SOVEREIGN SPECIALTY CHEMICALS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

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SOVEREIGN SPECIALTY CHEMICALS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-4176637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

225 WEST WASHINGTON STREET, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE):
(312) 419-7100

(REGISTRANT'S EMAIL ADDRESS:)
SOVEREIGNSC.COM

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

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 (Section 229.405 of this chapter) 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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The common stock of the registrant is not publicly traded. Therefore, the
aggregate market value of the common stock of the registrant is not readily
available.

On March 14, 2003, the registrant had 1,441,189 shares of voting common
stock outstanding and 730,182 shares of non-voting common stock outstanding.
Approximately 75% of the voting common stock and of the non-voting common stock
of the registrant is held by an affiliate of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated herein by reference
into the part of the Form 10-K indicated:

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TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

Some of the information presented in, or connection with, this report
include "forward-looking statements" based on our current expectations and
projections about future events and involve potential risks and uncertainties.
Our future results could differ materially from those discussed in this report.

You should not place undue reliance on these forward-looking statements,
which are applicable only as of March 14, 2003. All written and oral
forward-looking statements attributable to us are expressly qualified in their
entirety by the factors discussed under "Item 7. Management's Discussion and
Analysis of Financial Conditions and Results" and those identified in Exhibit
99.1 to this report. We undertake no obligation to revise or update our
forward-looking statements to reflect events or circumstances that arise after
March 14, 2003 or to reflect the occurrence of unanticipated events. New risks
emerge from time to time and it is not possible for us to predict all such
risks, nor can we assess the impact of all such risks on our business or the
extent to which any risks, or combination of risks, may cause actual results to
differ materially from those contained in any forward-looking statement.

Unless otherwise indicated, industry data contained herein is as of
December 31, 2002 and was derived from a report prepared by The ChemQuest Group,
Inc., an independent management consultancy specializing in the adhesives,
sealants and coatings industry, for which we pay a nominal fee, as well as
publicly available sources, which we have not independently verified but which
we believe to be reliable.

PART I

ITEM 1. BUSINESS

We are a leading developer, producer and distributor of adhesives, sealants
and coatings for use in three primary end markets: industrial; packaging,
converting and graphic arts; and construction. We focus on select value-added
market niches in which we have established leadership positions and competitive
advantages in product development, manufacturing and distribution. We frequently
design our products in cooperation with our customers to meet unique
specifications and to provide critical performance attributes to their products,
resulting in a significant number of long-lived primary supplier relationships.

We are headquartered in Chicago, Illinois, and were formed as a limited
partnership by Robert B. Covalt and other investors in 1995 to acquire and
consolidate specialty chemicals businesses in the highly fragmented adhesives,
sealants and coatings segment of the specialty chemicals industry. In 1997, we
organized our business into a corporation. In 1999, 75% of our common stock was
acquired by SSCI Investors LLC. We have successfully expanded our business
through ten strategic acquisitions. Currently, our business is comprised of the
Commercial segment and the Construction segment. Our Commercial segment
manufactures a range of products for industrial markets, including
high-performance specialty adhesives and coatings for automotive, aerospace,
recreational vehicle, manufactured housing, air handling and transportation
textile applications. Our Commercial segment also manufactures coating and
adhesive products for packaging, paper converting and graphic arts applications.
Our Construction segment manufactures branded caulk, sealants and adhesives for
professional contractors and do-it-yourself applications. We plan to continue
our growth through a combination of new product development, leveraging
technology across business units, continued market penetration, international
expansion and, in the longer term, strategic equity financed acquisitions.

DEVELOPMENTS

During 2002, we made significant strategic progress by initiating
aggressive action in a number of areas. We increased productivity through
further manufacturing actions, including the implementation of lean
manufacturing initiatives at most of our facilities, improved warehouse
logistics and product line rationalization. Key areas of focus were and continue
to be, containing costs, reorganizing sales approach and capturing business
development opportunities. We continue our focus on standardizing business
processes and corporate identity to reduce internal and external complexity.

A key management focus was on working capital improvement, debt reduction
and improved liquidity to allow us to focus on improving our core business
through productivity and internal growth initiatives. During 2002, we reduced
total debt by approximately $28.3 million from year end 2001 and in December
2002, we amended our credit agreement to, among other things, refinance
substantial portions of our required term loan amortization over the next two to
three years with new credit agreement indebtedness with a longer term. We
reduced inventory and accounts receivable levels by approximately $16.0 million
combined year over year.

In 2002, we bolstered our management team. In early 2002, we hired a new
President and Chief Operating Officer, John R. Knox, who has extensive industry
experience. In July, we announced that Norman E. Wells, Jr. was appointed as our
Chief Executive Officer. Robert B. Covalt continued in his position as Chairman
of the Board of Sovereign through December 31, 2002. Mr. Wells has historically
had success leading middle market companies through the development of strategic
and operating plans, which have resulted in accelerated debt reduction,
operating cost improvements and top-line growth. Mr. Wells has served on our
Board of Directors since 1999 and both Mr. Wells and Mr. Covalt will continue to
serve on our Board of Directors. In late 2002, John Mellett, our Chief Financial
Officer, decided to leave us and was replaced by Terry D. Smith following a
transition period.

In November 2002, we announced plans to close two of our higher-cost
manufacturing plants. The first plant is located in Cincinnati, Ohio and
primarily produces water-borne adhesives sold to the industrial market.
Production from this plant will be transferred to Sovereign's plants in
Greenville, South Carolina, and Carol Stream and Plainfield, Illinois
progressively over the next nine months. Also housed in Cincinnati are
technical, sales support, customer service, and administrative functions some of
which will be transitioned to our other locations during 2003. The second plant,
located in Kapellen, Belgium, produces water-borne and
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hot-melt adhesives for the European packaging and converting market. This
production will be shifted to the Newark, United Kingdom plant during the first
half of 2003. The Kapellen facility will continue to provide sales, technical
and distribution support to continental Europe.

There were disappointments in 2002, primarily related to the economic
environment. Our financial performance fell short of management's expectations.
We continued to experience challenging specialty chemical industry conditions,
with end-market demand down in many of the applications sold through our
Commercial segment. On the other hand, the Construction segment performance was
aided by stable housing market and gains in the retail do-it-yourself market.

We believe that our ongoing initiatives, together with the actions we have
taken in 2002 have positioned us to continue our goal of top-line growth driven
by the leveraging of technologies, expanding geographic reach and utilizing
existing customer relationships to create customers for other products in the
our portfolio.

INDUSTRY OVERVIEW

The adhesives, sealants and coatings segment of the specialty chemicals
industry is a large global segment, which has historically exhibited strong
stable growth. Total sales for the adhesives, sealants and coatings segment in
the United States were approximately $29.0 billion in 2002 and $28.0 billion in
2001. This was an increase of 4.3% from 2001 levels. Over the next five years
the segment is forecasted to grow at an average annual rate of 7.5% per year.
Adhesives are replacing mechanical fasteners in many manufacturing processes,
and adhesives and sealants can reduce weight and parts requirements and provide
superior performance characteristics such as protection against corrosion and
vibration. In addition, we expect international sales of adhesives, sealants and
coatings to grow due to increased use in developing markets.

Adhesives, sealants and coatings are used in a wide range of products with
applications in numerous categories, including

- Industrial. Typical industrial applications include corrosion resistant
industrial coatings, general assembly adhesives, fire-retardant textile
coatings, coatings for electronic components and industrial lamination
adhesives.

- Automotive. Automotive applications include primers and top coats, body
sealants, structural adhesives and interior and exterior trim adhesives.

- Packaging. Packaging applications include portion packaging and flexible
consumer packaging films and foils, seam sealers and container coatings.

- Aerospace. Aerospace applications include commercial, military and
general aviation coatings, composite bonding adhesives and structural
epoxies.

- Construction. Typical construction applications include
contractor-applied architectural coatings, joint sealants and flooring
and roofing adhesives.

- Consumer. Consumer applications include various consumer-applied
adhesives such as white glues, caulks and sealants, architectural
coatings and miscellaneous do-it-yourself sealing applications for
bathtub and kitchen fixtures.

We participate in the industrial, automotive, packaging and aerospace
categories through our Commercial segment and in the construction and consumer
categories through our Construction segment.

The U.S. adhesives, sealants and coatings segment is highly fragmented with
over 500 companies, a significant majority of which we believe are small and
regional. While smaller companies have successfully competed in market niches,
the industry is expected to consolidate as companies seek to enhance operating
efficiencies in new product development, sales and marketing, distribution,
production and administrative overhead. Larger specialty chemicals companies
also benefit through a greater diversification of end-use applications,
customers, technologies and geography, reducing the impact of industry or
regional cyclicality.

