<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996.
REGISTRATION NO. 333-10021
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INDEX, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
TEXAS 5084 76-0509661
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
580 WESTLAKE PARK BOULEVARD, SUITE 1100
HOUSTON, TEXAS 77079
(713) 531-4214
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
DAVID R. LITTLE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
INDEX, INC.
580 WESTLAKE PARK BOULEVARD, SUITE 1100
HOUSTON, TEXAS 77079
(713) 531-4214
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------
Copies to:
<TABLE>
<S> <C>
GARY A. MESSERSMITH, ESQ. CURTIS W. HUFF, ESQ.
FOUTS & MOORE, L.L.P. FULBRIGHT & JAWORSKI L.L.P.
5555 SAN FELIPE, 17TH FLOOR 1301 MCKINNEY
HOUSTON, TEXAS 77056-2726 HOUSTON, TEXAS 77010
</TABLE>
---------------------
Approximate date of commencement of proposed sale of the securities to the
public: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT AND ONCE ALL OTHER CONDITIONS OF THE MERGER AGREEMENTS DESCRIBED IN
THE ENCLOSED PROXY STATEMENT/PROSPECTUS HAVE BEEN SATISFIED OR WAIVED.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INDEX, INC.
---------------------
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 1 OF FORM S-4
AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
CAPTION OR LOCATION
ITEM OF FORM S-4 IN PROXY STATEMENT/PROSPECTUS
------------------------------------------- -------------------------------------------
<S> <C> <C>
A. Information about Transaction
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Forepart of the Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Inside Front Cover Page
of Proxy Statement/Prospectus
3. Risk Factors and Ratio of Earnings (Loss)
to Fixed Charges and Other Information... Summary; Risk Factors
4. Terms of the Transaction................... Summary; The Reorganization; Certain Terms
of the Merger Agreements
5. Pro Forma Financial Information............ Summary; Selected Consolidated Financial
Data
6. Material Contracts with Company Being
Acquired................................. Certain Terms of the Merger Agreements
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Not Applicable
8. Interests of Named Experts and Counsel..... Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Part II
B. Information about the Registrant
10. Information with Respect to S-3
Registrant............................... Not Applicable
11. Incorporation of Certain Information by
Reference................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.............................. Not Applicable
13. Incorporation of Certain Information by
Reference................................ Not Applicable
14. Information with Respect to Registrants
other than S-3 or S-2 Registrants........ Summary; Risk Factors; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business Information Concerning the
Company; Market for Common Stock, Sepco
Common Stock and Newman Common Stock and
Related Shareholder Matters; Management;
Beneficial Ownership of Securities;
Certain Transactions; Description of
Company Capital Stock
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CAPTION OR LOCATION
ITEM OF FORM S-4 IN PROXY STATEMENT/PROSPECTUS
------------------------------------------- -------------------------------------------
<S> <C> <C>
C. Information about the Company being
Acquired
15. Information with Respect to S-3
Companies................................ Not Applicable
16. Information with Respect to S-2 or S-3
Companies................................ Not Applicable
17. Information with Respect to Companies other
than S-3 or S-2 Companies................ Summary; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business
Information Concerning Newman; Market for
Common Stock, Sepco Common Stock and
Newman Common Stock and Related
Shareholder Matters; Description of
Newman Capital Stock
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Outside Front Cover Page of Proxy
Statement/Prospectus; Summary; The
Meetings; The Reorganization
19. Information if Proxies, Consents or
Authorizations are not to be Solicited in
an Exchange Offer........................ Not Applicable
</TABLE>
<PAGE> 4
EXPLANATORY NOTE
This Registration Statement covers the registration of 15,564,509 shares of
the Common Stock, par value $.01 per share (the "Common Stock"), of Index, Inc.
(the "Company") to be issued pursuant to the Newman Merger Agreement and the
Sepco Merger Agreement (the "Reorganization"), up to 412,500 shares of Common
Stock issuable upon exercise of certain Class C Warrants of Newman to be assumed
by the Company pursuant to the Newman Merger and 2,184,000 shares of Common
Stock issuable upon conversion of the Company's Series B Convertible Preferred
Stock, $1.00 par value per share. This Registration Statement also covers the
registration of 347,391 shares of Common Stock for resale by Halter Financial
Group ("Halter"). The complete Proxy Statement/Prospectus relating to the
Reorganization (the "Proxy Statement/Prospectus") follows immediately after this
Explanatory Note. Following the Proxy Statement/Prospectus are certain pages of
the Prospectus relating solely to such resales by Halter (the "Halter
Prospectus"), including alternate front and inside front cover pages, a section
entitled "Risk Factors -- No Public Market for the Common Stock; Possible
Volatility of Stock Price" to be used in lieu of the section "Risk Factors -- No
Public Market; Possible Volatility of Stock Price", a section entitled "Market
for the Common Stock and Related Shareholder Matters" to be used in lieu of the
section entitled "Market for the Company's Stock, Sepco Common Stock and Newman
Common Stock and Related Shareholder Matters", an alternate section entitled
"Legal Matters" and an additional section entitled "Plan of Distribution". In
addition, the Halter Prospectus will not include the information under the
following captions: "Summary -- The Meetings", "Summary -- Record Dates; Shares
Entitled to Vote; Quorum; Vote Required", "The Reorganization",
"Summary -- Market Price Data", "Risk Factors -- No Fairness Opinion Obtained by
the Company, Sepco or Newman", "Risk Factors -- Changes in Voting Rights of
Holders of Sepco Common Stock", "The Meetings", "The Reorganization", "Certain
Terms of the Merger Agreements", "Business Information Concerning Newman",
"Comparison of Rights of Shareholders of Sepco and the Company", "Comparison of
Rights of Holders of Newman Common Stock and Common Stock", "Description of
Sepco Capital Stock", "Description of Newman Capital Stock", "Certain Federal
Income Tax Consequences", and Appendices A through F. All other sections of the
Proxy Statement/Prospectus are to be used in the Halter Prospectus.
<PAGE> 5
SEPCO INDUSTRIES, INC.
6500 BRITTMOORE ROAD
HOUSTON, TEXAS 77041
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OCTOBER , 1996
Notice is hereby given that a special meeting of shareholders of Sepco
Industries, Inc., a Texas corporation ("Sepco"), will be held at : a.m.,
Central Daylight Time, on , November , 1996, at the offices of
Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010,
for the following purposes:
(a) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated August 12, 1996 by and among Index,
Inc., a Texas corporation (the "Company"), Sepco Acquisition Corporation, a
Nevada corporation and wholly-owned subsidiary of the Company ("Sepco
Acquisition"), and Sepco (the "Sepco Merger Agreement"), providing for the
merger of Sepco Acquisition with and into Sepco (the "Sepco Merger") and
pursuant to which (a) each outstanding share of Sepco's Class A Common
Stock will be converted automatically into the right to receive 16 shares
of common stock of the Company, (b) each outstanding share of Sepco's Class
B Common Stock will be converted automatically into the right to receive
18.1232 shares of common stock of the Company, (c) each outstanding share
of Sepco's Class A Convertible Preferred Stock will be converted
automatically into the right to receive one share of Series B Convertible
Preferred Stock of the Company and (d) each outstanding share of Sepco's
Preferred Stock will be converted automatically into the right to receive
one share of Series A Preferred Stock of the Company, all as more fully
described in this Proxy Statement/Prospectus.
(b) To consider and take action upon any other matter that may
properly come before the special meeting, or any adjournment or
postponement thereof.
The Sepco Merger is being effected in connection with a related merger (the
"Newman Merger") of Newman Acquisition Corporation, a Nevada corporation and
wholly-owned subsidiary of the Company ("Newman Acquisition") with and into
Newman Communications Corporation, a New Mexico corporation ("Newman"), as part
of an overall reorganization. The Sepco Merger and Newman Merger shall be
effected contemporaneously and each are conditioned upon the consummation of the
other. The Sepco Merger, Newman Merger and the resulting reorganization of Sepco
and its affiliated companies are collectively referred to as the
"Reorganization". The Company was formed recently for the sole purpose of
effecting the Reorganization and succeeding to the business and operations of
Sepco. You are not being asked to vote on the Newman Merger or the Newman Merger
Agreement.
The Sepco Merger will be consummated only if certain conditions are
satisfied, including (a) the contemporaneous consummation of the Newman Merger
and (b) approval of the Sepco Merger Agreement by the holders of at least
two-thirds of the outstanding shares of Sepco's Class A Common Stock and Class B
Common Stock and the approval of the Sepco Merger Agreement by the holders of at
least two-thirds of the outstanding shares of Sepco Class A Convertible
Preferred Stock and Sepco Preferred Stock, each voting separately as a series.
The shareholders of Sepco have the right to dissent from the Sepco Merger under
the Texas Business Corporation Act and, subject to certain conditions set forth
therein, receive payment for their shares. These rights are more fully described
in the accompanying Proxy Statement/Prospectus.
Shareholders of record of Sepco Class A Common Stock, Sepco Class B Common
Stock, Sepco Class A Convertible Preferred Stock and Sepco Preferred Stock at
the close of business on October , 1996 will be entitled to notice of and to
vote at the special meeting or any adjournment or postponement thereof. A list
of the shareholders of record of Sepco's Class A Common Stock, Class B Common
Stock, Class A Convertible Preferred Stock and Preferred Stock as of October ,
1996 will be open to the examination of any such shareholder for any purpose
germane to the special meeting at Sepco's offices at 580 Westlake Park
Boulevard, Suite 1100, Houston, Texas, after November , 1996 during ordinary
business hours.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON, BUT IN
ANY EVENT YOU ARE URGED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY AT
YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON OR BY YOUR PROXY.
By order of the Board of Directors,
Gary A. Allcorn
Secretary
Houston, Texas
October , 1996
<PAGE> 6
NEWMAN COMMUNICATIONS CORPORATION
211 WEST WALL STREET
MIDLAND, TEXAS 79701
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OCTOBER , 1996
Notice is hereby given that a special meeting of shareholders of Newman
Communications Corporation, a New Mexico corporation ("Newman"), will be held at
a.m., Central Daylight Time, on , November , 1996, at the
offices of Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston,
Texas 77010, for the following purposes:
(a) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated August 12, 1996 by and among Index,
Inc., a Texas corporation (the "Company"), Newman Acquisition Corporation,
a Nevada corporation and wholly-owned subsidiary of the Company ("Newman
Acquisition"), Newman and Little & Company Investment Securities, a Texas
corporation (the "Newman Merger Agreement"), pursuant to which Newman
Acquisition will be merged with and into Newman (the "Newman Merger"). Upon
consummation of the Newman Merger, each outstanding share of common stock
of Newman will be converted automatically into the right to receive
one-fourth of one share of common stock of the Company.
(b) To consider and take action upon any other matter that may
properly come before the special meeting, or any adjournment or
postponement thereof.
The Newman Merger is being effected in connection with a related merger
(the "Sepco Merger") of Sepco Acquisition Corporation, a Nevada corporation and
wholly-owned subsidiary of the Company ("Sepco Acquisition"), with and into
Sepco Industries, Inc., a Texas corporation ("Sepco"), as part of an overall
reorganization. The Sepco Merger and Newman Merger shall be effected
contemporaneously and each are conditioned upon the consummation of the other.
The Sepco Merger, Newman Merger and the resulting reorganization of Sepco and
its affiliated companies are collectively referred to as the "Reorganization".
The Company was formed recently for the sole purpose of effecting the
Reorganization and succeeding to the business and operations of Sepco. You are
not being asked to vote on the Sepco Merger or the Sepco Merger Agreement.
The Newman Merger will be consummated only if certain conditions are
satisfied, including (a) the contemporaneous consummation of the Sepco Merger
and (b) the approval of the Newman Merger Agreement by the holders of at least a
majority of the outstanding shares of common stock of Newman. The shareholders
of Newman have the right to dissent from the Newman Merger under the New Mexico
Business Corporation Act and, subject to certain conditions contained therein,
receive payment for their shares. These rights are more fully described in the
accompanying Proxy Statement/Prospectus.
Only shareholders of record at the close of business on October , 1996
are entitled to notice of and to vote at the special meeting or any adjournment
thereof.
WE HOPE THAT YOU ATTEND THE SPECIAL MEETING IN PERSON, BUT IN ANY EVENT YOU
ARE URGED TO MARK, DATE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES. ANY PROXY GIVEN BY A SHAREHOLDER MAY BE REVOKED BY
THAT SHAREHOLDER AT ANY TIME PRIOR TO THE VOTING OF THE PROXY.
By Order of the Board of Directors
Patricia de Little
Secretary
Midland, Texas
October , 1996
<PAGE> 7
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1996
INDEX, INC.
---------------------
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of Sepco
Industries, Inc., a Texas corporation ("Sepco"), in connection with the
solicitation of proxies by its board of directors for use at a special meeting
of Sepco shareholders (the "Sepco Meeting") scheduled to be held on ,
November , 1996, at : .m., Central Daylight Time, at the offices of
Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010,
and any adjournment or postponement thereof.
This Proxy Statement/Prospectus also is being furnished to the shareholders
of Newman Communications Corporation, a New Mexico corporation ("Newman"), in
connection with the solicitation of proxies by its board of directors for use at
a special meeting of shareholders of Newman (the "Newman Meeting") scheduled to
be held on , November , 1996, at : .m., Central Daylight Time,
at the offices of Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100,
Houston, Texas 77010, and any adjournment or postponement thereof.
At the Sepco Meeting, the holders of Class A Common Stock, $.01 par value
per share, of Sepco (the "Sepco Class A Common Stock"), Class B Common Stock,
$.01 par value, of Sepco (the "Sepco Class B Common Stock" and, together with
the Sepco Class A Common Stock, the "Sepco Common Stock"), Class A Convertible
Preferred Stock, $100.00 par value per share, of Sepco (the "Sepco Class A
Convertible Preferred Stock") and preferred stock, $1.00 par value per share, of
Sepco (the "Sepco Preferred Stock") will be asked to consider and vote upon a
proposal to approve the merger of Sepco Acquisition, Inc., a Nevada corporation
("Sepco Acquisition"), with and into Sepco (the "Sepco Merger"), and the Plan
and Agreement of Merger dated August 12, 1996, by and among Index, Inc., a Texas
corporation and sole shareholder of Sepco Acquisition (the "Company"), Sepco
Acquisition and Sepco (the "Sepco Merger Agreement"), providing for the Sepco
Merger. Such approval is a condition to Sepco consummating the Sepco Merger. In
the Sepco Merger (i) each outstanding share of Sepco Class A Common Stock will
be converted automatically into the right to receive 16 shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), (ii) each
outstanding share of Sepco Class B Common Stock will be converted automatically
into the right to receive 18.1232 shares of Common Stock, (iii) each outstanding
share of Sepco Class A Convertible Preferred Stock will be converted
automatically into the right to receive one share of series B convertible
preferred stock, par value $1.00 per share, of the Company (the "Series B
Convertible Preferred Stock"), and (iv) each outstanding share of Sepco
Preferred Stock will be converted automatically into the right to receive one
share of series A preferred stock, par value $1.00 per share, of the Company
(the "Series A Preferred Stock"), all as more fully described in this Proxy
Statement/Prospectus. The Sepco shareholders are not being asked to vote on the
Newman Merger or the Newman Merger Agreement.
At the Newman Meeting, the holders of common stock of Newman, no par value
(the "Newman Common Stock") will be asked to consider and vote upon a proposal
to approve the merger of Newman Acquisition Corporation, a Nevada corporation
("Newman Acquisition"), with and into Newman (the "Newman Merger"), and the Plan
and Agreement of Merger dated August 12, 1996, by and among the Company, the
sole shareholder of Newman Acquisition, Newman Acquisition, Little & Company
Investment Securities, a Texas corporation ("LITCO"), and Newman (the "Newman
Merger Agreement"), providing for the Newman Merger. Such approval is a
condition to Newman consummating the Newman Merger. In the Newman Merger each
outstanding share of Newman Common Stock will be converted automatically into
the right to receive one-fourth of one share of Common Stock. The Newman
shareholders are not being asked to vote on the Sepco Merger or the Sepco Merger
Agreement.
The Company was formed recently for the sole purpose of effecting a
reorganization of Sepco and its affiliated companies, succeeding to the business
and operations of Sepco and acquiring by merger Newman. The Reorganization will
be effected through the contemporaneous consummation of the Sepco Merger and
Newman Merger (the "Mergers"). The Mergers and the resulting reorganization of
Sepco and its affiliated companies are collectively referred to herein as the
"Reorganization". Upon consummation of the Reorganization, the prior holders of
Sepco Class A Common Stock and Sepco Class B Common Stock will hold
approximately 96% of the outstanding shares of Common Stock and the prior
holders of Newman Common Stock will hold approximately 4% of the outstanding
shares of Common Stock.
THE COMMON STOCK, SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES A
PREFERRED STOCK INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
THE SHARES OF COMMON STOCK, SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES A
PREFERRED STOCK TO BE ISSUED IN CONNECTION WITH THE MERGERS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS ANY
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is , 1996.
<PAGE> 8
This Proxy Statement/Prospectus also constitutes the prospectus of the
Company pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the issuance of up to 15,564,509 shares of Common Stock,
19,500 shares of Series B Convertible Preferred Stock and 3,366 shares of Series
A Preferred Stock in connection with the Reorganization, up to 2,184,000 shares
of Common Stock issuable upon conversion of the Series B Convertible Preferred
Stock and up to 412,500 shares of Common Stock issuable upon the exercise of
certain Class C Warrants of Newman to be assumed by the Company pursuant to the
Newman Merger. See "Description of Newman Capital Stock -- Class C Warrants".
This Proxy Statement/Prospectus does not cover the issuance of 347,391 shares of
Common Stock issuable to Halter Financial Group in connection with the
Reorganization. Such shares will be "restricted securities" as that term is
defined under Rule 144 promulgated under the Securities Act. See "The
Reorganization -- Arrangement with Halter".
There is no current market for the Common Stock, the Series B Convertible
Preferred Stock or the Series A Preferred Stock and there can be no assurance
that such a market will develop. The Company intends to apply for quotation of
the Common Stock on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. upon effectiveness of the Registration Statement.
This Proxy Statement/Prospectus is being mailed to shareholders of Sepco
and Newman on or about October , 1996.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Prospectus in
connection with the solicitation of proxies or the offering of securities made
hereby and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company, Sepco, Newman or any other
person. This Proxy Statement/Prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, any securities, or the solicitation of a
proxy in any jurisdiction to or from any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company, Sepco or Newman since the date
hereof or that the information herein is correct as of any time subsequent to
its date.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act with respect to the Common Stock to be
issued in the Reorganization. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain portions
of which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered by this Proxy Statement/Prospectus, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained in
this Proxy Statement/Prospectus as to the contents of any contract or other
document filed as an exhibit to the Registration Statement are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
Prior to the Reorganization, neither the Company nor Sepco has been subject
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Newman is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Upon consummation of the Reorganization,
Newman will cease to be a reporting company under the Exchange Act. The reports,
proxy statements and other information to be filed by the Company, and as filed
by Newman, with the Commission may be inspected without charge, and copies may
be obtained at prescribed rates, at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission at Northwest Atrium
Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661-2511 and 7
World Trade Center, New York, New York 10048. The Commission also maintains a
Worldwide Web site on the Internet at http://www.sec.gov which contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
SUMMARY............................................................................... 1
RISK FACTORS.......................................................................... 12
No Fairness Opinion Obtained by the Company, Sepco or Newman........................ 12
Control by Existing Shareholders, Directors and Executive Officers of Sepco......... 12
Substantial Competition............................................................. 12
Risks Associated with Implementation of Corporate Strategy.......................... 12
Dependence on Key Personnel......................................................... 13
Changes in Voting Rights of Holders of Sepco Common Stock........................... 13
IRS Examination..................................................................... 13
Risks Associated with Hazardous Materials........................................... 14
Limitation on Ability to Pay Dividends.............................................. 14
Dilution............................................................................ 14
Potential Anti-Takeover Effects of Articles of Incorporation and Bylaws............. 14
No Public Market; Possible Volatility of Stock Price................................ 14
THE MEETINGS.......................................................................... 15
General............................................................................. 15
Record Dates; Shares Entitled to Vote; Quorum; Vote Required........................ 15
Solicitation of Proxies............................................................. 16
Appointment and Revocation of Proxies............................................... 16
Voting of Shares and Exercise of Discretion of Proxies.............................. 17
Other Matters....................................................................... 17
THE REORGANIZATION.................................................................... 18
General Description of the Mergers.................................................. 18
Sepco's Reasons for the Reorganization; Recommendation of Sepco's Board of
Directors........................................................................ 18
Newman's Reasons for the Newman Merger; Recommendation of Newman's Board
of Directors..................................................................... 19
Certain Federal Income Tax Consequences............................................. 20
Anticipated Accounting Treatment.................................................... 21
Dissenters' Rights.................................................................. 21
Arrangement with Halter............................................................. 26
Restrictions on Resales by Affiliates............................................... 26
CERTAIN TERMS OF THE MERGER AGREEMENTS................................................ 27
Sepco Merger Agreement.............................................................. 27
Newman Merger Agreement............................................................. 29
SEPCO SELECTED CONSOLIDATED FINANCIAL DATA............................................ 32
NEWMAN SELECTED FINANCIAL DATA........................................................ 33
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 37
The Company/Sepco................................................................... 37
General............................................................................. 37
Results of Operations............................................................... 38
Liquidity and Capital Resources..................................................... 40
Accounting Pronouncements........................................................... 41
Inflation........................................................................... 41
Newman.............................................................................. 41
</TABLE>
i
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
BUSINESS INFORMATION CONCERNING THE COMPANY........................................... 43
General............................................................................. 43
Industry Overview and Business Objectives........................................... 44
Products and Services............................................................... 45
The iPower Consortium............................................................... 46
Manufacturers....................................................................... 46
Competition......................................................................... 46
Customers........................................................................... 47
Properties.......................................................................... 47
Backlog............................................................................. 47
Employees........................................................................... 47
Insurance........................................................................... 48
Intellectual Property............................................................... 48
Government Regulation and Environmental Matters..................................... 48
Legal Proceedings................................................................... 48
BUSINESS INFORMATION CONCERNING NEWMAN................................................ 49
Background.......................................................................... 49
Bankruptcy Proceedings.............................................................. 49
Current Business of Newman.......................................................... 49
MARKET FOR THE COMPANY'S STOCK, SEPCO COMMON STOCK AND NEWMAN COMMON STOCK AND RELATED
SHAREHOLDER MATTERS................................................................. 50
The Company......................................................................... 50
Sepco............................................................................... 51
Newman.............................................................................. 51
DIVIDEND POLICY....................................................................... 51
MANAGEMENT............................................................................ 52
Board of Directors' Compensation.................................................... 53
Committees of the Board of Directors................................................ 53
Employment Agreements............................................................... 53
Executive Compensation.............................................................. 55
Benefit Plans....................................................................... 56
The Sepco Industries, Inc. Employee Stock Ownership Plan............................ 56
Nonqualified Stock Option Agreements................................................ 57
Long Term Incentive Plan............................................................ 57
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 63
CERTAIN TRANSACTIONS.................................................................. 66
Sepco............................................................................... 66
COMPARISON OF RIGHTS OF SHAREHOLDERS OF SEPCO AND THE COMPANY......................... 66
Common Stock........................................................................ 66
Preferred Stock..................................................................... 66
Vote Required on Certain Matters.................................................... 66
COMPARISON OF RIGHTS OF HOLDERS OF NEWMAN COMMON STOCK AND COMMON STOCK............... 67
Mergers............................................................................. 67
Appraisal Rights.................................................................... 68
Special Meetings.................................................................... 68
Shareholder Action Without a Meeting................................................ 68
Election of Directors............................................................... 68
Voting on Other Matters............................................................. 69
</TABLE>
ii
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Distributions to Shareholders....................................................... 69
Liquidation Rights.................................................................. 69
Limitation of Liability and Indemnification......................................... 70
Removal of Directors................................................................ 70
Inspection of Books and Records..................................................... 70
DESCRIPTION OF COMPANY CAPITAL STOCK.................................................. 71
General............................................................................. 71
Common Stock........................................................................ 71
Preferred Stock..................................................................... 71
Transfer Agent...................................................................... 72
DESCRIPTION OF SEPCO CAPITAL STOCK.................................................... 73
General............................................................................. 73
Sepco Common Stock.................................................................. 73
Sepco Preferred Stock............................................................... 74
DESCRIPTION OF NEWMAN CAPITAL STOCK................................................... 75
General............................................................................. 75
Newman Common Stock................................................................. 75
Newman Preferred Stock.............................................................. 75
Class C Warrants.................................................................... 75
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 76
Dividends on Company Stock.......................................................... 76
Conversion of Series B Convertible Preferred Stock into Common Stock................ 78
Redemption Premium.................................................................. 78
Adjustment of Conversion Price...................................................... 78
Redemption of the Series B Convertible Preferred Stock for Cash..................... 78
Backup Withholding and Information Reporting........................................ 79
LEGAL MATTERS......................................................................... 79
EXPERTS............................................................................... 80
APPENDIX A: Sepco Merger Agreement
APPENDIX B: Newman Merger Agreement
APPENDIX C: Articles 5.12 and 5.13 of the Texas Business Corporation Act
APPENDIX D: Sections 53-15-3 and 53-15-4 of the New Mexico Business Corporation Act
APPENDIX E: Articles of Incorporation of the Company
APPENDIX F: Bylaws of the Company
</TABLE>
iii
<PAGE> 12
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. This summary does not contain a complete
statement of all material information relating to the Sepco Merger, the Newman
Merger, the Sepco Merger Agreement, the Newman Merger Agreement, the
Reorganization or the other transactions contemplated thereby and is subject to
and qualified in its entirety by reference to the more detailed information and
financial statements contained elsewhere in this Proxy Statement/Prospectus, the
Sepco Merger Agreement and the Newman Merger Agreement, which are attached
hereto and incorporated herein by reference, and the other Appendices attached
hereto. Shareholders are urged to read this Proxy Statement/Prospectus and the
Appendices hereto in their entirety. Unless the context otherwise requires,
references in this Proxy Statement/Prospectus to the "Company" shall mean Index,
Inc., as the successor to Sepco following the completion of the Reorganization.
THE COMPANIES
The Company was incorporated in the State of Texas in July 1996 for the
sole purpose of effecting the Reorganization and succeeding to the business and
operations of Sepco. Sepco is a distributor of maintenance, repair and operating
supplies and equipment for industrial customers engaged in various businesses,
principally the oil and gas, petrochemical and wood products industries. The
Company currently distributes over 125,000 items, consisting primarily of pumps
and pump accessories, valves and valve automation products and bearings and
power transmission equipment. The Company also provides system design,
fabrication, installation, repair and maintenance services for its customers.
The Company's products currently are distributed from over 30 distribution
centers strategically located throughout the Southwest. The Company's sales
force includes approximately 100 sales representatives. See "Business
Information Concerning the Company".
Newman was incorporated in the State of New Mexico in June 1981. Newman was
in the business of publishing and distributing non-musical audio cassette
recordings of fiction and non-fiction books, recorded interviews and seminars
and other original spoken word recordings containing ideas, information or
entertainment similar to that presented in books. In 1987, Newman began
experiencing financial difficulties and, by late 1987, Newman no longer had
sufficient cash flow to meet its obligations as they became due and ceased
substantially all of its business operations. At this time, the business purpose
of Newman is to seek an acquisition or merger transaction with a business that
Newman believes has significant growth potential, thereby allowing its
shareholders to benefit by owning an interest in a viable business enterprise.
While Newman has no significant assets or operations, it possesses a shareholder
base which Newman believes makes it an attractive merger candidate to a
privately-held corporation seeking to become a public company. See "Business
Information Concerning Newman".
THE MEETINGS
GENERAL
Sepco. The Sepco Meeting will be held at : .m., Central Daylight
Time, on , November , 1996 at the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010 to consider and
vote upon (i) a proposal to approve and adopt the Sepco Merger Agreement and
(ii) such other business as may properly be brought before the Sepco Meeting or
any adjournment or postponement thereof. The Sepco Board of Directors has
unanimously approved the Sepco Merger Agreement and the Sepco Merger and has
determined that the Sepco Merger is in the best interests of Sepco and its
shareholders. The Sepco Board of Directors recommends that the Sepco
shareholders vote for the approval and adoption of the Sepco Merger Agreement.
See "The Meetings -- General -- Sepco".
Newman. The Newman Meeting will be held at : .m., Central Daylight
Time, on , November , 1996 at the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010 to consider and
vote upon (i) a proposal to approve and adopt the Newman Merger Agreement and
(ii) such other business as may properly be brought before the Newman Meeting or
any adjournment or
1
<PAGE> 13
postponement thereof. The Newman Board of Directors has unanimously approved the
Newman Merger Agreement and the Newman Merger and has determined that the Newman
Merger is in the best interests of Newman and its shareholders. The Newman Board
of Directors unanimously recommends that the Newman shareholders vote for
approval and adoption of the Newman Merger Agreement. See "The Meetings --
General -- Newman".
RECORD DATES; SHARES ENTITLED TO VOTE; QUORUM; VOTE REQUIRED
Sepco. Only holders of record of the Sepco Class A Common Stock, the Sepco
Class B Common Stock, the Sepco Class A Convertible Preferred Stock and the
Sepco Preferred Stock at the close of business on October , 1996 (the "Sepco
Record Date") are entitled to notice of, and to vote at, the Sepco Meeting. A
majority of the shares entitled to vote, present in person or represented by
proxy, will constitute a quorum at the Sepco Meeting.
At the close of business on the Sepco Record Date, there were 758,900
shares of Sepco Class A Common Stock, 176,900 shares of Sepco Class B Common
Stock, 19,500 shares of Sepco Class A Convertible Preferred Stock and 3,366
shares of Sepco Preferred Stock outstanding and entitled to vote at the Sepco
Meeting. Directors and executive officers of Sepco held 587,399 shares of Sepco
Class A Common Stock, representing approximately 62.8% of the outstanding
shares, 12,035 shares of Sepco Class B Common Stock, representing approximately
6.8% of the outstanding shares, 15,000 shares of Sepco Class A Convertible
Preferred Stock, representing approximately 76.9% of such series, and no shares
of Sepco Preferred Stock. Such persons have indicated to Sepco that they intend
to vote their shares in favor of the approval and adoption of the Sepco Merger
and the Sepco Merger Agreement. Each share of Sepco Common Stock entitles the
holder thereof to one vote on each matter submitted for shareholder approval.
Under Texas law and Sepco's Articles of Incorporation, approval and adoption of
the Sepco Merger and the Sepco Merger Agreement require the affirmative vote of
the holders of at least two-thirds of the shares of Sepco Common Stock
outstanding and entitled to vote thereon. Approval and adoption of the Sepco
Merger and the Sepco Merger Agreement also requires the approval of the holders
of at least two-thirds of the shares of Sepco Class A Common Stock, Sepco Class
B Common Stock, Sepco Class A Convertible Preferred Stock and Sepco Preferred
Stock, each voting as a separate class or series, as the case may be. Under
Texas law, abstentions contained on a returned proxy card will be considered
present for purposes of determining the existence of a quorum at the Sepco
Meeting and will have the effect of a vote against the Sepco Merger and Sepco
Merger Agreement. See "The Meetings -- Record Dates; Shares Entitled to Vote;
Quorum; Vote Required -- Sepco".
Newman. Only holders of record of Newman Common Stock at the close of
business on October , 1996 (the "Newman Record Date") are entitled to notice
of, and to vote at, the Newman Meeting. A majority of the shares entitled to
vote, present in person or represented by proxy, will constitute a quorum at the
Newman Meeting.
Under New Mexico law and Newman's Articles of Incorporation, approval and
adoption of the Newman Merger and the Newman Merger Agreement require the
affirmative vote of a majority of the issued and outstanding shares of Newman
Common Stock entitled to vote therein. At the close of business on the Newman
Record Date, there were 2,552,064 shares of Newman Common Stock outstanding and
entitled to vote at the Newman Meeting. The officers and directors of Newman
have recommended that the shareholders vote their shares of Newman Common Stock
in favor of approval and adoption of the Newman Merger Agreement.
On the Newman Record Date, there were approximately 199 holders of record
of the 2,552,064 shares of Newman Common Stock then issued and outstanding. Each
share of Newman Common Stock entitles the holder thereof to one vote on each
matter submitted for shareholder approval. See "The Meetings -- Record Dates;
Shares Entitled to Vote; Quorum; Vote Required -- Newman".
Under applicable rules of the National Association of Securities Dealers,
Inc., brokers will not be permitted to submit proxies to authorize the Newman
Merger and the Newman Merger Agreement in the absence of specific instructions
from beneficial owners. Any unvoted position in a brokerage account (i.e.,
2
<PAGE> 14
broker non-votes) with respect to any matter will be considered as not voted.
Under New Mexico law, abstentions contained on a returned proxy card will be
considered present for purposes of determining the existence of a quorum at the
Newman Meeting. Accordingly, broker non-votes and abstentions will have the
effect of votes against the Newman Merger and the Newman Merger Agreement.
THE REORGANIZATION
GENERAL DESCRIPTION OF THE MERGERS
Sepco Merger. Upon consummation of the Sepco Merger, Sepco Acquisition will
merge with and into Sepco, with Sepco being the surviving corporation, and (i)
each outstanding share of Sepco Class A Common Stock will be converted
automatically into the right to receive 16 shares of Common Stock, (ii) each
outstanding share of Sepco Class B Common Stock will be converted automatically
into the right to receive 18.1232 shares of Common Stock, (iii) each outstanding
share of Sepco Class A Convertible Preferred Stock will be converted
automatically into the right to receive one share of Series B Convertible
Preferred Stock and (iv) each outstanding share of Sepco Preferred Stock will be
converted automatically into the right to receive one share of Series A
Preferred Stock. As a consequence of the Sepco Merger, Sepco will become a
wholly-owned subsidiary of the Company. Based on the number of shares of Sepco
capital stock and Newman Common Stock outstanding as of the Sepco Record Date
and Newman Record Date, respectively, Sepco shareholders collectively will hold
15,384,384 shares, or approximately 96%, of the issued and outstanding Common
Stock, upon consummation of the Reorganization. See "The
Reorganization -- General Description of the Mergers -- Sepco".
Newman Merger. Upon consummation of the Newman Merger, Newman Acquisition
will merge with and into Newman, with Newman being the surviving corporation,
and each outstanding share of Newman Common Stock will be converted into
one-fourth of one share of Common Stock. As a consequence of the Newman Merger,
Newman will become a wholly-owned, non-operating subsidiary of the Company.
Newman shareholders collectively will own 639,516 shares of the outstanding
Common Stock, or approximately 4.0% of the issued and outstanding Common Stock,
upon consummation of the Reorganization. See "The Reorganization -- General
Description of the Mergers -- Newman".
REASONS FOR THE MERGERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Sepco Merger. During 1995, Sepco began an investigation with respect to the
possibility of becoming a public company in order to obtain better access to
equity capital for purposes of supporting its acquisition program and proposed
growth plans and to provide greater liquidity for the Sepco Common Stock. After
analyzing the costs and benefits of different possibilities and the
probabilities of success, the board of directors of Sepco ultimately concluded
that the most desirable means for Sepco to achieve its objectives would be to
merge with an existing public company. In connection with this decision, Sepco
retained Halter Financial Group, Inc. ("Halter"), a consulting firm, to assist
it in identifying a desirable public company with which to merge. As part of
this arrangement, Sepco agreed that Halter would be entitled to receive up to
2.7% of the outstanding shares of common stock of the surviving corporation upon
the consummation of a merger between Sepco and a public company secured by
Halter for the transaction. See "The Reorganization -- Sepco's Reasons for the
Reorganization; Recommendation of Sepco's Board of Directors".
In February 1996, after reviewing several potential public companies as
acquisition candidates, including Newman, management of Sepco determined that
Newman would be a desirable candidate for Sepco to merge. From February to April
1996, Sepco conducted due diligence with respect to the prior business and
operations of Newman. Sepco also concluded that the most desirable means for
effecting a merger or business combination with Newman would be through the
creation of the Company and the concurrent acquisition by the Company of all of
the outstanding shares of Newman through the Newman Merger and of all the
outstanding shares of Sepco through the Sepco Merger. In connection with this
structure, Halter entered into an agreement with Newman pursuant to which Halter
acquired a 66.2% interest in Newman which was intended to provide Halter with an
approximate 2.7% ownership interest in the Company upon the
3
<PAGE> 15
consummation of the Reorganization. See "The Reorganization -- Sepco's Reasons
for the Reorganization; Recommendation of Sepco's Board of Directors" and "The
Reorganization -- Arrangements With Halter".
On August 12, 1996, the Company entered into the Sepco Merger Agreement and
the Newman Merger Agreement. The Board of Directors of each of Sepco and Newman
have determined that the Sepco Merger and the Newman Merger, respectively, are
in the best interest of their respective shareholders and have recommended to
their shareholders that such mergers be approved.
Newman Merger. The Newman Merger is the result of Newman's efforts to
obtain value for the Newman Common Stock. Newman has no significant assets or
operations; however, it possesses a shareholder base which Newman believes makes
it an attractive merger candidate to a privately-held corporation seeking to
become a public company. The board of directors of Newman has concluded that the
Newman Merger is in the best interests of the shareholders of Newman, has
approved the Newman Merger Agreement and has recommended that the shareholders
of Newman approve and adopt the Newman Merger Agreement.
The board of directors of Newman believes that the terms of the Newman
Merger Agreement are fair to, and in the best interests of, Newman and its
shareholders. In reaching its conclusion, Newman's Board of Directors considered
(i) the matters set forth above, (ii) the judgment and advice of Newman's
management, (iii) the historical financial performance and future operating
prospects of Newman, (iv) detailed business and financial information regarding
Sepco and (iv) the terms of the Newman Merger Agreement. See "The
Reorganization -- Newman's Reasons for the Newman Merger; Recommendation of
Newman's Board of Directors".
APPRAISAL RIGHTS
Sepco Shareholders. Any shareholder of record of Sepco who objects to the
Sepco Merger and who follows the procedures prescribed by Articles 5.12 and 5.13
of the Texas Business Corporation Act (the "TBCA") may be entitled, in lieu of
receiving the shares of Common Stock, Series B Convertible Preferred Stock or
Series A Preferred Stock, as the case may be, in the Sepco Merger, to receive
cash equal to the fair value of such shares, which value will be determined by
agreement or appraisal. See "The Reorganization -- Dissenters' Rights -- Sepco
Shareholders" and Appendix C to this Proxy Statement/Prospectus, which contains
the applicable provisions of the TBCA in their entirety.
Newman Shareholders. Any shareholder of record of Newman who objects to the
Newman Merger and who follows the procedures prescribed by Section 53-15-4 of
the New Mexico Business Corporation Act (the "NMBCA") may be entitled, in lieu
of receiving the shares of Common Stock in the Newman Merger, to receive cash
equal to the fair value of such shares, which value will be determined by
agreement or appraisal. See "The Reorganization -- Dissenters' Rights -- Newman
Shareholders" and Appendix D to this Proxy Statement/Prospectus, which contains
the applicable provisions of the NMBCA in their entirety.
EFFECTIVE TIMES OF THE MERGERS
The Sepco Merger will become effective at the effective time set forth in
the certified Articles of Merger issued by the Secretary of State of Texas and
the Secretary of State of Nevada with respect to the Sepco Merger. The Newman
Merger will become effective at the effective time set forth in the certified
Articles of Merger issued by the Secretary of State of New Mexico and the
Secretary of State of Nevada with respect to the Newman Merger. Assuming all
conditions to the Mergers contained in each of the Sepco Merger Agreement and
the Newman Merger Agreement are satisfied or waived prior thereto, it is
anticipated that the effective time of the Sepco Merger and the Newman Merger
will occur on the business day immediately following the Sepco Meeting (the
"Sepco Effective Time") and the Newman Meeting (the "Newman Effective Time"),
respectively. See "Certain Terms of the Merger Agreements -- Sepco Merger
Agreement -- Closing Date and Effective Time of the Merger" and "Certain Terms
of the Merger Agreements -- Newman Merger Agreement -- Closing Date and
Effective Time of the Merger".
4
<PAGE> 16
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable following the Sepco Effective Time, the Company or
its transfer agent will mail to each record holder of Sepco Class A Common
Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred Stock and
Sepco Preferred Stock a letter of transmittal and other information advising
such holder of the consummation of the Sepco Merger and for use in exchanging
certificates representing Sepco Class A Common Stock, Sepco Class B Common
Stock, Sepco Class A Convertible Preferred Stock and Sepco Preferred Stock for
certificates representing Common Stock, Series B Convertible Preferred Stock and
Series A Preferred Stock, respectively. As soon as practicable following the
Newman Effective Time, the Company or its transfer agent will mail to each
record holder of Newman Common Stock immediately prior to the Newman Effective
Time, a letter of transmittal and other information advising such holder of the
consummation of the Newman Merger and for use in exchanging certificates
representing Newman Common Stock for certificates representing Common Stock.
SHAREHOLDERS MUST SURRENDER SHARE CERTIFICATES REPRESENTING SEPCO CAPITAL STOCK
OR NEWMAN COMMON STOCK, TOGETHER WITH THE LETTER OF TRANSMITTAL, TO RECEIVE THE
SHARES OF STOCK OF THE COMPANY ISSUED PURSUANT TO THE SEPCO MERGER OR THE NEWMAN
MERGER. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY
SHAREHOLDERS OF SEPCO OR NEWMAN PRIOR TO THE APPROVAL OF THE SEPCO MERGER AND
THE NEWMAN MERGER AND THE RECEIPT OF A LETTER OF TRANSMITTAL. See "Certain Terms
of the Merger Agreements -- Sepco Merger Agreement -- Manner and Basis of
Converting Shares" and "Certain Terms of the Merger Agreements -- Newman Merger
Agreement -- Manner and Basis of Converting Shares".
CONDITIONS TO THE MERGERS
The consummation of each of the Mergers is conditioned on (i) the
effectiveness of the Registration Statement, of which this Proxy
Statement/Prospectus forms a part, (ii) shareholder approval of each of the
Mergers, the Sepco Merger Agreement and the Newman Merger Agreement and (iii)
other conditions customary to transactions similar to the Mergers. See "Certain
Terms of the Merger Agreements -- Sepco Merger Agreement -- Conditions to the
Merger" and "Certain Terms of the Merger Agreements -- Newman Merger
Agreement -- Conditions to the Merger".
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENTS
The Sepco Merger Agreement may be terminated, among other circumstances, by
the Company if the Sepco Merger has not closed by December 31, 1996 or by either
party if a court of competent jurisdiction shall have issued an order, decree or
ruling or taken any other action to enjoin or otherwise prohibit the Sepco
Merger. The Sepco Merger Agreement may be amended, modified or supplemented only
by an instrument in writing executed by all parties to the Sepco Merger
Agreement. See "Certain Terms of the Merger Agreements -- Sepco Merger
Agreement -- Termination or Amendment of the Sepco Merger Agreement".
The Newman Merger Agreement may be terminated, among other circumstances,
by the Company if the Newman Merger has not closed by December 31, 1996 or by
either party if a court of competent jurisdiction shall have issued an order,
decree or ruling or taken any other action to enjoin or otherwise prohibit the
Newman Merger. The Newman Merger Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all parties to the
Newman Merger Agreement. See "Certain Terms of the Merger Agreement -- Newman
Merger Agreement -- Termination or Amendment of the Newman Merger Agreement".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Sepco Merger and the Newman Merger are intended to be treated as an
exchange of shares of Sepco and Newman capital stock for shares of Common Stock,
Series B Convertible Preferred Stock and Series A Preferred Stock, as the case
may be, and therefore, should constitute a non-taxable transaction for the
holders of Sepco Common Stock, Sepco Class A Convertible Preferred Stock and
Sepco Preferred Stock (collectively referred to herein as "Sepco Stock") or
Newman Common Stock, except to the extent of cash received, if any, in lieu of
fractional shares of Common Stock or as a result of the exercise of his
dissenter's rights. For a
5
<PAGE> 17
discussion of these and other federal income tax considerations in connection
with the Sepco Merger and the Newman Merger, see "The Reorganization -- Certain
Federal Income Tax Consequences" and "Certain Federal Income Tax Consequences".
ANTICIPATED ACCOUNTING TREATMENT
The Reorganization will be treated as a recapitalization of Sepco into the
Company, a newly formed holding company, and the issuance of shares of the
Company's capital stock for the underlying tangible net assets of Newman. As a
result, the historical pre-Reorganization financial statements of the Company
upon completion of the Reorganization will be those of Sepco. See "The
Reorganization -- Anticipated Accounting Treatment".
COMPARATIVE RIGHTS OF SHAREHOLDERS OF THE COMPANY AND SHAREHOLDERS OF SEPCO AND
NEWMAN
The rights of the shareholders of Sepco currently are governed by Sepco's
Articles of Incorporation, as amended, Sepco's Bylaws and the laws of the State
of Texas. The rights of the shareholders of Newman currently are governed by
Newman's Articles of Incorporation, Newman's Bylaws and the laws of the State of
New Mexico. The rights of the shareholders of the Company will be governed by
the Company's Restated Articles of Incorporation (the "Company's Articles"), the
Company's Bylaws (the "Company's Bylaws") and the laws of the State of Texas.
The significant differences, as they impact the rights of the shareholders of
Sepco and the shareholders of Newman, are summarized elsewhere in this Proxy
Statement/Prospectus. See "Comparison of Rights of Shareholders of Sepco and the
Company" and "Comparison of Rights of Holders of Newman Common Stock and Common
Stock".
6
<PAGE> 18
MARKET PRICE DATA
THE COMPANY
There currently is no market for the Common Stock, the Series B Convertible
Preferred Stock or the Series A Preferred Stock, and there can be no assurance
that such a market will develop. The Company intends to apply for quotation of
the Common Stock on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. upon effectiveness of the Registration Statement. See
"Risk Factors -- No Public Market; Possible Volatility of Stock Price" and
"Market for the Company's Stock, Sepco Common Stock and Newman Common Stock and
Related Shareholder Matters -- The Company".
SEPCO
There is no established public trading market for the Sepco Common Stock.
See "Market for the Company's Stock, Sepco Common Stock and Newman Common Stock
and Related Shareholder Matters -- Sepco".
NEWMAN
The Newman Common Stock has been quoted on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. under the trading symbol "NWMC"
since October 1994. The Company believes, however, that such quotations have
been limited and sporadic and therefore do not constitute an "established public
trading market" under Item 201 of Regulation S-K of the Securities Act. The
following table sets forth the range of high and low closing bid prices for the
Newman Common Stock for the periods indicated. Quotations represent inter-dealer
prices, do not include retail markups, markdowns or commissions and may not
represent actual transactions. See "Market for the Company's Stock, Sepco Common
Stock and Newman Common Stock and Related Shareholder Matters -- Newman".
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL 1994
First Quarter............................................... $.25 $.25
Second Quarter.............................................. .25 .25
Third Quarter............................................... .25 .25
Fourth Quarter.............................................. .25 .25
FISCAL 1995
First Quarter............................................... .25 .25
Second Quarter.............................................. .25 .25
Third Quarter............................................... .25 .25
Fourth Quarter.............................................. .25 .25
FISCAL 1996
First Quarter............................................... .25 .25
Second Quarter.............................................. .25 .25
Third Quarter............................................... .25 .25
</TABLE>
On August 9, 1996, the last full day of trading before the Newman Merger
Agreement and the Sepco Merger Agreement were executed, the last reported
closing price per share of Newman Common Stock was $.25 and, since there is no
market for the Common Stock or the Sepco Stock, there was no reported closing
price for the Common Stock or the Sepco Stock.
7
<PAGE> 19
SEPCO
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The summary historical consolidated financial data of Sepco set forth below
for each of the years ended December 31, 1995, 1994 and 1993 and at December 31,
1995 and 1994 have been derived from the audited consolidated financial
statements of Sepco included elsewhere in this Proxy Statement/Prospectus. Such
financial statements have been audited by Ernst & Young LLP, independent
auditors. The selected financial data for the years ended December 31, 1992 and
1991 and at December 31, 1993, 1992 and 1991 are derived from the audited
financial statements of Sepco which are not included in this Proxy
Statement/Prospectus and which have been audited by Ernst & Young LLP,
independent auditors. The summary financial data set forth below for each of the
six-month periods ended June 30, 1996 and 1995 and at June 30, 1996 have been
derived from unaudited financial statements of Sepco included elsewhere in this
Proxy Statement/Prospectus. This information should be read in conjunction with
"Selected Consolidated Financial Data -- Sepco", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Sepco" and Sepco's
consolidated financial statements and notes included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- ------- ------- -------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Revenues....................................... $63,021 $56,395 $111,328 $102,592 $99,353 $96,017 $93,239
Gross profit................................... 16,231 14,390 29,157 27,217 26,792 23,622 24,416
Operating income(1)............................ 1,425 2,010 4,598 4,150 3,288 1,827 4,171
Income before provision for income taxes,
minority interest and change in accounting
principle.................................... 931 1,470 3,512 3,038 2,346 620 2,511
Minority interest in earnings (loss) of
Subsidiaries(2).............................. -- -- -- -- (403) 136 (392)
Cumulative effect of change in accounting
principle(3)................................. -- -- -- -- 882
Net income(4).................................. 554 874 2,088 1,862 1,843 152 1,043
PER SHARE DATA:
Primary
Net income................................... $ 0.55 $ 0.66 $ 1.68 $ 1.41 $ 1.58 $ 0.14 $ 0.95
Fully diluted
Net income................................... $ 0.48 $ 0.66 $ 1.61 $ 1.40 $ 1.55 $ 0.14 $ 0.95
Number of shares used to calculate
Primary net income per share................. 1,016 1,331 1,244 1,319 1,163 1,102 1,102
Fully diluted net income per share........... 1,152 1,334 1,293 1,328 1,187 1,102 1,102
</TABLE>
<TABLE>
<CAPTION>
JUNE DECEMBER 31,
30, ---------------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $23,418 $23,967 $20,011 $18,402 $17,084 $15,069
Total assets.............................................. 43,071 43,254 38,163 38,686 37,243 34,327
Long-term debt obligations................................ 19,660 21,275 18,461 20,766 19,200 16,565
Stockholders' Equity...................................... 11,887 10,288 8,708 6,942 4,542 3,975
</TABLE>
- ---------------
(1) Six months ended June 30, 1996 includes a one-time charge to compensation
expense of $710,000 for the amendment of book value options to fair market
value options.
