person on the part of the Borrower or any Subsidiary as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by, this Agreement or the other Transaction Documents, or if so, such consent, approval, authorization, filing, registration or qualification has been obtained or effected, as the case may be. 7.4. CAPITALIZATION; SUBSIDIARIES; INVESTMENTS. All outstanding shares of capital stock of the Borrower have been duly authorized and are listed on SCHEDULE 7.4. Except as set forth on SCHEDULE 7.4, there are no outstanding subscriptions, warrants, options, calls, commitments or other rights (preemptive or otherwise) or agreements to which the Borrower or, to the knowledge of the Borrower, any shareholder is bound relating to the issuance, sale or redemption of shares of common stock of the Borrower. The Borrower has no Subsidiaries other than those Persons listed as Subsidiaries in SCHEDULE 7.4 and such schedule states the authorized and issued capitalization of each Subsidiary listed thereon, the number of shares or other equity interests of each class of capital stock or interest issued and outstanding of each such Subsidiary and the number and percentage of outstanding shares or other equity interest (including options, warrants and other rights to acquire any interest) of each such class of capital stock or other equity interest owned by the Borrower or by any such Subsidiary; the outstanding shares or other equity interests of each such Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable; and the Borrower and each such Subsidiary owns beneficially and of record all the shares and other interests it is listed as owning in SCHEDULE 7.4, free and clear of any Lien other than Liens permitted under SECTION 9.4. The Borrower has no investments and owns no interest in any other Person (excluding Subsidiaries) other than as listed in SCHEDULE 7.4. 54 61 7.5. FINANCIAL CONDITION. (a) The Borrower has heretofore furnished to the Agent and each Lender (i) audited consolidated financial statements of the Borrower and its Subsidiaries for the Fiscal Years ending November 30, 1997 and November 30, 1998, consisting of a consolidated balance sheet and the notes thereto and the related consolidated statements of income, divisional equity and cash flows for the fiscal periods then ended as examined and certified by Ernst & Young, LLP, and (ii) Historical Unaudited Quarterly Statements, and (iii) pro forma five-year projections, beginning with the Fiscal Year ending November 30, 1999, including pro forma balance sheets and income and cash flow statements. Except as set forth therein, the financial statements described in (i) and (ii) above (including the notes thereto) present fairly after giving effect to the Business Transfer and the Spinoff, the financial condition of the Borrower and its Subsidiaries as of the end of such Fiscal Years and such quarterly periods and results of their operations, cash flows and the changes in its divisional equity for the Fiscal Years and interim period then ended, all in conformity with GAAP applied on a Consistent Basis, subject however, in the case of unaudited interim statements to year end audit adjustments and the absence or reduced scope of footnote disclosures; (b) since the later of (i) the date of the audited financial statements delivered pursuant to SECTION 7.5(a)(i) hereof or (ii) the date of the audited financial statements most recently delivered pursuant TO SECTION 8.1(a) hereof, there has been no material adverse change in the condition, financial or otherwise, of the Borrower, any of its Subsidiaries or, in respect of clause (i), the Transferred Business or in the businesses, properties, performance or operations of the Borrower or any of its Subsidiaries, nor have such businesses or properties been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; (c) except as set forth in the financial statements referred to in SECTION 7.5(a) or in SCHEDULE 7.5 or permitted by SECTION 9.5, neither Borrower nor any Subsidiary has incurred any material Indebtedness which remains outstanding or unsatisfied. 7.6. TITLE TO PROPERTIES. The Borrower and each of its Subsidiaries has good and marketable title to all its real and personal properties, subject to no transfer restrictions or Liens of any kind, except for (i) the transfer restrictions and Liens described in SCHEDULE 7.6, (ii) Liens permitted by SECTION 9.4, (iii) with respect to any personal property that constitutes a security, transfer restrictions imposed under Federal and state securities laws and regulations, and (iv) the lack of title or the presence of such transfer restrictions that could not reasonably be expected to have a Material Adverse Effect. All real property owned or leased by the Borrower and its Subsidiaries are described on SCHEDULE 7.6 hereto. 7.7. LITIGATION; LOSS CONTINGENCIES. Except as set forth in SCHEDULE 7.7 hereto, there are no legal actions, suits, proceedings, claims or disputes pending, or to the knowledge of the Borrower threatened, at law, in equity, in arbitration or before any Governmental Authority 55 62 against or, to the Borrower's knowledge, directly affecting the Borrower or any of its Subsidiaries (a) with respect to this Agreement or any of the other Transaction Documents, or any of the transactions contemplated hereby, or (b) which, in the opinion of management, after reviewing the information which is currently available with respect to such matters and consulting with the Borrower's counsel, could reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order, decree or order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any of the other Transaction Documents. Except as set forth in SCHEDULE 7.7 hereto, there are no material Contingent Obligations which are not, or are not in effect, Guaranties or "loss contingencies" (as defined in Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975 ("FAS 5")), which would be required by FAS 5 to be disclosed or accrued in consolidated financial statements of the Borrower were such financial statements prepared at the time this representation and warranty is made or deemed made. 7.8. NO DEFAULT OR BREACH. No default or event has occurred and is continuing or would result from the consummation of the transactions contemplated hereunder and under the other Transaction Documents which constitutes or, with the giving of notice or passage of time or both, would constitute an Event of Default. Except as set forth on SCHEDULE 7.8 hereto, after giving effect to the transactions contemplated hereby and by the other Transaction Documents, neither the Borrower nor any of its Subsidiaries nor, to the best of the Borrower's knowledge, with respect to any Material Contract, any other party thereto, is or will be in default under or with respect to any contractual obligation in any respect, which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect. 7.9. MATERIAL CONTRACTS. Each Material Contract is, and after giving effect to the consummation of the transactions contemplated hereby and by the other Transaction Documents will be, in full force and effect in accordance with the terms thereof, except to the extent any such Material Contract expires or terminates in accordance with its terms as in effect on the Closing Date. 7.10. RELATED PARTY AGREEMENTS. Except with respect to the Line of Business Transfer Documents and the Spinoff Documents or as set forth on SCHEDULE 7.10, neither the Borrower nor any of its Subsidiaries is a party to any material contract, agreement or commitment (a) with any director, officer or shareholder of the Borrower (both before and after giving effect to the transactions contemplated hereby and by the other Transaction Documents), or, (b) to the Borrower's knowledge, with any Person in which any such director, officer or shareholder has any direct or indirect interest. 7.11. ENVIRONMENTAL MATTERS. Based upon currently available information and reasonable investigation and inquiry, to the best of management's knowledge, except as set forth in SCHEDULE 7.11 hereto: 56 63 (a) The Borrower and its Subsidiaries are in compliance with all Environmental Laws, except to the extent that any non-compliance would not reasonably be expected to have a Material Adverse Effect. (b) Neither the Borrower nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws that would reasonably be expected to have a Material Adverse Effect, nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened. (c) No judicial, governmental or administrative proceedings are pending or are threatened against the Borrower or any of its Subsidiaries under any Environmental Law, nor are there any consent decrees or court decrees, consent orders, or administrative orders outstanding under any Environmental Law with respect to the Borrower or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect. (d) There has been no release of Hazardous Materials arising from, generated by or related to the operations of the Borrower or any of its Subsidiaries, or for which the Borrower or any of its Subsidiaries has retained or assumed liability in amounts or in a manner that would reasonably be expected to result in a Material Adverse Effect. (e) Environmental liabilities with respect to continued and discontinued operations of GenCorp other than the Transferred Business have not been assumed by the Borrower, will remain the obligations of GenCorp after the Spinoff, and GenCorp has agreed to indemnify the Borrower for any such environmental liabilities pursuant to the terms of the Distribution Agreement. 7.12. COMPLIANCE WITH LAW. (a) CONDUCT OF BUSINESS. The Borrower and its Subsidiaries have conducted their business so as to comply with, and are in compliance with, all Requirements of Law, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. (b) LICENSES. The Borrower and its Subsidiaries have all permits, certificates, licenses, approvals and other authorizations required by any Governmental Authority in connection with the operation of their business, except where the failure to obtain such requirements could not reasonably be expected to have a Material Adverse Effect. 7.13. TAXES. The Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state, local and foreign tax returns which are required to be filed by it and which the failure to file could reasonably be expected to have a Material Adverse Effect and, except for taxes and assessments being contested in good faith by appropriate proceedings diligently conducted and against which reserves reflected in the financial statements described in SECTION 7.5(a) or more recently delivered pursuant to SECTION 8.1(a) and as required by GAAP have been 57 64 established, have paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes have become due unless the failure to pay the same could not reasonably be expected to have a Material Adverse Effect. 7.14. EMPLOYEE BENEFIT PLANS. Except as set forth in SCHEDULE 7.14 hereto: (a) Neither the Borrower nor any ERISA Affiliate maintains or contributes to, or has any obligation under, any Employee Benefit Plans other than those identified on SCHEDULE 7.14 hereto; (b) The Borrower and each ERISA Affiliate is in compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder and in compliance with all Foreign Benefit Laws with respect to all Employee Benefit Plans except where failure to comply could not reasonably be expected to have a Material Adverse Effect and except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified (or an application for such a determination by the Internal Revenue Service has been submitted to the Internal Revenue Service on a timely basis so as to preserve the remedial amendment period), and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code. No material liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan; (c) No Pension Plan has been terminated, nor has any accumulated funding deficiency (as defined in Section 412 of the Code) been incurred (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the IRS been received or requested with respect to any Pension Plan, nor has the Borrower or any ERISA Affiliate failed to make any contributions or to pay any amounts due and owing as required by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension Plan prior to the due dates of such contributions under Section 412 of the Code or Section 302 of ERISA, nor has there been any event requiring any disclosure under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA with respect to any Pension Plan; (d) Neither the Borrower nor any ERISA Affiliate has: (i) engaged in a nonexempt prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code, (ii) incurred any liability to the PBGC which remains outstanding other than the payment of premiums and there are no premium payments which are due and unpaid, (iii) failed to make a required contribution or payment to a Multiemployer Plan or (iv) failed to make a required installment or other required payment under Section 412 of the Code, unless such action or failure to act could not reasonably be expected to have a Material Adverse Effect; 58 65 (e) No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan or Multiemployer Plan; (f) No material proceeding, claim, lawsuit and/or investigation exists or, to the best knowledge of the Borrower after due inquiry, is threatened concerning or involving any Employee Benefit Plan. 7.15. EMPLOYMENT MATTERS. Except as disclosed on SCHEDULE 7.15 hereto, the Borrower and all Subsidiaries are in compliance with all applicable laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational safety and taxation, the noncompliance with which could reasonably be expected to have a Material Adverse Effect, and there is neither pending nor, to the knowledge of the Borrower, any threatened litigation, administrative proceeding or investigation in respect of such matters an adverse ruling or determination in which could reasonably be expected to have a Material Adverse Effect. Except as disclosed on SCHEDULE 7.15 hereto, neither the Borrower nor any of its Subsidiaries is party to any collective bargaining agreement with any labor union or similar organization. 7.16. INTELLECTUAL PROPERTY. The Borrower and its Subsidiaries own, or have a license or otherwise have the right to continue to use, without violating the rights of any other Person, in all jurisdictions in which they carry on business, all patents (including all applications, renewals, reissues, extensions, divisions, continuations and extensions thereof), trademarks (including both registered and unregistered trademarks and applications therefor), service marks, trade names, copyrights (including all registrations, renewals, modifications and extensions thereof), and know-how and trade secrets (collectively, the "Intellectual Property"), currently in use but, to the extent there is a failure to so own, license or possess the right to use such Intellectual Property, such failure could not reasonably be expected to have a Material Adverse Effect. Except as set forth on SCHEDULE 7.16 hereto, none of the Intellectual Property is subject to any Lien other than Liens permitted under SECTION 9.4. To the knowledge of the Borrower, no claim which could reasonably be expected to have a Material Adverse Effect of any Person is pending or threatened to the effect that any current use or ownership of the Intellectual Property infringes upon or conflicts with any such rights of any Person. 7.17. INSURANCE. The Borrower and its Subsidiaries maintain, to the extent that reasonable commercial efforts permit them to, insurance with financially sound and reputable insurance companies, or self-insure where the Borrower deems appropriate, on all their properties in at least such amounts and against at least such risks (but, including in any event, public liability, product liability and business interruption) as are usually insured against or self-insured in the same general area by companies engaged in the same or a similar business. All policies of insurance owned or maintained by the Borrower and its Subsidiaries and the coverages provided thereby are described on SCHEDULE 7.17 hereto. 7.18. BOOKS AND RECORDS. The books and records of the Borrower and its Subsidiaries, including the minutes of director and shareholder meetings, consents or actions, are accurate, current and complete in all material respects. 59 66 7.19. JUDGMENTS AND OTHER RESTRICTIONS. Neither the Borrower nor any Subsidiary is a party to any judgment, order, decree or any agreement or instrument or subject to restrictions which could reasonably be likely to have a Material Adverse Effect or to materially adversely affect the ability of the Borrower or any Guarantor to observe the covenants and agreements contained herein. 7.20 INVESTMENT COMPANY; MARGIN STOCK. Neither the Borrower nor any Subsidiary is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1, et seq.). The application of the proceeds of the Loans and repayment thereof by the Borrower and the performance by the Borrower of the transactions contemplated by this Agreement will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof. Neither the Borrower nor any Subsidiary owns any "margin stock" as such term is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The proceeds of the borrowings made pursuant to ARTICLES II hereof will be used by the Borrower and its Subsidiaries only for the purposes set forth in SECTION 2.2 hereof. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any of the Loans under this Agreement a "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrower nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof. 7.21. DISCLOSURE. (a) THIS AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This Agreement and the other Transaction Documents (including any and all schedules and exhibits thereto), and all other documents and certificates furnished to the Agent by the Borrower or its Subsidiaries on or prior to the Closing Date did not and do not contain any untrue statement of a material fact or omit, to the extent such agreements, documents and certificates are taken as a whole, to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. (b) MATERIAL ADVERSE EFFECT. There is no fact known to the Borrower or any of its Subsidiaries which the Borrower has not disclosed to the Agent in writing that has had or could be reasonably expected to have a Material Adverse Effect. 7.22. HEDGING ARRANGEMENTS. The Borrower and its Subsidiaries have no interest rate or currency swap arrangements nor is the Borrower or any of its Subsidiaries party to any 60 67 transaction involving derivatives or other hedging arrangements, except as set forth on SCHEDULE 7.22 hereto and permitted under SECTION 9.14 hereof. 7.23. SOLVENCY. Each Credit Party is Solvent after giving effect to the transactions contemplated by the Transaction Documents. 7.24. NO CONSENTS, ETC. Neither the respective businesses or properties of the Credit Parties or any Subsidiary, nor any relationship among the Credit Parties or any Subsidiary and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Transaction Documents and the transactions contemplated thereby, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person on the part of any Credit Party as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by the Transaction Documents, which, if not obtained or effected, would be reasonably likely to have a Material Adverse Effect, or if so, such consent, approval, authorization, filing, registration or qualification has been duly obtained or effected, as the case may be. 7.25. YEAR 2000 COMPLIANCE. The Borrower and its Subsidiaries have (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by information received from suppliers and vendors) that could reasonably be expected to be adversely affected by the Year 2000 Problem, (ii) developed a plan and timeline for addressing the Year 2000 Problem affecting material computer applications and other systems and operations of the Borrower and its Subsidiaries and their key vendors and customers not later September 30, 1999, with the exception of GenCorp Wallcoverings (UK) Limited, whose Year 2000 Problem will be addressed not later than October 31, 1999, and (iii) to date, implemented that plan substantially in accordance with that timetable. The Borrower reasonably believes that all computer applications and other systems and operations that are material to its or any of its Subsidiaries' business and operations will on a timely basis be Year 2000 Compliant, except to the extent that a failure to do so could not reasonably be expected to have Material Adverse Effect. 7.26. TAX TREATMENT OF SPINOFF. The Spinoff has been accomplished substantially simultaneously with the making of the initial advance hereunder consistent with the factual representations and assumptions presented to the IRS by GenCorp in its request for the IRS Ruling Letter. 61 68 ARTICLE VIII Affirmative Covenants --------------------- Until the Facility Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and where applicable will cause each Subsidiary to: 8.1. FINANCIAL REPORTS, ETC. (a) As soon as practical and in any event within 95 days after the end of each Fiscal Year of the Borrower, deliver or cause to be delivered to the Agent and each Lender (i) consolidated and, if there are any Material Subsidiaries, consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year, and the notes thereto, and the related consolidated and, if there are any Material Subsidiaries, consolidating statements of income, stockholders' equity and cash flows, and the respective notes thereto, for such Fiscal Year, setting forth (other than for consolidating statements) comparative financial statements for the preceding Fiscal Year, all prepared in accordance with GAAP applied on a Consistent Basis and containing, with respect to the consolidated financial statements, opinions of Ernst & Young, LLP or other such independent certified public accountants selected by the Borrower and approved by the Agent, which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Borrower and without any exception not acceptable to the Lenders, and (ii) a certificate of a Responsible Officer demonstrating compliance with SECTIONS 9.1(a) and 9.1(b) and 9.3, which certificate shall be in the form of EXHIBIT H; (b) as soon as practical and in any event within 50 days after the end of each fiscal quarter (except the last fiscal quarter of any Fiscal Year), deliver to the Agent and each Lender (i) consolidated and, if there are any Material Subsidiaries, consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated and, if there are any Material Subsidiaries, consolidating statements of income, stockholders' equity and cash flows for such fiscal quarter and for the period from the beginning of the then current Fiscal Year through the end of such reporting period, and accompanied by a certificate of a Responsible Officer to the effect that such financial statements present fairly the financial position of the Borrower and its Subsidiaries as of the end of such fiscal period and the results of their operations and the changes in their financial position for such fiscal period, in conformity with the standards set forth in SECTION 7.5(a) with respect to interim financial statements, and (ii) a certificate of a Responsible Officer containing computations for such quarter comparable to that required pursuant to SECTION 8.1(a)(ii); (c) together with each delivery of the financial statements required by SECTION 8.1(a)(i), deliver to the Agent and each Lender a letter from the Borrower's accountants specified in SECTION 8.1(a)(i) stating that in performing the audit necessary to render an opinion on the financial statements delivered under SECTION 8.1(a)(i), they obtained no knowledge of any Default or Event of Default by the Borrower in the fulfillment of the 62 69 terms and provisions of this Agreement insofar as they relate to financial matters (which at the date of such statement remains uncured); or if the accountants have obtained knowledge of such Default or Event of Default, a statement specifying the nature and period of existence thereof; (d) promptly upon their becoming available to the Borrower, deliver to the Agent and each Lender a copy of (i) all regular or special reports or effective registration statements which Borrower or any Subsidiary shall file with the Securities and Exchange Commission (or any successor thereto) or any securities exchange and (ii) any proxy statement distributed by the Borrower or any Subsidiary to its shareholders, bondholders or the financial community in general; (e) concurrently with the delivery of the financial statements referred to in SECTION 8.1(a) and the delivery of the financial statements required to be delivered under SECTION 8.1(b) at the end of the second quarterly period of each Fiscal Year of the Borrower, deliver or cause to be delivered to the Agent and each Lender a report of the Borrower with respect to the environmental matters affecting the Borrower and the Subsidiaries in the same level of detail and of the same scope as that furnished to the lenders under the Existing GenCorp Credit Agreement; (f) concurrently with the delivery of the financial statements required to be delivered under SECTION 8.1(a) OR (b), deliver or cause to be delivered to the Agent and each Lender notice of any request for indemnity under the terms of the Spinoff Documents and the Line of Business Transfer Documents either delivered to, or received from, GenCorp which, when aggregated with all other such requests would exceed $10,000,000 and, with respect to such requests from GenCorp, the position of the Borrower in response to such request; and (g) promptly, from time to time, deliver or cause to be delivered to the Agent and each Lender such other information regarding Borrower's and any Subsidiary's operations, business affairs and financial condition as the Agent or such Lender may reasonably request. Subject to the provisions of SECTION 12.1(h), the Agent and the Lenders are hereby authorized to deliver a copy of any such financial or other information delivered hereunder to the Lenders (or any affiliate of any Lender as necessary or beneficial to fulfill the obligations of any Lender hereunder) or to the Agent, to any Governmental Authority having jurisdiction over the Agent or any of the Lenders pursuant to any written request therefor or in the ordinary course of examination of loan files, or to any other Person who shall acquire or consider the assignment of, or acquisition of any participation interest in, any Obligation permitted by this Agreement. 8.2. MAINTAIN PROPERTIES. Maintain all properties necessary to its operations in good working order and condition and make all needed repairs, replacements and renewals to such properties, in each case as are reasonably necessary to conduct its business as currently conducted or as contemplated hereby, all in accordance with customary and prudent business practices. 63 70 8.3. EXISTENCE, QUALIFICATION, ETC. Except as otherwise expressly permitted under SECTION 9.8, do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and franchises, and maintain its qualification to do business as a foreign corporation and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. 8.4. REGULATIONS AND TAXES. Comply in all material respects with all statutes and governmental regulations and pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, would become a Lien against any of its properties except any thereof being contested in good faith by appropriate proceedings diligently conducted, as to which no Lien has attached to and is enforceable against any of its properties and against which adequate reserves as required by GAAP have been established. 8.5. INSURANCE, PROCEEDS AND CONDEMNATION. (a) Keep all of its insurable properties adequately insured at all times with responsible insurance carriers against loss or damage by fire and other hazards to the extent and in the manner as are currently maintained and are prudent when considered in light of the Borrower's properties and businesses, (b) maintain general public liability insurance at all times with responsible insurance carriers against liability on account of damage to persons and property having such limits, deductibles, exclusions, co-insurance and other provisions providing coverages that are currently maintained and are prudent when considered in light of the Borrower's properties and businesses, and (c) maintain existing insurance under all applicable workers' compensation laws (or in the alternative, maintain required reserves if self-insured for workers' compensation purposes). Each of the policies of insurance described in this SECTION 8.5(a) and (b) shall provide that the insurer shall give the Agent not less than thirty (30) days' prior written notice before any such policy shall lapse or be terminated or cancelled. 8.6. TRUE BOOKS. Keep true books of record and account in which full, true and correct entries will be made of all of its dealings and transactions, and set up on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in interim as well as year-end financial statements. 8.7. YEAR 2000 COMPLIANCE. The Borrower will (i) promptly notify the Agent and the Lenders in the event the Borrower discovers or determines that any computer application or other system or operation (including those affected by information received from its suppliers and vendors) that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant on a timely basis, and (ii) take all actions reasonably necessary to make such computer applications or other systems or operations Year 2000 Compliant, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 64 71 8.8. RIGHT OF INSPECTION. Permit any Person designated by any Lender or the Agent to visit and inspect any of the properties, corporate books and financial reports of the Borrower or any Subsidiary and to discuss its affairs, finances and accounts with its principal officers and independent certified public accountants, all at reasonable times, at reasonable intervals and with reasonable prior notice to a Responsible Officer; PROVIDED, HOWEVER, that prior to the occurrence and continuance of an Event of Default, the costs associated with all such visits and inspections by a Lender shall be borne by such Lender and the costs associated with such visits and inspections by the Agent, in excess of one visit and inspection each calendar year (the reasonable costs with respect to which shall be borne by the Borrower) shall be borne by the Agent. After the occurrence and during the continuation of an Event of Default, all costs associated with such visits and inspections by the Agent or any Lender shall be borne by the Borrower. 8.9. OBSERVE ALL LAWS. Conform to and duly observe in all material respects all laws, rules and regulations and all other valid requirements of any Governmental Authority applicable to the Borrower or any of its Subsidiaries with respect to the conduct of its business. 8.10. GOVERNMENTAL LICENSES. Obtain and maintain all licenses, permits, certifications and approvals of all applicable Governmental Authorities as are required for the conduct of its business as currently conducted, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. 8.11. COVENANTS EXTENDING TO OTHER PERSONS. Cause each of its Subsidiaries to do with respect to itself, its business and its assets, each of the things required of the Borrower in SECTIONS 8.2 through 8.10, and 8.14 through 8.19 inclusive. 8.12. OFFICER'S KNOWLEDGE OF DEFAULT. Upon any senior executive officer of the Borrower obtaining knowledge of any Default or Event of Default hereunder or under any other obligation of the Borrower or any Subsidiary to any Lender, cause such officer or a Responsible Officer to promptly notify the Agent of the nature thereof, the period of existence thereof, and what action the Borrower or such Subsidiary proposes to take with respect thereto. 