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Long term future growth for the U.S. adhesives, sealants and coatings
segment is expected to result from the following factors:

New Markets and More Stringent Demands of End-Users. Adhesives and
sealants are increasingly being used in new applications, particularly in the
transportation and construction sectors, as end-users desire simpler design and
manufacture, lower costs, improved bonding, lower weight, and reduced vibration
and corrosion. For example, in the bonding of automotive window glass to steel
body panels, high-performance adhesives provide structural reinforcement to the
adjacent steel panels, thus providing additional integrity to the car body. In
highway construction, new, long-lasting sealants are replacing traditional
bitumen, a traditional sealant used between adjacent slabs of concrete and other
materials that exhibit poor longevity.

New Materials. The growing use of nonferrous parts including aluminum and
plastics in car bodies, appliances, buildings and other fabricated goods
requires the use of adhesives that are specially formulated to bond dissimilar
materials. On these substrates, traditional mechanical fasteners are frequently
not suitable.

International Sales. International sales of adhesives, sealants and
coatings are also expected to grow due to increased use of these products
internationally. Total worldwide sales for adhesives, sealants and coatings were
approximately $94.0 billion in 2002 and $91 billion in 2002. In 2001, the United
States accounted for approximately 31% of worldwide sales, while Europe
accounted for approximately 33% of worldwide sales and Japan accounted for
approximately 10% of worldwide sales. Sales to the remainder of the world
accounted for approximately 26% of total segment sales. Growth is expected in
developing markets, particularly in the Far East, Eastern Europe and Latin
America.

COMPETITIVE STRENGTHS

We believe we have the following competitive strengths:

Leadership Positions in Attractive Market Niches. We enjoy leadership
positions in growing, value-added market niches as a result of our
customer-driven product development, reputation for quality, high levels of
customer service and brand name recognition. Our brand and trade names are
particularly well recognized among our customers, and include OSI(R),
Pro-Series(R), PL(R), Polyseamseal(R), Miracure(R), Plastilock(R), Latiseal(TM),
Dualite(R), Hybond(R), Proxseal(TM), Primaseal(TM), Primalam(TM), Avadyne(TM),
Bondrite(TM), NailPower(TM) and Proxmelt(TM). We believe our leadership
positions, technological expertise and strong customer relationships provide us
with meaningful advantages in the development of new products and the
penetration of new market niches.

Technological Expertise. We are a technology leader within many of the
markets we serve. Our current technology portfolio, comprising numerous
customized and proprietary formulations with unique performance characteristics,
provides us with a broad technological base to satisfy our customers'
requirements. We continually leverage our technological expertise to develop new
products and additional applications for existing product formulations. In
addition, we have enhanced our technological expertise both through cooperative
research and development efforts and joint technological alliances with
world-class suppliers, and customers.

Strong Customer Relationships. Our business teams work hand-in-hand with
our customers to develop innovative, high-performance solutions to satisfy
current and future needs. By directly involving customers in the product
development process, we strengthen our relationships with them and are better
able to develop products that will add value to their businesses. We sell our
products to some of the world's largest companies, including Airbus Industries,
Baxter International Inc., Bemis, The Boeing Company, General Motors
Corporation, The Home Depot, Inc., International Paper Company, Johns Manville
Corporation, Lowe's Companies, Inc. and RR Donnelly. Many of our industrial,
overprint coatings and flexible packaging products have been certified through
rigorous, customer-specific technical and regulatory approval processes. Once
our products have been approved, our customers are often unwilling to switch to
another supplier because of the significant costs involved. Our relationships
with retailers and professional distributors of our housing repair, remodeling
and construction products are strengthened by our broad product line, strong
brands and reputation for quality.

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Broad Product Offerings and Diverse Customer Base. We manufacture over
5,000 products that are sold through multiple distribution channels to over
6,000 customers for a wide variety of applications. In 2002, no single customer
accounted for over 4% of our net sales, and our top 20 customers accounted for
less than 20% of our net sales. This diversity of customers, products and
distribution channels provides us with a broad base from which to increase sales
and expand customer relationships, and limits our exposure to any particular
customer, end market or geographic region.

Strong Management Team. Our strong management team averages nearly 18
years experience in the specialty chemicals industry. Current members of
management and our Board of Directors hold approximately 14.1% of our equity on
a fully diluted basis. As part of our philosophy, management seeks to foster an
entrepreneurial environment, which empowers employees and encourages and rewards
individual initiative. This philosophy has been successful in generating
top-line growth. Since inception, our management team has successfully executed
and integrated ten strategic acquisitions. From 1996 to 2002 we increased our
annual net sales from $37.8 million to $361.1 million through acquisitions and
internal growth.

BUSINESS STRATEGY

Continued Focus on Niche Products in Attractive Markets. We will continue
to develop product offerings for value-added, end-use applications with
attractive growth prospects, including

- structural adhesives

- coating and adhesives systems for graphic arts applications

- flame-retardant adhesives and coatings

- food and medical packaging adhesives and coatings

- environmentally friendly products

Emphasize Cash Flow Improvements. We continue to target working capital
improvement through improved accounts receivable collection, optimization of
inventory management, consolidation of warehouses and rationalization of product
lines.

Accelerate New Product Pipeline. We deploy our research and development
resources to align with the most promising growth opportunities. We assign
technical experts by chemistry and market to leverage our broad product
portfolio. We are seeking to shorten the time it takes to bring new products to
our customers.

Achieve Significant Operating Efficiencies. We believe we can continue to
achieve operating efficiencies resulting in enhanced performance, cost savings
and improved cash flow through:

- lowering working capital levels by optimizing SKU counts, better
management of inventory and improving customer receivable collections

- improving manufacturing and distribution operations, through lean
manufacturing initiatives and recently announced facility
rationalizations

- cross-selling our products across the broader distribution and customer
network that we have developed through our acquisitions

- improving freight logistics to lower our costs.

Increase International Presence. We believe we have significant
opportunities in international markets to increase sales to existing
multinational customers, enter developing markets and establish new customer
relationships. While sales of adhesives, sealants and coatings outside the
United States in 2002 represented approximately $64.6 billion or 69% of the
worldwide market, our net sales outside the United States represented
approximately 13% of our net sales for 2002. In addition, international sales
are expected to benefit from the increased use of adhesives, sealants and
coatings in developing markets. We have expanded our global sales, particularly
in Europe and Latin America complemented by our manufacturing operations in
Mexico, Brazil, the United Kingdom and Belgium. We have announced the closing of
the Belgium facility in 2003 in order to consolidate production and reduce
costs. In addition, we have sales and technical offices in the

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U.K., Italy, Canada, Sweden, France, Switzerland and Singapore. The principal
office for our European operation is in the U.K.

Pursue Strategic Acquisitions. We have successfully grown through
acquisitions and, although our near term strategy revolves around optimizing our
existing resources, our long-term strategy is to continue to pursue additional
strategic acquisitions that will allow us to further increase sales in targeted
markets. We believe that the high degree of fragmentation in the global
adhesives, sealants and coatings segment will continue to provide suitable
acquisition candidates.

Potential acquisition candidates will be evaluated based upon our ability
to:

- expand existing product lines and customer relationships

- enhance our product development capabilities

- market products through new or expanded distribution channels

- increase utilization of available manufacturing capacity

- generate cost savings

- augment our technology portfolio

- open new market opportunities

SEGMENT REPORTING

We have two reportable segments: the Commercial segment and the
Construction segment. The table below sets forth the primary product
applications as categorized within our reportable segments:

COMMERCIAL SEGMENT:

Industrial applications sold by our Commercial segment consist primarily of
high-performance, specialty adhesives and coatings for automotive, aerospace,
manufactured housing and textile applications. We often develop structural
adhesives in conjunction with the technical staff of our customers and they are
used in many demanding automotive applications which include brake bonding and
body panel assembly. Our aerospace bonding films are used to bond composite
structures in commercial aircraft and meet rigid performance requirements. In
addition, we manufacture and market microspheres, including Dualite(R), a
lightweight inert filler that can both reduce the weight and enhance the
strength of products to which it is added. Our customers include Airbus
Industries, Baxter International Inc., The Boeing Company, General Motors
Corporation, Johns Manville Corporation, Milliken & Company, Forest River and
The Stanley Works.

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This segment also produces flexible packaging adhesives including:
heat-activated lidding adhesives used to apply flexible paper or foil lids to
plastic tubs used in the food industry, including individually packaged
condiments, creamers and cream cheese tubs; film-to-film adhesives used to bond
different types of plastic film, such as metalized and moisture barrier films
used in snack food bags; foil or paper blister packaging for products such as
pharmaceuticals, batteries, toys and tool accessories; and medical packaging
adhesives. We produce a variety of high quality, high gloss, scratch and
abrasion resistant coatings used on paperback book and magazine covers,
decorative packaging, annual reports, catalog covers, and playing and trading
cards. We are a leading manufacturer of coatings for paperback book covers and
trading cards. Overprint coatings customers include printers, custom coaters and
magazine manufacturers.

CONSTRUCTION SEGMENT:

Through this segment, we manufacture and sell housing repair, remodeling
and construction sealants and adhesives used in exterior and interior
applications. We are a leader in aluminum and vinyl siding sealants as well as
kitchen and bath sealants, offering ease of use, durability and color match
capabilities. These products are marketed for do-it-yourself retail and
professional applications. We offer a broad range of well-established branded
products including PL(R) and Polyseamseal(R) for retail do-it-yourself
applications and Pro-Series(R) and PL(R) for professional applications.