(2) In December 1992 and September 1993, Sepco acquired the remaining capital
stock of two subsidiaries, T.L. Walker Bearing Company and Southern Engine
and Pump Company. The acquisitions eliminated any need to account for
minority interest in earnings of the subsidiaries.
(3) Effective January 1, 1993, Sepco changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". As permitted under the new
rules, prior years' financial statements were not restated. The cumulative
effect of adopting Statement 109 as of January 1, 1993 was to increase net
earnings by $882,000.
(4) In August 1990, June 1991 and July 1992, Sepco acquired three separate
bearing and power transmission companies having revenues of approximately
$25,000,000, $10,000,000 and $7,000,000, respectively, at the time of their
purchase. In 1991, 1992 and 1993, operating income (loss) from these bearing
and power transmission companies was $188,000, ($1,091,000) and $379,000,
respectively.
8
<PAGE> 20
NEWMAN
SUMMARY HISTORICAL FINANCIAL DATA
The summary financial data of Newman for the fiscal years 1991 through 1995
were derived from the audited financial statements of Newman. Included elsewhere
in this Proxy Statement/Prospectus are the Balance Sheets for December 31, 1995
and March 31, 1995 and the Statements of Operations, Changes in Shareholders'
Equity and Cash Flows for the nine months and twelve months then ended. Such
financial statements have been audited by Cheshier & Fuller, Inc., P.C.,
independent public accountants. This information included elsewhere in the Proxy
Statement/Prospectus should be read in conjunction with the following summary
financial data. The summary financial data for the six months ended June 30,
1996 and 1995 are unaudited, but in the opinion of management of Newman, such
financial statements include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of Newman's financial position
and results of operations. The results of operations for the six months ended
June 30, 1996 may not be indicative of the results to be expected for the full
fiscal year. See "Selected Consolidated Financial Data -- Newman", "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Newman" and Newman's financial statements and notes thereto
included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS
JUNE 30,(3) YEAR ENDED MARCH(1)(2)(3) ENDED
-------------------- -------------------------------------------------- DECEMBER 31,
1996 1995 1995 1994 1993 1992 1995(1)(3)
-------- -------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues......................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Income (loss) before
extraordinary items............ (13,212) (5,644) (4,392) (5,600) -- -- (5,978)
Extraordinary items(2)........... -- -- -- 4,026,333 -- -- --
Net income (loss)................ (13,212) (5,644) (4,392) 4,020,733 -- -- (5,978)
PER SHARE DATA:
Primary
Income (loss) before
extraordinary items.......... $ (.02) $ (.01) $ (.01) $ -- $ -- $ -- $ (.01)
Net income..................... $ (.02) $ (.01) $ (.01) $ 1.14 $ -- $ -- $ (.01)
Fully diluted
Net income (loss).............. $ (.02) $ (.01) $ (.01) $ -- $ -- $ -- $ (.01)
Average number of Shares of
Common Stock outstanding(4).... 858,500 834,500 763,792 3,540,407 5,310,610 5,310,610 839,833
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
---------------- MARCH 26, MARCH 27, MARCH 28, DECEMBER 31,
1996 1995 1994 1993 1992 1995
------ ------ --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total assets.................................. $5,676 $2,640 $ 9,249 $ -0- $ -0- $ 12,854
Total liabilities............................. 6,034 2,250 25 4,031,509 4,031,509 -0-
Shareholders equity (deficit)................. (358) 390 9,224 (4,031,509) (4,031,509) 12,854
</TABLE>
- ---------------
(1) During 1995, Newman changed its fiscal year end from a fiscal year which is
based on a 52-week year ending on the last Saturday in March to a calendar
year end.
(2) Newman filed for Chapter 11 bankruptcy on August 12, 1992, and emerged as a
reorganized entity on November 22, 1993. See "Business Information
Concerning Newman -- Bankruptcy Proceedings".
(3) Newman has been a development stage company since its November 22, 1993
reorganization.
(4) Does not include 1,693,564 shares of Newman Common Stock issued to Halter in
August 1996 for approximately $1,694 in cash. See "The
Reorganization -- Sepco's Reasons for the Reorganization -- Recommendation
of Sepco's Board of Directors".
9
<PAGE> 21
SUMMARY UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed combined balance sheet and
statements of earnings reflect the completion of the Sepco Merger and Newman
Merger. The Sepco Merger and the Newman Merger are described more fully herein
and in the Sepco Merger Agreement and Newman Merger Agreement. The pro forma
condensed combined statements of earnings assume that the Sepco Merger and the
Newman Merger were consummated as of the beginning of the periods presented and
the pro forma condensed combined balance sheets assume that the Sepco Merger and
the Newman Merger were consummated as of the end of the periods presented. The
pro forma adjustments are explained in "Notes to Unaudited Pro Forma Combined
Financial Statements". The pro forma combined statements of operations are not
necessarily indicative of the results of operations had the proposed
transactions occurred at the beginning of each period presented, nor are they
necessarily indicative of the results of future operations.
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENTS OF EARNINGS DATA:
Revenues.................................................... $ 63,021 $ 111,328
Costs and expenses:
Costs of sales............................................ 46,790 82,171
Selling, general and administrative....................... 14,818 24,565
------- --------
Operating income............................................ 1,413 4,592
Other income (expense):
Other Income.............................................. 514 867
Interest expense.......................................... (1,008) (1,953)
------- --------
Total other expense............................... (494) (1,086)
------- --------
Earnings before income taxes................................ 919 3,506
Provision for income taxes.................................. (377) (1,424)
------- --------
Net income.................................................. $ 542 $ 2,082
======= ========
Earnings per share.......................................... $ .03 $ .12
======= ========
Number of shares used to compute pro forma earnings per
share..................................................... 17,263 17,263
======= ========
</TABLE>
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
(IN THOUSANDS)
<S> <C>
ASSETS:
Total Current Assets.......................................................... $36,744
Property, plant and equipment net............................................. 6,749
Total assets.......................................................... 45,078
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Total current liabilities..................................................... 13,325
Long-term debt, less current portion.......................................... 19,660
Deferred compensation.........................................................
Subordinated debt, less current portion.......................................
Deferred income taxes......................................................... 205
Total shareholders' equity.................................................... 11,887
Total liabilities and shareholders' equity............................ 45,078
</TABLE>
10
<PAGE> 22
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table presents historical and pro forma per share data for
Sepco (whose financial statements will become the historical financial
statements of the Company) and historical and equivalent pro forma per share
information for Newman after giving effect to the Reorganization, assuming the
Reorganization had been effective during all periods presented. See "The
Reorganization -- Anticipated Accounting Treatment". The pro forma data are not
necessarily indicative of future operations or the results that would have
occurred had the Reorganization been consummated at the beginning of the periods
presented. The information set forth below should be read in conjunction with
"Selected Consolidated Financial Information", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto of Sepco and Newman included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
HISTORICAL NEWMAN
------------------ SEPCO EQUIVALENT
SEPCO NEWMAN(1) PRO FORMA PRO FORMA(2)
----- --------- --------- ------------
<S> <C> <C> <C> <C>
Income (loss) per common and common equivalent
share:
Six months ended June 30, 1996.................. $0.55 $ (0.01) $0.03 $ --
Year ended December 31, 1995.................... 1.68 (0.01) 0.12 --
Book value per share:
June 30, 1996................................... $9.12 $ 0.38 $0.57 $ 0.02
December 31, 1995............................... 7.85 0.33 0.49 0.02
</TABLE>
- ---------------
(1) The historical information for Newman is for the twelve month period ended
December 31, 1995.
(2) The equivalent pro forma per share data for Newman is computed by
multiplying Sepco's pro forma per share information by 4%.
11
<PAGE> 23
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed below and
elsewhere in this Proxy Statement/Prospectus.
NO FAIRNESS OPINION OBTAINED BY THE COMPANY, SEPCO OR NEWMAN
None of the Company, Sepco or Newman engaged an independent third party to
review the terms of the Reorganization or to prepare a fairness opinion related
to the applicable exchange ratios set forth in the Sepco Merger Agreement and
Newman Merger Agreement. Each exchange ratio was determined by negotiations
between management of the Company, on the one hand, and Sepco and Newman,
respectively, on the other hand, related to the relative value of each entity.
The factors considered in establishing the exchange ratio with respect to the
Newman Merger included (i) the publicly held nature and existing shareholder
base of Newman, (ii) the operating and financial history of Newman and (iii) the
potential value of the shares of Common Stock to be issued to Newman
shareholders in light of Newman's present financial condition, which includes no
significant assets or operations. The factors considered in establishing the
exchange ratios with respect to the Sepco Merger included (i) the operating and
financial history of Sepco, (ii) the fair value of the Sepco Common Stock at
December 31, 1995, as determined by an independent appraiser for purposes of the
Sepco Employee Stock Ownership Plan ("Sepco ESOP"), and (iii) a desire that the
Reorganization result in an aggregate of 16,000,000 outstanding shares of Common
Stock, based upon the advice of Halter. See "The Reorganization -- Newman's
Reasons for the Mergers; Recommendation of Newman's Board of
Directors; -- Sepco's Reasons for the Reorganization; Recommendation of Sepco's
Board of Directors".
CONTROL BY EXISTING SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS OF SEPCO
Sepco's existing shareholders, executive officers, directors and their
affiliates will beneficially own approximately 96% of the outstanding shares of
Common Stock following the Reorganization. As a result, such persons, acting
together, will be able to elect all of the Company's directors, will retain the
voting power to approve most matters requiring shareholder approval and will
have significant influence on the affairs of the Company. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company. See "Beneficial Ownership of Securities".
SUBSTANTIAL COMPETITION
The Company's business is highly competitive. The Company competes with a
variety of industrial supply distributors, some of which may have greater
financial and other resources than the Company. Although many of the Company's
traditional distribution competitors are small enterprises selling to customers
in a limited geographic area, the Company also competes with larger distributors
that provide integrated supply programs such as those offered through the iPower
Consortium and outsourcing services similar to those that are planned to be
offered by American MRO, Inc. ("AMRO"), a wholly-owned subsidiary of Sepco. Some
of these large distributors may be able to supply their products in a more
timely and cost-efficient manner than the Company. The Company's competitors
include direct mail suppliers, large warehouse stores and, to a lesser extent,
certain manufacturers. See "Business Information Concerning the Company".
RISKS ASSOCIATED WITH IMPLEMENTATION OF CORPORATE STRATEGY
Future results for the Company also will be dependent on the success of the
Company in implementing its acquisition and growth strategy. This strategy
includes taking advantage of a consolidation in the industry and effecting
acquisitions of distributors with complementary or desirable new product lines,
strategic distribution locations and attractive customer bases and manufacturer
relations. The Company's strategy also includes expanding its product lines,
adding new product lines and establishing alliances and joint ventures with
other suppliers in order to provide the Company's customers with a source of
integrated supply. The
12
<PAGE> 24
ability of the Company to implement this strategy will be dependent on its
ability to identify, consummate and assimilate acquisitions on economic terms,
to acquire and successfully integrate new product lines and to establish and
successfully market new integrated forms of supply arrangements such as that
being pursued by AMRO. Although the Company is actively seeking acquisitions and
integrated supply arrangements that would meet its strategic objectives, it
currently has no agreements or understandings with respect to any such
acquisition and there can be no assurance that the Company will be successful in
these efforts. Further, the ability of the Company to effect its strategic plans
will be dependent on its obtaining financing for its planned expansions and
acquisitions. There can be no assurance that such financing will be available on
a timely basis or on terms satisfactory to the Company. The Company plans to
examine appropriate methods of financing any such acquisition, including
issuance of additional capital stock, debt or other securities or a combination
of both. If the Company were to issue shares of its capital stock in any
acquisition, such issuance could be dilutive to existing shareholders.
DEPENDENCE ON KEY PERSONNEL
The Company will continue to be dependent to a significant extent upon the
efforts and ability of David R. Little, its Chairman of the Board and Chief
Executive Officer. The loss of the services of Mr. Little or any other executive
officer of the Company could have a material adverse effect on the Company's
financial condition and results of operations. The Company does not maintain
key-man life insurance on Mr. Little or on the lives of its other executive
officers. In addition, the Company's ability to grow successfully will be
dependent upon its ability to attract and retain qualified management and
technical and operational personnel. The failure to attract and retain such
persons could materially adversely effect the Company's financial condition and
results of operations. See "Management".
CHANGES IN VOTING RIGHTS OF HOLDERS OF SEPCO COMMON STOCK
Pursuant to the Sepco Merger, the holders of Sepco Class A Common Stock and
Class B Common Stock will receive shares of Common Stock in accordance with the
exchange ratios set forth in the Sepco Merger Agreement. As a result, the former
holders of Sepco Class A Common Stock and Class B Common Stock will no longer
have the right to a class vote with respect to certain matters that under Texas
law require the approval of each class or series of stock. In addition, the
holders of Sepco Common Stock currently have the right to approve any changes in
the terms of the Sepco Class A Convertible Preferred Stock and Sepco Preferred
Stock. As holders of Common Stock, the former holders of Sepco Common Stock will
not have the right to approve any changes in the terms of the Series B
Convertible Preferred Stock or the Series A Preferred Stock. Furthermore, a
holder of Sepco Class B Common Stock is entitled to receive $7.5075 upon the
liquidation of Sepco. Such liquidation right is in preference to the liquidation
rights of holders of Sepco Class A Convertible Preferred Stock. As a holder of
Common Stock, the former holders of Sepco Class B Common Stock will have no such
liquidation rights or preference. The holders of Sepco Class A Convertible
Preferred Stock and Sepco Preferred Stock, except as otherwise provided by law,
have no right to vote on the election of directors or any matters presented to
the Sepco shareholders. Each share of Series A Preferred Stock and Series B
Convertible Preferred Stock entitles the holder thereof to one-tenth of a vote
on all matters to come before a meeting of the shareholders of the Company. In
addition, matters that previously required the vote of two-thirds of the
outstanding shares of Sepco stock will only require the approval of a majority
of the outstanding shares of the Company. See "Comparison of Rights of Holders
of Sepco Stock and Common Stock".
IRS EXAMINATION
Sepco currently is undergoing an examination of its tax returns by the
Internal Revenue Service ("IRS") which is asserting claims against Sepco for
additional taxes and penalties of approximately $1 million plus interest of
approximately $240,000. The claim relates primarily to a challenge by the IRS of
Sepco's use of the LIFO method of accounting for inventory. Although Sepco
believes that its LIFO elections were valid and is pursuing its rights to
administrative appeal, an unfavorable outcome on this matter would result in the
13
<PAGE> 25
payment of additional taxes and impact the Company's liquidity position. See
"Business -- Legal Proceedings".
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
Certain of the Company's activities involve the controlled use of hazardous
materials and chemicals. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
See "Business Information Concerning the Company -- Government Regulation and
Environmental Matters".
LIMITATION ON ABILITY TO PAY DIVIDENDS
The Company anticipates that future earnings, except for dividends payable
on the Series B Convertible Preferred Stock, will be retained to finance the
continuing development of its business. In addition, the Company's loan
agreement with its principal lender prohibits the Company from declaring or
paying any dividends or other distributions on its capital stock except for
dividends on its preferred stock which do not exceed $117,000 in the aggregate
in any fiscal year. Accordingly, the Company does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. See "Dividend Policy".
DILUTION
Shareholders of Newman will receive shares of Common Stock as a result of
the Newman Merger. The percentage of ownership of the former Newman shareholders
in the Company will be significantly less than their percentage of ownership in
Newman prior to the Newman Merger as a result of the terms of the Newman Merger
Agreement and issuance of Common Stock to the shareholders of Sepco in the Sepco
Merger, although this dilution is somewhat offset by the fact that the former
Newman shareholders' smaller ownership percentage interest will be in a larger
operating enterprise.
POTENTIAL ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION AND BYLAWS
The Company's Articles allow the Board of Directors of the Company to issue
shares of preferred stock without shareholder approval on such terms as the
Board of Directors may determine. The rights of all the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. In addition, the
Company's Articles do not allow cumulative voting in the election of directors.
All of the foregoing could have the effect of delaying, deferring or preventing
a change in control of the Company and could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
See "Description of Company Capital Stock".
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock, Series B Convertible Preferred Stock and the Series A
Preferred Stock are new issues of securities that will have no established
trading market. The Company intends to apply for quotation of the Common Stock
on the OTC Bulletin Board of the National Association of Securities Dealers,
Inc. upon effectiveness of the Registration Statement, of which this Proxy
Statement/Prospectus forms a part. While there can be no assurance in this
regard, the Company believes that the Common Stock should qualify for quotation
on the OTC Bulletin Board. There can be no assurance, however, that a market in
the Common Stock will develop or, if developed, will be sustained. Upon the
consummation of the Mergers, over 90% of the outstanding shares of Common Stock
will be held by less than 20 holders. Concentration of ownership and the lack of
a public market for the Common Stock could adversely affect the liquidity of
such shares and the amount that could be realized on a sale thereof. See "Market
for the Company's Stock, Sepco Common Stock and Newman Common Stock and Related
Shareholder Matters -- The Company". The limited number of unaffiliated
shareholders and factors such as market expansion, the development of additional
services, its
14
<PAGE> 26
competitors and other third parties, as well as quarterly variations in the
Company's anticipated or actual results of operations or market conditions
generally, may cause the market price of the Common Stock to fluctuate
significantly if a trading market does in fact develop for the Common Stock. In
addition, the stock market has on occasion experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
companies. These broad market fluctuations may adversely affect the market price
of the Common Stock, if a public trading market is established.
THE MEETINGS
GENERAL
Sepco. The Sepco Meeting will be held at : .m., Central Daylight Time,
on , November , 1996 at the offices of Fulbright & Jaworski L.L.P.,
1301 McKinney, Suite 5100, Houston, Texas 77010.
Newman. The Newman Meeting will be held at : .m., Central Daylight
Time, on , November , 1996 at the offices of Fulbright & Jaworski
L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010.
RECORD DATES; SHARES ENTITLED TO VOTE; QUORUM; VOTE REQUIRED
Sepco. Only holders of record of the Sepco Class A Common Stock, the Sepco
Class B Common Stock, the Sepco Class A Convertible Preferred Stock and the
Sepco Preferred Stock at the close of business on the Sepco Record Date are
entitled to notice of, and to vote at, the Sepco Meeting. A majority of the
shares entitled to vote, present in person or represented by proxy, will
constitute a quorum at the Sepco Meeting.
At the close of business on the Sepco Record Date, there were 758,900
shares of Sepco Class A Common Stock, 176,900 shares of Sepco Class B Common
Stock, 19,500 shares of Sepco Class A Convertible Preferred Stock and 3,366
shares of Sepco Preferred Stock outstanding and entitled to vote at the Sepco
Meeting. Directors and executive officers of Sepco held 587,399 shares of Sepco
Class A Common Stock, representing approximately 62.8% of the outstanding
shares, 12,035 shares of Sepco Class B Common Stock, representing approximately
6.8% of the outstanding shares of such class, 15,000 shares of Sepco Class A
Convertible Preferred Stock, representing approximately 76.9% of the outstanding
shares of such series, and no shares of Sepco Preferred Stock. Such persons have
indicated to Sepco that they intend to vote their shares in favor of the
approval and adoption of the Sepco Merger and the Sepco Merger Agreement. Each
share of Sepco Common Stock entitles the holder thereof to one vote on each
matter submitted for shareholder approval. Under Texas law and Sepco's Articles
of Incorporation, approval and adoption of the Sepco Merger and the Sepco Merger
Agreement require the affirmative vote of the holders of at least two-thirds of
the shares of Sepco Common Stock outstanding and entitled to vote thereon and
approval by the holders of at least two-thirds of the shares of Sepco Class A
Common Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred
Stock and Sepco Preferred Stock, each voting as a separate class or series, as
the case may be. Under Texas law, abstentions contained on a returned proxy card
will be considered present for purposes of determining the existence of a quorum
at the Sepco Meeting and will have the effect of a vote against the Sepco Merger
and Sepco Merger Agreement.
The Sepco Class A Common Stock, the Sepco Class B Common Stock, the Sepco
Class A Convertible Preferred Stock and the Sepco Preferred Stock were held by
17, one, five and six holders of record, respectively, as of the Sepco Record
Date. The Sepco Class B Common Stock is currently held by the Sepco ESOP. The
participants in the Sepco ESOP will be entitled to direct the vote of the shares
allocated to their accounts in connection with the Sepco Merger. As of the Sepco
Record Date, there were 522 participants in the Sepco ESOP.
Newman. Only holders of record of Newman Common Stock at the close of
business on the Newman Record Date are entitled to notice of, and to vote at,
the Newman Meeting. A majority of the shares entitled to vote, present in person
or represented by proxy, will constitute a quorum at the Newman Meeting.
15
<PAGE> 27
Under New Mexico law and Newman's Articles of Incorporation, approval and
adoption of the Newman Merger and the Newman Merger Agreement require the
affirmative vote of a majority of the issued and outstanding shares of Newman
Common Stock entitled to vote thereon. At the close of business on the Newman
Record Date, there were 2,552,064 shares of Newman Common Stock outstanding and
entitled to vote at the Newman Meeting. The officers and directors have
recommended that the shareholders vote their shares of Newman Common Stock in
favor of approval and adoption of the Newman Merger Agreement.
On the Newman Record Date, there were approximately 199 holders of record
of the 2,552,064 shares of Newman Common Stock then issued and outstanding. Each
share of Newman Common Stock entitles the holder thereof to one vote on each
matter submitted for shareholder approval.
Under applicable rules of the National Association of Securities Dealers,
Inc., brokers will not be permitted to submit proxies to authorize the Newman
Merger and the Newman Merger Agreement in the absence of specific instructions
from beneficial owners. Under New Mexico law, abstentions contained on a
returned proxy card will be considered present for purposes of determining the
existence of a quorum at the Newman Meeting. Accordingly, abstentions and broker
non-votes will have the effect of votes against the Newman Merger and the Newman
Merger Agreement.
SOLICITATION OF PROXIES
Sepco. In addition to solicitation by mail, the directors, officers and
employees of Sepco may solicit proxies from its shareholders by personal
interview, telephone, facsimile or otherwise. Halter will bear the costs of the
solicitation of proxies. Arrangements also will be made with custodians,
nominees and fiduciaries who hold the voting securities of record for the
forwarding of solicitation materials to the beneficial owners thereof. Halter
will reimburse such custodians, nominees and fiduciaries for the out-of-pocket
expenses incurred by them in connection therewith.
Newman. The cost of soliciting proxies on behalf of Newman, including the
cost of preparing and mailing the Notice of the Newman Meeting and this Proxy
Statement/Prospectus to the Newman shareholders, will be paid by Halter.
Solicitation will be primarily by mailing this Proxy Statement/Prospectus to all
shareholders of Newman entitled to vote at the Newman Meeting. Proxies may be
solicited by officers of Newman personally, but at no compensation in addition
to their regular compensation as officers. Halter may reimburse brokers, banks
and others holding shares in their names for others for the cost of forwarding
proxy materials and obtaining proxies from their principals.
Halter estimates that it will incur $25,000 of costs in connection with its
obligations described above.
APPOINTMENT AND REVOCATION OF PROXIES
A shareholder has the right to appoint a person to attend and act for him
on his behalf at either the Sepco Meeting or the Newman Meeting other than the
person(s) named in the enclosed instruments of proxy. To exercise this right, a
shareholder shall strike out the names of the person(s) named in the appropriate
instrument of proxy and insert the name of his nominee in the space provided or
complete another instrument of proxy.
The proxies for the Sepco Meeting and the Newman Meeting, respectively,
must be signed by an individual shareholder or by his attorney authorized in
writing and executed by the shareholder. If the shareholder is a corporation, it
must either be under its common seal or signed by a duly authorized officer, or
if the shareholder is a partnership, it must be signed by either a general
partner, managing partner or duly authorized officer of the partnership.
A shareholder of either Sepco or Newman who has given a proxy may revoke it
at any time before it is exercised. In addition to revocation in any other
manner permitted by law, a proxy may be revoked by an instrument in writing
executed by a shareholder of Sepco or a shareholder of Newman or by their
respective attorneys authorized in writing and executed by the shareholder. If
the shareholder is a corporation, it must either be under its common seal, or
signed by a duly authorized officer, or if the shareholder is a partnership it
must be signed by either a general partner, managing partner or duly authorized
officer of the partnership. A
16
<PAGE> 28
revocation of a proxy by a shareholder of Sepco should be deposited with the
Secretary of Sepco, 580 Westlake Park Boulevard, Suite 1100, Houston, Texas
77079. A revocation of a proxy by a shareholder of Newman should be deposited
with General Securities Transfer Agency, Inc., P. O. Box 3805, Albuquerque, New
Mexico 87190. Revocation of a proxy by either a shareholder of Sepco or Newman
may be delivered at any time up to and including the day of the Sepco Meeting
and the Newman Meeting, respectively, or any adjournment or postponement
thereof, at which the proxy is to be used. A proxy is also revoked if a
shareholder is present at either the Sepco Meeting or the Newman Meeting,
respectively, and elects to vote in person.
VOTING OF SHARES AND EXERCISE OF DISCRETION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Sepco Meeting and the Newman Meeting in accordance with the instructions
contained therein. If a shareholder of Sepco executes and returns a proxy and
does not specify otherwise, the shares represented by such proxy will be voted
FOR approval and adoption of the Sepco Merger and Sepco Merger Agreement in
accordance with the recommendation of the Sepco board of directors. If a
shareholder of Newman executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted FOR approval and
adoption of the Newman Merger and Newman Merger Agreement in accordance with the
recommendation of the Newman board of directors.
The accompanying instruments of proxy confer discretionary authority on the
persons named therein with respect to amendments or variations to matters
identified in the respective Notices of Meetings and with respect to other
matters which may properly come before the Meetings. At the date hereof,
management of Sepco and Newman, respectively, know of no such amendments,
variations or other matters to come before the Meetings other than the matters
referred to in the respective Notices of Meeting.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the boards of directors
of Sepco and Newman do not know of any business to be presented at their
respective Meetings other than as set forth in the Notices of Meeting
accompanying this Proxy Statement/Prospectus. If any other matters should
properly come before the respective Meetings, it is intended that the shares
represented by proxies will be voted with respect to such matters in accordance
with the judgment of the persons voting such proxies.
17
<PAGE> 29
THE REORGANIZATION
GENERAL DESCRIPTION OF THE MERGERS
Sepco Merger. Upon consummation of the Sepco Merger, Sepco Acquisition will
merge with and into Sepco, with Sepco being the surviving corporation. In the
Sepco Merger, (i) each outstanding share of Sepco Class A Common Stock will be
converted automatically into the right to receive 16 shares of Common Stock,
(ii) each outstanding share of Sepco Class B Common Stock will be converted
automatically into the right to receive 18.1232 shares of Common Stock, (iii)
each outstanding share of Sepco Class A Convertible Preferred Stock will be
converted automatically into the right to receive one share of Series B
Convertible Preferred Stock and (iv) each outstanding share of Sepco Preferred
Stock will be converted automatically into the right to receive one share of
Series A Preferred Stock. As a consequence of the Sepco Merger, Sepco will
become a wholly-owned subsidiary of the Company. Based on the number of shares
of Sepco Stock and Newman Common Stock outstanding as of the Sepco Record Date
and Newman Record Date, respectively, Sepco shareholders collectively will hold
15,384,384 shares, or approximately 96%, of the issued and outstanding Common
Stock, upon consummation of the Reorganization.
Newman Merger. Upon consummation of the Newman Merger, Newman Acquisition
will merge with and into Newman, with Newman being the surviving corporation. In
the Newman Merger, each outstanding share of Newman Common Stock will be
converted into one-fourth of one share of Common Stock. As a consequence of the
Newman Merger, Newman will become a wholly-owned, non-operating subsidiary of
the Company. Based on the number of shares of Newman Common Stock and Sepco
Stock outstanding as of the Newman Record Date and the Sepco Record Date,
respectively, Newman shareholders collectively will hold 639,516 shares, or
approximately 4.0%, of the issued and outstanding Common Stock, upon
consummation of the Reorganization. In addition, warrants to purchase an
aggregate of 1,650,000 shares of Newman Common Stock at $2.00 per share will
become exercisable to purchase an aggregate of 412,500 shares of Common Stock at
an exercise price per share of $8.00. These warrants expire in November 1996.
See "Description of Newman Capital Stock -- Class C Warrants".
The Sepco Merger and the Newman Merger will be consummated simultaneously.
SEPCO'S REASONS FOR THE REORGANIZATION; RECOMMENDATION OF SEPCO'S BOARD OF
DIRECTORS
During 1995, Sepco began an investigation with respect to the possibility
of becoming a public company in order to obtain better access to equity capital
for purposes of supporting its acquisition program and proposed growth plans and
to provide greater liquidity for the Sepco Common Stock. In connection with this
review, Sepco considered the possibility of an initial public offering in which
it would issue additional shares as well as the possibility of a merger with an
existing public company that would provide Sepco with a broader shareholder
base. After analyzing the costs and benefits of each and probabilities of
success, the board of directors of Sepco ultimately concluded that the most
desirable means for Sepco to achieve its objectives would be to merge with an
existing public company. In connection with this decision, Sepco retained
Halter, an independent third-party consulting firm that advises private
companies in connection with becoming public companies through business
combinations with existing public companies, to assist it in identifying a
desirable public company with which to merge. Timothy P. Halter is the sole
officer, director and shareholder of Halter. As part of this arrangement, Sepco
agreed that Halter would be entitled to receive up to 2.7% of the outstanding
shares of common stock of the surviving corporation upon the consummation of a
merger between Sepco and a public company secured by Halter for the transaction.
In February 1996, after reviewing several potential public companies as
acquisition candidates, including Newman, management of Sepco determined that
Newman would be a desirable merger candidate for Sepco. From February to April
1996, Sepco conducted due diligence with respect to the prior business and
operations of Newman. Sepco also concluded that the most desirable means for
effecting a merger or business combination with Newman would be through the
creation of the Company and the concurrent acquisition by the Company of all of
the outstanding shares of Newman through the Newman Merger and of all the
outstanding shares of Sepco through the Sepco Merger. Sepco believed that this
structure reduced the risk of any liabilities associated with Newman's prior
operations affecting the assets of Sepco and provided a desirable structure from
a tax standpoint.
18
<PAGE> 30
In connection with this structure, Halter entered into an agreement with
Newman on August 12, 1996 pursuant to which Halter acquired directly from Newman
in a private transaction 1,693,564 shares of Newman Common Stock, or a 66.2%
interest in Newman, in consideration for approximately $1,694 in cash. The
ownership interest acquired by Halter in Newman was intended to provide Halter
with an approximate 2.7% ownership interest in the Company upon the consummation
of the Reorganization. The agreement was negotiated on behalf of Newman by
Newman's president, Glenn A. Little, and Newman's financial and legal
representatives. The agreement between Newman and Halter and the issuance of the
shares of Newman Common Stock to Halter did not require the approval of the
Newman shareholders. Subsequent to the issuance of such shares, Halter
transferred an aggregate of 304,000 shares of Newman Common Stock to certain of
its employees and consultants. Halter will be entitled to vote its remaining
1,389,564 shares of Newman Common Stock at the Newman Meeting, and, if it votes
its shares for the Newman Merger, approval of the Newman Merger will be assured.
In light of the agreement between Halter and Newman, Sepco and Halter
agreed to an amendment to the terms of Halter's engagement with Sepco that
eliminated Halter's right to receive shares from Sepco in connection with the
Reorganization. Halter, however, continued to be responsible for various costs
and expenses relating to the Reorganization, including filing fees with the
Commission, printing costs and various legal costs associated with the document
preparation for the Newman Merger. Halter further agreed as an inducement to
Sepco to enter into the Reorganization to assist the Company in making
application for the listing or quotation of its stock on the Nasdaq Stock
Market, preparing a shareholder communications and relations program,
identifying a market maker for the stock of the Company and establishing a
program of communication with brokerage professionals, investment bankers and
market makers.
The Company also has agreed to maintain a registration statement providing
for the registration under the Securities Act of the resale of shares of Common
Stock issuable to Halter in the Newman Merger for a period of 90 days following
the Newman Merger or for such other period of time as the Company deems
desirable. The Company will bear the costs associated with maintaining such
registration statement and Halter will bear the cost of all selling, printing
and other expenses. The agreement between the Company and Halter regarding such
registration provides for customary indemnification, including indemnification
for liability under securities laws.
On August 12, 1996, the Company entered into the Sepco Merger Agreement and
the Newman Merger Agreement. The Board of Directors of each of Sepco and Newman
have determined that the Sepco Merger and the Newman Merger, respectively, are
in the best interest of their respective shareholders and have recommended to
their shareholders that such mergers be approved.
The exchange ratios for the shares of stock of the Company to be issued to
the shareholders of Sepco were determined by negotiations of the parties. The
factors considered in establishing the exchange ratios with respect to the Sepco
Merger included (i) the operating and financial history of Sepco, (ii) the fair
value of the Sepco Common Stock at December 31, 1995, as determined by an
independent appraiser for purposes of the Sepco ESOP and (iii) a desire that the
Reorganization result in an aggregate of 16,000,000 outstanding shares of Common
Stock, based upon the advice of a financial advisor. As determined by the
independent appraiser, the fair value per share of the Sepco Class A Common
Stock and the Sepco Class B Common Stock at December 31, 1995 was $8.74 and
$9.90, respectively.
NEWMAN'S REASONS FOR THE NEWMAN MERGER; RECOMMENDATION OF NEWMAN'S BOARD OF
DIRECTORS
The Newman Merger is the result of Newman's efforts to obtain value for the
Newman Common Stock. Newman has no significant assets or operations; however, it
possesses a shareholder base which makes it an attractive merger candidate to a
privately-held corporation seeking to become a public company. The board of
directors of Newman has concluded that the Newman Merger is in the best
interests of the shareholders of Newman, has approved the Newman Merger
Agreement and unanimously has recommended that the shareholders of Newman
approve and adopt the Newman Merger Agreement.
The board of directors of Newman believes that the terms of the Newman
Merger Agreement are fair to, and in the best interests of, Newman and its
shareholders. In reaching its conclusion, Newman's board of
19
<PAGE> 31
directors considered (i) the matters set forth above, (ii) the judgment and
advice of Newman's management, (iii) the historical financial performance and
future operating prospects of Newman, (iv) detailed business and financial
information regarding Sepco and (iv) the terms of the Newman Merger Agreement.
The exchange ratio for the shares of Common Stock to be issued to
shareholders of Newman in the Newman Merger was determined by negotiations
between the parties. The factors considered in establishing the exchange ratio
with respect to the Newman Merger included (i) the publicly held nature and
existing shareholder base of Newman, (ii) the operating and financial history of
Newman and (iii) the potential value of the shares of Common Stock to be issued
to Newman shareholders in light of Newman's present financial condition, which
includes no significant assets or operations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Introduction. This section summarizes the material federal income tax
considerations of general application that should be considered by shareholders
in evaluating the Sepco Merger and the Newman Merger. This discussion is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Department regulations promulgated thereunder, court decisions and
administrative pronouncements published to date. Any or all of the above are
subject to change, possibly with retroactive effect. Subsequent statutory or
administrative changes or clarifications or court decisions could cause this
discussion to become inaccurate or incomplete. This discussion does not address
all tax matters that may affect the Company or the shareholders and does not
consider various factual limitations applicable to any particular shareholder
that may modify or alter the results described herein. In particular, it does
not address federal income tax considerations to investors who are nonresident
aliens, foreign entities or tax-exempt entities such as an employee stock option
plan ("ESOP") and does not address particular situations where shares are
received in exchange for services rendered or for reasons other than in exchange
for shares of the Company. In addition, the following discussion does not
address the tax consequences of the Sepco Merger and the Newman Merger under
foreign, state or local tax laws. Except as otherwise indicated, statements of
legal conclusion regarding tax treatments, tax effects or tax consequences
discussed in this section are the opinions of Fulbright & Jaworski L.L.P.,
special securities and tax counsel to the Company. Such opinion has no binding
effect or official status of any kind and will not preclude the IRS from
adopting a contrary position.
The Company has not requested or received a ruling from the IRS on the
matters discussed herein. The IRS may disagree with some of the conclusions set
forth below, and no assurance can be given that such conclusions would be
sustained by a court if challenged by the IRS. In addition, tax counsel's
opinions are subject to certain assumptions and qualifications and are
conditioned upon the accuracy of certain factual information and representations
provided to tax counsel by the Company, including those attached to the opinion
of special tax counsel filed as an exhibit to the Registration Statement of
which this Proxy Statement/Prospectus forms a part. Any inaccuracy in those
factual matters could adversely affect the conclusions identified herein and, in
particular, could result in a shareholder recognizing gain in the Sepco Merger
and the Newman Merger. Each shareholder, and particularly a shareholder that is
an ESOP, is urged to consult his own tax advisor with respect to the
consequences to him of the consolidation and the advisability of obtaining and
reviewing the factual information and representations that counsel has relied
upon in rendering its opinion.
The Sepco Merger and the Newman Merger. For federal income tax purposes,
the Sepco Merger and the Newman Merger will be treated as an exchange of shares
of Sepco Stock and Newman Common Stock for shares of Common Stock, Series B
Convertible Preferred Stock and Series A Preferred Stock (collectively referred
to herein as "Company Stock"), as the case may be. The tax consequences to a
shareholder of Sepco or Newman who receives shares of Company Stock in either
the Sepco Merger or the Newman Merger will be as follows:
- Receipt of Company Stock. A shareholder of Sepco or Newman who receives
solely shares of Company Stock in either the Sepco Merger or the Newman
Merger in exchange for their Sepco Stock or Newman Common Stock will not
recognize gain or loss on the exchange.
- Tax Basis. A shareholder's aggregate basis in all shares of Company Stock
received (including any fractional share deemed received) in either the
Sepco Merger or the Newman Merger will equal his
20
<PAGE> 32
aggregate basis in his shares of Sepco Stock or Newman Common Stock,
respectively, surrendered in exchange therefor.
- Holding Period. A shareholder's holding period for the shares of Company
Stock received (including any fractional share deemed received) in either
the Sepco Merger or the Newman Merger will include the holding period of
his shares of Sepco Stock or Newman Common Stock, respectively,
surrendered in exchange therefor; provided, however, that such shares of
Sepco Stock or Newman Common Stock, as the case may be, are held as
capital assets at the time of the Sepco Merger and the Newman Merger,
respectively.
- Cash in Lieu of Fractional Shares. A holder of shares of Sepco Stock or
Newman Common Stock who receives cash in lieu of a fractional share of
Company Stock will recognize gain or loss equal to the difference, if any,
between such holder's basis in such fractional share (as described above)
and the amount of cash received. Such gain or loss should be long-term
capital gain or loss if such shares of Sepco Stock or Newman Common Stock
are held as a capital asset at the time of the Sepco Merger or the Newman
Merger, respectively, and the holding period for the fractional share (as
described above) is more than one year.
- Reporting Requirements. Each shareholder will be required to file with
his federal income tax return a statement that provides details relating
to such shareholder's shares of Company Stock received in the Sepco Merger
or the Newman Merger and such shareholder's shares of Sepco Stock or
Newman Common Stock surrendered in exchange therefor.
Any holder of Sepco Stock who dissents from the Sepco Merger, perfects his
dissenter's rights under the TBCA, and, accordingly, receives cash for the value
of his Sepco Stock, and any holder of Newman Common Stock who dissents from the
Newman Merger, perfects his dissenter's rights under the NMBCA, and,
accordingly, receives cash for the value of his Newman Common Stock, should be
treated as having received such cash as a distribution from Sepco or Newman, as
the case may be, in full payment in exchange for such Sepco Stock or Newman
Common Stock. The dissenting shareholder would recognize gain or loss measured
by the difference between the cash received and the basis for such Sepco Stock
or Newman Common Stock exchanged, if the redemption does not have the effect of
the distribution of a dividend under Section 302 of the Code (after applying the
constructive ownership rules of Section 318 of the Code).
For additional information regarding the material federal income tax
considerations that should be considered by shareholders in evaluating the Sepco
Merger and the Newman Merger, see "Certain Federal Income Tax Consequences".
ANTICIPATED ACCOUNTING TREATMENT
The Reorganization will be treated as a recapitalization of Sepco into the
Company (with respect to the Sepco Merger) and the issuance of the Company's
capital stock for the underlying tangible net assets of Newman (with respect to
the Newman Merger) for accounting and financial statement purposes because,
among other factors, the Company is a recently formed holding company with
nominal net assets, Newman is a non-operating public shell company with cash as
its primary asset, and the Sepco stockholders will control the Company after the
Reorganization. Accordingly, the historical pre-Reorganization financial
statements of the combined Company after the Closing will be those of Sepco. The
retained earnings of Sepco will be carried forward after the Reorganization and
the historical stockholders' equity of Sepco prior to the Reorganization will be
retroactively restated for the equivalent number of shares received in the
Reorganization.
DISSENTERS' RIGHTS
Sepco Shareholders. Articles 5.11 through 5.13 of the TBCA entitle any
shareholder of Sepco as of the Sepco Record Date who objects to the Sepco Merger
and who follows the procedures prescribed by such Articles, in lieu of receiving
the Common Stock, Series B Convertible Preferred Stock or Series A Preferred
Stock, as the case may be, to receive cash equal to the "fair value" of such
shareholder's shares as determined
21
<PAGE> 33
by agreement or appraisal. Set forth below is a summary of the procedures
relating to the exercise of the right to dissent as provided in the TBCA. The
summary does not purport to be complete and is qualified in its entirety by
reference to Articles 5.12 and 5.13 of the TBCA, which have been reproduced and
attached hereto as Appendix C. FAILURE TO COMPLY WITH ANY OF THE REQUIRED STEPS
MAY RESULT IN TERMINATION OF ANY SUCH RIGHT TO DISSENT THE SHAREHOLDER MAY HAVE
UNDER THE TBCA.
Shareholders of Sepco who follow the procedures set forth in Articles 5.12
and 5.13 of the TBCA may receive a cash payment equal to the fair value of their
shares of Sepco Class A Common Stock, Sepco Class B Common Stock, Sepco Class A
Convertible Preferred Stock or Sepco Preferred Stock, as the case may be,
determined as of the day preceding the Sepco Meeting, exclusive of any element
of value arising from or in anticipation of the Reorganization. Unless all of
the procedures set forth in Articles 5.12 and 5.13 of the TBCA are followed by a
shareholder of Sepco who wishes to exercise dissenters' rights, such shareholder
will be bound by the terms of the Sepco Merger. To be entitled to a cash payment
upon exercise of dissenters' rights, a shareholder must (i) file with Sepco,
prior to the Sepco Meeting, a written objection to the Sepco Merger, setting out
that the shareholder's right to dissent will be exercised if the Sepco Merger is
effected and giving the shareholder's address to which notice thereof shall be
delivered or mailed in the event the Sepco Merger is consummated, (ii) not vote
his shares in favor of the adoption and approval of the Sepco Merger and Sepco
Merger Agreement and (iii) demand such cash payment in writing within ten days
after the delivery or mailing by Sepco of a notice that the Sepco Merger has
become effective. The demand must state the number of shares of the Sepco Class
A Common Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred
Stock and Sepco Preferred Stock owned by the shareholder and the fair value of
such shares as estimated by the shareholder. ANY SHAREHOLDER FAILING TO MAKE
DEMAND WITHIN THE TEN-DAY PERIOD SHALL BE BOUND BY THE SEPCO MERGER AGREEMENT
AND THE SEPCO MERGER. Within 20 days after demanding payment for his shares,
each holder of certificates formerly representing shares of Sepco Class A Common
Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred Stock and
Sepco Preferred Stock so demanding payment shall submit such certificates to
Sepco for notation thereon that such demand has been made. The failure of
holders of such certificates to do so shall, at the option of Sepco, terminate
such shareholders' rights to dissent unless a court of competent jurisdiction
for good and sufficient cause shall otherwise direct.
Within 20 days after receipt by Sepco of a demand for payment made by a
dissenting shareholder, Sepco shall deliver or mail to the dissenting
shareholder a written notice that either shall set out that Sepco accepts the
amount claimed in the demand and agrees to pay that amount within 90 days after
the Sepco Effective Time, upon the surrender of the share certificates duly
endorsed, or shall contain an estimate by Sepco of the fair value of the shares
of Sepco Class A Common Stock, Sepco Class B Common Stock, Sepco Class A
Convertible Preferred Stock or Sepco Preferred Stock, as the case may be,
together with an offer to pay the amount of that estimate within 90 days after
the Sepco Effective Time, upon receipt of notice within 60 days after the
effective time of the Sepco Merger, from the shareholder that the shareholder
agrees to accept that amount upon the surrender of the certificates duly
endorsed.
If, within the period of 60 days after the Sepco Effective Time,
shareholder and Sepco do not so agree, the shareholder or Sepco may, within 60
days after the expiration of such 60-day period, file a petition in any court of
competent jurisdiction in Harris County, Texas, asking for a finding and
determination of the fair value of the shareholder's shares of Sepco Class A
Common Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred
Stock or Sepco Preferred Stock, as the case may be. The clerk of the court shall
give notice of the time and place fixed for the hearing of the petition by
registered mail to Sepco and to the shareholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have not
been reached by Sepco. Sepco and all of its shareholders so notified shall be
bound by the final judgment of such court.
After hearing of the petition, the court shall determine the shareholders
who have complied with the provisions of Articles 5.12 of the TBCA and have
become entitled to the valuation of and payment of their shares, and shall
appoint one or more qualified appraisers to determine that value. In addition to
having the power to examine the books and records of Sepco, the appraisers shall
afford a reasonable opportunity to the parties interested to submit to them
pertinent evidence as to the value of the shares of Sepco Class A
22
<PAGE> 34
Common Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred
Stock or Sepco Preferred Stock, as the case may be.
The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by Sepco,
together with interest thereon, to the date of such judgment, to the shareholder
entitled to payment. The judgment shall be payable to the holders of shares only
upon, and simultaneously with, the surrender to Sepco of duly endorsed
certificates for those shares. Upon payment of the judgment, the dissenting
shareholders shall cease to have any interest in those shares or in Sepco. The
court shall allow the appraisers a reasonable fee as court costs, and all costs
shall be allocated between the parties in the manner that the court determines
to be fair and equitable.
Any shareholder who has demanded payment for his shares in accordance with
the TBCA shall not thereafter be entitled to vote or exercise any other rights
of a shareholder except the right to receive payment for his shares of Sepco
Class A Common Stock, Sepco Class B Common Stock, Sepco Class A Convertible
Preferred Stock or Sepco Preferred Stock, as the case may be, in accordance with
the TBCA and the right to maintain an appropriate action to obtain relief on the
ground that the Sepco Merger would be or was fraudulent, and the respective
shares of Sepco Class A Common Stock, Sepco Class B Common Stock, Sepco Class A
Convertible Preferred Stock or Sepco Preferred Stock, as the case may be, for
which payment has been demanded shall not thereafter be considered outstanding
for the purposes of any subsequent vote of shareholders.
Any shareholder who has demanded payment for his shares of Sepco Class A
Common Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred
Stock or Sepco Preferred Stock, as the case may be, in accordance with the TBCA
may withdraw such demand at any time before payment for his shares or before any
petition has been filed pursuant to the TBCA asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made, or, unless the Company shall consent
thereto, after any such petition has been filed. If, however, (i) such demand
shall be withdrawn as hereinbefore provided, (ii) pursuant to the TBCA the
Company shall terminate the shareholder's rights under the TBCA, (iii) no
petition asking for a finding and determination of fair value of such shares of
Sepco Class A Common Stock, Sepco Class B Common Stock, Sepco Class A
Convertible Preferred Stock or Sepco Preferred Stock, as the case may be, by a
court shall have been filed within the time provided in the TBCA, or (iv) after
the hearing of a petition filed pursuant to the TBCA, the court shall determine
that such shareholder is not entitled to the relief provided by the TBCA, then,
in any such case, such shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the merger and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings that may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
A vote against approval and adoption of the Sepco Merger and the Sepco
Merger Agreement will not satisfy the requirement for a written objection to
approval and adoption of the Sepco Merger and the Sepco Merger Agreement or a
written demand for payment of the "fair value" of the shares owned by a
dissenting shareholder. Failure to vote against approval and adoption of the
Sepco Merger and the Sepco Merger Agreement (i.e., abstention from voting) will
not constitute a waiver of a shareholder's dissenters' rights.
Exercise of the right to dissent under the TBCA may result in a judicial
determination that the "fair value" of a dissenting shareholder's shares of
Sepco Class A Common Stock, Sepco Class B Common Stock, Sepco Class A
Convertible Preferred Stock or Sepco Preferred Stock, as the case may be, is
higher or lower than the shares of Common Stock, Series B Convertible Preferred
Stock, or Series A Preferred Stock, as the case may be, to be issued pursuant to
the Sepco Merger.
23
<PAGE> 35
The TBCA provides that, in the absence of fraud in the transaction, the
right to an appraisal as set forth above to a shareholder objecting to the Sepco
Merger is the exclusive remedy for the recovery of the value of his shares or
for money damages to such shareholder with respect to the Sepco Merger. If Sepco
complies with the requirements of the TBCA, any shareholder who fails to comply
with the requirements of the TBCA shall not be entitled to bring suit for the
recovery of the value of his shares or for money damages to the shareholder with
respect to the Sepco Merger.
The Sepco ESOP shall act as a single shareholder with respect to appraisal
rights.
SEPCO SHAREHOLDERS WHO ARE CONSIDERING EXERCISING DISSENTERS' RIGHTS WITH
RESPECT TO THE SEPCO MERGER ARE URGED TO CONSULT THEIR OWN LEGAL COUNSEL.
Newman Shareholders. Any shareholder of record of Newman may exercise
dissenters' rights in connection with the Newman Merger by properly complying
with the requirements of Section 53-15-4 of the NMBCA. By exercising dissenters'
rights, any such shareholder would have the "fair value" of his Newman Common
Stock paid to him in cash.
The following is a summary of the statutory procedures that a shareholder
of a New Mexico corporation must follow in order to exercise his dissenters'
rights under New Mexico law. This summary is not complete and is qualified in
its entirety by reference to Section 53-15-4 of the NMBCA, the text of which is
set forth in full in Appendix D to this Proxy Statement/Prospectus.
The NMBCA provides that each shareholder of a New Mexico corporation has
the right to dissent from certain transactions, including a merger requiring
shareholder approval. The NMBCA also provides that shareholders electing to
exercise their right to dissent must file with the corporation a written
objection to the merger at or prior to the meeting of shareholders called to
consider and vote upon the merger. If the merger is approved at the meeting,
those shareholders who do not vote in favor of the merger may make written
demand on the corporation for payment of the fair value of their shares as
determined in accordance with the applicable provisions of the NMBCA. This
demand must be made either within ten days following the meeting at which the
merger was approved or within 25 days after the plan of the merger has been
mailed to the shareholder. Any shareholder who fails to properly make demand
within the prescribed time periods shall not acquire a right to receive payment
for his shares.