8.13. SUITS OR OTHER PROCEEDINGS. Upon any Responsible Officer of the Borrower obtaining knowledge of any litigation or other proceedings being instituted against the Borrower or any Subsidiary by any Person, including without limitation any Governmental Authority, or any attachment, levy, execution or other process being instituted against any assets of the Borrower or any Subsidiary, making a claim or claims in an aggregate amount greater than $10,000,000 not otherwise covered by insurance, reasonably promptly deliver to the Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. 8.14. ENVIRONMENTAL LAWS. (a) Comply with Environmental Laws, or contest in good faith the applicability of any such Environmental Laws or liability thereunder, except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect. 65 72 (b) Promptly give notice to the Agent if the Borrower or any of its Subsidiaries is in violation of or is not in compliance with or has incurred liability or potential liability under Environmental Laws, unless such violation or noncompliance could not reasonably be expected to have a Material Adverse Effect, and promptly provide to the Agent accurate and complete copies of any and all letters, notices, complaints, orders, directives, claims or citations received by the Borrower or any of its Subsidiaries relating to (i) violation or alleged violation by the Borrower or any of its Subsidiaries of any applicable Environmental Laws; (ii) release or threatened release into the environment by the Borrower or any of its Subsidiaries, or by any person handling, transporting or disposing of any Hazardous Materials on behalf of the Borrower or any of its Subsidiaries, or any facility or property owned or leased or operated by the Borrower or any of its Subsidiaries, of any Hazardous Material, except where occurring legally; or (iii) liability or alleged liability of the Borrower or any of its Subsidiaries for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials, unless such violation, release or liability could not reasonably be expected to have a Material Adverse Effect. (c) Defend, indemnify and hold harmless the Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with or liability under any Environmental Laws applicable to the operations of, liabilities assumed by, or real property owned or operated by the Borrower or any of its Subsidiaries, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorneys' and consultants' fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The provisions of this SECTION 8.14(c) shall survive repayment of the Obligations and occurrence of the Facility Termination Date. 8.15. FURTHER ASSURANCES. At the Borrower's cost and expense, upon request of the Agent, duly execute and deliver or cause to be duly executed and delivered, to the Agent such further instruments, documents, certificates, financing and continuation statements, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents. 8.16. EMPLOYEE BENEFIT PLANS. (a) With reasonable promptness, and in any event within thirty (30) days after the end of the Fiscal Year in which such event occurs, give notice to the Agent of (i) the establishment of any new Employee Benefit Plan (which notice shall include a copy of such plan), (ii) the commencement of contributions to any Employee Benefit Plan to 66 73 which the Borrower or any of its ERISA Affiliates was not previously contributing, (iii) any material increase in the benefits of any existing Employee Benefit Plan, (iv) each funding waiver request filed with respect to any Employee Benefit Plan and all communications received or sent by the Borrower or any ERISA Affiliate with respect to such request and (v) the failure of the Borrower or any ERISA Affiliate to make a required installment or payment under Section 302 of ERISA or Section 412 of the Code (in the case of Employee Benefit Plans regulated by the Code or ERISA) or under any Foreign Benefit Law (in the case of Employee Benefit Plans regulated by any Foreign Benefit Law) by the due date; (b) Promptly and in any event within thirty (30) days of becoming aware of the occurrence or forthcoming occurrence of any (i) Termination Event or (ii) nonexempt "prohibited transaction," as such term is defined in Section 406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan or any trust created thereunder, and unless such occurrence could not reasonably be expected to have a Material Adverse Effect, deliver to the Agent a notice specifying the nature thereof, what action the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (c) With reasonable promptness but in any event within fifteen (15) days deliver to the Agent copies of (i) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code, (ii) all notices received by the Borrower or any ERISA Affiliate of the PBGC's or any Governmental Authority's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (iii) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower or any ERISA Affiliate with the Internal Revenue Service with respect to each Pension Plan and (iv) all notices received by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA unless any such notice relates to an event or condition that could not reasonably be expected to have a Material Adverse Effect. The Borrower will notify the Agent in writing within five (5) Business Days of the Borrower or any ERISA Affiliate obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA. 8.17. CONTINUED OPERATIONS. Continue at all times to conduct its business and engage principally in the same line or lines of business substantially as heretofore conducted. 8.18. NEW SUBSIDIARIES. Within thirty (30) days after (i) the acquisition or creation of any new Subsidiary which is a Domestic Material Subsidiary, or (ii) an existing Domestic Subsidiary becoming a Material Domestic Subsidiary, cause to be delivered to the Agent for the benefit of the Lenders each of the following: 67 74 (a) a Facility Guaranty executed by such Domestic Material Subsidiary substantially in the form of EXHIBIT I; (b) an opinion of counsel to the Domestic Material Subsidiary dated as of the date of delivery of the Facility Guaranty provided for in this SECTION 8.18 and addressed to the Agent and the Lenders, in form and substance reasonably acceptable to the Agent (which opinion may include assumptions and qualifications of similar effect and in the form of and addressing the matters relating to Guarantors set forth in the opinions delivered pursuant to SECTION 6.1(a)(ii) hereof, where applicable); and (c) current copies of the Organizational Documents and Operating Documents of such Domestic Material Subsidiary, certified resolutions (or duly effected consent actions) of the Board of Directors, partners, or appropriate committees thereof (and, if required by such Organizational Documents, Operating Documents or applicable law, of the shareholders, members or partners) of such Domestic Material Subsidiary authorizing the actions and the execution and delivery of documents described in this SECTION 8.18. 8.19. COMPLIANCE WITH MATERIAL CONTRACTS. Comply with the terms of all Material Contracts and maintain the terms of such Material Contracts as in effect on the Closing Date, except to the extent such noncompliance or failure to maintain could not reasonably be expected to have and does not have a Material Adverse Effect. 68 75 ARTICLE IX Negative Covenants ------------------ Until the Facility Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, nor will it permit any Subsidiary to: 9.1. FINANCIAL COVENANTS. (a) CONSOLIDATED LEVERAGE RATIO. Permit the Consolidated Leverage Ratio as of the end of any Four-Quarter Period to be greater than 3.25 to 1.00. (b) CONSOLIDATED INTEREST COVERAGE RATIO. Permit the Consolidated Interest Coverage Ratio as of the end of any Four-Quarter Period to be less than 3.50 to 1.00. 9.2. ACQUISITIONS. Enter into any agreement, contract, binding commitment or other arrangement providing for any Acquisition, or take any action to solicit the tender of securities or proxies in respect thereof in order to effect any Acquisition, unless (i) the Person to be (or whose assets are to be) acquired does not oppose such Acquisition and the line or lines of business of the Person to be acquired are substantially the same as one or more line or lines of business conducted by the Borrower and its Subsidiaries, (ii) no Default or Event of Default shall have occurred and be continuing either immediately prior to or immediately after giving effect to such Acquisition, (iii) the Borrower shall have furnished to the Agent (A) pro forma historical financial statements as of the end of the most recently completed Fiscal Year of the Borrower and most recent interim fiscal quarter, if applicable, giving effect to such Acquisition and (B) a certificate in the form of EXHIBIT H prepared on a historical pro forma basis as of the most recent date for which financial statements have been furnished pursuant to SECTION 7.5(a) or SECTION 8.1(a) OR (b) giving effect to such Acquisition, which certificate shall demonstrate that no Default or Event of Default would exist immediately after giving effect thereto, and (iv) the Person acquired shall be a wholly-owned Subsidiary, or be merged into the Borrower or a wholly-owned Subsidiary, immediately upon consummation of the Acquisition (or if assets are being acquired, the acquiror shall be the Borrower or a wholly-owned Subsidiary). 9.3. CAPITAL EXPENDITURES. Make or become committed to make Capital Expenditures, which exceed $75,000,000 in the aggregate in any Fiscal Year of the Borrower (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be carried forward to a subsequent period). 9.4. LIENS. Incur, create or permit to exist any Lien, charge or other encumbrance of any nature whatsoever with respect to any property or assets now owned or hereafter acquired by the Borrower or any Subsidiary, other than the following (all of which shall be collectively referred to as "Permitted Liens"): (a) Liens existing as of the date hereof and as set forth in SCHEDULE 7.6; 69 76 (b) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained as required by GAAP; (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or created in the ordinary course of business and in existence less than 30 days from the date of creation thereof for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained as required by GAAP; (d) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (e) easements (including reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Borrower or any Subsidiary and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Borrower or any Subsidiary; (f) purchase money Liens to secure Indebtedness on any real property or equipment otherwise permitted hereunder and incurred to purchase such fixed assets, provided such Indebtedness represents not more than 75% of the purchase price of such fixed assets as of the date of purchase thereof and no property other than the assets so purchased is subject to such Liens; (g) Liens incurred in connection with Capital Leases otherwise permitted hereunder provided that no other property other than the property subject to such Capital Leases is subject to such Liens; (h) Liens on assets acquired in an Acquisition permitted under SECTION 9.2 so long as such Liens (i) are not incurred in contemplation of such Acquisition and (ii) do not extend to any assets other than the assets being acquired in such Acquisition; and (i) other Liens securing Indebtedness in de minimis amounts, but in no event securing Indebtedness in an aggregate amount in excess of $5,000,000. 70 77 9.5. INDEBTEDNESS. (a) Incur, create, assume or permit to exist any Indebtedness or any Guaranties, other than the following to the extent that an Event of Default does not exist at the time of or occurs as a result of the incurrence of such Indebtedness: (i) the Senior Notes, subject to their issuance pursuant to documentation and upon terms acceptable to the Agent, which terms shall be no more restrictive than the terms of this Agreement; (ii) Rate Hedging Obligations not in excess of the amounts permitted under SECTION 9.14; (iii) Incurrence of indemnification obligations under the terms of the Spinoff Documents or the Line of Business Transfer Documents not to exceed $35,000,000, which obligations have been either agreed to by the Borrower or finally determined by appropriate judicial or alternate dispute resolution proceedings without further appeal or action available to or pursued by the Borrower; and (iv) other Indebtedness in an aggregate principal amount at any time outstanding not to exceed $50,000,000; (b) Prepay, redeem or repurchase any Indebtedness or any Guaranties prior to the stated maturity thereof or make any payment in violation of any subordination terms or agreements applicable thereto, other than prepayments of the Revolving Credit Facility in accordance with the terms of this Agreement; and (c) Amend, modify or supplement any of the instruments and agreements evidencing or governing any Indebtedness or any Guaranties to add or change any terms of subordination, events of default, repayment or interest payable thereon or rights of conversion, put, exchange or other rights from such terms and rights as in effect on the Closing Date, except to the extent any such amendment, modification or supplement could not be reasonably expected to have a Material Adverse Effect or materially impair the position or interests of the Agent and the Lenders. 9.6. TRANSFER OF ASSETS. Sell, lease, transfer or otherwise dispose of any assets of Borrower or any Subsidiary other than (a) dispositions of inventory in the ordinary course of business, (b) dispositions of assets of the Borrower or any Subsidiary to a wholly owned Domestic Subsidiary which has delivered all documents required under SECTION 8.18, or by any Subsidiary to the Borrower, (c) dispositions of equipment, inventory or other assets (in addition to dispositions thereof permitted under clause (a) above) which, in the aggregate during any calendar year, have a fair market value or book value, whichever is greater, of (i) less than 7.5% of Consolidated Total Assets as calculated as of the Determination Date immediately prior to such disposition and set forth on the corresponding balance sheet delivered pursuant to SECTION 71 78 8.1(b) and (ii) when aggregated with the fair market value or book value, whichever is greater, of all other asset dispositions during the term of this Agreement, does not exceed 20% of Consolidated Total Assets as calculated on November 30, 1998, (d) dispositions of equipment which is replaced by equipment of equal or greater utility and value within thirty (30) days of the date of disposition thereof, (e) dispositions of property that is substantially worn, damaged, obsolete or, in the judgment of the Borrower, no longer best used or useful in its business or that of any Subsidiary, (f) transfers of assets necessary to give effect to merger or consolidation transactions permitted by SECTION 9.8, (g) the disposition of Eligible Securities in the ordinary course of management of the investment portfolio of the Borrower and its Subsidiaries, (h) sales of accounts receivable in connection with any Permitted Asset Securitization and (i) the disposition of corporate flight operations transferred to the Borrower by GenCorp in the Line of Business Transfer. 9.7. INVESTMENTS. Purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities, or make or permit to exist any interest whatsoever in any other Person or permit to exist any loans or advances to any Person, except that Borrower may maintain investments or invest in: (a) securities of any Person acquired in an Acquisition permitted hereunder; (b) Eligible Securities; (c) investments existing as of the date hereof and as set forth in SCHEDULE 7.4; (d) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; (e) loans and advances to and investments in Subsidiaries which are Guarantors; (f) investments, loans and advances to Persons who are not Guarantors provided the aggregate outstanding principal amount of such loans and advances shall not at any time exceed $25,000,000; (g) loans and advances to employees of the Borrower for travel, entertainment and relocation expenses in the ordinary course of business; (h) required investments in or contributions to (i) Employee Benefit Plans, (ii) executive compensation plans, and (iii) stock or option purchase or bonus plans or as required under ERISA or the Code or the fiduciary standards thereunder. 9.8. MERGER OR CONSOLIDATION. (a) Consolidate with or merge into any other Person, or (b) permit any other Person to merge into it, or (c) sell, transfer or lease or otherwise dispose of 72 79 all or a substantial part of its assets (other than sales permitted under SECTION 9.6; PROVIDED, HOWEVER, if no Default or Event of Default shall have occurred and be continuing or otherwise result therefrom, (i) any Subsidiary of the Borrower may merge or transfer all or substantially all of its assets into or consolidate with the Borrower or any wholly owned domestic Material Subsidiary of the Borrower which has delivered all documents required under SECTION 8.18, and (ii) any other Person may merge into the Borrower or any Subsidiary, and any Subsidiary may merge into any other Person in order to consummate an Acquisition permitted by SECTION 9.2 provided (A) such Person shall assume all obligations of such Subsidiary under any Loan Document and deliver such agreements and other documents, including a Facility Guaranty, and take such other action as the Agent may require to evidence or confirm its express assumption of the obligations and liabilities of its predecessor entities under the Loan Documents and shall be engaged in substantially the same or similar lines of business of such Subsidiary and (B) the Borrower shall be the surviving corporation if a party to any merger. 9.9. TRANSACTIONS WITH AFFILIATES. Enter into any transaction after the Closing Date, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, or the rendering of any service, with any Affiliate of the Borrower, except (a) that such Persons may render services to the Borrower or its Subsidiaries for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services, (b) that the Borrower or any Subsidiary may render services to such Persons for compensation at the same rates generally charged by the Borrower or such Subsidiary and (c) in either case in the ordinary course of business and upon terms no less favorable to the Borrower (or any Subsidiary) than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of the Borrower. 9.10. COMPLIANCE WITH ERISA, THE CODE AND FOREIGN BENEFIT LAWS. With respect to any Pension Plan, Employee Benefit Plan or Multiemployer Plan: (a) permit the occurrence of any Termination Event which would result in a liability on the part of the Borrower or any ERISA Affiliate to the PBGC or to any Governmental Authority; or (b) permit for a period of thirty (30) or more consecutive days the aggregate present value of all benefit liabilities under all Pension Plans to exceed the current value of the assets of such Pension Plans allocable to such benefit liabilities; or (c) permit any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code) to exist with respect to any Pension Plan, whether or not waived for a period in excess of twelve (12) consecutive months; or (d) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; or 73 80 (e) engage, or permit any Borrower or any ERISA Affiliate to engage, in any prohibited transaction under Section 406 of ERISA or Sections 4975 of the Code for which a civil penalty pursuant to Section 502(I) of ERISA or a tax pursuant to Section 4975 of the Code may be imposed unless such occurrence could not reasonably be expected to have a Material Adverse Effect; or (f) permit the establishment of any Employee Benefit Plan providing post-retirement welfare benefits or establish or amend any Employee Benefit Plan which establishment or amendment could result in liability to the Borrower or any ERISA Affiliate or increase the obligation of the Borrower or any ERISA Affiliate to a Multiemployer Plan which liability or increase, individually or together with all similar liabilities and increases, could reasonably be expected to have a Material Adverse Effect; or (g) fail, or permit the Borrower or any ERISA Affiliate to fail, to establish, maintain and operate each Employee Benefit Plan in compliance in all respects with the provisions of ERISA, the Code, all applicable Foreign Benefit Laws and all other applicable laws and the regulations and interpretations thereof except where the failure to do so would not have a Material Adverse Effect. 9.11. FISCAL YEAR. Change its Fiscal Year. 9.12. DISSOLUTION, ETC. Wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking any such winding up, liquidation or dissolution, except in connection with (a) the dissolution or liquidation of a Subsidiary in which all proceeds thereof are paid to the Borrower or (b) a merger or consolidation permitted pursuant to SECTION 9.8. 9.13. LIMITATIONS ON SALES AND LEASEBACKS. Enter into any arrangement or arrangements with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property with an aggregate value in excess of $15,000,000, whether now owned or hereafter acquired in a single transaction or series of transactions, which has been or is to be sold or transferred by the Borrower or any Subsidiary to the Person leasing such property to the Borrower or any Subsidiary or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or any Subsidiary. 9.14. RATE HEDGING OBLIGATIONS. Incur any Rate Hedging Obligations or enter into any agreements, arrangements, devices or instruments relating to Rate Hedging Obligations, except (a) pursuant to Swap Agreements in an aggregate notional amount not to exceed at any time $375,000,000 and (b) forward currency exchange agreements; PROVIDED, HOWEVER, that no Rate Hedging Obligations shall be incurred for speculative purposes. 9.15. NEGATIVE PLEDGE CLAUSES. Enter into any agreement with any Person other than the Agent and the Lenders pursuant to this Agreement or any other Loan Documents which 74 81 prohibits or limits the ability of any of the Borrower or any Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, PROVIDED that the Borrower and any Subsidiary may enter into such an agreement in connection with, and that applies only to, property acquired with the proceeds of purchase money Indebtedness permitted hereunder. 9.16. RESTRICTED PAYMENTS. Make any Restricted Payment, issue or sell capital stock of any Subsidiary of the Borrower (or any option, warrant or right to acquire such stock) other than to the Borrower, or apply or set apart any of their assets therefor or agree to do any of the foregoing other than (a) cash dividends payable in the ordinary course of business on its capital stock and (b) open-market or negotiated purchases of its common stock in an aggregate amount of up to $25,000,000 during the term of this Agreement; PROVIDED, HOWEVER, no such Restricted Payments under clause (a) or (b) above shall be made if an Event of Default exists at the time of or occurs as a result of such Restricted Payment. 9.17. REDEMPTION, PREPAYMENT, OR AMENDMENT OF SENIOR NOTES AND OTHER INDEBTEDNESS. (a) Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner any Indebtedness (i) subordinated or junior in rights of payment to the Obligations except for all of the foregoing not exceeding $25,000,000 in the aggregate since the Closing Date, or (ii) in violation of any subordination terms; or (b) amend, modify or change in any manner any term or condition of any of the Senior Notes so that the terms and conditions thereof are less favorable to the Agent and the Lenders than the terms thereof or more restrictive than the terms of this Agreement, in each case as of the Closing Date. 9.18. AMENDMENT OF LINE OF BUSINESS TRANSFER DOCUMENTS AND SPINOFF DOCUMENTS. Amend, modify or change in any manner any term or condition of any of the Line of Business Transfer Documents or any of the Spinoff Documents (i) so that the terms and conditions thereof are less favorable to the Agent and the Lenders than the terms and conditions of such documents as of the Closing Date, or (ii) that may be reasonably likely to result in a Material Adverse Effect. 75 82 ARTICLE X Events of Default and Acceleration ---------------------------------- 10.1. EVENTS OF DEFAULT. If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority), that is to say: (a) if default shall be made in the due and punctual payment of the principal of any Loan, Reimbursement Obligation or other Obligation, when and as the same shall be due and payable whether pursuant to any provision of ARTICLE II or ARTICLE III or ARTICLE IV, at maturity, by acceleration or otherwise; or (b) if default shall be made in the due and punctual payment of any amount of interest on any Loan, Reimbursement Obligation or other Obligation or of any fees or other amounts, other than principal of any Obligation, payable to any of the Lenders or the Agent on the date on which the same shall be due and payable and such default shall continue for a period of three (3) or more days; or (c) if default shall be made in the performance or observance of any covenant set forth in SECTION 8.8, 8.12, 8.13, 8.18 or ARTICLE IX; (d) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Agreement or the Notes (other than as described in clauses (a), (b) or (c) above) and such default shall continue for thirty (30) or more days after the earlier of receipt of notice of such default by a Responsible Officer from the Agent or a senior executive officer of the Borrower becomes aware of such default, or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the other Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation, guaranty, or Lien in favor of the Agent or any of the Lenders or delivered to the Agent or any of the Lenders in connection with or pursuant to this Agreement or any of the Obligations, or if any Loan Document ceases to be in full force and effect (other than as expressly provided for hereunder or thereunder or with the express written consent of the Agent or by reason of any action by the Agent or the Lenders), or any Credit Party shall so state in writing, or if without the written consent of the Lenders, this Agreement or any other Loan Document shall be disaffirmed or shall terminate, be terminable or be terminated or become void or unenforceable for any reason whatsoever (other than as expressly provided for hereunder or thereunder or with the express written consent of the Agent or by reason of any action by the Agent or the Lenders); or 76 83 (e) if there shall occur (i) a default, which is not waived, in the payment of any principal, interest, premium or other amount with respect to the Senior Notes or any other Indebtedness (other than the Loans and other Obligations) of the Borrower or any Subsidiary in an amount not less than $5,000,000 with respect to any individual Indebtedness or $10,000,000 with respect to all Indebtedness in the aggregate outstanding, or (ii) a default, which is not waived, in the performance, observance or fulfillment of any term or covenant contained in any agreement or instrument under or pursuant to which the Senior Notes or any other such Indebtedness may have been issued, created, assumed, guaranteed or secured by the Borrower or any Subsidiary, or (iii) any other event of default as specified in any agreement or instrument under or pursuant to which the Senior Notes or any other such Indebtedness may have been issued, created, assumed, guaranteed or secured by the Borrower or any Subsidiary, and such default or event of default shall continue for more than the period of grace, if any, therein specified, or such default or event of default shall permit the holder of any such Indebtedness (or any agent or trustee acting on behalf of one or more holders) to accelerate the maturity thereof or to require the mandatory redemption, repurchase or call thereof; or (f) if any representation, warranty or other statement of fact contained in any Loan Document or in any writing, certificate, report or statement at any time furnished to the Agent or any Lender by or on behalf of the Borrower or any Subsidiary pursuant to or in connection with any Loan Document, or otherwise, shall be false or misleading in any material respect when given; or (g) if the Borrower or any Subsidiary shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency statute; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking liquidation, reorganization or arrangement or similar relief under the Federal bankruptcy laws or any other applicable law or statute; or (h) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Borrower or any Subsidiary or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days, or approve a petition filed against the Borrower or any Subsidiary seeking liquidation, reorganization or arrangement or similar relief under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state, which petition is not dismissed within sixty (60) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of the Borrower or any Subsidiary or of the whole or any substantial part of its properties, which control is not relinquished within sixty (60) days; or if there is commenced against the Borrower or any Subsidiary any proceeding or petition seeking reorganization, arrangement or similar relief under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state which 77 84 proceeding or petition remains undismissed for a period of sixty (60) days; or if the Borrower or any Subsidiary takes any action to indicate its consent to or approval of any such proceeding or petition; or (i) if (i) one or more judgments or orders where the amount not covered by insurance (or the amount as to which the insurer denies liability) is in excess of $10,000,000 is rendered against the Borrower or any Subsidiary, or (ii) there is any attachment, injunction or execution against any of the Borrower's or Subsidiaries' properties for any amount in excess of $10,000,000 (individually or in the aggregate); and such judgment, attachment, injunction or execution remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of sixty (60) days; or (j) if the Borrower or any Subsidiary shall (i) substantially change the nature of its business from that currently engaged in or, other than (A) in the ordinary course of business (as determined by past practices), (B) in connection with any asset sale permitted under SECTION 9.6 hereof or (C) (with respect only to a Subsidiary) as a result of a merger permitted under SECTION 9.8 hereof, or (ii) suspend all or any part of its operations material to the conduct of the business of the Borrower or any Subsidiary for a period of more than sixty (60) days; or (k) if the Borrower or any Subsidiary shall breach any of the material terms or conditions of any Swap Agreement or any operative agreement relating to any Permitted Asset Securitization and such breach shall continue beyond any grace period, if any, relating thereto pursuant to the terms of such agreement, or if the Borrower or any Subsidiary shall disaffirm or seek to disaffirm any such Swap Agreement or any such operative agreement relating to any Permitted Asset Securitization or any of its obligations thereunder; or (l) if there shall occur and not be waived an Event of Default as defined in any of the other Loan Documents; or (m) if there shall occur or exist any Change of Control; or (n) if the Borrower or any of its Subsidiaries receives notice of any violation, non-compliance, or liability or potential liability under Environmental Laws, or the Borrower or any of its Subsidiaries is in violation of or is not in compliance with or has incurred liability or potential liability under Environmental Laws, which in either case would reasonably be expected to result in a Material Adverse Effect and which, with respect to any violation or non-compliance has not been cured in all material respects during any applicable cure period, PROVIDED that the Required Lenders have given the Borrower notice that the same constitutes an Event of Default; then, and in any such event and at any time thereafter, if such Event of Default or any other Event of Default shall have not been waived, 78 85 (A) either or both of the following actions may be taken: (i) the Agent may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders and the Issuing Bank to make further Revolving Loans and Swing Line Loans or to issue additional Letters of Credit terminated, whereupon the obligation of each Lender to make further Revolving Loans, of Bank of America to make further Swing Line Loans, and of the Issuing Bank to issue additional Letters of Credit, hereunder shall terminate immediately, and (ii) the Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrower any or all of the Obligations to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrower to the Agent and the Lenders, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to the contrary notwithstanding; PROVIDED, however, that notwithstanding the above, if there shall occur an Event of Default under clause (g) or (h) above, then the obligation of the Lenders to make Revolving Loans, of Bank of America to make Swing Line Loans, and of the Issuing Bank to issue Letters of Credit hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice to the Agent or the Lenders; (B) The Borrower shall, upon demand of the Agent or the Required Lenders, deposit cash with the Agent in an amount equal to the amount of any Letter of Credit Outstandings, as collateral security for the repayment of any future drawings or payments under such Letters of Credit, and such amounts shall be held by the Agent pursuant to the terms of the LC Account Agreement; and (C) the Agent and each of the Lenders shall have all of the rights and remedies available under the Loan Documents or under any applicable law. 10.2. AGENT TO ACT. In case any one or more Events of Default shall occur and not have been waived, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. 