SALES AND MARKETING

We operate an extensive sales and marketing network for our customers. This
network consists of a direct sales force of over 100 professionals, as well as
independent agents and distributors. This network works closely with customers
to satisfy existing product needs and to identify new applications and product
improvement opportunities. Our sales efforts are complemented by our product
development and technical support staff, who work together with the sales force
to develop new products based on customer needs. We augment our direct sales and
marketing coverage through a network of distributors and independent agents who
specialize in particular areas. This specialization allows our applications to
gain access to a broader range of distribution channels and end users and
further strengthens our brand names.

Our sales and marketing efforts and customer relationships are further
enhanced by the numerous customer-specific technical approvals we have secured.
These approvals typically involve significant customer time and effort and
result in a strong competitive position for qualified products. Once qualified,
products are often referenced in customer specifications or qualified product
lists. These qualification processes also reinforce the partnership between us
and our customers and can lead to additional sales and marketing opportunities.

TECHNOLOGY

We maintain a strong commitment to technology, with over 90 chemists and
chemical engineers focused on the development of new products and processes. We
work hand-in-hand with our business teams and customers to develop innovative,
high-performance solutions to satisfy current and future needs. This methodology
of involving the customer throughout the product development process enhances
the creation of products that will add value to our customers' businesses.

During the past several years, we have focused our research and development
efforts on the development of high performance, environmentally safe products.
This effort has led to a broad range of technologies and applications,
including:

- high temperature resistant, reactive hot melt used in industrial
construction applications

- reactive epoxy liquid used as structural bonding adhesive in truck bed
assembly

- acrylated epoxy ultraviolet/electron-beam curable systems used as
coatings for multi-wall bags that allow bags to be stacked without
slipping while greatly enhancing their appearance

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- pre-formulated dispersions that function as medical packaging adhesives,
fiber locking binders, and food packaging lidding adhesives

- advanced toughened epoxy systems used to bond plastics, composites and
metals in both automotive and aerospace construction

Our technical activities are further enhanced through alliances with key
industry suppliers and large multi-national customers. These include BASF AG,
Baxter International Inc., The Boeing Company, The Dow Chemical Company, E.I. du
Pont de Nemours and Company, General Motors, and Johns Manville Corporation,
among others.

We hold approximately 10 patents and trademarks, primarily in the U.S. Our
products include a wide variety of technology, some of which is protected, some
of which is not. No one patent or trademark or group of patents or trademarks is
material to our business. Our patents and qualified formulations, in combination
with our customer integrated approach to product and application design, should
enhance our ability to create a sustainable, competitive advantage in the next
several years. We have several brands and trademarks that are well recognized by
customers, including OSI(R), Pro-Series(R), PL(R), Polyseamseal(R), Miracure(R),
Plastilock(R), Latiseal(R), Dualite(R), Hybond(R), Proxseal(TM), Primaseal(TM),
Primalam(TM), Avadyne(TM), Bondrite(TM), NailPower(TM), and Proxmelt(TM).

COMPETITION

The adhesives, sealants and coatings segment of the specialty chemicals
industry is highly competitive. This segment is highly fragmented, with over 500
manufacturers ranging from small regional companies to large multinational
producers. No one company holds a dominant position on a national basis and very
few compete across all levels of our product line. Our competitors include Ciba
Specialty Chemicals, Cytec Industries Inc., GE Sealants and Adhesives (a unit of
General Electric Company), H.B. Fuller Company, Imperial Chemical Industries
Plc., Rohm & Haas Co. and RPM Incorporated. Competition is generally regional
and is based on product quality, technical service for specialized customer
requirements, breadth of product line, brand name recognition and price. Some of
our competitors are larger, have greater financial resources and are less
leveraged than we are. As a result, these competitors may be better able to
withstand a change in market conditions within the specialty chemical industry
and throughout the economy as a whole. These competitors may also be able to
maintain significantly greater operating and financial flexibility than we can.

EMPLOYEES

As of December 31, 2002, we had 930 employees, of whom 149 were members of
unions under contracts which expire between 2004 and 2006. Approximately 775 of
our employees are employed in the U.S. and approximately 155 are employed
internationally. We believe that our relations with our employees are good. As
of December 31, 2001, we had 1,007 employees.

ENVIRONMENTAL MATTERS

We are subject to extensive laws and regulations pertaining to air
emissions, waste water discharges, the handling and disposal of solid and
hazardous wastes, the remediation of contamination, and otherwise relating to
health, safety and protection of the environment. Our operations and the
environmental condition of our real property could give rise to liabilities
under these laws, which could result in material costs.

In connection with our acquisitions, we have performed substantial due
diligence to assess the environmental liabilities associated with acquired
businesses and have negotiated contractual indemnifications, which, supplemented
by commercial environmental insurance coverage, is currently expected to
adequately address a substantial portion of known and foreseeable environmental
liabilities. We do not currently believe that environmental liabilities will
have a material adverse effect on our business, financial condition or results
of operations. We cannot be certain, however, that indemnitors or insurers will
in all cases meet their obligations or that the discovery of presently
unidentified environmental conditions, or other unanticipated events, will not
give rise to expenditures or liabilities that may have a material adverse
effect.

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In connection with soil and groundwater contamination resulting from
historic operations under prior ownership of our Greenville, South Carolina
facility, in November 1994, the former owner of the business entered into a
consent agreement with the South Carolina Department of Health and Environmental
Control that requires the successors to complete investigation and remediation
of soil and groundwater contamination at the site. These activities are
currently projected to cost approximately $2.0 million, $1.5 million of which
had been spent by December 31, 2002. We are indemnified by the former owner with
respect to this matter, as well as certain other known and unknown pre-closing
environmental liabilities, subject to an overall limit well in excess of the
currently estimated cost of cleanup. The former owner has agreed to conduct and
finance the investigation and remediation of this matter.

Our facility located in Akron, Ohio is part of a larger industrial complex
formerly operated by The B.F. Goodrich Company, the prior owner of SIA
Adhesives, Inc. The B.F. Goodrich Company, as part of a voluntary cleanup
agreement with the Ohio Environmental Protection Agency, is conducting an
assessment of soil and groundwater contamination throughout the entire complex.
In connection with our 1996 acquisition of SIA Adhesives, Inc., The B.F.
Goodrich Company agreed to indemnify us with respect to this matter (as well as
other known and unknown pre-closing environmental liabilities).

In connection with the 1996 acquisition of Pierce & Stevens Corp., our
environmental due diligence detected conditions of subsurface contamination
primarily associated with storage tank farms and at various other areas of the
Pierce & Stevens Corp. facilities. Our current estimated total cost of
investigation and remediation is approximately $5.0 million. This amount could
be higher, depending upon the extent of required remediation. In connection with
the acquisition, The Sherwin-Williams Company agreed to indemnify us with
respect to this and other environmental and non-environmental pre-closing
liabilities, subject to a $9.0 million overall limit and has already paid us for
all our expenses related to these facilities, which has totaled greater than
$4.0 million to date. We have entered into a voluntary agreement with the New
York State Department of Environmental Conservation with regard to the Buffalo
facility remediation. Completion of the majority of this project is expected in
2003, with full funding of the estimated additional $0.8 million cost by Sherwin
Williams.

As part of our Imperial Adhesives Inc. acquisition, we acquired our
Cincinnati, Ohio and Nashville facilities. At our Cincinnati facility we are
conducting a voluntary soil and groundwater remediation project over a period of
several years. This project is currently estimated to cost $1.0 million. The
former owner of the site will contribute approximately two thirds of the cost of
this project. If costs exceed $1.5 million, insurance totaling $10.0 million is
available. PCB soil contamination issues, currently estimated to cost $0.2 to
$0.3 million, are fully indemnified by the former owner. We have voluntarily
assumed the estimated $0.1 million cost of for the closure of seven,
non-hazardous substance, underground storage tanks subsequent to the ceasing of
production in July 2002.

Imperial Adhesives Inc. has been identified as a "PRP" (potentially
responsible party) with regard to the remediation of a drum
reconditioning/disposal site. Imperial Adhesives Inc. settled for $0.04 million
with the U.S. EPA as a "de minimus contributor" for the remedial investigation
and feasibility study costs (RIFS). Our additional clean up cost liability is
capped at $0.07 million by the former owner.

As part of our acquisition of the Croda International Plc. adhesives
business, we acquired our Kapellen, Belgium and Newark on Trent, United Kingdom
facilities. Soil and groundwater at the Kapellen facility is contaminated with
various solvents. The former owner of the site had initiated an investigation,
which lead their consultant to believe that natural attenuation of this
contamination might be one of the feasible options. However, in the event that
active remediation is necessary, our consultant has estimated a cost of $0.7
million. The cost of this remediation is covered by a guarantee from Croda
International Plc. to the Belgian authority. Indemnification is available for
this matter from Croda International Plc., subject to certain thresholds,
deductibles, caps and cost-sharing arrangements described in the Croda
International Plc. acquisition agreement. In addition, under that agreement,
Croda International Plc. has retained responsibility for compliance with the
applicable Flemish statute on soil clean up and any other applicable laws
concerning the transfer of the Kapellen facility.