Newman shareholders should send their written demand for payment to 211
West Wall Street, Midland, Texas 79701, Attention: Secretary. Thereafter,
assuming compliance with the provisions of the NMBCA, dissenting Newman
shareholders who properly exercise their rights will receive cash equal to the
fair value of their shares in lieu of shares of Common Stock.
The NMBCA provides that, upon receiving a demand for payment from any
dissenting shareholder, the corporation shall make an appropriate notation
thereof in its shareholder records. Within 20 days after demanding payment for
his shares, each holder of shares represented by certificates demanding payment
shall submit the certificates to the corporation for notation thereon that such
demand has been made. Failure of the shareholder to do so shall, at the option
of the corporation, terminate his rights under the NMBCA unless a court of
competent jurisdiction, for good and sufficient cause shown, otherwise directs.
If uncertified shares for which payment has been demanded or shares represented
by a certificate on which notation has been so made is transferred, any new
certificate issued therefor shall bear similar notation, together with the name
of the original dissenting holder of the shares, and a transferee of the shares
acquires by such transfer no rights in the corporation other than those which
the original dissenting shareholder had after making demand for payment of the
fair value thereof.
The corporation, or in the case of a merger or consolidation, the surviving
or new corporation shall give written notice thereof to each dissenting
shareholder who has made written demand within ten days after such corporate
action is effected. The surviving corporation shall make a written offer to each
shareholder for shares at a specified price determined by the corporation to be
the fair value thereof. The notice and offer shall be accompanied by (i) a
balance sheet of the corporation as of the latest available date and not more
than 12 months prior to the making of the offer and (ii) a profit and loss
statement of the corporation for the
24
<PAGE> 36
12 month period ended on the date of the balance sheet. If the value of the
shares is agreed upon by the corporation and the shareholder within 30 days
after the date on which the corporate action was effected, payment for the
shares shall be made within 90 days after the date on which the action was
effected. Upon payment of the agreed value, the shareholder shall cease to have
any interest in the shares or in the corporation.
If, within the period of 30 days after the date on which the corporate
action was effected, a dissenting shareholder and the New Mexico corporation do
not agree to the fair value of the shares, the corporation shall file a petition
in any court of competent jurisdiction in the county and the state where the
registered office of the corporation is located praying that the fair value of
such shares be found and determined. The corporation should take such action
within 30 days after receipt of written demand from any dissenting shareholder,
given within 60 days after the date on which such corporate action was effected,
or at the election of the corporation at any time within the period of 60 days.
If, in the case of a merger or consolidation, the surviving or new corporation
is a foreign corporation without a registered office in this state, the petition
shall be filed in the county where the domestic corporation was last located.
If the corporation fails to institute the proceedings as provided above,
any dissenting shareholder may do so in the name of the corporation. All
dissenting shareholders, wherever residing, shall be made parties to the
proceeding as an action against their shares quasi in rem. A copy of the
petition shall be served upon each dissenting shareholder who is a resident of
New Mexico and shall be served by registered or certified mail on each
dissenting shareholder who is a non-resident. Service on non-residents shall
also be made by publication as provided by law. The jurisdiction of the court
shall be plenary and exclusive. All shareholders who are parties to the
proceeding shall be entitled to judgment against the corporation for the amount
of the fair value of their shares. A court may, if it so elects, appoint one or
more persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The NMBCA leaves the final determination of fair value
to the courts.
The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of the
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding, and who received from the corporation an offer to pay for the shares
if the court finds that the shareholders' actions in failing to accept the
corporation's offer were arbitrary, vexatious or not in good faith. Such
expenses shall include reasonable expenses and compensation for the appraisers,
excluding the fees and expenses of counsel for experts employed by any party. If
the fair value of the shares as determined materially exceeds the amount which
the corporation offered to pay therefor, or if no offer was made, the court in
its discretion may award to any shareholder who is a party to the proceeding
such sum as the court determines to be reasonable compensation to any expert
employed by the shareholder in the proceeding, together with reasonable fees of
legal counsel.
Payment of the fair value or judgment extinguishes a dissenting
shareholder's interest in such shares. The judgment shall include an allowance
for interest at such rate as the court may find to be fair and equitable, in all
the circumstances, from the date on which the vote was taken on the proposed
corporate action to the date of payment.
Under New Mexico law, no demand may be withdrawn unless the corporation
consents thereto. If (i) the demand is withdrawn upon consent, (ii) the proposed
corporate action is abandoned or rescinded or the shareholders revoke the
authority to effect the action, (iii) in the case of a merger, on the date of
the filing of the articles of merger the surviving corporation is the owner of
all of the outstanding shares of the other corporations that are parties to the
merger, (iv) no demand or petition for the determination of fair value by a
court has been properly made, or (v) if a court of competent jurisdiction
determines that the shareholder is not entitled to the relief provided by the
NMBCA, then the right of the shareholder to be paid the fair value of such
shares ceases and the dissenter's status as a shareholder shall be restored,
without prejudice, to any corporate proceedings which may have been taken during
the interim.
Shareholders of Newman considering appraisal rights should consider that
the payment which they eventually receive in exchange for their shares in a
dissenters' rights proceeding under Texas law could be less
25
<PAGE> 37
than, equal to, or greater than the eventual market value of the consideration
they would receive as a result of the consummation of the Newman Merger.
A Newman shareholder who exercises his appraisal rights and receives cash
in exchange for his shares of Newman Common Stock will recognize taxable gain or
loss in an amount equal to the difference between (i) the sum of cash received
and (ii) the basis of the common stock so exchanged. Any such gain or loss
recognized would be long-term capital gain or loss if the shares of Newman
Common Stock constitute capital assets in the hands of the dissenting Newman
shareholder and have been held by such shareholder for more than one year at the
Newman Closing Date (as defined herein).
NEWMAN SHAREHOLDERS WHO ARE CONSIDERING EXERCISING DISSENTERS' RIGHTS WITH
RESPECT TO THE NEWMAN MERGER ARE URGED TO CONSULT THEIR OWN LEGAL COUNSEL.
ARRANGEMENT WITH HALTER
As described in "The Reorganization -- Sepco's Reasons for the
Reorganization; Recommendation of Sepco's Board of Directors", Sepco and Halter
entered into an agreement in early 1996, pursuant to which Halter was to
identify possible merger candidates for Sepco and assist Sepco in consummating
such a merger. In connection with the final negotiations of the terms of the
Newman Merger and Newman's agreement to issue to Halter shares of Newman Common
Stock prior to the Newman Merger, the agreements between Sepco and Halter were
amended. As an inducement to Sepco to participate in the Reorganization, Halter
agreed to assist the Company in the preparation of the documents relating to the
Newman Merger, assist in the preparation of the Company's filings with the
Commission to effect the Reorganization, pay all printing costs relating to the
Reorganization, pay all listing and similar fees with respect to the
authorization for quotation of the stock of the Company on the Nasdaq Stock
Market, assist in obtaining a market maker for the Common Stock following the
Reorganization, assist in the preparation of a shareholder relations program for
the Company and assist in a communication program for the Company with brokerage
professionals, investment bankers and market makers. Under the agreement between
Sepco and Halter, Halter is not entitled to any compensation for the foregoing
services and the only consideration being received by Halter in connection with
the Reorganization is through its ownership interest in Newman through its
purchase of shares of Newman Common Stock from Newman. Sepco and the Company
have agreed to indemnify Halter for various liabilities that may be incurred by
it relating to Sepco and the Company, including liabilities under the securities
laws.
The Company also has agreed to maintain a registration statement providing
for the registration under the Securities Act of the resale of shares of Common
Stock issuable to Halter in the Newman Merger for a period of 90 days following
the Newman Merger or for such other period of time as the Company deems
desirable. The Company will bear the costs associated with maintaining such
registration statement and Halter will bear the cost of all selling, printing
and other expenses. The agreement between the Company and Halter regarding such
registration provides for customary indemnification, including indemnification
for liability under securities laws.
RESTRICTIONS ON RESALES BY AFFILIATES
All shares of Common Stock received by Newman in the Newman Merger and all
shares of Common Stock, Series B Convertible Preferred Stock and Series A
Preferred Stock received by Sepco shareholders in the Sepco Merger will be
freely transferable, except that shares of Common Stock, Series B Convertible
Preferred Stock and Series A Preferred Stock received by persons who are deemed
to be "affiliates" (as such term is defined under the Securities Act) of the
Company prior to the Sepco Merger and the Newman Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of the Company generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party or persons who hold
restricted shares.
26
<PAGE> 38
CERTAIN TERMS OF THE MERGER AGREEMENTS
The following description does not purport to be complete and is qualified
in its entirety by reference to the Sepco Merger Agreement and Newman Merger
Agreement, respectively, copies of which are attached to this Proxy
Statement/Prospectus as Appendices A and B, respectively, and are incorporated
herein by reference.
SEPCO MERGER AGREEMENT
Closing Date and Effective Time of the Merger. The Sepco Merger will become
effective at the effective time set forth in the certified Articles of Merger
issued by the Secretary of State of Texas and the Secretary of State of Nevada
with respect to the Sepco Merger. Assuming all conditions to the Merger
contained in the Sepco Merger Agreement are satisfied or waived prior thereto,
it is anticipated that the Sepco Effective Time will occur on the business day
immediately following the Sepco Meeting (the "Sepco Closing Date"). The Sepco
Merger and the Newman Merger will be consummated simultaneously.
Manner and Basis of Converting Shares. At the Sepco Effective Time (i) each
outstanding share of Sepco Class A Common Stock will be converted into the right
to receive 16 shares of Common Stock, (ii) each outstanding share of Sepco Class
B Common Stock will be converted into the right to receive 18.1232 shares of
Common Stock, (iii) each outstanding share of Sepco Class A Convertible
Preferred Stock will be converted into the right to receive one share of Series
B Convertible Preferred Stock and (iv) each outstanding share of Sepco Preferred
Stock will be converted into the right to receive one share of Series A
Preferred Stock.
As soon as practicable following the Sepco Effective Time, the Company or
its transfer agent will mail to each record holder of Sepco Class A Common
Stock, Sepco Class B Common Stock, Sepco Class A Convertible Preferred Stock and
Sepco Preferred Stock a letter of transmittal and other information advising
such holder of the consummation of the Sepco Merger and for use in exchanging
certificates representing Sepco Class A Common Stock, Sepco Class B Common
Stock, Sepco Class A Convertible Preferred Stock and Sepco Preferred Stock for
certificates representing Common Stock, Series B Convertible Preferred Stock and
Series A Preferred Stock, respectively. After the Sepco Effective Time, there
will be no further registration of transfers on the stock transfer books of
Sepco of shares of Sepco Class A Common Stock, Sepco Class B Common Stock, Sepco
Class A Convertible Preferred Stock and Sepco Preferred Stock. SHARE
CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE BY SHAREHOLDERS OF SEPCO
PRIOR TO THE SEPCO EFFECTIVE TIME AND THE RECEIPT OF A LETTER OF TRANSMITTAL.
No fractional shares of Common Stock shall be issued in the Sepco Merger.
In lieu thereof, all fractional shares of Common Stock that a holder of Sepco
Class A Common Stock otherwise would be entitled to receive as a result of the
Sepco Merger shall be converted automatically into the right to receive an
amount of cash to be determined by multiplying $.58 by the fraction of a share
of Common Stock to which such holder would otherwise have been entitled.
Further, all fractional shares of Common Stock that a holder of Sepco Class B
Common Stock would otherwise be entitled to receive as a result of the Sepco
Merger shall be automatically converted into the right to receive an amount of
cash to be determined by multiplying $.58 by the fraction of a share of Common
Stock to which such holder would otherwise be entitled. Fractional shares of
Series B Convertible Preferred Stock and Series A Preferred Stock will be issued
in the Sepco Merger to the holders of Sepco Class A Convertible Preferred Stock
and Sepco Preferred Stock, respectively.
Until surrendered and exchanged, each certificate previously evidencing
Sepco Class A Common Stock and Sepco Class B Common Stock shall represent solely
the right to receive Common Stock. Each certificate previously evidencing Sepco
Class A Convertible Preferred Stock shall represent solely the right to receive
Series B Convertible Preferred Stock and each certificate previously evidencing
Sepco Preferred Stock shall represent solely the right to receive Series A
Preferred Stock.
Conditions to the Sepco Merger. The respective obligations of the Company,
Sepco and Sepco Acquisition to consummate the Sepco Merger are subject to the
satisfaction or waiver of the following conditions: (i) the Registration
Statement, of which this Proxy Statement/Prospectus is a part, shall have
27
<PAGE> 39
been declared effective by the Commission under the Securities Act, and no stop
order with respect thereto shall be in effect; (ii) the Sepco Merger Agreement
and the Sepco Merger shall have been approved and adopted by the requisite vote
of the shareholders of each of the Company, Sepco and Sepco Acquisition; (iii)
the Newman Merger shall have been approved by the shareholders of each of the
Company, Newman Acquisition and Newman; and (iv) no order, injunction or decree
shall have been entered and remains in effect in any action or proceeding before
any foreign, federal, state court or governmental agency that would prevent or
make illegal the consummation of the transactions contemplated by the Sepco
Merger.
The obligations of Sepco Acquisition and the Company to effect the Sepco
Merger are also subject to the satisfaction or waiver at or prior to the Sepco
Closing Date of the following conditions: (i) the representations and warranties
of Sepco contained in the Sepco Merger Agreement will be true and correct in all
material respects as of the Sepco Closing Date; (ii) Sepco shall have performed,
in all material respects, each obligation and agreement and complied with each
covenant to be performed and complied with by them contained in the Sepco Merger
Agreement prior to the Sepco Closing Date; (iii) all consents by governmental or
regulatory agencies or otherwise that are required for the consummation of the
transactions contemplated by the Sepco Merger Agreement or that are required for
the Company to own, operate or control Sepco or any portion of the assets of
Sepco to prevent a breach of or a default under or a termination of any
agreement material to Sepco to which Sepco is a party or to which any material
portion of the assets of Sepco is subject, will have been obtained; (iv) no
action or proceeding before any court or governmental body will be pending or
threatened wherein a judgment, decree or order would prevent or restrain any of
the transactions contemplated thereby or cause such transactions to be declared
unlawful, nullified or rescinded or which might adversely affect the right of
the Company to own, operate or control Sepco; (v) the Company and its financial
and legal advisors shall have completed a due diligence review of the business,
operations and financial statements of Sepco, the results of which shall be
satisfactory to the Company in its sole discretion; and (vi) no event shall have
occurred which in the reasonable judgment of the Company or Sepco Acquisition
would materially affect the purpose of the Sepco Merger.
The obligations of Sepco to effect the Sepco Merger are subject to the
satisfaction or waiver at or prior to the Sepco Closing Date of the following
conditions: (i) the representations and warranties of Sepco Acquisition and the
Company set forth in the Sepco Merger Agreement will be true and correct in all
material respects as of the Sepco Closing Date; (ii) the Company shall have
performed, in all material respects, each obligation and agreement and complied
with each covenant required to be performed and complied with by it contained in
the Sepco Merger Agreement prior to the Sepco Closing Date; and (iii) no action
or proceeding before any court or governmental body will be pending or
threatened wherein a judgment, decree or other would prevent any of the
transactions contemplated hereby or cause the transactions contemplated by the
Sepco Merger Agreement to be declared unlawful or rescinded.
There can be no assurance that all of the conditions to the Sepco Merger
will be satisfied.
Representations and Warranties. The Sepco Merger Agreement contains various
representations and warranties of the Company, Sepco and Sepco Acquisition
relating to, among other things, (i) the organization and similar corporate
matters of the Company and Sepco, (ii) the capitalization of the Company and
Sepco, (iii) the authorization, execution, delivery, performance and
enforceability of the Sepco Merger Agreement and related matters, and the
absence of conflicts, violations and defaults under the respective charters and
bylaws of the Company and Sepco and certain other agreements and documents, (iv)
Sepco's compliance with applicable laws, (v) the financial statements of Sepco,
(vi) the absence of certain changes and events with regard to Sepco, (vii)
litigation of Sepco, (viii) Sepco's employee benefit and labor matters, (ix)
certain business practices of Sepco and (x) environmental matters with regard to
Sepco.
Certain Covenants; Conduct of Business Prior to the Sepco Merger. Sepco has
agreed that, prior to the Sepco Closing Date, unless expressly contemplated by
the Sepco Merger Agreement or otherwise consented to by the Company, Sepco will
(i) operate its business in the usual and ordinary course consistent with past
practices; (ii) preserve substantially intact its business organization and
capital structure; (iii) use its best efforts not to take any action which would
render, or which reasonably may be expected to render, any representation or
warranty made by it in the Sepco Merger Agreement untrue at any time prior to
the Sepco
28
<PAGE> 40
Closing Date as if then made; (iv) notify the Company of any change in the
normal course of Sepco's business or in the operation of its properties or of
any governmental or third party complaints, investigations or hearings; (v)
notify the Company of any material adverse event or circumstance affecting
Sepco; and (vi) comply with all legal requirements and contractual obligations
applicable to its operations and business and pay all applicable taxes.
Termination or Amendment of the Sepco Merger Agreement. The Sepco Merger
Agreement may be terminated, among other circumstances, by the Company if the
Sepco Merger has not closed by December 31, 1996 or by either party if a court
of competent jurisdiction shall have issued an order, decree or ruling or taken
any other action to enjoin or otherwise prohibit the Sepco Merger. The Sepco
Merger Agreement may be amended, modified or supplemented only by an instrument
in writing executed by all parties to the Sepco Merger Agreement.
NEWMAN MERGER AGREEMENT
Closing Date and Effective Time of the Newman Merger. The Newman Merger
will become effective at the effective time set forth in the certified Articles
of Merger issued by the Secretary of State of New Mexico and the Secretary of
State of Nevada with respect to the Newman Merger. Assuming all conditions to
the Newman Merger contained in the Newman Merger Agreement are satisfied or
waived prior thereto, it is anticipated that the Newman Effective Time will
occur on the business day immediately following the Sepco Meeting (the "Newman
Closing Date"). The Sepco Merger and the Newman Merger will be consummated
simultaneously.
Manner and Basis of Converting Shares. At the Newman Effective Time, each
outstanding share of Newman Common Stock will be converted automatically into
the right to receive one-fourth of one share of Common Stock. Newman's Class C
Warrants (as defined herein) will be adjusted in accordance with that certain
Warrant Agreement by and between Newman and its warrant agent, General
Securities Agency, Inc.
As soon as practicable following the Newman Effective Time, the Company or
its transfer agent will mail to each record holder of Newman Common Stock
immediately prior to the Newman Effective Time, a letter of transmittal and
other information advising such holder of the consummation of the Newman Merger
and for use in exchanging certificates representing Newman Common Stock for
certificates representing Common Stock. After the Newman Effective Time, there
will be no further registration of transfers on the stock transfer books of
Newman of shares of Newman Common Stock. SHARE CERTIFICATES SHOULD NOT BE
SURRENDERED FOR EXCHANGE BY SHAREHOLDERS OF NEWMAN PRIOR TO THE NEWMAN EFFECTIVE
TIME AND THE RECEIPT OF A LETTER OF TRANSMITTAL. Until surrendered and
exchanged, each certificate previously evidencing Newman Common Stock shall
represent solely the right to receive Common Stock.
No fractional shares of Common Stock shall be issued in the Newman Merger.
In lieu thereof, all fractional shares of Common Stock that a holder of Newman
Common Stock would otherwise be entitled to receive as a result of the Newman
Merger shall be automatically converted into the right to receive an amount of
cash to be determined by multiplying $1.00 by the fraction of a share of Common
Stock to which such holder would otherwise have been entitled.
Conditions to the Newman Merger. The respective obligations of the Company,
Newman Acquisition, Newman and LITCO to consummate the Newman Merger are subject
to the satisfaction or waiver of the following conditions: (i) the Registration
Statement, of which this Proxy Statement/Prospectus forms a part, shall have
been declared effective by the Commission, and no stop order with respect
thereto shall be in effect (ii) the Newman Merger Agreement and the Newman
Merger shall have been approved and adopted by the requisite vote of the
shareholders of each of Newman and Newman Acquisition, respectively; (iii) the
Sepco Merger shall have been approved by the shareholders of each of the Company
and Sepco, respectively; and (iv) no order, injunction or decree shall have been
entered and remain in effect in any action or proceeding before any foreign,
federal, state court or governmental agency that would prevent or make illegal
the consummation of the transactions contemplated by the Newman Merger.
29
<PAGE> 41
The obligations of Newman Acquisition and the Company to effect the Newman
Merger are also subject to the satisfaction or waiver at or prior to the Newman
Closing Date of the following conditions: (i) the representations and warranties
of Newman and LITCO contained in the Newman Merger Agreement will be true and
correct in all material respects as of the Newman Closing Date; (ii) Newman and
LITCO shall have performed, in all material respects, each obligation and
agreement and complied with each covenant to be performed and complied with by
them contained in the Newman Merger Agreement prior to the Newman Closing Date;
(iii) all consents by governmental or regulatory agencies or otherwise that are
required for the consummation of the transactions contemplated by the Newman
Merger Agreement or that are required for the Company to own, operate or control
Newman or any portion of the assets of Newman to prevent a breach of or a
default under or a termination of any agreement material to Newman to which
Newman is a party or to which any material portion of the assets of Newman is
subject, will have been obtained; (iv) no action or proceeding before any court
or governmental body will be pending or threatened wherein a judgment, decree or
order would prevent or restrain any of the transactions contemplated hereby or
cause such transactions to be declared unlawful, nullified or rescinded or which
might adversely affect the right of the Company to own, operate or control
Newman; (v) the Company and its financial and legal advisors shall have
completed a due diligence review of the business, operations and financial
statements of Newman, the results of which shall be satisfactory to the Company
in its sole discretion; and (vi) no event shall have occurred which in the
reasonable judgment of the Company or Newman Acquisition would materially affect
the purpose of the Newman Merger.
The obligations of Newman and LITCO to effect the Newman Merger are subject
to the satisfaction or waiver at or prior to the Newman Closing Date of the
following conditions: (i) the representations and warranties of Newman
Acquisition and the Company set forth in the Newman Merger Agreement will be
true and correct in all material respects as of the Newman Closing Date; (ii)
the Company shall have performed, in all material respects, each obligation and
agreement and complied with each covenant required to be performed and complied
with by it contained in the Newman Merger Agreement prior to the Newman Closing
Date; and (iii) no action or proceeding before any court or governmental body
will be pending or threatened wherein a judgment, decree or other would prevent
any of the transactions contemplated hereby or cause the transactions
contemplated by the Newman Merger Agreement to be declared unlawful or
rescinded.
There can be no assurance that all of the conditions to the Newman Merger
will be satisfied.
Representations and Warranties. The Newman Merger Agreement contains
various representations and warranties of the Company, Newman Acquisition,
Newman and LITCO relating to, among other things, (i) the organization and
similar corporate matters of the Company and Newman, (ii) the capitalization of
the Company and Newman, (iii) the authorization, execution, delivery,
performance and enforceability of the Newman Merger Agreement and related
matters, and the absence of conflicts, violations and defaults under the
respective charters and bylaws of the Company and Newman and certain other
agreements and documents, (iv) Newman's compliance with applicable laws, (v) the
financial statements of Newman, (vi) the documents and reports filed by Newman
with the Commission and the accuracy of the information contained therein, (vii)
the absence of certain changes and events with regard to Newman, (viii)
litigation of Newman, (ix) employee benefit and labor matters of Newman, (x)
certain business practices of Newman, (xi) environmental matters with regard to
Newman and (xii) the accuracy of information provided by the Company, Sepco and
Newman.
Certain Covenants; Conduct of Business Prior to the Newman Merger. Newman
and LITCO have jointly and severally agreed that, prior to the Newman Closing
Date, unless expressly contemplated by the Newman Merger Agreement or otherwise
consented to in writing by the Company, Newman will (i) operate its business in
the usual and ordinary course consistent with past practices; (ii) preserve
substantially intact its business organization and capital structure, except for
the repayment of indebtedness owed to LITCO in the amount of $6,040; (iii) use
its best efforts not to take any action which would render, or which reasonably
may be expected to render, any representation or warranty made by them in the
Newman Merger Agreement untrue at any time prior to the Newman Closing Date as
if then made; (iv) notify the Company of any change in the normal course of
Newman's business or in the operation of its properties or of any governmental
or third party complaints, investigations or hearings; (v) notify the Company of
any material adverse event or
30
<PAGE> 42
circumstance affecting Newman; and (vi) comply with all legal requirements and
contractual obligations applicable to its operations and business and pay all
applicable taxes.
Indemnification by LITCO. Subject to certain conditions of the Newman
Merger Agreement, LITCO has agreed to indemnify, defend and hold the Company and
its directors, officers, agents, attorneys and affiliates harmless from and
against all losses, claims, actions, causes of action, fines, obligations,
demands, assessments, penalties, liabilities, costs, damages, attorneys' fees
and expenses (collectively, the "Damages"), asserted against or incurred by any
such person or entity by reason of or resulting from (i) a breach of any
representation, warranty, non-fulfillment of any agreement or covenant of Newman
or LITCO contained in the Newman Merger Agreement or in any written statement,
certificate or other document to be delivered in connection therewith or (ii)
any untrue, inaccurate or incomplete statements of a material fact contained in
the Registration Statement of which this Proxy Statement/Prospectus is a part,
except such statements that are based on information provided by the Company.
Indemnification by the Company. Subject to certain conditions of the Newman
Merger Agreement, the Company has agreed to indemnify, defend and hold Newman
and its directors, officers, agents, attorneys and affiliates harmless from and
against all Damages asserted against or incurred by any such person or entity by
reason of or resulting from (i) a breach of any representation, warranty or
covenant of the Company contained in the Newman Merger Agreement or (ii) any
untrue, inaccurate or incomplete statements of a material fact contained in the
Registration Statement of which this Proxy Statement/Prospectus is a part,
except such statements that are based on information provided by Newman or
LITCO.
Termination or Amendment of the Newman Merger Agreement. The Newman Merger
Agreement may be terminated, among other circumstances, by the Company if the
Newman Merger has not closed by December 31, 1996 or by either party if a court
of competent jurisdiction shall have issued an order, decree or ruling or taken
any other action to enjoin or otherwise prohibit the Newman Merger. The Newman
Merger Agreement may be amended, modified or supplemented only by an instrument
in writing executed by all parties to the Newman Merger Agreement.
31
<PAGE> 43
SEPCO SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data of Sepco set forth
below for each of the years ended December 31, 1995, 1994 and 1993 and at
December 31, 1995 and 1994 have been derived from the audited consolidated
financial statements of Sepco included elsewhere in this Proxy
Statement/Prospectus. Such financial statements have been audited by Ernst &
Young LLP, independent auditors. The selected financial data for the years ended
December 31, 1992 and 1991 and at December 31, 1993, 1992 and 1991 are derived
from the audited financial statements of Sepco which are not included in this
Proxy Statement/Prospectus and which have been audited by Ernst & Young LLP,
independent auditors. The selected financial data set forth below for each of
the six-month periods ended June 30, 1996 and 1995 and at June 30, 1996 have
been derived from unaudited financial statements of Sepco included elsewhere in
this Proxy Statement/Prospectus. This information should be read in conjunction
with "Selected Consolidated Financial Data -- Sepco", "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Sepco" and
Sepco's consolidated financial statements and notes included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Revenues.............................................. $63,021 $56,395 $111,328 $102,592 $99,353 $96,017 $93,239
Gross profit.......................................... 16,231 14,390 29,157 27,217 26,792 23,622 24,416
Operating income(1)................................... 1,425 2,010 4,598 4,150 3,288 1,827 4,171
Income before provision for income taxes, minority
interest and change in accounting principle......... 931 1,470 3,512 3,038 2,346 620 2,511
Minority interest in earnings (loss) of
Subsidiaries(2)..................................... -- -- -- -- (403) 136 (392)
Cumulative effect of change in accounting
principle(3)........................................ -- -- -- -- 882
Net income(4)......................................... 554 874 2,088 1,862 1,843 152 1,043
PER SHARE DATA:
Primary
Net income.......................................... $ 0.55 $ 0.66 $ 1.68 $ 1.41 $ 1.58 $ 0.14 $ 0.95
Fully diluted
Net income.......................................... $ 0.48 $ 0.66 $ 1.61 $ 1.40 $ 1.55 $ 0.14 $ 0.95
Number of shares used to calculate
Primary net income per share........................ 1,016 1,331 1,244 1,319 1,163 1,102 1,102
Fully diluted net income per share.................. 1,152 1,334 1,293 1,328 1,187 1,102 1,102
</TABLE>
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE DECEMBER 31,
30, ---------------------------------------------------
1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Working capital........................................... $23,418 $23,967 $20,011 $18,402 $17,084 $15,069
Total assets.............................................. 45,071 43,254 38,163 38,686 37,243 34,327
Long-term debt obligations................................ 19,660 21,275 18,461 20,766 19,200 16,565
Stockholders' Equity...................................... 11,887 10,288 8,708 6,942 4,542 3,975
</TABLE>
- ---------------
(1) Six months ended June 30, 1996 includes a one-time charge to compensation
expense of $710,000 for the amendment of book value options to fair market
value options.
(2) In December 1992 and September 1993, Sepco acquired the remaining capital
stock of two subsidiaries, T.L. Walker Bearing Company and Southern Engine
and Pump Company. The acquisitions eliminated any need to account for
minority interest in earnings of the subsidiaries.
(3) Effective January 1, 1993, Sepco changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". As permitted under the new
rules, prior years' financial statements were not restated. The cumulative
effect of adopting Statement 109 as of January 1, 1993 was to increase net
earnings by $882,000.
(4) In August 1990, June 1991 and July 1992, Sepco acquired three separate
bearing and power transmission companies having revenues of approximately
$25,000,000, $10,000,000 and $7,000,000, respectively, at the time of their
purchase. In 1991, 1992 and 1993, operating income (loss) from these bearing
and power transmission companies was $188,000, ($1,091,000) and $379,000,
respectively.
32
<PAGE> 44
NEWMAN SELECTED FINANCIAL DATA
The selected financial data of Newman for the fiscal years 1991 through
1995 were derived from the audited financial statements of Newman. Included
elsewhere in this Proxy Statement/Prospectus are the Balance Sheets for December
31, 1995 and March 31, 1995 and the Statements of Operations, Changes in
Shareholders' Equity and Cash Flows for the nine months and twelve months then
ended. Such financial statements have been audited by Cheshier & Fuller, Inc.,
P.C., independent public accountants. This information should be read in
conjunction with the following selected financial data. The selected financial
data for the six months ended June 30, 1996 and 1995 are unaudited, but in the
opinion of management of Newman, such financial statements include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of Newman's financial position and results of operations. The
results of operations for the six months ended June 30, 1996 may not be
indicative of the results to be expected for the full fiscal year. See "Selected
Consolidated Financial Data -- Newman", "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Newman" and Newman's financial
statements and notes thereto included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS
JUNE 30,(3) YEAR ENDED MARCH(1)(2)(3) ENDED
------------------- ----------------------------------------------- DECEMBER 31,
1996 1995 1995 1994 1993 1992 1995(1)(3)
-------- -------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Income (loss) before extraordinary
items................................ (13,212) (5,644) (4,392) (5,600) -- -- (5,978)
Extraordinary items(2)................. -- -- -- 4,026,333 -- -- --
Net income (loss)...................... (13,212) (5,644) (4,392) 4,020,733 -- -- (5,978)
PER SHARE DATA:
Primary
Income (loss) before extraordinary
items.............................. $ (.02) $ (.01) $ (.01) $ -- $ -- $ -- $ (.01)
Net income........................... $ (.02) $ (.01) $ (.01) $ 1.14 $ -- $ -- $ (.01)
Fully diluted
Net income (loss).................... $ (.02) $ (.01) $ (.01) $ -- $ -- $ -- $ (.01)
Average number of Shares of Common
Stock outstanding(4)................. 838,500 834,500 763,792 3,540,407 5,310,610 5,310,610 839,833
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------- MARCH 26, MARCH 27, MARCH 28, DECEMBER 31,
1996 1995 1994 1993 1992 1995
------ ------ --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total assets....................................... $5,676 $2,640 $ 9,249 $ -- $ -- $ 12,854
Total liabilities.................................. 6,034 2,250 25 4,031,509 4,031,509 --
Shareholders equity (deficit)...................... (358) 390 9,224 (4,031,509) (4,031,509) 12,854
</TABLE>
- ---------------
(1) During 1995, Newman changed its fiscal year end from a fiscal year which is
based on a 52-week year ending on the last Saturday in March to a calendar
year end.
(2) Newman filed for Chapter 11 bankruptcy on August 12, 1992, and emerged as a
reorganized entity on November 22, 1993. See "Business Information
Concerning Newman -- Bankruptcy Proceedings".
(3) Newman has been a development stage company since its November 22, 1993
reorganization.
(4) Does not include 1,693,564 shares of Newman Common Stock issued to Halter in
August 1996 for approximately $1,694 in cash. See "The
Reorganization -- Sepco's Reasons for the Reorganization -- Recommendation
of Sepco's Board of Directors".
33
<PAGE> 45
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheets as of June 30, 1996 and the
unaudited pro forma combined statements of earnings for the six months ended
June 30, 1996 and the year ended December 31, 1995 give effect to the Sepco
Merger and the Newman Merger. The unaudited pro forma combined statements of
earnings assume all such transactions occurred at the beginning of the periods
presented. The unaudited pro forma combined balance sheets assume all such
transactions occurred at the end of the periods presented. The pro forma
information is based on the historical financial statements of Sepco and Newman,
giving effect to the Sepco Merger and the Newman Merger under the purchase
method of accounting and the adjustments accompanying the unaudited pro forma
combined financial statements.
The unaudited pro forma combined financial statements may not be indicative
of the results that would have occurred if the combination had been in effect on
the dates indicated or which may occur in the future. The unaudited pro forma
condensed combined financial statements should be read in conjunction with the
financial statements of Sepco and Newman, which are included elsewhere in this
Proxy Statement/Prospectus.
PRO FORMA COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------------------
SEPCO NEWMAN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash........................................... $ -- $ 5 $ 2 (1) $ 7
Accounts receivable, net....................... 18,016 18,106
Inventories.................................... 17,247 17,247
Prepaid expense and other...................... 971 971
Deferred income taxes.......................... 503 503
------- ------- ------- -------
Total current assets...................... 36,737 5 2 36,744
Property, plant and equipment, net............... 6,749 6,749
Intangible assets, net........................... 1,585 1,585
------- ------- ------- -------
Total Assets.............................. $ 45,071 $ 5 $ 2 $45,078
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade account payables......................... $ 7,370 $ $ $ 7,370
Current portion of long-term debt.............. 1,347 1,347
Current portion of subordinated debt........... 1,308 1,308
Employee compensation.......................... 1,005 1,005
Other current liabilities...................... 2,289 6 2,295
------- ------- ------- -------
Total current liabilities................. 13,319 6 13,325
Long-term debt, less current portion............. 19,660 19,660
Deferred income taxes............................ 205 205
Total Liabilities......................... 33,184 6 33,190
Shareholders' Equity:
Preferred Stock................................ 10 (7)(3) 3
Convertible Preferred Stock.................... 1,950 1,950
Common Stock................................... 12 1,421 2 (1) 160
(1,417)(2)
142 (3)
Paid in capital................................ 1,880 (790)(3) 1,085
(5)(2)
Retained earnings (deficit).................... 9,732 (1,422) 1,422 (2) 8,690
(1,042)(3)
Treasury Stock................................. (1,697) 1,697 (3)
------- ------- ------- -------
Total shareholders' equity................... 11,887 (1) 2 11,888
------- ------- ------- -------
Total Liabilities and Shareholders'
Equity.................................. $ 45,071 $ 5 $ 2 $45,078
======= ======= ======= =======
</TABLE>
34
<PAGE> 46
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED DECEMBER 31, 1995
------------------------------------- -------------------------------------
SEPCO NEWMAN PRO FORMA SEPCO NEWMAN PRO FORMA
HISTORICAL HISTORICAL COMBINED HISTORICAL HISTORICAL COMBINED
---------- ---------- --------- ---------- ---------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 63,021 $ $63,021 $ 111,328 $ $ 111,328
Costs and expenses:
Cost of sales.................. 46,790 46,790 82,171 82,171
Selling, general and
administrative.............. 14,806 12 14,818 24,559 6 24,565
------- ------ ------- -------- ------ --------
Operating income (loss).......... 1,425 (12) 1,413 4,598 (6) 4,592
Other income (expense)
Other income................... 514 514 867 867
Interest expense............... (1,008) (1,008) (1,953) (1,953)
------- ------ ------- -------- ------ --------
Earnings (loss) before income
taxes.......................... 931 (12) 919 3,512 (6) 3,506
Provision for income taxes....... (377) (377) (1,424) (1,424)
------- ------ ------- -------- ------ --------
Net income (loss)................ $ 554 $ (12) $ 542 $ 2,088 $ (6) $ 2,082
======= ====== ======= ======== ====== ========
Net income (loss) per share...... $ 0.55 $(0.01) $ 0.03 $ 1.68 $(0.01) $ 0.12
======= ====== ======= ======== ====== ========
Weighted average shares
outstanding.................... 1,016 839 17,263 1,244 764 17,263
======= ====== ======= ======== ====== ========
</TABLE>
35
<PAGE> 47
PRO FORMA ADJUSTMENTS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
1. To record the issuance of 1,693,564 shares of Newman to Halter.
2. To record the issuance of shares of the Company to the Newman shareholders
as a result of the Reorganization.
3. To record issuance of shares of the Company to Sepco shareholders as a
result of the Reorganization and to eliminate Sepco treasury stock.
36
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY/SEPCO
The following analysis of the financial condition and results of operations
of the Company reflects the Company and Sepco on a combined basis after giving
effect to the Reorganization and should be read in conjunction with the
Consolidated Financial Statements of Sepco, including the notes thereto,
included elsewhere in this Proxy Statement/Prospectus.
GENERAL
The Company is a distributor of maintenance, repair and operating supplies
and equipment for industrial customers engaged in various businesses,
principally the oil and gas (transportation and production segments),
petrochemical and wood products industries. The Company also sells its products
to municipalities, food and beverage companies and companies in the construction
industry. The Company's principal products currently consist of pumps and pump
accessories, valves and valve automation products and bearings and power
transmission equipment. The Company also provides system design, fabrication,
installation, repair and maintenance services for its customers.
Demand for the Company's products is subject to changes in the United
States economy in general and economic trends affecting the Company's customers
and the industries in which they compete in particular. Many of these
industries, such as the oil and gas industry, are subject to volatility while
others, such as the petrochemical industry, are cyclical and materially affected
by changes in the economy. As a result, the Company may experience changes in
demand for its products as changes occur in the markets of its customers. Such
was the case in late 1994 when prices for natural gas declined substantially and
resulted in a drop in demand for the Company's valve automation products used
for natural gas transmission.
Future results for the Company also will be dependent on the success of the
Company in implementing its acquisition and growth strategy. This strategy
includes taking advantage of a consolidation in the industry and effecting
acquisitions of distributors with complementary or desirable new product lines,
strategic distribution locations and attractive customer bases and manufacturer
relations. The Company's strategy also includes expanding its product lines,
adding new product lines and establishing alliances and joint ventures with
other suppliers in order to provide the Company's customers with a source of
integrated supply. The ability of the Company to implement this strategy will be
dependent on its ability to identify, consummate and assimilate acquisitions on
economic terms, to acquire and successfully integrate new product lines and to
establish and successfully market new integrated forms of supply arrangements
such as that being pursued by AMRO. Although the Company is actively seeking
acquisitions and integrated supply arrangements that would meet its strategic
objectives, it currently has no agreements or understandings with respect to any
such acquisition and there can be no assurance that the Company will be
successful in these efforts. Further, the ability of the Company to effect its
strategic plans will be dependent on its obtaining financing for its planned
expansions, which there can be no assurance will be available. The Company plans
to examine appropriate methods of financing any such acquisition, including
issuance of additional capital stock, debt or other securities or a combination
of both. If the Company were to issue shares of its capital stock in any
acquisition such issuance would be dilutive to existing shareholders.
37
<PAGE> 49
RESULTS OF OPERATIONS
The following table sets forth selected items of the results of operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Revenues............................. $63,021 $56,395 $111,328 $102,592 $99,353
Pumps and Pump Products.................. 33,870 31,773 61,630 58,774 56,004
Valve and Valve Automation............... 5,205 4,656 10,198 7,678 8,915
Bearings and Power Transmission.......... 23,946 19,966 39,500 36,140 34,434
------- ------- -------- -------- -------
Cost of Sales.............................. 74.2% 74.5% 73.8% 73.5% 73.0%
Gross Profit............................... 25.8 25.2 26.2 26.5 27.0
Selling, General and Administrative
Expense.................................. 23.5 22.0 22.1 22.5 23.7
Operating Income........................... 2.3 3.5 4.1 4.0 3.3
Other Income............................... .8 .8 .8 .8 .9
Interest Expense, net...................... 1.6 1.7 1.8 1.9 1.8
Income Before Taxes, Minority Interest and
Cumulative Effect of Change in Accounting
Principles............................... 1.5 2.6 3.2 3.0 2.4
Income Tax Expense (benefit)............... .6 1.1 1.3 1.1 1.0
Minority Interest in Earnings of
Subsidiaries............................. .4
Income Before Cumulative Effect of Change
in Accounting Principles................. 1.0
Effect of Change in Accounting Principle... .9
------- ------- -------- -------- -------
Net Income................................. .9% 1.5% 1.9% 1.8% 1.9%
======= ======= ======== ======== =======
</TABLE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
Revenues for the six months ended June 30, 1996 increased 11.7% to $63.0
million from the six months ended June 30, 1995. The increase in revenues for
the 1996 period was primarily attributable to sales of bearings and transmission
products at locations where pump and pump products were previously the only
products sold and increased market penetration and higher prices. During the six
months ended June 30, 1996, sales of pumps and pump products increased 6.6% over
the comparable period in 1995, while sales of valves and valve automation
products increased 11.8% in the first six months in 1996 over the comparable
1995 period. Sales of bearings and power transmission equipment increased 19.9%
in the first six months of 1996 over the comparable period in 1995. Revenues for
the six months ended June 30, 1996, also included approximately $2,061,000 in
revenues attributable to two companies acquired in December 1995 and February
1996.
Gross margins increased slightly by .3% in the first six months of 1996
compared to the first six months of 1995 due to the ability of the Company to
pass on manufacturer price increases, in particular in the pump market. The
Company currently expects some increase in manufacturers' prices to continue due
to increased raw material costs and strong market conditions. Although the
Company intends to attempt to pass on these price increases to its customers to
maintain current gross margins, there can be no assurance that the Company will
be successful in this regard.
Selling, general and administrative expenses increased as a percentage of
revenues by 1.5% for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995, due primarily to the incurrence of a one-time charge
of $710,000 for additional compensation expense associated with the amendment of
certain book value stock options into market-based stock options and costs
associated with the Company's expansion of operations. Excluding the effect of
the amendments to the stock options, selling, general and administrative
expenses as a percentage of revenues remained relatively flat from period to
period.
38
<PAGE> 50
Operating income for the first six months of 1996 as a percentage of
revenues declined 1.2% compared to the first six months of 1995, due primarily
to the compensation recorded in connection with the stock option amendments.
Interest expense during the first six months of 1996 increased slightly
compared to the first six months of 1995, due to average debt increasing during
the period as a result of increased inventory levels to support sales. Average
interest rates were lower during the same period of 1995. Further increases in
inventories may be required to the extent sales and activity levels increase.
Any such increases would be subject to the nature of the increases and the
perceived profitability of any such increases.
The Company's provision for income taxes for the first six months of 1996
decreased by $219,000 compared to the first six months of 1995 notwithstanding
increased operating income due to higher compensation expense during the quarter
associated with the amendments to the Company's stock options.
Net income for the six months ended June 30, 1996, declined $320,000 from
the first six months of 1995 due to the effects of the additional compensation
expense associated with the amendments to the Company's stock options. Excluding
the effect of this expense, net income would have increased by approximately
$106,000 due to increased product sales.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994.
Revenues for the year ended December 31, 1995 increased 8.5% to $111.3
million from $102.6 million for the year ended December 31, 1994. The increase
in revenues for the 1995 period was primarily attributable to sales of bearings
and transmission products at locations where pump and pump accessories were
previously the only products sold, increased sales of valve automation products
for use in the gas transmission market, increased market penetration for the
Company's bearings and valves, increased market penetration and higher prices.
During the year ended December 31, 1995, sales of pumps and pump products
increased 4.9% over 1994, while sales of valves and valve automation products
increased 32.8% in 1995 over 1994. Sales of bearings and power transmission
equipment increased 9.3% in 1995 over 1994.
Gross profit decreased .3% during the year ended December 31, 1995, due to
higher costs of sales relating to increases in manufacturer pricing compared to
1994. This relatively small percentage decrease was due to the inability to pass
on manufacturer price increases.
Selling, general and administrative expense for the year ended December 31,
1995, decreased as a percentage of revenues by .4% as compared to 1994 due
primarily to increased revenues.
Operating income for the year ended December 31, 1995, as a percentage of
revenues remained constant with 1994 notwithstanding higher manufacturer costs
due to the Company being able to reduce average selling, general and
administrative expense.
Interest expense for 1995 increased compared to 1994 due to higher average
debt incurred to finance increased sales. The increased levels of debt, however,
were partially offset by lower average borrowing costs during the year.
The provision for income taxes for 1995 increased by $248,000 as compared
to 1994 due primarily to increased pre-tax profits for the year as compared to
the prior year.
Year Ended December 31, 1994 compared to Year Ended December 31, 1993.
Revenues for the year ended December 31, 1994, increased 3.2% to $102.6
million from $99.4 million. During the year ended December 31, 1994, sales of
pumps and pump products increased 5.0% over 1993, while sales of bearings and
power transmission equipment increased 5.0% in 1994 over 1993. Sales of valves
and valve automation products decreased 13.9% in 1995 over 1994. The increased
revenues from pumps and pump products and bearings and power transmission
equipment resulted from better penetration of existing markets and increases in
manufacturer pricing. The decrease in the sales of valves and valve automation
products was primarily due to a depressed gas transmission market that prompted
some customers to push 1994 projects into 1995.
39
<PAGE> 51
Gross profit decreased .5% during the year ended December 31, 1994, due to
higher costs of sales relating to increases in manufacturer pricing compared to
1993. This relatively small percentage increase was due to the inability to
fully pass on manufacturer price increases.
Selling, general and administrative expenses decreased as a percentage of
revenues by 1.2% for 1994 as compared to 1993. This decrease was attributable to
increased revenues and average per unit selling, general and administrative
expense declining greater than per unit increases in costs of sales. The Company
also benefitted from reductions in insurance expense, which were partially
offset by increased compensation expense.
Operating income as a percentage of revenues increased by .7% between 1994
and 1993 due to the small increase in Cost of Sales as a percentage of revenues
being more than offset by the decrease in the selling, general and
administrative expenses as a percentage of revenues.
Interest expense in 1994 increased by $129,000 to $1.9 million in 1994 due
to higher interest rates. Average borrowings, however, decreased during the
year. Interest expense as a percentage of sales remained virtually constant at
1.9%.
The provision for income taxes increased by $194,000 from 1994 as compared
to 1993 due primarily to increased pre-tax profits for the year as compared to
the prior year.
The Company had no minority interest in earnings of subsidiaries for 1994
compared to $403,000 in 1993. The elimination of minority interests was due to
the Company's acquisition of the minority interest in Southern Engine & Pump
Company in September 1993.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative
effect of this change in accounting principle resulted in a one time increase in
earnings of $882,000 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Under the Company's credit facility, all available cash is generally
applied to reduce outstanding borrowings, with operations funded through
borrowings under the credit facility. As a result, at June 30, 1996, the Company
had no cash and cash equivalents compared to $1.5 million and $.9 million at
December 31, 1995, and 1994, respectively. The Company's policy is to maintain
low levels of cash and cash equivalents and to use borrowings under its line of
credit for working capital. The Company also had $3.0 million available for
borrowings under its working capital line of credit at June 30, 1996. Working
capital at June 30, 1996 was $23 million compared to $24 million and $20 million
at December 31, 1995 and 1994, respectively. During 1994 and 1995, Sepco
collected its trade receivables in approximately 48 days and turned its
inventory approximately five times.
The Company currently has a $20 million secured line of credit with an
institutional lender. The rate of interest is prime plus .5% (9.25% and 9.50% at
December 31, 1995 and 1994, respectively). The line of credit is secured by
receivables, inventory, and machinery and equipment and matures January 1999. At
June 30, 1996, the available line of credit was approximately $3.0 million. The
facility contains customary affirmative and negative covenants as well as
financial covenants that require the Company to maintain a positive cash flow
and other financial ratios, such as tangible net worth less than five to one,
current assets to current liabilities greater than two to one and capital
expenditures equal to or less than $350,000. The Company currently expects to
renew the line of credit at its maturity.
The Company generated cash from operating activities of $.7 million in the
first six months of 1996. The Company had a working capital deficit from
operations of $59,000 in 1995 compared to a positive $2.6 million in 1994,
primarily due to the financing of inventory and increases in receivables of
approximately $3.2 million incurred in connection with the expansion of the
distribution of the Company's bearing and power transmission equipment in
markets previously selling only pump and pump products.
The Company had capital expenditures of approximately $572,000 and $1.5
million during the first six months of 1996 and the year ended December 31,
1995, respectively. Capital expenditures in the first six
40
<PAGE> 52
months of 1996 were for the purchase of a facility in Lufkin, Texas ($190,000),
leasehold improvements and furniture and fixtures at the corporate office and
for office equipment and computer automation. Capital expenditures for 1995 were
primarily for office and shop equipment and computer automation. For the
remainder of 1996 the Company has budgeted approximately $400,000 for additional
capital expenditures primarily associated with the installation of the Company's
computer system.
During the first quarter of 1996, the Company expended approximately
$550,000 for the acquisition of the assets of Austin Bearings. During 1995, the
Company exchanged 4,500 shares of Sepco Class A Convertible Preferred Stock and
$50,000 for the acquisition of all of the outstanding stock of Bayou Pumps.