10.3. CUMULATIVE RIGHTS. No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 79 86 10.4. NO WAIVER. No course of dealing between the Borrower and any Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies under any Loan Document or otherwise available to it shall operate as a waiver of any rights or remedies and no single or partial exercise of any rights or remedies shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. 10.5. ALLOCATION OF PROCEEDS. If an Event of Default has occurred and not been waived, and the maturity of the Notes has been accelerated pursuant to ARTICLE X hereof, all payments received by the Agent hereunder, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder, shall be applied by the Agent in the following order: (a) amounts due to the Lenders and the Issuing Bank pursuant to SECTIONS 4.6(a), 4.6(b), 4.6(c), AND 12.5; (b) amounts due to the Agent pursuant to SECTION 4.6(d); (c) payments of interest on Loans, Swing Line Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders(with amounts payable in respect of Swing Line Outstandings being included in such calculation and paid to Bank of America); (d) payments of principal of Loans, Swing Line Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders(with amounts payable in respect of Swing Line Outstandings being included in such calculation and paid to Bank of America); (e) payments of cash amounts to the Agent in respect of outstanding Letters of Credit pursuant to SECTION 10.1(B); (f) amounts due to the Issuing Bank, the Agent and the Lenders pursuant to SECTIONS 3.2(h), 8.14(c) and 12.9; (g) payments of all other amounts due under any of the Loan Documents, if any, to be applied for the ratable benefit of the Lenders; (h) amounts due to any of the Lenders or their affiliates in respect of Obligations consisting of liabilities under any Swap Agreement with any of the Lenders or their affiliates on a pro rata basis according to the amounts owed; and (i) any surplus remaining after application as provided for herein, to the Borrower or otherwise as may be required by applicable law. 80 87 ARTICLE XI The Agent --------- 11.1. APPOINTMENT, POWERS, AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in SECTION 11.5 and the first sentence of SECTION 11.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Credit Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Credit Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Credit Party or any of its Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. 11.2. RELIANCE BY AGENT. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telefacsimile) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Credit Party), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof 81 88 for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with SECTION 12.1 hereof. As to any matters not expressly provided for by this Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; PROVIDED, HOWEVER, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Loan Document or applicable law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 11.3. DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to SECTION 11.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, PROVIDED THAT, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. 11.4. RIGHTS AS LENDER. With respect to its Revolving Credit Commitment and the Loans made by it and Letters of Credit issued by it, Bank of America (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Bank of America (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Credit Party or any of its Subsidiaries or affiliates as if it were not acting as Agent, and Bank of America (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any Credit Party or any of its Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 11.5. INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed under SECTION 12.9 hereof, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Revolving Credit Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Agent under any Loan Document; PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or 82 89 willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under SECTION 12.5, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrower. The agreements contained in this SECTION 11.5 shall survive payment in full of the Loans and all other amounts payable under this Agreement. 11.6. NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Credit Parties and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Credit Party or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. 11.7. RESIGNATION OF AGENT. The Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE XI shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 83 90 ARTICLE XII Miscellaneous ------------- 12.1. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Revolving Note, and its Revolving Credit Commitment); PROVIDED, HOWEVER, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $5,000,000 or an integral multiple of $5,000,000 in excess thereof; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and its Revolving Note (except that any assignment by Bank of America shall not include its rights, benefits or duties as the Issuing Bank or as the provider of Swing Line Loans); and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of EXHIBIT B hereto, together with any Revolving Note subject to such assignment and a processing fee of $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Revolving Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with SECTION 5.6. 84 91 (b) The Agent shall maintain at its address referred to in SECTION 12.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment of, and principal amount of the Revolving Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons in all or a portion of its rights, obligations or rights and obligations under this Agreement (including all or a portion of its Revolving Credit Commitment or its Loans); PROVIDED, HOWEVER, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in ARTICLE V and the right of set-off contained in SECTION 12.3, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Revolving Credit Commitment). (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). 85 92 (g) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf of the Borrower which are contained in the Loan Documents shall inure to the benefit of the successors and permitted assigns of the Agent, the Lenders, or any of them. The Borrower may not assign or otherwise transfer to any other Person any right, power, benefit, or privilege (or any interest therein) conferred hereunder or under any of the other Loan Documents, or delegate (by assumption or otherwise) to any other Person any duty, obligation, or liability arising hereunder or under any of the other Loan Documents, and any such purported assignment, delegation or other transfer shall be void. (h) Neither the Agent nor any Lender shall deliver to any Person who is a potential assignee or participant hereunder any financial or other information with respect to the Borrower not otherwise publicly available which was received by the Agent or such Lender from the Borrower unless the Borrower has consented to such Person being a potential assignee or participant (which consent shall not be unreasonably withheld or delayed) and such Person has executed and delivered to the Borrower an agreement to be bound by the terms of SECTION 12.15 as if it were a Lender. 12.2. NOTICES. Any notice shall be conclusively deemed to have been received by any party hereto and be effective (i) on the day on which delivered (including hand delivery by commercial courier service) to such party (against receipt therefor), (ii) on the date of transmission to such party, in the case of notice by telefacsimile (where the proper transmission of such notice is either acknowledged by the recipient or electronically confirmed by the transmitting device), or (iii) on the fifth Business Day after the day on which mailed to such party, if sent prepaid by certified or registered mail, return receipt requested, in each case delivered, transmitted or mailed, as the case may be, to the address or telefacsimile number, as appropriate, set forth below or such other address or number as such party shall specify by notice hereunder: (a) if to the Borrower: OMNOVA Solutions Inc. 175 Ghent Road Fairlawn, Ohio 44333 Attn: Michael E. Hicks, Senior Vice President and Chief Financial Officer Telephone: (330) 869-4200 Telefacsimile: (330) 869-4514 with a copy to: OMNOVA Solutions Inc. 175 Ghent Road Fairlawn, Ohio 44333 Attn: Cynthia A. Slack, Secretary 86 93 Telephone: (330) 869-4256 Telefacsimile: (330) 869-4272 (b) if to the Agent: Bank of America, N.A. 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services Telephone: (704) 388-3917 Telefacsimile: (704) 409-0019 with a copy to: Bank of America, N.A. 231 South LaSalle Street 9th Floor Chicago, Illinois 60697 Attention: Ms. Valerie Mills, Managing Director Telephone: (312) 828-6859 Telefacsimile: (312) 978-7384 (c) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance; (d) if to any Guarantor, at the address set forth on the signature page of the Facility Guaranty executed by such Credit Party. 12.3. RIGHT OF SET-OFF; ADJUSTMENTS. (a) Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this SECTION 12.3 are in addition to other 87 94 rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. (b) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this SECTION 12.3 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of the Borrower in the amount of such participation. 12.4. SURVIVAL. All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect so long as any of Obligations remain outstanding or any Lender has any Revolving Credit Commitment hereunder or the Borrower has continuing obligations hereunder unless otherwise provided herein. 12.5. EXPENSES. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent (including the cost of internal counsel) with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. 12.6. AMENDMENTS AND WAIVERS. Any provision of this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower or other applicable Credit Party party to such Loan Document and either the Required Lenders or (as to Loan Documents other than this Agreement) the Agent on 88 95 behalf of the Required Lenders (and, if ARTICLE XI or the rights or duties of the Agent are affected thereby, by the Agent); PROVIDED that no such amendment or waiver shall, unless signed by all the Lenders, (i) increase the Revolving Credit Commitments of the Lenders or the Total Revolving Credit Commitment, (ii) reduce the principal of or rate of interest on any Revolving Loan or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the payment of any scheduled installment of principal of or interest on any Loan or any fees or other amounts payable hereunder or for termination of any Revolving Credit Commitment, (iv) change the percentage of the Revolving Credit Commitment or of the unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this SECTION 12.6 or any other provision of this Agreement or (v) release any Guarantor which is a Material Subsidiary or in connection with transactions permitted pursuant to SECTIONS 9.6, 9.8 OR 9.12; and PROVIDED, FURTHER, that no such amendment or waiver that affects the rights, privileges or obligations of Bank of America as provider of Swing Line Loans, shall be effective unless signed in writing by Bank of America or that affects the rights, privileges or obligations of the Issuing Bank as issuer of Letters of Credit, shall be effective unless signed in writing by the Issuing Bank. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances, except as otherwise expressly provided herein. No delay or omission on any Lender's or the Agent's part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default. 12.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. 12.8. TERMINATION. The termination of this Agreement shall not affect any rights of the Borrower, the Lenders or the Agent or any obligation of the Borrower, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Agent for the benefit of the Lenders under the Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof (other than Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable, which shall continue) or the Borrower has furnished the Lenders and the Agent with an indemnification satisfactory to the Agent and each Lender with respect thereto. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrower shall be liable to, and shall indemnify and hold the Agent or such Lender harmless for, the amount of such payment surrendered until 89 96 the Agent or such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Agent or the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 12.9. INDEMNIFICATION; LIMITATION OF LIABILITY. The Borrower agrees to indemnify and hold harmless the Agent, BAS and each Lender and each of their affiliates and their respective officers, directors, employees and counsel to the Agent (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable fees and expenses of counsel and, without duplication, the allocated cost of internal counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Spinoff, the Line of Business Transfer or the Revolving Credit Facility, the Transaction Documents, any of the transactions specified therein or herein or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from (i) such Indemnified Party's gross negligence or willful misconduct or (ii) legal proceedings commenced against such Indemnified Party by any other Indemnified Party. In the case of an investigation, litigation or other proceeding to which the indemnity in this SECTION 12.9 applies, such indemnity shall be effective whether or not the transactions contemplated hereby are consummated. The Borrower agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to it, any of its Subsidiaries or any Guarantor, arising out of, related to or in connection with the transactions contemplated herein or in any of the Transaction Documents, except to the extent that such liability is found in a final non-appealable judgment by a court of competent jurisdiction to have directly resulted from such Indemnified Party's gross negligence or willful misconduct. The Borrower agrees not to assert any claim against the Agent, any Lender, any of their affiliates, or any of their respective directors, officers, employees, attorneys, agents, and advisers, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Transaction Documents, any of the transactions contemplated therein or herein or the actual or proposed use of the proceeds of the Loans, except for claims for such special, indirect, consequential, or punitive damages directly arising out of such party's gross negligence or willful misconduct. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this SECTION 12.9 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. 12.10. SEVERABILITY. If any provision of this Agreement or the other Loan Documents shall be determined to be illegal or invalid as to one or more of the parties hereto, then such provision shall remain in effect with respect to all parties, if any, as to whom such provision is neither illegal nor invalid, and in any event all other provisions hereof shall remain effective and binding on the parties hereto. 90 97 12.11. ENTIRE AGREEMENT. This Agreement, together with the other Loan Documents, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments and other communications between or among the parties, both oral and written, with respect thereto (except that those provisions (if any) which by the express terms of the commitment letter dated as of July 1, 1999, executed by Bank of America and BAS and accepted by the Borrower, survive the closing of the Revolving Credit Facility and Letter of Credit Facility, shall survive and continue in effect). 12.12. AGREEMENT CONTROLS. In the event that any term of any of the Loan Documents other than this Agreement conflicts with any express term of this Agreement, the terms and provisions of this Agreement shall control to the extent of such conflict. 12.13. USURY SAVINGS CLAUSE. Notwithstanding any other provision herein, the aggregate interest rate charged under any of the Notes, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate (as such term is defined below). If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as defined below), the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower. As used in this paragraph, the term "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. 12.14. PAYMENTS. All principal, interest, and other amounts to be paid by the Borrower under this Agreement and the other Loan Documents shall be paid to the Agent at the Principal Office in Dollars and in immediately available funds, without setoff, deduction or counterclaim. Subject to the definition of "Interest Period" herein, whenever any payment under this Agreement or any other Loan Document shall be stated to be due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time in such 91 98 case shall be included in the computation of interest and fees, as applicable, and as the case may be. 12.15. CONFIDENTIALITY. Each Lending Party agrees to keep confidential any information furnished or made available to it by the Borrower pursuant to this Agreement that is marked confidential; PROVIDED that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any affiliate of any Lending Party, or any officer, director, employee, agent, or advisor of any Lending Party or affiliate of any Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) as required by any law, rule, or regulation, (d) upon the order of any court or administrative agency, (e) upon the request or demand of any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (g) in connection with any litigation to which such Lending Party or any of its affiliates may be a party, (h) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document, and (i) subject to provisions substantially similar to those contained in this Section, to any actual or proposed participant or assignee. 12.16. GOVERNING LAW; WAIVER OF JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN THOSE SECURITY INSTRUMENTS WHICH EXPRESSLY PROVIDE THAT THEY SHALL BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. (B) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE BORROWER HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (C) THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND 92 99 COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF THE BORROWER PROVIDED IN SECTION 12.2, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NEW YORK. (D) NOTHING CONTAINED IN SUBSECTIONS (b) OR (c) HEREOF SHALL PRECLUDE THE AGENT OR ANY LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT IN THE COURTS OF ANY JURISDICTION WHERE THE BORROWER OR ANY OF THE BORROWER'S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, OBJECTION TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY ANY SUCH OTHER COURT OR COURTS WHICH NOW OR HEREAFTER MAY BE AVAILABLE UNDER APPLICABLE LAW. (E) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION, SUIT OR PROCEEDING. (F) THE BORROWER HEREBY EXPRESSLY WAIVES ANY OBJECTION IT MAY HAVE THAT ANY COURT TO WHOSE JURISDICTION IT HAS SUBMITTED PURSUANT TO THE TERMS HEREOF IS AN INCONVENIENT FORUM. 12.17. SPECIAL FUNDING OPTION. (a) Notwithstanding anything to the contrary contained herein, any Lender (for the purposes of this SECTION 12.17, a "Granting Lender") may grant to a special purpose funding vehicle (for the purposes of this SECTION 12.17, an "SPC") the option to make, on behalf of such Granting Lender, all or a portion of the Advances which such Granting Lender is obligated to make (a "Funding Obligation") under the Revolving Credit 93 100 Facility, such option to be exercisable in the sole discretion of the SPC, PROVIDED, HOWEVER, that (i) such Granting Lender's obligations under this Agreement and the Loan Documents shall remain unchanged, including without limitation the indemnification obligations of the Granting Lender pursuant to SECTION 11.5 hereof; 94 101 (ii) such Granting Lender shall remain solely responsible to the other parties hereto for the performance of all Funding Obligations; (iii) the Borrower and the Lenders shall continue to deal solely and directly with such Granting Lender in connection with such Granting Lender's rights and obligations under this Agreement; the Agent shall continue to deal directly with the Granting Lender as agent for the SPC with respect to distribution of payment of principal, interest and fees, notices of Conversion and Continuation and all other matters; (iv) such Granting Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Notes and its Participations and to approve any amendment, modification, or waiver of any provisions of this Agreement, each of which may, if so agreed in writing between the Granting Lender and the SPC, require the prior consent of any such SPC which has exercised the option to undertake the Funding Obligation in connection with such Granting Lender's Commitments and Participations and Obligations owing thereto before the Granting Lender approves any such amendment, modification or waiver; (v) the granting of such option shall not constitute an assignment to or participation of such SPC of or in the Granting Lender's Commitments and Participations and Obligations owing thereto; (vi) such SPC shall not become a Lender hereunder as a result of the granting of such option; (vii) such SPC shall not become obligated or committed to make Advances as a result of the granting of such option; (viii) if such SPC elects not to exercise such option or otherwise fails to make all or any part of an Advance, the Granting Lender shall retain its Funding Obligation and be obligated to make the entire Advance or any portion of such Advance not made by such SPC; and (b) Advances made by an SPC hereunder shall be deemed to satisfy the Funding Obligation and utilize the Revolving Credit Commitment of the Granting Lender as if, and to the same extent, such Advances were made by such Granting Lender. (c) Each party hereto agrees that no SPC shall be liable for any indemnity or payment under this Agreement for which a Granting Lender would otherwise be liable so long as, and to the extent that, the Granting Lender provides such indemnity or makes such payment. 95 102 (d) Notwithstanding anything to the contrary contained in this Agreement, an SPC may disclose on a confidential basis any nonpublic information relating to Advances made by such SPC hereunder to any rating agency, commercial paper dealer or provider of any surety or guarantee to such SPC. (e) This SECTION 12.17 may not be amended without the prior written consent of the Granting Lender on behalf of which such SPC has made all or any part of its Advances which remain outstanding at the time of such amendment. [Signatures on following pages] 96 103 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. OMNOVA SOLUTIONS INC. By: /S/ --------------------------- Name: M. E. HICKS ------------------------------------------- Title: SR. VICE PRESIDENT AND CHIEF FINANCIAL OFFICER ------------------------------------------------- BANK OF AMERICA, N.A., as Agent for the Lenders By: /S/ --------------------------- Name: VALERIE C. MILLS -------------------------------------------------- Title: MANAGING DIRECTOR ------------------------------------------------- SIGNATURE PAGE 1 OF 15 104 BANK OF AMERICA, N.A. By: /S/ ---------------------------------------------- Name: VALERIE C. MILLS --------------------------------------------- Title: MANAGING DIRECTOR --------------------------------------------- Lending Office for Base Rate Loans: Bank of America, N.A. 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Corporate Credit Services Telephone: (704) 388-3917 Telefacsimile: (704) 409-0019 Wire Transfer Instructions: Bank of America, N.A. ABA# 053000196 Account No.: 13662122506 Reference: Omnova Solutions Inc. Attention: Corporate Credit Services Lending Office for Eurodollar Rate Loans: Bank of America, N.A. 101 North Tryon Street, 15th Floor NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Corporate Credit Services Telephone: (704) 388-3917 Telefacsimile: (704) 409-0019 Wire Transfer Instructions: Bank of America, N.A. ABA# 053000196 Account No.: 13662122506 Reference: Omnova Solutions Inc. Attention: Corporate Credit Services SIGNATURE PAGE 2 OF 15 105 BANK ONE, MICHIGAN By: /S/ --------------------------------------------- Name: PAUL R. DEMELO ------------------------------------------- Title: VICE PRESIDENT --------------------------------------------- Lending Office for Base Rate Loans: Bank One, Michigan 611 Woodward Detroit, Michigan 48226 Attention: Karen Graham, Loan Services Telephone: (313) 225-2911 Telefacsimile: (313) 225-1576 Wire Transfer Instructions: Bank One, Michigan ABA# 072-000-326 Account No.: 2891000007 Reference: Omnova Attention: Detroit LSA Group Lending Office for Eurodollar Rate Loans: Bank One, Michigan 611 Woodward Detroit, Michigan 48226 Attention: Karen Graham, Loan Services Telephone: (313) 225-2911 Telefacsimile: (313) 225-1576 Wire Transfer Instructions: Bank One, Michigan ABA# 072-000-326 Account No.: 2891000007 Reference: Omnova Attention: Detroit LSA Group SIGNATURE PAGE 3 0F 15 106 DEUTSCHE BANK AG, New York or Cayman Islands Branch By: /S/ ---------------------------------------------- Name: PAUL L. HARINSTEIN ---------------------------------------------- Title: MANAGING DIRECTOR --------------------------------------------- By: /S/ ---------------------------------------------- Name: JACK WESOLEK -------------------------------------------- Title: ASSOCIATE --------------------------------------------- Lending Office for Base Rate Loans: Deutsche Bank AG, New York 31 W. 52nd Street New York, New York 10019 Attention: Noble Samuel Telephone: (212) 469-4091 Telefacsimile: (212) 469-4138 Wire Transfer Instructions: Deutsche Bank AG, New York ABA# 026-00-3780 Account No.: N/A Reference: Omnova Solutions Attention: Noble Samuel Lending Office for Eurodollar Rate Loans: Deutsche Bank AG, C.I. Branch 31 W. 52nd Street New York, New York 10019 Attention: Noble Samuel Telephone: (212) 469-4091 Telefacsimile: (212) 469-4138 Wire Transfer Instructions: Deutsche Bank AG, C.I. Branch ABA# 026-00-3780 Account No.: N/A Reference: Omnova Solutions Attention: Noble Samuel SIGNATURE PAGE 4 OF 15 107 COMERICA BANK By: /S/ ---------------------------------------------- Name: JEFFREY J. JUDGE ---------------------------------------------- Title: VICE PRESIDENT --------------------------------------------- Lending Office for Base Rate Loans: Comerica Bank 500 Woodward Avenue 9th Floor, MC 3268 Detroit, Michigan 48226 Attention: Stacie L. McVeigh Telephone: (313) 222-4515 Telefacsimile: (313) 222-9514 Wire Transfer Instructions: Comerica Bank ABA# 072000096 Account No.: 02-21585-90010 Reference: Omnova Solutions Inc. Attention: Commercial Loan Servicing Lending Office for Eurodollar Rate Loans: Comerica Bank 500 Woodward Avenue 9th Floor, MC 3268 Detroit, Michigan 48226 Attention: Stacie L. McVeigh Telephone: (313) 222-4515 Telefacsimile: (313) 222-9514 Wire Transfer Instructions: Comerica Bank ABA# 072000096 Account No.: 02-21585-90010 Reference: Omnova Solutions Inc. Attention: Commercial Loan Servicing SIGNATURE PAGE 5 OF 15 108 FIFTH THIRD BANK, NORTHEASTERN OHIO By: /S/ ---------------------------------------------- Name: JAMES P. BYRNES --------------------------------------------- Title: VICE PRESIDENT ---------------------------------------------- Lending Office for Base Rate Loans: Fifth Third Bank, Northeastern Ohio 1404 East Ninth Street Cleveland, Ohio 44114 Attention: Anne Jones Telephone: (216) 274-5578 Telefacsimile: (216) 274-5507 Wire Transfer Instructions: Fifth Third Bank, Northeastern Ohio ABA# 042000314 Account No.: 99208599 Reference: Omnova Solutions, Inc. Attention: Ann Jones Lending Office for Eurodollar Rate Loans: Fifth Third Bank, Northeastern Ohio 1404 East Ninth Street Cleveland, Ohio 44114 Attention: Ann Jones Telephone: (216) 274-5578 Telefacsimile: (216) 274-5507 Wire Transfer Instructions: Fifth Third Bank, Northeastern Ohio ABA# 042000314 Account No.: 99208599 Reference: Omnova Solutions, Inc. Attention: Ann Jones SIGNATURE PAGE 6 OF 15 109 FIRST UNION NATIONAL BANK By: /S/ ---------------------------------------------- Name: ROGER PELZ -------------------------------------------- Title: SENIOR VICE PRESIDENT ----------------------------------------------- Lending Office for Base Rate Loans: First Union National Bank 201 S. College Street Charlotte, North Carolina 28288-1183 Attention: Gary Burkart Telephone: (704) 374-6613 Telefacsimile: (704) 383-7999 Wire Transfer Instructions: First Union National Bank ABA# 053000219 Account No.: 4659060001805 Reference: Omnova Attention: Gary Burkart Lending Office for Eurodollar Rate Loans: First Union National Bank 201 S. College Street Charlotte, North Carolina 28288-1183 Attention: Gary Burkart Telephone: (704) 374-6613 Telefacsimile: (704) 383-7999 Wire Transfer Instructions: First Union National Bank ABA# 053000219 Account No.: 4659060001805 Reference: Omnova Attention: Gary Burkart SIGNATURE PAGE 7 OF 15 110 KEYBANK NATIONAL ASSOCIATION By: /S/ ---------------------------------------------- Name: LAWRENCE A. MACK ------------------------------------------- Title: SENIOR VICE PRESIDENT ----------------------------------------------- Lending Office for Base Rate Loans: KeyBank National Association 127 Public Square OH-01-27-06-06 Cleveland, Ohio 44114 Attention: Dianne Cox Telephone: (216) 689-4450 Telefacsimile: (216) 689-4981 Wire Transfer Instructions: KeyBank