Regarding the Newark On Trent, facility in the United Kingdom, potential
issues related to soil and groundwater remediation, tank containment
improvements and site investigation monitoring were identified.
8

Indemnification from Croda International Plc. is available for the remediation
of this matter, and others (if required), subject to certain thresholds,
deductibles, caps and cost-sharing arrangements described in the Croda
International Plc. acquisition agreement.

As is the case with manufacturers in general, if a release of hazardous
materials occurs at real property owned or operated by us or our predecessors or
at any off-site disposal location utilized by us or our predecessors, we may be
held strictly, jointly and severally liable for cleanup costs and natural
resource damages under the federal Comprehensive Environmental Response,
Compensation, and Liability Act and similar environmental laws. Typically,
liability at such sites is shared by all of the viable responsible parties based
on their relative contribution of waste to the site. We have been named
potentially responsible parties under these laws for cleanup of approximately
fifteen multi-party waste disposal sites, the liability for several of which has
been resolved, subject to standard terms, including the ability to reopen the
matter, found in these kinds of settlements. Due to what we currently believe is
our relatively minor contribution of waste to these sites, we do not believe
that our liability with respect to these sites will have a material adverse
effect on our business, financial condition or results of operations. In
addition, the agreements with former owners of our business include
indemnification for these issues.

We do not currently believe that capital expenditures relating to achieving
compliance with environmental regulations will have a material adverse effect on
our business, financial condition or results of operations. However,
environmental laws are constantly evolving and we cannot predict accurately the
effect they may have upon our capital expenditures, cash flow or competitive
position in the future. Should these laws become more stringent, the cost of
compliance would increase. If we cannot pass on future costs to our customers,
such increases may have an adverse effect on our business, financial condition
or results of operations.

RAW MATERIALS

We use a broad variety of specialty and some commodity raw materials in our
manufacturing processes. In 2002, the company purchased about $195 million of
raw materials including acrylic monomers and polymers, resins, natural and
synthetic rubbers, solvents, and urethanes. Although these raw materials are
derived from crude oil or natural gas, the raw materials used by us are several
manufacturing steps removed (downstream) from these basic feedstocks. The price
of oil and gas will affect our costs for these raw materials both upward and
downward, but the magnitude of change is diluted.

We typically purchase strategic raw materials on a contract basis to
moderate price changes during the contract period, however, prices can change
significantly at the end of contract periods if supply shortages, feedstock cost
pressures, or other unforeseen market events occur. Commodity raw materials are
available from numerous independent suppliers, and specialty raw materials are
usually available from several suppliers.

We expect the cost of many raw materials to increase during 2003 and in the
long term. In aggregate, we have been successful historically in passing on raw
material cost increases through selective price increases to our customers over
time, but under certain competitive market conditions we may not be able to
continue to do so in the future or we may not be able to do so as to maintain
margins.

BACKLOG

Most orders for our products are received and shipped in the same month.
Total backlog orders at December 31, 2002 were approximately $10.0 million. All
2002 backlog orders are expected to be filled within the current year. Backlog
orders at December 31, 2001 were $12.0 million.

GEOGRAPHIC FINANCIAL INFORMATION

For information regarding the allocation of our revenue and long lived
assets among the U.S. and our international markets, see Note 15 to the
Consolidated Financial Statements.

PRODUCTION

The production of adhesives, sealants and coatings is a multi-stage process
which involves extensive formulation, mixing and, in some cases, chemical
synthesis. Following one or more of these processes, the
9

product is packaged in totes, drums, pails, cartridges or other delivery forms
for sale based upon the customer's requirements. Our principal manufacturing
processes are blending, polymerization, extrusion and film coating. Blending
consists of dissolving or dispersing various compounds in organic solvents,
water or solvent-free systems. In polymerization, vinyl, acrylic and urethane
polymers are synthesized in closed reactor systems. Extrusion consists of
feeding formulated materials through an extruder to compound pressure sensitive
and hot melt products. Film coating consists of transferring blended
formulations onto release paper or polyethylene liners to produce thin films of
pressure sensitive, hot melt and epoxy products. Many of our manufacturing
processes can be performed at more than one of our facilities.

ITEM 2. PROPERTIES

We operate the manufacturing plants and facilities described in the table
below. Management believes that our plants and facilities are maintained in good
condition and are adequate for its present and estimated future needs.

Listed below are the principal manufacturing facilities that we operate.

- ---------------

(1) All of our owned facilities are subject to mortgages pursuant to our credit
agreement. In addition, the Seabrook, New Hampshire/Salisbury, Massachusetts
property is subject to mortgages relating to the financing of the
acquisition of the property.

(2) Lease expires December 31, 2008.

(3) Lease expires December 31, 2004.

(4) Lease expires December 31, 2014.

Our executive offices are located in Chicago, Illinois. We also have sales
and technical offices in Singapore, United Kingdom, Canada, Sweden, France,
Italy and Brazil.

ITEM 3. LEGAL PROCEEDINGS

We are a party to various litigation matters incidental to the conduct of
our business. We do not believe that the outcome of any of the matters in which
we are currently involved will have a material adverse effect on our financial
condition or results of operations.

10

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of March 14, 2003, we had 96 holders of record of voting common stock
and 2 holders of record of non-voting common stock. There is no public trading
market for our equity securities. We have not historically declared dividends
and do not anticipate paying cash dividends on common stock in the foreseeable
future. Any future determination as to the payment of dividends will be made at
the discretion of the Board of Directors and will depend upon our operating
results, financial condition, capital requirements, general business conditions
and such other factors as the Board of Directors deems relevant. Our debt
instruments include certain restrictions on the payment of cash dividends on our
common stock.

11

ITEM 6. SELECTED FINANCIAL DATA

SELECTED HISTORICAL FINANCIAL DATA

The following table presents our selected historical financial data at the
dates and for the periods indicated. The data for each of the years presented
are derived from our audited financial statements. The information set forth
below should be read in conjunction with our consolidated financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial information included
elsewhere herein.

- ---------------

(1) Extraordinary losses relate to the write-off of deferred financing costs and
any associated premiums paid as a result of the early extinguishment of
debt.

(2) Cumulative effect of change in accounting principle relates to the write-off
of goodwill, net of income tax benefit, as a result of the adoption of SFAS
142, "Goodwill and other Intangible Assets".

12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the consolidated
financial statements and accompanying notes included herein.

GENERAL

We were formed to acquire and consolidate adhesives, sealants and coatings
businesses in the highly fragmented adhesives, sealants and coatings business
segment of the specialty chemical industry. We have grown through the
acquisition and integration of businesses. From 1996 to 2002, we increased
annual net sales through acquisitions and internal growth from $37.8 million to
$361.1 million. We plan to continue our growth through a combination of new
product development, continued market penetration, international expansion, and
in the longer term, strategic acquisitions.

This table describes the acquisitions since inception in March 1996.

13

- ---------------

(1) The companies acquired from Laporte Plc. comprised Laporte Construction
Chemicals North America, Inc., which was renamed OSI Sealants, Inc. and
Evode-Tanner Industries, Inc., which was renamed Tanner Chemicals, Inc.

The operating results of acquired businesses have been included in our
consolidated operating results for all periods after their respective dates of
acquisition.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we continually evaluate our estimates. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

Revenue Recognition. Revenue is recognized when products are shipped to
the customer and title transfers.

Cost of Goods Sold. Cost of goods sold represents the actual cost of
purchased raw materials, direct and indirect labor, warehousing and
manufacturing overhead costs, including depreciation, utilized directly in the
production of products for which revenue has been recognized.

Selling, General & Administrative Expenses. Selling, general &
administrative expenses generally are those costs not directly related to the
production process and include all selling, marketing, research and development
customer service expenses as well as expenses related to general management,
finance and accounting, information services, human resources, legal and
corporate overhead expense.

Goodwill. Goodwill represents the excess of acquisition cost over the fair
value of net assets acquired and was being amortized using the straight-line
method over periods ranging from 15 to 25 years through December 31, 2001.
Accumulated amortization of goodwill was $30.1 million at December 31, 2001. On
January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible
Assets, which eliminated the amortization of goodwill and instead required that
goodwill be tested for impairment at least annually.

Reserve for Inventory Obsolescence. Our estimated reserves for
obsolescence or unmarketable inventory is equal to the difference between the
cost of the inventory and the estimated market value based upon assumptions
about market conditions, future demand and expected usage rates. We periodically
review inventory and if applicable, record additional inventory writedowns. If
actual market conditions are less favorable than those projected by management
and cause usage rates to vary from those estimated, additional inventory
write-downs may be required, however these would not be expected to have a
material adverse impact on our financial statements.