The Company is currently undergoing an examination of its tax returns by
the IRS which is asserting claims against Sepco for additional taxes and
penalties of approximately $1 million plus interest of approximately $240,000.
This claim relates primarily to a challenge by the IRS of Sepco's use of the
LIFO method of accounting for inventory. Sepco believes that its LIFO elections
were valid and currently is pursuing its rights to administrative appeal.
Although an unfavorable outcome on this matter would result in the payment of
additional taxes and impact the Company's liquidity position, the Company
believes that any liability that may ultimately result from the resolution of
this matter will not have a material adverse effect on the financial position of
the Company.
The Company believes that cash generated from operations and available
under its credit facility will meet its future ongoing operational and liquidity
needs and capital requirements. Funding of the Company's acquisition program and
integrated supply strategy will require capital in the form of the issuance of
additional equity or debt financing. There can be no assurance that such
financing will be available to the Company or as to the terms thereof.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed. The Company
adopted Statement 121 in the first quarter of 1996. The adoption of Statement
121 did not have any material effect on the Company.
The Company currently follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
employee stock options. In October 1995, Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", was issued, which
established a fair-value based method of accounting for stock-based compensation
plans. In accordance with the provisions of this new accounting standard, the
Company has elected to continue following the provisions of APB 25 and will
include in future financial statements pro forma disclosures for the new
standard.
INFLATION
The Company does not believe the effects of inflation have any material
adverse effect on its results of operations or financial condition and attempts
to minimize inflationary trends by passing manufacturer price increases on to
the customer whenever practicable.
NEWMAN
Newman, a development stage company, has had no business operations and no
material assets since it filed the Petition (as defined herein) in 1992. Since
1993, Newman's expenses were principally its audit fees and certain other filing
and administrative fees necessary to keep Newman in compliance with regulatory
requirements.
Newman filed with the Court (as defined herein) the Plan (as defined
herein) on April 14, 1993, which was confirmed on September 13, 1993. Under the
Plan, Newman's unsecured creditors received either cash or
41
<PAGE> 53
a combination of Newman Common Stock and Class A, B and C Warrants. In addition,
holders of Pre-petition Common Stock (as defined herein) received, at their
option and upon payment of a $20 administrative fee to Newman's transfer agent,
a combination of common stock and Class A, B and C Warrants (each as defined
herein). A total of 332,500 shares of Newman Common Stock and 650,000 each of
Class A, B and C Warrants were issued to unsecured creditors and Newman
shareholders under the Plan. In addition, LITCO, Newman's principal shareholder,
contributed $20,000 to Newman and was designated as a separate class under the
Plan. LITCO received 1,000,000 each of Class A, B and C Warrants. The exercise
period for the Class A and B Warrants has expired, with the exercise period for
the Class C Warrants expiring on November 22, 1996.
During the six months ended June 30, 1996, there was no revenue or exercise
of warrants. Certain regulatory and operational expenses were paid in this
period resulting in a loss for the period of $998. Newman had $5,200 in cash as
of June 30, 1996 and accrued liabilities of $6,034 related to administrative
expenses incurred by LITCO for the benefit of Newman. Management of Newman is
unable to estimate the number, if any, of warrants that will be exercised in the
future.
On February 1, 1996, the Board of Directors of Newman changed Newman's
fiscal year end to December 31.
42
<PAGE> 54
BUSINESS INFORMATION CONCERNING THE COMPANY
The Company is a newly incorporated entity formed for the sole purpose of
effecting the Reorganization and succeeding to the business and operations of
Sepco. Unless the context otherwise requires, the term "Company" refers to the
Company, as the successor to Sepco, following the completion of the
Reorganization.
GENERAL
The Company is a distributor of maintenance, repair and operating supplies
and equipment for industrial customers engaged in various businesses,
principally the oil and gas, petrochemical and wood products industries. The
Company currently distributes over 125,000 items, consisting primarily of pumps
and pump accessories, valves and valve automation products and bearings and
power transmission equipment. The Company also provides system design,
fabrication, installation, repair and maintenance services for its customers.
The Company's products currently are distributed from over 30 distribution
centers strategically located throughout the Southwest. The Company's sales
force includes approximately 100 sales representatives.
The Company has been a distributor of industrial supplies in the Southwest
since 1908 when it was founded as a distributor of pumps and pump products for
companies in the agriculture industry. The Company has grown substantially since
that time through the addition of new product lines and distribution locations.
Since 1987, the Company has made various acquisitions with the objective of
expanding its product lines and distribution network. These acquisitions have
resulted in the Company becoming one of the largest regional distributors of
industrial supplies in the Southwest and the 36th largest distributor of
industrial supplies in the United States, based on the most recent survey
conducted by Industrial Distribution.
The Company's strategy is to continue to expand through acquisitions and
internal development. Through future acquisitions, the Company will seek to take
advantage of what it believes to be a trend toward consolidation in the highly
fragmented $200 billion industrial product distribution industry. The Company
believes that this consolidation is being driven by the customer's desire to
reduce costs through integrated sources of supply which can provide products at
lower costs through volume purchases. The integration of supply also reduces the
customer's need to maintain excess inventories and to coordinate purchasing
needs through numerous small suppliers. The Company intends to meet this
customer demand by engaging in selective acquisitions of small- to medium-sized
independent distributors with complementary or desirable new product lines,
strategic distribution locations and attractive customer bases and manufacturer
relations. The Company also will seek acquisitions that will provide it with the
ability to penetrate new geographical markets through the establishment of
distribution bases outside of the Company's current geographical markets. These
acquisitions are expected to be both within the Southwest and elsewhere in the
United States. Although the Company is actively seeking acquisitions that would
meet its strategic objectives, there can be no assurance that the Company will
be successful in its efforts.
The Company's strategy for internal development also is related to the
consolidation trend in the industry and focused on providing the Company's
customers with an integrated source of supply for a large portion of their
maintenance, repair and operating supply needs. The Company believes that as the
market for industrial supplies consolidates to compete successfully, it will be
necessary for distributors to provide the customer with a single source of
supply for a majority of their industrial supply needs either directly through
their own product lines or through alliances, consortiums or joint ventures. The
Company intends to seek to meet this competitive need by expanding its existing
product lines and adding new product lines through acquisitions, new
manufacturing arrangements and alliances and joint ventures with other
suppliers. The Company also intends to begin to actively market to its customers
through AMRO a comprehensive outsourcing program that is designed to provide all
aspects of the maintenance, repair and operating, supply procurement, inventory
management and distribution functions for its customers at the customer's
location.
The Company is a Texas corporation formed solely for the purpose of
effecting the Reorganization and succeeding to the business of Sepco. Sepco has
been a distributor of pumps and pump products since 1908 and was incorporated in
Texas in 1913. The Company's principal office is located at 580 Westlake Park
Boulevard, Suite 1100, Houston, Texas 77079 and its telephone number is (713)
531-4214.
43
<PAGE> 55
INDUSTRY OVERVIEW AND BUSINESS OBJECTIVES
The Company estimates that the United States market for industrial supplies
is currently approximately $200 billion annually. The principal products
provided to this market consist of (i) pumps and pump accessories, (ii) valves
and valve automation products, (iii) bearings and power transmission equipment,
(iv) electrical products and (v) general mill supplies and safety products. The
Company currently provides three of these five classes of products (pumps,
valves and bearings and power transmission) and, as part of its operating
strategy, intends to seek acquisitions of distributors who provide the other two
classes of products (electrical and general mills and safety).
The industrial distribution industry currently is highly fragmented.
Although there exist various national distribution companies, the 50 largest
industrial supply distributors currently account for less than 10% of the total
market. As a result, most industrial customers currently purchase their
industrial supplies through numerous local distribution and supply companies.
These distributors, like the Company, also generally provide the customer with
repair and maintenance services, technical support and application expertise
with respect to their own product lines. Products typically are purchased by the
distributor for resale directly from the manufacturer and warehoused at branch
distribution facilities of the distributor until sold to the customer. The
customer also typically will purchase an amount of product inventory for its
near term anticipated needs and warehouse those products at its industrial site
until the products are used.
The Company believes that the current distribution system for industrial
products in the United States creates inefficiencies at both the customer and
the distributor level through excess inventory requirements and duplicative cost
structures. The Company believes that with increased global competition and
pricing pressures, the current system will need to change and industrial
distributors will need to consolidate to meet their clients' objectives for
faster deliveries and lower costs. Consolidation will provide those distributors
that are able to consolidate the opportunity to better manage their inventory
levels, reduce per unit overhead and selling costs and improve purchasing power
from the manufacturer.
The Company believes that an additional factor underlying the consolidation
trend in the industry is a growing demand for new alternative distribution
programs in which an integrated source of supply is offered to the customer as a
means of simplifying the procurement of industrial supplies and reducing the
customer's own purchasing costs. This integrated source of supply currently is
being provided on a limited basis by the Company and other distributors through
a variety of differing forms of alliances, joint ventures and consortiums among
distributors that are designed to offer the customer a broader range of products
though a centralized source of supply. The Company expects that while such
alliances will continue to grow and be a factor in the market in the future, the
ability of a distributor to provide all or a substantial portion of the supply
needs of the customer will become a central aspect of competition in the
industry in the future.
Industrial supply distributors typically provide professional sales
expertise, engineering expertise, inventory availability, fabrication and
assembly and in-house and field service. The Company believes that the
acquisition of other businesses will not materially affect its ability to
provide these services to its customers on the same basis as smaller
distributors. The Company currently does not intend to eliminate any material
services that may be provided by companies which it may acquire, but rather to
maintain the same or higher level of service through acquired personnel and
non-duplicative locations. The Company also believes that the level of service
provided to the customers of the acquired business may be enhanced as a result
of the availability of a broader range of products, the elimination of
duplicative overhead and access to expanded product lines.
The Company's objective for future growth is to take advantage of the
current consolidation and integrated supply trends in the market. In this
regard, the Company intends to seek acquisitions that will both expand its
existing product lines and add new product lines. The Company also intends to
continue to pursue on a selective basis alliances and other similar arrangements
with other distributors, such as the Company's participation in the iPower
Consortium described below, that will allow it to provide a more integrated
source of supply to its customers. The Company also has recently created a new
subsidiary, AMRO, to market a comprehensive vendor outsourcing service through
which the Company will perform all aspects of supply procurement, inventory
management and distribution functions for large volume customers at the
customer's
44
<PAGE> 56
industrial site. Although AMRO has just recently begun the marketing of its
services and has not yet generated any revenues, the Company believes that the
services proposed to be provided by AMRO ultimately will become an important
component of the Company's distribution network.
The ability of the Company to implement its strategy for growth will be
dependent on its ability to identify, consummate and assimilate acquisitions on
economic terms, to acquire and successfully integrate new product lines and to
establish and successfully market new integrated forms of supply arrangements
such as those being pursued by AMRO. Although the Company is actively seeking
acquisitions and integrated supply arrangements that would meet its strategic
objectives, it currently has no agreements or understandings with respect to any
such acquisition and there can be no assurance that the Company will be
successful in these efforts. Further, the ability of the Company to effect its
strategic plans will be dependent on its obtaining financing for its planned
expansions, which there can be no assurance will be available. The Company plans
to examine appropriate methods of financing any such acquisition, including
issuance of additional capital stock, debt or other securities or a combination
of both. If the Company were to issue shares of its capital stock in any
acquisition, such issuance could be dilutive to existing shareholders.
PRODUCTS AND SERVICES
The Company currently stocks in inventory for distribution more than
125,000 different items for use primarily by customers engaged in the oil and
gas, petrochemical and wood products industries. Other industries served by the
Company include municipalities, food and beverage and construction. The
principal products currently distributed by the Company consist of (i) pumps and
pump accessories, (ii) valves and valve automation products and (iii) bearings
and power transmission equipment. The Company also provides system design,
fabrication, installation and repair and maintenance services for its customers.
The Company's products are distributed from over 30 distribution centers
strategically located throughout the Southwest and sold through a sales force of
approximately 100 sales representatives who operate on a commission basis.
Pumps and Pump Accessories
The Company's pump products include a full line of (i) centrifugal pumps
for transfer and process service applications, such as petrochemicals, refining
and crude oil production, (ii) rotary gear pumps for low-to medium-pressure
service applications, such as pumping lubricating oils and other viscous
liquids, (iii) plunger and piston pumps for high-pressure service applications
such as salt water injection and crude oil pipeline service and (iv)
air-operated diaphragm pumps. The Company also provides various pump
accessories. Sales of pumps and pump accessories accounted for 56%, 58% and 56%
of the Company's revenues for years ended December 31, 1995, 1994 and 1993,
respectively.
Valves and Valve Automation
The Company's valve and valve automation products include a full line of
pneumatic, hydraulic and electric actuators for critical or high-pressure
service applications or remote valve operation applications, such as refinery,
offshore and pipeline applications, as well as for applications involving
large-diameter pipe. The Company also provides a full line of manual worm gear
and bevel gear actuators for low-pressure applications not requiring remote
operation, including tank farms, water lines and municipal water systems. These
actuators may be fitted to either multi- or quarter-turn valves. The Company
also supplies various accessories and control equipment, such as positive
displacement gas meters, rupture disc replacement devices, control valves, limit
switches and valve positioners. Sales of valves and valve automation products
accounted for 9%, 7% and 9% of the Company's revenues for years ended December
31, 1995, 1994 and 1993, respectively.
Bearings and Power Transmission Equipment
The Company provides a full line of bearings, hoses, seals and power
transmission products. The Company's bearing products include several types of
mounted and unmounted bearings for a variety of applications, ranging from basic
applications such as pumps, motors and conveyors to complex applications. Hose
products distributed by the Company include a large selection of industrial
fittings and stainless steel
45
<PAGE> 57
hoses, hydraulic hoses, Teflon(R) hoses and expansion joints, as well as hoses
for chemical, petroleum, air and water applications. The Company also
distributes seal products, such as O-rings, Vee packings, retaining rings and
other related equipment. Power transmission products distributed by the Company
include speed reducers, flexible coupling drives, chain drives, sprockets,
gears, conveyors, clutches, brakes and hoses. Sales of bearings, hoses, seals
and power transmission equipment accounted for 35%, 35% and 35% of the Company's
revenues for years ended December 31, 1995, 1994 and 1993, respectively.
System Design, Fabrication, Installation and Repair and Maintenance Services
In addition to distributing products, the Company provides complete,
customized pumping, valve automation and power transmission system design and
fabrication services through its engineering personnel and fabrication
facilities. The Company also provides training services with respect to the
installation and basic applications of its products as well as around-the-clock
field repair services supported by a fleet of fully-equipped service vehicles.
THE IPOWER CONSORTIUM
As part of the Company's efforts to provide its customers with a source of
integrated supply, the Company currently is a member of the Texas Gulf, North
Texas and Louisiana Gulf South divisions of the iPower Consortium ("iPower").
iPower is an integrated supply consortium currently serving over 30 large
industrial customers nationwide and brings together a wide variety of suppliers
to provide all necessary products to an end-user customer using one efficient
software package which eliminates the need for multiple invoices. The Company
believes that iPower's streamlined distribution process enables the customer to
reduce its purchasing costs. iPower also provides multiple product application
expertise and technical support to those customers that require them. The
Company has participated in iPower for less than one year. To date, revenues
from the Company's participation in iPower have not been material and there can
be no assurance as to the future profitability of the Company's participation in
iPower.
MANUFACTURERS
The Company acquires its products through numerous original equipment
manufacturers. The Company has distribution agreements with these manufacturers,
some of which give the Company exclusive rights to distribute the manufacturer's
products in a specific geographic area. All of the Company's distribution
agreements are subject to cancellation by the manufacturer upon one year notice
or less. No one manufacturer provides products that account for 10% or more of
the Company's revenues. The Company believes that alternative sources of supply
could be obtained in a timely manner if any distribution agreement were
canceled. Accordingly, the Company does not believe that the loss of any one
distribution agreement would have a material adverse effect on its business,
financial condition or results of operations. Representative manufacturers of
Sepco's products include (i) G.H. Bettis (valve and valve automation products),
(ii) Gould's, G&L, Viking, Wilden and Gaso (pumps and pump products), (iii) SKF,
Torrington/Fafnir, Timkin and NTN (bearings) and (iv) Dodge/Reliance, Falk,
Gates, Martin Sprocket, T. B. Woods, Emerson, Rexnord and Baldor Electric (power
transmission products).
COMPETITION
The Company's business is highly competitive. The Company competes with a
variety of industrial supply distributors, many of which may have greater
financial and other resources than the Company. Many of the Company's
competitors are small enterprises selling to customers in a limited geographic
area. The Company also competes with larger distributors that provide integrated
supply programs such as those offered through iPower and outsourcing services
similar to those proposed to be offered by AMRO, some of which may be able to
supply their products in a more efficient and cost-effective manner than the
Company. The Company also competes with direct mail suppliers, large warehouse
stores and, to a lesser extent, manufacturers.
46
<PAGE> 58
CUSTOMERS
The Company provides its products and services to over 10,000 customers in
various industries, principally oil and gas, petrochemicals and wood products.
Other industries include chemicals, pulp and paper, food and beverage,
municipal, construction and general manufacturing.
PROPERTIES
Set forth below is certain information with respect to certain of the
Company's properties. The Company believes that all of these properties are
adequately insured, in good condition and suitable for the uses described below
for the foreseeable future.
<TABLE>
<CAPTION>
APPROXIMATE LEASE
SIZE OWNED/ EXPIRATION
LOCATION PRIMARY USE (SQUARE FEET) LEASED DATE
--------------------------- ---------------------- ------------- ----- -------------
<S> <C> <C> <C> <C>
580 Westlake Park Office 7,276 Leased February 2001
Houston, Texas
6500 Brittmoore Office 88,000 Owned(1)
Houston, Texas Distribution facility
2603 LaBranch Distribution facility 33,000 Owned(1)
Houston, Texas
4302 Creekmont Distribution facility 26,000 Owned(1)
Houston, Texas
Harahan, Louisiana Distribution facility 30,000 Owned(1)
Odessa, Texas Distribution facility 25,000 Owned(1)
Oklahoma City, Oklahoma Distribution facility 18,000 Leased November 1996
Irving, Texas Distribution facility 15,000 Owned
Hobbs, New Mexico Distribution facility 10,000 Owned
Lufkin, Texas Distribution facility 10,000 Owned
Broussard, Louisiana Distribution facility 10,000 Owned
Longview, Texas Distribution facility 7,000 Owned
Baytown, Texas Distribution facility 7,000 Owned
</TABLE>
- ---------------
(1) Property pledged to secure certain indebtedness of the Company.
The Company also leases 25 additional branch distribution facilities
located in Texas, Louisiana, Oklahoma and New Mexico. These facilities, which
average 5,000 square feet or less in size, are generally leased for a term of
three to five years. The leases provide for periodic specified rental payments
and certain leases are renewable at the option of the Company. The Company
believes that if the leases for any of its facilities were not renewed, other
suitable facilities could be leased with no material adverse effect on its
business, financial condition or results of operations.
BACKLOG
The Company typically fills and ships customer orders within 30 to 90 days
of receipt of the order and, therefore, maintains no significant backlog.
EMPLOYEES
As of June 30, 1996, the Company had 441 full-time employees. None of the
Company's employees are represented by a labor union. The Company believes that
it has good relations with its employees.
47
<PAGE> 59
INSURANCE
The Company maintains liability and other insurance that it believes to be
customary and generally consistent with industry practice. There can be no
assurance that such insurance will be adequate for the risks involved, that
coverage limits will not be exceeded or that such insurance will apply to all
liabilities. The occurrence of an adverse claim in excess of the coverage limits
maintained by the Company could have a material adverse effect on the Company's
financial condition and results of operations.
INTELLECTUAL PROPERTY
Many of the Company's products are subject to patents by the manufacturers
thereof. The Company's business, however, is not materially dependent on any
single patent or group of patents or generally upon patent protection.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to various laws and regulations relating to its
business and operations, and various health and safety regulations as
established by the Occupational Safety and Health Administration.
The Company's operations are also subject to federal, state and local laws
and regulations controlling the discharge of materials into or otherwise
relating to the protection of the environment. In recent years, laws and
regulations protecting the environment have generally become more stringent and
have sought to impose greater liability on a larger number of potentially
responsible parties. However, the Company is not currently aware of any
situation or condition that it believes is likely to have a material adverse
effect on its results of operations or financial condition. The Company's
expenditures in 1995 in order to comply with applicable environmental laws and
regulations were not material, and the Company expects that the costs of
compliance with such laws and regulations for 1996 will be minimal.
LEGAL PROCEEDINGS
The Company is currently undergoing an examination of its tax returns by
the IRS which is asserting claims against Sepco for additional taxes and
penalties of approximately $1 million plus interest of approximately $240,000.
This claim relates primarily to a challenge by the IRS of Sepco's use of the
LIFO method of accounting for inventory. Sepco believes that its LIFO elections
were valid and currently is pursuing its rights to administrative appeal.
Although an unfavorable outcome on this matter would result in the payment of
additional taxes and impact the Company's liquidity position, the Company
believes that any liability that may ultimately result from the resolution of
this matter will not have a material adverse effect on the financial position of
the Company.
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. While the
outcome of lawsuits or other proceedings against the Company cannot be predicted
with certainty, except as described above, the Company does not believe that
these matters will have a material adverse effect on its business or financial
position.
48
<PAGE> 60
BUSINESS INFORMATION CONCERNING NEWMAN
BACKGROUND
Newman was incorporated in the State of New Mexico on June 25, 1981. Newman
was in the business of publishing and distributing non-musical audio cassette
recordings of fiction and non-fiction books, recorded interviews and seminars
and other original spoken word recordings containing ideas, information or
entertainment similar to that presented in books. Such audio cassette recordings
are commonly known in the publishing industry as "books on cassette". From its
inception through 1984, Newman's principal business was the distribution to
bookstores and other retailers throughout the United States of books on cassette
produced by third parties. Subsequent to the completion of an initial public
offering of its common stock in December 1984, Newman expanded its business and
began producing its own books on cassette and developing a consumer-direct
marketing catalog. Newman also expanded its distribution business to include
books on cassette produced by itself as well as those produced by third parties.
During 1986, Newman began selling books on cassette to other distributors who
resold them to specialty retailers, schools and libraries.
By early 1987, however, Newman began experiencing financial difficulties.
By late 1987, Newman no longer had sufficient cash flow to meet its obligations
as they became due and ceased substantially all of its business operations. By
November 1987, Newman had liquidated substantially all of its assets. In May
1991, LITCO purchased an aggregate of 1,792,000 shares of Newman's common stock,
or approximately 34% of Newman's outstanding capital stock from certain officers
of Newman for $5,000. In connection with this transaction, the two existing
members of Newman's Board of Directors appointed Mr. Glenn A. Little (an
officer, director and principal shareholder of LITCO) and Mr. Matthew Blair to
the Board of Directors and subsequently resigned as directors and officers of
Newman.
BANKRUPTCY PROCEEDINGS
Filing of Petition; Summary of the Plan of Reorganization. On August 12,
1992, Newman filed a petition (the "Petition") for reorganization under Chapter
11 of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Western District of Texas (the "Court"). On April 14, 1993, Newman filed
with the Court a Plan of Reorganization (the "Plan"). The Court entered an order
confirming the Plan on September 13, 1993. The Plan generally provided as
follows:
- Newman's unsecured creditors were given the option of receiving cash or
a combination of Newman Common Stock and warrants to purchase Newman
Common Stock. Creditors that elected to receive cash were paid $5,010 as
a group. Creditors that elected to receive Newman Common Stock and
warrants each received four shares of Newman Common Stock and four each
of Class A, B and C Warrants (each as hereinafter defined) for each
dollar of their respective claims filed. The maximum number of
securities that would be issued for any one claim was 7,500 shares of
Newman Common Stock and 7,500 each of Class A, B and C Warrants. All
creditors electing to receive common stock and warrants were issued a
minimum of 100 shares of Newman Common Stock and 100 each of Class A, B
and C Warrants.
- Holders of Newman's common stock outstanding prior to the filing of the
Petition (the "Pre-petition Common Stock") were designated as a separate
class under the Plan and allowed to voluntarily participate in the Plan
by paying a $20 administrative fee directly to Newman's transfer agent.
Shareholders that elected to participate in the Plan each received 500
shares of Newman Common Stock and 1,000 each of Class A, B and C
Warrants, regardless of the number of shares of Pre-petition Common
Stock held. All shares of Pre-petition Common Stock held by shareholders
that did not elect to participate in the Plan were canceled.
- Newman's creditors and holders of Pre-petition Common Stock were given
until March 22, 1994 to subscribe to common stock and warrants. A total
of 332,500 shares of Newman Common Stock and 650,000 each of Class A, B
and C warrants were issued under the Plan to such creditors and holders
of Pre-petition Common Stock.
49
<PAGE> 61
- Under the Plan, LITCO contributed $20,000 to Newman and was designated
as a separate class. LITCO returned to Newman's treasury the 1,792,000
shares of Pre-petition Common Stock that it had purchased in March 1992
and received 500,000 shares of Newman Common Stock and 1,000,000 each of
Class A, B and C Warrants.
Description of the Warrants Issued Pursuant to the Plan of Reorganization.
The Plan provided for the issuance of the three following classes of warrants to
purchase shares of Newman Common Stock:
- Class A Warrant. Each class A warrant (the "Class A Warrant"), which are
now expired, allowed the holder to purchase one share of Newman Common
Stock at $.50 per share for a period of 12 months from November 22,
1993.
- Class B Warrant. Each class B warrant (the "Class B Warrant"), which are
now expired, allowed the holder to purchase one share of Newman Common
Stock at $1.00 per share for a period of 24 months from November 22,
1993.
- Class C Warrant. Each class C warrant (the "Class C Warrant") allows the
holder to purchase one share of Newman Common Stock at $2.00 per share
for a period of 36 months from November 22, 1993.
On October 1, 1994, the Newman Board of Directors extended the exercise
period of the Company's Class A Warrants. Accordingly, this extension allowed
LITCO, a company controlled by Glenn A. Little, an additional 12 months in which
to exercise 1,000,000 Class A Warrants. LITCO exercised 6,000 and 14,000 Class A
Warrants on July 14, 1995 and November 20, 1995, respectively.
CURRENT BUSINESS OF NEWMAN
At this time, the business purpose of Newman is to obtain an acquisition or
merger transaction with a business which Newman believes has significant growth
potential, thereby allowing its shareholders to benefit by owning an interest in
a viable business enterprise. Since Newman has no significant assets or
operations, its principal potential for profits comes solely from operations it
may receive in an acquisition or merger transaction. Newman is not currently
involved in any pending litigation. Newman is a New Mexico corporation and its
principal office is located at 211 West Wall Street, Midland, Texas 79701, and
its telephone number is (915) 682-1761.
MARKET FOR THE COMPANY'S STOCK, SEPCO COMMON STOCK
AND NEWMAN COMMON STOCK AND RELATED SHAREHOLDER MATTERS
THE COMPANY
There is no current public market for the Common Stock, Series A Preferred
Stock or Series B Convertible Preferred Stock, and there is no assurance that
such a market will develop. The Company intends to apply for quotation of the
Common Stock on the OTC Bulletin Board of the National Association of Securities
Dealers, Inc. upon effectiveness of the Registration Statement. See "Risk
Factors -- No Public Market; Possible Volatility of Stock Price".
Upon consummation of the Reorganization, the Company will have 15,987,900
shares of Common Stock outstanding, approximately 9,398,400 shares of which will
be held by affiliates of the Company and will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years, including an "affiliate", is entitled to sell, within any
three-month period, a number of his restricted shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock or (ii) an
amount equal to the average weekly reported volume of trading in such shares
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner of sale limitations, notice requirements and the
availability of current public
50
<PAGE> 62
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed an "affiliate" of the Company and who has beneficially owned
restricted shares for at least three years generally is entitled to sell such
shares under Rule 144 without restrictions or registration under the Securities
Act, unless thereafter held by an "affiliate" of the Company.
SEPCO
There is no public market for the Sepco Common Stock.
NEWMAN
The Newman Common Stock has been quoted on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. under the trading symbol "NWMC"
since October 14, 1994. However, the Company believes that such quotations have
been limited and sporadic and therefore do not constitute an "established public
trading market" under Item 201 of Regulation S-K of the Securities Act. The
following table sets forth the range of high and low closing bid prices for the
Newman Common Stock for the periods indicated. Quotations represent inter-dealer
prices, do not include retail markups, markdowns or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL 1994
First Quarter.............................................. $.25 $.25
Second Quarter............................................. .25 .25
Third Quarter.............................................. .25 .25
Fourth Quarter............................................. .25 .25
FISCAL 1995
First Quarter.............................................. .25 .25
Second Quarter............................................. .25 .25
Third Quarter.............................................. .25 .25
Fourth Quarter............................................. .25 .25
FISCAL 1996
First Quarter.............................................. .25 .25
Second Quarter............................................. .25 .25
Third Quarter.............................................. .25 .25
</TABLE>
On August 1, 1996, there were approximately 199 record shareholders of the
Newman Common Stock. Upon consummation of the Merger, Newman shareholders will
own shares of the Common Stock and Newman, as the surviving entity of the Newman
Merger, will be a wholly-owned, non-operating subsidiary of the Company.
DIVIDEND POLICY
Neither the Company nor Newman has paid or declared any dividends on their
respective securities as of a recent date. Sepco has paid a monthly dividend of
$.05 per share on 15,000 shares of Sepco Class A Convertible Preferred Stock
from October 1995 through December 1995 and $.50 per share on 19,500 shares of
Sepco Class A Convertible Preferred Stock since January 1996. The terms of the
Series B Convertible Preferred Stock provide that the Company shall pay monthly
dividends on the Series B Convertible Preferred Stock equal to an annual rate of
6% of the stated value thereof, $100 per share. The Company anticipates that
future earnings, except for dividends payable on the Series B Convertible
Preferred Stock, will be retained to finance the continuing development of its
business. In addition, the Company's loan agreement with its principal lender
prohibits the Company from declaring or paying any dividends or other
distributions on its capital stock, except for dividends on its preferred stock
which do not exceed $117,000 in the aggregate in any
51
<PAGE> 63
fiscal year. Accordingly, the Company does not anticipate paying cash dividends
on the Common Stock in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, the success of the Company's
business activities, regulatory and capital requirements, the general financial
condition of the Company and general business conditions.
MANAGEMENT
The following table sets forth certain information about the executive
officers and directors of the Company. All directors of the Company hold office
until the next annual meeting of shareholders or until their respective
successors have been elected and qualified. Executive officers are elected by
the Company's Board of Directors to hold office until their respective
successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
----------------------------------------- ----------------------------------------
<S> <C> <C>
David R. Little....................... 44 Chairman of the Board, Chief Executive
Officer and Director
Gary A. Allcorn....................... 44 Senior Vice President/Finance
Jerry J. Jones........................ 57 Senior Vice President/Corporate
Development and Director
Bryan H. Wimberly..................... 57 Senior Vice President/Pump, Bearing,
Power Transmission and Valve Automation
Group and Director
Cletus Davis.......................... 66 Director
Kenneth H. Miller..................... 57 Director
Thomas V. Orr......................... 46 Director
</TABLE>
Set forth below is a description of the backgrounds of the executive
officers and directors of the Company.
David R. Little has served as a Director, Chairman of the Board and Chief
Executive Officer of the Company since its incorporation in July 1996 and has
also held these positions with Sepco since 1986 and with Sepco's wholly-owned
subsidiary, Bayou Pumps, Inc., since December 1995. Mr. Little has been employed
by Sepco since 1975 in various capacities, including Staff Accountant,
Controller, Vice President/Finance and President.
Gary A. Allcorn has served as Senior Vice President/Finance of the Company
since its incorporation in July 1996 and has also held this position with Sepco
since June 1995 and with Bayou Pumps, Inc. since December 1995. Mr. Allcorn has
been employed by Sepco since 1985 in various capacities, including Vice
President/Finance and Chief Financial Officer.
Jerry J. Jones has served as a Director and Senior Vice President/Corporate
Development of the Company since its incorporation in July 1996. Mr. Jones has
also served as a Director of Sepco since 1986 and as Senior Vice
President/Corporate Marketing of Sepco since June 1995. From February 1993 to
June 1995, Mr. Jones served as President of T.L. Walker Bearing Company, a
subsidiary of Sepco. Prior to his employment with Sepco, Mr. Jones served as
President and Chief Executive Officer of the Energy Partners, Inc./Perry
Oceanographics, a renewable energy development company and offshore underwater
equipment manufacturer, from November 1989 to December 1992.
Bryan H. Wimberly has served as a Director and Senior Vice President/Pump,
Bearing, Power Transmission and Valve Automation Group of the Company since its
incorporation in July 1996. Mr. Wimberly has also served as a Director of Sepco
since 1987 and the President and Chief Operating Officer of Sepco since October
1995. Mr. Wimberly has been employed by Sepco since 1987 in various capacities,
including Senior Vice President/Operations.
52
<PAGE> 64
Cletus Davis has served as a Director of the Company since its
incorporation in July 1996. Mr. Davis has also served as a Director of Sepco
since May 7, 1996. Mr. Davis is an attorney practicing in the areas of
commercial real estate, banking, corporate, estate planning and general
litigation and is also a trained mediator. From May 1988 to February 1992, Mr.
Davis was a member of the law firm of Wood, Lucksinger & Epstein. Since March
1992, Mr. Davis has practiced law with the law firm of Cletus Davis, P.C.
Kenneth H. Miller has served as a Director of the Company since its
incorporation in July 1996. Mr. Miller has also served as a Director of Sepco
since April 1989. Mr. Miller is a Certified Public Accountant and has been a
solo practitioner since 1983.
Thomas V. Orr has served as a Director of the Company since its
incorporation in July 1996. Mr. Orr has also served as a Director of Sepco since
May 1996. Mr. Orr has served as Senior Vice President and Divisional Manager of
Morgan Keegan, Inc., a full service brokerage firm, since February 1995. From
June 1990 to January 1995, Mr. Orr was a Divisional Sales Manager for two years
and Branch Office Manager for three years for PaineWebber, Inc., an investment
banking firm.
BOARD OF DIRECTORS' COMPENSATION
The Company's Bylaws provide that directors may be paid their expenses, if
any, and may be paid a fixed sum for attendance of each Board of Directors
meeting. The Company pays each non-employee director $1,000 per meeting
attended, plus expenses.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, each composed of at least three independent directors.
The Audit Committee, composed of Messrs. Davis, Miller and Orr, makes
recommendations to the Board of Directors on matters regarding the independent
public accountants of the Company and the annual audit of the Company's
financial statements and accounts. The Compensation Committee, composed of
Messrs. Davis, Miller and Orr, will make recommendations to the Board of
Directors regarding compensation for the Company's executive officers,
directors, employees, consultants and agents, and will act as the administrative
committee for any stock plan of the Company, including the Long-Term Incentive
Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Little
Employment Agreement"), effective July 1, 1996, with Mr. Little. The Little
Employment Agreement is for a term of three years, renewable annually for a term
to extend three years from such renewal date. The Little Employment Agreement
provides for compensation in a minimum amount of $260,000 per annum, to be
reviewed at least annually for possible increases, monthly bonuses equal to 3%
of the profit before tax of Sepco as shown on the books and records of Sepco at
the end of each month, and other perquisites in accordance with Sepco policy. In
the event Mr. Little terminates his employment for "Good Reason" (as defined
herein), or is terminated by the Company for other than "Good Cause" (as defined
herein), Mr. Little would receive a cash lump sum payment equal to the sum of
(i) the base salary for the remainder of the employment period under the Little
Employment Agreement, (ii) an amount equal to the sum of the most recent 12
months of bonuses paid to him, (iii) two times the sum of his current annual
base salary plus the total of the most recent 12 months of bonuses, (iv) all
compensation previously deferred and any accrued interest thereon, and any
accrued vacation pay not yet paid by the Company and (v) continuation of
benefits under the Company's benefit plans for the current employment period. In
the event Mr. Little dies, retires or is terminated by the Company for Good
Cause, Mr. Little or Mr. Little's estate, as applicable, would receive all
payments then due him under the Little Employment Agreement through the date of
termination, including a pro rated monthly bonus and any compensation previously
deferred. Also, in the event of death, Mr. Little's family shall receive Mr.
Little's base salary for 24 months and benefits provided by the Company to
surviving family members of the Company's key employees. Mr. Little is also
entitled under the Little Employment Agreement to certain gross-up payments if
an excise tax is imposed pursuant to Section 4999 of the Code, which imposes an
excise
53
<PAGE> 65
tax on certain severance payments in excess of three times an annualized
compensation amount following certain changes in control or any payment or
distribution made to him. The Little Employment Agreement also contains
non-competition and non-disclosure provisions. In the event Mr. Little were to
be terminated without cause, he currently would be entitled to receive
approximately $1.1 million under this agreement.
The term "Good Reason" is defined in the Little Employment Agreement to
mean (i) a change in the nature or scope of the functions, powers, authority,
duties or responsibilities of Mr. Little, unless remedied by the Company; (ii)
any failure by the Company to pay any form of compensation for which the Little
Employment Agreement provides, unless remedied by the Company; (iii) requiring
Mr. Little to be based at any office or location more than 30 miles from the
current location of the Company, other than travel reasonably required in the
performance of Mr. Little's responsibilities; (iv) any purported termination by
the Company of Mr. Little's employment other than due to Mr. Little's death or
for Good Cause; or (v) any failure of the Company to require a successor of the
Company to assume the terms of the Little Employment Agreement. The term "Good
Cause" is defined in the Little Employment Agreement and generally means (i) Mr.
Little's conviction of a felony that is no longer subject to direct appeal; (ii)
Mr. Little's adjudication to be mentally, physically and/or emotionally
incapacitated so as to render him incapable of performing his required duties
and services that is no longer subject to direct appeal; or (iii) Mr. Little has
been found to have committed fraud, theft or willful misfeasance that has
materially damaged the Company and such determination is no longer subject to
direct appeal.
The Company also has entered into employment agreements (each Employment
Agreement hereinafter referred to as "Employment Agreement" and the four
Employment Agreements hereinafter collectively referred to as "Employment
Agreements"), effective as of July 1, 1996, with Messrs. Jerry J. Jones, Bryan
H. Wimberly, Bob Evans and Gary A. Allcorn (each hereinafter referred to as
"Employee"). Each Employment Agreement is for a term of one year, renewable
automatically for a one-year term. The Employment Agreements provide for (i)
annual salary ("Salary") in the amounts of $113,000 for Mr. Jones, $130,000 for
Mr. Wimberly, $108,000 for Mr. Evans and $110,000 for Mr. Allcorn, and (ii)
other perquisites in accordance with Company policy. The Employment Agreements
provide for bonuses as follows: (i) Mr. Jones is entitled to a monthly bonus of
two percent of the monthly profit before tax of the Company, excluding sales of
fixed assets and extraordinary items; (ii) Mr. Wimberly is entitled to a monthly
bonus of two percent of the monthly profit before tax of Sepco, excluding sales
of fixed assets and extraordinary items; and (iii) Mr. Allcorn is entitled to a
quarterly bonus pursuant to the terms and conditions of Sepco's bonus pool. Mr.
Evans is not entitled to receive a bonus.
In the event Employee terminates his employment for "Good Reason" (as
defined below), or is terminated by the Company for other than "Cause" (as
defined below), each Employee would receive (i) 12 monthly payments each equal
to one month of the Salary, in the case of Messrs. Jones, Wimberly and Allcorn,
and six monthly payments each equal to one month of Salary, in the case of Mr.
Evans, (ii) a termination bonus equal to (A) the previous 12 monthly bonuses, in
the case of Messrs. Jones and Wimberly, (B) the previous four quarterly bonuses,
in the case of Mr. Allcorn and (C) six months of Salary, in the case of Mr.
Evans, and (iii) any other payments due through the date of termination. In the
event Employee dies, becomes disabled, terminates the Employment Agreement with
notice or the Employment Agreement is terminated by the Company for Cause,
Employee or Employee's estate, as applicable, would receive all payments then
due him under the Employment Agreement through the date of termination. The
Employment Agreements contain non-competition and non-disclosure provisions.
The term "Good Reason" is defined in each Employment Agreement to mean (i)
any failure of the Company to comply with any material provisions of the
applicable Employment Agreement unless remedied by the Company; (ii) failure by
the Company to pay any form of compensation for which the Employment Agreement
provides, unless remedied by the Company; or (iii) any failure of the Company to
obtain an agreement from a successor of the Company to assume the terms of the
Employment Agreement. The term "Cause" is defined in each Employment Agreement
and generally means (i) Employee's conviction of a felony or crime involving
moral turpitude; (ii) Employee has been found to have committed fraud,
dishonesty, gross negligence, willful misconduct or conduct that is
unprofessional, unethical or detrimental to the reputation, character or
standing of the Company; (iii) Employee's failure or refusal to comply with
54
<PAGE> 66
Company's policies, standards and regulations; or (iv) Employee's failure to
faithfully and diligently perform the duties or comply with the provisions of
the applicable Employment Agreement.
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by
Sepco to its Chief Executive Officer and its three other most highly compensated
executive officers for the year ended December 31, 1995. Each of the individuals
set forth below will serve in the same or similar capacities for the Company.
None of Sepco's other officers and directors received cash or non-cash
compensation in excess of $100,000 for the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------ COMPENSATION
NAME AND OTHER ANNUAL AWARDS
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS(1)
- ------------------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
David R. Little...................... 1995 $222,567 $131,888 $ -- 200,000
Chief Executive Officer
Jerry J. Jones....................... 1995 113,330 67,503 357,216(2) 89,800
Senior Vice President/Corporate
Development
Bryan H. Wimberly.................... 1995 121,967 92,589 -- 12,200
Senior Vice President/Operations
Gary A. Allcorn...................... 1995 103,707 9,059 -- --
Senior Vice President/Finance
</TABLE>
- ---------------
(1) Under the terms of the Sepco Merger, each share of Sepco Class A Common
Stock will be converted into 16 shares of Common Stock. Assuming such
conversion, the number of shares of Common Stock underlying such options
held by Messrs. Little, Jones and Wimberly will be 3,200,000, 1,436,800 and
195,200 shares, respectively.
(2) Represents payments to Mr. Jones in respect of the repurchase by the Company
of shares acquired by Mr. Jones on exercise of options held by him.
The following table sets forth certain information regarding each exercise
of stock options by certain of Sepco's executive officers during the fiscal year
ended December 31, 1995.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES ACQUIRED VALUE FISCAL YEAR-END FISCAL YEAR-END
NAME ON EXERCISE REALIZED (EXERCISABLE)(1) (EXERCISABLE)(2)
- ------------------------------ --------------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
David R. Little............... -- $ -- 200,000 $320,000
Jerry J. Jones................ 89,800 357,216 89,800 195,764
Bryan H. Wimberly............. -- -- 12,200 34,038
</TABLE>
- ---------------
(1) Under the terms of the Sepco Merger, each share of Sepco Class A Common
Stock will be converted into 16 shares of Common Stock. Assuming such
conversion, the number of shares of Common Stock underlying such options
held by Messrs. Little, Jones and Wimberly will be 3,200,000, 1,436,800 and
195,200 shares, respectively. The options are fully vested.
(2) The value of unexercised options at fiscal year end reported above was
calculated using the value of the Sepco Class A Common Stock, as determined
by an independent appraiser for purposes of valuing shares of Sepco Common
Stock held by the Sepco ESOP.
55
<PAGE> 67
The following table sets forth certain information regarding stock options
granted by Sepco to certain of its executive officers during the fiscal year
ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ----------------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---------------------- ---------- ---------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David R. Little....... 200,000(1) 66% $7.14 10/24/2005 $898,062 $2,275,864
Jerry J. Jones........ 89,800(2) 30 6.56 08/23/2000 162,754 359,644
Bryan H. Wimberly..... 12,200(3) 4 5.90 03/31/2000 20,055 44,317
</TABLE>
- ---------------
(1) Non-qualified stock option granted on October 24, 1995 for a term of ten
years, subject to earlier termination upon termination of employment. At the
date of grant, the market value per share of the Sepco Class A Common Stock
was equal to the exercise price. The option is fully vested. Pursuant to the
terms of the Sepco Merger, the option will become exercisable for 3,200,000
shares of Common Stock at an exercise price of $.44625 per share.
(2) Non-qualified stock option granted on August 23, 1995, for a term of five
years, subject to earlier termination upon termination of employment. At the
date of grant, the market value per share of the Sepco Class A Common Stock
was equal to the exercise price. The option is fully vested. Pursuant to the
terms of the Sepco Merger, the option will become exercisable for 1,436,800
shares of Common Stock at an exercise price of $.41 per share.
(3) Non-qualified stock option granted on March 31, 1995, for a term of five
years, subject to earlier termination upon termination of employment. At the
date of grant, the market value per share of the Sepco Class A Common Stock
was equal to the exercise price. The option is fully vested. Pursuant to the
terms of the Sepco Merger, the option will become exercisable for 195,200
shares of Common Stock at an exercise price of $.36875 per share.
(4) The grant date present value reported above was calculated using the value
of the stock based upon an appraisal thereof for ESOP purposes at December
31, 1995.
BENEFIT PLANS
THE SEPCO INDUSTRIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN
General. The Sepco ESOP was established by Sepco in January 1985, as
subsequently effective on January 1, 1993. Under the Sepco ESOP, Sepco may make
annual contributions to a trust (the "Trust") for the benefit of eligible
employees. Contributions to the Trust historically have been invested primarily
in the Sepco Class B Common Stock. As a result of the Sepco Merger, the 176,900
shares of Sepco Class B Common Stock currently held in the Trust will be
converted into an aggregate of 3,206,000 shares of Common Stock and the 38,700
shares of Sepco Class A Common Stock currently held in the Trust will be
converted into an aggregate of 619,200 shares of Common Stock. Subsequent to the
completion of the Reorganization, the Company anticipates that contributions to
the Sepco ESOP will be invested primarily in the Common Stock. In addition, the
Company anticipates that following the Reorganization, certain modifications
will be made to the Sepco ESOP to allow the employees of the Company and any
other subsidiaries to participate in the Sepco ESOP.
The Sepco ESOP is qualified under the Code. The Sepco ESOP has obtained a
favorable determination letter from the IRS and Sepco believes that the Sepco
ESOP continues to so qualify.
Administration. The Sepco ESOP is administered by a plan administrator,
currently David R. Little. In addition, certain administrative functions are
performed by employees of Sepco. No such employee receives compensation from the
Sepco ESOP for performing such functions. All other administrative expenses are
paid for by the Sepco ESOP. Following the Reorganization, the Company's
Compensation Committee will serve as administrator of the Sepco ESOP.
56
<PAGE> 68
The Sepco ESOP trustee invests, manages and holds the Sepco ESOP's assets.
The Trust provides for pass-through voting rights to the Sepco ESOP participants
with respect to all shares held by the Trust when required by the Employee
Retirement Income Security Act of 1974, as amended.
Contributions. The amount and form of the annual contribution is within the
discretion of Sepco's board of directors. Such contributions are limited to a
maximum of 15% of the total compensation paid to all participants eligible to
receive an allocation during the fiscal year. Sepco contributed $150,000 for
each of the years ended December 31, 1995, 1994 and 1993.
Eligibility, Vesting and Payment of Benefits. An employee becomes eligible
to participate in the Plan after 12 consecutive months of employment, provided
the employee worked at least 1,000 hours during such 12-month period. Benefits
vested in a participant will be distributed upon the participant's separation
from service, retirement, disability or death. Participants' benefits vest based
on the number of years of service in annual 20% increments beginning on the date
on which the participant completes three years of service.
A participant may borrow up to 50% of the vested balance of his or her
account, up to a maximum of $50,000. Promissory notes to evidence such
borrowings bear interest at reasonable rates and are secured by the
participant's vested account balance.
Termination. Upon termination of the Sepco ESOP (if not replaced by a
comparable employee benefit plan), participants are entitled to receive all
amounts then credited to their accounts after payment of all expenses and
adjustments for profits and losses to the date of distribution.
NONQUALIFIED STOCK OPTION AGREEMENTS
Sepco is currently a party to certain agreements ("Nonqualified Stock
Option Agreements"), pursuant to which options to purchase shares of Sepco
Common Stock have been granted to certain executive officers and directors of
the Company. Each of the Nonqualified Stock Option Agreements between Sepco and
each of Messrs. Little, Jones and Wimberly became effective as of March 1996 and
amended and replaced existing stock option agreements to eliminate a provision
that would permit the option holder to require Sepco to purchase, at book value,
the shares of stock issued upon exercise of the option. Each of the options in
the Nonqualified Stock Option Agreements described below were granted by Sepco
and were exercisable for shares of Sepco Class A Common Stock. Pursuant to the
Sepco Merger, the options are exercisable for shares of Common Stock.
Nonqualified Stock Option Agreements
Pursuant to a Non-Qualified Stock Option Agreement, Mr. Little received a
nonqualified option to purchase the equivalent of 3,200,000 shares of Common
Stock at an exercise price of $0.44625 per share exercisable until October 24,
2005. Such option became exercisable as of the date of grant.
Pursuant to a Non-Qualified Stock Option Agreement, Mr. Jones received a
nonqualified option to purchase the equivalent of 1,436,800 shares of Common
Stock at an exercise price of $0.41 per share exercisable until August 23, 2000.
Such option became exercisable as of the date of grant.
Pursuant to a Non-Qualified Stock Option Agreement, Mr. Wimberly received a
nonqualified option to purchase the equivalent of 195,200 shares of Common Stock
at an exercise price of $0.36875 per share exercisable until March 31, 2000.
Such option became exercisable as of the date of grant.
Pursuant to Non-Qualified Stock Option Agreements, each of Messrs. Davis,
Miller and Orr received nonqualified options to purchase the equivalent of
16,000 shares of Common Stock at an exercise price of $0.578125 per share
exercisable until March 30, 1999. Such options became exercisable as of the date
of grant.
LONG-TERM INCENTIVE PLAN
In August 1996, the Company established the Index, Inc. Long-Term Incentive
Plan (the "LTIP"). The LTIP is intended to advance the best interests of the
Company, its subsidiaries and its shareholders by
57
<PAGE> 69
attracting, retaining and motivating key employees. The LTIP provides for the
grant of stock options (which may be non-qualified stock options or incentive
stock options for tax purposes), stock appreciation rights issued independent of
or in tandem with such options ("SARs"), restricted stock awards and performance
awards to certain key employees of the Company and its subsidiaries, thereby
increasing the personal stake of such key employees in the continued success and
growth of the Company. It is anticipated that approximately 30 key employees of
the Company and its subsidiaries will initially be eligible to participate in
the LTIP.