National Association ABA# 041001039 Account No.: N/A Reference: Omnova Attention: Commercial Loans Lending Office for Eurodollar Rate Loans: KeyBank National Association 127 Public Square OH-01-27-06-06 Cleveland, Ohio 44114 Attention: Dianne Cox Telephone: (216) 689-4450 Telefacsimile: (216) 689-4981 Wire Transfer Instructions: KeyBank National Association ABA# 041001039 Account No.: N/A Reference: Omnova Attention: Commercial Loans SIGNATURE PAGE 8 OF 15 111 NATIONAL CITY BANK By: /S/ ---------------------------------------------- Name: Davis R. Bonner Title: Senior Vice President/ Senior Lending Officer Lending Office for Base Rate Loans: National City Bank 23000 Mill Creek Highland Hills, Ohio 44122 Attention: Revette Vickerstaff Telephone: (216) 488-7080 Telefacsimile: (216) 488-7110 Wire Transfer Instructions: National City Bank ABA# 041000124 Account No.: 151804 Reference: Omnova Solutions Inc. Attention: Commercial Loan Ops. Lending Office for Eurodollar Rate Loans: National City Bank 2300 Mill Creek Highland Hills, Ohio 44122 Attention: Revette Vickerstaff Telephone: (216) 488-7080 Telefacsimile: (216) 488-7110 Wire Transfer Instructions: National City Bank ABA# 041000124 Account No.: 151804 Reference: Omnova Solutions Inc. Attention: Commercial Loan Ops. SIGNATURE PAGE 9 OF 15 112 PNC BANK, NATIONAL ASSOCIATION By: /S/ ---------------------------------------------- Name: JEFFERSON M. GREEN --------------------------------------------- Title: VICE PRESIDENT ---------------------------------------------- Lending Office for Base Rate Loans: PNC Bank, National Association 249 Fifth Avenue P2-PTPP-03-1 Pittsburgh, Pennsylvania 15222 Attention: Peggy Collier Telephone: (412) 762-7946 Telefacsimile: (412) 768-4586 Wire Transfer Instructions: PNC Bank, National Association ABA# 0430-00096 Account No.: N/A Reference: Omnova Attention: Commercial Loans Lending Office for Eurodollar Rate Loans: PNC Bank, National Association 249 Fifth Avenue P2-PTPP-03-1 Pittsburgh, Pennsylvania 15222 Attention: Peggy Collier Telephone: (412) 762-7946 Telefacsimile: (412) 768-4586 Wire Transfer Instructions: PNC Bank, National Association ABA# 0430-00096 Account No.: N/A Reference: Omnova Attention: Commercial Loans SIGNATURE PAGE 10 OF 15 113 THE BANK OF NEW YORK By: /S/ ---------------------------------------------- Name: ROBERT J. JOYCE --------------------------------------------- Title: VICE PRESIDENT ---------------------------------------------- Lending Office for Base Rate and Eurodollar Loans: The Bank of New York 101 Barclay Street New York, New York 10007 Attention: Lorna Alleyne Telephone: (212) 635-6787 Telefacsimile: (212) 635-6426 Wire Transfer Instructions For Base Rate Loans: The Bank of New York 101 Barclay Street New York, New York 10007 ABA# 021000018 Commercial Loan Servicing Department GLA# 111-556 Reference: Omnova Solutions Specify Interest, Principal, Reserves and the Period Attention: Lorna Alleyne Wire Transfer Instructions for Eurodollar Rate Loans: The Bank of New York 101 Barclay Street New York, New York 10007 ABA# 021000018 Commercial Loan Servicing Department GLA# 111-556 Reference: Omnova Solutions Specify Interest, Principal, Fee and the Period Attention: Lorna Alleyne SIGNATURE PAGE 11 OF 15 114 THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /S/ ---------------------------------------------- Name: WALTER R. WOLFF --------------------------------------------- Title: JOINT GENERAL MANAGER ---------------------------------------------- Lending Office for Base Rate Loans: The Industrial Bank of Japan, Limited 1251 Avenue of the Americas New York, New York 10020 Attention: Jaikisoon Sanichar Telephone: (212) 282-4061 Telefacsimile: (212) 282-4478 Wire Transfer Instructions: The Industrial Bank of Japan, Limited, New York Branch ABA# 026-008-345 Account No.: N/A Reference: Omnova Solutions Inc. Attention: Credit Administration Department Lending Office for Eurodollar Rate Loans: The Industrial Bank of Japan, Limited 1251 Avenue of the Americas New York, New York 10020 Attention: Jaikisoon Sanichar Telephone: (212) 282-4061 Telefacsimile: (212) 282-4478 Wire Transfer Instructions: The Industrial Bank of Japan, Limited, New York Branch ABA# 026-008-345 Account No.: N/A Reference: Omnova Solutions Inc. Attention: Credit Administration Department SIGNATURE PAGE 12 OF 15 115 MELLON BANK, N.A. By: /S/ ---------------------------------------------- Name: MARK F. JOHNSTON -------------------------------------------- Title: VICE PRESIDENT ---------------------------------------------- Lending Office for Base Rate Loans: Mellon Bank, N.A. Three Mellon Bank Center Pittsburgh, Pennsylvania Attention: Lloyd Martin, Loan Administrator Telephone: (412) 234-9448 Telefacsimile: (412) 209-6138 Wire Transfer Instructions: Mellon Bank, N.A. ABA# 043000261 Account No.: 990873800 Reference: Omnova Solutions Attention:Loan Administration Lending Office for Eurodollar Rate Loans: Mellon Bank, N.A. Three Mellon Bank Center Pittsburgh, Pennsylvania Attention: Lloyd Martin, Loan Administrator Telephone: (412) 234-9448 Telefacsimile: (412) 209-6138 Wire Transfer Instructions: Mellon Bank, N.A. ABA# 043000261 Account No.: 990873800 Reference: Omnova Solutions Attention:Loan Administration SIGNATURE PAGE 13 OF 15 116 THE NORTHERN TRUST COMPANY By: /S/ ---------------------------------------------- Name: MARK E. TAYLOR -------------------------------------------- Title: SECOND VICE PRESIDENT ------------------------------------------- Lending Office for Base Rate Loans: The Northern Trust Company 50 South LaSalle Chicago, Illinois 60675 Attention: Linda Honda Telephone: (312) 444-4715 Telefacsimile: (312) 630-1566 Wire Transfer Instructions: The Northern Trust Company ABA# 071000152 Account No.: 518640000 Reference: Omnova Solutions Inc. Attention: Commerical Loan Department Lending Office for Eurodollar Rate Loans: The Northern Trust Company 50 South LaSalle Chicago, Illinois 60675 Attention: Linda Honda Telephone: (312) 444-4715 Telefacsimile: (312) 630-1566 Wire Transfer Instructions: The Northern Trust Company ABA# 071000152 Account No.: 518640000 Reference: Omnova Solutions Inc. Attention: Commerical Loan Department SIGNATURE PAGE 14 OF 15 117 THE SUMITOMO BANK, LIMITED By: /S/ ---------------------------------------------- Name: JOHN H. KEMPER -------------------------------------------- Title: SENIOR VICE PRESIDENT ------------------------------------------- Lending Office for Base Rate Loans: The Sumitomo Bank Limited 277 Park Avenue Ne York, New York 10172 Attention: Lissette Villanueva-Ruiz Telephone: (212) 224-4185 Telefacsimile: (212) 224-5197 Wire Transfer Instructions: Citibank, N.A. New York ABA# 021000089 Account No.: 36023837 Reference:The Sumitomo Bank, Limited, New York Attention: Loan Operations Lending Office for Eurodollar Rate Loans: The Sumitomo Bank Limited 277 Park Avenue Ne York, New York 10172 Attention: Lissette Villanueva-Ruiz Telephone: (212) 224-4185 Telefacsimile: (212) 224-5197 Wire Transfer Instructions: Citibank, N.A. New York ABA# 021000089 Account No.: 36023837 Reference:The Sumitomo Bank, Limited, New York Attention: Loan Operations SIGNATURE PAGE 15 OF 15 EX-10.15 4 EXHIBIT 10.15 1 Exhibit 10.15 Execution Copy TAX MATTERS AGREEMENT BY AND BETWEEN GENCORP INC. AND OMNOVA SOLUTIONS INC. 2 TAX MATTERS AGREEMENT BY AND BETWEEN GENCORP INC. AND OMNOVA SOLUTIONS INC. TABLE OF CONTENTS
PAGE RECITALS .........................................................................................1 ARTICLE I DEFINITIONS..............................................................................2 ARTICLE II ALLOCATION OF TAX LIABILITIES............................................................6 2.01 Liability for United States Federal Taxes................................................6 2.02 Liability for State Taxes................................................................6 2.03 Liability for Foreign Taxes..............................................................7 2.04 Spin-off Taxes...........................................................................7 2.05 Method of Allocating Taxes for Straddle Periods..........................................7 2.06 Tax Accounting Practices.................................................................8 ARTICLE III PREPARATION AND FILING OF TAX RETURNS....................................................8 3.01 General..................................................................................8 3.02 Consolidated, Combined and Joint Returns.................................................8 3.05 Right to Review Returns..................................................................9 ARTICLE IV TAX REFUNDS AND CARRYOVERS..............................................................10 4.01 Refunds.................................................................................10 4.02 Carrybacks or Claims for Refund.........................................................10 4.03 Carryovers from Pre-Distribution Periods to Post-Distribution Periods...................11 4.04 State Tax Credits.......................................................................11 ARTICLE V TAX PAYMENTS............................................................................11 5.01 Payment of Consolidated United States Federal Taxes for Pre-Distribution Periods............................................................11 5.02 Payment of State and Foreign Taxes for Which GenCorp has Filing Responsibility.......................................................11 5.03 Indemnification Payments................................................................11 5.04 Tax Treatment of Tax and Indemnification Payments.......................................12 ARTICLE VI TAX AUDITS AND APPEALS.................................................................... 6.01 Notice..................................................................................12 6.02 Control of Audits and Appeals...........................................................12 6.03 Consent to Settlements..................................................................13 6.04 Information.............................................................................14 6.05 Expenses................................................................................14 6.06 Adverse Effect Issues...................................................................14
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ARTICLE VII SPECIAL RULES PERTAINING TO GENCORP SERVICES, INC.......................................16 7.01 Liability for State Taxes...............................................................16 7.02 GSI Tax Returns.........................................................................16 ARTICLE VIII MISCELLANEOUS MATTERS..................................................................... 8.01 Amendment and Waiver....................................................................16 8.02 Tax Allocation Agreements, Etc..........................................................16 8.03 Entire Agreement; Inconsistent Provisions...............................................17 8.04 Affiliate Obligations...................................................................17 8.05 Further Action..........................................................................17 8.06 Time for Notice.........................................................................17 8.07 Notices.................................................................................17 8.08 Remedies................................................................................17 8.09 Successors and Assigns..................................................................18 8.10 Severability............................................................................18 8.11 Counterparts............................................................................18 8.12 Descriptive Headings....................................................................18 8.13 No Third-Party Beneficiaries............................................................18 8.14 Construction............................................................................18 8.15 Form of Payments and Late Payments......................................................19 8.16 Governing Law...........................................................................19
ii 4 Execution Copy TAX MATTERS AGREEMENT BY AND BETWEEN GENCORP INC. AND OMNOVA SOLUTIONS INC. THIS TAX MATTERS AGREEMENT (the "Agreement") is made and entered into September 30, 1999, by and between GenCorp Inc. ("GenCorp"), an Ohio corporation, and OMNOVA Solutions Inc. ("OMNOVA"), an Ohio corporation, on behalf of themselves and their respective Affiliates. RECITALS: --------- WHEREAS, the Board of Directors of GenCorp has determined that it is appropriate and desirable to separate GenCorp's Decorative & Building Products and Performance Chemicals businesses from its other businesses by means of a series of transactions, including (1) a transfer to OMNOVA of the assets of such businesses in exchange for all the issued and outstanding stock of OMNOVA and other consideration (the "Separation") and (2) a dividend consisting of all the issued and outstanding stock of OMNOVA, on a pro rata basis, to the holders of GenCorp common stock (the "Distribution"), in transactions that will qualify for tax-free treatment for purposes of United States Federal Taxes under Sections 368(a)(1)(D) and 355 of the Code (the Separation, the Distribution and related transactions described in the Ruling Request and in the Ruling being, collectively, the "Spin-off"); and WHEREAS, GenCorp and OMNOVA have set forth the principal corporate transactions required to effect the Spin-off, together with the terms of such transactions and related matters, in a Distribution Agreement between GenCorp and OMNOVA, dated September 30, 1999 (the Distribution Agreement"); and WHEREAS, after the Spin-off. OMNOVA and its Affiliates will cease to be members of the affiliated group (within the meaning of Section 1504(a) of the Code) of which GenCorp is the common parent, effective as of the Distribution Date; and WHEREAS, GenCorp and OMNOVA desire to provide for and agree upon (1) the allocation of liabilities for Taxes with respect to the Parties prior to, arising out of, and subsequent to the Spin-off, (2) the preparation and filing of Tax Returns along with the payment of Taxes shown due and payable thereon, (3) the retention and maintenance of records necessary to prepare and file appropriate Tax Returns and to handle any Tax Contests, as well as the provision for appropriate access to those records by the Parties, (4) the conduct of audits, examinations and proceedings by governmental entities which could result in a redetermination of Taxes of the Parties, (5) the responsibility for any Tax deficiencies and the treatment of refunds of Taxes and Carryovers and Carrybacks of the Parties, (6) the cooperation of the Parties 5 with one another in order to fulfill their duties and responsibilities under this Agreement and under the Code and other applicable Law, and (7) other matters related to Taxes; NOW, THEREFORE, in consideration of the foregoing, and of the mutual promises, covenants and conditions hereinafter contained, the Parties agree as follows: ARTICLE I --------- DEFINITIONS ----------- "Affiliate" means any Person that directly or indirectly controls, is under the control of, or is under common control with, the Person in question. "Control" of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership or voting securities, by contract or otherwise. Except as otherwise provided herein, the term "Affiliate" shall refer to Affiliates of a Person determined immediately after the Distribution Date, provided, however, that, after the Spin-off, GenCorp and OMNOVA (in each case together with the members of their respective Groups) shall not be Affiliates of each another. "Adverse Effect Issue" has the meaning set forth in Section 6.06(b). "Affected Party" has the meaning set forth in Section 6.06(b). "Agreement" has the meaning set forth in the introduction. "Carryover" and "Carryback" mean any net operating loss, net capital loss, excess tax credit, or other similar Tax item which may or must be carried forward or back, respectively, from one Tax Period to another under the Code or other applicable Law. "Code" means the United States Internal Revenue Code of 1986, as amended, or any successor law. "Distribution" has the meaning set forth in the Recitals. "Distribution Agreement" has the meaning set forth in the Recitals. "Distribution Date" means the effective date of the Distribution as set forth in the Distribution Agreement. "Examined Party" has the meaning set forth in Section 6.06(a). "Foreign Taxes" means any Taxes imposed or collected by any foreign government, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, and "Foreign Tax" means any one of the foregoing Foreign Taxes. "GenCorp" has the meaning set forth in the introduction. 2 6 "GenCorp Group" means GenCorp and its Affiliates. "Granting Party" has the meaning set forth in Section 6.06(b). "Group" means each of the GenCorp Group and the OMNOVA Group whenever no distinction is otherwise required between them. "GSI" has the meaning set forth in Section 7.01. "Including" has the meaning set forth in Section 8.14. "Indemnification Payment" means a payment subject to Section 5.03. "Indemnified Party" and "Indemnifying Party" have the meanings set forth in Section 5.03(b). "IRS" means the United States Internal Revenue Service and any successor department, agency or organization of the United States. "Joint Contest" means any Tax Contest seeking a redetermination of Taxes which involves or could involve one or more members of the GenCorp Group and the OMNOVA Group. "Law" means the law of any governmental entity or political subdivision thereof, other than the Code, relating to any Tax. "OMNOVA" has the meaning set forth in the introduction. "OMNOVA Group" means OMNOVA and its Affiliates. "OMNOVA Group Carryback" has the meaning set forth in Section 4.02(a). "Participating Party" has the meaning set forth in Section 6.02(b). "Parties" means GenCorp and OMNOVA. "Party" means either GenCorp or OMNOVA. "Person" means any individual and any partnership, joint venture, corporation, limited liability company, trust, unincorporated organization or other business entity formed or operating under United States or foreign law. 3 7 "Post-Distribution Period" means any Tax Period beginning after the Distribution Date and, in the case of any Straddle Period, the portion of such Tax Period ending after the Distribution Date. "Pre-Distribution Period" means any Tax Period ending on or before the Distribution Date and, in the case of any Straddle Period, the portion of such Tax Period ending on the Distribution Date. "Prime Rate" means the prime interest rate published in the Wall Street Journal from time to time. "Return" means any return or report of Taxes due, any information return or statement with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under the Code or other Laws, any claims for refund of Taxes paid, and any amendments or supplements to any of the foregoing. "Ruling" means the private letter ruling, dated June 30, 1999, issued by the IRS in reply to the Ruling Request (including any amendment or supplement thereto). "Ruling Request" means the private letter ruling request filed by GenCorp with the IRS on February 24, 1999, (as modified or supplemented by any materials submitted to the IRS), seeking rulings that, inter alia, the Spin-off will qualify for Federal income tax purposes for tax-free treatment under Sections 368(a)(1)(D) and 355 of the Code. "Separate Contest" means a Tax Contest which involves (i) only GenCorp and members of the GenCorp Group, or (ii) only OMNOVA and members of the OMNOVA Group. "Separation" has the meaning set forth in the Recitals. "Short Period" means any Tax Period which is based on an accounting period which is shorter than the normal accounting period used for determining such Tax (e.g., in the case of the United States Federal income Tax, any Tax Period of less than one year). "Spin-off" has the meaning set forth in the Recitals. "Spin-off Taxes" means any Taxes incurred by or imposed on GenCorp or OMNOVA (or their respective Affiliates) resulting from the Spin-off and any disposition of stock or assets undertaken to separate the OMNOVA Group from the GenCorp Group, in accordance with the terms of the Distribution Agreement. "State Property Taxes" means State Taxes that are imposed on or with respect to the ownership or use of property or based on the value of property, including ad valorem, real property, personal property (tangible or intangible) and similar Taxes. 4 8 "State Taxes" means all Taxes imposed or collected by any state or local government in the United States (including possessions and territories of the United States), and "State Tax" means any one of the foregoing State Taxes. "Straddle Period" means (i) any Tax Period that begins before and ends after the Distribution Date, (ii) any Short Period that ends on the Distribution Date and (iii) any Short Period that begins on the first day following the Distribution Date. "Tax Authority" means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax and any governmental department, office or agency (if any) charged with the determination or collection of such Tax for such entity or subdivision. "Tax Benefit" means any refund, credit, Carryover, Carryback or other reduction in otherwise required Tax payments. Such term does not include a decrease in any Tax in one Tax Period that results from a Tax Adjustment in another Tax Period, such as an increase in a deduction for depreciation that results from a determination that, in a previous Tax Period, an expenditure is capitalized and not deducted, or an item of gain is recognized. "Tax Contest" means an audit, review, examination or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes of any member of any of the GenCorp Group or the OMNOVA Group for (1) any Pre-Distribution Period, (2) any Straddle Period or (3) any Post-Distribution Period, if such proceeding could result in any Tax Adjustment or Tax Benefit for any Pre-Distribution Period or Straddle Period (without regard to whether such matter was initiated by an appropriate Tax Authority or in response to a claim for a refund of Taxes). "Taxes" means all Federal, state, territorial, local, foreign and other net income, gross income, gross receipts, sales, use, value added, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, unemployment insurance, workers compensation, social security, excise, severance, stamp, business license, occupation, premium, property, environmental, windfall profits, customs, duties, alternative minimum, estimated or other taxes, fees, premiums, assessments or charges of any kind whatever imposed or collected by any governmental entity or political subdivision thereof, which any member of the GenCorp Group or of the OMNOVA Group is required to pay, collect or withhold, together with any interest and any penalties, additions to Tax or additional amounts with respect thereto, and "Tax" means any one of the foregoing Taxes. "Tax Period" means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Laws. "United States Federal Taxes" means all Taxes imposed or collected by the United States Federal Government, and "United States Federal Tax" means any one of the foregoing United States Federal Taxes. "1999 Fiscal Year" has the meaning set forth in Section 3.02(b). 5 9 ARTICLE II ---------- ALLOCATION OF TAX LIABILITIES ----------------------------- 2.01 LIABILITY FOR UNITED STATES FEDERAL TAXES. (a) Subject to Sections 2.04, 2.05, 4.01, and 4.02, GenCorp shall be liable for, and shall indemnify and hold the OMNOVA Group harmless from: (1) any United States Federal Taxes imposed on GenCorp, OMNOVA and all members of their respective Groups for any Pre-Distribution Period and (2) any United States Federal Taxes imposed on any members of the GenCorp Group for any Post-Distribution Period. (b) Subject to Sections 2.04, 2.05, 4.01, and 4.02, OMNOVA shall be liable for, and shall indemnify and hold the GenCorp Group harmless from all United States Federal Taxes imposed on any members of the OMNOVA Group for any Post-Distribution Period. 2.02 LIABILITY FOR STATE TAXES. (a) Subject to Sections 2.04, 2.05, 4.01, 4.02, and 7.01, GenCorp shall be liable for, and shall indemnify and hold the OMNOVA Group harmless from: (1) any State Taxes imposed on GenCorp or OMNOVA and all members of their respective Groups for any Pre-Distribution Period (except as provided in Section 2.02(b)(1)) and (2) any State Taxes imposed on any members of the GenCorp Group for any Post-Distribution Period. (b) Subject to Sections 2.04, 2.05, 4.01, and 4.02, OMNOVA shall be liable for, and shall indemnify and hold the GenCorp Group harmless from: (1) any State Property Taxes imposed on GenCorp or OMNOVA and all members of their respective groups for any Pre-Distribution Period, to the extent such State Property Taxes are imposed on or with respect to the ownership or use, or are based on the value, of property principally used by any member of the OMNOVA Group before the Spin-off or immediately thereafter (including all property transferred, directly or indirectly, to any member of the OMNOVA Group in the Spin-off). (2) any State Taxes imposed on any members of the OMNOVA Group for any Post-Distribution Period. 6 10 2.03 LIABILITY FOR FOREIGN TAXES. (a) Subject to Sections 2.04, 2.05, 4.01, and 4.02, GenCorp shall be liable for, and shall indemnify and hold the OMNOVA Group harmless from: (1) any Foreign Taxes imposed on GenCorp, OMNOVA or their respective Groups for any Pre-Distribution Period and (2) any Foreign Taxes imposed on the GenCorp Group for any Post-Distribution Period. (b) Subject to Sections 2.04, 2.05, 4.01, and 4.02, OMNOVA shall be liable for, and shall indemnify and hold the GenCorp Group harmless from all Foreign Taxes imposed on the OMNOVA Group for any Post-Distribution Period. 2.04 SPIN-OFF TAXES. Except as otherwise provided in Section 5.02 of the Distribution Agreement, GenCorp shall be liable for, and shall indemnify and hold the OMNOVA Group harmless from all Spin-off Taxes. 2.05 METHOD OF ALLOCATING TAXES FOR STRADDLE PERIODS. (a) To the extent required or allowed by applicable law, the Parties shall apportion their respective liabilities for Taxes relating to a Straddle Period that begins before and ends after the Distribution Date in accordance with an actual or hypothetical closing of the books on the Distribution Date in the case of income Taxes or other Taxes based on actual events and activities of such Party. (b) Except as provided in Section 2.05(a) Taxes for any Straddle Period, with respect to any member of the GenCorp Group and the OMNOVA Group shall be apportioned between Pre-Distribution and Post-Distribution Periods as follows: First, Taxes for Tax Periods or portions thereof ending on the last day of the calendar month preceding the Distribution Date (such date is hereinafter referred to as the "Cutoff Date") shall be based on actual events and activities through the Cutoff Date and in accordance with past accounting practices. Second, Taxes for the period from the Cutoff Date through the Distribution Date shall be computed by prorating the activities of the calendar month which includes the Distribution Date on a daily pro rata basis. Notwithstanding the foregoing provisions of this Section 2.05(b), (i) depreciation, amortization and depletion for any Straddle Period shall be apportioned on a daily pro rata basis and (ii) extraordinary items not arising in the ordinary course of business shall be apportioned to the Tax Period in which the event giving rise to such item occurs. (c) For purposes of this Agreement, franchise Taxes shall be allocated to the Periods in which the items with respect to which the Tax is imposed occur, regardless of whether the Tax is imposed with respect to one or more other Periods. 7 11 (d) For purposes of this Agreement, any taxes computed on a unitary method shall be allocated between the members of the GenCorp Group and the OMNOVA Group consistent with past accounting practice and consistent with applicable law. 2.06 TAX ACCOUNTING PRACTICES. Any Straddle Period Returns prepared by any member of the GenCorp Group or the OMNOVA Group shall be filed in accordance with past Tax accounting practices used with respect to the Tax Returns in question, and to the extent any items are not covered by past practices, in accordance with reasonable Tax accounting practices selected by GenCorp or OMNOVA, as the case may be (except that accounting elections and determinations shall be made by each Party, where reasonably possible, in a manner that minimizes the net Tax incurred by the other Party and its Affiliates). In the event any member of the GenCorp Group or the OMNOVA Group files Tax Returns for Straddle Periods that are inconsistent with such past Tax accounting practices, then, notwithstanding any provision of this Agreement to the contrary, in addition to any other remedies available, the other Party shall only be responsible for the amount of Taxes it would owe if such Tax Returns had been consistent with such past Tax accounting practices. The Parties shall consult regarding any such proposed changes in accounting methods and attempt in good faith to agree as to procedures to be followed and the amount of any indemnity hereunder. ARTICLE III ----------- PREPARATION AND FILING OF TAX RETURNS ------------------------------------- 3.01 GENERAL. Except as otherwise provided in this Article III, Tax Returns shall be prepared and filed by the Person liable for the Tax reported on such Tax Return, or otherwise obligated to file such Return, under the Code or other applicable Law. Schedule 3.01 sets forth the United States Federal and State Tax Returns relating to income Taxes to be filed under this provision and the Person responsible for filing each such Return. Without limiting the foregoing, in accordance with Article VI, the Person responsible for filing such a Return shall also be responsible for responding to any revenue agent request or any other formal or informal request for information or otherwise relating to such Return by the IRS or any other applicable Tax Authority. The Parties shall render assistance and cooperate with one another in accordance with the terms of the Distribution Agreement. 