Allowance for Doubtful Accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the failure of our customers to
make required payments. We evaluate the adequacy of our allowance for doubtful
accounts and make judgments and estimates in determining the appropriate
allowance at each reporting period. If a customer's financial condition were to
deteriorate, additional allowances may be required.

14

SEGMENT REPORTING

We have two reportable segments: the Commercial segment and the
Construction segment. Applications sold by the Commercial segment consist
primarily of high performance, specialty adhesives and coatings for automotive,
aerospace, manufactured housing , textile applications, flexible packaging
adhesives and coatings for a number of applications. Through the Construction
segment, we manufacture and sell housing repair, remodeling and construction
sealants and adhesives used in exterior and interior applications.

We evaluate the performance of each segment based on operating income.
Segment profit is calculated as a reportable segment's operating income. Total
segment profits exceed consolidated operating profits to the extent of
unallocated corporate expenses included in selling, general and administrative
expenses. Unallocated corporate expenses were $12.5 million, $9.7 million, and
$6.8 million for the years ended December 31, 2002, 2001, and 2000,
respectively.

RESULTS OF OPERATIONS

2002 COMPARED TO 2001

Net Sales. Net sales were $361.1 million in 2002, an increase of $4.4
million, or 1.2% over 2001 net sales of $356.7 million. The increase was due to
gains in the Construction segment, which were partially offset by a decrease in
net sales from the Commercial segment. Construction segment sales were $121.0
million in 2002, up $9.7 million, or 8.7% from the prior year reflecting a good
housing market and gains in the retail do-it-yourself market. Commercial segment
sales were $240.1 million in 2002, down $5.3 million, or 2.2% from the prior
year due to declines in a number of end markets including aerospace, furniture
and graphic arts, particularly high-end printing applications end markets. Sales
levels were also negatively affected by continued general economic weakness in
the United States during the year.

Cost of Goods Sold. Cost of goods sold was $259.8 million in 2002, an
increase of $0.5 million, or 0.2% over 2001 cost of sales of $259.3 million.
Gross profit as a percentage of net sales increased in 2002 to 28.1% from 27.3%
in 2001. The increase in gross profit as a percentage of net sales was due
primarily to two factors. First, we experienced decreases in certain raw
material costs primarily in the first half of the year from the prior year.
Second, as a result of productivity initiatives, including implementation of
lean manufacturing and the full year benefit during the current year of plant
closures completed during the year ended December 31, 2001, manufacturing
expenses decreased. These positive factors were offset partially by the effect
of a shift in sales mix to lower margin products. Lower sales in our aerospace
business, which carries higher than average margins for our products, was a
contributor to this shift.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $76.0 million in 2002, an increase of $8.0 million,
or 11.8% from 2001 expenses (excluding goodwill amortization) of $68.0 million.
As a percentage of net sales, selling, general and administrative expenses
increased to 21.0% for 2002 from 19.1% in 2001. This increase was due primarily
to a $4.1 million provision recorded relative to the announced closures of our
facilities in Cincinnati, Ohio and in Kapellen, Belgium. In addition,
contributing to the increase were: the costs of additions to our management
team, including $0.4 million of costs not expected to occur in the future; $0.5
million of professional fees related to financing alternatives; higher insurance
expenses, $1.2 million incurred as a result of the reorganization of our senior
management and of management of businesses in our Commercial segment and $0.9
million of outside consulting costs related to implementation of lean
manufacturing practices at many of our manufacturing locations in 2002.

For financial reporting purposes, we have added a line to our income
statement to segregate the impact of the adoption of SFAS No. 142 and the
discontinuation of goodwill amortization expense. Amortization of goodwill for
the year ended December 31, 2001 was $10.0 million. The elimination of goodwill
amortization contributed greatly to the $6.0 million increase in operating
income over the prior year.

Interest Expense. Net interest expense was $25.5 million in 2002 and $27.0
million in 2001. The decrease in interest expense was due primarily to a
decrease in the weighted average interest rate on our variable rate debt to 5.7%
from 7.1% and lower average debt levels partially offset by increased
amortization of deferred financing costs. In December 2002, we refinanced $45.1
million of borrowings under our existing term
15

loan under our credit agreement with $47.5 million of borrowings under a new
term loan facility. The applicable margin or "spread" on the new term loan
facility is 75 basis points higher than the applicable margin that was in effect
for the existing term loan during most of 2002. As a result, in the absence of
continued decreases in the interest rates on which our variable rate debt is
based, we will expect to have an increase in the weighted average interest rate
of our variable rate debt in 2003.

Income tax expense (benefit). Income tax expense was $0.3 million in 2002.
Income tax benefit was $1.5 million in 2001. Although we have stopped recording
goodwill amortization for financial reporting purposes, we continue to be able
to deduct a portion of goodwill amortization expense for income tax purposes.

Net income (loss) before cumulative effect of change in accounting
principle. Net loss before the cumulative effect of change in accounting
principle for the year ended December 31, 2002 and 2001 was $0.4 million and
$6.0 million, respectively. The decrease in loss from the prior year is
primarily related to the $10.0 million of goodwill amortization not recorded in
2002 as a result of the adoption of SFAS No. 142, partially offset by the
provision for announced plant closures of $4.1 million.

Cumulative effect of change in accounting principle. In connection with
our completion of the transitional goodwill impairment test required by SFAS No.
142, we have recorded a $27.6 million ($17.1 million, net of income tax benefit)
goodwill impairment loss and write-down of goodwill associated with our European
reporting unit. Our assessment of our goodwill impairment for this reporting
unit is reflective of both lower operating performance in Europe and the use of
lower market multiples. The carrying value of goodwill associated with our other
reporting units was not impaired.

COMMERCIAL SEGMENT

The following table presents net sales and segment profit expressed in
millions of dollars and segment profit margin, which is segment profit expressed
as a percentage of net sales:

Net segment sales were $240.1 million in 2002, representing a $5.3 million
decrease from 2001. This decrease was due primarily to declines in a number of
end markets including aerospace, furniture, and graphic arts, particularly
high-end printing applications. Segment profit was $19.8 million for the year
ended December 31, 2002, representing a $2.6 million or 11.6% decrease from the
prior year $22.4 million segment profit excluding goodwill amortization. The
decrease in segment profit resulted primarily from a $4.1 million provision for
the closure of our Cincinnati, Ohio and Kapellen, Belgium facilities discussed
below and, to a lesser extent, from lower sales volume and a shift in sales mix
to products with lower profit margins. These factors were partially offset by a
decrease in expenses attributable to management's focus on cost containment, the
full year benefit in 2002 of the 2001 plant closures and lower annualized raw
material costs.

In November 2002, we announced plans for the closure in 2003 of two of our
higher-cost manufacturing plants. The first plant is located in Cincinnati,
Ohio, and employs 118 people. The Cincinnati plant primarily produces
water-borne adhesives sold to the industrial market. Production from this plant
will be transferred to our plants in Greenville, South Carolina, and Carol
Stream, Illinois and Plainfield, Illinois progressively over the next nine
months. Also housed in Cincinnati are technical, sales support, customer
service, and administrative functions, some of which will be transitioned to
other of our locations during 2003. As part of

16

the closure, approximately 88 employees, primarily in manufacturing, but also
including some technical, sales support, customer service and administrative
functions, will be terminated in 2003.

The second plant is located in Kapellen, Belgium and employs 24 people. In
accordance with the laws of Belgium, and following a consultation period, on
October 25, 2002, we announced our intent to cease manufacturing in Kapellen.
This plant produces water-borne and hot-melt adhesives for the European
packaging and converting market. This production will be shifted to the Newark,
United Kingdom plant during the first half of 2003. The Kapellen facility will
continue to provide sales, technical and distribution support to continental
Europe. Approximately 14 employees, primarily in manufacturing functions, will
be terminated as part of the closure in 2003.

These closures will include the termination of certain existing employees,
the abandonment or sale at a loss of certain fixed assets, the disposal of
certain inventory and the sale of certain buildings. We expect the closure of
both plants to be completed by the third quarter of 2003. The closure of these
two plants is expected to produce annual cost savings of approximately $3.0
million when the shutdowns are complete. As a result of the announced closures,
we recorded a charge of approximately $4.1 million in the fourth quarter of 2002
relative to the following costs: termination benefits of approximately $1.6
million, loss on fixed assets of $1.3 million and other exit costs of $1.2
million. These costs will be incurred over the next several quarters. Our 2003
capital spending budget of $8 million includes the capital expenditures required
to accomplish the production transfers.

CONSTRUCTION SEGMENT

The following table presents net sales and segment profit expressed in
millions of dollars and segment profit margin, which is segment profit expressed
as a percentage of net sales:

Net sales for the Construction segment were $121.0 million for the year
ended December 31, 2002 and $111.3 million for the year ended December 31, 2001.
The increase in sales in 2002 was primarily due to resilience of its end markets
and strength at major retail accounts. Segment profit increased by $5.8 million,
or 21.2%, primarily as a result of higher sales volume, management actions to
reduce costs and selective pricing increases.