Administration
The LTIP will be administered by the Board of Directors of the Company or
the Compensation Committee or other designated committee of the Board of
Directors, which consists solely of two or more nonemployee directors of the
Company who are intended to be "Non-Employee Directors" within the meaning of
Rule 16b-3 under the Exchange Act (the Board of Directors of such committee
being referred to as the "Committee"). The Committee will have broad authority
to interpret and administer the LTIP, including the power to grant and modify
awards and the power to limit or eliminate its discretion as it may deem
advisable to comply with or obtain preferential treatment under any applicable
tax or other law, rule or regulation. The Committee will also have broad
authority to accelerate the vesting of an award or the time at which any award
is exercisable or to waive any condition or restriction on the vesting, exercise
or receipt of any award. The Board of Directors may at any time amend, suspend,
discontinue or terminate the LTIP without shareholder approval or approval of
participants, subject to certain limitations.
Shares Subject to LTIP
Initially, 800,000 shares of Common Stock (approximately 5% of the current
outstanding shares of Common Stock) will be available for issuance under the
LTIP. In addition, as of January 1 of each year the LTIP is in effect, if the
total number of shares of Common Stock issued and outstanding, not including any
shares issued under the LTIP, exceeds the total number of shares of Common Stock
issued and outstanding as of January 1 of the preceding year (or, for 1996, as
of August 12, 1996 assuming all shares issued pursuant to the Sepco Merger and
Newman Merger are issued), the number of shares available will be increased by
an amount such that the total number of shares available for issuance under the
LTIP equals 5% of the total number of shares of Common Stock outstanding, not
including any shares issued under the LTIP. Lapsed, forfeited or cancelled
awards will not count against these limits. Cash exercises of SARs and cash
settlement of other awards will also not be counted against these limits but the
total number of SARs and other awards settled in cash shall not exceed the total
number of shares authorized for issuance under the LTIP (without reduction for
issuances).
The aggregate number of shares of Common Stock subject to stock options or
SARs that may be granted to any one participant in any one year under the LTIP
shall be 400,000 (subject to certain adjustment provisions relating to changes
in capitalization). The aggregate number of shares of Common Stock that may be
granted to any one participant in any one year in respect of restricted stock
shall be 400,000 (subject to certain adjustment provisions relating to changes
in capitalization). The aggregate number of shares of Common Stock that may be
received by any one participant in any one year in respect of a performance
award shall be 400,000 (subject to certain adjustment provisions relating to
changes in capitalization) and the aggregate amount of cash that may be received
by any one participant in any one year in respect of a performance award shall
be $500,000.
Stock Options
The Committee is authorized to determine the terms and conditions of all
option grants, which may be of incentive stock options subject to the limits of
Section 422 of the Code or non-qualified stock options. The aggregate number of
shares of Common Stock that are available for incentive stock options granted
under the LTIP is 800,000 (subject to certain adjustment provisions relating to
changes in capitalization). Stock options may be awarded subject to time,
performance or other vesting limitations imposed by the Committee. The term of
an incentive stock option shall not exceed ten years from date of grant. The
exercise price of an option shall be determined by the Committee upon the option
grant, provided that the exercise price of incentive
58
<PAGE> 70
stock options shall be no less than the fair market value of the Common Stock on
the date of grant. Payment of the exercise price may be made in a manner
specified by the Committee (which may include payment in cash, Common Stock, a
combination thereof, or by "cashless exercise").
Stock Appreciation Rights
The Committee is authorized to grant SARs independent of or in tandem with
options under the LTIP. The terms, conditions and exercise price of SARs granted
independent of options under the LTIP will be determined by the Committee on the
date of grant. A tandem SAR can be exercised only to the extent the option with
respect to which it is granted is then exercisable and is subject to the same
terms and conditions as the option to which it is related. An option related to
a tandem SAR will terminate automatically upon exercise of the tandem SAR.
Similarly, when an option is exercised, the tandem SARs relating to the shares
covered by such option exercise shall terminate. Any tandem SAR which is
outstanding on the last day of the term of the related option will be
automatically exercised on such date for cash.
Upon exercise of an SAR, the holder will be entitled to receive, for the
number of shares referenced by the SAR, an amount per share (the "appreciation")
equal to the difference between the base price per share (which shall be the
exercise price per share of the related option in the case of a tandem SAR) and
the fair market value (as determined by the Committee) of a share of Common
Stock on the date of exercise of the SAR. The appreciation will be payable in
cash, Common Stock or a combination of both, at the discretion of the Committee.
Restricted Stock
The Committee is authorized to award restricted stock under the LTIP
subject to such terms and conditions as the Committee may determine consistent
with the LTIP. The Committee has the authority to determine the number of shares
of restricted stock to be awarded, the price, if any, to be paid by the
recipient of the restricted stock and the date or dates on which the restricted
stock will vest. The number of shares and vesting of restricted stock may be
conditioned upon the completion of a specified period of service with the
Company or its subsidiaries or upon the attainment of specified performance
objectives based on increases in share prices, operating income, margin, sales
increases on a Company wide, division, product line or other basis, net income
before or after taxes or before or after extraordinary charges, completions of
successful acquisitions, implementation of strategic expansions, net income or
cash flow thresholds, return on common equity or any combination of the
foregoing.
Stock certificates representing the restricted stock granted to an eligible
employee may be registered in the employee's name or held by the Company prior
to the achievement of certain criteria. The Committee will determine whether an
employee will have the right to vote and/or receive dividends on the restricted
stock before it vests. No share of restricted stock may be sold, transferred,
assigned or pledged by the employee until such share has vested in accordance
with the terms of the restricted stock award. Except as otherwise specified in
the grant of a restricted stock award, in the event of an employee's termination
of employment before all his or her restricted stock has vested, or in the event
other conditions to the vesting of restricted stock have not been satisfied
prior to any deadline for the satisfaction of such conditions set forth in the
award, the shares of restricted stock that have not vested will be forfeited and
any purchase price paid by the employee will be returned to the employee. At the
time the restricted stock vests, a certificate for such vested shares will be
delivered to the employee (or the beneficiary designated by the employee, in the
event of death), free of all restrictions.
Performance Awards
The Committee is authorized to grant performance awards, which are payable
in stock, cash or a combination thereof, at the discretion of the Committee. An
employee to whom a performance award is granted will be given achievement
objectives to be reached over a specified period of time, the "performance
period". A minimum level of acceptable achievement will also be established.
Achievement objectives may be described either in terms of Company-wide
performance or in terms that are related to the performance of the
59
<PAGE> 71
employee or of the division, subsidiary, department or function within the
Company in which the employee is employed. The Committee has the authority to
determine the size of the award, frequency of awards, the date or dates when
awards vest, the performance periods and the specific performance objectives to
be achieved in order to receive the award. Performance objectives, however, will
be based on increases in share prices, operating income, margin, sales increases
on a Company wide, division, product line or other basis, net income before or
after taxes or before or after extraordinary charges, completions of successful
acquisitions, implementation of strategic expansions, net income or cash flow
thresholds, return on common equity or any combination of the foregoing.
If at the end of the performance period the specified objectives have been
fully attained, the employee will be deemed to have fully earned the performance
award. If such objectives have been partially attained, the employee will be
deemed to have partly earned the performance award and will become entitled to
receive a portion of the total award. If the required minimum level of
achievement has not been met, the employee will not be entitled to any part of
the performance award. If a performance award is granted after the start of a
performance period, the award will be reduced to reflect the portion of the
performance period during which the award was in effect.
An employee who, by reason of death, disability or retirement, terminates
employment before the end of the performance period will be entitled to receive,
to the extent earned, a portion of the award which is proportional to the
portion of the performance period during which the employee was employed. An
employee who terminates employment for any other reason will not be entitled to
any part of the award unless the Committee determines otherwise; however, the
Committee may in no event pay the employee more than that portion of the award
which is proportional to his or her period of actual service.
Change of Control
Upon the occurrence of a "Change of Control" (as defined below) of the
Company, all outstanding shares of restricted stock and performance awards will
immediately vest. All stock options and all SARs granted under the LTIP and held
by then-current employees will become immediately exercisable and will remain
exercisable for three years (but not beyond their expiration date) following the
employee's termination of employment for any reason other than for dishonesty,
conviction of a felony, wilful unauthorized disclosure of confidential
information or wilful refusal to perform the duties of such employee's position.
In addition, each participant in the LTIP will receive the maximum performance
award he or she could have earned for the proportionate part of the performance
period prior to the Change of Control and will retain the right to earn any
additional portion of his or her award if he or she remains in the Company's
employ.
A "Change of Control" shall be deemed to have occurred if:
(1) any Person (as defined below), other than a Designated Person (as
defined below), is or becomes the Beneficial Owner (as defined below) of
securities of the Company representing 35% or more of the Voting Power (as
defined below);
(2) there shall occur a change in the composition of a majority of the
Board of Directors within any period of four consecutive years which change
shall not have been approved by a majority of the Board of Directors as
constituted immediately prior to the commencement of such period;
(3) at any meeting of the shareholders of the Company called for the
purpose of electing directors, more than one of the persons nominated by
the Board of Directors for election as directors shall fail to be elected;
or
(4) the shareholders of the Company approve a merger, consolidation,
sale of substantially all assets or other reorganization of the Company,
other than a reincorporation, in which the Company does not survive.
For purposes of the LTIP, (i) "Person" shall have the meaning set forth in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act as in effect on August 15,
1996, (ii) "Beneficial Owner" shall have the meaning set forth in Rules 13d-3
and 13d-5 promulgated under the Exchange Act as in effect on August 15,
60
<PAGE> 72
1996; (iii) "Voting Power" shall mean the voting power of the outstanding
securities of the Company having the right under ordinary circumstances to vote
at an election of the Board of Directors; and (iv) "Designated Person" shall
mean any Person who at August 12, 1996 is a Beneficial Owner of 10% or more of
the Common Stock or whose Beneficial Ownership of securities is solely the
result of such Person acquiring securities as an underwriter in an underwritten
public offering of such securities.
Grants
In anticipation of the Reorganization, the Company has granted to 24
employees of the Company options to purchase an aggregate of 456,000 shares of
Common Stock at an exercise price of $.578125 per share. The exercise price is
based on the fair market value of the stock using information from an
independent appraisal that established the value of the Sepco Common Stock at
December 31, 1995 and was used by Sepco in establishing the conversion ratio for
the Class A Common Stock and Class B Common Stock of Sepco. Such grants are
subject to the consummation of the Sepco Merger, are for a term of five years
from the effective date of the Sepco Merger and are fully vested on the date of
the grant. The options are also subject to immediate vesting in the event of a
Change of Control of the Company. Of the grants made, Gary Allcorn, Senior Vice
President/Finance of Sepco and the Company, was granted options to purchase an
aggregate of 80,000 shares of Common Stock at $.578125 per share.
Amendments
The Board of Directors may at any time and from time to time and in any
respect amend or modify the LTIP. The Committee shall have the authority to
amend any Award to include any provision which, at the time of such amendment,
is authorized under the terms of the LTIP; however, no outstanding Award may be
revoked or altered in a manner unfavorable to the holder without the written
consent of the holder.
Federal Income Tax Consequences
Incentive Stock Options. The grant of incentive stock options under the
LTIP to an employee does not result in any income tax consequences. The exercise
of an incentive stock option does not result in any income tax consequences to
the employee if the incentive stock option is exercised by the employee during
his employment with the Company or a subsidiary, or within a specified period
after termination of employment. However, the excess of the fair market value of
the shares of stock as of the date of exercise over the option price is a tax
preference item for purposes of determining an employee's alternative minimum
tax. An employee who sells shares acquired pursuant to the exercise of an
incentive stock option after the expiration of (i) two years from the date of
grant of the incentive stock option and (ii) one year after the transfer of the
shares to him (the "Waiting Period") will generally recognize long term capital
gain or loss on the sale.
An employee who disposes of his incentive stock option shares prior to the
expiration of the Waiting Period (an "Early Disposition") generally will
recognize ordinary income in the year of sale in an amount equal to the excess,
if any, of (a) the lesser of (i) the fair market value of the shares as of the
date of exercise or (ii) the amount realized on the sale, over (b) the option
price. Any additional amount realized on an Early Disposition should be treated
as capital gain to the employee, short or long term, depending on the employee's
holding period for the shares. If the shares are sold for less than the option
price, the employee will not recognize any ordinary income but will recognize a
capital loss, short or long term, depending on the holding period.
The Company will not be entitled to a deduction as a result of the grant of
an incentive stock option, the exercise of an incentive stock option or the sale
of incentive stock option shares after the Waiting Period. If an employee
disposes of his incentive stock option shares in an Early Disposition, the
Company will be entitled to deduct the amount of ordinary income recognized by
the employee.
Non-Qualified Stock Options. The grant of non-qualified stock options under
the LTIP will not result in the recognition of any taxable income by the
employee. An employee will recognize ordinary income on the date of exercise of
the non-qualified stock option equal to the difference between (i) the fair
market value of the shares acquired on the date such shares were acquired and
(ii) the exercise price. The tax basis of these
61
<PAGE> 73
shares for the purpose of a subsequent sale includes the option price paid and
the ordinary income reported on exercise of the option. The income reportable on
exercise of the non-qualified stock option is subject to federal and state
income and employment tax withholding. Generally, the Company will be entitled
to a deduction in the amount reportable as income by the employee on the
exercise of a non-qualified stock option.
Stock Appreciation Rights. SARs granted under the LTIP do not result in
taxable income to the employee at that time. The issuance of shares of Common
Stock or the payment of cash, without other payment by the recipient, will be
treated as additional compensation for services to the Company. The employee
will recognize taxable income equal to cash received or the fair market value of
the shares on the date of receipt, which becomes the tax basis in a subsequent
sale. Generally, the Company will be entitled to a corresponding deduction in an
amount equal to the income recognized by the employee.
Restricted Stock Grants. Restricted stock granted under the LTIP generally
will not be taxed to the recipient, nor deductible by the Company, at the time
of grant. Restricted Stock Grants involve the issuance of stock to an employee
subject to specified restrictions as to sale or transferability of the stock
and/or subject to a substantial risk of forfeiture. On the date the restrictions
lapse, or the performance goals are met, and the stock becomes transferable or
not subject to a substantial risk of forfeiture, whichever is applicable, the
recipient recognizes ordinary income equal to the excess of the fair market
value of the stock on that date over the purchase price paid for the stock, if
any. The employee's tax basis for the stock includes the amount paid for the
stock, if any, and the income recognized. Generally, the Company will be
entitled to a corresponding tax deduction in an amount equal to the income
recognized by the employee.
Performance Awards. Performance awards involve the issuance of shares of
stock, cash, or a combination of both, without any payment, as compensation for
services to the Company only after satisfaction of specified performance goals
established by the Committee and certification by the Committee, prior to
payment, that the goals have been satisfied. Generally, the Company will be
entitled to a corresponding tax deduction in an amount equal to and in the year
income is recognized by the employee. See the following discussion of
"performance based" compensation.
Compensation Deduction Limitation. Under Section 162(m) of the Code, the
Company's tax deduction for certain compensation paid to designated executives
is limited to $1 million per year. These executives include the Chief Executive
Officer and the next four highest compensated officers of the Company. Section
162(m) provides an exception from this deduction limitation for certain
"performance based" compensation approved by a committee consisting solely of at
least two "outside directors". The LTIP is generally designed to be able to
satisfy these statutory requirements for stock options and SAR's, when the
exercise price is not less than fair market value on the date of grant, and for
performance awards (including restricted stock).
62
<PAGE> 74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of each equity security of Sepco and Newman prior to the completion of
the Reorganization and with respect to beneficial ownership of the Common Stock
and Series B Convertible Preferred Stock after giving effect to the
Reorganization by: (i) all persons known to the Company to be the beneficial
owner of 5% or more of each of the foregoing equity securities, (ii) each
director of the Company, (iii) each executive officer of the Company and (iv)
all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
PRIOR TO FOLLOWING
REORGANIZATION REORGANIZATION
--------------------- ----------------------
NAME AND ADDRESS OF NUMBER OF PERCENT NUMBER OF PERCENT
BENEFICIAL OWNER(1) SHARES(2) OF CLASS SHARES(2) OF CLASS
- ---------------------------------------------------- --------- -------- ---------- --------
<S> <C> <C> <C> <C>
Gary A. Allcorn(3)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 559,999 69.5
Sepco Class B Common Stock........................ 1,474 *
Sepco Class A Convertible Preferred Stock......... 15,000 76.9
Common Stock...................................... 8,986,698 50.6
Series B Convertible Preferred Stock.............. 15,000 76.9
Kacey Joyce, Andrea Rae, Nicholas David Little
1988 Trusts, Gary A. Allcorn, Trustee(3)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 533,200 61.7
Sepco Class A Convertible Preferred Stock......... 15,000 76.9
Common Stock...................................... 8,531,184 43.3
Series B Convertible Preferred Stock.............. 15,000 76.9
David R. Little(4)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 259,800 27.1
Sepco Class B Common Stock........................ 8,800 5.0
Common Stock...................................... 4,316,284 22.5
Bryan H. Wimberly(5)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 102,400 13.3
Sepco Class B Common Stock........................ 1,753 *
Common Stock...................................... 1,670,170 10.3
Jerry J. Jones(6)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 89,800 10.6
Sepco Class B Common Stock........................ 8 *
Common Stock...................................... 1,436,945 8.25
SEPCO ESOP
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 38,700 5.1
Sepco Class B Common Stock........................ 176,900 100.0
Common Stock...................................... 3,825,194 23.9
</TABLE>
63
<PAGE> 75
<TABLE>
<CAPTION>
PRIOR TO FOLLOWING
REORGANIZATION REORGANIZATION
--------------------- ----------------------
NAME AND ADDRESS OF NUMBER OF PERCENT NUMBER OF PERCENT
BENEFICIAL OWNER(1) SHARES(2) OF CLASS SHARES(2) OF CLASS
- ---------------------------------------------------- --------- -------- ---------- --------
<S> <C> <C> <C> <C>
Thomas V. Orr(7)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 1,000 *
Common Stock...................................... 16,000 *
Kenneth H. Miller(8)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 1,000 *
Common Stock...................................... 16,000 *
Cletus Davis(9)
580 Westlake Park Blvd., Suite 1100
Houston, Texas 77079
Sepco Class A Common Stock........................ 1,000 *
Common Stock...................................... 16,000 *
Little & Company Investment Securities(10)
211 West Wall Street
Midland, Texas 79701
Newman Common Stock............................... 1,520,000 42.7
Common Stock...................................... 380,000 2.4
Glenn A. Little(10)(11)
211 West Wall Street
Midland, Texas 79701
Newman Common Stock............................... 1,520,000 42.7
Common Stock...................................... 380,000 2.4
Patricia de Little(10)(12)
211 West Wall Street
Midland, Texas 79701
Newman Common Stock............................... 1,520,000 42.7
Common Stock...................................... 380,000 2.4
Tim Halter(13)
Halter Financial Group
4851 LBJ Freeway, Suite 201
Dallas, Texas 75244
Newman Common Stock............................... 1,389,564 54.3
Common Stock...................................... 347,391 2.2
All executive officers and directors as a group (7
persons)(3)(4)(5)(6)(7)(8)(9)
Sepco Class A Common Stock........................ 1,014,999 86.5
Sepco Class B Common Stock........................ 12,035 6.8
Sepco Class A Convertible Preferred Stock......... 15,000 76.9
Common Stock...................................... 16,458,097 72.7
Series B Convertible Preferred Stock.............. 15,000 76.9
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise noted, the Company believes that each person named in the
table above has sole voting and investment power with respect to all shares
beneficially owned by such person.
64
<PAGE> 76
(2) Each beneficial owner's percentage ownership is determined by assuming that
options, warrants and other convertible securities that are held by such
person (but not those held by any other person) and are exercisable or
convertible within 60 days have been exercised or converted. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days upon the exercise of options or warrants or
conversion or convertible securities.
(3) Includes 428,200 shares of Sepco Class A Common Stock and 15,000 shares of
Sepco Class A Convertible Preferred Stock owned by the Kacey Joyce, Andrea
Rae and Nicholas David Little 1988 Trusts (the "Trusts") for which Mr.
Allcorn serves as trustee. Because of this relationship, Mr. Allcorn may be
deemed to be the beneficial owner of such shares and the 105,000 shares of
Sepco Class A Common Stock issuable upon conversion of the shares of Sepco
Class A Convertible Preferred Stock held by the Trusts. Also includes 5,000
shares of Sepco Class A Common Stock issuable upon exercise of an option
and 1,474 shares of Sepco Class B Common Stock held of record by the Sepco
ESOP for Mr. Allcorn's account.
(4) Includes 200,000 shares of Sepco Class A Common Stock issuable to Mr.
Little upon exercise of an option and 8,800 shares of Sepco Class B Common
Stock held of record by the Sepco ESOP for Mr. Little's account.
(5) Includes 12,600 shares of Sepco Class A Common Stock owned by a trust for
which Mr. Wimberly is one-third beneficiary and 12,200 shares of Sepco
Class A Common Stock issuable upon exercise of an option granted to Mr.
Wimberly. Also includes 1,753 shares of Sepco Class B Common Stock held by
the Sepco ESOP for Mr. Wimberly's account.
(6) Includes 89,800 shares of Sepco Class A Common Stock issuable upon exercise
of an option granted to Mr. Jones and 8 shares of Sepco Class B Common
Stock held by the Sepco ESOP for Mr. Jones' account.
(7) Includes 1,000 shares of Sepco Class A Common Stock issuable upon exercise
of an option.
(8) Includes 1,000 shares of Sepco Class A Common Stock issuable upon exercise
of an option.
(9) Includes 1,000 shares of Sepco Class A Common Stock issuable upon exercise
of an option.
(10) Includes 1,000,000 shares of Newman Common Stock issuable upon exercise of
a warrant.
(11) Mr. Glenn Little is an officer, director and principal shareholder of LITCO
and, therefore, may be deemed to be the beneficial owner of the shares of
Newman Common Stock and warrants owned by LITCO.
(12) Mrs. Little is the wife of Glenn A. Little and is an officer and director
of LITCO and, therefore, may be deemed to be the beneficial owner of the
shares of Newman Common Stock and warrants owned by LITCO.
(13) Includes 1,389,564 shares of Newman Common Stock held of record by Halter.
Mr. Halter is the sole director, officer and shareholder of Halter and,
because of such relationships, may be deemed to be the beneficial owner of
such shares.
65
<PAGE> 77
CERTAIN TRANSACTIONS
SEPCO
In December 1989, Sepco restructured certain loans previously made by Sepco
to David R. Little, Chairman of the Board and Chief Executive Officer of the
Company, pursuant to which Mr. Little executed two promissory notes in the
amounts of $149,910 and $58,737, respectively, each bearing interest at 9% per
annum. The notes require monthly payments of $1,349 and $528, respectively. The
outstanding balances of such loans at August 5, 1996, were $127,813 and $50,080,
respectively.
In December 1993, Sepco loaned Mr. Little approximately $210,940 to
purchase 59,080 shares of Sepco Class A Common Stock. The loan bore interest at
6% per annum and provided for annual interest payments and one principal payment
upon sale of the stock which secured such loan. The loan was repaid on August 5,
1996. Sepco from time to time also has made non-interest bearing advances to Mr.
Little that as of August 5, 1996 totaled approximately $330,100. The largest
aggregate amount of Mr. Little's indebtedness outstanding to Sepco during the
year ended December 31, 1995 was approximately $762,500.
Mr. Allcorn, Senior Vice President/Finance of the Company, is the trustee
of three trusts for the benefit of Mr. Little's children, each of which holds
142,733 shares of Sepco Class A Common Stock and 15,000 shares of Sepco Class A
Convertible Preferred Stock. Mr. Allcorn exercises sole voting and investment
power over the shares held by such trusts.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF
SEPCO AND THE COMPANY
The rights of the shareholders of Sepco currently are governed by Sepco's
articles of incorporation, as amended, Sepco's bylaws and the laws of the State
of Texas. The rights of the shareholders of the Company will be governed by the
Company's Articles, the Company's Bylaws and the laws of the State of Texas.
Pursuant to the Sepco Merger, the shareholders of Sepco will receive securities
of the Company, which differ in certain respects from the securities of Sepco.
COMMON STOCK
The former holders of Sepco Class A Common Stock and Sepco Class B Common
Stock, as holders of Common Stock, will no longer have the right to a class vote
with respect to certain matters that under Texas law require the approval of
each class or series of stock. In addition, the holders of Sepco Common Stock
currently have the right to approve any changes in the terms of Sepco's
preferred stock. The holders of Common Stock do not have the right to approve
any changes in the terms of the Series B Convertible Preferred Stock or the
Series A Preferred Stock. The holders of Sepco Class B Common Stock currently
are entitled to receive $7.5075 per share of Sepco Class B Common Stock held
upon the liquidation of Sepco. This liquidation right is in preference to the
liquidation rights of the holders of Sepco Class A Convertible Preferred Stock.
The holders of Common Stock have no such liquidation rights. See "Description of
Company Capital Stock".
PREFERRED STOCK
The holders of Sepco Class A Convertible Preferred Stock and Sepco
Preferred Stock, except as otherwise provided by law, have no right to vote on
the election of directors or on any matters presented to the Sepco shareholders.
Each share of Series A Preferred Stock and Series B Convertible Preferred Stock
entitles the holder thereof to one-tenth of a vote on all matters to come before
a meeting of the shareholders of the Company.
VOTE REQUIRED ON CERTAIN MATTERS
The Company's Articles provide, as permitted under the TBCA, that with
respect to certain matters for which the affirmative vote of the holders of more
than a majority of the shares entitled to vote is required by law, the
affirmative vote of the holders of only a majority of the shares of the Company
shall be required. The
66
<PAGE> 78
Sepco articles of incorporation had no such provision and, under the TBCA, for
such matters as amendments to the articles of incorporation, mergers and
voluntary dissolution of the corporation, the affirmative vote of the holders of
two-thirds of the outstanding shares entitled to vote on such matters is
required. Under the Company's Articles, the vote of only the holders of a
majority of the outstanding shares entitled to vote on such matters is required.
If a class or series of outstanding shares of stock of the Company is entitled
to vote on such a matter, approval by the affirmative vote of the holders of a
majority of the shares within such class or series would be required.
COMPARISON OF RIGHTS OF HOLDERS OF
NEWMAN COMMON STOCK AND COMMON STOCK
After the consummation of the Newman Merger, Newman shareholders will
become shareholders of the Company. The rights of the shareholders of the
Company will be governed by the Company's Articles, the Company's Bylaws and the
laws of the State of Texas. The Company's Articles and the Company's Bylaws are
set forth in full as Appendices E and F, respectively to this Proxy
Statement/Prospectus.
Although it is impractical to note all of the differences between the
corporation statutes of Texas and New Mexico, the Company believes that the most
significant differences, as they impact the rights of shareholders, are
summarized below. The summary does not purport to be complete and is qualified
in its entirety by reference to the TBCA and the NMBCA.
MERGERS
Under the TBCA, shareholders have the right, subject to certain exceptions,
to vote on all mergers to which the corporation is a party. In certain
circumstances, different classes of securities may be entitled to vote
separately as classes with respect to such mergers. Under the Company's
Articles, approval of the holders of at least a majority of all outstanding
shares entitled to vote is required to approve a merger. Under the NMBCA,
approval by the holders of a majority of all outstanding shares is required,
unless the articles of incorporation provide otherwise. Newman's current
articles of incorporation do not provide otherwise.
The approval of the shareholders of the surviving corporation in a merger
is not required under Texas law if (i) the corporation is the sole surviving
corporation in the merger, (ii) there is no amendment to the surviving
corporation's articles of incorporation, (iii) each shareholder holds the same
number of shares in the surviving corporation immediately after the merger as
prior thereto, and such shares have identical designations, preferences,
limitations and relative rights, (iv) the voting power of the shares in the
surviving corporation immediately after the merger, plus the voting power of the
shares issued in the merger, does not exceed the voting power of the shares
outstanding prior to the merger by more than 20%, (v) the number of shares in
the surviving corporation outstanding immediately after the merger, plus the
shares issued in the merger, does not exceed the number of shares outstanding
prior to the merger by more than 20% and (vi) the board of directors of the
surviving corporation adopts a resolution approving the plan of merger.
Under the NMBCA, a vote of the shareholders is not required if (i) the
articles of incorporation of the surviving corporation do not differ except in
name from those of the corporation before the merger, (ii) each holder of shares
of the surviving corporation which were outstanding immediately before the
effective date of the merger is to hold the same number of shares with identical
rights immediately thereafter, (iii) the number of voting shares outstanding
immediately after the merger, plus the number of voting shares issuable on
conversion of other securities issued by virtue of the terms of the merger and
on exercise of rights and warrants so issued, will not exceed by more than 20%
the number of voting shares outstanding immediately before the merger and (iv)
the number of participating shares outstanding immediately after the merger,
plus the number of participating shares issuable on conversion of other
securities issued by virtue of the terms of the merger and on exercise of rights
and warrants so issued, will not exceed by more than 20% the number of
participating shares outstanding immediately before the merger.
67
<PAGE> 79
APPRAISAL RIGHTS
Shareholders of Texas corporations are entitled to exercise certain
dissenters' rights in the event of a sale, lease, exchange or other disposition
of all, or substantially all, of the property and assets of the corporation,
and, with the exceptions discussed below, a merger or consolidation.
Shareholders of New Mexico corporations are entitled to exercise certain
dissenter's rights in the event of a merger, consolidation, sale, exchange or
certain other dispositions of all, or substantially all, of the property and
assets of the corporation, and certain amendments to articles of incorporation
which materially and adversely affect their rights appurtenant to the dissenting
shareholders' shares. See "The Reorganization -- Rights of Dissenting
Shareholders". In general, no shareholder vote is required for a sale of all or
substantially all of the assets of a Texas corporation under Texas law as long
as the corporation continues in business or applies a portion of the proceeds
received in the sale to a new business. New Mexico does not have a similar
provision.
No appraisal rights are available under Texas or New Mexico law for the
holders of any shares of a class or series of stock of a Texas or New Mexico
corporation which is a party to a merger if that corporation survives the merger
and if the merger did not require the vote of the holders of that class or
series of such corporation's stock.
Texas law also contains a provision which states that shareholders do not
have appraisal rights in connection with a merger where, on the record date
fixed to determine the shareholders entitled to vote on the merger or
consolidation, the stock of the corporation is listed on a national securities
exchange or is held of record by more than 2,000 shareholders, unless any of the
exceptions discussed below concerning consideration paid to the shareholder for
his shares is met. Under Texas law, a shareholder will be entitled to dissent
and be paid for his shares if, notwithstanding the above, the shareholder is
required to accept for his shares any consideration other than (i) shares of
stock of a corporation which, immediately after the effective date of the
merger, are listed on a national securities exchange or are held of record by
not less than 2,000 shareholders and (ii) cash in lieu of fractional shares
otherwise entitled to be received. New Mexico law does not contain any similar
provisions.
SPECIAL MEETINGS
Under the TBCA, a special meeting of shareholders of a Texas corporation
may be called by the president, the board of directors, such other persons
authorized in the articles of incorporation or shareholders. The Company's
Articles provide that the holders of at least 30% of all the votes entitled to
be cast are eligible to call a special meeting.
Under the NMBCA, a special meeting may be called by a majority of the board
of directors, or by shareholders entitled to vote at least 10% of the votes to
be cast, or such other persons as authorized by the articles of incorporation or
by the bylaws. Newman's current Bylaws do not authorize any other such persons.
SHAREHOLDER ACTION WITHOUT A MEETING
Under both the TBCA and the NMBCA, shareholders may act without a meeting
if a consent in writing to such action is signed by all shareholders entitled to
vote. In addition, Texas law permits the articles of incorporation of a Texas
corporation to provide that the shareholders may take action without a meeting
if a consent in writing to such action is signed by the shareholders having the
minimum number of votes that would be necessary to take such action at a
meeting. The Company's Articles contain such a provision. The NMBCA does not
contain any similar provision.
ELECTION OF DIRECTORS
Under the TBCA, the number of directors shall be fixed by the articles of
incorporation or the bylaws, except with regard to the number of initial
directors, which shall be fixed by the articles of incorporation. Under the
Company's Articles, no shareholders are entitled to cumulative voting in the
election of directors.
The TBCA further provides that the number of directors may be increased or
decreased from time to time by amendment to, or in the manner provided in, the
articles of incorporation or the bylaws, but no
68
<PAGE> 80
decrease shall have the effect of shortening the term of an incumbent director.
At the first annual meeting of the shareholders and at each annual meeting
thereafter, the holders of shares entitled to vote in the election of directors
shall elect directors to hold office until the next succeeding annual meeting.
Under the NMBCA, the number of directors shall be fixed by the articles of
incorporation or the bylaws, except with regard to the number of initial
directors, which shall be fixed by the articles of incorporation. The number of
directors may be increased or decreased from time to time by amendment to, or in
the manner provided in, the articles of incorporation or the bylaws, but no
decrease shall have the effect of shortening the term of an incumbent director.
At the first annual meeting of the shareholders and at each annual meeting
thereafter, the holders of shares entitled to vote in the election of directors
shall elect directors to hold office until the next succeeding annual meeting.
New Mexico law provides that the articles of incorporation may confer cumulative
voting upon its shareholders by an affirmative statement. Newman's articles of
incorporation do not confer any such right.
VOTING ON OTHER MATTERS
Amendments to the Articles of Incorporation. Under the Company's Articles,
an amendment to the articles of incorporation requires the approval of the
holders of a majority of the outstanding shares of the corporation entitled to
vote thereon. If a class or series of outstanding shares is entitled to vote on
an amendment, approval by the affirmative vote of the holders of a majority of
the shares within such class or series also is required.
Under New Mexico law, an amendment to the articles of incorporation
requires the approval of the holders of a majority of the outstanding shares of
the corporation entitled to vote thereon. If a class or series of outstanding
shares is entitled to vote on an amendment, approval by the affirmative vote of
the holders of a majority of the shares within such class or series is required.
Dissolution of the Corporation. Under the TBCA, the voluntary dissolution
of a corporation by an act of the corporation requires the approval of the
holders of at least two-thirds of the total outstanding shares of the
corporation, unless any class or series is entitled to vote as a class thereon,
in which event the resolution shall require the affirmative vote of two-thirds
of the shareholders of each class or series. The Company's Articles have reduced
this vote requirement to a majority of the outstanding shares entitled to vote
on the matter. See "Comparison of Rights of Shareholders of Sepco and the
Company -- Vote Required on Certain Matters".
Under the NMBCA, the voluntary dissolution of a corporation by an act of
the corporation requires the approval of the holders of a majority of the total
outstanding shares of the corporation, unless any class or series is entitled to
vote as a class thereon, in which event the resolution shall require the
affirmative vote of a majority of the shareholders of each class or series.
DISTRIBUTIONS TO SHAREHOLDERS
A Texas corporation may make distributions only out of surplus, which is
defined as the excess of net assets of a corporation over its stated capital.
Further, a Texas corporation may not make a distribution if after giving effect
to the distribution, the corporation would be insolvent.
A New Mexico corporation may make distributions as long as after giving
effect to the distribution the corporation is able to pay its debts as they come
due in the usual course of business or the corporation's total assets are
greater than the sum of its total liabilities and (unless the articles of
incorporation otherwise permit) the corporation would be able to pay the maximum
amount, in any liquidation, on shares of stock having preferential rights in
liquidation. Newman's current Articles of Incorporation do not contain such a
provision.
LIQUIDATION RIGHTS
Generally, under Texas and New Mexico law, shareholders are entitled to
share ratably in the distribution of assets upon the dissolution of their
corporation. Preferred shareholders, if any, typically do not participate in the
distribution of assets of a dissolved corporation beyond their established
contractual preferences. Once the
69
<PAGE> 81
rights of any preferred shareholders have been fully satisfied, common
shareholders are entitled to the distribution of any remaining assets.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Texas and New Mexico law both permit a corporation to set limits on the
extent of a director's liability. The TBCA and the NMBCA permit a corporation to
indemnify an officer, director, employee and agent who is the defendant or
respondent to a proceeding if such person (i) acted in good faith, (ii)
reasonably believed that his conduct was in the corporation's best interest if
he was acting in his official capacity, and if he was not acting in his official
capacity, that his conduct was not opposed to the best interests of the
corporation and (iii) had no reason to believe his conduct was unlawful in the
case of a criminal proceeding.
New Mexico law prohibits indemnification in any respect of a proceeding
charging the receipt of improper benefit, or if the director is found liable to
the corporation. Texas law allows a corporation to indemnify a director for the
reasonable expenses actually incurred by the person in connection with a
proceeding finding the director in receipt of improper benefit or liable to the
corporation if the director (i) acted in good faith, (ii) reasonably believed
that his conduct was in the corporation's best interest and (iii) had no reason
to believe his conduct was unlawful in the case of a criminal proceeding.
However, Texas law prohibits indemnification in any proceeding where the
director is found liable for willful or intentional misconduct in the
performance of his duty to the corporation. The Company's Articles authorize
indemnification of officers, directors and others to the fullest extent
permitted by Texas law. Under Texas law, a corporation may also provide for
indemnification of its directors and officers for liabilities not otherwise
permitted to be indemnified as long as such indemnity in excess of the
indemnification otherwise permitted is approved by shareholders.
REMOVAL OF DIRECTORS
The TBCA requires that the directors be removed in accordance with the
provisions of the bylaws or the articles of incorporation. Otherwise, each
director shall hold office for the elected term and until the successor shall
have been elected and qualified. The bylaws or the articles of incorporation may
provide that at any meeting of shareholders called expressly for the purpose of
director removal, any director or the entire board may be removed, with or
without cause, by a vote of the holders of a specified portion, not less than a
majority, of the shares entitled to vote at an election of directors, subject to
any further restrictions on removal that may be contained in the bylaws. The
Company's Bylaws contain such a provision.
The NMBCA provides that any director can be removed, with or without cause,
by a vote of the holders of not less than a majority of shares entitled to vote
at an election of directors. In the case of a corporation having cumulative
voting, if less than the entire board is to be removed, no one of the directors
may be removed if the votes cast against removal would be sufficient to elect
him if then cumulatively voted at an election of the entire board of directors,
or, if there are classes of directors, at an election of the class of directors
of which he is part.
INSPECTION OF BOOKS AND RECORDS
The TBCA and the NMBCA both provide that a corporation shall keep correct
and complete books and records of account and shall keep minutes of the
proceedings of its shareholders and board of directors. The corporation shall
keep at its registered office or principal place of business, or at the office
of its transfer agent or registrar, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of the
shareholders and the number and the class of the shares held by each.
Further, both the TBCA and the NMBCA provide that any person who has been a
shareholder for at least six months preceding his demand, or shall be the holder
of at least six months preceding his demand, or who is the holder of at least 5%
of all of the outstanding shares of a corporation, is entitled to personally, or
by agent or attorney, examine a corporation's relevant books and records for any
proper purpose. The shareholder must issue a written demand stating the purpose
of the inspection, and may examine the books and records at a reasonable time
and make extracts therefrom.
70
<PAGE> 82
DESCRIPTION OF COMPANY CAPITAL STOCK
GENERAL
The Company has an authorized capitalization of 110,000,000 shares of
capital stock, consisting of 100,000,000 shares of Common Stock and 10,000,000
shares of preferred stock, of which 1,000,000 shares have been designated Series
A Preferred Stock, and 1,000,000 shares of which have been designated Series B
Convertible Preferred Stock. As of August 1, 1996, there were 100 shares of
Common Stock, no shares of Series A Preferred Stock and no shares of Series B
Convertible Preferred Stock outstanding. As of such date, there was one holder
of Common Stock of record.
COMMON STOCK
Dividends. The holders of shares of Series B Convertible Preferred Stock
are entitled to dividends before the payment of any dividends to holders of
shares of Common Stock. The holders of shares of Common Stock have no right or
preference to the holders of shares of any other class of capital stock of the
Company in respect of the declaration or payment of any dividends or
distributions by the Company. The holders of shares of Common Stock shall be
entitled to equally receive any dividends or distributions, if and when declared
by the Board of Directors out of any funds legally available for that purpose.
Liquidation, Dissolution or Winding Up. Subject to the required cash
payments to the Series A Preferred Stock and the Series B Convertible Preferred
Stock, the remainder of the assets of the Company, if any, shall be divided and
distributed ratably among the holders of the Series B Convertible Preferred
Stock and the Common Stock.
Redemption. No shares of Common Stock are callable or redeemable by the
Company.
Conversion. No holder of Common Stock has the right to convert or exchange
any such shares with or into any other shares of capital stock of the Company.
Voting. Each share of Common Stock entitles the holder thereof to one vote,
in person or by proxy, at any and all meetings of the shareholders of the
Company on all propositions presented to the shareholders generally.
PREFERRED STOCK
Dividends. The holders of shares of Series A Preferred Stock shall not as a
matter of right be entitled to be paid or receive or have declared or set apart
for such Series A Preferred Stock, any dividends or distributions of the
Company. The holders of shares of Series B Convertible Preferred Stock receive
dividends out of any funds legally available for that purpose at the annual rate
of 6% per annum of the par value and no more. These dividends are payable in
cash monthly on the last day of each month. The dividends accrue from the date
the Series B Convertible Preferred Stock are issued and are considered to accrue
from day to day, whether or not earned or declared. The dividends are payable
before any dividends are paid, declared, or set apart for any other capital
stock of the Company. The dividends are cumulative so that if for any dividend
period the dividends on the outstanding Series B Convertible Preferred Stock are
not paid or declared and set apart, the deficiency shall be fully paid or
declared and set apart for payment, without interest, before any distribution
(by dividend or otherwise) is paid on, declared, or set apart for any other
capital stock of the Company. The holders of shares of Series B Convertible
Preferred Stock shall not be entitled to receive any other dividends or
distributions.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of
outstanding shares of Series A Preferred Stock shall be entitled to receive
$100.00 in cash for each share of Series A Preferred Stock, before any
distribution of the assets of the Company shall be made to the holders of the
outstanding shares of Series B Convertible Preferred Stock, unless funds
necessary for such payment shall have been set aside in trust for the account of
the holders of outstanding shares of Series A Preferred Stock so as to be and
continue to be available therefor. After the $100.00 distribution per share of
the Series A Preferred Stock, the holders of outstanding shares of Series B
71
<PAGE> 83
Convertible Preferred Stock shall be entitled to receive $100.00 in cash for
each share, before any distribution of the assets of the Company shall be made
to the holders of the outstanding shares of any other capital stock of the
Company, unless funds necessary for such payment shall have been set aside in
trust for the account of the holders of outstanding shares of Series B
Convertible Preferred Stock so as to be and continue to be available therefor.
Redemption. No shares of Series A Preferred Stock shall be callable or
redeemable by the Company. The Company, at the option of its Board of Directors,
may at any time five years from the date of issuance redeem the whole or any
part of the outstanding Series B Convertible Preferred Stock shares by paying in
cash $110.00 per share plus all dividends accrued, unpaid, and accumulated
through and including the redemption date. If only a part of the outstanding
Series B Convertible Preferred Stock shares is redeemed, redemption will be pro
rata. No Series B Convertible Preferred Stock shares may be redeemed unless all
accrued dividends on all Series B Convertible Preferred Stock shares have been
paid for all past dividend periods and full dividends for the current period,
except those to be redeemed, have been paid or declared and set apart for
payment.
The holders of any Series B Convertible Preferred Stock shares called for
redemption are entitled to receive 112 shares of Common Stock for each share of
Series B Convertible Preferred Stock. The holders are entitled to exercise said
conversion right at any time after redemption notice is given and before the
close of business on the fifth day before the redemption date stated in the
notice. The right to receive the converted shares is at the shareholder's option
and requires delivery to the Company of the shareholder's written notice stating
the number of shares the shareholder is electing to convert. The exercise of the
right also requires the shareholder, on or before the redemption date, to
surrender the certificate or certificates, duly endorsed to the Company, for the
Series B Convertible Preferred Stock shares at the office of the Company or its
transfer agent.
Conversion. No holder of Series A Preferred Stock shall have the right to
convert or exchange shares with or into any other shares of capital stock of the
Company. The holders of shares of Series B Convertible Preferred Stock shall
have the right to convert each share of Series B Convertible Preferred Stock
into 112 shares of Common Stock at any time. The right to receive the converted
shares requires delivery to the Company's office or its transfer agent of the
shareholder's written notice stating the number of shares the shareholder is
electing to convert. Such notice shall be accompanied by the surrender of the
Series B Convertible Preferred Stock certificate or certificates, duly endorsed
to the Company. The date of conversion shall be the date of receipt by the
Company or its transfer agent of the notice and the duly endorsed
certificate(s).
Voting. Each share of Series A Preferred Stock and each share of Series B
Convertible Preferred Stock shall entitle the holder thereof to 1/10th of a
vote, in person or by proxy, at any and all meetings of shareholders of the
Company on all propositions presented to shareholders generally.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
72
<PAGE> 84
DESCRIPTION OF SEPCO CAPITAL STOCK
GENERAL
Sepco's authorized capital stock consists of 10,000,000 shares of Sepco
Class A Common Stock, 10,000,000 shares of Sepco Class B Common Stock, 1,000,000
shares of Sepco Preferred Stock, 1,000,000 shares of Sepco Class A Convertible
Preferred Stock and 1,000,000 shares of Sepco Class B Convertible Preferred
Stock. As of July 23, 1996, there were 758,900 shares of Sepco Class A Common
Stock, 176,900 shares of Sepco Class B Common Stock, 3,366 shares of Sepco
Preferred Stock, 19,500 shares of Sepco Class A Convertible Preferred Stock and
no shares of Sepco Class B Convertible Preferred Stock outstanding. As of such
date, there were approximately 17 holders of Sepco Class A Common Stock, one
holder of Sepco Class B Common Stock, six holders of Sepco Preferred Stock, five
holders of Sepco Class A Convertible Preferred Stock and no holders of Sepco
Class B Convertible Preferred Stock of record.
SEPCO COMMON STOCK
Dividends. The shareholders of Sepco Class A Convertible Preferred Stock
and Sepco Class B Convertible Preferred Stock are entitled to dividends before
the payment of any dividends to the holder of Sepco Class A Common Stock or
Sepco Class B Common Stock. The holders of shares of Sepco Class A Common Stock
and Sepco Class B Common Stock have no right or preference to the holders of
shares of any other class of capital stock of Sepco in respect of the
declaration or payment of any dividends or distributions by Sepco. The holders
of shares of Sepco Class A Common Stock and Sepco Class B Common Stock shall be
entitled to equally receive any dividends or distributions, if and when declared
by the Board of Directors out of any funds legally available for that purpose.
Liquidation, Dissolution or Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of Sepco, the
holders of outstanding shares of Sepco Class B Common Stock shall be entitled to
receive $7.5075 in cash for each share of Sepco Class B Common Stock, before any
distribution of the assets of Sepco shall be made to the holders of the
outstanding shares of Sepco Class A Convertible Preferred Stock or Sepco Class B
Convertible Preferred Stock, unless funds necessary for such payment shall have
been set aside in trust for the account of the holders of outstanding shares of
Sepco Class B Common Stock so as to be and continue to be available therefor. At
the same time as the payment to the holders of the Sepco Class B Common Stock,
the holders of shares of Sepco Preferred Stock shall be entitled to $100.00 in
cash for each share, but no further participation in any distribution of the
assets of Sepco. If upon such liquidation, dissolution or winding up, the assets
of Sepco, distributable as aforesaid, are insufficient to permit the payment to
holders of Sepco Preferred Stock of $100.00 per share and to holders of Sepco
Class B Common Stock of $7.5075 per share, then the assets of Sepco shall be
distributed to the holders of shares of Sepco Preferred Stock and Sepco Class B
Common Stock ratably according to their respective shares. After the required
cash payments to the Sepco Preferred Stock, the Sepco Class A Convertible Stock
and the Sepco Class B Convertible Preferred Stock, the remainder of the assets,
if any, shall be divided and distributed ratably among the holders of the Sepco
Class A Convertible Preferred Stock, the Sepco Class B Convertible Stock, the
Sepco Class A Common Stock and the Sepco Class B Common Stock.
Redemption. No shares of Sepco Class A Common Stock or Sepco Class B Common
Stock, are callable or redeemable by Sepco.
Conversion. No holder of Sepco Class A Common Stock or Sepco Class B Common
Stock has the right to convert or exchange any such shares with or into any
other shares of capital stock of Sepco.
Voting. Each share of Sepco Class A Common Stock and Sepco Class B Common
Stock entitles the holder thereof to one vote, in person or by proxy, at any and
all meetings of the shareholders of Sepco on all propositions before such
meetings. Except as otherwise provided by law, the holders of shares of Sepco
Class A Common Stock and Sepco Class B Common Stock vote together, share for
share, as a single class upon the election of directors and upon each and every
other matter at any meeting of shareholders.
73
<PAGE> 85
SEPCO PREFERRED STOCK
Dividends. The holders of shares of Sepco Preferred Stock shall not as a
matter of right be entitled to be paid or receive or have declared or set apart
for such Sepco Preferred Stock, any dividends or distributions of Sepco. The
holders of shares of Sepco Class A Convertible Preferred Stock and Sepco Class B
Convertible Preferred Stock receive dividends out of any funds legally available
for that purpose at the annual rate of six percent (6%) per annum of the par
value and no more. These dividends are payable in cash monthly on the last day
of each month. The dividends accrue from the date the Sepco Class A Convertible
Preferred Stock and/or the Sepco Class B Convertible Preferred Stock are issued
and are considered to accrue from day to day, whether or not earned or declared.
The dividends are payable before any dividends are paid, declared, or set apart
for any other capital stock of Sepco. The dividends are cumulative so that if
for any dividend period the dividends on the outstanding Sepco Class A
Convertible Preferred Stock and/or the Sepco Class B Convertible Preferred Stock
are not paid or declared and set apart, the deficiency shall be fully paid or
declared and set apart for payment, without interest, before any distribution
(by dividend or otherwise) is paid on, declared, or set apart for any other
capital stock of Sepco. The holders of shares of Sepco Class A Convertible
Preferred Stock and Sepco Class B Convertible Preferred Stock shall not be
entitled to receive any other dividends or distributions.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of Sepco, the holders of outstanding
shares of Sepco Preferred Stock shall be entitled to receive $100.00 in cash for
each share of Sepco Preferred Stock. After the $100.00 distribution per share of
the Sepco Preferred Stock and the $7.5075 distribution per share of the Sepco
Class B Common Stock, the holders of outstanding shares of Sepco Class A
Convertible Preferred Stock and Sepco Class B Convertible Preferred Stock shall
be entitled to receive $100.00 in cash for each share, before any distribution
of the assets of Sepco shall be made to the holders of the outstanding shares of
any other capital stock of Sepco, unless funds necessary for such payment shall
have been set aside in trust for the account of the holders of outstanding
shares of Sepco Class A Convertible Preferred Stock and Sepco Class B
Convertible Preferred Stock so as to be and continue to be available therefor.