3.02 CONSOLIDATED, COMBINED AND JOINT RETURNS. (a) Any Tax Returns for United States Federal Taxes imposed for any Pre-Distribution Period which reflect Taxes for which any member of the GenCorp Group has liability under Article II (including, without limitation, GenCorp's consolidated Federal income Tax Return for the Tax Period in which the Distribution occurs) shall be prepared by and filed by GenCorp. In furtherance of, and not by limitation of, the cooperation and assistance required by the terms of the Distribution Agreement, OMNOVA shall, in connection with any Tax Return for United States Federal income Taxes for any Pre-Distribution Period filed after the Distribution Date for which GenCorp has filing responsibility under this Agreement and which reflects income or transactions attributable to the OMNOVA Group, provide GenCorp with (i) true and correct separate Federal income Tax Returns for the OMNOVA Group, together with all 8 12 accompanying work papers and other computations of separate Federal income Tax liability for the OMNOVA Group; (ii) a true and correct reconciliation of book income to Federal taxable income for the OMNOVA Group, and (iii) any other information or documentation reasonably requested by GenCorp in connection with such Tax Return; provided, however, that the Parties shall consult regarding the type and extent of the information required by GenCorp hereunder. (b) With respect to the Period ending on November 30, 1999, or, where applicable to any Group member, the corresponding 52-53 week Period (the "1999 Fiscal Year"), OMNOVA hereby agrees to provide GenCorp with all such Returns, work papers and computations relating to Federal Taxes on or before May 15, 2000, and with all such Returns, work papers and computations relating to State Taxes on or before on or before June 15, 2000. (c) If, without reasonable cause, OMNOVA fails to provide any information required by this Section 3.02 within the time frame specified herein, GenCorp may file the applicable Returns based on the information available at the time such Returns are due and OMNOVA shall be liable for, and shall indemnify GenCorp from, any interest or penalties relating to Taxes, additions to Tax or other costs imposed on GenCorp as a result of OMNOVA's failure to provide such information; provided, however, that in no event will OMNOVA be liable to reimburse GenCorp for or indemnify GenCorp against any increase in tax liability (excluding interest, penalties, additions to tax and the like) resulting from such information. The Parties shall attempt in good faith to reach agreement regarding the information to be provided by OMNOVA to GenCorp and the time such information is needed. (d) Any Tax Returns for State Taxes for any Pre-Distribution Period which reflect Taxes for which the GenCorp Group has liability under Article II, shall be prepared and filed by GenCorp. Sections 3.02(a) and 3.02(c) shall apply mutatis mutandis to all State Tax Returns for any Pre-Distribution Period that GenCorp must prepare and/or file under this Agreement that is measured by income and that includes any income or transactions attributable to OMNOVA or any member of the OMNOVA Group. (e) Any Tax Returns for Foreign Taxes for any Pre-Distribution Period which reflect Taxes for which the GenCorp Group has liability under Article II, shall be prepared and filed by GenCorp. Any Tax Returns for Foreign Taxes for any Post-Distribution Period (including any such Straddle Period) which reflect Taxes for which the OMNOVA Group has liability under Article II, shall be prepared and filed by OMNOVA. For any Straddle Period Tax Returns prepared and filed by OMNOVA, the liability for Taxes reflected on such Tax Return will be divided between the Pre-Distribution Period and the Post-Distribution Period in accordance with Section 2.05. 3.03 RIGHT TO REVIEW RETURNS. Upon the request of either Party, the other Party shall make available for inspection and copying all Tax Returns (and related work papers) with respect to Taxes to the extent that (i) such Return relates to Taxes for which the requesting Party may be liable under this Agreement, (ii) such Return relates to Taxes for which the requesting Party may have a claim for Tax Benefits hereunder, or (iii) the requesting Party reasonably determines that it must inspect such Return to confirm any Person's compliance with the terms of this 9 13 Agreement. The Parties shall attempt in good faith to resolve any issues arising out of the review of such Returns. ARTICLE IV ---------- TAX REFUNDS AND CARRYOVERS -------------------------- 4.01 REFUNDS. Except as provided in Section 4.02, any refund of any Taxes for any Pre-Distribution Period shall belong to GenCorp. In the event OMNOVA or any of its Affiliates receives a refund for any Pre-Distribution Period, the Person receiving such refund shall immediately remit such refund to GenCorp. A refund includes the application of an amount otherwise refundable as a reduction of amounts owed or to be owed notwithstanding that no cash is transferred. 4.02 CARRYBACKS OR CLAIMS FOR REFUND. (a) At the request of OMNOVA and at OMNOVA's expense, GenCorp or one of its Affiliates will file one or more claims for refund (including any tentative carryback or refund adjustment under Section 6411 of the Code) of Taxes with respect to any Pre-Distribution Period resulting from any Carryback generated by any member of the OMNOVA Group from a Post-Distribution Period ("OMNOVA Group Carryback"), provided (subject to Section 4.02(b)) that such refund does not result in any increase in the liability of any member of GenCorp's Group for Taxes for any Tax Period. In the event GenCorp or one of its Affiliates receives a refund for any Pre-Distribution Period resulting from any OMNOVA Group Carryback from a Post-Distribution Period, GenCorp shall immediately remit such refund to OMNOVA. (b) In the event GenCorp or one of its Affiliates files one or more claims for refund (including any tentative carryback or refund adjustment under Section 6411 of the Code) of Taxes with respect to any Pre-Distribution Period resulting from any OMNOVA Group Carryback from a Post-Distribution Period that results in any increase in the liability of any member of GenCorp's Group for Taxes for any Tax Period, GenCorp or any of its Affiliates shall be entitled to retain that portion of the refund that exactly offsets the additional Taxes for which it becomes liable as a result of filing the refund claim, and the balance of such refund shall be refunded immediately to OMNOVA. To the extent the increased liability for Taxes of GenCorp or any of its Affiliates with respect to any Pre-Distribution Period resulting from any OMNOVA Group Carryback from a Post-Distribution Period is reversed for any Tax Period, the amount of any Tax Benefit resulting from such reversal shall be paid immediately to OMNOVA on the date when the Return is filed for the year in which the Tax Benefit arises or, if such return has already been filed, then immediately after GenCorp or any of its Affiliates receives a payment reflecting the Tax Benefit in question. Similarly, to the extent the increased liability for Taxes of GenCorp or any of its Affiliates with respect to any Pre-Distribution Period resulting from any OMNOVA Group Carryback from a Post-Distribution Period for any Period arises after the refund has been paid to OMNOVA, GenCorp shall inform OMNOVA of the amount of such increase, and OMNOVA shall pay the amount of such increase to GenCorp promptly. Procedures similar to those in Section 5.03 shall apply. All computations under this Section 4.02 10 14 shall be adjusted to take into account interest payable by or to GenCorp, and any Tax Benefit resulting therefrom. 4.03 CARRYOVERS FROM PRE-DISTRIBUTION PERIODS TO POST-DISTRIBUTION PERIODS. (a) If GenCorp or any of its Affiliates (determined for this purpose as of immediately before the Distribution Date) is entitled to carry over any Tax Benefit from a Pre-Distribution Period to a Post-Distribution Period, and if the proper person to claim such Tax Benefit is a member of the OMNOVA Group, OMNOVA or such member shall, upon request of GenCorp and at GenCorp's expense, file any return or report reasonably requested by GenCorp in a manner that claims such Tax Benefit and shall pay the full amount of such Tax Benefit to GenCorp promptly upon receipt, provided (subject to Section 4.02(b) )) that such Tax Benefit does not result in any increase in the liability of any member of the OMNOVA Group for Taxes for any Tax Period. (b) If OMNOVA or any of its Affiliates claims a carryover of a Tax Benefit described in Section 4.03(a) that results in any increase in the liability of any member of the OMNOVA Group for Taxes for any Tax Period, the provisions of Section 4.02(b) shall apply, mutatis mutandis, to OMNOVA's obligation to refund such Tax Benefit to GenCorp. 4.04 STATE TAX CREDITS. Notwithstanding any other provision of this Agreement, the Parties shall consult and shall attempt in good faith to agree concerning the allocation between them of credits for State Taxes. ARTICLE V --------- TAX PAYMENTS ------------ 5.01 PAYMENT OF CONSOLIDATED UNITED STATES FEDERAL TAXES FOR PRE-DISTRIBUTION PERIODS. GenCorp shall pay all Taxes due, be entitled to the benefit of all overpayments of estimated income tax, and, except as provided in Section 4.02, shall receive all refunds in connection with, the filing of GenCorp's Tax Returns relating to U.S. Federal Taxes for all Pre-Distribution Periods, including GenCorp's consolidated Federal income Tax Return for the 1999 Fiscal Year. 5.02 PAYMENT OF STATE AND FOREIGN TAXES FOR WHICH GENCORP HAS FILING RESPONSIBILITY. GenCorp shall pay to the appropriate Tax Authority all State and Foreign Taxes for Tax Returns with respect to which GenCorp (or another member of the GenCorp Group) has filing responsibility pursuant to Article III. 5.03 INDEMNIFICATION PAYMENTS. (a) The Parties shall attempt to agree upon procedures for the payment of indemnities under this Agreement. In the absence of any such Agreement, the procedures set forth in paragraph (b) shall be followed. 11 15 (b) Upon payment of any Taxes with respect to which either Party is entitled to receive indemnification hereunder, such member (the "Indemnified Party") shall send to the other Party (the "Indemnifying Party") an invoice accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The Indemnifying Party (or such one or more members of the Indemnifying Party's Group as it shall nominate) shall remit payment for Taxes for which the Indemnifying Party is liable for indemnification hereunder to the Indemnified Party (or such one or more members of the Indemnified Party's Group as it shall nominate) within 30 days of receipt of such invoice, evidence of payment and statement, or at any earlier time identified by the Indemnifying Party. Notwithstanding any provision in this Agreement to the contrary, to the extent the Indemnified Party receives a refund of Taxes for which it has been indemnified, it shall remit the refund to the Indemnifying Party (or such one or more members of the Indemnifying Party's Group as it shall nominate) immediately. The amount of any payment under this Section 5.03 that is attributable to interest paid to a Tax Authority shall be adjusted to take into account the Tax Benefit resulting therefrom. 5.04 TAX TREATMENT OF TAX AND INDEMNIFICATION PAYMENTS. The Parties agree that, in the absence of any change in law, any Tax or indemnification payments made under this Agreement or the Distribution Agreement (including payments made under Sections 2.04, 4.01, 4.02, 4,03, and 5.03 shall be reported for Tax purposes by the payor and the recipient as capital contributions or dividends, as appropriate, relating back to the period beginning before the Distribution Date. The Parties will file their respective Tax Returns on this basis, unless agreed otherwise in writing by the Indemnified Party and the Indemnifying Party. ARTICLE VI ---------- TAX AUDITS AND APPEALS ---------------------- 6.01 NOTICE.. Each Party shall provide prompt notice to the other Party of any pending or threatened Tax Contest of which it becomes aware relating to Taxes for Tax Periods for which it is indemnified by the other Party. Such notice shall contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice or other document received from any Tax Authority in respect of any such matter. If either Party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder and such Party fails to give the Indemnifying Party notice of such asserted Tax liability within 30 days after it has received written notice thereof, then, unless such failure has no material adverse effect upon the Indemnifying Party's ability to participate in the Tax Contest, the Indemnifying Party shall have no obligation to indemnify the Indemnified Party for any Taxes arising out of such asserted Tax liability. 6.02 CONTROL OF AUDITS AND APPEALS. (a) SEPARATE CONTESTS. Any Separate Contest shall be controlled solely by the Party involved in the Tax Contest. 12 16 (b) JOINT CONTESTS. With respect to any Joint Contest, the Party that filed the Return shall control the proceeding. The personnel and outside advisers (including counsel) of the Party not controlling the proceeding may participate, at the expense of such Party, in the proceeding to the extent such proceeding relates to items or adjustments for which such Party may incur indemnity liability under this Agreement. Such participation shall be reflected by the grant of appropriate powers of attorney. The Party granting such power of attorney (the "Granting Party") shall have the right to revoke the power of attorney if the Granting Party reasonably determines that the actions or failure to act on the part of the other Person (the "Participating Party") in the proceeding has resulted, or can be reasonably expected to result, in the hindrance or delay of any resolution or settlement of the proceeding. In the event the Participating Party fails to participate timely and fully in any proceeding to the extent to which such proceeding relates to items or adjustments for which the Participating Party has indemnity liability under this Agreement, the Participating Party shall be liable for, in addition to all Taxes for which the Participating Party shall be liable under this Agreement, any and all costs imposed on, or incurred by, the Granting Party as a result of the Participating Party's failure to participate. The revocation of any power of attorney under this Section 6.02 shall in no way limit the Participating Party's indemnity liability under this Agreement. 6.03 CONSENT TO SETTLEMENTS. (a) Subject to Sections 6.03(b) and (c) neither Party shall agree to any Tax liability or compromise any Tax claim in a Joint Contest for the account of any member of the other Group without the consent of such other Party, which consent shall not be withheld unreasonably. Decisions regarding settlement of a Joint Contest shall be made jointly by the Parties and their respective representatives. (b) If GenCorp refuses to accept a settlement proposal in a Joint Contest that OMNOVA wishes to accept, then the contest shall continue, and (i) OMNOVA's liability to GenCorp with respect to such adjustment shall be determined as if the settlement proposal had been accepted; (ii) GenCorp shall indemnify OMNOVA from and against any Taxes resulting from an outcome of the contest less favorable than the settlement and any other costs resulting from the continuation of the contest, and (iii) GenCorp shall be entitled to all benefits resulting from any outcome of the contest that is more favorable than the settlement (less any costs to OMNOVA, against which GenCorp shall indemnify OMNOVA). (c) If OMNOVA refuses to accept a settlement proposal in a Joint Contest that GenCorp wishes to accept, then the contest shall continue and (i) GenCorp's liability to OMNOVA with respect to such adjustment shall be determined as if the settlement proposal had been accepted, (ii) OMNOVA shall indemnify GenCorp from and against any Taxes resulting from an outcome of the contest less favorable than the settlement and any other costs resulting from the continuation of the contest, and (iii) OMNOVA shall be entitled to all benefits resulting from any outcome of the contest that is more favorable than the settlement (less any costs to GenCorp, against which OMNOVA shall indemnify GenCorp). 13 17 6.04 INFORMATION. Each Party shall provide the other Party with information pertaining to any increase or decrease in its Taxes that might affect the liability for Taxes of the other Party for any Period. In addition, upon reasonable request, each Party shall provide information to the other Party regarding the Tax treatment of any item. 6.05 EXPENSES. Each Party shall bear its own Group's expenses incurred in connection with any Tax Contest. 6.06 ADVERSE EFFECT ISSUES (a) The procedures set forth in Sections 6.03(c) through 6.06(f) shall apply if - (i) in an examination of a Federal income Tax Return of one of the Parties or any member of its Group (the "Examined Party"), the IRS raises one or more Adverse Effect Issues, or (ii) the Examined Party (whether or not in the course of any audit, examination or other proceeding relating to the determination of its liability for Federal income Taxes) files an amended Federal income Tax Return or claim for refund of Federal income Taxes or otherwise takes a position with the IRS inconsistent with a Federal income Tax Return already filed, if such amended Federal income Tax Return, claim or position is likely, itself or in combination with other issues, to be an Adverse Effect Issue. (b) One or more issues are "Adverse Effect Issues" if, in the reasonable judgment of the Examined Party, the aggregate effect of all such issues with respect to the Periods within an examination cycle or similar proceeding of the Examined Party is significantly likely to increase the liability for Federal income Taxes (less interest) of the Party that is not the Examined Party and the members of its Group (the "Affected Party") by at least $250,000. Only for purposes of determining whether an issue is an Adverse Effect Issue, the amount of such increase in liability for Federal income Taxes shall be measured under the following principles: (i) All increases (less any offsetting decreases resulting from the same or a related item) in the Affected Party's liability for Federal income Tax likely to result from such Adverse Effect Issue for all Periods shall be taken into account, provided, however, that any decrease in liability for Federal income Tax that may result from the sale or disposition of property not expected to be sold or disposed of (for example, stock of an operating subsidiary), or similar items, shall not be taken into account. (ii) Computations of liability for Federal income Tax shall be based on the highest marginal rate of Federal income Tax applicable to the Affected Party for each of the Periods involved. (iii) There shall be taken into account only increases in liability for Federal income Tax as compared with the return position taken by the Affected Party. 14 18 (c) In each case, the Parties shall use their reasonable best efforts to identify issues that are, or in combination with other issues could become, Adverse Effect Issues. (i) Promptly upon becoming aware that any Adverse Effect Issue has been raised as described in Section 6.06(a)(i), the Examined Party shall provide notice of such event to the Affected Party. Such notice shall include a description of the Adverse Effect Issue, a computation (as described in Section 6.06(b)(ii) showing the expected increase in the Affected Party's liability for Federal income Tax resulting therefrom, and copies of all correspondence between the Examined Party and the IRS (including information document requests, responses thereto and notices of proposed adjustment). (ii) No less than 30 days before filing any amended return or claim for refund or taking any action described in Section 6.06(a)(ii), the Examined Party shall (x) provide notice to the Affected Party (such Notice to include the information and material listed with respect to the notice provided in Section 6.06(c)(i) and copies of all amended returns, claims for refund or other documents proposed to be filed with the IRS with respect to such Adverse Effect Issue) and (y) consult with the Affected Party regarding such action. (d) Within 30 days after the notice provided in Section 6.06(c)(i) or Section 6.06(c)(ii), the Affected Party may notify the Examined Party that the Affected Party wishes to participate in proceedings relating to the disposition of any or all of the Adverse Effect Issues. If the Affected Party provides such notice, the procedures for Joint Contest set forth in Section 6.06(b) shall apply, with the Examined Party being in control of the proceeding. Provided, however, that (i) if the Affected Party does not provide such notice within such time period, the proceeding shall continue without participation of the Affected Party and without regard to Sections 6.06(e) and 6.06(f) and (ii) the Affected Party's right to participate in the proceedings shall terminate if the Examined Party makes a reasonable determination, after consultation with the Affected Party, that, notwithstanding the Adverse Effect Items, the total net increase in the Affected Party's liability for Taxes (determined as set forth in Section 6.06(b)) from all adjustments relating to the Period or Periods in the examination cycle or similar proceeding is less than the amount set forth in Section 6.06(b). (e) Subject to Section 6.06(f), the Examined Party shall settle any Adverse Effect Issue with the IRS only with the prior consent of the Affected Party. The Parties shall attempt in good faith to agree as to the terms of a proposed settlement. If the Parties are unable to agree, the procedures set forth in Section 6.03(b) or Section 6.03(c) as the case may be, shall apply to such Adverse Effect Issue. (f) Notwithstanding Section 6.06(e), the Examined Party may settle with the IRS any Adverse Effect Issue without consent of the Affected Party, if, after consultation with the Affected Party, the Examined Party reasonably determines that (i) a settlement of such Adverse Effect Issue is desirable to the Examined Party; (ii) in light of all the circumstances (including the likelihood of various positions of the Parties being sustained in further proceedings, the cost of such proceedings and the impact of settlement on other issues), the overall terms of the settlement do not discriminate against the Affected Party; and (iii) other 15 19 issues (which may or may not be Adverse Effect Issues) will be settled, and it is not practical to settle such other issues on the proposed terms without a settlement of the Adverse Effect Issue. Before determining that a proposed settlement of other issues is not practical without a settlement of the Adverse Effect Issue, the Examined Party will use its reasonable best efforts to secure a settlement of the other issues while leaving the Adverse Effect Issue open for further proceedings (for example, by entering into an agreement on IRS Form 870AD or similar form to close proceedings relating to one or more Periods but reserving the Adverse Effect Issue for further proceedings). Article VII ----------- Special RuleS Pertaining to Gencorp Services, Inc. -------------------------------------------------- 7.01 LIABILITY FOR STATE TAXES. Notwithstanding Section 6.02(b), OMNOVA shall be responsible for, and shall indemnify GenCorp against, (a) all liabilities for State Taxes of GenCorp Services, Inc., a Ohio corporation ("GSI"), and (b) any liability to GSI or to any member of the GenCorp Group for adjustments to State Taxes resulting from transactions or arrangements between GSI and any other member of the GenCorp Group or the OMNOVA Group. Such liabilities for any Straddle Year in jurisdictions using the unitary method shall be determined in accordance with Section 2.05(d). 7.02 GSI TAX RETURNS. Notwithstanding Sections 3.01 and 3.02, OMNOVA shall file all State Tax Returns for GSI, with the exception of unitary returns set forth on Schedule 3.01, and any tax audit or other proceeding pertaining to any State Tax of GSI shall be a Separate Contest of the OMNOVA Group. GenCorp shall provide notice to OMNOVA of any issue raised by a Tax Authority that could reasonably result in the application of this Article VIII. ARTICLE VIII ------------ MISCELLANEOUS MATTERS --------------------- 8.01 AMENDMENT AND WAIVER. This Agreement shall not be amended or modified in any manner whatsoever except by a writing executed by each of the Parties. No failure by either Party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. 8.02 TAX ALLOCATION AGREEMENTS, ETC. Immediately prior to the Distribution, GenCorp shall cause any and all tax allocation, tax sharing and similar agreements or arrangements existing between GenCorp and all members of the OMNOVA Group to be terminated as of the Distribution Date, and shall cause any amounts due under such agreements or arrangements to be settled in the manner agreed to by the Parties prior to the Distribution Date. Upon such termination and settlement, no further payments made by one Party to the other with respect to such agreements or arrangements shall be made, and all other rights and obligations resulting from such agreements or arrangements between the Parties shall cease as of such time. This Agreement shall supercede any such agreements or arrangements. 16 20 8.03 ENTIRE AGREEMENT; INCONSISTENT PROVISIONS; OTHER AGREEMENTS. The Parties agree that the Distribution Agreement, this Agreement and the other Ancillary Agreements (as that term is defined in the Distribution Agreement) constitutes the entire agreement between them in respect of the subject matter of this Agreement, and that, in the event of a conflict or other inconsistency between any provision or term of this Agreement and any other agreement, including any provision or term of the Distribution Agreement, then insofar as such matter relates to Taxes, this Agreement shall prevail. 8.04 AFFILIATE OBLIGATIONS. To the extent that the provisions of this Agreement pertain to an Affiliate of GenCorp or OMNOVA, GenCorp and OMNOVA hereby respectively agree that they shall cause such Affiliate to carry out the terms of this Agreement. 8.05 FURTHER ACTION. The Parties shall execute and deliver all documents, provide all information, and take or refrain from taking any action as may be necessary or appropriate to achieve the purposes of this Agreement. Without limiting the preceding sentence, the members of each Group shall provide the members of the other Group with such powers of attorney or other authorizing documentation as is reasonably necessary to empower then to execute and file Tax Returns they are responsible for hereunder, file claims for refunds and equivalent claims for Taxes for which they are responsible, and contest, settle and resolve any Tax Contests that they control under Article VII. 8.06 TIME FOR NOTICE. Notice of any indemnification claim under this Agreement must be received by the Party against which such claim is made no later than 30 days from the date on which the Taxes to which such claim relates have been paid. 8.07 NOTICES. All notices, demands and other communications which may or are required to be given to or made by either party to the other in connection with this Agreement shall be in writing (including telex, fax or other similar writing) and shall be deemed to have been duly given or made: (a) if sent by registered or certified mail, five days after the posting thereof with first class postage attached, (b) if sent by hand or overnight delivery, upon the delivery thereof and (c) if sent by telex or fax, upon confirmation of receipt of such telex or fax, in each case addressed to the respective parties as follows: GenCorp: GenCorp Inc. Highway 50 & Aerojet Road Rancho Cordova, CA 95670 Attn: Secretary OMNOVA: OMNOVA Solutions Inc. 175 Ghent Road Fairlawn, Ohio 44333 Attn: Secretary or to such other address and to the attention of such other persons as either party hereto may specify from time to time by notice to the other party. 17 21 8.08 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (other than by merger or pursuant to a sale of all or substantially all of a party's assets to one Person) by either of the parties hereto without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that no such assignment shall relieve the assigning party of any liabilities or obligations hereunder. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 8.09 SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the court making the determination of invalidity or unenforceability shall have the power to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 8.10 COUNTERPARTS. This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all such counterparts taken together shall constitute one and the same Agreement. 8.11 DESCRIPTIVE HEADINGS. The Table of Contents and Article and Section headings of this Agreement are inserted for convenience only and shall not constitute a part of this Agreement in construing or interpreting any provision hereof. 8.12 NO THIRD-PARTY BENEFICIARIES. Except as provided in Article V hereto nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any Person any legal or equitable right, remedy, claim or other benefit under or by reason of this Agreement. 8.13 CONSTRUCTION. It is acknowledged by OMNOVA and GenCorp that this Agreement has undergone several drafts with the negotiated suggestions of each and, therefore, no presumptions shall arise favoring either party by virtue of the authorship of any provision of this Agreement. 8.14 FORM OF PAYMENTS AND LATE PAYMENTS. Any payments owed by any member of either Group to any member of the other Group under this Agreement shall be made in the currency in which the Tax to which such payment relates is assessed by the Tax Authority, and shall be paid in immediately available funds and in such other manner as the Person to whom such payment is owed may reasonably request. Any payments required by this Agreement that 18 22 are not made when due shall bear interest at the Prime Rate from the due date of the payment to the date paid. 8.15 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF OHIO. IN WITNESS WHEREOF, the Agreement has been duly executed as of the day and year first above written. GENCORP INC. By /s/ William R. Phillips --------------------------------- Name: William R. Phillips ----------------------------- Title: Senior Vice President ----------------------------- OMNOVA SOLUTIONS INC. By /s/ James C. LeMay --------------------------------- Name: James C. LeMay ----------------------------- Title: Senior Vice President ----------------------------- 19 EX-10.16 5 EXHIBIT 10.16 1 Exhibit 10.16 Execution Copy ALTERNATIVE DISPUTE RESOLUTION AGREEMENT ---------------------------------------- ALTERNATIVE DISPUTE RESOLUTION AGREEMENT (the "Agreement") dated September 30, 1999 by and between GENCORP INC., an Ohio corporation ("GenCorp") and OMNOVA Solutions Inc., an Ohio corporation ("OMNOVA"). This Agreement is made pursuant to the Distribution Agreement dated as of the date hereof between GenCorp and OMNOVA ("Distribution Agreement"). Each term used herein that is defined in the Distribution Agreement shall have the same meaning when used herein as it is given in the Distribution Agreement. WHEREAS, GenCorp and OMNOVA have determined that it is necessary and desirable to agree on the procedures described in this Agreement as the sole and exclusive method or remedy for them to resolve every dispute, controversy or claim whether sounding in contract, tort or otherwise (hereinafter "Dispute") which may from time to time arise under or out of, or is in any way related to, the Transaction Documents or the Distribution (as herein defined); and, WHEREAS, this Agreement shall apply whether such Dispute is based on a breach of one party or its obligations under the Transaction Documents or disagreement between the parties as to the meaning or application of the Transaction Documents or in any manner related to or arising under or out of the Distribution or the transactions contemplated by the Transaction Documents (including all actions taken in furtherance of said Distribution). NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereby agree as follows: ARTICLE I As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): AMOUNT IN CONTROVERSY: the monetary value of any Dispute plus the monetary value of any related Dispute or series of related Disputes then existing or likely to occur in the future. APPLICABLE DEADLINE: one year and 45 days after the later of the occurrence of the act or event giving rise to the claim underlying the Dispute or the date on which such act or event was, or should have been, in the exercise of reasonable due diligence, discovered by the party asserting the claim; provided, however, that with respect to Disputes involving Third Party Claims the applicable act or event shall be the making of such Third Party Claim. 