2001 COMPARED TO 2000

Net Sales. Net sales were $356.7 million in 2001, an increase of $90.9
million, or 34.2% over 2000 net sales of $265.8 million. Excluding the impact of
acquisitions, net sales decreased slightly by $2.4 million or 0.7% in 2001.
Weakness in high end printing, graphic arts and many industrial end markets more
than offset the $5.9 million gain in construction segment net sales. Sales
levels were also negatively impacted by continued general economic weakness in
the United States during the year.

Cost of Goods Sold. Cost of goods sold was $259.3 million in 2001, an
increase of $72.9 million, or 39.1% over 2000 cost of sales of $186.4 million.
Gross profit as a percentage of net sales decreased in 2001 to 27.3% from 29.9%
in 2000. The decrease in gross profit as a percentage of net sales was due
primarily to three factors. First, we experienced increases in certain raw
material costs primarily in the first half of the year that were not fully
recovered through price increases. Second, the businesses we acquired at the end
of 2000

17

historically have lower gross margins than our other businesses. Third, we
incurred additional manufacturing expenses primarily in the first half of the
year to support the transition of manufacturing from the plants that were closed
to our other facilities. Excluding the results of acquisitions, cost of goods
sold decreased by 1.1% from the prior year.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $78.0 million in 2001, an increase of $20.4
million, or 35.5% from 2000 expenses of $57.6 million. Excluding acquisitions,
selling, general and administrative expenses increased $1.3 million in 2001. As
a percentage of net sales, selling, general and administrative expenses
increased to 21.9% for 2001 from 21.7% in 2000. This increase was due primarily
to increased goodwill amortization, and one-time expenses associated with
integration actions and bad debts related to certain customers that sought
bankruptcy protection from asbestos claims partially offset by management
actions, including selective headcount reductions.

Interest Expense. Net interest expense was $27.0 million in 2001 and $21.2
million in 2000. The increase in interest expense was due to the full year
impact of increases in debt levels from the prior year related to acquisitions
we completed in the last quarter of 2000, offset somewhat by a decrease in
interest rates on credit facility borrowings.

Income Taxes. Income tax benefit was $1.5 million in 2001. Income tax
expense was $1.4 million in 2000.

Income (loss) before extraordinary loss. Losses before extraordinary loss
for the years ended December 31, 2001 and 2000 were $6.1 million and $0.8
million, due primarily to the factors discussed above.

Extraordinary Loss (net of tax benefit). The extraordinary loss of $4.8
million in 2000 is net of the income tax benefit of $3.2 million and relates to
the write off of unamortized deferred financing costs and payment of the 1%
premium in connection with the repurchase of our 9 1/2% senior subordinated
notes.

Net Income (loss). Net loss for the year ended December 31, 2001 was $6.1
million an increase in net loss of $0.4 million from 2000. The increase resulted
primarily from increased interest and amortization expense.

COMMERCIAL SEGMENT

The following table presents net sales and segment profit expressed in
millions of dollars and segment profit margin, which is segment profit expressed
as a percentage of net sales:

Net sales for the Commercial segment were $245.4 million and $160.4 million
for the years ended December 31, 2001 and 2000, respectively. The increase of
$85 million was due to acquisitions completed in late 2000. Segment profit
excluding goodwill amortization was $22.4 million and $21.9 million for the
years ended December 31, 2001 and 2000, respectively. The decrease in segment
profit as a percentage of sales was due primarily to lower sales of
higher-margin products raw material cost.

18

CONSTRUCTION SEGMENT

The following table presents net sales and segment profit expressed in
millions of dollars and segment profit margin which is segment profit expressed
as a percentage of net sales:

Net sales for the Construction segment were $111.3 million for the year
ended December 31, 2001 and $105.4 million for the year ended December 31, 2000.
The increase in sales in 2001 was primarily due to resilience of its end markets
and strength at major retail accounts. Segment profit increased by $1.7 million
and 12.5% as a result of higher sales volume, management actions to reduce costs
and selective pricing increases.

PRO FORMA RESULTS OF OPERATIONS

Our audited financial results include the operations acquired in our Croda
International Plc. and Imperial Adhesives Inc. acquisitions only after their
acquisition in October 2000. The following sets out and discusses our unaudited
pro forma consolidated results of operations for 2000, giving effect to our
October 2000 Imperial Adhesives Inc. and Croda International Plc. acquisitions
as if they had occurred at January 1, 2000. This pro forma presentation is
included to allow comparisons of the performance of the businesses we owned in
2001 with the full year results of these businesses in 2000.

During 2000, Croda International Plc. restructured operations prior to our
acquisition of the businesses in October 2000. They terminated certain employees
and relocated certain manufacturing activities from Italy and Belgium to the
United Kingdom and from a less efficient plant to a new leased facility in
Illinois. In connection with these activities, costs were expensed as incurred.
These costs are included in the results above, but were not borne by us.

In addition, since we did not purchase Croda International Plc.'s Ewing New
Jersey plant, we leased it on a short-term basis while production was
transferred to other of our plants.

19

In 2001, we closed Imperial's Nashville manufacturing facility and
transferred manufacturing to our existing facilities. We incurred approximately
$1.1 million in costs directly attributable to the closure of the facility. We
sold the facility in December 2002.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $35.3 million in 2002. Net
loss, adjusted for non-cash charges, such as depreciation and amortization,
amortization of deferred financing costs, deferred income taxes, foreign
currency gains/losses and cumulative effect of change in accounting principle,
accounted for approximately $9.2 million of cash flow. Cash provided from
operations increased as we decreased inventory levels by $9.8 million and
accounts receivable balances by $6.8 million. Accounts payable and other
liabilities increased by $6.8 million in 2002, driven primarily by the recording
of a $4.1 million liability relative to announced plant closures of our
Cincinnati and Kapellen facilities.

Net cash provided by operating activities was $18.6 million in 2001. Net
loss, adjusted for non-cash charges, such as depreciation and amortization,
amortization of deferred financing costs and extraordinary loss, accounted for
approximately $14.2 million of cash flow. Additional cash was provided as
inventory decreased by $4.7 million and accounts payable and accrued expenses
increased by $1.6 million in 2001. These increases in cash flow from operations
were partially offset by an accounts receivable increase of $2.1 million.

Net cash used in investing activities was $6.2 million in 2002 and resulted
from capital additions to property, plant and equipment of $6.6 million less
$0.4 million of proceeds from the sale of the Nashville facility in December
2002. Current year capital expenditures were $1.4 million less than 2001, due to
the construction of a manufacturing facility in Brazil in 2001 as well as
moderate spending levels in 2002.

Net cash used in investing activities was $16.3 million in 2001 and
resulted from capital additions to property, plant and equipment of $8.0 million
and acquisition costs of $8.3 million. In February 2001, we paid $2.8 million in
additional consideration to Croda International Plc. based on the results of
operations of certain of the businesses acquired in 2000. We incurred an
additional $3.8 million during 2001 related to the 2000 acquisitions of Croda
International Plc and Imperial. As part of the finalization of the purchase
price allocations, these costs were recorded as an increase to goodwill.
Effective June 30, 2001, we completed the purchase of the distribution business
related to our products of IMPAG, a long standing European distributor of our
products for $1.7 million. Consideration is payable in four installments. In
July, 2001, we paid $0.5 million and in January, 2002 we paid approximately $0.3
million. Approximately $0.5 million is due in each of January 2003 and 2004.
This acquisition was accounted for as a purchase. We recognized $1.5 million in
goodwill in connection with this acquisition.

Net cash used in financing activities was $30.6 million for the year ended
December 31, 2002. We repaid $11.3 million of principal required under our Term
A loan and decreased our borrowings under our revolving credit facility by $16.2
million during the year ended December 31, 2002. We incurred $2.2 million of
deferred financing costs associated with amendments of our credit agreement
dated March 1, 2002 and December 20, 2002.

Net cash provided by financing activities was $5.8 million in 2001. Net
borrowings under our credit agreement were $4.6 million in the year ended
December 31, 2001. We added $1.3 in acquisition notes payable.

CREDIT FACILITIES

We amended our credit agreement (Credit Agreement) on December 20, 2002.
The amended Credit Agreement provides for aggregate borrowings of $108.6
million. The Credit Agreement as amended includes (1) a $50.0 million revolving
credit facility (Credit Facility) (including letters of credit of up to $20
million), (2) Term Loan A with remaining outstanding balance of $11.1 million at
December 31, 2002 and no capacity to borrow additional funds under that facility
and (3) Term Loan B with an aggregate principal balance of $47.5 million at
December 31, 2002 and no additional capacity to borrow additional funds under
that facility. The Credit Agreement prior to amendment dated December 20, 2002,
included (1) a $50.0 million Credit

20

Facility and (2) a $75.0 million term loan (Term Loan A) to fund acquisitions
with an outstanding balance of $56.3 million at December 20, 2002, and no
capacity to borrow additional funds under that facility.