If upon such liquidation, dissolution or winding up, the assets of Sepco,
distributable as aforesaid, are insufficient to permit said full payment, then
the assets of Sepco shall be distributed to the holders of outstanding shares of
Sepco Class A Convertible Preferred Stock and Sepco Class B Convertible
Preferred Stock ratably according to their respective shares.
Redemption. No shares of Sepco Preferred Stock shall be callable or
redeemable by Sepco. Sepco, at the option of its Board of Directors, may at any
time five years from the date of issuance redeem the whole, or any part of the
outstanding Sepco Class A Convertible Preferred Stock or Sepco Class B
Convertible Preferred Stock shares by paying in cash $110.00 per share plus all
dividends accrued, unpaid, and accumulated through and including the redemption
date. If only a part of the outstanding Sepco Class A Convertible Preferred
Stock or Sepco Class B Convertible Preferred Stock shares is redeemed,
redemption will be pro rata. No Sepco Class A Convertible Preferred Stock or
Sepco Class B Convertible Preferred Stock shares may be redeemed unless all
accrued dividends on all outstanding Sepco Class A Convertible Preferred Stock
or Sepco Class B Convertible Preferred Stock shares have been paid for all past
dividend periods and full dividends for the current period, except those to be
redeemed, have been paid or declared and set apart for payment.
The holders of any Sepco Class A Convertible Preferred Stock shares called
for redemption are entitled to receive seven Sepco Class A Common Stock shares
for each share of Sepco Class A Convertible Preferred Stock. The holders of any
Sepco Class B Convertible Preferred Stock shares called for redemption are
entitled to receive three and one-half shares of Sepco Class B Common Stock for
each share of Sepco Class B Convertible Preferred Stock. The holders are
entitled to exercise said conversion right at any time after redemption notice
is given and before the close of business on the fifth day before the redemption
date stated in the notice. The right to receive the converted shares is at the
shareholder's option and requires delivery to Sepco of the shareholder's written
notice stating the number of shares the shareholder is electing to convert. The
exercise of the right also requires the shareholder, on or before the redemption
date, to surrender the certificate or certificates, duly endorsed to Sepco, for
the Sepco Class A Convertible Preferred Stock or shares of Sepco Class B
Convertible Preferred Stock, as applicable, at the office of Sepco or its
transfer agent.
74
<PAGE> 86
Conversion. No holder of Sepco Preferred Stock shall have the right to
convert or exchange shares with or into any other shares of capital stock of
Sepco. The holders of shares of Sepco Class A Convertible Preferred Stock shall
have the right to convert each share of Sepco Class A Convertible Preferred
Stock into seven shares of Sepco Class A Common Stock, at any time. The holders
of shares of Sepco Class B Convertible Preferred Stock shall have the right to
convert each share of Sepco Class B Convertible Preferred Stock into three and
one-half shares of Sepco Class B Common Stock, at any time. The right to receive
the converted shares requires delivery to Sepco's office or its transfer agent
of the shareholder's written notice stating the number of shares the shareholder
is electing to convert. Said notice shall be accompanied by the surrender of the
Sepco Class A Convertible Preferred Stock or Sepco Class B Convertible Preferred
Stock certificate or certificates, duly endorsed to Sepco. The date of
conversion shall be the date of receipt by Sepco or its transfer agent of the
notice and the duly endorsed certificate(s).
Voting. Except as otherwise provided by law, the holders of shares of Sepco
Preferred Stock, Sepco Class A Convertible Preferred Stock and Sepco Class B
Convertible Preferred Stock shall have no right or power to vote on the election
of directors or on any questions or in any proceedings or to be represented at
or to receive notice of any meeting of shareholders of Sepco.
DESCRIPTION OF NEWMAN CAPITAL STOCK
GENERAL
Newman's authorized capital stock consists of 8,000,000 shares of Newman
Common Stock and 2,000,000 shares of preferred stock, no par value (the "Newman
Preferred Stock"). As of August 1, 1996, there were 2,552,064 shares of Newman
Common Stock outstanding and no shares of Newman Preferred Stock outstanding. As
of such date, there were approximately 199 holders of record of Newman Common
Stock.
NEWMAN COMMON STOCK
The holders of Newman Common Stock are entitled to one vote for each share
in all matters submitted to a vote of shareholders. The holders of Newman Common
Stock do not have cumulative voting rights for the election of directors. The
holders of Newman Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by Newman's Board of Directors out of legally
available funds. In the event of liquidation, dissolution or winding up of
Newman, the holders of Newman Common Stock are entitled to share ratably in all
assets of Newman remaining after provision for payment of liabilities in
satisfaction of the liquidation preference of any shares of Newman Preferred
Stock that may be outstanding. The holders of Newman Common Stock have no
preemptive, subscription, redemptive or conversion rights. The outstanding
shares of Newman Common Stock are fully paid and non-assessable. The rights,
preferences and privileges of the holders of Newman Common Stock may be subject
to those of holders of Newman Preferred Stock, if such securities should ever be
issued.
NEWMAN PREFERRED STOCK
The Board of Directors of Newman is authorized, without further shareholder
action, to issue any of the undesignated shares of Newman Preferred Stock in one
or more series and to fix the voting rights, liquidation preferences, dividend
rights, repurchase rights, conversion rights, redemption rights and terms,
including sinking fund provisions, and certain other rights and preferences of
such shares of Newman Preferred Stock.
CLASS C WARRANTS
Newman has issued and outstanding 1,650,000 Class C Warrants as a result of
its reorganization under Chapter 11 of the United States Bankruptcy Code. The
Class C Warrants were issued to unsecured creditors of Newman under the Plan.
Each Class C Warrant entitles the holder thereof to purchase one share of Newman
Common Stock at an exercise price of $2.00 per share, subject to certain
adjustments, until November 22, 1996.
75
<PAGE> 87
The Class C Warrants provide for the adjustment of the exercise price and
number of shares of Newman Common Stock issuable upon exercise of such Class C
Warrants upon the occurrence of certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers and consolidations. The
Class C Warrants will be adjusted as a result of the Newman Merger. Following
the Newman Merger, the Company will execute and deliver to the warrant agent for
the Class C Warrants a supplemental warrant agreement which will provide that
the holder of each outstanding Class C Warrant on the closing date of the Newman
Merger shall have the right, until the expiration date of such Class C Warrant,
to receive, upon exercise thereof, the number of shares of Common Stock the
holder would have received in the Newman Merger if the holder had exercised such
Class C Warrant prior to the closing date of the Newman Merger. See "Certain
Terms of the Merger Agreements -- Newman Merger Agreement -- Manner and Basis of
Converting Shares". The Class C Warrants also contain provisions that protect
the holders thereof against dilution, by adjustment of the exercise price and
number of shares of Newman Common Stock issuable on exercise of such Class C
Warrants, upon the occurrence of certain events, such as stock dividends and
distributions, stock splits, recapitalizations, mergers, consolidations and the
issuance of Newman Common Stock, or options or rights to subscribe for, or
securities convertible into or exchangeable for Newman Common Stock, at a price
below the exercise price of any of the Class C Warrants. Holders of Class C
Warrants have no rights as shareholders of Newman unless the Class C Warrants
are exercised.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion summarizing all of the material
federal income tax consequences generally applicable to initial holders of
Company Stock. Shareholders of Sepco and Newman should be aware that this
discussion does not address all aspects of taxation that may be relevant to
particular shareholders in light of their personal circumstances, or to certain
types of shareholders (including dealers in securities, insurance companies,
foreign persons, financial institutions and tax-exempt entities) subject to
special treatment under the federal income tax laws.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE FOR GENERAL
INFORMATION ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE INDIVIDUAL
CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE HOLDER OF COMPANY STOCK IS STRONGLY
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO HIS OR HER
PARTICULAR TAX SITUATION AND THE PARTICULAR TAX EFFECTS OF ANY STATE, LOCAL,
FOREIGN, OR OTHER TAX LAWS (INCLUDING POSSIBLE CHANGES IN THE TAX LAW).
The Company, Sepco, and Newman have not requested (nor will they request) a
ruling from the IRS concerning any of the matters discussed herein. Accordingly,
Sepco and Newman shareholders should be aware that the IRS is not precluded from
adopting a contrary position. In addition, legislative or regulatory amendments
or administrative or court decisions could change the anticipated federal income
tax consequences.
The discussion below assumes that the Company Stock will be held as a
capital asset within the meaning of Section 1221 of the Code. In addition, the
discussion below refers to the Company's current or accumulated earnings and
profits for federal income tax purposes following the consummation of the
Mergers. The calculation of current and accumulated earnings and profits is
complicated and does not coincide with the determination of the Company's income
or loss and retained earnings for financial accounting purposes. The Company's
accumulated earnings and profits or its current earnings and profits, if any, in
future years will depend primarily on future profits or losses, which cannot be
accurately predicted.
DIVIDENDS ON COMPANY STOCK.
Distributions by the Company with respect to Company Stock will be
characterized as dividends taxable as ordinary income to the extent of the
Company's current or accumulated earnings and profits, if any, as determined for
federal income tax purposes. To the extent that a distribution on Company Stock
exceeds the Company's current and accumulated earnings and profits, such
distribution first will be treated as a return of
76
<PAGE> 88
capital that will reduce the holder's adjusted tax basis in such Company Stock,
and the excess will be taxed as a capital gain and will be long-term capital
gain if the holder's holding period for such Company Stock is more than one
year.
The availability of accumulated earnings and profits or current earnings
and profits, if any, in future years will depend primarily on future profits and
losses which cannot be accurately predicted. Thus, there can be no assurance
that all or any portion of a distribution on the Company Stock will be
characterized as a dividend for federal income tax purposes. For the remainder
of this discussion, the term "dividends" refers to a distribution paid entirely
out of the Company's current or accumulated earnings and profits, unless the
context otherwise requires.
Dividends received by corporate holders of Company Stock out of such
earnings and profits generally will qualify, subject to the limitations under
Sections 246(c) and 246A of the Code, for the 70% dividends received deduction
allowable to corporations under Section 243 of the Code (although the benefits
of such deduction may be reduced or eliminated by the corporate alternative
minimum tax). Under Section 246(c) of the Code, to be eligible for the dividends
received deduction, a corporate holder must hold its shares of Company Stock for
at least 46 days (91 days in the case of a preferred dividend attributable to a
period or periods aggregating more than 366 days). A taxpayer's holding period
for these purposes is suspended during any period in which the taxpayer has an
option to sell, is under a contractual obligation to sell, has made (and not
closed) a short sale of, or has granted an option to buy, substantially
identical stock or securities or holds one or more other positions with respect
to substantially similar or related property that diminish the risk of loss from
holding such stock. Under Section 246A of the Code, the dividends received
deduction may be reduced or eliminated if a holder's shares of Company Stock are
debt financed.
Section 1059 of the Code will require a corporate holder to reduce (but not
below zero) its basis in Company Stock by the "nontaxed portion" of any
"extraordinary dividend" if the holder has not held Company Stock for more than
two years before the date the Company declares, announces, or agrees to, the
amount or payment of such dividend, whichever is earliest. If the nontaxed
portion of all extraordinary dividends exceeds the holder's basis in Company
Stock, the excess will be treated as taxable gain at the time of disposition of
the stock. Generally, the nontaxed portion of an extraordinary dividend is the
amount excluded from income under Section 243 of the Code (relating to the
dividends received deduction). An extraordinary dividend generally is a dividend
that (i) equals or exceeds 5% in the case of preferred stock, or 10% in the case
of common stock, of the holder's adjusted tax basis in the stock (reduced for
this purpose by the nontaxed portion of any prior extraordinary dividend),
treating all dividends having ex-dividend dates within an 85-day period as one
dividend, or (ii) exceeds 20% of the holder's adjusted tax basis in the stock,
treating all dividends having ex-dividend dates within a 365-day period as one
dividend, provided that in either case fair market value on the day before the
ex-dividend date, if it can be established by the holder, may be substituted for
stock basis. An extraordinary dividend would also include any amount treated as
a dividend in the case of a redemption of any preferred stock that is either
non-pro rata as to all stockholders or in partial liquidation of the Company,
regardless of the relative size of the dividend and regardless of the corporate
holder's holding period for the preferred stock.
Under Section 1059(e)(3) of the Code, the extraordinary dividend rules may
not apply with respect to "qualified preferred dividends". A qualified preferred
dividend is any fixed dividend payable with respect to preferred stock which (i)
provides for fixed preferred dividends payable no less often than annually and
(ii) is not in arrears as to dividends when acquired, provided the actual rate
of return, as determined under Section 1059(e)(3) of the Code, on such stock
does not exceed 15%. Where a qualified preferred dividend exceeds the 5% (or
20%) threshold for extraordinary dividend status described above, (i) the
extraordinary dividend rules will not apply if the taxpayer holds the stock for
more than five years, and (ii) if the taxpayer disposes of the stock before it
has been held for more than five years, the aggregate reduction in basis cannot
exceed the excess of the qualified preferred dividends paid on such stock during
the period held by the taxpayer over the qualified preferred dividends which
would have been paid during such period on the basis of the stated rate of
return, as determined under Section 1059(e)(3) of the Code. The length of time
that a taxpayer is deemed to have held stock for purposes of Section 1059 of the
Code is determined under principles similar to those contained in Section 246(c)
of the Code discussed above.
77
<PAGE> 89
CONVERSION OF SERIES B CONVERTIBLE PREFERRED STOCK INTO COMMON STOCK.
Except in certain circumstances where there are dividends in arrears on the
Series B Convertible Preferred Stock, no gain or loss will be recognized upon
conversion of Series B Convertible Preferred Stock solely into shares of Common
Stock. If dividends on the Series B Convertible Preferred Stock are in arrears
at the time of conversion, however, a portion of the Common Stock received in
exchange for the Series B Convertible Preferred Stock could be viewed under
Section 305(c) of the Code as a distribution with respect to the Series B
Convertible Preferred Stock, taxable as a dividend. Except to the extent of
shares of Common Stock, if any, which are deemed to be in payment of dividends
in arrears, the adjusted tax basis for the shares of Common Stock received upon
the conversion will be equal to the adjusted tax basis of the Series B
Convertible Preferred Stock converted, and, provided the Series B Convertible
Preferred Stock is held as a capital asset, the holding period of the shares of
Common Stock will include the holding period of the Series B Convertible
Preferred Stock converted.
REDEMPTION PREMIUM.
Under Section 305 of the Code and Treasury Regulations currently in force,
if the redemption price of redeemable preferred stock exceeds its issue price,
all of such excess will be includible in ordinary gross income as a dividend (to
the extent of the issuer's current or accumulated earnings and profits) in
accordance with the economic accrual principles of Section 1272 of the Code over
the period during which the preferred stock cannot be redeemed, if a redemption
is more likely than not to occur. A redemption that satisfies the safe harbor
provision of Treasury Regulation Section 1.305-5(b)(3)(ii) is not treated as
more likely than not to occur. The safe harbor is available to a holder of
Series B Convertible Preferred Stock that is not related to the Company, within
the meaning of Section 267(b) or 707(b) applied by substituting the phrase "20
%" for the phrase "50%." If a holder is not so related to the Company, the
Company believes that any redemption should satisfy the remaining requirements
of the safe harbor.
ADJUSTMENT OF CONVERSION PRICE.
Pursuant to Section 305(c) of the Code and the Treasury Regulations
thereunder, certain adjustments to the conversion price of the Series B
Convertible Preferred Stock, such as adjustments to reflect taxable
distributions of cash or property on any of the outstanding Common Stock, will
be treated as a constructive distribution of stock and will be treated as a
dividend to the holders of the Series B Convertible Preferred Stock to the
extent of the current or accumulated earnings and profits of the Company.
Adjustments to reflect nontaxable stock splits or distributions of stock, stock
warrants or stock rights will, however, generally not be so treated. The failure
to adjust fully the conversion price for the Series B Convertible Preferred
Stock to reflect distributions of stock, stock warrants or stock rights with
respect to the Common Stock may result in a taxable dividend to holders of the
Common Stock.
REDEMPTION OF THE SERIES B CONVERTIBLE PREFERRED STOCK FOR CASH.
A redemption of Series B Convertible Preferred Stock for cash will be a
taxable event. Under Section 302 of the Code, a redemption of Series B
Convertible Preferred Stock for cash will be treated as a distribution that is
treated as a taxable dividend, nontaxable recovery of basis, or an amount
received in exchange for the Series B Convertible Preferred Stock pursuant to
the rules described under "Dividends on Company Stock", unless the redemption
(i) results in a "complete termination" of the stockholder's interest in the
Company under Section 302(b)(3) of the Code, (ii) is "substantially
disproportionate" with respect to the stockholder under Section 302(b)(2) of the
Code or (iii) is "not essentially equivalent to a dividend" under Section
302(b)(1) of the Code. In determining whether any of these tests have been met,
shares considered to be owned by the stockholder by reason of certain
constructive ownership rules in Sections 302(c) and 318 of the Code, as well as
shares actually owned, must be taken into account. If any of these tests are
met, the redemption of the Series B Convertible Preferred Stock for cash would
be treated as a sale or exchange for tax purposes.
78
<PAGE> 90
A redemption will be "not essentially equivalent to a dividend" as to a
particular stockholder if it results in a "meaningful reduction" in that
stockholder's interest in the Company. If, as a result of the redemption of the
Series B Convertible Preferred Stock, a stockholder of the Company, whose
relative interest in the Company is minimal and who exercises no control over
corporate affairs, suffers a reduction in his proportionate interest in the
Company (taking into account shares owned by the stockholder under the
constructive ownership rules and, in certain events, dispositions of the stock
which occur contemporaneously with the redemption), that stockholder should be
regarded as having suffered a meaningful reduction in his interest in the
Company. In determining whether a holder's interest in the Company is actually
reduced or completely terminated, the holder is deemed, under the constructive
ownership rules of Sections 302(c) and 318 of the Code, to own any shares in the
Company owned by certain related persons and entities and any shares which the
holder or certain related persons and entities have an option to acquire.
Because the provisions of Section 302 of the Code are applied separately to
each stockholder based upon the particular facts and circumstances at the time
of the redemption (and the applicable law at such time which may be different
from that currently in effect), no assurance can be given that a redemption of
the Series B Convertible Preferred Stock for cash will be treated as a sale or
exchange rather than as a distribution. In addition, legislation has been
introduced in Congress which, if enacted in its present form, would appear to
treat a redemption of Series B Convertible Preferred Stock held by a corporation
as a sale or exchange of Series B Convertible Preferred Stock under Section
302(a), and not as a dividend.
If a redemption of Series B Convertible Preferred Stock is treated as a
distribution taxable as a dividend, then the holder's tax basis in the redeemed
Series B Convertible Preferred Stock will be transferred to any remaining stock
in the Company held by such holder. A redemption of Series B Convertible
Preferred Stock that is treated as a dividend may also be considered an
extraordinary dividend under Section 1059 of the Code. See "Dividends on Company
Stock" above. Treatment of a redemption as a dividend that is not pro rata as to
all stockholders will be treated as an extraordinary dividend without regard to
the period during which the stockholder held the Series B Convertible Preferred
Stock.
If a redemption of the Series B Convertible Preferred Stock is treated as a
sale or exchange, the redeemed holder will recognize capital gain or loss equal
to the difference between the amount of cash received by such holder from the
Company (other than cash which represents the payment of a previously declared
dividend and which will be taxed as a dividend) and the holder's tax basis in
the Series B Convertible Preferred Stock. If the holder holds such stock as a
capital asset, and if the holder's holding period exceeds one year, such capital
gain or loss will be long-term.
BACKUP WITHHOLDING AND INFORMATION REPORTING.
Under Section 3406 of the Code and applicable Treasury Regulations, a
noncorporate holder of Company Stock who is not otherwise exempt from backup
withholding may be subject to backup withholding at a rate of 31% with respect
to dividends paid on, or the proceeds of a sale or an exchange of, Company
Stock. Generally, backup withholding applies only when the IRS notifies the
payor that the taxpayer identification number furnished by the payee is
incorrect or a payee (i) fails to furnish or certify his correct taxpayer
identification number to the payor or establish an exemption from backup
withholding, (ii) is notified by the IRS that he has failed to report payments
of interest or dividends properly or (iii) under certain circumstances, fails to
certify under penalties of perjury that he is not subject to backup withholding.
Holders should consult their tax advisors regarding their qualification for
exemption from backup withholding and the procedure for establishing any
applicable exemption. Any amounts withheld under the backup withholding rules
from a payment to a holder will be allowed as a refund or a credit against the
holder's United States federal income tax liability, provided that the required
information is furnished to the IRS.
LEGAL MATTERS
The validity of the shares of Common Stock, Series B Convertible Preferred
Stock and Series A Preferred Stock to be issued in connection with the Mergers
will be passed on by Fulbright & Jaworski L.L.P., Houston, Texas.
79
<PAGE> 91
EXPERTS
The balance sheet of the Company and the consolidated financial statements
of Sepco included in this Proxy Statement/Prospectus, which is referred to and
made a part of this Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, to the extent indicated in their reports thereon
appearing elsewhere herein and in the Registration Statement. Such balance sheet
and consolidated financial statements have been included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Newman at December 31, 1995 and March 25, 1995,
and for each of the nine months ended December 31, 1995 and for the years ended
March 25, 1995 and March 26, 1994, included in this Proxy Statement/Prospectus,
which is referred to and made a part of this Registration Statement, have been
audited by Cheshier & Fuller, Inc., P.C., independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
80
<PAGE> 92
APPENDIX A:
SEPCO MERGER AGREEMENT
<PAGE> 93
* * * * *
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INDEX, INC.,
SEPCO ACQUISITION CORPORATION
AND
SEPCO INDUSTRIES, INC.
* * * * *
AUGUST 12, 1996
<PAGE> 94
<TABLE>
<CAPTION>
ARTICLE/SECTION PAGE
- ----------- ----
<S> <C> <C>
RECITALS ........................................................................
ARTICLE 1 THE MERGER..............................................................
1.1 The Merger..............................................................
1.2 Closing.................................................................
1.3 Effective Time of the Merger............................................
1.4 Articles of Incorporation and Bylaws....................................
1.5 Directors and Officers..................................................
ARTICLE 2 CONVERSION OF SHARES....................................................
2.1 Conversion of Company Stock.............................................
2.2 Stock Certificates......................................................
2.3 Fractional Shares.......................................................
2.4 Dissenting Shares.......................................................
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF INDEX AND THE MERGER SUB..............
3.1 Organization............................................................
3.2 Capitalization..........................................................
3.3 Certain Corporate Matters...............................................
3.4 Authority Relative to this Agreement....................................
3.5 Consents and Approvals; No Violations...................................
3.6 Information Supplied....................................................
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................
4.1 Organization............................................................
4.2 Capitalization and Ownership of the Company.............................
4.3 Certain Corporate Matters...............................................
4.4 Subsidiaries............................................................
4.5 Authority Relative to this Agreement....................................
4.6 Consents and Approvals; No Violations...................................
4.7 Intentionally Deleted...................................................
4.8 Financial Statements....................................................
4.9 Events Subsequent to Financial Statements...............................
4.10 Undisclosed Liabilities.................................................
4.11 Tax Returns and Audits..................................................
4.12 Books and Records.......................................................
4.13 Questionable Payments...................................................
4.14 Environmental Matters...................................................
4.15 Intellectual Property...................................................
4.16 Insurance...............................................................
4.17 Contracts...............................................................
4.18 Litigation..............................................................
4.19 Employees...............................................................
4.20 Employee Benefit Plans..................................................
4.21 Legal Compliance........................................................
4.22 Broker's Fees...........................................................
4.23 Disclosure..............................................................
4.24 Information Supplied....................................................
ARTICLE 5 CONDUCT OF BUSINESS PENDING THE CLOSING.................................
5.1 Conduct of Business by the Company Pending the Closing..................
5.2 Other Actions...........................................................
</TABLE>
i
<PAGE> 95
<TABLE>
<CAPTION>
ARTICLE/SECTION PAGE
- ----------- ----
<S> <C> <C>
ARTICLE 6 ADDITIONAL AGREEMENTS...................................................
6.1 Access and Information..................................................
6.2 Registration Statement..................................................
6.3 Meetings of Shareholders................................................
6.4 Stock Market Approval...................................................
6.5 Press Releases..........................................................
ARTICLE 7 CONDITIONS TO CLOSING...................................................
7.1 Conditions to Obligations of Each Party to Effect the Closing...........
7.2 Additional Conditions to Index's and the Merger Sub's Obligations.......
7.3 Additional Conditions to the Company's Obligations......................
ARTICLE 8 REMEDIES................................................................
8.1 General.................................................................
8.2 Waiver..................................................................
ARTICLE 9 TERMINATION.............................................................
9.1 Termination by Mutual Consent...........................................
9.2 Termination by Any Party................................................
9.3 Termination by Index....................................................
9.4 Effect of Termination and Abandonment...................................
9.5 Material Breach.........................................................
ARTICLE 10 GENERAL PROVISIONS......................................................
10.1 Notices.................................................................
10.2 Interpretation..........................................................
10.3 Severability............................................................
10.4 Miscellaneous...........................................................
10.5 Separate Counsel........................................................
10.6 Governing Law...........................................................
10.7 Counterparts............................................................
10.8 Amendment...............................................................
10.9 Parties In Interest; No Third Party Beneficiaries.......................
10.10 Captions................................................................
10.11 Expenses................................................................
10.12 Survival................................................................
</TABLE>
ii
<PAGE> 96
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of August 12, 1996 (this
"Agreement"), is made and entered into by and among Index, Inc., a Texas
corporation ("Index"), Sepco Acquisition Corporation, a Nevada corporation and a
wholly-owned subsidiary of Index (the "Merger Sub") and Sepco Industries, Inc.,
a Texas corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of Index, the Merger Sub and
the Company have adopted resolutions approving and adopting the proposed merger
(the "Merger") of the Company with the Merger Sub upon the terms and conditions
hereinafter set forth in this Agreement;
WHEREAS, Index is entering into that Agreement and Plan of Merger with
Newman Communications, Inc., a New Mexico corporation ("Newman") and Newman
Acquisition, Inc., a Nevada corporation ("Newman Acquisition") simultaneously
with this Agreement (the "Newman Merger Agreement");
WHEREAS, the Merger and the merger contemplated by the Newman Merger
Agreement (the "Newman Merger") will be effected simultaneously; and
WHEREAS, the Merger and the Newman Merger are both intended to qualify as a
tax-free transaction under Section 351 and Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3 hereof), the Merger Sub shall be
merged with and into the Company and the separate corporate existence of the
Merger Sub shall thereupon cease. The Company shall be the surviving corporation
in the Merger. The Merger shall have the effects set forth in the applicable
provisions of the Nevada General Corporation Law (the "NGCL") and the Texas
Business Corporation Act (the "TBCA").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at
10:00 a.m., local time, at the offices of Fulbright & Jaworski, L.L.P. located
at 1301 McKinney, Houston, Texas 77010, on the next business day after all the
shareholder approvals set out in Section 6.3 hereof have been completed, or as
soon as the conditions set forth in Article 7 have been satisfied or waived or
as soon as practicable thereafter; provided, however, that the date of the
Closing shall not be later than December 31, 1996, unless the parties hereto
otherwise mutually agree. Such date is herein referred to as the "Closing Date."
At the Closing, the parties hereto shall deliver or cause to be delivered the
certificates and other documents set forth in Article 7.
1.3 Effective Time of the Merger. If all the conditions to the Merger set
forth in Article 7 shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated as provided in Article 9, the
parties hereto shall cause Articles of Merger (the "Articles of Merger") that
meet the requirements of the applicable provisions of the NGCL and the TBCA,
respectively, to be properly executed and filed with the Secretary of State of
the States of Nevada and Texas, respectively, on the Closing Date. The Merger
shall be effective at the time of acceptance of the filing of the Articles of
Merger with the Secretary of State of the States of Nevada and Texas in
accordance with the NGCL and the TBCA, respectively, or at such later time which
the parties hereto shall have agreed upon and designated in such filing as the
effective time of the Merger (the "Effective Time").
1.4 Articles of Incorporation and By-Laws. The Articles of Incorporation
and By-Laws of the Company in effect immediately prior to the Effective Time
shall continue to be the Articles of Incorporation and By-
1
<PAGE> 97
Laws of the Company subsequent to the Effective Time, subject always to the
right of the Company to amend its Articles of Incorporation and By-Laws in
accordance with the laws of the State of Texas and the provisions of its
Articles of Incorporation and By-Laws.
1.5 Directors and Officers. The directors and officers of the Company
immediately prior to the Effective Time shall continue to be the directors and
officers of the Company and shall hold such positions from the Effective Time
until their respective successors are duly elected or appointed and qualify in
the manner provided in the Articles of Incorporation and By-Laws of the Company
or as otherwise provided by law.
ARTICLE 2
CONVERSION OF SHARES
2.1 Conversion of Company Stock. At the Effective Time, by virtue of the
Merger and without any action required on the part of Index, the Company, the
Merger Sub or any holder of capital stock of any of them:
(a) Subject to the limitations contained herein, each outstanding
share of Sepco Class A Common Stock will be converted into the right to
receive 16 shares of Index Common Stock. Each outstanding share of Sepco
Class B Common Stock will be converted into the right to receive 18.1232
shares of Index Common Stock. Further, each outstanding share of Sepco
Class A Convertible Preferred Stock will be converted into the right to
receive one share of Index Series B Convertible Preferred Stock. Finally,
each outstanding share of Sepco Preferred Stock will be converted into the
right to receive one share of Index Series A Preferred Stock. The Sepco
Preferred Stock, Sepco Class A Convertible Preferred Stock, Sepco Class A
Common Stock and Sepco Class B Common Stock shall be collectively referred
to as "Company Stock"). The Index Common Stock, Index Series A Preferred
Stock and Index Series B Convertible Preferred Stock shall be collectively
referred to as "Index Stock".
(b) All shares of common stock of the Merger Sub issued and
outstanding immediately prior to the Effective Time shall be cancelled and
cease to be outstanding.
2.2 Stock Certificates. At or following the Effective Time, each holder of
an outstanding certificate or certificates representing the Company Stock shall
surrender the same to Index and Index shall, in exchange therefor, cause to be
issued to the holder of such certificate(s) a new certificate representing
shares of Index Stock in accordance with Section 2.1, less any amount required
to be withheld under applicable federal, state or local tax requirements, and
the surrendered certificate(s) shall be cancelled. Until so surrendered and
exchanged, each such certificate shall represent solely the right to receive
shares of Index Stock in accordance with Section 2.1, without interest and less
any tax withholding.
2.3 Fractional Shares. No fractional shares of Company Common Stock shall
be issued in the Merger. In lieu thereof, all fractional shares of Company
Common Stock that a holder of a Sepco Class A Common Stock would otherwise be
entitled to receive as a result of the Merger shall be automatically converted
into the right to receive an amount of cash to be determined by multiplying
$0.58 by the fraction of a share of Company Common Stock to which such holder
would otherwise have been entitled. Further, all fractional shares of Company
Common Stock that a holder of Sepco Class B Common Stock would otherwise be
entitled to receive as a result of the Merger shall be automatically converted
into the right to receive an amount of cash to be determined by multiplying
$0.58 by the fraction of a share of Company Common Stock to which such holder
would otherwise be entitled. Fractional shares of Company Convertible Preferred
Stock and Company Preferred Stock, if any, will be issued in the Merger to the
holders of Sepco Class A Convertible Preferred Stock and Sepco Preferred Stock,
respectively.
2.4 Dissenting Shares. Each share of Company Stock issued and outstanding
immediately prior to the Effective Time not voted in favor of the Merger, the
holder of which has given written notice of the exercise of dissenter's rights
and has perfected such rights as required by the TBCA is herein called a
"Dissenting Share." Dissenting Shares shall not be converted into or represent
the right to receive shares of Index Stock pursuant to this Section 2 and shall
be entitled only to such rights as are available to such holder pursuant to the
TBCA,
2
<PAGE> 98
unless the holder thereof shall have withdrawn or forfeited his dissenter's
rights. Each holder of Dissenting Shares shall be entitled to receive the value
of such Dissenting Shares held by him in accordance with the applicable
provisions of the TBCA. Index will promptly pay to any holder of Dissenting
Shares such amount as such holder shall be entitled to receive in accordance
with the applicable provisions of the TBCA. If any holder of Dissenting Shares
shall effectively withdraw or forfeit his dissenter's rights under the TBCA,
such Dissenting Shares shall be converted into the right to receive shares of
Index Stock in accordance with this Section 2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
INDEX AND THE MERGER SUB
Index and the Merger Sub hereby jointly and severally represent and warrant
to the Company as follows:
3.1 Organization. Each of Index and the Merger Sub has been duly
incorporated, is validly existing as a corporation and is in good standing under
the laws of its state of incorporation, and has the requisite corporate power to
carry on its business as now conducted.
3.2 Capitalization. The total number of shares of stock of all classes
which Index shall have the authority to issue is 110,000,000 shares, of which
the following designations have been made: 100,000,000 shares of common stock
par value $0.01 per share ("Index Common Stock"), 1,000,000 shares of preferred
stock, par value $1.00 per share ("Index Series A Preferred Stock") and
1,000,000 shares of convertible preferred stock, par value $100 per share
("Index Series B Convertible Preferred Stock"). As of the date of this
Agreement, 100 shares of Index Common Stock are issued and outstanding, no
shares of Index Series A Preferred Stock are issued and outstanding and no
shares of Index Series B Convertible Preferred Stock are issued and outstanding.
All of the issued and outstanding shares of Index Common Stock are validly
issued, fully paid, nonassessable and free of preemptive rights. All shares of
Index Stock issuable in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable. The authorized
capital stock of the Merger Sub consists of 100 shares of common stock, par
value $0.10 per share, all of which are validly issued, fully paid and
nonassessable and are owned by Index.
3.3 Certain Corporate Matters. Index is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership of its properties, the employment of its personnel or the conduct of
its business requires it to be so qualified, except where the failure to so
qualify would not have a material adverse effect on Index's financial condition,
results of operations or business. Index has the requisite corporate power and
authority and all authorization, licenses and permits necessary to carry on the
business in which it is engaged and to own and use the properties owned and used
by it, except such authorizations, licenses and permits, the failure of which to
possess would not have a material adverse effect on the financial condition,
results of operations of business of Index.
3.4 Authority Relative to this Agreement. Each of Index and the Merger Sub
has the requisite corporate power and authority to enter into this Agreement and
to carry out its obligations hereunder. The execution, delivery and performance
of this Agreement by Index and the Merger Sub and the consummation by Index and
the Merger Sub of the transactions contemplated hereby have been duly authorized
by the Boards of Directors of each of Index and the Merger Sub and, subject to
stockholder approval as set forth in this Agreement, no other actions on the
part of Index or the Merger Sub are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Index and the Merger Sub and constitutes,
subject to stockholder approval as set forth in this Agreement, a valid and
binding agreement of each of Index and the Merger Sub, enforceable against Index
and the Merger Sub in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
3.5 Consents and Approvals; No Violations. Except as may be required under
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"), the
3
<PAGE> 99
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), state securities or blue sky laws,
and the filing and recordation of the Articles of Merger as required by the NGCL
and the TBCA, no filing with, and no permit, authorization, consent or approval
of, any public body or authority is necessary for the consummation by Index and
the Merger Sub of the transactions contemplated by this Agreement. Neither the
execution and delivery of this Agreement by Index or the Merger Sub nor the
consummation by Index or the Merger Sub of the transactions contemplated hereby,
nor compliance by Index or the Merger Sub with any of the provisions hereof,
will (a) conflict with or result in any breach of any provisions of the Articles
of Incorporation or By-Laws of Index or the Articles of Incorporation or By-Laws
of the Merger Sub, (b) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default of a material nature
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation, of a
material nature, to which Index or any of its subsidiaries is a party or by
which any of them or their properties or assets may be bound or (c) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Index, any of its subsidiaries or any of their properties or assets, except in
the case of clauses (b) and (c) for violations, breaches or defaults which in
the aggregate would not have a material adverse effect on the financial
condition or results of operations of Index and its subsidiaries taken as a
whole. The parties hereto agree and acknowledge that Index was required to
obtain and has obtained the written consent of Fleet Capital Corporation.
3.6 Information Supplied. None of the information provided by Index for
use in the Registration Statement (as defined in Section 6.2 hereof) and
contained therein will, as of the date that the Registration Statement is filed
with the Securities and Exchange Commission (the "Commission"), on the date it
is declared effective or at the time of the meeting of the shareholders of the
Company to be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The registration
statement and prospectus contained in the Registration Statement will comply, in
all material respects, as to form with the provisions of the Exchange Act and
the Securities Act.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company hereby represents and warrants to Index and the Merger Sub as
follows:
4.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the requisite corporate power and authority to carry on its business as
now conducted in all applicable jurisdictions.
4.2 Capitalization and Ownership of the Company. The Company's entire
authorized capital stock consists of Sepco's authorized capital consists of
10,000,000 shares of Sepco Class A Common Stock, $0.01 par value per share,
10,000,000 shares of Sepco Class B Common Stock, $0.01 par value per share,
1,000,000 shares of Sepco Preferred Stock, $1.00 par value per share, 1,000,000
shares of Sepco Class A Convertible Preferred Stock, $100.00 par value per share
and 1,000,000 shares of Sepco Class B Convertible Preferred Stock, $100.00 par
value per share. As of July 23, 1996, there were 758,899 shares of Sepco Class A
Common Stock, 176,900 shares of Sepco Class B Common Stock, 3,366 shares of
Sepco Preferred Stock, 19,500 shares of Sepco Class A Convertible Preferred
Stock and no shares of Sepco Class B Convertible Preferred Stock outstanding. As
of such date, there were approximately 16 holders of Sepco Class A Common Stock,
1 holder of Sepco Class B Common Stock, 6 holders of Sepco Preferred Stock, 3
holders of Sepco Class A Convertible Preferred Stock and no holders of Sepco
Class B Convertible Preferred Stock of record. All of the shares of Company
Stock have been duly authorized and are validly issued, fully paid and
nonassessable and have not been issued in violation of any pre-emptive rights.
Except as disclosed in the Registration Statement, there are no outstanding or
authorized options, rights, warrants, calls, convertible securities, rights to
subscribe,
4
<PAGE> 100
conversion rights or other agreements or commitments to which the Company is a
party or which are binding upon the Company providing for the issuance by the
Company or transfer by the Company of additional shares of Company Stock and the
Company has not reserved any shares of the Company Stock for issuance, nor are
there any outstanding stock option rights, phantom equity or similar rights,
contracts, arrangements or commitments. There are no voting trusts or any other
agreements or understandings, written or oral, with respect to the voting of the
Company Stock.
4.3 Certain Corporate Matters. The Company is duly licensed or qualified
to do business and is in good standing as a foreign corporation in every
jurisdiction in which the character of the Company's properties or nature of the
Company's business requires it to be so licensed or qualified other than such
jurisdictions in which the failure to be so licensed or qualified does not, or
insofar as can reasonably be foreseen, in the future will not, have a material
adverse effect on its financial condition, results of operations or business.
The Company has full corporate power and authority and all authorizations,
licenses, variances, exemptions, orders, contracts, approvals and permits
necessary to carry on the business in which it is engaged or in which it
proposes presently to engage and to own and use the properties owned and used by
it. The Company has delivered to Index true, accurate and complete copies of its
Articles of Incorporation and By-Laws, which reflect all amendments made thereto
at any time prior to the date of this Agreement. The records of meetings of the
shareholders and Board of Directors of the Company are complete and correct in
all material respects. The stock records of the Company and the shareholder
lists of the Company that the Company has previously furnished to Index are
complete and correct in all material respects and accurately reflect the record
ownership and the beneficial ownership of all the outstanding shares of the
Company's capital stock and all other outstanding securities issued by the
Company. The Company is not in default under or in violation of any provision of
its Articles of Incorporation or By-Laws in any material respect. The Company is
not in default or in violation of any restriction, lien, encumbrance, indenture,
contract, lease, sublease, loan agreement, note or other obligation or liability
by which it is bound or to which any of its assets is subject.
4.4 Subsidiaries. American MRO, Inc., a Nevada corporation, is a wholly
owned subsidiary of the Company. The Company does not own, directly or
indirectly, any of the capital stock of any other corporation or any equity,
profit sharing, participation or other interest in any corporation, partnership,
joint venture or other entity of a material nature, except as set out in the
Registration Statement.
4.5 Authority Relative to this Agreement. The Company has the requisite
corporate power and authority to enter into this Agreement and carry out its
obligations hereunder. The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated hereby have
been duly authorized by the Boards of Directors of the Company and, subject to
shareholder approval as set forth in this Agreement, no other actions on the
part of the Company are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes, subject to shareholder
approval as set forth in this Agreement, a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
The parties hereto agree and acknowledge that the Company was required to obtain
and has obtained the written consent of Fleet Capital Corporation required under
that Amended and Restated Loan and Security Agreement by and between the Company
and Fleet Capital Corporation.
4.6 Consents and Approvals; No Violations. Except as may be required under
the Securities Act, the Exchange Act, state securities or blue sky laws, and the
filing and recordation of the Articles of Merger as required by the NGCL and the
TBCA, no filing with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by the Company of the
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby, nor compliance by the Company with any of the
provisions hereof, will (a) conflict with or result in any breach of any
provisions of the Articles of Incorporation or By-Laws of Company, (b) result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which the Company is a party or by which it or any of
5
<PAGE> 101
its properties or assets may be bound except as setout herein or (c) violate any
order, law, resolution, writ, injunction, decree, statute, rule or regulation
applicable to the Company, or any of its properties or assets, except in the
case of clauses (b) and (c) for violations, breaches or defaults which in the
aggregate would not have a material adverse effect on the financial condition or
results of operations of the Company taken as a whole.
4.7 Intentionally Deleted.
4.8 Financial Statements. The Company has delivered to Index the following
audited financial statements: (a) its balance sheets as of December 31, 1995;
(b) its statements of operations for the twelve months ended December 31, 1995;
(c) its statements of cash flows for the twelve months ended December 31, 1995;
(d) its statements of changes in shareholders' equity for the twelve months
ended December 31, 1995. In addition, the Company has delivered to Index the
following unaudited financial statements:(a) its balance sheet as of June 30,
1996; (b) its statement of operations for the six months ended June 30, 1996;
and (c) its statement of cash flows for the six months ended June 30, 1996. Such
financial statements are herein collectively referred to as the "Financial
Statements." The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods covered thereby and present fairly the financial condition of the
Company as of such dates and the results of its operations and changes in cash
flows for such periods.
4.9 Events Subsequent to Financial Statements. Since June 30, 1996, except
in the ordinary course of business there has not been:
(a) Any material adverse change in the financial condition, results of
operations or business of the Company;
(b) Any sale, lease, transfer, license or assignment of any material
assets, tangible or intangible, of the Company;
(c) Any material damage, destruction or property loss, whether or not
covered by insurance, affecting adversely the properties or business of the
Company;
(d) Any declaration or setting aside or payment of any dividend or
distribution with respect to the Company Stock (except as required by the
terms of the Class A Convertible Preferred Stock) or any redemption,
purchase or other acquisition of any such shares;
(e) Any subjection to any lien on any of the assets, tangible or
intangible, of the Company;
(f) Any material incurrence of indebtedness or liability or assumption
of obligations by the Company;
(g) Any waiver or release by the Company of any right of any material
value;
(h) Any material increase in compensation or benefits to officers or
directors of the Company;
(i) Any change made or authorized in the Articles of Incorporation or
By-laws of the Company;
(j) Except as disclosed to Index, any issuance, transfer, sale or
other disposition by the Company of any shares of Company Stock or other
equity securities, or any grant of any options, warrants or other rights to
purchase or obtain (including upon conversion or exercise) shares of
Company Stock or other equity securities; or
(k) Any material loan to or other material transaction with any
officer, director or shareholder of the Company giving rise to any claim or
right of the Company against any such person or of such person against the
Company.
4.10 Undisclosed Liabilities. The Company has no material liability or
obligation of any nature whatsoever, either direct or indirect, matured or
unmatured, accrued, absolute, contingent or otherwise.
4.11 Tax Returns and Audits. The Company has duly and timely filed or
caused to be filed all returns, reports or similar statements (including any
attached schedules) required to be filed with respect to any tax including,
without limitation, all information returns, claims for refunds, amended returns
and declarations of estimated tax (collectively, the "Tax Returns"). For the
purpose of this Agreement, "tax" shall include any
6
<PAGE> 102
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem,
transfer, stamp or environmental tax, or any other tax or similar assessment or
charge, together with any interest or penalty, addition to tax or additional
amount imposed by any governmental authority. The Company has paid in full or
fully reserved against in the Financial Statements all taxes, interest,
penalties, assessments and deficiencies due or claimed to be due by it to
foreign, federal, state or local taxing authorities. All Tax Returns are
complete and accurate and disclose all taxes required to be paid. The income Tax
Returns filed by the Company are not being, to the knowledge of the Company,
examined by the Internal Revenue Service (the "IRS") or other applicable taxing
authorities for any period, except as set out in the Registration Statement. All
taxes or estimates thereof that are due as of December 31, 1995, or are claimed
or asserted by any taxing authority to be due as of such date, have been (a)
timely and appropriately paid so as to avoid penalties for underpayment or (b)
accrued for on the balance sheet as of December 31, 1995, as contained in the
Financial Statements. Except for amounts not yet due and payable, all tax
liabilities to which the properties of the Company may be subject have been paid
and discharged. The provisions for income and other taxes payable reflected in
the Financial Statements make adequate provision for all then accrued and unpaid
taxes of the Company. There are no tax liens on any property of the Company, nor
are there any pending or threatened examinations, actions, suits,
investigations, audits, assessments or tax claims asserted. The Company has not
been granted any extensions of limitation periods applicable to tax claims.
Except jurisdictions in which the Company filed Tax Returns, no claim has been
made by a taxing authority that the Company is or may be subject to taxation by
that jurisdiction. All copies of Tax Returns delivered to Index by the Company
are true and correct, and any and all notices from foreign, federal, state and
local taxing authorities, tax examination reports and statements of deficiencies
assessed against or agreed to by the Company have been made available to Index.
The Company is not a party to, or bound by, any tax indemnity, tax sharing or
tax allocation agreement. The Company is not a member of an "affiliated group,"
as defined in Section 1504(a) of the Code and is not the owner of an interest in
a partnership, joint venture, trust, limited liability company or other entity
or organization. All positions taken on federal Tax Returns that could give rise
to a penalty for substantial understatement pursuant to Section 6662(d) of the
Code have been disclosed on such Tax Returns. The Company has not agreed to and
is not required to make any adjustment pursuant to Section 481(a) of the Code
(or any predecessor provision) by reason of any change in any accounting method.
The Company has no application pending with any taxing authority requesting
permission for any changes in any accounting method, and the IRS has not
proposed any such adjustment or change in accounting method. The Company is not
subject to any limitation under Section 382 or Section 383 of the Code.
Index shall have sole control over any contest relating to federal, state,
local, or foreign tax assessments or proposed assessments against the Company.
Index shall promptly notify the Company of any audit or examination of the books
and records of the Company undertaken by the tax authorities, any tax
assessments or proposed assessments or any extension of the statute of
limitations applicable to any Tax Returns of the Company relating to any taxable
year or periods ending on or prior to the Closing Date and shall provide the
Company with periodic reports regarding the status of such audit or examination.
The Company shall be entitled to participate in (but not control) any such
contest at its sole cost. Index shall not settle or otherwise compromise any
such contest in a manner which results in liability to the Company under this
Agreement without the written consent of the Company, which consent shall not be
unreasonably withheld.
4.12 Books and Records. The books and records of the Company fairly
reflect the transactions to which the Company is a party or by which its
properties are bound.
4.13 Questionable Payments. The Company nor any employee, agent or
representative of either of them has, directly or indirectly, made any bribes,
kickbacks, illegal payments or illegal political contributions using Company
funds or made any payments from the Company's funds to governmental officials
for improper purposes or made any illegal payments from the Company's funds to
obtain or retain business.
7
<PAGE> 103
4.14. Environmental Matters.
(a) Definitions. For the purpose of this Agreement, the following
terms shall have the meaning herein specified:
(i) "Governmental Authority" shall mean the United States, each
state, each county, each city and each other political subdivision in
which the Company's business is located, and any court, political
subdivision, agency or instrumentality with jurisdiction over the
Company's business.
(ii) "Environmental Laws" shall mean (A) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C.A. 9601 et seq. ("CERCLA"), (B) the Resource Conservation and
Recovery Act, as amended by the Hazardous and Solid Waste Amendment of
1984, 42 U.S.C.A. 6901 et seq. ("RCRA"), (C) the Clean Air Act, 42
U.S.C.A. 7401 et seq., (D) the Federal Water Pollution Control Act, as
amended, 33 U.S.C.A. 1251 et seq., (E) the Toxic Substances Control Act,
15 U.S.C.A. 2601 et seq., (F) all applicable state laws, and (G) all
other laws and ordinances relating to municipal waste, solid waste, air
pollution, water pollution and/or the handling, discharge, disposal or
recovery of on-site or off-site hazardous substances or materials, as
each of the foregoing has been or may hereafter be amended from time to
time.
(iii) "Hazardous Materials" shall mean, among others, (A) any
"hazardous waste" as defined by the RCRA, and regulations promulgated
thereunder; (B) any "hazardous substance" as defined by CERCLA, and
regulations promulgated thereunder; (C) any "toxic pollutant" as defined
in the Federal Water Pollution Prevention and Control Act, as amended,
33 U.S.C. 1251 et seq., (commonly known as "CWA" for "Clear Water Act"),
and any regulations thereunder; (D) any "hazardous air pollutant" as
defined in the Air Pollution Prevention and Control Act, as amended, 42
U.S.C. 7401 et seq. (commonly known as "CAA" for "Clear Air Act") and
any regulations thereunder; (E) asbestos; (F) polychlorinated biphenyls;
(G) underground storage tanks, whether empty, filled or partially filled
with any substance; (H) any substance the presence of which on the
Business Location (as hereinafter defined) is prohibited by any
Environmental Laws; and (I) any other substance which is regulated by
any Environmental Laws.