2 -2- CPR: the Center for Public Resources, Inc., New York, NY. DEMAND: a written demand for arbitration under Article IV of this Agreement which shall contain a statement setting forth the nature of the Dispute and the Amount in Controversy. DISPUTE: is defined in the recitals to this Agreement. ESCALATION NOTICE: a written notice demanding a meeting of the respective Chief Executive Officers of the parties for the purpose of resolving a Dispute. REQUEST: a written request for mediation under Article III of this Agreement which shall set forth the nature of the Dispute and the Amount in Controversy. TRANSACTION DOCUMENTS: the Distribution Agreement together with the Ancillary Agreements and other documents referenced in the Distribution Agreement. ARTICLE II RESOLUTION OF DISPUTES Section 2.01. INTENT. It is the intent of the parties to use their respective reasonable efforts to resolve expeditiously and on a mutually acceptable negotiated basis any Dispute between them that may arise from time to time. Section 2.02. WAIVER OF RIGHTS. The procedures in this Agreement shall be the sole and exclusive remedy in connection with any Dispute. Each party to this Agreement hereby irrevocably waives any rights it may have to trial by jury or to commence any action in any court of law or equity or before any other governmental authority with respect to any Dispute, except as expressly otherwise provided in Sections 4.05(b) and 4.06 of Article IV of this Agreement. Section 2.03. PROCEDURE. All Disputes between the parties should be resolved promptly through consultation and good faith negotiation at the working levels of GenCorp and OMNOVA. All Disputes which cannot be resolved by the parties at the working level shall first be subjected to escalation as provided in Section 2.04 of this Article. If escalation does not resolve the Dispute, the Dispute shall next be submitted to mediation pursuant to Article III of this Agreement. Subject to Sections 4.05(b) and 4.06 of Article IV of this Agreement, if a Dispute cannot be resolved through mediation, then such Dispute shall be submitted to binding Arbitration pursuant to Article IV of this Agreement. Section 2.04. ESCALATION. If the parties are unable to resolve a Dispute at working levels within GenCorp and OMNOVA, either party may deliver an Escalation Notice to the other party demanding an in-person meeting for the purpose of resolving the Dispute between the Chief Executive Officers ("CEOs") of both parties in Denver, Colorado, within thirty days 3 -3- of receipt of the Escalation Notice. The Escalation Notice shall be delivered in accordance with Section 5.04 of Article V of this Agreement. The CEO's of the parties shall have fifteen days following their meeting to resolve the Dispute. If the Dispute is not resolved within the foregoing period, and in any event after forty-five days following receipt of an Escalation Notice, either party may initiate mediation of the Dispute in accordance with Article III of this Agreement. ARTICLE III MEDIATION Section 3.01. REQUEST FOR MEDIATION. Following completion of the escalation procedure described in Section 2.04 of Article II of this Agreement, either party may initiate mediation by delivering a Request to the other party in accordance with Section 5.04 of Article V of this Agreement. Section 3.02. APPOINTMENT OF MEDIATOR. Unless the parties otherwise agree in writing, a single mediator will be appointed by the two parties from among the former directors of GenCorp who ceased to be members of the GenCorp Board of Directors at least six months before the Distribution. In the event the parties are unable to agree upon a mediator or no such former director is available, the parties shall apply to CPR to appoint a single mediator from the CPR Panel of Neutrals, which appointment shall be made by CPR within 15 days after such application. Section 3.03. DATE, TIME AND PLACE. The date, time and place of each mediation session shall be determined by agreement of the parties or, if the parties cannot agree within a reasonable period of time, by the mediator; provided that the first mediation session shall be held within fifteen (15) days of the date on which the mediator is appointed. Unless the parties otherwise agree in writing, all mediation proceedings shall take place in Denver, Colorado. Section 3.04. ROLE OF THE MEDIATOR. The mediator shall aid the parties in their discussions and negotiations by informally advising the parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the parties; provided, however, any final, written opinion expressed by the mediator shall be admissible in any arbitration proceedings. Section 3.05. COSTS OF MEDIATION. Costs of the mediation shall be borne equally by the parties, except that each party shall be responsible for its own attorney's fees and expenses. Section 3.06. TERMINATION. The mediation proceedings shall be terminated upon the happening of any of the following: (i) execution of a settlement agreement by the parties; (ii) receipt of a written declaration of the mediator that further efforts at mediation are no longer worthwhile; or, (iii) receipt of a written declaration of one or both parties that the mediation proceedings are terminated, which is delivered (in accordance with Section 5.04 of Article V of this Agreement) not earlier than completion of the first mediation session. 4 -4- ARTICLE IV ARBITRATION Section 4.01. DEMAND FOR ARBITRATION. (a) At any time after the termination of mediation as described in Section 3.06 of Article III of this Agreement, any party may, unless the Applicable Deadline has occurred, make a Demand that the Dispute be resolved by binding arbitration, which Demand shall be delivered in the manner set forth in Section 5.04 of Article V of this Agreement. In the event that any party shall deliver a Demand, the other party may itself deliver a Demand to such first party with respect to any related Dispute (with respect to which the Applicable Deadline has not passed) without the requirement of delivering an Escalation Notice or a Request. In the event that any party delivers a Demand with respect to any Dispute that is the subject of any then pending arbitration proceeding or of a previously delivered Demand, all such Disputes shall be resolved in the arbitration proceeding for which a Demand was first delivered unless the arbitrator in his or her sole discretion determines that it is impracticable or otherwise inadvisable to do so. (b) Except as may be expressly provided in any Transaction Document, any Demand must be given prior to the Applicable Deadline. The parties may specifically agree in writing to extend or waive the Applicable Deadline with respect to any Dispute; however, no discussions, negotiations or mediations between the parties pursuant to this Agreement, or otherwise, will toll the Applicable Deadline unless expressly agreed in writing by the parties. Each of the parties agrees that if a Demand is not given prior to the expiration of the Applicable Deadline, as between or among the parties, such Dispute will be barred; provided, however, that if there is a Dispute regarding whether the Applicable Deadline has expired such Dispute shall be resolved by the Arbitrator. Subject to Sections 4.05(c) and 4.06 of Article IV of this Agreement and the preceding sentence, upon delivery of a Demand prior to the Applicable Deadline, the Dispute shall be decided by a sole arbitrator in accordance with the rules set forth in this Article IV. Section 4.02. ARBITRATORS. (a) Within 15 days after a valid Demand is received, the parties shall attempt to select a sole arbitrator satisfactory to both parties. (b) In the event that the parties are not able jointly to select a sole arbitrator within such 15-day period, the parties shall each appoint an arbitrator (who need not be disinterested as to the parties or the matter) within 30 days after delivery of the Demand. If one party appoints an arbitrator within such time period and the other party fails to appoint an arbitrator within such time period, the arbitrator appointed by the one party shall be the sole arbitrator of the matter. (c) In the event that a sole arbitrator is not selected pursuant to paragraph (a) or (b) above and, instead, two arbitrators are selected pursuant to paragraph (b) above, the two arbitrators will, within 30 days after the appointment of the later of them to be appointed, select an additional arbitrator who shall act as the sole arbitrator of the dispute. After selection of such sole arbitrator, the initial arbitrators shall have no further role with respect to the dispute. In the event that the arbitrators so appointed do not, within 30 days after the 5 -5- appointment of the later of them to be appointed, agree on the selection of the sole arbitrator, any party involved in such dispute may apply to CPR to select the sole arbitrator, which selection shall be made by CPR within 30 days after such application. Any arbitrator selected pursuant to this paragraph (c) shall be disinterested with respect to any of the parties and the matter and shall be reasonably competent in the applicable subject matter of the Dispute. (d) The sole arbitrator selected pursuant to paragraph (a), (b) or (c) above will set a time for the hearing of the matter which will commence no later than 90 days after the date of appointment of the sole arbitrator pursuant to paragraph (a), (b) or (c) above and which hearing will be no longer than 30 days (unless in the judgment of the arbitrator the matter is unusually complex and sophisticated and thereby requires a longer time, in which event such hearing shall be no longer than 90 days). The final decision of such arbitrator will be rendered in writing to the parties not later than 60 days after the last hearing date, unless otherwise agreed by the parties in writing. (e) The place of any arbitration hereunder will be Denver, Colorado, unless otherwise agreed by the parties. Section 4.03. HEARINGS. Within the time period specified in Section 4.02(d) of Article IV of this Agreement, the matter shall be presented to the arbitrator at a hearing by means of written submissions of memoranda and verified witness statements, filed simultaneously, and responses, if necessary in the judgment of the arbitrator or both parties. If the arbitrator deems it to be essential to a fair resolution of the dispute, live cross-examination or direct examination may be permitted, but is not generally contemplated to be necessary. The arbitrator shall actively manage the arbitration with a view to achieving a just, speedy and cost-effective resolution of the Dispute. The arbitrator may, in his or her discretion, set time and other limits on the presentation of each party's case, its memoranda or other submissions, and refuse to receive any proffered evidence, which the arbitrator, in his or her discretion, finds to be cumulative, unnecessary, irrelevant or of low probative nature. Except as otherwise set forth herein, any arbitration hereunder will be conducted in accordance with the CPR Rules for Non-Administered Arbitration of Business Disputes then prevailing (except that the fee schedule of CPR will not apply). Except as expressly set forth in Section 4.06 of Article IV of this Agreement, the decision of the arbitrator will be final and binding on the parties, and judgment thereon may be had and will be enforceable in any court having jurisdiction over the parties. Arbitration awards will bear interest at an annual rate of the Prime Rate per annum from the date of the award. To the extent that the provisions of this Agreement and the prevailing rules of the CPR conflict, the provisions of this Agreement shall govern. Section 4.04. DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party may request limited document production from the other party of specific and expressly relevant documents, with the reasonable expenses of the producing party incurred in such production paid by the requesting party. Any such discovery (under which rights to documents shall be substantially less than document discovery rights prevailing under the Federal Rules of Civil Procedure) shall be conducted expeditiously and shall not cause the hearing provided for in Section 4.03 of Article IV of this Agreement to be adjourned except upon consent of both 6 -6- parties or upon an extraordinary showing of cause demonstrating that such adjournment is necessary to permit discovery essential to a party to the proceeding. Depositions, interrogatories or other forms of discovery (other than the document production set forth above) shall be permitted only upon an extraordinary showing that such discovery is essential to a party to the proceeding or upon consent of the parties involved in the applicable Dispute. Disputes concerning the scope of discovery (including document production and enforcement of the document production requests) will be determined by written agreement of the parties or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the parties' rights to claim any applicable privilege. The arbitrator will adopt procedures to protect the proprietary rights of the parties and to maintain the confidential treatment of the arbitration proceedings (except as may be required by law). Subject to the foregoing, the arbitrator shall have the power to issue subpoenas to compel discovery. (b) The arbitrator shall have full power and authority to determine issues of arbitrability but shall otherwise be limited to interpreting or construing the applicable provisions of the Transaction Documents, including this Agreement, and will have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of any of the Transaction Documents, including this Agreement; it being understood, however, that the arbitrator will have full authority to implement the provisions of, and to fashion appropriate remedies for breaches of, the Transaction Documents including this Agreement (including interim or permanent injunctive relief); provided that the arbitrator shall not have: (i) any authority in excess of the authority a court having jurisdiction over the parties and the Dispute would have absent these arbitration provisions; or, (ii) any right or power to award punitive, treble or consequential damages except to the extent that any of such damages are actually paid by a party or a member of a party's Group to a Person. It is the intention of the parties that in rendering a decision the arbitrator give effect to the applicable provisions of the Transaction Documents including this Agreement, and the laws of the State of Ohio without regard to the principles of conflicts of law thereof (it being understood and agreed that this sentence shall not give rise to a right of judicial review of the arbitrator's award). (c) If a party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrator may hear and determine the controversy upon evidence produced by the appearing party. (d) Arbitration costs will be borne equally by each party, except that each party will be responsible for its own attorney's fees and its other costs and expenses, including the costs of witnesses selected by such party and all internal costs. Section 4.05. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award shall be a bare award limited to a holding for or against a party and shall be without findings as to facts, issues or conclusions of law (including awards with respect to any matters relating to the validity or infringement of patents or patent applications) and shall be without a statement of the reasoning on which the award rests, but must be in adequate form so that a judgment of a 7 -7- court may be entered thereupon. Judgment upon any arbitration award hereunder may be entered in any court having jurisdiction thereof. (b) Prior to the time at which an arbitrator is appointed pursuant to Section 4.02 of Section IV of this Agreement, any party may seek one or more temporary restraining orders in a court of competent jurisdiction if necessary in order to preserve and protect the status quo. Neither the request for, or grant or denial of, any such temporary restraining order shall be deemed a waiver of the obligation to arbitrate as set forth herein and the arbitrator may dissolve, continue or modify any such order. Any such temporary restraining order shall remain in effect until the first to occur of the expiration of the order in accordance with its terms or the dissolution thereof by the arbitrator. (c) In the event that at any time the sole arbitrator shall fail to serve as an arbitrator for any reason, the parties shall select a new arbitrator who shall be disinterested as to the parties and the matter in accordance with the procedures set forth herein for the selection of the initial arbitrator. The extent, if any, to which testimony previously given shall be repeated or as to which the replacement arbitrator elects to rely on the stenographic record (if there is one) of such testimony shall be determined by the replacement arbitrator. Section 4.06. LIMITED COURT ACTIONS. (a) Notwithstanding anything herein to the contrary, in the event that any party reasonably determines the amount in controversy in any Dispute (or series of related Disputes) is, or is reasonably likely to be, in excess of $100 million and if such party desires to commence a lawsuit in lieu of complying with the arbitration provisions of this Article IV, such party shall so state in its Demand or by notice given to the other parties within 20 days after receipt of a Demand with respect thereto. If the other party to the arbitration does not agree that the amount in controversy in such Dispute (or series of related Disputes) is, or is reasonably likely to be, in excess of $100 million, the arbitrator selected pursuant to Section 4.02 hereof shall decide whether the amount in controversy in such Dispute (or series of related Disputes) is, or is reasonably likely to be, in excess of $100 million. The arbitrator shall set a date that is no later than ten days after the date of his or her appointment for submissions by the parties with respect to such issue. There shall not be any discovery in connection with such issue. The arbitrator shall render his or her decision on such issue within five days of such date so set to the arbitrator. In the event that the arbitrator determines that the amount in controversy in such Dispute (or such series of related Disputes) is, or is reasonably likely to be, in excess of $100 million, the provisions of Sections 4.01, 4.02, 4.03, 4.04, and 4.05 of Article IV of this Agreement shall not apply, and on or before (but, except as expressly set forth in Section 4.06(b), not after) the tenth business day after the date of such decision, either party to the arbitration may elect, in lieu of arbitration, to commence a lawsuit with respect to such Dispute in any court of competent jurisdiction. If the arbitrator does not so determine, the provisions of this Article IV (including with respect to time periods) shall apply as if no determinations were sought or made pursuant to this Section 4.06(a). (b) In the event that an arbitration award in excess of $100 million is issued in any arbitration proceeding commenced hereunder, any party may, within 60 days after the date 8 -8- of such award, submit the Dispute giving rise thereto to a court of competent jurisdiction, regardless of whether such party or any other party sought to commence lawsuit in lieu of proceeding with arbitration in accordance with Section 4.06(a) of Article IV of this Agreement. In such event, the applicable court may elect to rely on the record developed in the arbitration or, if it determines that it would be advisable in connection with the matter, allow the parties to seek additional discovery or to present additional evidence. Each party shall be entitled to present arguments to the court with respect to whether any such additional discovery or evidence shall be permitted and with respect to all other matters relating to the Dispute. (c) No party shall raise as a defense the statute of limitations if the applicable Demand was delivered on or prior to the Applicable Deadline and, if applicable, if the matter is submitted to a court of competent jurisdiction within the 60-day period specified in Section 4.06(b) of Article IV of this Agreement. Section 4.07. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under the Transaction Documents during the course of arbitration pursuant to the provisions of this Article IV with respect to all matters not subject to such Dispute. ARTICLE V MISCELLANEOUS Section 5.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the Transaction Documents and other agreements and documents referred to therein, shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. Section 5.02. SURVIVAL OF AGREEMENTS. All covenants and agreements of the parties contained in this Agreement shall survive the Distribution Date. Section 5.03. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio without regard to the principles of conflicts of law thereof. Section 5.04. NOTICE. All notices and other communications required or permitted to be given or made under this Agreement shall, unless otherwise provided herein, be in writing and shall be deemed to have been given: (i) on the date of personal delivery; or, (ii) provided such notice or communication is actually received by the party to which it is addressed in the ordinary course of delivery, on the date of (A) deposit in the United States mail, postage prepaid, by registered or certified mail, return receipt requested, (B) transmission by telegram, cable, telex or facsimile transmission, or (C) delivery to a nationally-recognized overnight courier service, in each case addressed as set forth below, or to such other person, entity or address as either party shall designate by notice to the other in accordance herewith: 9 -9- To GenCorp: GenCorp Inc. Highway 50 & Aerojet Road Rancho Cordova, CA 95670 Attention: General Counsel To OMNOVA: Omnova Solutions Inc. 175 Ghent Road Fairlawn, Ohio 44333-3300 Attention: General Counsel Section 5.05. WAIVER. No waiver by any party of any of the provisions of this Agreement will be deemed, or will constitute, a waiver of any other provision, whether similar, not will any waiver constitute a continuing waiver. No waiver will be binding unless executed in writing by the party making the waiver. Section 5.06. ASSIGNMENT. Neither party may assign, by operation of law, merger or otherwise, license, sublicense or otherwise transfer any or all of its rights or obligations under this Agreement to any other person or entity without obtaining the prior written consent of the other party. Section 5.07. AMENDMENTS. This Agreement may not be modified or amended except by an agreement in writing signed by the parties. Section 5.08. SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Section 5.09. SUBSIDIARIES. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements, and obligations set forth herein or arising hereunder to be performed by any member of such parties' Group on and after the Distribution Date. Section 5.10. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties hereto and their respective Group members and shall not be deemed to confer upon third parties any remedy, claim, right or reimbursement or other right. Section 5.11. TITLES AND HEADINGS. Titles and headings to articles and sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. Section 5.12. CONFIDENTIALITY. Except as required by law, the parties shall hold, and shall cause their respective officers, directors, employees, agents and other representatives to hold, the existence, content and result of any escalation, mediation or arbitration in confidence in accordance with the requirements of the Transaction Documents, except as may be required 10 -10- in order to enforce any award. Each of the parties shall request that any mediator or arbitrator comply with such confidentiality requirement. Section 5.13. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without prejudice to any rights or remedies otherwise available to any party hereto, each party acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. GENCORP INC. By: /s/ William R. Phillips ------------------------------------ Name: William R. Phillips -------------------------------- Title: Senior Vice President -------------------------------- OMNOVA SOLUTIONS INC. By: /s/ James C. LeMay ------------------------------------ Name: James C. LeMay -------------------------------- Title: Senior Vice President -------------------------------- EX-10.17 6 EXHIBIT 10.17 1 Exhibit 10.17 Execution Copy AGREEMENT ON EMPLOYEE MATTERS This Agreement on Employee Matters ("Agreement") dated September 30, 1999, is made and entered into by and between GenCorp Inc., an Ohio corporation ("GenCorp"), and omnova solutions inc., an Ohio corporation ("OMNOVA") and a wholly owned subsidiary of GenCorp. WITNESSETH: WHEREAS, the Board of Directors of GenCorp has determined that it is advisable to distribute substantially all of the stock of OMNOVA to its shareholders in a transaction intended to qualify under Section 355 of the Internal Revenue Code (variously, the "Distribution" or the "Spin-Off"); WHEREAS, GenCorp and OMNOVA are entering into a Distribution Agreement which, among other things, sets forth the principal transactions required to effect the Distribution and sets forth other agreements that will govern certain other matters following the Distribution; and WHEREAS, in connection with the Distribution, GenCorp and OMNOVA desire to provide for the allocation of certain assets and liabilities and for certain other matters all relating to employment, employee benefit plans and compensation arrangements. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows: 2 ARTICLE I DEFINITIONS 1.1 Terms used but not defined herein shall have the meanings set forth in the Distribution Agreement. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): (a) CODE. The Internal Revenue Code of 1986, as amended. (b) DISTRIBUTION DATE. The date on which the shares of OMNOVA are distributed to the shareholders of GenCorp. (c) ERISA. The Employee Retirement Income Security Act of 1974, as amended. (d) GENCORP CONTROLLED GROUP. Collectively, GenCorp and any GenCorp Group member whose employees are required by Section 414 of the Code to be treated as if they were employed by a single employer. (e) GENCORP MEDICAL PLAN. The GenCorp Medical and Dental Plans. (f) GENCORP HOURLY PENSION PLAN. The Non-Contributory Pension Plan of GenCorp Inc., as in effect immediately before the Closing Time. (g) GENCORP PENSION PLAN TRUSTEE. The trustee or trustees appointed pursuant to the GenCorp Salaried Pension Plan. (h) GENCORP SALARIED PENSION PLAN. The Pension Plan for Salaried Employees of GenCorp Inc. and Certain Participating Subsidiaries, as in effect immediately before the Closing Time. 2 3 (i) GENCORP STOCK FUND. The GenCorp Stock Fund under the Joint Savings Plan. (j) JOINT SAVINGS PLAN. The GenCorp Retirement Savings Plan and the Profit Sharing Retirement and Savings Plan of GenCorp Inc. and Certain Participating Subsidiaries, as amended to be jointly sponsored by GenCorp and OMNOVA. (k) OMNOVA CONTROLLED GROUP. Collectively, OMNOVA and any OMNOVA Group member whose employees are required by Section 414 of the Code to be treated as if they were employed by a single employer. (l) OMNOVA EMPLOYEES. Any person who is employed by OMNOVA pursuant to Section 2.1(a) hereof. OMNOVA Employees shall include OMNOVA Salaried Employees and OMNOVA Hourly Employees. (m) OMNOVA HOURLY EMPLOYEES. OMNOVA Employees other than OMNOVA Salaried Employees. (n) OMNOVA HOURLY PENSION PLAN. The Non-Contributory Pension Plan of OMNOVA Solutions Inc. (o) OMNOVA HOURLY PENSION PLAN PARTICIPANT. OMNOVA Hourly Employees and former hourly employees of GenCorp who terminated employment, with accrued benefits under the GenCorp Hourly Pension Plan, from (i) business locations of OMNOVA which are active immediately after the Closing Time and (ii) the former GenCorp business location in Newcomerstown, Ohio (p) OMNOVA MEDICAL PLAN. The medical and dental benefit plans adopted by OMNOVA for the benefit of its salaried employees after the Distribution and the separate 3 4 medical and dental benefit programs maintained by OMNOVA pursuant to collective bargaining agreements. (q) OMNOVA PENSION PLAN TRUSTEE. The trustee or trustees appointed pursuant to the trust agreement under the OMNOVA Pension Plan. (r) OMNOVA SALARIED EMPLOYEES. OMNOVA Employees who are compensated on a salaried basis. (s) OMNOVA SALARIED PENSION PLAN. The Pension Plan for Salaried Employees of OMNOVA Solutions Inc. (t) OMNOVA SALARIED PENSION PLAN PARTICIPANTS. OMNOVA Salaried Employees and former salaried employees of GenCorp who terminated employment, with accrued benefits under the GenCorp Salaried Pension Plan, from (i) business locations of OMNOVA which are active immediately after the Closing Time and (ii) the former GenCorp business location in Newcomerstown, Ohio. (u) OMNOVA STOCK FUND. The OMNOVA Stock Fund under the Joint Savings Plan. (v) UNFUNDED DEFERRED COMPENSATION. Unfunded obligations of GenCorp as of the Closing Time to pay deferred compensation and retirement income under its Benefits Restoration Plan, Deferred Bonus Plan, Non-Employee Directors Retirement and Deferred Compensation Plans, 1996 Supplemental Retirement Plan for Management Employees, individual employment agreements, and other miscellaneous plans related to discontinued operations, including such additional amounts as may be attributable to earnings growth after the Closing Time in accordance with the terms of the specific plan or agreement. 4 5 (w) UNION EMPLOYEES. Any OMNOVA Employee who is included in a collective bargaining unit. ARTICLE II EMPLOYMENT AND BENEFIT PLANS 2.1 EMPLOYMENT OF OMNOVA EMPLOYEES AND UNION EMPLOYEES. (a) Prior to the Distribution, while OMNOVA is still a wholly-owned subsidiary of GenCorp, GenCorp shall transfer to OMNOVA the employment of all (i) GenCorp employees who are employed primarily in the OMNOVA Business, including any such employee on an approved leave of absence (including disability) at the time of such transfer, and (ii) all GenCorp employees who are employed at Corporate Headquarters, Corporate Technology Center and Flight Operations, including any such employee on an approved leave of absence (including disability) at the time of such transfer, but shall exclude (A) employees named on Schedule A who shall remain GenCorp employees; (B) employees designated for termination under the GenCorp Enhanced Involuntary Separation Pay Plan and named on Schedule B; and (C) employees who have elected to retire under the GenCorp 1999 Voluntary Enhanced Retirement Program, except the employees named on Schedule C who shall become OMNOVA Employees until their retirement. (b) OMNOVA shall employ all OMNOVA Employees transferred to OMNOVA pursuant to Section 2.1(a). Subject to the terms and conditions of, and except as otherwise provided in this Agreement, effective as of the Closing Time, OMNOVA shall provide the OMNOVA Employees with terms and conditions of employment, including, without limitation, employee benefits and other perquisites, that are substantially similar to those provided to such persons immediately prior to the Closing Time. However, nothing 5 6 contained in this Agreement shall impair OMNOVA's ability to make such changes in such terms and conditions of employment following the Distribution as OMNOVA may deem to be necessary or appropriate for the operation of OMNOVA. (c) Subject to Section 2.15, OMNOVA shall, at its own cost and expense, (a) defend GenCorp from any and all claims, damages, actions or causes of action ("Claims") which result from OMNOVA's employment and/or termination of employment of any of the employees named on Schedule C hereto, and (b) indemnify and hold GenCorp harmless from all damages, liabilities, losses, costs, judgments, orders, assessments, interest, penalties, fines, settlement payments, costs and expenses (including, without limitation, attorneys fees and other investigation and defense costs and expenses) imposed upon or incurred by GenCorp as a result of any such Claim. GenCorp shall promptly notify OMNOVA of any Claim and OMNOVA shall be entitled to assume and maintain control over the defense of any Claim and any negotiations and settlement thereof with counsel reasonably acceptable to GenCorp provided that OMNOVA will not settle any such Claim without the consent of GenCorp which consent shall not be unreasonably withheld. In the event that OMNOVA fails to promptly assume and diligently investigate and defend or settle any Claim then GenCorp shall have the right, at OMNOVA's cost, expense and risk, from that time forward to have sole control of the defense of the Claim and all negotiations for its settlement or compromise. The party not controlling the defense of any such Claim shall have the right to participate, at its sole expense, in the defense or settlement thereof. (d) Subject to entering into mutually acceptable novation agreements with the applicable Unions, OMNOVA shall assume all collective bargaining agreements which are in effect as of the Closing Time at active OMNOVA locations, and following the Distribution 6 7 it will continue to employ all Union Employees pursuant to the terms and conditions of such collective bargaining agreements. 