The Credit Facility matures December 30, 2005. Commitment fees on the
unused portion of the Credit Facility of 0.375% to 0.050% are payable quarterly
in arrears. At December 31, 2002, we had $13.4 million outstanding and $34.6
million in available borrowings under the Credit Facility (net of approximately
$2.0 million outstanding letters of credit). Our effective interest rate for our
borrowings under the Credit Agreement was 5.7% and 7.1%, for the year ended
December 31, 2002 and 2001, respectively.

Borrowings under the Credit Facility are available on a revolving basis and
may be used for general corporate purposes, excluding, however, loans, advances
and investments, including acquisitions, by us other than specified exceptions.
Scheduled quarterly repayments of $75.0 million outstanding under Term Loan A
began on September 30, 2001 and through September 30, 2002 we had repaid $18.3
million of the amount outstanding under Term Loan A. Prior to December 20, 2002,
we were to continue to make scheduled quarterly repayments through December 31,
2003 totalling 50% of the $75.0 million amount drawn under the Term Loan A. The
scheduled amortization for 2003 was $15.0 million. The remaining 50% was
scheduled to be repaid in equal quarterly payments through December 30, 2005.

On December 20, 2002 we amended our Credit Agreement and we refinanced
$45.1 million of the $56.3 Term Loan A outstanding balance with a new six year,
$47.5 million Term Loan B facility. The Term Loan B includes a $2.4 million
discount (representing a fee) which will be amortized through interest expense
over the life of the facility. The Term Loan B will mature December 30, 2007.
Scheduled principal repayment under the Term Loan B facility for the years
ending December 31, 2003 through 2006 will be $0.5 million per year payable
quarterly. The remaining balance under Term Loan B, will be repaid in 2007. We
have three scheduled quarterly payments in 2007 at the same rate of $0.5 million
per year and a final payment due for the balance outstanding at December 30,
2007. There is no scheduled amortization for the $11.1 million outstanding under
the Term Loan A for the years ending December 31, 2003 and 2004. The remaining
$11.1 million drawn under Term Loan A will be repaid in 2005. The most
significant effects of the amendment are:

- restoration of the full availability of our $50.0 million Credit Facility
by eliminating a previously existing covenant to maintain borrowing
availability under our Credit Facility (a) of at least $10.0 million at
all times prior to December 31, 2002 and (b) of at least $12.5 million
from January 1, 2003,

- amendment of our financial covenants to decrease the restrictiveness of
those covenants for the quarter ended December 31, 2002 and each of the
fiscal quarters prospectively beginning with first quarter of 2003,

- elimination of the fixed charge ratio covenant beginning December 31,
2002, which was replaced by an asset coverage ratio covenant under which
we must maintain at the end of each fiscal quarter a ratio (determined by
the sum of accounts receivable, inventory and property, plant and
equipment divided by total amount advanced, including outstanding letters
of credit, under the Credit Agreement) greater than 1.25 to 1.

The following effects of previous amendments are still in effect under the
current amended Credit Agreement:

- a limitation on the use of advances under the Credit Facility for, among
other things, acquisitions and investments in non-guarantor, offshore
entities,

- prohibition of any significant acquisitions unless capital stock is used
as the primary purchase consideration and no indebtedness is assumed or
acquired, and

- a decrease in our permitted levels of capital expenditures and
indebtedness outside the credit facilities.

Borrowings under the Credit Agreement bear interest at our option at a rate
per annum equal to either (1) the higher of (a) the current base rate as offered
by JPMorgan Chase or (b) 1/2 of 1% per annum above the federal funds rate plus,
in either case, an applicable margin or (2) a Eurodollar rate plus an applicable

21

margin. The applicable margin varies by facility. For amounts drawn under the
Term Loan A and the Credit Facility the Eurodollar margin is 3.75% and the base
rate margin is 2.75%. For amounts drawn under the Term Loan B facility, the
Eurodollar margin is 4.50% and the base rate margin is 3.50%. Amounts
outstanding under the Credit Facility, Term Loan A and Term Loan B bear
interest, payable quarterly in the case of base rate advances and payable at the
end of the relevant interest period of one, two, three or six months (or
quarterly in certain cases) for all Eurodollar advances. Our credit ratings do
not affect the interest rates for our borrowings under our Credit Agreement.

Our Singapore-based sales office has a facility providing for borrowings up
to approximately $1.1 million in U.S. dollars and is secured by a letter of
credit. Interest is payable at United States prime plus 1.0%. At December 31,
2002, approximately $0.8 million was drawn on the facility.

At December 31, 2002, we have $13.4 million drawn under our Credit
Facility, and approximately $2.0 million of outstanding letters of credit. At
December 31, 2002, we had approximately $34.6 million of borrowing availability
under the Credit Facility.

Our Credit Agreement obligates us to make mandatory prepayments in certain
circumstances with the proceeds of asset sales or issuance of capital stocks or
indebtedness and with certain excess cash flow. Our Credit Agreement include
covenants that restrict our and our subsidiaries' ability to incur additional
indebtedness, incur liens, dispose of assets, prepay or amend other
indebtedness, pay dividends or purchase our stock, and change the business
conducted by us or our subsidiaries. We must also comply with several financial
and other covenants, including that we maintain at the end of each fiscal
quarter, the following criteria described below as specifically defined in our
Credit Agreement. These criteria are not intended and should not be relied upon
to replace GAAP measures. Rather, these measures are included to provide
information with respect to our compliance with these financial criteria under
our Credit Agreement.

- ---------------

(1) EBITDA is a defined term in our Credit Agreement.

(2) A ratio of EBITDA to interest expense.

(3) A ratio of the sum of accounts receivable, inventory and property plant and
equipment to EBITDA.

Each of these covenants continues for the term of the Credit Agreement at
the latest level above, or a more restrictive level. A deterioration in our
current operating performance could result in our failure to satisfy our
financial covenants. A failure by us to satisfy the covenants under the Credit
Agreement would trigger the lenders' right to require immediate repayment of all
or part of the indebtedness; such acceleration, in turn, would also give rise to
a right to require immediate repayment by holders of our subordinated notes. The
Credit Facility, Term Loan A and Term Loan B are secured by a security interest
in substantially all of our subsidiaries' assets, including pledges of the
common stock of our subsidiaries. In addition, the Credit Facility, Term Loan A
and Term Loan B are guaranteed by our subsidiaries. Some of our guarantees and
pledges are in support of only offshore advances, if any, under the Credit
Facility.

SENIOR SUBORDINATED NOTES

On December 30, 1999, SSCI Investors LLC, an entity owned by an investor
group led by AEA Investors Inc., acquired approximately 75% of our outstanding
capital stock directly from the former majority

22

stockholder with the balance owned by other investors, including members of our
current management team. SSCI Investors LLC's acquisition of our common stock
constituted a change of control under the terms of the indenture relating to our
9 1/2% Senior Subordinated Notes due 2007 and, as a result, we were required to
make an offer to purchase for cash any and all of the outstanding $125.0 million
principal amount of 9 1/2% Senior Subordinated Notes for 101% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase. The
repurchase was completed on March 6, 2000 with the repurchase of the entire
$125.0 million principal amount of 9 1/2% Senior Subordinated Notes for an
aggregate purchase price of approximately $127.4 million which was financed with
borrowings under the Credit Agreement. On March 29, 2000 we completed an
issuance of $150.0 million in aggregate principal amount of 11 7/8% Senior
Subordinated Notes due 2010 in a private placement to qualified institutional
investors in accordance with Securities and Exchange Commission Rule 144A and
outside of the United States in accordance with Regulation S under the
Securities Act of 1933. The privately placed 11 7/8% Senior Subordinated Notes
were subsequently exchanged for notes with substantially identical terms that
were registered with the Securities and Exchange Commission. The cash proceeds
from this private placement of notes of approximately $143.8 million were used
to repay amounts drawn under our Credit Facilities for the repurchase of the
9 1/2% Senior Subordinated Notes and for general corporate purposes.

At December 31, 2002 the aggregate principal amount of 11 7/8% Senior
Subordinated Notes was $149.2 million. The 11 7/8% Senior Subordinated Notes
mature on March 15, 2010. Interest is payable semi-annually in arrears each
March 15 and September 15. On or after March 15, 2005, we may redeem these
notes, at our option, in whole or in part, at specified redemption prices plus
accrued and unpaid interest. The redemption price is 105.938% in 2005 and
decreases in equal annual increments to 100.000% in 2008 and thereafter. In
addition, at any time on or prior to March 15, 2003, we may redeem, in the
aggregate, up to 35% of the original aggregate principal amount of 11 7/8%
Senior Subordinated Notes (calculated after giving effect to the issuance of
additional notes, if any) with the net cash proceeds of one or more public
equity offerings by us, at a redemption price in cash equal to 111.875% of the
principal amount, plus accrued and unpaid interest. In the event of a change in
control, we would be required to offer to repurchase the notes at a price equal
to 101.0% of the principal amount plus accrued and unpaid interest.