(iv) "Hazardous Materials Contamination" shall mean the
contamination (whether presently existing or hereafter occurring) of the
improvements, facilities, soil, groundwater, air or other elements on or
at the location of the Company at 6500 Brittmoore Road, Houston, Texas
77041, or at any other location where the Company conducts or has
conducted business (collectively, the "Business Location") by Hazardous
Materials, or the contamination of the buildings, facilities, soil,
groundwater, air or other elements on or any other specific property or
general area, as a result of Hazardous Materials emanating from the
operations of the Company's business.
Notwithstanding the foregoing, if any Environmental Law is amended so
as to broaden the meaning of any term defined in it, such broader meaning
shall apply subsequent to the effective date of such amendment. Where a
defined term in this Agreement derives its meaning from a statutory
reference, for the purposes of this Agreement any regulatory definition
promulgated pursuant to the applicable statute shall be deemed to be
applicable to the extent its definition is broader than the statutory
reference and any reference or citation to a statute or regulation shall be
deemed to include any amendments to that statute or regulation and judicial
and administrative interpretations of it. To the extent that any state laws
or regulations establish a meaning for a term defined in this Agreement
through reference to a federal Environmental Law that is broader than the
meaning specified in such federal Environmental Law, such broader meaning
set forth in the state Environmental Law shall apply. Any specific
references to a law shall include any amendments to it promulgated from
time to time.
(b) Representations and Warranties. Based on the foregoing, the
Company represents and warrants that, to its best knowledge and belief:
(i) There has been no failure by the Company to comply with all
applicable requirements of Environmental Laws relating to the Company,
the Company's operations, and the Company's
8
<PAGE> 104
manufacture, processing, distribution, use, treatment, generation,
recycling, reuses, sale, storage, handling, transportation or disposal
of any Hazardous Material and the Company is not aware of any facts or
circumstances which could materially impair such compliance with all
applicable Environmental Laws.
(ii) The Company has not, through the Closing Date, received notice
from any Governmental Authority or any other person of any actual or
alleged violation of any Environmental Laws, nor is any such notice
anticipated.
(iii) The Company will not do or permit anything that will cause
the Company to be in violation of any requirements of Environmental
Laws, or do or permit anything to be done that would materially and
adversely affect the financial condition of the Company or subject the
Company to any enforcement actions under any Environmental Laws.
(iv) The Company has not obtained and is not required to obtain any
permits, licenses or similar authorizations to construct, occupy,
operate or use any buildings, improvements, fixtures and equipment owned
or leased by the Company by reason of any Environmental Laws.
(v) No Hazardous Materials are now located at the Business
Location, and the Company has not ever caused or permitted any Hazardous
Materials to be generated, placed, stored, held, handled, located or
used at the Business Location, any part thereof or at any other site
controlled or utilized by the Company in its operation of its business,
except in compliance with applicable Environmental Laws.
(vi) Hazardous Materials Contamination does not now and has never
existed on, in, under or at the location of the Company or at any other
site controlled or utilized by the Company in the operation of its
business. No part of the Business Location or any other site controlled
or utilized by the Company in the operation of its business is being
used has ever been used by others for the release, disposal or long-term
storage of Hazardous Materials, nor is any part of the Business Location
or any other site controlled or utilized by the Company in the operation
of its business otherwise affected by Hazardous Materials Contamination.
(vii) No investigation, administrative order, consent order or
agreement, litigation or settlement with respect to Hazardous Materials
or Hazardous Materials Contamination is proposed, threatened,
anticipated, pending or otherwise in existence with respect to the
Business Location or with respect to any other site controlled or
utilized by the Company in the operation of its business. The Business
Location is not currently on, and has never been on, any federal or
state "Superfund" or "Superlien" list.
4.15 Intellectual Property. There are no material patents, patent
applications, trade names, trademark or service mark registrations or
applications, registered trade dress rights, common law trademarks or copyright
registrations or applications owned by the Company or which the Company is
licensed to use. To the best knowledge and belief of the Company, there are no
claims that any product, activity or operation of the Company infringes upon or
involves, or has resulted in the infringement of, any patents, patent
applications, trade names, trademark or service mark registrations or
applications, registered trade dress rights, common law trademarks or copyright
registrations or applications or any other proprietary right of any other
person, corporation or other entity; and no proceedings have been instituted,
are pending or are threatened with respect thereto.
4.16 Insurance. The Company has provided Index a list of all material
insurance policies and binders in effect, insuring the Company, including,
without limitation, fire and extended coverage, public liability, property
damage, vehicle, product liability insurance, environmental impairment
insurance, worker's compensation coverage, medical and dental insurance held by
or on behalf of the Company. All such insurance is in full force and effect and
no notice of cancellation has been received.
4.17 Contracts. Except as set forth in the Registration Statement, the
Company has no material contracts, leases, arrangements and commitments (whether
oral or written). Except in the ordinary course and
9
<PAGE> 105
as set forth in the Registration Statement, the Company is not a party to or
bound by or affected by any material contract, lease, arrangement or commitment
(whether oral or written) relating to: (a) the employment of any person; (b)
collective bargaining with, or any representation of any employees by, any labor
union or association; (c) the acquisition of services, supplies, equipment or
other personal property; (d) the purchase or sale of real property; (e)
distribution, agency or construction; (f) lease of real or personal property as
lessor or lessee or sublessor or sublessee; (g) lending or advancing of funds;
(h) borrowing of funds or receipt of credit; (i) incurring of any obligation or
liability; or (j) the sale of personal property.
4.18 Litigation. The Company is not subject to any judgment or order of
any court or quasi-judicial or administrative agency of any jurisdiction,
domestic or foreign, nor is there any charge, complaint, lawsuit or governmental
investigation pending or, to the best knowledge of the Company, threatened
against the Company. The Company is not a plaintiff in any action, domestic or
foreign, judicial or administrative. There are no existing actions, suits,
proceedings or investigations of the Company, and the Company does not know of
any basis for such actions, suits, proceedings or investigations. There are no
unsatisfied judgments, orders, writs, injunctions, decrees or stipulations
affecting the Company or to which the Company is a party.
4.19 Employees. Except in the ordinary course, the Company does not owe
any material compensation, bonuses, profit sharing, pension, retirement, stock
options or related appreciation rights, deferred or otherwise, to any current or
previous employees. The Company is not a party to or bound by any collective
bargaining agreement. There are no material loans or other material obligations
payable or owing by the Company to any shareholder, officer, director or
employee of the Company, except as set out in the Registration Statement.
4.20 Employee Benefit Plans. Except as set out in the Registration
Statement, the Company has no material (a) nonqualified deferred or incentive
compensation or retirement plans or arrangements, (b) qualified retirement plans
or arrangements, (c) other employee compensation, severance or termination pay
or welfare benefit plans, programs or arrangements or (d) any related trusts,
insurance contracts or other funding arrangements maintained, established or
contributed to by the Company within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Company does
not have any liability under Title IV of ERISA as a result of actions or events
occurring prior to the Closing.
4.21 Legal Compliance. No claim has been filed against the Company
alleging a violation of any applicable laws and regulations of foreign, federal,
state and local governments and all agencies thereof. The Company holds all of
the material permits, licenses, certificates or other authorizations of foreign,
federal, state or local governmental agencies required for the conduct of its
business as presently conducted.
4.22 Broker's Fees. The Company or anyone on its behalf does not have any
liability to any broker, finder, investment banker or agent, or has agreed to
pay any brokerage fees, finder's fees or commissions, or to reimburse any
expenses of any broker, finder, investment banker or agent in connection with
the Merger or any similar transaction.
4.23 Disclosure. The representations and warranties and statements of fact
made by the Company in this Agreement and in any Schedule hereto are, as
applicable, accurate, correct and complete and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained herein or therein not
misleading.
4.24 Information Supplied. None of the information supplied by the Company
for use in the Registration Statement and contained therein will, as of the date
that the Registration Statement is filed with the Commission, on the date it is
declared effective or at the time of the meeting of the shareholders of the
Company to be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The proxy statement
contained in the Registration Statement will comply, in all material respects,
as to form with the provisions of the Exchange Act.
10
<PAGE> 106
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 Conduct of Business by the Company Pending the Closing. The Company
covenants and agrees that prior to the Closing Date, except in the ordinary
course of business or with the approval of Index:
(a) The Company shall conduct its business and operations only in the
usual and ordinary course of business and consistent with past custom and
practice;
(b) The Company shall not directly or indirectly do any of the
following, except in the ordinary course of business: (i) sell, pledge,
dispose of or encumber any of its material assets, (ii) amend or propose to
amend its Articles of Incorporation or By-Laws; (iii) split, combine or
reclassify any outstanding shares of its capital stock, or declare, set
aside or pay any dividend or other distribution payable in cash, stock,
property or otherwise with respect to shares of its capital stock except as
required for the Class A Convertible Preferred Stock; (iv) redeem, purchase
or acquire or offer to acquire any shares of Company Stock; or (v) enter
into or modify any material contract, agreement, commitment or arrangement
with respect to any of the foregoing;
(c) The Company shall not, (i) issue, sell, pledge or dispose of, or
agree to issue, sell, pledge or dispose of, any additional shares of, or
any options, warrants, conversion privileges or rights of any kind to
acquire any shares of, its capital stock; (ii) acquire (by merger,
consolidation, acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division or the
material assets thereof; (iii) incur any indebtedness for borrowed money,
issue any debt securities or guarantee any indebtedness to others; or (iv)
enter into or modify any contract, agreement, commitment or arrangement
with respect to any of the foregoing;
(d) The Company shall not enter into any employment, severance or
similar agreements or arrangements with, or grant any bonus, salary
increase, severance or termination pay to, any officers or directors;
(e) The Company shall not adopt any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee;
(f) Except as otherwise required by its Articles of Incorporation or
By-Laws, by this Agreement or by applicable law, the Company shall not call
any meeting of shareholders;
(g) The Company shall (i) use its best efforts not to take any action
which would render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement untrue at any time
prior to the Closing Date as if then made; and (ii) notify Index of any
emergency or other change in the normal course of its business or in the
operation of its properties and of any tax audits, tax claims, governmental
or third party complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency, change,
audit, claim, complaint, investigation or hearing would be material,
individually or in the aggregate, to the financial condition, results of
operations or business of the Company, or to the ability of any of the
parties hereto to consummate the transactions contemplated by this
Agreement;
(h) The Company shall notify Index promptly of any material adverse
event or circumstance affecting the Company (including the filing of any
material litigation against the Company or the existence of any dispute
with any person or entity which involves a reasonable likelihood of such
litigation being commenced); and
(i) The Company shall comply with all legal requirements and
contractual obligations applicable to its operations and business and pay
all applicable taxes.
5.2 Other Actions. Unless approved by Index, the Company shall not take
any action or permit any action to occur that might reasonably be expected to
result in any of the representations and warranties of the
11
<PAGE> 107
Company contained in this Agreement becoming untrue after the date hereof or any
of the conditions to the Closing set forth in Article 7 of this Agreement not
being satisfied.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access and Information. Except for information relating to any claims
any party may have against the other, the Company and Index shall each afford to
the other and to the other's financial advisors, legal counsel, accountants,
consultants and other representatives full access during normal business hours
throughout the period prior to the Effective Time to all of its books, records,
properties and personnel and, during such period, each shall furnish promptly to
the other (a) a copy of each report, schedule and other document filed or
received by it pursuant to the requirements of federal or state securities laws,
and (b) all other information as such other party may reasonably request. Each
party shall hold in confidence all non-public information until such time as
such information is otherwise publicly available and, if this Agreement is
terminated, each party will upon written request deliver to the other all
documents, work papers and other material obtained by such party or on its
behalf from the other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof. As soon as
practicable following the Closing, the Company shall deliver to Index all of the
books and records of the Company.
6.2 Registration Statement. Index and the Company shall cooperate in
preparing a registration statement on Form S-4 and combined prospectus and proxy
statement, any amendments or supplements thereto and any notices, reports,
letters, proxies or other materials required to be filed with the Commission in
connection with the Merger and the Newman Merger (collectively, the registration
statement and combined prospectus and proxy statement, any amendments or
supplements thereto and any notices, reports, letters, proxies or other
materials required to be filed with the Commission in connection with the Merger
and the Newman Merger are herein referred to as the "Registration Statement").
The parties shall cooperate with each other in providing any information that
the other party may reasonably request to aid in the preparation of the
Registration Statement. The parties will use their commercially reasonable
efforts to respond to the comments of the Commission with respect to the
Registration Statement and will make any further filing (including amendments
and supplements) in connection therewith that may be necessary, proper and
advisable. Index will provide the Company, and the Company will provide Index,
with whatever information and assistance in connection with the foregoing
filings that the filing party reasonably may request. Index will take all
actions that may be necessary, proper or advisable under state securities laws
in connection with the offering and issuance of Index Common Stock as
contemplated herein.
6.3 Meetings of Shareholders.
(a) The Company shall call a special meeting of its shareholders prior
to the Effective Time (at a date agreed upon with Index) to be held in
accordance with the laws of the State of Texas to consider and vote upon
the Merger.
(b) The Merger Sub shall call a special meeting of its sole
stockholder prior to the Effective Time to be held in accordance with the
laws of the State of Nevada to consider and vote upon the Merger. The
parties hereto acknowledge and agree that the Merger Sub's sole stockholder
may approve the Merger by written consent in lieu of holding such a
meeting.
(c) Index shall call a special meeting of its shareholder prior to the
Effective Time to be held in accordance with the laws of the State of Texas
to consider and vote upon the Newman Merger.
6.4 Intentionally Left Blank.
6.5 Press Releases. The Company and Index shall consult with each other as
to the form and substance of any press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated
hereby; provided, however, that nothing in this Section 6.5 shall be deemed to
prohibit any party
12
<PAGE> 108
hereto from making any disclosure that is required to fulfill such party's
disclosure obligations imposed by law, including, without limitation, federal
securities laws.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party to Effect the Closing. The
respective obligations of each party to effect the Closing shall be subject to
the fulfillment on or prior to the Closing Date of the following conditions:
(a) The Registration Statement shall have been declared effective by
the Commission and no stop order with respect thereto shall be in effect;
(b) The Merger shall have been approved by the shareholders of Index,
the Company and the Merger Sub, in accordance with the laws of the States
of Texas and Nevada;
(c) The Newman Merger shall have been approved by the shareholders of
Index, Newman Acquisition and Newman, in accordance with the laws of the
States of Nevada and New Mexico, respectively;
(d) Intentionally left blank;
(e) No order, injunction or decree shall have been entered and remain
in effect in any action or proceeding before any foreign, federal or state
court or governmental agency or other foreign, federal or state regulatory
or administrative agency or commission that would prevent or make illegal
the consummation of the transactions contemplated hereby.
7.2 Additional Conditions to Index's and the Merger Sub's Obligations. The
obligations of each of Index and the Merger Sub to effect the Closing are
subject to the satisfaction of the following additional conditions on or before
the Closing Date:
(a) The representations and warranties set forth in Article 4 of this
Agreement will be true and correct in all material respects as of the date
hereof and at and as of the Closing Date as though then made;
(b) The Company shall have performed, in all material respects, each
obligation and agreement and complied with each covenant to be performed
and complied with by it under Articles 5 and 6 of this Agreement prior to
the Closing Date;
(c) All consents by governmental or regulatory agencies or otherwise
that are required for the consummation of the transactions contemplated
hereby or that are required for Index to own, operate or control the
Company or any portion of the assets of the Company to prevent a breach of
or a default under or a termination of any agreement material to the
Company to which the Company is a party or to which any material portion of
the assets of the Company is subject, will have been obtained;
(d) No action or proceeding before any court or governmental body will
be pending or threatened wherein a judgment, decree or order would prevent
or restrain any of the transactions contemplated hereby or cause such
transactions to be declared unlawful, nullified or rescinded or which might
adversely affect the right of Index to own, operate or control the Company;
(e) Index and its financial and legal advisors shall have completed a
due diligence review of the business, operations and financial statements
of the Company, the results of which shall be satisfactory to Index in its
sole discretion;
(f) Index will have received from Fulbright & Jaworski, L.L.P.,
counsel to the Company, an opinion addressed to Index, dated the Closing
Date;
13
<PAGE> 109
(g) No event shall have occurred prior to the Closing which in the
reasonable judgment of Index or the Merger Sub, would materially affect the
purpose of the Merger; and
(h) At the Closing, the Company shall have delivered or caused to be
delivered to Index the following:
(i) a certificate executed by the President and Secretary of the
Company stating that the conditions set forth in Sections 7.2(a) through
(d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's Board of Directors authorizing and approving the Merger and
the execution, delivery and performance of this Agreement;
(iii) certified copies of resolutions duly adopted by the Company's
shareholders authorizing and approving the Merger and the execution,
delivery and performance of this Agreement;
(iv) certificates of good standing or comparable certificates for
the Company from the jurisdiction of its incorporation and from every
jurisdiction where a failure to be qualified or licensed would have a
material adverse effect on its financial condition, results of
operations or business, dated not earlier than five days prior to the
Closing Date;
(v) a copy of the Company's Articles of Incorporation certified as
of a recent date by the Secretary of State of the State of Texas;
(vi) an incumbency certificate of the officers of the Company; and
(vii) such other documents as Index may reasonably request in
connection with the transactions contemplated hereby.
7.3 Additional Conditions to the Company's Obligations. The obligations of
the Company to effect the Closing are subject to the satisfaction of the
following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 3 of this
Agreement will be true and correct in all material respects as of the date
hereof and at and as of the Closing Date as though then made;
(b) Index shall have performed, in all material respects, each
obligation and agreement and complied with each covenant required to be
performed and complied with by it under Article 6 of this Agreement prior
to the Closing Date;
(c) No action or proceeding before any court or governmental body will
be pending or threatened wherein a judgment, decree or order would prevent
any of the transactions contemplated hereby or cause such transactions to
be declared unlawful or rescinded;
(d) The Company shall have received from Fouts & Moore, L.L.P.,
counsel to Index, an opinion addressed to the Company, dated the Closing
Date; and
(e) On the Closing Date, Index shall have delivered to the Company the
following:
(i) a certificate executed on behalf of Index and the Merger Sub
stating that the conditions set forth in Sections 7.3(a) through (c) of
this Agreement have been satisfied;
(ii) certified copies of resolutions duly adopted by Index's and
the Merger Sub's Boards of Directors authorizing and approving the
Merger and the execution, delivery and performance of this Agreement;
(iii) certified copies of the resolutions duly adopted by the
shareholder of the Merger Sub authorizing and approving the Merger and
the execution, delivery and performance this Agreement;
(iv) certified copies of resolutions duly adopted by Index's Board
of Directors authorizing and approving the Newman Merger and the
execution, delivery and performance of the Newman Merger Agreement;
14
<PAGE> 110
(v) certified copies of resolutions duly adopted by the
shareholders of Index authorizing and approving the Newman Merger and
the execution, delivery and performance of the Newman Merger Agreement;
(vi) a certificate of existence for Index from the Secretary of
State of the State of Texas and for Merger Sub from the Secretary of
State of the State of Nevada, dated not earlier than five days prior to
the Closing Date;
(vii) a copy of Index's Articles of Incorporation certified by the
Secretary of State of the State of Texas;
(viii) a certificate of good standing for Index from the Secretary
of State of the State of Texas and for the Merger Sub from the Secretary
of State of the State of Nevada, dated not earlier than five days prior
to the Closing Date;
(ix) a copy of the Merger Sub's Articles of Incorporation certified
by the Secretary of State of the State of Nevada;
(x) an incumbency certificate of the officers of Index and the
Merger Sub; and
(xi) such other material documents as the Company may reasonably
request in connection with the transactions contemplated hereby.
ARTICLE 8
REMEDIES
8.1 General. In the event of any breach of this Agreement, the parties
shall have all remedies at law or in equity.
8.2 Waiver. No waiver by any party of any default or breach by another
party of any representation, warranty, covenant or condition contained in this
Agreement shall be deemed to be a waiver of any subsequent default or breach by
such party of the same or any other representation, warranty, covenant or
condition. No act, delay, omission or course of dealing on the part of any party
in exercising any right, power or remedy under this Agreement or at law or in
equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
ARTICLE 9
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by the
mutual consent of the parties hereto.
9.2 Termination by Any Party. This Agreement may be terminated and the
Merger may be abandoned by action of the Board of Directors of any party hereto
if a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause shall have
used all reasonable efforts to remove such injunction, order or decree.
9.3 Termination by Index. This Agreement may be terminated by Index upon
written notice if the Closing has not occurred by December 31, 1996.
15
<PAGE> 111
9.4 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article 9, all
obligations of the parties hereto shall terminate, except the obligations of the
parties pursuant to Section 6.1.
9.5 Material Breach. This Agreement may be terminated if a material breach
of this Agreement has occurred and such breach has not been cured by the
breaching party within ten (10) business days of receipt of written notice from
a non-breaching party detailing such breach.
ARTICLE 10
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
sent by overnight courier or mailed by registered or certified mail (postage
prepaid and return receipt requested) to the party to whom the same is so
delivered, sent or mailed at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Index or the Merger Sub:
David R. Little, President
580 Westlake Park Boulevard
Suite 1100
Houston, Texas 77079
Phone: (713) 558-4448
Fax: (713) 558-4448
with a copy to:
Gary A. Messersmith, Esq.
Fouts & Moore, L.L.P.
5555 San Felipe, 17th Floor
Houston, Texas 77066-2726
Phone: (713) 622-9966
Fax: (713) 622-1045
(b) if to the Company:
Mr. Bryan Wimberly, President
6500 Brittmoore
Houston, Texas 77041
Phone: (713) 937-0330
Fax: (713) 937-0574
with a copy to:
Mr. Curtis Huff
Fulbright & Jaworski, L.L.P.
1301 McKinney
Houston, Texas 77010
Phone: (713) 651-5657
Fax: (713) 651-5246
10.2 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated.
10.3 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected,
16
<PAGE> 112
impaired or invalidated and the parties shall negotiate in good faith to modify
this Agreement to preserve each party's anticipated benefits under this
Agreement.
10.4 Miscellaneous. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties with respect to the subject matter hereof; (b) except as
expressly set forth herein, is not intended to confer upon any other person any
rights or remedies hereunder and (c) shall not be assigned by operation of law
or otherwise, except that Index may assign all or any portion of its rights
under this Agreement to any wholly-owned subsidiary but no such assignment shall
relieve Index of its obligations hereunder, and except that this Agreement may
be assigned by operation of law to any corporation with or into which Index may
be merged.
10.5 Separate Counsel. Each party hereby expressly acknowledges that it
has been advised and urged to seek its own separate legal counsel for advice
with respect to this Agreement.
10.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF
TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
10.8 Amendment. This Agreement may be amended, modified or supplemented
only by an instrument in writing executed by all parties hereto.
10.9 Parties In Interest: No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. This Agreement
shall not be deemed to confer upon any person not a party hereto any rights or
remedies hereunder.
10.10 Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
10.11 Expenses. The parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel and financial
advisers.
10.12 Survival. The representations, warranties and covenants contained
herein shall not survive the Closing.
17
<PAGE> 113
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
INDEX, INC.
By: /s/ DAVID R. LITTLE
- ------------------------------------
DAVID R. LITTLE, President
SEPCO ACQUISITION CORPORATION
By: /s/ DAVID R. LITTLE
- ------------------------------------
DAVID R. LITTLE, President
SEPCO INDUSTRIES, INC.
By: /s/ BRYAN WIMBERLY
- ------------------------------------
BRYAN WIMBERLY, President
18
<PAGE> 114
APPENDIX B:
NEWMAN MERGER AGREEMENT
<PAGE> 115
* * * * *
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INDEX, INC.,
NEWMAN ACQUISITION CORPORATION,
NEWMAN COMMUNICATIONS CORPORATION
AND
LITTLE & COMPANY INVESTMENT SECURITIES
* * * * *
AUGUST 12, 1996
<PAGE> 116
<TABLE>
<CAPTION>
ARTICLE/SECTION PAGE
- ------- ----
<S> <C> <C>
RECITALS................................................................................ 1
ARTICLE 1 THE MERGER................................................................... 1
1.1 The Merger..................................................................... 1
1.2 Closing........................................................................ 2
1.3 Effective Time of the Merger................................................... 2
1.4 Articles of Incorporation and Bylaws........................................... 2
1.5 Directors and Officers......................................................... 2
ARTICLE 2 CONVERSION OF SHARES......................................................... 2
2.1 Conversion of Company Common Stock............................................. 2
2.2 Class C Warrants............................................................... 3
2.3 Stock Certificates............................................................. 3
2.4 Fractional Shares.............................................................. 3
2.5 Dissenting Shares.............................................................. 3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF INDEX AND THE MERGER SUB................... 4
3.1 Organization................................................................... 4
3.2 Capitalization................................................................. 4
3.3 Certain Corporate Matters...................................................... 4
3.4 Authority Relative to this Agreement........................................... 4
3.5 Consents and Approvals; No Violations.......................................... 5
3.6 Information Supplied........................................................... 5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND LITCO...................... 6
4.1 Organization................................................................... 6
4.2 Capitalization and Ownership of the Company.................................... 6
4.3 Certain Corporate Matters...................................................... 6
4.4 Subsidiaries................................................................... 7
4.5 Authority Relative to this Agreement........................................... 7
4.6 Consents and Approvals; No Violations.......................................... 7
4.7 Reports........................................................................ 7
4.8 Financial Statements........................................................... 8
4.9 Events Subsequent to Financial Statements...................................... 8
4.10 Undisclosed Liabilities........................................................ 9
4.11 Tax Returns and Audits......................................................... 9
4.12 Property....................................................................... 10
4.13 Books and Records.............................................................. 10
4.14 Questionable Payments.......................................................... 10
4.15 Environmental Matters.......................................................... 10
4.16 Intellectual Property.......................................................... 13
4.17 Insurance...................................................................... 13
4.18 Contracts...................................................................... 13
4.19 Litigation..................................................................... 14
4.20 Employees...................................................................... 14
4.21 Employee Benefit Plans......................................................... 14
4.22 Legal Compliance............................................................... 14
4.23 Broker's Fees.................................................................. 14
4.24 Disclosure..................................................................... 14
4.25 Bank Accounts.................................................................. 15
4.26 Information Supplied........................................................... 15
</TABLE>
i
<PAGE> 117
<TABLE>
<CAPTION>
ARTICLE/SECTION PAGE
- ------- ----
<S> <C> <C>
ARTICLE 5 CONDUCT OF BUSINESS PENDING THE CLOSING...................................... 15
5.1 Conduct of Business by the Company Pending the Closing......................... 15
5.2 Other Actions.................................................................. 16
ARTICLE 6 ADDITIONAL AGREEMENTS........................................................ 17
6.1 Access and Information......................................................... 17
6.2 Registration Statement......................................................... 17
6.3 Meetings of Shareholders....................................................... 17
6.4 Press Releases................................................................. 18
6.5 Reimbursement of LITCO......................................................... 18
ARTICLE 7 CONDITIONS TO CLOSING........................................................ 18
7.1 Conditions to Obligations of Each Party to Effect the Closing.................. 19
7.2 Additional Conditions to Index's and the Merger Sub's Obligations.............. 19
7.3 Additional Conditions to the Company's and LITCO's Obligations................. 21
ARTICLE 8 REMEDIES..................................................................... 22
8.1 Indemnification by LITCO....................................................... 22
8.2 Indemnification by Index....................................................... 23
8.3 Conditions of Indemnification.................................................. 23
8.4 Waiver......................................................................... 24
8.5 Remedies Not Exclusive......................................................... 24
ARTICLE 9 TERMINATION.................................................................. 24
9.1 Termination by Mutual Consent.................................................. 24
9.2 Termination by Any Party....................................................... 24
9.3 Termination by Index........................................................... 25
9.4 Effect of Termination and Abandonment.......................................... 25
9.5 Material Breach................................................................ 25
ARTICLE 10 GENERAL PROVISIONS.......................................................... 25
10.1 Notices........................................................................ 25
10.2 Interpretation................................................................. 26
10.3 Severability................................................................... 26
10.4 Miscellaneous.................................................................. 26
10.5 Separate Counsel............................................................... 26
10.6 Governing Law.................................................................. 26
10.7 Counterparts................................................................... 26
10.8 Amendment...................................................................... 26
10.9 Parties In Interest; No Third Party Beneficiaries.............................. 26
10.10 Captions....................................................................... 27
10.11 Expenses....................................................................... 27
10.12 Survival....................................................................... 27
SCHEDULES
Schedule 4.2
Schedule 4.9
Schedule 4.20
Schedule 4.25
EXHIBITS
Exhibit A
Exhibit B
</TABLE>
ii
<PAGE> 118
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of August 12, 1996 (this
"Agreement"), is made and entered into by and among Index, Inc., a Texas
corporation ("Index"), Newman Acquisition Corporation, a Nevada corporation and
a wholly-owned subsidiary of Index (the "Merger Sub"), Newman Communications
Corporation, a New Mexico corporation (the "Company") and Little & Company
Investment Securities, a Texas corporation ("LITCO").
RECITALS
WHEREAS, the respective Boards of Directors of Index, the Merger Sub, the
Company and LITCO have adopted resolutions approving and adopting the proposed
merger (the "Merger") of the Company with the Merger Sub upon the terms and
conditions hereinafter set forth in this Agreement;
WHEREAS, LITCO, which holds approximately 61% of the issued and outstanding
common stock of the Company, will enter into this Agreement for the purpose of
making certain representations, warranties, covenants and agreements;
WHEREAS, Index is entering into that Agreement and Plan of Merger with
Sepco Industries, Inc., a Texas corporation and Sepco Acquisition Corporation, a
Nevada corporation (the "Sepco Merger Agreement") simultaneously with this
Agreement;
WHEREAS, the Merger and the merger contemplated by the Sepco Merger
Agreement (the "Sepco Merger") will be effected simultaneously; and
WHEREAS, the Merger and the Sepco Merger are both intended to qualify as a
tax-free transaction under Sections 351 and 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the conditions set forth herein, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3 hereof), the Merger Sub shall be
merged with and into the Company and the separate corporate existence of the
Merger Sub shall thereupon cease. The Company shall be the surviving corporation
in the Merger. The Merger shall have the effects set forth in the applicable
provisions of the Nevada General Corporation Law (the "NGCL") and the New Mexico
Business Corporation Act (the "NMBCA").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at
10:00 a.m., local time, at the offices of Fulbright & Jaworski L.L.P., located
at 1301 McKinney, Houston, Texas 77010 on the next business day after the
shareholder approvals set forth in Section 6.3 hereof have been completed, or as
soon as the conditions set forth in Article 7 have been satisfied or waived or
as soon as practicable thereafter; provided, however, that the date of the
Closing shall not be later than December 31, 1996, unless the parties hereto
otherwise mutually agree in writing. Such date is herein referred to as the
"Closing Date." At the Closing, the parties hereto shall deliver or cause to be
delivered the certificates and other documents set forth in Article 7.
1.3 Effective Time of the Merger. If all the conditions to the Merger set
forth in Article 7 shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated as provided in Article 9, the
parties hereto shall cause Articles of Merger (the "Articles of Merger") that
meet the requirements of the applicable provisions of the NGCL and the NMBCA,
respectively, to be properly executed and filed with the Secretary of State of
the States of Nevada and New Mexico, respectively, on the Closing Date. The
Merger shall be effective at the time of acceptance of the filing of the
Articles of Merger with the Secretary of State of the States of Nevada and New
Mexico in accordance with the NGCL and the
1
<PAGE> 119
NMBCA, respectively, or at such later time which the parties hereto shall have
agreed upon and designated in such filing as the effective time of the Merger
(the "Effective Time").
1.4 Articles of Incorporation and By-Laws. The Articles of Incorporation
and By-Laws of the Company in effect immediately prior to the Effective Time
shall continue to be the Articles of Incorporation and By-Laws of the Company
subsequent to the Effective Time, subject always to the right of the Company to
amend its Articles of Incorporation and By-Laws in accordance with the laws of
the State of New Mexico and the provisions of its Articles of Incorporation and
By-Laws.
1.5 Directors and Officers. The directors and officers of the Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Company and shall hold such positions from the Effective Time until their
respective successors are duly elected or appointed and qualify in the manner
provided in the Articles of Incorporation and By-Laws of the Company or as
otherwise provided by law.
ARTICLE 2
CONVERSION OF SHARES
2.1 Conversion of Company Common Stock. At the Effective Time, by virtue
of the Merger and without any action required on the part of Index, the Company,
the Merger Sub or any holder of capital stock of any of them:
(a) Subject to the limitations contained herein, each share of common
stock of the Company, no par value (the "Company Common Stock"), issued and
outstanding immediately prior to the Effective Time shall be automatically
converted into the right to receive one-fourth of one share of common stock
of Index, par value $.01 per share (the "Index Common Stock").
(b) All shares of common stock of the Merger Sub issued and
outstanding immediately prior to the Effective Time shall be cancelled and
cease to be outstanding.
2.2 Class C Warrants. The Company's Class C Warrants shall be adjusted as
provided in Section 7 of that Warrant Agreement by and between the Company and
General Securities Transfer Agency, Inc. dated September 13, 1993.
2.3 Stock Certificates. At or following the Effective Time, each holder of
an outstanding certificate or certificates representing the Company Common Stock
shall surrender the same to Index and Index shall, in exchange therefor, cause
to be issued to the holder of such certificate(s) a new certificate representing
shares of Index Common Stock in accordance with Section 2.1, less any amount
required to be withheld under applicable federal, state or local tax
requirements, and the surrendered certificate(s) shall be cancelled. Until so
surrendered and exchanged, each such certificate shall represent solely the
right to receive shares of Index Common Stock in accordance with Section 2.1,
without interest and less any tax withholding.
2.4 Fractional Shares. No fractional shares of Index Common Stock shall be
issued in the Merger. In the event that a holder of the Company Common Stock
would otherwise be entitled to receive any fractional shares of Index Common
Stock as a result of the Merger, such holder shall be entitled to receive, in
lieu thereof, an amount of cash to be determined by multiplying $1.00 by the
fraction of a share of Index Common Stock to which such holder would otherwise
have been entitled.
2.5 Dissenting Shares. Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time not voted in favor of the
Merger, the holder of which has given written notice of the exercise of
dissenter's rights and has perfected such rights as required by the NMBCA is
herein called a "Dissenting Share." Dissenting Shares shall not be converted
into or represent the right to receive shares of Index Common Stock pursuant to
this Section 2 and shall be entitled only to such rights as are available to
such holder pursuant to the NMBCA, unless the holder thereof shall have
withdrawn or forfeited his dissenter's rights. Each holder of Dissenting Shares
shall be entitled to receive the value of such Dissenting Shares held by him in
accordance with the applicable provisions of the NMBCA. Index will promptly pay
to any holder of Dissenting Shares such amount as such holder shall be entitled
to receive in accordance with the
2
<PAGE> 120
applicable provisions of the NMBCA. If any holder of Dissenting Shares shall
effectively withdraw or forfeit his dissenter's rights under the NMBCA, such
Dissenting Shares shall be converted into the right to receive shares of Index
Common Stock in accordance with this Section 2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
INDEX AND THE MERGER SUB
Index and the Merger Sub hereby jointly and severally represent and warrant
to the Company and LITCO as follows:
3.1 Organization. Each of Index and the Merger Sub has been duly
incorporated, is validly existing as a corporation and is in good standing under
the laws of its state of incorporation, and has the requisite corporate power to
carry on its business in such state as now conducted.
3.2 Capitalization. The total number of shares of stock of all classes
which Index shall have the authority to issue is 110,000,000 shares, of which
the following designations have been made: 100,000,000 shares of common stock,
1,000,000 shares of preferred stock, par value $1.00 per share and 1,000,000
shares of convertible preferred stock, par value $100 per share. As of the date
of this Agreement, (a) 100 shares of common stock of Index are issued and
outstanding, (b) no shares of preferred stock are issued and outstanding, and
(c) no shares of convertible preferred stock are issued and outstanding. All of
the issued and outstanding shares of common stock of Index are validly issued,
fully paid, nonassessable and free of preemptive rights. All shares of Index
Common Stock issuable in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable. The authorized
capital stock of the Merger Sub consists of 100,000 shares of common stock, par
value $.10 per share, of which 100 shares are outstanding and are validly
issued, fully paid and nonassessable and are owned by Index.
3.3 Certain Corporate Matters. Index is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership of its properties, the employment of its personnel or the conduct of
its business requires it to be so qualified, except where the failure to so
qualify would not have a material adverse effect on Index's financial condition,
results of operations or business. Index has the requisite corporate power and
authority and all authorizations, licenses and permits necessary to carry on the
business in which it is engaged and to own and use the properties owned and used
by it except such authorization, licenses and permits the failure of which to
possess would not have a material adverse effect on the financial condition,
results of operations or business of Index.
3.4 Authority Relative to this Agreement. Each of Index and the Merger Sub
has the requisite corporate power and authority to enter into this Agreement and
to carry out its obligations hereunder. The execution, delivery and performance
of this Agreement by Index and the Merger Sub and the consummation by Index and
the Merger Sub of the transactions contemplated hereby have been duly authorized
by the Boards of Directors of each of Index and the Merger Sub and, subject to
stockholder approval as set forth in this Agreement, no other actions on the
part of Index or the Merger Sub are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Index and the Merger Sub and constitutes,
subject to stockholder approval as set forth in this Agreement, a valid and
binding agreement of each of Index and the Merger Sub, enforceable against Index
and the Merger Sub in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
3.5 Consents and Approvals; No Violations. Except as may be required under
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"), the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
"Exchange Act"), state securities or blue sky laws, and the filing and
recordation of the Articles of Merger as required by the NGCL and the NMBCA, no
filing with, and no permit, authorization, consent or approval of, any public
body or authority is necessary for the consummation by Index and the Merger Sub
of the
3
<PAGE> 121
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement by Index or the Merger Sub nor the consummation by Index or
the Merger Sub of the transactions contemplated hereby, nor compliance by Index
or the Merger Sub with any of the provisions hereof, will (a) conflict with or
result in any breach of any provisions of the Articles of Incorporation or
By-Laws of Index or the Articles of Incorporation or By-Laws of the Merger Sub,
(b) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default of a material nature (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation, of a material nature, to
which Index or any of its subsidiaries is a party or by which any of them or
their properties or assets may be bound or (c) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Index, any of its
subsidiaries or any of their properties or assets, except in the case of clauses
(b) and (c) for violations, breaches or defaults which in the aggregate would
not have a material adverse effect on the financial condition or results of
operations of Index and its subsidiaries taken as a whole. The parties hereto
agree and acknowledge that Sepco Industries, Inc. was required to obtain and has
obtained the written consent of Fleet Capital Corporation as required under that
Second Amended and Restated Loan and Security Agreement by and between Sepco
Industries, Inc. and Fleet Capital Corporation dated April 1, 1994, as amended.
3.6 Information Supplied. None of the information provided by Index for
use in the Registration Statement (as defined in Section 6.2 hereof) and
contained therein will, as of the date that the Registration Statement is filed
with the Securities and Exchange Commission (the "Commission"), on the date it
is declared effective or at the time of the meeting of the shareholders of the
Company to be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The registration
statement and prospectus contained in the Registration Statement will comply, in
all material respects, as to form with the provisions of the Exchange Act and
the Securities Act.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND LITCO
The Company and LITCO hereby jointly and severally represent and warrant to
Index and the Merger Sub as follows:
4.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the requisite corporate power and authority to carry on its business as
now conducted in all applicable jurisdictions.
4.2 Capitalization and Ownership of the Company. The Company's entire
authorized capital stock consists of 10,000,000 shares of common stock, of which
2,552,064 shares are outstanding and 2,000,000 shares of preferred stock, no par
value, of which none are outstanding. All of the shares of Company Common Stock
have been duly authorized and are validly issued, fully paid and nonassessable
and have not been issued in violation of any pre-emptive rights. Except as set
forth on Schedule 4.2 hereto, there are no outstanding or authorized options,
rights, warrants, calls, convertible securities, rights to subscribe, conversion
rights or other agreements or commitments to which the Company or LITCO are
parties or which are binding upon the Company or LITCO providing for the
issuance by the Company or transfer by the Company or LITCO of additional shares
of the Company's capital stock and the Company has not reserved any shares of
its capital stock for issuance, nor are there any outstanding stock option
rights, phantom equity or similar rights, contracts, arrangements or
commitments. There are no voting trusts or any other agreements or
understandings, written or oral, with respect to the voting of the Company's
capital stock.
4.3 Certain Corporate Matters. The Company is duly licensed or qualified
to do business and is in good standing as a foreign corporation in every
jurisdiction in which the character of the Company's properties or nature of the
Company's business requires it to be so licensed or qualified other than such
jurisdictions in
4
<PAGE> 122
which the failure to be so licensed or qualified does not, or insofar as can
reasonably be foreseen, in the future will not, have a material adverse effect
on its financial condition, results of operations or business. The Company has
full corporate power and authority and all authorizations, licenses, variances,
exemptions, orders, contracts, approvals and permits necessary to carry on the
business in which it is engaged or in which it proposes presently to engage and
to own and use the properties owned and used by it. The Company has delivered to
Index true, accurate and complete copies of its Articles of Incorporation and
By-Laws, which reflect all amendments made thereto at any time prior to the date
of this Agreement. The records of meetings of the shareholders and Board of
Directors of the Company are complete and correct in all material respects. The
stock records of the Company and the shareholder lists of the Company that the
Company has previously furnished to Index are complete and correct in all
material respects and accurately reflect the record ownership and the beneficial
ownership of all the outstanding shares of the Company's capital stock and all
other outstanding securities issued by the Company. The Company is not in
default under or in violation of any provision of its Articles of Incorporation
or By-Laws in any material respect. The Company is not in default or in
violation of any restriction, lien, encumbrance, indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability by which it is
bound or to which any of its assets is subject.
4.4 Subsidiaries. The Company does not own, directly or indirectly, any of
the capital stock of any other corporation or any equity, profit sharing,
participation or other interest in any corporation, partnership, joint venture
or other entity.
4.5 Authority Relative to this Agreement. Each of the Company and LITCO
has the requisite corporate power and authority to enter into this Agreement and
carry out its obligations hereunder. The execution, delivery and performance of
this Agreement by both the Company and LITCO and the consummation of the
transactions contemplated hereby have been duly authorized by the Boards of
Directors of each of the Company and LITCO and, subject to shareholder approval
as set forth in this Agreement, no other actions on the part of the Company or
LITCO are necessary to authorize this Agreement or the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by each
of the Company and LITCO and constitutes, subject to shareholder approval as set
forth in this Agreement, a valid and binding obligation of the Company and
LITCO, enforceable in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
4.6 Consents and Approvals; No Violations. Except as may be required under
the Securities Act, the Exchange Act, state securities or blue sky laws, and the
filing and recordation of the Articles of Merger as required by the NGCL and the
NMBCA, no filing with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by the Company of the
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby, nor compliance by the Company with any of the
provisions hereof, will (a) conflict with or result in any breach of any
provisions of the Articles of Incorporation or By-Laws of Company, (b) result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which the Company is a party or by which it or any of its
properties or assets may be bound or (c) violate any order, law, resolution,
writ, injunction, decree, statute, rule or regulation applicable to the Company,
or any of its properties or assets, except in the case of clauses (b) and (c)
for violations, breaches or defaults which in the aggregate would not have a
material adverse effect on the financial condition or results of operations of
the Company taken as a whole.
4.7 Reports. The Company has filed all reports required to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Exchange Act (collectively, the "Reports"). The Company has delivered to Index
copies of all Reports filed with Commission since March 26, 1994. None of the
Reports, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5
<PAGE> 123
4.8 Financial Statements. The Company has delivered to Index the following
audited financial statements: (a) its balance sheets as of December 31, 1995 and
March 25, 1995; (b) its statements of operations for the nine months ended
December 31, 1995 and 1994 and for the years ended March 25, 1995 and March 26,
1994; (c) its statements of cash flows for the nine months ended December 31,
1995 and 1994 and for the years ended March 25, 1995 and March 26, 1994; (d) its
statements of changes in shareholders' equity for the nine months ended December
31, 1995 and 1994; and (e) its statements of changes in shareholders' equity for
the years ended March 25, 1995 and March 26, 1994. In addition, the Company has
delivered to Index the following unaudited financial statements: (a) its balance
sheet as of March 31, 1996; (b) its statement of operations for the three months
ended March 31, 1996; and (c) its statement of cash flows for the three months
ended March 31, 1996. Such financial statements are herein collectively referred
to as the "Financial Statements." The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered thereby and present fairly the financial
condition of the Company as of such dates and the results of its operations and
changes in cash flows for such periods.
4.9 Events Subsequent to Financial Statements. Since March 31, 1996, there
has not been:
(a) Any adverse change in the financial condition, results of
operations or business of the Company;
(b) Any sale, lease, transfer, license or assignment of any assets,
tangible or intangible, of the Company;
(c) Any damage, destruction or property loss, whether or not covered
by insurance, affecting adversely the properties or business of the
Company;
(d) Any declaration or setting aside or payment of any dividend or
distribution with respect to the shares of capital stock of the Company or
any redemption, purchase or other acquisition of any such shares;
(e) Any subjection to any lien on any of the assets, tangible or
intangible, of the Company;
(f) Any incurrence of indebtedness or liability or assumption of
obligations by the Company;
(g) Any waiver or release by the Company of any right of any material
value;
(h) Any increase in compensation or benefits to officers or directors
of the Company;
(i) Any change made or authorized in the Articles of Incorporation or
By-laws of the Company;
(j) Except as set forth on Schedule 4.9 hereto, any issuance,
transfer, sale or other disposition by the Company of any shares of its
capital stock or other equity securities, or any grant of any options,
warrants or other rights to purchase or obtain (including upon conversion
or exercise) shares of its capital stock or other equity securities; or
(k) Any loan to or other transaction with any officer, director or
shareholder of the Company giving rise to any claim or right of the Company
against any such person or of such person against the Company.
4.10 Undisclosed Liabilities. The Company has no material liability or
obligation of any nature whatsoever, either direct or indirect, matured or
unmatured, accrued, absolute, contingent or otherwise.
4.11 Tax Returns and Audits. The Company has duly and timely filed or
caused to be filed all returns, reports or similar statements (including any
attached schedules) required to be filed with respect to any tax including,
without limitation, all information returns, claims for refunds, amended returns
and declarations of estimated tax (collectively, the "Tax Returns"). For the
purpose of this Agreement, "tax" shall include any federal, state, local or
foreign income, gross receipts, windfall profits, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, transfer, stamp or
environmental tax, or any other tax or similar assessment or charge, together
with any interest or penalty, addition to tax or additional amount imposed by
any governmental authority. The Company has paid in full or fully reserved
against in the Financial Statements all taxes, interest, penalties, assessments
and deficiencies due or claimed to be due by it to foreign, federal, state or
local taxing authorities.
6
<PAGE> 124
All Tax Returns are complete and accurate and disclose all taxes required to be
paid. The income Tax Returns filed by the Company are not being, to the
knowledge of the Company, examined by the Internal Revenue Service (the "IRS")
or other applicable taxing authorities for any period. All taxes or estimates
thereof that are due as of December 31, 1995, or are claimed or asserted by any
taxing authority to be due as of such date, have been (a) timely and
appropriately paid so as to avoid penalties for underpayment or (b) accrued for
on the balance sheet as of December 31, 1995, as contained in the Financial
Statements. Except for amounts not yet due and payable, all tax liabilities to
which the properties of the Company may be subject have been paid and
discharged. The provisions for income and other taxes payable reflected in the
Financial Statements make adequate provision for all then accrued and unpaid
taxes of the Company. There are no tax liens on any property of the Company, nor
are there any pending or threatened examinations, actions, suits,
investigations, audits, assessments or tax claims asserted. The Company has not
been granted any extensions of limitation periods applicable to tax claims.
Since May 1991, except jurisdictions in which the Company filed Tax Returns, no
claim has been made by a taxing authority that the Company is or may be subject
to taxation by that jurisdiction. All copies of Tax Returns delivered to Index
by the Company are true and correct, and any and all notices from foreign,
federal, state and local taxing authorities, tax examination reports and
statements of deficiencies assessed against or agreed to by the Company since
May 1991 have been made available to Index. The Company is not a party to, or
bound by, any tax indemnity, tax sharing or tax allocation agreement. The
Company is not a member of an "affiliated group," as defined in Section 1504(a)
of the Code and is not the owner of an interest in a partnership, joint venture,
trust, limited liability company or other entity or organization. All positions
taken on federal Tax Returns that could give rise to a penalty for substantial
understatement pursuant to Section 6662(d) of the Code have been disclosed on
such Tax Returns. The Company has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code (or any predecessor provision)
by reason of any change in any accounting method. The Company has no application
pending with any taxing authority requesting permission for any changes in any
accounting method, and the IRS has not proposed any such adjustment or change in
accounting method. The Company is not subject to any limitation under Section
382 or Section 383 of the Code.
Index shall have sole control over any contest relating to federal, state,
local, or foreign tax assessments or proposed assessments against the Company.
Index shall promptly notify LITCO of any audit or examination of the books and
records of the Company undertaken by the tax authorities, any tax assessments or
proposed assessments or any extension of the statute of limitations applicable
to any Tax Returns of the Company relating to any taxable year or periods ending
on or prior to the Closing Date and shall provide LITCO with periodic reports
regarding the status of such audit or examination. LITCO shall be entitled to
participate in (but not control) any such contest at its sole cost. Index shall
not settle or otherwise compromise any such contest in a manner which results in
liability to LITCO under this Agreement without the written consent of LITCO,
which consent shall not be unreasonably withheld.
4.12 Property. The Company does not own or lease any real or personal
property.
4.13 Books and Records. The books and records of the Company fairly
reflect the transactions to which the Company is a party or by which its
properties are bound.
4.14 Questionable Payments. Neither the Company nor LITCO nor any
employee, agent or representative of either of them has, directly or indirectly,
made any bribes, kickbacks, illegal payments or illegal political contributions
using Company funds or made any payments from the Company's funds to
governmental officials for improper purposes or made any illegal payments from
the Company's funds to obtain or retain business.
4.15 Environmental Matters.
(a) Definitions. For the purpose of this Agreement, the following
terms shall have the meaning herein specified:
(i) "Governmental Authority" shall mean the United States, each
state, each county, each city and each other political subdivision in
which the Company's business is located, and any court, political
subdivision, agency or instrumentality with jurisdiction over the
Company's business.