2.2 JOINT SAVINGS PLAN. (a) Effective on the Distribution Date, the GenCorp Retirement Savings Plan and the Profit Sharing Retirement and Savings Plan of GenCorp Inc. and Certain Participating Subsidiaries will become multiple employer plans (collectively, "Joint Savings Plan") in which both GenCorp and OMNOVA will be unrelated participating employers. Day-to-day administration of the Joint Savings Plan will be performed by GenCorp with cooperation and assistance of OMNOVA pursuant to the separate Services and Support Agreement between GenCorp and OMNOVA. (b) GenCorp will continue to be both the administrator and sponsor of the Joint Savings Plan, as defined in ERISA sections 3(16)(A) and (B), for purposes of complying with the reporting and disclosure requirements imposed by ERISA and the Code in administering the Joint Savings Plan. Notwithstanding the preceding sentence, GenCorp and OMNOVA agree that no changes will be made to the Joint Savings Plan, except as hereinafter described unless (i) such changes are determined, with the advice of legal counsel, to be required for compliance with applicable laws, or (ii) GenCorp and OMNOVA mutually agree to such changes. In addition, (1) The Administrative Committee for the Joint Savings Plan, which will have general responsibility for interpreting and assuring uniform administration of the provisions of the Joint Savings Plan, will be composed of three (3) members of the GenCorp Administrative Committee and two (2) members of the OMNOVA Administrative Committee; and 7 8 (2) The Benefits Management Committee for the Joint Savings Plan, which will have the responsibilities related to maintaining relationships with the trustee and investment managers and investment of the trust fund, will be composed of two (2) members of the GenCorp Benefits Management Committee and two (2) members of the OMNOVA Benefits Management Committee. (c) On and after the Distribution Date, employer matching contributions on behalf of GenCorp employees will be made solely by GenCorp and solely to the GenCorp Stock Fund and employer matching contributions on behalf of OMNOVA Employees will be made solely by OMNOVA and solely to the OMNOVA Stock Fund. Not later than the later of October 31, 2001 or two years after the Distribution Date, the accounts of OMNOVA Employees and former OMNOVA Employees will be transferred to a new separate savings plan to be established by OMNOVA. Thereafter, neither OMNOVA nor its employees will participate in the GenCorp Retirement Savings Plan. (d) Following the Distribution, OMNOVA common stock held in the accounts of GenCorp employees that is attributable to contributions made before the Distribution may be retained in the OMNOVA Stock Fund, transferred to the GenCorp Stock Fund or transferred to any other investment funds in the Joint Savings Plan at the participant's election in accordance with the terms of the Joint Savings Plan. Except as provided in the preceding sentence, contributions made to or held under the Joint Savings Plan on behalf of GenCorp employees may not be invested in the OMNOVA Stock Fund. OMNOVA common stock held in the accounts of GenCorp employees that is attributable to employer matching contributions that have been in the plan for at least two full plan years may be withdrawn, in 8 9 cash or in kind. Any dividends on OMNOVA common stock in accounts of GenCorp employees will be reinvested in the OMNOVA Stock Fund. (e) Following the Distribution, GenCorp common stock held in the accounts of OMNOVA Employees that is attributable to contributions made before the Distribution may be retained in the GenCorp Stock Fund, transferred to the OMNOVA Stock Fund or transferred to any other investment fund in the Joint Savings Plan at the Participant's election in accordance with the terms of the Joint Savings Plan. Except as provided in the preceding sentence, contributions made to or held under the Joint Savings Plan on behalf of OMNOVA Employees may not be invested in the GenCorp Stock Fund. GenCorp common stock held in the accounts of OMNOVA Employees that is attributable to employer matching contributions that have been in the plan at least two full plan years may be withdrawn, in cash or in kind. Any dividends after the Distribution Date on GenCorp common stock in accounts of OMNOVA Employees will be reinvested in the GenCorp Stock Fund. 2.3 OMNOVA SALARIED PENSION PLAN. (a) OMNOVA shall implement, before the Closing Time, the OMNOVA Salaried Pension Plan, a qualified defined benefit plan substantially similar to the GenCorp Salaried Pension Plan for the benefit of OMNOVA Pension Plan Participants. OMNOVA Salaried Employees shall be eligible for immediate participation in the OMNOVA Salaried Pension Plan as of the date their employment is transferred to OMNOVA pursuant to Section 2.1(a). OMNOVA Salaried Employees shall be credited under the OMNOVA Salaried Pension Plan, for eligibility and vesting purposes, with the service credited to them under the GenCorp Salaried Pension Plan. An OMNOVA Salaried Employee shall be credited under the OMNOVA Salaried Pension Plan, for benefit accrual purposes, with the service credited to him or her under the GenCorp Salaried Pension 9 10 Plan only if a transfer described in subsection (b) of this Section is made with respect to such OMNOVA Salaried Employee. (b) OMNOVA Salaried Employees shall cease to accrue benefits under the GenCorp Salaried Pension Plan as of the date their employment is transferred to OMNOVA pursuant to Section 2.1(a). Such transfer shall not be an event requiring a distribution of benefits under the GenCorp Salaried Pension Plan. (c) As soon as practicable after the Distribution Date, GenCorp shall cause the GenCorp Pension Plan Trustee to segregate within the GenCorp Pension Plan Trust the Segregated Salaried Pension Assets (as defined in the following sentence) determined to be allocable with respect to accrued benefits of OMNOVA Salaried Pension Plan Participants as of the Closing Time. For purposes of the preceding sentence, the Segregated Salaried Pension Assets shall mean assets with a value equal to the present value as of the Closing Time of the accrued benefits of the OMNOVA Salaried Pension Plan Participants under the GenCorp Salaried Pension Plan, determined by the plan's actuary using interest assumptions prescribed by the PBGC for valuing annuities in plan termination situations, plus an amount of surplus assets allocated in proportion to the allocation of liabilities in accordance with ERISA section 4044. (d) GenCorp and OMNOVA shall make or cause to be made all required filings and submissions to appropriate governmental and regulatory authorities and all necessary or appropriate amendments to the GenCorp Salaried Pension Plan and the OMNOVA Salaried Pension Plan, and shall take all other steps necessary and appropriate, to permit the transfer of the Segregated Salaried Pension Assets from the GenCorp Pension Plan Trustee to the OMNOVA Pension Plan Trustee. As soon as practicable after the filings, 10 11 submissions, amendments and other steps described in this subsection are completed, and after the expiration of any waiting periods imposed under applicable law, GenCorp shall direct the GenCorp Pension Plan Trustee to transfer to the OMNOVA Pension Plan Trustee, and OMNOVA shall direct the OMNOVA Pension Plan Trustee to accept assets of the GenCorp Salaried Pension Plan equal to the Segregated Salaried Pension Assets, as adjusted for contributions, benefit payments, expenses and investment experience through the date of such transfer. Such transfer shall be in cash, securities or other property or a combination thereof, as mutually determined by GenCorp and OMNOVA and acceptable to both the GenCorp Pension Plan Trustee and the OMNOVA Pension Plan Trustee. After such transfer, each OMNOVA Salaried Pension Plan Participant for whom such transfer was made shall be credited with benefits under the OMNOVA Salaried Pension Plan attributable to service prior to the Closing Time at least equal to his or her accrued benefit under the GenCorp Salaried Pension Plan, and the GenCorp Salaried Pension Plan shall have no further obligations with respect to such accrued benefit. GenCorp and OMNOVA shall prepare a list, certified by a duly authorized officer of each, of all OMNOVA Salaried Pension Plan Participants with respect to which a transfer pursuant to this subsection has been made. (e) GenCorp shall have no obligation to direct the transfer described in subsection (d) of this Section unless and until GenCorp receives either a favorable determination letter issued by the IRS as to the qualified status of the OMNOVA Salaried Pension Plan under Section 401(a) of the code or an opinion of counsel to OMNOVA that the OMNOVA Salaried Pension Plan meets the requirements of Section 401(a) of the Code as to form. The OMNOVA Pension Plan Trustee shall have no obligation to accept any transfer from the GenCorp Salaried Pension Plan unless and until OMNOVA and the OMNOVA 11 12 Pension Plan Trustee receives either a favorable determination letter issued by the IRS as to the qualified status of the GenCorp Salaried Pension Plan under Section 401(a) of the Code or an opinion of counsel to GenCorp that the GenCorp Salaried Pension Plan meets the requirements of Section 401(a) of the Code as to form. GenCorp and OMNOVA will cooperate as necessary to facilitate obtaining such favorable determination letters. (f) The OMNOVA Salaried Pension Plan shall be a continuation of the GenCorp Salaried Pension Plan as to the OMNOVA Salaried Pension Plan Participants for whom the transfer described in subsection (d) of this Section was made and the transfer of assets and liabilities from the GenCorp Salaried Pension Plan to the OMNOVA Pension Plan Trustee pursuant to this Agreement shall not be deemed a termination or partial termination of the GenCorp Salaried Pension Plan. (g) In the event a former employee of GenCorp who participated in the GenCorp Salaried Pension Plan prior to the Distribution Date becomes an OMNOVA Employee eligible to participate in the OMNOVA Salaried Pension Plan after the Distribution Date, GenCorp and OMNOVA agree that the liabilities to pay pension benefits to such individual and the assets attributable to such liabilities, in an amount which (based on the certification of the actuary for the Plans) meets the requirements of Section 414(1) of the Code and the regulations thereunder, will be transferred by the GenCorp Pension Plan Trustee from the GenCorp Salaried Pension Plan to the OMNOVA Salaried Pension Plan and the OMNOVA Pension Plan Trustee in the manner described in, and in compliance with, Section 414(1) of the Code and the regulations thereunder. In the event of any such transfer, such employee shall be credited under the OMNOVA Salaried Pension Plan, for eligibility, vesting and benefit accrual purposes, with the service credited to him under the GenCorp Salaried Pension Plan. 12 13 (h) The GenCorp Salaried Pension Plan shall provide that an individual who is an employee of OMNOVA on the Distribution Date shall not be eligible to commence receiving benefits from the GenCorp Salaried Pension Plan until he terminates employment with OMNOVA after the Distribution Date. Until the completion of the transfer of assets and liabilities from the GenCorp Salaried Pension Plan to the OMNOVA Salaried Pension Plan and the OMNOVA Pension Plan Trustee described in subsection (c) of this Section, benefits under the OMNOVA Salaried Pension Plan payable to a OMNOVA Salaried Employee thereunder shall be computed on the basis of his or her total service with GenCorp and OMNOVA, but shall be reduced by any benefits accrued by such OMNOVA Salaried Employee under the GenCorp Salaried Pension Plan. (i) In the event that an OMNOVA Salaried Pension Plan Participant files a claim for payment of pension benefits under the GenCorp Salaried Pension Plan after the transfer of assets and liabilities from the GenCorp Salaried Pension Plan to the OMNOVA Salaried Pension Plan and the OMNOVA Pension Plan Trustee described in subsection (c) of this Section, OMNOVA agrees to (i) reimburse GenCorp for all costs and expenses incurred to defend such claim other than through its normal appeal process involving the GenCorp Administrative Committee; and (ii) cause the OMNOVA Pension Plan Trustee to transfer, to the GenCorp Salaried Pension Plan and the GenCorp Pension Plan Trustee, assets from the OMNOVA Salaried Pension Plan equal to the liabilities, if any, which the GenCorp Salaried Pension Plan is determined by a court of competent jurisdiction to owe to such OMNOVA Salaried Pension Plan Participant. In the event of any such transfer, the service upon which the OMNOVA Salaried Pension Plan Participant's accrued benefit under the GenCorp Salaried 13 14 Pension Plan is based shall be excluded from the service counted for eligibility, vesting and benefit accrual purposes under the OMNOVA Salaried Pension Plan. 2.4 OMNOVA HOURLY PENSION PLAN. (a) OMNOVA shall implement, before the Closing Time, the OMNOVA Hourly Pension Plan, a qualified defined benefit plan substantially similar to the GenCorp Hourly Pension Plan for the benefit of OMNOVA Hourly Pension Plan Participants. OMNOVA Hourly Employees who participate in the GenCorp Hourly Pension Plan immediately before the Closing Time shall be eligible for immediate participation in the OMNOVA Hourly Pension Plan as of the Closing Time. OMNOVA Hourly Employees shall be credited under the OMNOVA Hourly Pension Plan, for eligibility and vesting purposes, with the service credited to them under the GenCorp Hourly Pension Plan. An OMNOVA Hourly Employee shall be credited under the OMNOVA Hourly Pension Plan, for benefit accrual purposes, with the service credited to him or her under the GenCorp Hourly Pension Plan only if a transfer described in subsection (b) of this Section is made with respect to such OMNOVA Hourly Employee. (b) OMNOVA Hourly Employees shall cease to accrue benefits under the GenCorp Hourly Pension Plan as of the time their employment is transferred to OMNOVA. Such transfer shall not be an event requiring distribution of benefits under the GenCorp Hourly Pension Plan. (c) As soon as practicable after the Distribution Date, GenCorp shall cause the GenCorp Pension Plan Trustee to segregate within the GenCorp Pension Plan Trust the Segregated Hourly Pension Assets (as defined in the following sentence) determined to be allocable with respect to accrued benefits of OMNOVA Hourly Pension Plan Participants as of the Closing Time. For purposes of the preceding sentence, the Segregated Hourly Pension 14 15 Assets shall mean assets with a value equal to the present value as of the Closing Time of the accrued benefits of the OMNOVA Hourly Pension Plan Participants under the GenCorp Hourly Pension Plan, determined by the plan's actuary using interest assumptions prescribed by the PBGC for valuing annuities in plan termination situations, plus an amount of surplus assets allocated in proportion to the allocation of liabilities in accordance with ERISA section 4044. (d) GenCorp and OMNOVA shall make or cause to be made all required filings and submissions to appropriate governmental and regulatory authorities and all necessary or appropriate amendments to the GenCorp Hourly Pension Plan and the OMNOVA Hourly Pension Plan, and shall take all other steps necessary and appropriate, to permit the transfer of the Segregated Hourly Pension Assets from the GenCorp Pension Plan Trustee to the OMNOVA Pension Plan Trustee. As soon as practicable after the filings, submissions, amendments and other steps described in this subsection are completed, and after the expiration of any waiting periods imposed under applicable law, GenCorp shall direct the GenCorp Pension Plan Trustee to transfer to the OMNOVA Pension Plan Trustee, and OMNOVA shall direct the OMNOVA Pension Plan Trustee to accept assets of the GenCorp Hourly Pension Plan equal to the Segregated Hourly Pension Assets, as adjusted for contributions, benefit payments, expenses and investment experience through the date of such transfer. Such transfer shall be in cash, securities or other property or a combination thereof, as mutually determined by GenCorp and OMNOVA and acceptable to both the GenCorp Pension Plan Trustee and the OMNOVA Pension Plan Trustee. After such transfer, each OMNOVA Hourly Pension Plan Participant for whom such transfer was made shall be credited with benefits under the OMNOVA Hourly Pension Plan attributable to service prior to the Closing Time at least equal 15 16 to his or her accrued benefit under the GenCorp Hourly Pension Plan, and the GenCorp Hourly Pension Plan shall have no further obligations with respect to such accrued benefit. GenCorp and OMNOVA shall prepare a list, certified by a duly authorized officer of each, of all OMNOVA Hourly Pension Plan Participants with respect to which a transfer pursuant to this Subsection has been made. (e) GenCorp shall have no obligation to direct the transfer described in subsection (d) of this Section unless and until GenCorp receives either a favorable determination letter issued by the IRS as to the qualified status of the OMNOVA Hourly Pension Plan under Section 401 (a) of the code or an opinion of counsel to OMNOVA that the OMNOVA Hourly Pension Plan meets the requirements of Section 401(a) of the Code as to form. The OMNOVA Pension Plan Trustee shall have no obligation to accept any transfer from the GenCorp Hourly Pension Plan unless and until OMNOVA and the OMNOVA Pension Plan Trustee receives either a favorable determination letter issued by the IRS as to the qualified status of the GenCorp Hourly Pension Plan under Section 401(a) of the Code or an opinion of counsel to GenCorp that the GenCorp Hourly Pension Plan meets the requirements of Section 401(a) of the Code as to form. GenCorp and OMNOVA will cooperate as necessary to facilitate obtaining such favorable determination letters. (f) The OMNOVA Hourly Pension Plan shall be a continuation of the GenCorp Hourly Pension Plan as to the OMNOVA Hourly Pension Plan Participants for whom the transfer described in subsection (d) of this Section was made and the transfer of assets and liabilities from the GenCorp Hourly Pension Plan to the OMNOVA Pension Plan Trustee pursuant to this Agreement shall not be deemed a termination or partial termination of the GenCorp Hourly Pension Plan. 16 17 (g) The GenCorp Hourly Pension Plan shall provide that an individual who is an employee of OMNOVA on the Distribution Date shall not be eligible to commence receiving benefits from the GenCorp Hourly Pension Plan until he terminates employment with OMNOVA after the Distribution Date. Until the completion of the transfer of assets and liabilities from the GenCorp Hourly Pension Plan to the OMNOVA Hourly Pension Plan and the OMNOVA Pension Plan Trustee described in subsection (c) of this Section, benefits under the OMNOVA Hourly Pension Plan payable to an OMNOVA Hourly Employee thereunder shall be computed on the basis of his or her total service with GenCorp and OMNOVA, but shall be reduced by any benefits accrued by such OMNOVA Hourly Employee under the GenCorp Hourly Pension Plan. (h) In the event that an OMNOVA Hourly Pension Plan Participant files a claim for payment of pension benefits under the GenCorp Hourly Pension Plan after the transfer of assets and liabilities from the GenCorp Hourly Pension Plan to the OMNOVA Hourly Pension Plan and the OMNOVA Pension Plan Trustee described in subsection (c) of this Section, OMNOVA agrees to (i) reimburse GenCorp for all costs and expenses incurred to defend such claim other than through its normal appeal process involving the GenCorp Administrative Committee; and (ii) cause the OMNOVA Pension Plan Trustee to transfer, to the GenCorp Hourly Pension Plan and the GenCorp Pension Plan Trustee, assets from the OMNOVA Hourly Pension Plan equal to the liabilities, if any, which the GenCorp Hourly Pension Plan is determined by a court of competent jurisdiction to owe to such OMNOVA Hourly Pension Plan Participant. In the event of any such transfer, the service upon which the OMNOVA Hourly Pension Plan Participant's accrued benefit under the GenCorp Hourly 17 18 Pension Plan is based shall be excluded from the service counted for eligibility, vesting and benefit accrual purposes under the OMNOVA Hourly Pension Plan. 2.5 RENEER PLANS. Both the (i) GenCorp Retirement Income Plan for Employees of Reneer Films Operations ("Reneer Pension Plan") and (ii) GenCorp Savings and Investment Plan for Employees of Reneer Films Operations ("Reneer Savings Plan") cover only employees in the Auburn, PA. manufacturing facility which will be an active business location of OMNOVA after the Distribution Date. As soon as practicable after the Distribution Date, GenCorp shall (a) cause the GenCorp Pension Plan Trustee to transfer the assets attributable to the Reneer Pension Plan to the OMNOVA Pension Plan Trustee, and (b) cause Mellon Trust, trustee for the Reneer Savings Plan, to transfer the assets of that plan to a new trust established by OMNOVA. 2.6 OMNOVA WELFARE BENEFIT PLANS. (a) OMNOVA MEDICAL PLAN. As of the Closing Time, OMNOVA Employees (and their eligible dependent(s)) shall be covered by the OMNOVA Medical Plan, which shall be substantially identical to the medical plan coverage provided to OMNOVA Employees immediately prior to the Closing Time. The OMNOVA Medical Plan made available to OMNOVA Employees and their dependent(s) as of the Closing Time shall waive any applicable waiting periods for coverage of OMNOVA Employees and their dependent(s) which did not exist with respect to such OMNOVA Employee or dependent(s) immediately prior to the Closing Time. The OMNOVA Medical Plan shall not contain any exclusion or limitation with respect to any pre-existing condition of any OMNOVA Employee or dependent(s) which did not apply with respect to such OMNOVA Employee or dependent immediately prior to the Closing Time. For purposes of the two preceding sentences, service with GenCorp and OMNOVA prior to the Closing Time shall be taken into 18 19 account for purposes of meeting any such waiting period or pre-existing condition, exclusion or limitation. (b) OMNOVA EMPLOYEE MEDICAL CLAIMS. As of the Closing Time, the OMNOVA Medical Plan shall have sole responsibility for all obligations, financial and otherwise, with respect to medical expense claims submitted by OMNOVA Employees and their dependent(s) from and after the Closing Time, and such claims will be processed and paid by OMNOVA's third party administrator. (c) CLAIM APPEALS. As of the Closing Time, OMNOVA shall have sole responsibility for the determination of claim appeals filed by OMNOVA Employees under the OMNOVA Medical Plan. Claim appeals filed by employees of OMNOVA under the GenCorp Medical Plan will be determined by GenCorp under the GenCorp Medical Plan. (d) FLEXIBLE BENEFIT PLANS. (i) OMNOVA shall implement, as of the Closing Time, a flexible spending account plan, a dependent care reimbursement plan, a health care reimbursement plan and a pre-tax premium plan (collectively referred to as the "OMNOVA Flexible Benefit Plan") with provisions substantially similar to similar plans provided to OMNOVA Employees by GenCorp prior to the Closing Time; and (ii) Plan Year 1999 deferrals and reimbursements by or to OMNOVA Employees under the GenCorp Flexible Benefit Plan, shall be carried over and applied to their accounts under the OMNOVA Flexible Benefit Plan. Within a reasonable time after the Closing Time, GenCorp will pay to OMNOVA the net aggregate dependent day care reimbursement and health care reimbursement account balances of OMNOVA Employees held by GenCorp as of the Closing Time. 2.7 POSTRETIREMENT BENEFITS. GenCorp currently provides certain health care and life insurance benefits to most retired employees in the United States with varied coverage by 19 20 employee groups. The health care plans generally provide for cost sharing in the form of retiree contributions, deductibles and coinsurance between the company and its retirees. A portion of the unfunded benefit obligation reported in GenCorp's financial statements for such postretirement benefits attributable to OMNOVA Hourly Employees and former employees of GenCorp who terminated employment from (i) business locations of OMNOVA active as of the Closing Time, and (ii) the former GenCorp business location in Newcomerstown, Ohio, will be assumed by OMNOVA. 2.8 GENCORP 1993 AND 1997 STOCK OPTION PLANS. (a) Prior to the Distribution Date, exercisable options under the GenCorp 1993 and 1997 Stock Option Plans for (1) active employees, (2) retirees, and (3) other former employees whose options remain exercisable, will be split into options to acquire GenCorp common stock and OMNOVA common stock. Except with respect to options held by the chief executive officers of GenCorp and OMNOVA, the number of exercisable options in each company will each equal the number of exercisable options under the GenCorp Stock Option Plans. With respect to exercisable options held by the chief executive officers, (1) Mr. Wolfe's options will be converted into 66 2/3% GenCorp options and 33 1/3% OMNOVA options, and (2) Mr. Yasinsky's options will be converted into 66 2/3% OMNOVA options and 33 1/3% GenCorp options. The exercise price of each resulting option will bear the same ratio to the market price, as of the Distribution Date, of the respective company's stock, as the exercise price of the original GenCorp option bore to the market price of GenCorp shares immediately before the Distribution Date. GenCorp and OMNOVA agree that each will issue the appropriate shares of their common stock to non-employees who exercise the options described in this subsection (a) subject, in the case of 20 21 OMNOVA, to OMNOVA having an effective Registration Statement under the Securities Act of 1933 in respect of the shares of stock to be issued by OMNOVA to non-employees. (b) Unexercisable options under the GenCorp 1997 Stock Option Plan for GenCorp employees will be replaced with a number of unexercisable GenCorp options under that plan which will, based upon (1) the market price of GenCorp shares immediately after the Distribution Date and (2) the exercise prices for those options, have an aggregate intrinsic value equal to that of the unexercisable GenCorp options immediately before the Distribution Date. (c) Unexercisable options under the GenCorp 1997 Stock Option Plan for OMNOVA Employees will be replaced with a number of unexercisable OMNOVA options which will, based upon (1) the market price of OMNOVA shares immediately after the Distribution Date and (2) the exercise price for such options, have an aggregate intrinsic value equal to that of the unexercisable GenCorp options immediately before the Distribution. (d) In converting the stock option plans for the Distribution, the exercisable and unexercisable aggregate intrinsic value of the options immediately after the conversion will be equal to the aggregate intrinsic value immediately before the conversion. The ratio of the exercise price per option to the market value per share will not be reduced and the vesting provisions and option period of the OMNOVA and GenCorp options will be the same as for the original GenCorp options. Accordingly, no compensation expense will be recognized by OMNOVA or GenCorp. 2.9 UNFUNDED DEFERRED COMPENSATION. (a) Subject to legal requirements for employee acquiescence, GenCorp's legal obligation to pay Unfunded Deferred Compensation for: (1) all active employees 21 22 transferred to OMNOVA, (2) all retired employees who terminated employment from business locations of OMNOVA which are active as of the Closing Time, and (3) all GenCorp directors resigning to become members of the OMNOVA Board will be assumed by OMNOVA. (b) The legal obligation to pay Unfunded Deferred Compensation for: (1) all active employees remaining GenCorp employees, (2) all GenCorp directors remaining on the GenCorp Board, (3) all other retired employees, and (4) all retired directors, will be retained by GenCorp. (c) Former employees and directors of GenCorp or OMNOVA will be able to elect a lump-sum payment of their Unfunded Deferred Compensation, subject to (1) a 10% reduction in order to avoid adverse tax consequences, and (2) all applicable tax withholding. Active employees and directors may receive lump-sum payments of their Unfunded Deferred Compensation upon termination of employment or board service with GenCorp or OMNOVA based upon appropriate advance elections or discretionary approval by the company's benefit management committee. (d) GenCorp hereby indemnifies OMNOVA for the obligations to pay Unfunded Deferred Compensation assumed by OMNOVA pursuant to subsection (a), and will pay only those amounts of such Unfunded Deferred Compensation that OMNOVA proves it is unable to pay. (e) OMNOVA hereby indemnifies GenCorp for the obligation to pay Unfunded Deferred Compensation retained by GenCorp pursuant to subsection (b), and will pay only those amounts of Unfunded Deferred Compensation that GenCorp proves it is unable to pay. 22 23 2.10 ANNUAL BONUSES. Bonus amounts under GenCorp's Executive Incentive Compensation Plan for the period ending November 30, 1999 will be determined based upon (1) actual performance up to the Distribution Date, and (2) budgeted performance, for the remainder of the period, according to GenCorp's annual operating plan. Subject to all legal requirements for employee acquiescence, bonus obligations will be assumed by OMNOVA for all OMNOVA Employees, and paid in cash on January 17, 2000. Bonus obligations will be paid in cash on January 17, 2000 by GenCorp for all GenCorp employees and for terminated GenCorp employees who are not employed by OMNOVA. 2.11 LONG TERM INCENTIVE COMPENSATION. Performance awards under GenCorp's Long-Term Incentive Program for the three-year performance period ending November 30, 1999 will be determined based upon (1) actual performance up to the Distribution Date, and (2) budgeted performance, for the remainder of the period, according to GenCorp's annual operating plan. Pro rata performance awards will be paid under the GenCorp plan for the performance periods ending November 30, 2000 and November 30, 2001. Pro rata performance awards for each partial performance period will be determined based upon (1) actual performance up to the Distribution Date, and (2) budgeted performance, for the remainder of the fiscal year ending November 30, 1999, according to GenCorp's annual operating plan. Subject to legal requirements for employee acquiescence, performance award obligations for the three-year performance period ending November 30, 1999 will be assumed by OMNOVA for all OMNOVA Employees and paid in cash on January 17, 2000. Performance award obligations for the three-year performance period ending November 30, 1999 will be paid in cash on January 17, 2000 by GenCorp for all GenCorp employees and for terminated GenCorp employees who are not employed by OMNOVA. All pro rata 23 24 performance awards will be paid in cash to all eligible employees of GenCorp and OMNOVA by GenCorp before October 31, 1999. 