The 11 7/8% Senior Subordinated Notes are our general obligations,
subordinated in right of payment to all existing and future senior debt and are
guaranteed by our subsidiaries. The indenture under which the 11 7/8% Senior
Subordinated Notes were issued contains certain covenants that, among other
things, limit our ability to incur additional indebtedness, incur liens, dispose
of assets, prepay or amend other indebtedness, pay dividends or purchase our
stock, and engage in transactions with affiliates.

LIQUIDITY AND CAPITAL REQUIREMENTS

We have a management agreement with AEA Investors Inc. under which we
receive advisory and consulting services provided by AEA Investors LLC, the
successor company to AEA Investors Inc. and sometimes referred to in this report
collectively with its successor as AEA Investors. The management agreement
provides for an annual aggregate fee of $1.0 million plus reasonable
out-of-pocket costs and expenses.

Interest payments on the amounts drawn under the Credit Agreement, as well
as other indebtedness and obligations, represent significant obligations for us.
Our remaining liquidity demands relate to capital expenditures and working
capital needs. Our capital expenditures were approximately $6.6 million in 2002
and management currently anticipates capital expenditures will be approximately
$8.0 million in 2003 and approximately $8.5 million in 2004. While we engage in
ongoing evaluations of, and discussions with, third parties regarding possible
acquisitions, as of the date of this report, we have no current expectations
with respect to any acquisitions. Exclusive of the impact of any future
acquisitions, joint venture arrangements or similar transactions, our management
does not expect capital expenditure requirements to increase materially in the
foreseeable future.

The following summarizes certain of our contractual obligations at December
31, 2002 and the effect of such obligations are expected to have on our
liquidity and cash flow in future periods. During the ordinary

23

course of business, we enter into contracts to purchase raw materials and
components for manufacture. In general, these commitments do not extend for more
than a few months.

- ---------------

(1) Represent principal amounts, but not interest. See Note 8 to the
Consolidated Financial Statements.

(2) As described in Note 12 to the Consolidated Financial Statements.

(3) Represents minimum future payments. See Note 13 to the Consolidated
Financial Statements for further discussion.

Our primary sources of liquidity are cash flows from operations and
borrowings under our Credit Agreement. Based on current and anticipated
financial performance, we expect that cash flow from operations and borrowings
under our Credit Agreement will be adequate to meet anticipated requirements for
capital expenditures, working capital and scheduled interest payments, including
interest payments on the amounts outstanding under the 11 7/8% Senior
Subordinated Notes, the Credit Agreement and other indebtedness through December
31, 2003. Our ability to satisfy capital requirements will be dependent upon our
future financial performance. Additionally our ability to repay or refinance our
debt obligations will also be subject to economic conditions and to financial,
business and other factors, many of which are beyond our control.

INFLATION

After peaking in mid-2001 and then declining through early 2002, the costs
of certain of our raw materials have increased. We expect costs to stabilize by
mid 2003. To offset these increases we raised our selling prices selectively.
Historically, in aggregate, price increases have been sufficient to recover new
raw material cost increases, but not to maintain margins. There can be no
assurance, however, that our business will not be affected by inflation in the
future.

FORWARD-LOOKING STATEMENTS

Some of the information presented in, or connection with, this report
include "forward-looking statements" based on our current expectations and
projections about future events and involve potential risks and uncertainties.
Our future results could differ materially from those discussed in this report.
Some of the factors that could cause or contribute to such differences include:

- changes in economic and market conditions that impact the demand for our
products and services;

- risks inherent in international operations, including possible economic,
political or monetary instability;

- uncertainties relating to our ability to consummate our business
strategy, including realizing synergies and cost savings from the
integration of acquired businesses or from plant closures.

- the impact of new technologies and the potential effect of delays in the
development or deployment of such technologies; and,

- changes in raw material costs and our ability to adjust selling prices.

You should not place undue reliance on these forward-looking statements,
which are applicable only as of March 14, 2003. All written and oral
forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing factors and those identified in Exhibit 99.1
incorporated by reference into this report. We undertake no obligation to revise
or update these forward-looking statements to reflect events or circumstances
that arise after March 14, 2003 or to reflect the occurrence of unanticipated
events. New risks emerge from time to time and it is not possible for us to
predict all such risks, nor can we assess the impact of

24

all such risks on our business or the extent to which any risks, or combination
of risks, may cause actual results to differ materially from those contained in
any forward-looking statement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risks, which are potential losses in fair values, cash
flows or earnings due to adverse changes in market rates and prices, to which we
are exposed, as a result of our holdings of financial instrument and commodity
positions, are:

- interest rates on debt;

- foreign exchange rates; and

- commodity prices, which affect the cost of raw materials.

Our financial instruments include short-term debt and long-term debt. Trade
accounts payable and trade accounts receivable are not considered financial
instruments for purposes of this item because their carrying amount approximate
fair value. We do not maintain a trading portfolio and do not utilize derivative
financial instruments to manage our market risks. In the future, we may enter
into foreign exchange currency hedging agreements in connection with our
international operations.

MARKET RISK MANAGEMENT

We have measured our market risk related to our financial instruments based
on changes in interest rates and foreign currency rates utilizing a sensitivity
analysis. The sensitivity analysis measures the potential loss in fair values,
cash flows and earnings based on a hypothetical change (increase and decrease)
in interest rates and a decline in the U.K. pound/dollar exchange rate. We used
market rates as of December 31, 2002 on our financial instruments to perform the
sensitivity analysis. We believe that these potential changes in market rates
are reasonably possible in the near-term (one year or less). We have conducted
an analysis of the impact of a 100 basis point change in interest rates and a
10% decline in the U.K. pound/dollar exchange rate, discussed below.

INTEREST RATE EXPOSURE

Our primary interest rate exposure relates to our variable rate debt. We
utilize a combination of variable rate debt, primarily under our Credit
Agreement, and fixed rate debt, primarily under our 11 7/8% Senior Subordinated
Notes. Our Credit Agreement requires that, at least 45% of our funded
indebtedness be fixed-rate or subject to interest rate hedging agreements to
reduce the risk associated with variable-rate debt. At December 31, 2002
approximately 69% of our funded indebtedness was fixed-rate. The variable rate
debt is primarily exposed to changes in interest expense from changes in the
U.S. prime rate, the federal funds effective rate and the eurodollar borrowing
rate, while the fixed rate debt is primarily exposed to changes in fair value
from changes in medium term interest rates. Based on our indebtedness at
December 31, 2002, we estimate that an immediate 100 basis point rise in
interest rates would result in $0.7 million increase in interest expense for the
period January 1, 2003 to December 31, 2003. For purposes of this estimate, we
have assumed a constant level of variable rate debt and a constant interest rate
over the period equal to those existing on December 31, 2002.

CURRENCY RATE EXPOSURE

Our primary foreign currency exchange rate exposure relates to the U.K.
pound which results in our exposure to changes in the dollar exchange rate. Our
exposure to changes in U.S. dollar exchange rates with currencies other than the
U.K. pound are not currently material. Changes in translation risk are reported
as adjustments to stockholders' equity. We estimate that the impact of a 10%
decline in the dollar/U.K. pound exchange rate from $1.60/L1.00 to $1.44/L1.00
at December 31, 2002 would result in a decrease in our earnings before taxes of
$1.3 million for the period from January 1, 2003 to December 31, 2003.

25

COMMODITIES RISK

We are subject to market risk with respect to commodities because our
ability to recover increased raw materials costs through higher pricing may be
limited by the competitive environment in which we operate.

We use a broad variety of specialty and some commodity raw materials in our
manufacturing processes. In 2002, the company purchased about $195 million of
raw materials including acrylic monomers and polymers, resins, natural and
synthetic rubbers, solvents, and urethanes. Although these raw materials are
derived from crude oil or natural gas, the raw materials are several
manufacturing steps removed (downstream) from these basic feedstocks. The price
of oil and gas will affect our costs for these raw materials both upward and
downward, but the magnitude of change is diluted.

We typically purchase strategic raw materials on a contract basis to
moderate price changes during the contract period, however, prices can change
significantly at the end of contract periods if supply shortages, feedstock cost
pressures, or other unforeseen market events occur. Commodity raw materials are
available from numerous independent suppliers, and specialty raw materials are
usually available from several suppliers.

We expect the cost of many raw materials to increase during 2003 and in the
long term. In aggregate, we have been successful historically in passing on raw
material cost increases through selective price increases to our customers over
time under certain competitive market conditions, but we may not be able to do
so in the future or we may not be able to do so as to maintain margins.

These sensitivity analyses are estimates and are based on certain
simplifying assumptions. These analyses should not be viewed as predictive of
our future financial performance. Additionally, we cannot give any assurance
that the actual impact in any particular year will not materially exceed the
amounts indicated above.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company are submitted as a
separate section of this report. For a list of financial statements and
schedules filed as part of this report, see the "Index to Financial Statements"
beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to: (1)
each member of our Board of Directors; (2) each of our executive officers; and
(3) certain of our key managers and key managers of our subsidiaries.