2.12 DIRECTOR COMPENSATION. Subject to legal requirements for director acquiescence, benefit obligations under the Retirement Plan for Nonemployee Directors of GenCorp Inc. and the Deferred Compensation Plan for Nonemployee Directors of GenCorp Inc. (hereafter the "GenCorp Director Plans") for GenCorp directors resigning to become members of the OMNOVA Board will be assumed by OMNOVA. Benefit obligations under the GenCorp Director Plans for GenCorp directors remaining on the GenCorp Board and retired directors will be retained by GenCorp. 2.13 ENHANCED RETIREMENT AND SEPARATION PAY PLANS. GenCorp adopted a Voluntary Enhanced Retirement Program (VERP) and Enhanced Involuntary Separation Pay Plan (EISP) which are associated with and contingent upon the Distribution. Pension and Separation Pay obligations under the VERP and EISP for GenCorp employees who become OMNOVA Employees in connection with the Spin-Off will be assumed and paid by OMNOVA. Pension and Separation Pay obligations under the VERP and EISP for GenCorp employees who do not become employed by OMNOVA in connection with the Spin-Off will be retained and paid by GenCorp. The total number and identity of participants and the timing of their departure are not yet known. 2.14 TRANSITION ADMINISTRATIVE SERVICES. For a transition period extending up to October 31, 2001, the Joint Savings Plan and other benefit programs currently applicable to GenCorp active employees and retirees will be administered under a Services and Support Agreement between GenCorp and OMNOVA. The purpose of the transition services arrangement will be to allow for an orderly transition of administrative responsibility for 24 25 ongoing GenCorp benefit programs to administrative staffs of GenCorp, and for the implementation and administration of new employee benefit plans for OMNOVA. In accordance with the Services and Support Agreement, (i) GenCorp will reimburse OMNOVA specified allocated costs plus all direct expenses incurred by OMNOVA on behalf of GenCorp, and (ii) OMNOVA will reimburse GenCorp specified allocated costs plus all direct expenses incurred by GenCorp on behalf of OMNOVA. 2.15 LIABILITIES TO OMNOVA EMPLOYEES ARISING PRIOR TO DISTRIBUTION DATE. GenCorp shall retain sole responsibility for (a) payments of any and all wages, vacation pay, bereavement pay, jury duty pay, disability income, supplemental unemployment benefits, fringe benefits (excluding medical/dental claims described in Section 2.5(b)) or other perquisites of employment, or similar benefits, payroll taxes and other payroll related expenses, (b) workers' compensation claims or related litigation claims, (c) claims filed with the equal Employment Opportunity Commission or related litigation claims and (d) other similar employment-related claims, in any such case arising out of or relating to (i) the employment of the OMNOVA Employees by GenCorp prior to the Closing Time or (ii) the employment of former employees whose employment with OMNOVA or GenCorp or the Controlled Group of either terminated on or before the Closing Time. 2.16 AT WILL EMPLOYMENT. Nothing in this Agreement shall limit the at will nature of the employment of any of the OMNOVA Employees who do not have any other contractual rights with respect to employment by OMNOVA or the right of GenCorp or OMNOVA to alter or terminate any employee benefit plan. 2.17 SEPARATION PAY. GenCorp and OMNOVA agree that with respect to individuals who, in connection with the Distribution, cease to be employees of GenCorp and become 25 26 employees of OMNOVA at any time, such cessation shall not be deemed a severance of employment from GenCorp for purposes of the GenCorp Involuntary Separation Pay Plan. GenCorp shall retain and be solely responsible for, and shall indemnify OMNOVA against, all liabilities and obligations whatsoever in connection with claims made by or on behalf of former employees of GenCorp in respect of separation pay and similar obligations relating to the termination or alleged termination of any such person's employment from GenCorp on or before the Distribution Date. 2.18 INTERNAL REVENUE SERVICE FORMS. GenCorp and OMNOVA agree that, pursuant to the "Alternative Procedure" provided in Section 5 of Revenue Procedure 96-60, 1996-2 C.B. 399, with respect to filing and furnishing Internal Revenue Service Forms W-2, W-3 and 941, respectively: (a) GenCorp and OMNOVA shall report on a "predecessor-successor" basis as set forth therein; (b) GenCorp shall be relieved from furnishing Forms W-2 to GenCorp's employees whose employment is transferred to OMNOVA in connection with the Spin-Off and to whom GenCorp would have been obligated to furnish such Forms; and (c) OMNOVA shall assume GenCorp's obligation to furnish such Forms to all such employees for the full 1999 calendar year. Upon OMNOVA's request, GenCorp will promptly provide OMNOVA with the information relating to periods ending on the Closing Time necessary for OMNOVA to prepare and distribute Forms W-2 to such employees for the year ending December 31, 1999, which Forms W-2 will include all remuneration earned by such employees from both GenCorp and OMNOVA during the year ending December 31, 1999. 26 27 ARTICLE III ACCESS AND SHARING OF INFORMATION 3.1 SHARING OF INFORMATION. Each of GenCorp and OMNOVA agrees to provide the other, as soon as practicable after the Distribution Date, with such information regarding employee benefit plan participants prior to the Distribution Date (including term of service for eligibility, vesting and benefit accrual purposes under such Plans and a listing of accrued benefits) as may be reasonably requested by a party to establish and administer effectively its employee benefit plans. 3.2 ACCESS TO INFORMATION. (a) From and after the Closing Time each party hereto shall afford the other party and its accountants, counsel and other designated representative reasonable access (including using reasonable efforts to give duplicating rights during normal business hours) to all records, books, contracts, instruments, computer data and other data and information in such party's possession relating to the business and affairs of such other party (other than data and information subject to an attorney/client or other privilege), insofar as such access is reasonably required by such other party including, without limitation, for audit, accounting and litigation purposes and administration of employee benefit plans, as well as for purposes of fulfilling disclosure and reporting obligations. (b) For a period of up to 24 months from and after the Distribution Date, (or longer as required in connection with the Joint Savings Plan) each party shall make available to the other during normal business hours and in a manner which will not unreasonably interfere with such party's business, its financial, tax, accounting, legal, employee benefits and such other staff and services to the extent that the same may be reasonably required in connection 27 28 with the preparation of tax returns, audits, claims, administration of employee benefit plans and otherwise to assist in effecting an orderly transition following the Distribution. ARTICLE IV MISCELLANEOUS 4.1 COMPLETE AGREEMENT. This Agreement, together with the Distribution Agreement, and the exhibits thereto, shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. 4.2. GOVERNING LAW. This Agreement and (unless otherwise provided) all amendments hereof shall be governed by the internal laws of the State of Ohio, without regard to the conflicts of law principles thereof. 4.3 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (other than by merger or pursuant to a sale of all or substantially all of a party's assets to one person) by either of the parties hereto without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that no such assignment shall relieve the assigning party of any liabilities or obligations hereunder. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 4.4 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, mailed by registered or certified mail (return receipt 28 29 requested) or sent by telecopy or by a recognized overnight courier service, addressed as follows: To OMNOVA at: OMNOVA Solutions Inc. 175 Ghent Road Fairlawn, Ohio 44333-3300 Attention: General Counsel Fax Number: 330-869-4272 To GenCorp at: GenCorp Inc. Highway 50 & Aerojet Road Rancho Cordova, CA 95670 Attention: General Counsel Fax Number: 916-351-8665 or to such other address as any party hereto may have furnished to the other parties by a notice in writing in accordance with this Section. 4.5 AMENDMENT. This Agreement may be amended, modified or supplemented only by a written agreement signed by all the parties hereto. 4.6 WAIVER. No waiver by any party of any of the provisions of this Agreement will be deemed, or will constitute, a waiver of any other provision, whether similar, nor will any waiver constitute a continuing waiver. No waiver will be binding unless executed in writing by the party making the waiver. 4.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original instrument and all of which together shall constitute one and the same instrument. 4.8 INTERPRETATION. The Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties hereto and shall not in any way affect the meaning or interpretation of this Agreement. 29 30 4.9 NO THIRD PARTY BENEFICIARY. Nothing in this Agreement, express or implied, shall confer on any person other than the parties any rights or remedies under or by virtue of this Agreement. 4.10 DISPUTE RESOLUTION. Any dispute between the parties concerning the performance of this Agreement which cannot be resolved by good faith negotiation of the parties shall be determined in accordance with the provisions of the Alternative Dispute Resolution Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. GENCORP INC. By: /s/ William R. Phillips ----------------------------------- Name: William R. Phillips -------------------------------- Title: Senior Vice President -------------------------------- OMNOVA SOLUTIONS INC. By: /s/ James C. LeMay ----------------------------------- Name: James C. LeMay --------------------------------- Title: Senior Vice President -------------------------------- 30 EX-10.18 7 EXHIBIT 10.18 1 Exhibit 10.18 Execution Copy SERVICES AND SUPPORT AGREEMENT This Services and Support Agreement ("Agreement"), dated September 30, 1999, is made and entered into by and between GENCORP INC., an Ohio corporation ("GenCorp"), and OMNOVA SOLUTIONS INC., an Ohio corporation ("OMNOVA") and a wholly-owned subsidiary of GenCorp. WITNESSETH: WHEREAS, the Board of Directors of GenCorp has determined that it is advisable to distribute substantially all of the stock of OMNOVA to its shareholders in a transaction intended to qualify under Section 355 of the Internal Revenue Code (the "Distribution"); WHEREAS, GenCorp and OMNOVA are entering into a Distribution Agreement (the "Distribution Agreement") which, among other things, sets forth the principal transactions required to effect the Distribution and sets forth other agreements that will govern certain other matters following the Distribution; and WHEREAS, in connection with the Distribution, GenCorp and OMNOVA have agreed to enter into this Agreement in order for OMNOVA and GenCorp each to assist the other by providing to the other certain services and support not otherwise specified in any of the Ancillary Agreements (as defined in the Distribution Agreement) other than this Agreement (the "Other Agreements"); NOW THEREFORE, in consideration of these premises and the mutual promises and conditions contained herein, GenCorp and OMNOVA hereby agree as follows: 2 ARTICLE I TERM 1.1 TERM OF THE AGREEMENT. The term of this Agreement shall be from the date hereof to and including October 31, 2001 (the "Term"), although the actual duration of specific services may be for a shorter period as provided herein. The Term, or the duration of specific services, may be extended by the mutual agreement of GenCorp and OMNOVA. ARTICLE II SERVICES 2.1 SERVICES PROVIDED BY OMNOVA. OMNOVA shall provide, or cause its relevant affiliates to provide, to GenCorp during the Term the services listed on Schedule A attached hereto. The services listed on Schedule A are based on the understanding of the parties hereto of the support and administrative services reasonably expected to be required by GenCorp following the Distribution. If, following the Distribution, GenCorp reasonably determines that additional services consistent with recent historical practices should be provided by OMNOVA, the parties agree to negotiate in good faith to modify this Agreement appropriately with respect to such additional services. In the event the parties agree that OMNOVA shall provide such additional services, the parties hereto further agree that such agreement to provide such additional services shall also amend Schedule A hereto to reflect such agreement of the parties. GenCorp may reduce or terminate any specific services at any time upon 30 days written notice. 2 3 2.2 PAYMENT FOR SERVICES PROVIDED BY OMNOVA. (a) GenCorp shall pay OMNOVA on a monthly basis, in consideration of the services provided to GenCorp by OMNOVA hereunder, (i) the amounts specified as "Costs Allocated to GenCorp" on Schedule A, (ii) reasonable out-of-pocket expenses incurred by OMNOVA in connection with providing to GenCorp the services listed on Schedule A, and (iii) charges by third party service providers to the extent that they are attributable to services provided to or for GenCorp. To the extent that GenCorp has provided notice to reduce services in accordance with Section 2.1, the "Costs Allocated to GenCorp" shall be appropriately reduced. (b) Charges for the services shall be invoiced on or about the tenth (10th) day of the calendar month next following the calendar month in which the services have been performed. Each invoice shall describe in reasonable detail, as appropriate, the services upon which the amount to be charged is based, and such invoice shall be paid within thirty (30) days following receipt thereof. 2.3 SERVICES PROVIDED BY GENCORP. GenCorp shall provide, or cause its relevant affiliates to provide, to OMNOVA during the Term the services listed on Schedule B attached hereto. The services listed on Schedule B are based on the understanding of the parties hereto of the support and administrative services reasonably expected to be required by OMNOVA following the Distribution. If, following the Distribution, OMNOVA reasonably determines that additional services consistent with recent historical practices should be provided by GenCorp, the parties agree to negotiate in good faith to modify this Agreement appropriately with respect to such additional services. In the event the parties agree that OMNOVA shall provide such additional services, the parties hereto further agree that such agreement to provide such additional services shall also amend Schedule B hereto to reflect such agreement 3 4 of the parties. OMNOVA may reduce or terminate any specific services at any time upon 30 days written notice. 2.4 PAYMENT FOR SERVICES PROVIDED BY GENCORP. (a) OMNOVA shall pay GenCorp on a monthly basis, in consideration of the services provided to OMNOVA by GenCorp hereunder, (i) the amounts specified as "Costs Allocated to OMNOVA" on Schedule B, (ii) reasonable out-of-pocket expenses incurred by GenCorp in connection with providing services, and (iii) charges by third party service providers to the extent that they are attributable to services provided to or for OMNOVA. To the extent that OMNOVA has provided notice to reduce services in accordance with Section 2.3, the "Costs Allocated to OMNOVA" shall be appropriately reduced. (b) Charges for the services shall be invoiced on or about the tenth (10th) day of the calendar month next following the calendar month in which the services have been performed. Each invoice shall describe in reasonable detail, as appropriate, the services upon which the amount to be charged is based, and such invoice shall be paid within thirty (30) days following receipt thereof. ARTICLE III TERMINATION 3.1 AUTOMATIC TERMINATION. This Agreement automatically shall terminate at the conclusion of the Term unless such Term is extended in accordance with Section 1.1 hereto. 3.2 TERMINATION WITH NOTICE. If either GenCorp or OMNOVA (the "Defaulting Party") shall fail to perform in any material respect any of its material obligations under this Agreement, whether voluntarily or involuntarily, the other may terminate this Agreement upon 4 5 one hundred twenty (120) days' written notice to the Defaulting Party that it has so failed to perform its obligations under this Agreement, unless during such period the Defaulting Party shall have remedied such failure. 3.3 MUTUAL COOPERATION AND ADDITIONAL ASSUMPTIONS. Prior to the termination of this Agreement, the parties shall reasonably cooperate in good faith to facilitate an orderly transition of responsibility for the services provided pursuant to this Agreement, and each party shall deliver to the other party copies of such documents, records and information as are reasonably necessary to achieve such transition. Upon the termination of this Agreement, each party promptly shall deliver to the other party copies of all remaining documents, records and information in such party's possession and owned by the other party that may be reasonably necessary for the other party to assume complete internal responsibility for all of the services provided pursuant to this Agreement. ARTICLE IV TERMS RELATED TO SPECIFIC SERVICES 4.1 EMPLOYEE BENEFITS ADMINISTRATION. (a) GenCorp will continue to employ a Benefits Transition Team ("Team") to be based at OMNOVA's corporate headquarters in Fairlawn, Ohio. The responsibilities of the Team will include (i) administration of GenCorp's employee benefit plans, (ii) transfer of administrative responsibility for GenCorp's employee benefit plans to GenCorp's new corporate headquarters in California and/or to GenCorp Vehicle Sealing headquarters, and (iii) implementation and administration of new employee benefit plans for OMNOVA as described on Schedule B. The Team will report to OMNOVA's Director, Compensation and Benefits, regarding its responsibilities to administer 5 6 employee benefit plans for OMNOVA. GenCorp and OMNOVA hereby agree to cooperate to establish and manage priorities for the Team in connection with fulfilling its responsibilities for both parties. (b) In connection with the Team's administration of GenCorp's employee benefit plans, OMNOVA will process and pay certain welfare benefits to or for GenCorp plan participants with OMNOVA funds. Notwithstanding Section 2.2, GenCorp agrees to reimburse OMNOVA for any and all such payments, by wire transfer, on the business day next following each payment by OMNOVA. (c) GenCorp shall, at its own cost and expense, (a) defend OMNOVA from any and all claims, damages, actions or causes of action ("Claims") which result from GenCorp's employment and/or termination of employment of any of the employees included in its Benefits Transition Team on or after the Distribution Date, and (b) indemnify and hold OMNOVA harmless from all damages, liabilities, losses, costs, judgments, orders, assessments, interest, penalties, fines, settlement payments, costs and expenses (including, without limitation, attorneys fees and other investigation and defense costs and expenses) imposed upon or incurred by OMNOVA as a result of any such Claim. OMNOVA shall promptly notify GenCorp of any Claim and GenCorp shall be entitled to assume and maintain control over the defense of any Claim and any negotiations and settlement thereof with counsel reasonably acceptable to OMNOVA, provided that GenCorp will not settle any such Claim without the consent of OMNOVA which consent shall not be unreasonably withheld. In the event that GenCorp fails to promptly assume and diligently investigate and defend or settle any Claim then OMNOVA shall have the right, at GenCorp's cost, expense and risk, from that time forward to have sole control of the defense of the Claim and all negotiations for its settlement 6 7 or compromise. The party not controlling the defense of any such Claim shall have the right to participate, at its sole expense, in the defense or settlement thereof. 4.2 PAYROLL SERVICES. In connection with payroll services described on Schedule A, OMNOVA will process and pay certain salaries and wages and related payroll taxes with OMNOVA funds. Notwithstanding Section 2.2, GenCorp agrees to reimburse OMNOVA for any and all such payments, by wire transfer, on the business day next following GenCorp's receipt of notice of each payment by OMNOVA. 4.3 CUSTOMER FINANCIAL SERVICES. In connection with customer financial services described on Schedule A, OMNOVA will process and pay certain accounts payable for GenCorp Vehicle Sealing with OMNOVA funds. Notwithstanding Section 2.2, GenCorp agrees to reimburse OMNOVA for any and all such payments, by wire transfer, on the business day next following GenCorp's receipt of notice of each payment by OMNOVA. 4.4 LEASED EMPLOYEES. (a) GenCorp will continue to employ the individuals named as Leased Employees on Schedule B, until their respective retirement dates determined under GenCorp's 1999 Voluntary Enhanced Retirement Program. The Leased Employees will provide services to OMNOVA as directed by OMNOVA. GenCorp shall be exclusively responsible for all wages, benefits, withholdings and other employment-related matters in respect of Leased Employees. (b) GenCorp shall, at its own cost and expense, (i) defend OMNOVA from any and all claims, damages, actions or causes of action ("Claims") which result from GenCorp's employment and/or termination of employment of any of the Leased Employees prior to, on or after the Distribution Date, and (ii) indemnify and hold OMNOVA harmless from all damages, liabilities, losses, costs, judgments, orders, assessments, interest, penalties, fines, settlement 7 8 payments, costs and expenses (including, without limitation, attorneys fees and other investigation and defense costs and expenses) imposed upon or incurred by OMNOVA as a result of any such Claim. OMNOVA shall promptly notify GenCorp of any Claim and GenCorp shall be entitled to assume and maintain control over the defense of any Claim and any negotiations and settlement thereof with counsel reasonably acceptable to OMNOVA provided that GenCorp will not settle any such Claim without the consent of OMNOVA which consent shall not be unreasonably withheld. In the event that GenCorp fails to promptly assume and diligently investigate and defend or settle any Claim then OMNOVA shall have the right, at GenCorp's cost, expense and risk, from that time forward to have sole control of the defense of the Claim and all negotiations for its settlement or compromise. The party not controlling the defense of any such Claim shall have the right to participate, at its sole expense, in the defense or settlement thereof. 4.5 ACCESS TO WAREHOUSE. GenCorp shall grant OMNOVA reasonable access to the Jacoby Road Warehouse for storing, maintaining or retrieving Records and other OMNOVA assets and shall give OMNOVA reasonable advance written notice of any termination or non-renewal of the lease of such Warehouse. ARTICLE V GENERAL 5.1 NON-WAIVER. The failure of either party to enforce at any time or for any of the provisions hereof shall not be construed to be a waiver of such provisions or of the right of such party thereafter to enforce each and every such provision. 8 9 5.2 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be delivered by hand, mailed by registered or certified mail (return receipt requested), or sent by telecopy or by a nationally recognized overnight courier service, to the parties at the following addresses (or such other addresses for a party as shall be specified by like notice) and shall be deemed given on the date on which such notice is received: To OMNOVA at: OMNOVA Solutions Inc. 175 Ghent Road Fairlawn, Ohio 44333-3300 Attention: General Counsel Fax Number: 330-869-4272 To GenCorp at: GenCorp Inc. Highway 50 & Aerojet Road Rancho Cordova, CA 95670 Attention: General Counsel Fax Number: 916-351-8665 5.3 GOVERNING LAW. This Agreement shall be governed by and enforced in accordance with the internal laws of the State of Ohio, without regard to the conflicts of law principles thereof. 5.4 LEVEL OF SERVICE. OMNOVA and GenCorp each severally undertake to provide the same quality of services and use the same degree of care in rendering services under this Agreement as it respectively utilizes in rendering such services for its own operations and shall not be liable for any failure to provide services. 5.5 SEVERABILITY. In the event any provision of this Agreement or portion thereof is found to be wholly or partially invalid, illegal or unenforceable in any judicial proceeding, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable or shall be deemed excised from this 9 10 Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. 5.6 ENTIRE AGREEMENT. This Agreement supersedes and cancels any and all previous agreements, written or oral, between the parties relating to the subject matter hereof. This Agreement and the Other Agreements expresses the complete and final understanding of the parties with respect to the subject matter thereto and may not be changed in any way, except by an instrument in writing signed by both parties. 5.7 ASSIGNMENT. Neither of the parties shall assign any of its rights or obligations under this Agreement without the prior written consent of the other party, which consent shall not unreasonably be withheld. IN WITNESS WHEREOF, the parties have hereunto caused their authorized representative to execute this Agreement as of the day and year first above written. GENCORP INC. By: /s/ William R. Phillips ---------------------------------- Name: William R. Phillips -------------------------------- Title: Senior Vice President ------------------------------- OMNOVA SOLUTIONS INC. By: /s/ James C. LeMay ---------------------------------- Name: James C. LeMay -------------------------------- Title: Senior Vice President ------------------------------- 10 EX-21.1 8 EXHIBIT 21.1 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF OMNOVA SOLUTIONS INC.(1) The following is a list of the subsidiaries of OMNOVA Solutions Inc., an Ohio corporation (the "Corporation"). The common stock of all the companies listed below is wholly owned, directly or indirectly, by the Corporation.
NAME OF CORPORATION STATE OF INCORPORATION ------------------- ---------------------- OMNOVA Services Inc. Ohio OMNOVA Wallcovering (USA), Inc. Ohio OMNOVA Wallcovering (UK), Limited United Kingdom limited company
(1) The Corporation also controls, directly or indirectly, thirteen other companies that, in the aggregate as a single subsidiary, would not constitute a significant subsidiary, as such term is defined in Rule 1-02 (w) of Regulation S-X. EX-23.1 9 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS Shareholders and Board of Directors OMNOVA Solutions Inc. We consent to the incorporation by reference in the Prospectuses constituting part of OMNOVA Solutions Inc.'s Registration Statements No. 333-88143 and 333-88145 on Form S-8 and Registration Statement No. 333-88587 on Form S-3 and Post Effective Amendment No. 1 to Registration Statement No. 333-88143 on Form S-8 of our report dated January 13, 2000 with respect to the consolidated financial statements of OMNOVA Solutions Inc. included in this Annual Report (Form 10-K) for the year ended November 30, 1999. Ernst & Young LLP Akron, Ohio February 7, 2000 EX-24.1 10 EXHIBIT 24.1 1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of OMNOVA Solutions Inc. hereby constitutes and appoints J. C. LeMay and C. A. Slack, and each of them (each with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of OMNOVA Solutions Inc. for the fiscal year ended November 30, 1999 on his behalf, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney expires March 1, 2000. /s/ E. P. Campbell --------------------------- E. P. Campbell, Director Dated: February 2, 2000 -------------------- 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of OMNOVA Solutions Inc. hereby constitutes and appoints J. C. LeMay and C. A. Slack, and each of them (each with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of OMNOVA Solutions Inc. for the fiscal year ended November 30, 1999 on his behalf, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney expires March 1, 2000. /s/ C. A. Corry --------------------------- C. A. Corry, Director Dated: February 2, 2000 -------------------- 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of OMNOVA Solutions Inc. hereby constitutes and appoints J. C. LeMay and C. A. Slack, and each of them (each with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of OMNOVA Solutions Inc. for the fiscal year ended November 30, 1999 on his behalf, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney expires March 1, 2000. /s/ D. A. Daberko --------------------------- D. A. Daberko, Director Dated: February 2, 2000 -------------------- 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of OMNOVA Solutions Inc. hereby constitutes and appoints J. C. LeMay and C. A. Slack, and each of them (each with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of OMNOVA Solutions Inc. for the fiscal year ended November 30, 1999 on his behalf, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney expires March 1, 2000. /s/ B. G. Gower --------------------------- B. G. Gower, Director Dated: February 2, 2000 -------------------- 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of OMNOVA Solutions Inc. hereby constitutes and appoints J. C. LeMay and C. A. Slack, and each of them (each with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of OMNOVA Solutions Inc. for the fiscal year ended November 30, 1999 on his behalf, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney expires March 1, 2000. /s/ D. E. McGarry --------------------------- D. E. McGarry, Director Dated: February 2, 2000 -------------------- 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of OMNOVA Solutions Inc. hereby constitutes and appoints J. C. LeMay and C. A. Slack, and each of them (each with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of OMNOVA Solutions Inc. for the fiscal year ended November 30, 1999 on his behalf, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney expires March 1, 2000. /s/ S. W. Percy --------------- S. W. Percy, Director Dated: February 2, 2000 -------------------- 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of OMNOVA Solutions Inc. hereby constitutes and appoints J. C. LeMay and C. A. Slack, and each of them (each with full power to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of OMNOVA Solutions Inc. for the fiscal year ended November 30, 1999 on his behalf, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney expires March 1, 2000. /s/ R. B. Pipes --------------- R. B. Pipes, Director Dated: February 2, 2000 -------------------- EX-27 11 EXHIBIT 27
5 1,000 12-MOS NOV-30-1999 NOV-30-1999 10,500 0 122,000 0 68,400 221,800 412,200 200,200 722,500 130,400 0 0 0 4,200 310,500 722,500 767,400 767,400 503,800 690,500 (200) 0 18,600 58,500 24,100 34,400 0 0 0 34,400 .82 .82
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