7
<PAGE> 125
(ii) "Environmental Laws" shall mean (A) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C.A. 9601 et seq. ("CERCLA"), (B) the Resource Conservation and
Recovery Act, as amended by the Hazardous and Solid Waste Amendment of
1984, 42 U.S.C.A. 6901 et seq. ("RCRA"), (C) the Clean Air Act, 42
U.S.C.A. 7401 et seq., (D) the Federal Water Pollution Control Act, as
amended, 33 U.S.C.A. 1251 et seq., (E) the Toxic Substances Control Act,
15 U.S.C.A. 2601 et seq., (F) all applicable state laws, and (G) all
other laws and ordinances relating to municipal waste, solid waste, air
pollution, water pollution and/or the handling, discharge, disposal or
recovery of on-site or off-site hazardous substances or materials, as
each of the foregoing has been or may hereafter be amended from time to
time.
(iii) "Hazardous Materials" shall mean, among others, (A) any
"hazardous waste" as defined by the RCRA, and regulations promulgated
thereunder; (B) any "hazardous substance" as defined by CERCLA, and
regulations promulgated thereunder; (C) any "toxic pollutant" as defined
in the Federal Water Pollution Prevention and Control Act, as amended,
33 U.S.C. 1251 et seq., (commonly known as "CWA" for "Clear Water Act"),
and any regulations thereunder; (D) any "hazardous air pollutant" as
defined in the Air Pollution Prevention and Control Act, as amended, 42
U.S.C. 7401 et seq. (commonly known as "CAA" for "Clear Air Act") and
any regulations thereunder; (E) asbestos; (F) polychlorinated biphenyls;
(G) underground storage tanks, whether empty, filled or partially filled
with any substance; (H) any substance the presence of which on the
Business Location (as hereinafter defined) is prohibited by any
Environmental Laws; and (I) any other substance which is regulated by
any Environmental Laws.
(iv) "Hazardous Materials Contamination" shall mean the
contamination (whether presently existing or hereafter occurring) of the
improvements, facilities, soil, groundwater, air or other elements on or
at the location of the Company at 211 West Wall Street, Midland, Texas
79701, or at any other location where the Company conducts or has
conducted business (collectively, the "Business Location") by Hazardous
Materials, or the contamination of the buildings, facilities, soil,
groundwater, air or other elements on or any other specific property or
general area, as a result of Hazardous Materials emanating from the
operations of the Company's business.
Notwithstanding the foregoing, if any Environmental Law is amended so
as to broaden the meaning of any term defined in it, such broader meaning
shall apply subsequent to the effective date of such amendment. Where a
defined term in this Agreement derives its meaning from a statutory
reference, for the purposes of this Agreement any regulatory definition
promulgated pursuant to the applicable statute shall be deemed to be
applicable to the extent its definition is broader than the statutory
reference and any reference or citation to a statute or regulation shall be
deemed to include any amendments to that statute or regulation and judicial
and administrative interpretations of it. To the extent that any state laws
or regulations establish a meaning for a term defined in this Agreement
through reference to a federal Environmental Law that is broader than the
meaning specified in such federal Environmental Law, such broader meaning
set forth in the state Environmental Law shall apply. Any specific
references to a law shall include any amendments to it promulgated from
time to time.
(b) Representations and Warranties. Based on the foregoing, the
Company and LITCO jointly and severally represent and warrant that, to
their best knowledge and belief:
(i) There has been no failure by the Company to comply with all
applicable requirements of Environmental Laws relating to the Company,
the Company's operations, and the Company's manufacture, processing,
distribution, use, treatment, generation, recycling, reuses, sale,
storage, handling, transportation or disposal of any Hazardous Material
and neither the Company nor LITCO is aware of any facts or circumstances
which could materially impair such compliance with all applicable
Environmental Laws.
(ii) Neither LITCO nor the Company has, through the Closing Date,
received notice from any Governmental Authority or any other person of
any actual or alleged violation of any Environmental Laws, nor is any
such notice anticipated.
8
<PAGE> 126
(iii) Neither the Company nor LITCO will do or permit anything that
will cause the Company to be in violation of any requirements of
Environmental Laws, or do or permit anything to be done that would
materially and adversely affect the financial condition of the Company
or subject the Company to any enforcement actions under any
Environmental Laws.
(iv) The Company has not obtained and is not required to obtain any
permits, licenses or similar authorizations to construct, occupy,
operate or use any buildings, improvements, fixtures and equipment owned
or leased by the Company by reason of any Environmental Laws.
(v) No Hazardous Materials are now located at the Business
Location, and neither LITCO nor the Company has ever caused or permitted
any Hazardous Materials to be generated, placed, stored, held, handled,
located or used at the Business Location, any part thereof or at any
other site controlled or utilized by the Company in its operation of its
business.
(vi) Hazardous Materials Contamination does not now and has never
existed on, in, under or at the location of the Company or at any other
site controlled or utilized by the Company in the operation of its
business. No part of the Business Location or any other site controlled
or utilized by the Company in the operation of its business is being
used has ever been used by others for the release, disposal or long-term
storage of Hazardous Materials, nor is any part of the Business Location
or any other site controlled or utilized by the Company in the operation
of its business otherwise affected by Hazardous Materials Contamination.
(vii) No investigation, administrative order, consent order or
agreement, litigation or settlement with respect to Hazardous Materials
or Hazardous Materials Contamination is proposed, threatened,
anticipated, pending or otherwise in existence with respect to the
Business Location or with respect to any other site controlled or
utilized by the Company in the operation of its business. The Business
Location is not currently on, and has never been on, any federal or
state "Superfund" or "Superlien" list.
4.16 Intellectual Property. There are no patents, patent applications,
trade names, trademark or service mark registrations or applications, registered
trade dress rights, common law trademarks or copyright registrations or
applications owned by the Company or which the Company is licensed to use. To
the best knowledge and belief of the Company and LITCO, there are no claims that
any product, activity or operation of the Company infringes upon or involves, or
has resulted in the infringement of, any patents, patent applications, trade
names, trademark or service mark registrations or applications, registered trade
dress rights, common law trademarks or copyright registrations or applications
or any other proprietary right of any other person, corporation or other entity;
and no proceedings have been instituted, are pending or are threatened with
respect thereto.
4.17 Insurance. The Company has no insurance policies in effect.
4.18 Contracts. Except as set forth herein, the Company has no material
contracts, leases, arrangements and commitments (whether oral or written). The
Company is not a party to or bound by or affected by any contract, lease,
arrangement or commitment (whether oral or written) relating to: (a) the
employment of any person; (b) collective bargaining with, or any representation
of any employees by, any labor union or association; (c) the acquisition of
services, supplies, equipment or other personal property; (d) the purchase or
sale of real property; (e) distribution, agency or construction; (f) lease of
real or personal property as lessor or lessee or sublessor or sublessee; (g)
lending or advancing of funds; (h) borrowing of funds or receipt of credit; (i)
incurring of any obligation or liability; or (j) the sale of personal property.
4.19 Litigation. The Company is not subject to any judgment or order of
any court or quasijudicial or administrative agency of any jurisdiction,
domestic or foreign, nor is there any charge, complaint, lawsuit or governmental
investigation pending or, to the best knowledge of the Company and LITCO,
threatened against the Company. The Company is not a plaintiff in any action,
domestic or foreign, judicial or administrative. There are no existing actions,
suits, proceedings or investigations of the Company, and neither the Company nor
LITCO know of any basis for such actions, suits, proceedings or investigations.
There are no unsatisfied
9
<PAGE> 127
judgments, orders, writs, injunctions, decrees or stipulations affecting the
Company or to which the Company is a party.
4.20 Employees. Except as set forth on Schedule 4.20 hereto, the Company
does not have any employees. The Company does not owe any compensation, bonuses,
profit sharing, pension, retirement, stock options or related appreciation
rights, deferred or otherwise, to any current or previous employees. The Company
has no written or oral employment agreements with any officer or director of the
Company. The Company is not a party to or bound by any collective bargaining
agreement. There are no loans or other obligations payable or owing by the
Company to any shareholder, officer, director or employee of the Company, nor
are there any loans or debts payable or owing by any of such persons to the
Company or any guarantees by the Company of any loan or obligation of any nature
to which any such person is a party.
4.21 Employee Benefit Plans. The Company has no (a) non-qualified deferred
or incentive compensation or retirement plans or arrangements, (b) qualified
retirement plans or arrangements, (c) other employee compensation, severance or
termination pay or welfare benefit plans, programs or arrangements or (d) any
related trusts, insurance contracts or other funding arrangements maintained,
established or contributed to by the Company within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The Company does not have any liability under Title IV of ERISA as a result of
actions or events occurring prior to the Closing.
4.22 Legal Compliance. No claim has been filed against the Company
alleging a violation of any applicable laws and regulations of foreign, federal,
state and local governments and all agencies thereof. The Company holds all of
the material permits, licenses, certificates or other authorizations of foreign,
federal, state or local governmental agencies required for the conduct of its
business as presently conducted.
4.23 Broker's Fees. Neither the Company, LITCO nor anyone on their behalf
has any liability to any broker, finder, investment banker or agent, or has
agreed to pay any brokerage fees, finder's fees or commissions, or to reimburse
any expenses of any broker, finder, investment banker or agent in connection
with the Merger or any similar transaction.
4.24 Disclosure. The representations and warranties and statements of fact
made by the Company and LITCO in this Agreement and in any Schedule hereto are,
as applicable, accurate, correct and complete and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained herein or therein not
misleading.
4.25 Bank Accounts. Except as set forth on Schedule 4.25 hereto, the
Company does not have any account, instrument of deposit or safe deposit box.
4.26 Information Supplied. None of the information supplied by the Company
or LITCO for use in the Registration Statement and contained therein will, as of
the date that the Registration Statement is filed with the Commission, on the
date it is declared effective or at the time of the meeting of the shareholders
of the Company to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The proxy
statement contained in the Registration Statement will comply, in all material
respects, as to form with the provisions of the Exchange Act.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 Conduct of Business by the Company Pending the Closing. The Company
and LITCO jointly and severally covenant and agree that prior to the Closing
Date:
(a) The Company shall conduct its business and operations only in the
usual and ordinary course of business and consistent with past custom and
practice;
10
<PAGE> 128
(b) The Company shall not directly or indirectly do any of the
following: (i) sell, pledge, dispose of or encumber any of its assets,
except for the repayment of indebtedness owed to LITCO in the amount of
$6,040.00; (ii) amend or propose to amend its Articles of Incorporation or
By-Laws; (iii) split, combine or reclassify any outstanding shares of its
capital stock, or declare, set aside or pay any dividend or other
distribution payable in cash, stock, property or otherwise with respect to
shares of its capital stock; (iv) redeem, purchase or acquire or offer to
acquire any shares of its capital stock or other securities; (v) create any
subsidiaries; or (vi) enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(c) The Company shall not, and with respect to the applicable matters
set forth in this Section 5.1(c)(i) and (iv), LITCO shall not, (i) issue,
sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of,
any additional shares of, or any options, warrants, conversion privileges
or rights of any kind to acquire any shares of, its capital stock; (ii)
acquire (by merger, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization or
division or the material assets thereof; (iii) incur any indebtedness for
borrowed money, issue any debt securities or guarantee any indebtedness to
others; or (iv) enter into or modify any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(d) The Company shall not enter into any employment, severance or
similar agreements or arrangements with, or grant any bonus, salary
increase, severance or termination pay to, any officers or directors;
(e) The Company shall not adopt any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee;
(f) Except as otherwise required by its Articles of Incorporation or
By-Laws, by this Agreement or by applicable law, neither the Company nor
LITCO shall call any meeting of shareholders;
(g) The Company and LITCO shall (i) use their best efforts not to take
any action which would render, or which reasonably may be expected to
render, any representation or warranty made by them in this Agreement
untrue at any time prior to the Closing Date as if then made; and (ii)
notify Index of any emergency or other change in the normal course of its
business or in the operation of its properties and of any tax audits, tax
claims, governmental or third party complaints, investigations or hearings
(or communications indicating that the same may be contemplated) if such
emergency, change, audit, claim, complaint, investigation or hearing would
be material, individually or in the aggregate, to the financial condition,
results of operations or business of the Company, or to the ability of any
of the parties hereto to consummate the transactions contemplated by this
Agreement;
(h) The Company and LITCO shall notify Index promptly of any material
adverse event or circumstance affecting the Company (including the filing
of any material litigation against the Company or the existence of any
dispute with any person or entity which involves a reasonable likelihood of
such litigation being commenced); and
(i) The Company shall comply with all legal requirements and
contractual obligations applicable to its operations and business and pay
all applicable taxes.
5.2 Other Actions. Unless approved in writing by Index, the Company and
LITCO shall not take any action or permit any action to occur that might
reasonably be expected to result in any of the representations and warranties of
the Company and LITCO contained in this Agreement becoming untrue after the date
hereof or any of the conditions to the Closing set forth in Article 7 of this
Agreement not being satisfied.
11
<PAGE> 129
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access and Information. Except for information relating to any claims
any party may have against the other, the Company and Index shall each afford to
the other and to the other's financial advisors, legal counsel, accountants,
consultants and other representatives full access during normal business hours
throughout the period prior to the Effective Time to all of its books, records,
properties and personnel and, during such period, each shall furnish promptly to
the other (a) a copy of each report, schedule and other document filed or
received by it pursuant to the requirements of federal or state securities laws,
and (b) all other information as such other party may reasonably request. Each
party shall hold in confidence all non-public information until such time as
such information is otherwise publicly available and, if this Agreement is
terminated, each party will upon written request deliver to the other all
documents, work papers and other material obtained by such party or on its
behalf from the other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof. As soon as
practicable following the Closing, the Company shall deliver to Index all of the
books and records of the Company.
6.2 Registration Statement. Index and the Company shall cooperate in
preparing a registration statement on Form S-4 and combined prospectus and proxy
statement, any amendments or supplements thereto and any notices, reports,
letters, proxies or other materials required to be filed with the Commission in
connection with the Merger and the Sepco Merger (collectively, the registration
statement and combined prospectus and proxy statement, any amendments or
supplements thereto and any notices, reports, letters, proxies or other
materials required to be filed with the Commission in connection with the Merger
and the Sepco Merger are herein referred to as the "Registration Statement").
The parties shall cooperate with each other in providing any information that
the other party may reasonably request to aid in the preparation of the
Registration Statement. The parties will use their commercially reasonable
efforts to respond to the comments of the Commission with respect to the
Registration Statement and will make any further filing (including amendments
and supplements) in connection therewith that may be necessary, proper or
advisable. Index will provide the Company, and the Company will provide Index,
with whatever information and assistance in connection with the foregoing
filings that the filing party reasonably may request. Index will take all
actions that may be necessary, proper or advisable under state securities laws
in connection with the offering and issuance of Index Common Stock as
contemplated herein.
6.3 Meetings of Shareholders.
(a) The Company shall promptly take all action reasonably necessary in
accordance with the NMBCA and its Articles of Incorporation and By-Laws to
convene a meeting of its shareholders to consider and vote upon the
adoption and approval of the Merger and this Agreement. The Company (i)
shall recommend at such meeting, through its Board of Directors, that the
shareholders of the Company vote to adopt and approve the Merger and this
Agreement, (ii) shall use its reasonable efforts to solicit from
shareholders of the Company proxies in favor of such adoption and approval
and (iii) shall take all other action reasonably necessary to secure a vote
of its shareholders in favor of the adoption and approval of the Merger and
this Agreement.
(b) The Merger Sub shall call a special meeting of its sole
stockholder prior to the Effective Time to be held in accordance with the
laws of the State of Nevada to consider and vote upon the Merger. The
parties hereto acknowledge and agree that the Merger Sub's sole stockholder
may approve the Merger by written consent in lieu of holding such a
meeting.
(c) Index shall call a special meeting of its shareholders prior to
the Effective Time to be held in accordance with the laws of the State of
Texas to consider and vote upon the Sepco Merger.
6.4 Press Releases. The Company and Index shall consult with each other as
to the form and substance of any press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated
hereby; provided, however, that nothing in this Section 6.4 shall be deemed to
prohibit any party
12
<PAGE> 130
hereto from making any disclosure that is required to fulfill such party's
disclosure obligations imposed by law, including, without limitation, federal
securities laws.
6.5 Reimbursement of LITCO. On or before the Closing Date, the Company
shall pay to LITCO the amount of $6,040.00 in order to reimburse LITCO for
expenses incurred for the benefit of the Company, which payment is not objected
to by Index.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party to Effect the Closing. The
respective obligations of each party to effect the Closing shall be subject to
the fulfillment on or prior to the Closing Date of the following conditions:
(a) The Registration Statement shall have been declared effective by
the Commission and no stop order with respect thereto shall be in effect;
(b) The Merger shall have been approved by the shareholders of Index
and the Company and the stockholder of the Merger Sub, respectively, in
accordance with the laws of the States of Texas, New Mexico and Nevada,
respectively;
(c) The Sepco Merger shall have been approved by the shareholders and
stockholders of Index and Sepco and the stockholder of Sepco Acquisition
Corporation, respectively in accordance with the laws of the States of
Texas and Nevada, respectively; and
(d) No order, injunction or decree shall have been entered and remain
in effect in any action or proceeding before any foreign, federal or state
court or governmental agency or other foreign, federal or state regulatory
or administrative agency or commission that would prevent or make illegal
the consummation of the transactions contemplated hereby.
7.2 Additional Conditions to Index's and the Merger Sub's Obligations. The
obligations of each of Index and the Merger Sub to effect the Closing are
subject to the satisfaction of the following additional conditions on or before
the Closing Date:
(a) The representations and warranties set forth in Article 4 of this
Agreement will be true and correct in all material respects as of the date
hereof and at and as of the Closing Date as though then made;
(b) The Company and LITCO shall have performed, in all material
respects, each obligation and agreement and complied with each covenant to
be performed and complied with by them under Articles 5 and 6 of this
Agreement prior to the Closing Date;
(c) All consents by governmental or regulatory agencies or otherwise
that are required for the consummation of the transactions contemplated
hereby or that are required for Index to own, operate or control the
Company or any portion of the assets of the Company to prevent a breach of
or a default under or a termination of any agreement material to the
Company to which the Company is a party or to which any material portion of
the assets of the Company is subject, will have been obtained;
(d) No action or proceeding before any court or governmental body will
be pending or threatened wherein a judgment, decree or order would prevent
or restrain any of the transactions contemplated hereby or cause such
transactions to be declared unlawful, nullified or rescinded or which might
adversely affect the right of Index to own, operate or control the Company;
(e) Index and its financial and legal advisors shall have completed a
due diligence review of the business, operations and financial statements
of the Company, the results of which shall be satisfactory to Index in its
sole discretion;
13
<PAGE> 131
(f) Index will have received from Matthew Blair, Esq., counsel to the
Company, an opinion addressed to Index, dated the Closing Date and
substantially in the form attached hereto as Exhibit A;
(g) No event shall have occurred prior to the Closing which in the
reasonable judgment of Index or the Merger Sub, would materially affect the
purpose of the Merger; and
(h) At the Closing, the Company shall have delivered or caused to be
delivered to Index the following:
(i) a certificate executed by the President and Secretary of both
the Company and LITCO stating that the conditions set forth in Sections
7.2(a) through (d) of this Agreement have been satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's and LITCO's Boards of Directors authorizing and approving the
Merger and the execution, delivery and performance of this Agreement;
(iii) certified copies of resolutions duly adopted by the Company's
and LITCO's shareholders authorizing and approving the Merger and the
execution, delivery and performance of this Agreement;
(iv) certificates of good standing or comparable certificates for
the Company from the Secretary of State of the State of New Mexico and
for LITCO from the Secretary of State of the State of Texas and from
every jurisdiction where a failure to be qualified or licensed would
have a material adverse effect on its financial condition, results of
operations or business, dated not earlier than five days prior to the
Closing Date;
(v) a certificate of existence or comparable certificates for LITCO
from the Secretary of State of the State of Texas and for the Company
from the Secretary of State of the State New Mexico, dated not earlier
than five days prior to the Closing Date;
(vi) a copy of each of the Company's and LITCO's Articles of
Incorporation certified as of a recent date by the Secretary of State of
the States of New Mexico and Texas, respectively;
(vii) an incumbency certificate of the officers of the Company and
LITCO;
(viii) resignations from the officers and directors of the Company,
dated as of the Effective Time; and
(ix) such other documents as Index may reasonably request in
connection with the transactions contemplated hereby.
7.3 Additional Conditions to the Company's and LITCO's Obligations. The
obligations of each of the Company and LITCO to effect the Closing are subject
to the satisfaction of the following conditions on or before the Closing Date:
(a) The representations and warranties set forth in Article 3 of this
Agreement will be true and correct in all material respects as of the date
hereof and at and as of the Closing Date as though then made;
(b) Index shall have performed, in all material respects, each
obligation and agreement and complied with each covenant required to be
performed and complied with by it under Article 6 of this Agreement prior
to the Closing Date;
(c) No action or proceeding before any court or governmental body will
be pending or threatened wherein a judgment, decree or order would prevent
any of the transactions contemplated hereby or cause such transactions to
be declared unlawful or rescinded;
14
<PAGE> 132
(d) The Company shall have received from Fouts & Moore, L.L.P.,
counsel to Index, an opinion addressed to the Company and LITCO, dated the
Closing Date and substantially in the form attached hereto as Exhibit B;
and
(e) On the Closing Date, Index shall have delivered to the Company the
following:
(i) a certificate executed on behalf of Index and the Merger Sub
stating that the conditions set forth in Sections 7.3(a) through (c) of
this Agreement have been satisfied;
(ii) certified copies of resolutions duly adopted by Index's and
the Merger Sub's Boards of Directors authorizing and approving the
Merger and the execution, delivery and performance of this Agreement;
(iii) certified copies of the resolutions duly adopted by the
shareholder of the Merger Sub authorizing and approving the Merger and
the execution, delivery and performance this Agreement;
(iv) certified copies of resolutions duly adopted by Index's Board
of Directors authorizing and approving the Sepco Merger and the
execution, delivery and performance of the Sepco Merger Agreement;
(v) certified copies of resolutions duly adopted by the
shareholders of Index authorizing and approving the Sepco Merger and the
execution, delivery and performance of the Sepco Merger Agreement;
(vi) certificate of existence for Index from the Secretary of State
of the State of Texas and certificate of existence for the Merger Sub
from the Secretary of State of Nevada, dated not earlier than five days
prior to the Closing Date;
(vii) a copy of Index's Articles of Incorporation certified by the
Secretary of State of the State of Texas;
(viii) a certificate of good standing for the Merger Sub from the
Secretary of State of the State of Nevada and a certificate of good
standing for Index from the Secretary of State of Texas, dated not
earlier than five days prior to the Closing Date;
(ix) a copy of the Merger Sub's Articles of Incorporation certified
by the Secretary of State of the State of Nevada;
(x) an incumbency certificate of the officers of Index and the
Merger Sub; and
(xi) such other material documents as the Company may reasonably
request in connection with the transactions contemplated hereby.
ARTICLE 8
REMEDIES
8.1 Indemnification by LITCO. Subject to the terms and conditions of this
Article 8, LITCO agrees to indemnify, defend and hold Index and its directors,
officers, agents, attorneys and affiliates harmless from and against all losses,
claims, actions, causes of action, fines, obligations, demands, assessments,
penalties, liabilities, costs, damages, attorneys' fees and expenses
(collectively, "Damages"), asserted against or incurred by any such person or
entity (i) by reason of or resulting from a breach of any representation,
warranty, non-fulfillment of any agreement or covenant of the Company or LITCO
contained in this Agreement or in any written statement, certificate or other
document to be delivered in connection herewith or (ii) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any part of the Registration Statement when such part became
effective, or in the Registration Statement or the prospectus contained therein,
as of its date, or any amendment or supplement thereto relating to information
furnished by the Company or LITCO to Index, or arise out of or are based upon
any omission or alleged omission to state
15
<PAGE> 133
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading relating to information furnished by the
Company or LITCO to Index.
8.2 Indemnification by Index. Subject to the terms and conditions of this
Article 8, Index hereby agrees to indemnify, defend and hold the Company and its
directors, officers, agents, attorneys and affiliates harmless from and against
all Damages asserted against or incurred by any such person or entity (i) by
reason of or resulting from a breach of any representation, warranty or covenant
of Index contained in this Agreement or (ii) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
part of the Registration Statement when such part became effective, or in the
Registration Statement or the prospectus contained therein, as of its date, or
any amendment or supplement thereto, or arise out of or are based upon any
omission or alleged omission to state therein not misleading; provided, however,
that Index shall not be liable to the Company or any of its directors, officers,
agents, attorneys or affiliates in any such case to the extent that any Damages
arise out of or are based upon an untrue statement or alleged untrue statement
or omission or alleged omission relating to information furnished by the Company
or LITCO to Index for inclusion in the Registration Statement.
8.3 Conditions of Indemnification. The respective obligations and
liabilities of LITCO and Index (the "indemnifying party") to the other (the
"party to be indemnified") under Sections 8.1 and 8.2 with respect to claims
resulting from the assertion of liability by third parties shall be subject to
the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party
written notice thereof together with a copy of such claim, process or other
legal pleading, and the indemnifying party shall have the right to
undertake the defense thereof by representatives of its own choosing and at
its own expense; provided that the party to be indemnified may participate
in the defense with counsel of its own choice, the fees and expenses of
which counsel shall be paid by the party to be indemnified unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party has failed to assume the defense of such action or (iii)
the named parties to any such action (including any impleaded parties)
include both the indemnifying party and the party to be indemnified and the
party to be indemnified has been advised by counsel that there may be one
or more legal defenses available to it that are different from or
additional to those available to the indemnifying party (in which case, if
the party to be indemnified informs the indemnifying party in writing that
it elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the
defense of such action on behalf of the party to be indemnified, it being
understood, however, that the indemnifying party shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for the
party to be indemnified, which firm shall be designated in writing by the
party to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day
preceding the day on which an answer or other pleading must be served in
order to prevent judgment by default in favor of the person asserting such
claim), does not elect to defend against such claim, the party to be
indemnified will (upon further notice to the indemnifying party) have the
right to undertake the defense, compromise or settlement of such claim on
behalf of and for the account and risk of the indemnifying party and at the
indemnifying party's expense, subject to the right of the indemnifying
party to assume the defense of such claims at any time prior to settlement,
compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless
such settlement involves only the payment of money and the claimant
provides to the party to be indemnified a release from all liability in
respect of such claim. If the settlement of the claim involves more than
the payment of money, the indemnifying party shall not settle the claim
without the prior consent of the party to be indemnified.
16
<PAGE> 134
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
8.4 Waiver. No waiver by any party of any default or breach by another
party of any representation, warranty, covenant or condition contained in this
Agreement shall be deemed to be a waiver of any subsequent default or breach by
such party of the same or any other representation, warranty, covenant or
condition. No act, delay, omission or course of dealing on the part of any party
in exercising any right, power or remedy under this Agreement or at law or in
equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
8.5 Remedies Not Exclusive. The remedies provided in this Article 8 shall
not be exclusive of any other rights or remedies available to one party against
the other, either at law or in equity.
ARTICLE 9
TERMINATION
9.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by the
mutual consent of the parties hereto.
9.2 Termination by Any Party. This Agreement may be terminated and the
Merger may be abandoned by action of the Board of Directors of any party hereto
if a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause shall have
used all reasonable efforts to remove such injunction, order or decree.
9.3 Termination by Index. This Agreement may be terminated by Index upon
written notice if the Closing has not occurred by December 31, 1996.
9.4 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article 9, all
obligations of the parties hereto shall terminate, except the obligations of the
parties pursuant to Section 6.1.
9.5 Material Breach. This Agreement may be terminated if a material breach
of this Agreement has occurred and such breach has not been cured by the
breaching party within ten business days of receipt of written notice from a
non-breaching party detailing such breach.
17
<PAGE> 135
ARTICLE 10
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
sent by overnight courier or mailed by registered or certified mail (postage
prepaid and return receipt requested) to the party to whom the same is so
delivered, sent or mailed at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Index or the Merger Sub:
David R. Little, President
580 Westlake Park Boulevard
Suite 1100
Houston, Texas 77079
Phone: (713) 558-4448
Fax: (713) 558-4448
with a copy to:
Gary A. Messersmith, Esq.
Fouts & Moore, L.L.P.
5555 San Felipe, 17th Floor
Houston, Texas 77066-2726
(b) if to the Company or LITCO:
Glenn A. Little, President
211 West Wall Street
Midland, Texas 79701-4506
Phone: (800) 351-4515
Fax: (915) 682-2560
with a copy to:
Matthew Blair, Esq.
4419 Tanforan
Midland, Texas 79701
10.2 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated.
10.3 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated and the parties shall negotiate
in good faith to modify this Agreement to preserve each party's anticipated
benefits under this Agreement.
10.4 Miscellaneous. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties with respect to the subject matter hereof; (b) except as
expressly set forth herein, is not intended to confer upon any other person any
rights or remedies hereunder and (c) shall not be assigned by operation of law
or otherwise, except that Index may assign all or any portion of its rights
under this Agreement to any wholly-owned subsidiary but no such assignment shall
relieve Index of its obligations hereunder, and except that this Agreement may
be assigned by operation of law to any corporation with or into which Index may
be merged.
10.5 Separate Counsel. Each party hereby expressly acknowledges that it
has been advised and urged to seek its own separate legal counsel for advice
with respect to this Agreement.
18
<PAGE> 136
10.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF
TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
10.8 Amendment. This Agreement may be amended, modified or supplemented
only by an instrument in writing executed by all parties hereto.
10.9 Parties In Interest: No Third Party Beneficiaries. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. This Agreement
shall not be deemed to confer upon any person not a party hereto any rights or
remedies hereunder.
10.10 Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
10.11 Expenses. The parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel and financial
advisers.
10.12 Survival. The representations, warranties and covenants contained
herein shall survive the Closing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
INDEX, INC.
By: /s/ DAVID R. LITTLE
- ------------------------------------
David R. Little, President
NEWMAN ACQUISITION CORPORATION
By: /s/ DAVID R. LITTLE
- ------------------------------------
David R. Little, President
NEWMAN COMMUNICATIONS
CORPORATION
By: /s/ GLENN A. LITTLE
- ------------------------------------
Glenn A. Little, President
LITTLE & COMPANY INVESTMENT
SECURITIES
By: /s/ GLENN A. LITTLE
- ------------------------------------
Glenn A. Little, President
19
<PAGE> 137
SCHEDULE 4.2
The Company currently has 1,650,000 Class C Warrants outstanding. Each
Class C Warrant allows the holder to purchase one share of Company Common Stock
at $2.00 per share until November 22, 1996. The form of the Class C Warrant
certificate is attached as Exhibit A hereto.
<PAGE> 138
SCHEDULE 4.9
The Company will issue 1,693,564 shares of Company Common Stock to Halter
Financial Group, Inc., a Texas corporation subsequent to the date of this
Agreement.
<PAGE> 139
SCHEDULE 4.20
<TABLE>
<CAPTION>
NAME OF EMPLOYEE: POSITIONS:
- ------------------------------------------------ --------------------------------------------------
<S> <C>
Glenn A. Little................................. Chairman of the Board and President
Patricia de Little.............................. Director, Vice President, Secretary and Treasurer
</TABLE>
<PAGE> 140
SCHEDULE 4.25
BANK ACCOUNTS
<TABLE>
<S> <C>
NationsBank of Texas, N.A. Sunwest Bank of Albuquerque, N.A.
Post Office Box 831547 Post Office Box 25500
Dallas, Texas 75283-1547 Albuquerque, New Mexico 87125-0500
(800) 462-6289 (505) 765-2600
Business Economy Checking Funds Checking
Account Number 423-003953-7 Account Number 00-0109-652297
</TABLE>
<PAGE> 141
APPENDIX C:
ARTICLES 5.12 AND 5.13 OF THE TEXAS
BUSINESS CORPORATION ACT
<PAGE> 142
ARTICLES 5.12 AND 5.13 OF THE TEXAS BUSINESS CORPORATION ACT
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving or
new corporation (foreign or domestic) or other entity, as the case may be,
for payment of the fair value of the shareholder's shares. The fair value
of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
C-1
<PAGE> 143
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be
C-2
<PAGE> 144
treated as provided in the plan of merger and, in all other cases, may be held
and disposed of by the corporation as in the case of other treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
C-3
<PAGE> 145
APPENDIX D:
SECTIONS 53-15-3 AND 53-15-4 OF THE
NEW MEXICO BUSINESS CORPORATION ACT
<PAGE> 146
SECTIONS 53-15-3 AND 53-15-4 OF THE NEW MEXICO BUSINESS CORPORATION ACT
53-15-3 RIGHT OF SHAREHOLDERS TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
A. Any shareholder of a corporation may dissent from, and obtain payment
for the shareholder's shares in the event of, any of the following corporate
actions:
(1) any plan of merger or consolidation to which the corporation is a
party, except as provided in Subsection C of this section;
(2) any sale or exchange of all or substantially all of the property
and assets of the corporation not made in the usual and regular course of
its business, including a sale in dissolution, but not including a sale
pursuant to an order of a court having jurisdiction in the premises or a
sale for cash on terms requiring that all or substantially all of the net
proceeds of sale be distributed to the shareholders in accordance with
their respective interests within one year after the date of sale;
(3) any plan of exchange to which the corporation is a party as the
corporation the shares of which are to be acquired;
(4) any amendment of the articles of incorporation which materially
and adversely affects the rights appurtenant to the shares of the
dissenting shareholder in that it:
(a) alters or abolishes a preferential right of such shares;
(b) creates, alters or abolishes a right in respect of the
redemption of such shares, including a provision respecting a sinking
fund for the redemption or repurchase of such shares;
(c) alters or abolishes an existing preemptive right of the holder
of such shares to acquire shares or other securities; or
(d) excludes or limits the right of the holder of such shares to
vote on any matter, or to cumulate his votes, except as such right may
be limited by dilution through the issuance of shares or other
securities with similar voting rights; or
(5) any other corporate action taken pursuant to a shareholder vote
with respect to which the articles of incorporation, the bylaws or a
resolution of the board of directors directs that dissenting shareholders
shall have a right to obtain payment for their shares.
(1) A record holder of shares may assert dissenters' rights as to
less than all of the shares registered in his name only if the holder
dissents with respect to all the shares beneficially owned by any one
person and discloses the name and address of the person or persons on
whose behalf the holder dissents. In that event, his rights shall be
determined as if the shares as to which he has dissented and his other
shares were registered in the names of different shareholders.
(2) A beneficial owner of shares who is not the record holder may
assert dissenters' rights with respect to shares held on his behalf, and
shall be treated as a dissenting shareholder under the terms of this
section and Section 53-15-4 NMSA 1978 if he submits to the corporation
at the time of or before the assertion of these rights a written consent
of the record holder.
C. The right to obtain payment under this section shall not apply to the
shareholders of the surviving corporation in a merger if a vote of the
shareholders of such corporation is not necessary to authorize such merger.
D. A shareholder of a corporation who has a right under this section to
obtain payment for his shares shall have no right at law or in equity to attack
the validity of the corporate action that gives rise to his right to obtain
payment, nor to have the action set aside or rescinded, except when the
corporate action is unlawful or fraudulent with regard to the complaining
shareholder or to the corporation.
D-1
<PAGE> 147
53-15-4 RIGHTS OF DISSENTING SHAREHOLDERS.
A. Any shareholder electing to exercise his right of dissent shall file
with the corporation, prior to or at
the meeting of shareholders at which the proposed corporate action is submitted
to a vote, a written objection to the proposed corporate action. If the proposed
corporate action is approved by the required vote and the shareholder has not
voted in favor thereof, the shareholder may, within ten days after the date on
which the vote was taken or if a corporation is to be merged without a vote of
its shareholders into another corporation any of its shareholders may, within
twenty-five days after the plan of the merger has been mailed to the
shareholders, make written demand on the corporation, or, in the case of a
merger or consolidation, on the surviving or new corporation, domestic or
foreign, for payment of the fair value of the share holder's shares, and, if the
proposed corporate action is effected, the corporation shall pay to the
shareholder, upon the determination of the fair value, by agreement or judgment
as provided herein, and, in the case of shares represented by certificates, the
surrender of such certificates the fair value thereof as of the day prior to the
date on which the vote was taken approving the proposed corporate action,
excluding any appreciation or depreciation in anticipation of the corporate
action. Any shareholder failing to make demand within the prescribed ten-day or
twenty-five-day period shall be bound by the terms of the proposed corporate
action. Any shareholder making such demand shall thereafter be entitled only to
payment as in this section provided and shall not be entitled to vote or to
exercise any other rights of a shareholder.
B. No such demand may be withdrawn unless the corporation consents thereto.
If, however, the demand is withdrawn upon consent, or if the proposed corporate
action is abandoned or rescinded or the shareholders revoke the authority to
effect the action, or if, in the case of a merger, on the date of the filing of
the articles of merger the surviving corporation is the owner of all the
outstanding shares of the other corporation, domestic and foreign, that are
parties to the merger, or if no demand or petition for the determination of
their value by a court has been made or filed within the time provided in this
section, or if a court of competent jurisdiction determines that the shareholder
is not entitled to the relief provided by this section, then the right of the
shareholder to be paid the fair value of his shares ceases and his status as a
shareholder shall be restored, without prejudice, to any corporate proceedings
which may have been taken during the interim.
C. Within ten days after such corporate action is effected, the
corporation, or, in the case of a merger or consolidation, the surviving or new
corporation, domestic or foreign, shall give written notice thereof to each
dissenting shareholder who has made demand as provided in this section and shall
make a written offer to each such shareholder to pay for such shares at a
specified price deemed by the corporation to be the fair value thereof. The
notice and offer shall be accompanied by a balance sheet of the corporation, the
shares of which the dissenting shareholder holds, as of the latest available
date and not more than twelve months prior to the making of the offer, and a
profit and loss statement of the corporation for the twelve-months' period ended
on the date of the balance sheet.
D. If within thirty days after the date on which the corporate action was
effected the fair value of the shares is agreed upon between any dissenting
shareholder and the corporation, payment therefor shall be made within ninety
days after the date on which the corporate action was effected, and, in the case
of shares represented by certificates, upon surrender of the certificates. Upon
payment of the agreed value, the dissenting shareholder shall cease to have any
interest in the share.
E. If, within the period of thirty days, a dissenting shareholder and the
corporation do not so agree, then the corporation, within thirty days after
receipt of written demand from any dissenting shareholder, given within sixty
days after the date on which corporate action was effected, shall, or at its
election at any time within the period of sixty days may, file a petition in any
court of competent jurisdiction in the county in this state where the registered
office of the corporation is located praying that the fair value of the shares
be found and determined. If, in the case of a merger or consolidation, the
surviving or new corporation is a foreign corporation without a registered
office in this state, the petition shall be filed in the county where the
registered office of the domestic corporation was last located. If the
corporation fails to institute the proceeding as provided in this section, any
dissenting shareholder may do so in the name of the corporation. All dissenting
shareholders, wherever residing, shall be made parties to the proceeding as an
action against their shares quasi in rem. A copy of the petition shall be served
on each dissenting shareholder who is a resident of this state and
D-2
<PAGE> 148
shall be served by registered or certified mail on each dissenting shareholder
who is a nonresident. Service on nonresidents shall also be made by publication
as provided by law. The jurisdiction of the court shall be plenary and
exclusive. All shareholders who are parties to the proceeding shall be entitled
to judgment against the corporation for the amount of the fair value of their
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as specified in the
order of their appointment or on an amendment thereof. The judgment shall be
payable to the holders of uncertificated shares immediately, but to the holders
of shares represented by certificates only upon and concurrently with the
surrender to the corporation of certificates. Upon payment of the judgment, the
dissenting shareholder ceases to have any interest in the shares.
F. The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable, in all the circumstances, from the date
on which the vote was taken on the proposed corporate action to the date of
payment.
G. The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of the
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding to whom the corporation made an offer to pay for the shares if the
court finds that the action of the shareholders in failing to accept the offer
was arbitrary or vexatious or not in good faith. Such expenses include
reasonable compensation for and reasonable expenses of the appraisers, but
exclude the fees and expenses of counsel for and experts employed by any party;
but if the fair value of the shares as determined materially exceeds the amount
which the corporation offered to pay therefor, or if no offer was made, the
court in its discretion may award to any shareholder who is a party to the
proceeding such sum as the court determines to be reasonable compensation to any
expert employed by the shareholder in the proceeding, together with reasonable
fees of legal counsel.
H. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty days after demanding payment for his shares, each holder
of shares represented by certificates demanding payment shall submit the
certificates to the corporation for notation thereon that such demand has been
made. His failure to do so shall, at the option of the corporation, terminate
his rights under this section unless a court of competent jurisdiction, for good
and sufficient cause shown, otherwise directs. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made is [are] transferred, any new certificate issued
therefor shall bear similar notation, together with the name of the original
dissenting holder of the shares, and a transferee of the shares acquires by such
transfer no rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of the fair value
thereof.
I. Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this section
provided, may be held and disposed of by the corporation as in the case of other
treasury shares, except that, in the case of a merger or consolidation, they may
be held and disposed of as the plan of merger or consolidation may otherwise
provide.
D-3
<PAGE> 149
APPENDIX E:
ARTICLES OF INCORPORATION OF THE COMPANY
<PAGE> 150
RESTATED ARTICLES OF INCORPORATION
OF
INDEX, INC.
ARTICLE ONE
Index, Inc., pursuant to the provisions of Article 4.07 of the Texas
Business Corporation Act, hereby adopts restated articles of incorporation which
accurately copy the articles of incorporation and all amendments thereto that
are in effect to date and as further amended by such restated articles of
incorporation as hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE TWO
The articles of incorporation of the corporation are amended by the
restated articles of incorporation as follows:
The total number of shares of stock of all classes which the
Corporation shall have authority to issue has been increased from
102,000,000 shares to 110,000,000 shares. Further, the designated Common
Stock, Preferred Stock and Convertible Preferred Stock have each been
designated as a series.
ARTICLE THREE
Each such amendment made by the restated articles of incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
and such restated articles of incorporation and each such amendment made by the
restated articles of incorporation were duly adopted by the shareholders of the
corporation on the 2nd day of August, 1996.
ARTICLE FOUR
The number of shares outstanding was 100, and the number of shares entitled
to vote on the restated articles of incorporation as so amended was 100. All of
the shareholders have signed a written consent to the adoption of such restated
articles of incorporation as so amended pursuant to Article 9.10 and any written
notice required by Article 9.10 has been given.
ARTICLE FIVE
The articles of incorporation and all amendments and supplements thereto
are hereby superseded by the following restated articles of incorporation which
accurately copy the entire text thereof and as amended as above set forth:
ARTICLE I
NAME
The name of the Corporation is Index, Inc. (the "Corporation").
ARTICLE II
DURATION
The period of its duration is perpetual.
E-1
<PAGE> 151
ARTICLE III
PURPOSE
The purpose or purposes for which the Corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the Act.
ARTICLE IV
CAPITAL STOCK
The total number of shares of stock of all classes which the Corporation
shall have the authority to issue is 110,000,000, of which 100,000,000 shares of
the par value of $.01 each shall be designated common stock ("Common Stock") and
10,000,000 shares of the par value of $1.00 each shall be designated serial
preferred stock ("Preferred Stock"). A statement of all of the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof in respect of the Common Stock and the Preferred Stock is as follows:
A. Common Stock.
1. Dividends. Subject to any rights of the Preferred Stock or any series
thereof and the conditions set forth in paragraph B of this Article IV or in any
resolution of the Board of Directors of the Corporation providing for the
issuance of any series of Preferred Stock, the holders of the Common Stock shall
be entitled to receive, when, as and if declared by the Board of Directors, out
of funds legally available therefor, dividends payable in cash, stock or
otherwise.
2. Voting Rights. Each holder of Common Stock shall be entitled to one vote
for each share held on each matter presented to shareholders generally.
Notwithstanding the foregoing, the Corporation may, without the approval or
consent of any holder of the Common Stock, amend these Articles of Incorporation
in any manner that would solely effect changes in the preferences, limitations
and relative rights of one or more series of stock of the corporation which has
been established pursuant to the authority granted the Board of Directors of the
corporation pursuant to paragraph B of this Section 2 if (x) such amendment is
approved by the holders of a majority of the outstanding shares of the series of
stock so affected and (y) the preferences, limitations and relative rights of
such series after giving effect to such amendment and of any new series that may
be established as a result of a reclassification of such series are, in each
case, no greater than those preferences, limitations and rights permitted to be
fixed and determined by the Board of Directors of the corporation with respect
to the establishment of any new series of shares pursuant to the authority
granted the Board of Directors of the corporation in these Articles of
Incorporation.
B. Preferred Stock.
1. Authorized Shares. The Preferred Stock may be divided into and issued in
one or more series. Of the 10,000,000 authorized shares of Preferred Stock, (i)
1,000,000 shares have been designated as Series A Preferred Stock (the "Series A
Preferred Stock"), (ii) 1,000,000 shares have been designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock") and (iii) 8,000,000
shares are available for future designation as provided herein.
2. Series A Preferred Stock
The holders of the Series A Preferred Stock shall have the following rights
and preferences:
(a) Dividends. The holders of Series A Preferred Stock shall not as a
matter of right be entitled to be paid or receive or have declared or set
apart for such Series A Preferred Stock, any dividends or distributions of
the Corporation in respect thereof.
(b) Liquidation, Dissolution and Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the holders of the Series A Preferred Stock
shall be entitled to receive $100.00 in cash and no more for each share of
Series A Preferred Stock held by them, before any distribution of the
assets of the Corporation shall be made to the holders of any other
outstanding shares of the Corporation, unless funds necessary for such
payment
E-2
<PAGE> 152
shall have been set aside in trust for the account of the holders of
outstanding shares of Series A Preferred Stock so as to be and continue to
be available therefor. The holders of shares of Series A Preferred Stock
shall be entitled to no further participation in any distribution of the
assets of the Corporation. If upon such liquidation, dissolution or winding
up, the assets of the Corporation distributable as aforesaid among the
holders of shares of Series A Preferred Stock are insufficient to permit
the payment to holders of Series A Preferred Stock of $100.00 per share
then the assets of the Corporation shall be distributed to the holders of
shares of Preferred Stock ratably according to their respective shares
until they shall have received the full amount to which they would
otherwise be so entitled.
(c) Redemption. No shares of Series A Preferred Stock shall be
callable or redeemable by the Corporation. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation shall have the
status of treasury shares of Preferred Stock until such time as such shares
are cancelled pursuant to the provisions of the Act.
(d) Voting. Each share of Series A Preferred Stock shall entitle the
holder thereof to one-tenth ( 1/10) of one vote on each matter presented to
shareholders generally voting as a single class with the Common Stock and
any other class or series of stock having similar voting rights. The
holders of the Series A Preferred Stock shall not be entitled to vote as a
class on any matter except as required by law.
(e) Exclusion of Other Rights. Unless otherwise required by law, the
shares of Series A Preferred Stock shall not have any powers, preferences,
or relative, participating, option or other special rights other than those
specifically set forth herein.
3. Series B Preferred Stock
The holders of the Series B Preferred Stock shall have the following rights
and preferences:
(a) Dividends. The holders of the Series B Preferred Stock shall be
entitled to receive dividends out of any funds legally available for that
purpose at the annual rate of six percent (6%) per annum of the stated
value and no more. These dividends are payable in cash monthly on the last
day of each month. The first dividend, after the issuance of such shares,
shall be payable on the last day of the month of issuance. Dividends will
accrue from the date the shares of Series B Preferred Stock are issued and
are considered to accrue from day to day, whether or not earned or
declared. The dividends will be payable before any dividends are paid,
declared, or set apart for any other capital stock of the Corporation.
Dividends are cumulative so that if for any dividend period the dividends
on the outstanding Series B Preferred Stock are not paid or declared and
set apart, the deficiency shall be fully paid or declared and set apart for
payment, without interest, before any distribution (by dividend or
otherwise) is paid on, declared, or set apart for any other capital stock
of the Corporation. The holders of shares of Series B Preferred Stock shall
not be entitled to receive any other dividends or distributions.
(b) Liquidation, Dissolution and Winding Up. Subject to the rights of
the holders of the Series A Preferred Stock, in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of outstanding shares of Series B Preferred Stock
shall be entitled to receive $100.00 in cash for each share, before any
distribution of the assets of the Corporation shall be made to the holders
of any other class or series of shares of the Corporation unless funds
necessary for such payment shall have been set aside in trust for the
account of the holders of outstanding shares of Series B Preferred Stock so
as to be and continue to be available therefor. If upon such liquidation,
dissolution or winding up, the assets of the Corporation distributable as
aforesaid among the holders of shares of Series B Preferred Stock are
insufficient to permit the payment to the holders of outstanding shares of
Series B Preferred Stock of $100.00 per share, then the assets of the
Corporation shall be distributed to the holders of outstanding shares of
Series B Preferred Stock ratably according to their respective shares until
they shall have received the full amount to which they would otherwise be
so entitled. The holders of the Series B Preferred Stock shall also be
entitled to participate on a pro rata basis (based on the outstanding
number of shares) in any distributions made to the holders of the Common
Stock or other class or series of stock that is entitled to distributions
upon satisfaction of all shares entitled to preferred distribution.
E-3
<PAGE> 153
(c) Redemption.
(i) The Corporation, at the option of the Board of Directors, may
at any time five (5) years from the date of initial issuance redeem the
whole, or any part, of the outstanding shares of Series B Preferred
Stock by paying $100.00 per share plus all dividends accrued, unpaid,
and accumulated as provided in this Article through and including the
redemption date and by giving to each record holder of Series B
Preferred Stock, at his or her last known address as shown in the
Corporation's records, at least twenty but not more than sixty days'
notice. This redemption notice may be delivered either in person or in
writing, by mail, postage prepaid and must state the shares to be
redeemed, along with the date and plan of redemption, the redemption
price, and the place where the shareholders may obtain payment of the
redemption price on surrendering their share certificates. If only a
part of the outstanding shares of Series B Preferred Stock shares are
redeemed, redemption will be pro rata. No shares of Series B Preferred
Stock may be redeemed unless all accrued dividends on all outstanding
shares of Series B Preferred Stock shares have been paid for all past
dividend periods and full dividends for the current period, except those
to be redeemed, have been paid or declared and set apart for payment. On
or after the date fixed for redemption, each holder of shares called for
redemption must, unless the shareholder has previously exercised the
option to convert the holder's shares of Series B Preferred Stock as
provided herein, surrender to the Corporation the certificate for the
shares at the place designated in the redemption notice and will then be
entitled to receive payment of the redemption price. If fewer than all
the shares represented by any surrendered certificate are redeemed, a
new certificate for the unredeemed shares will be issued. If the
redemption notice is duly given and sufficient funds are available to
pay all monies herein required on the date fixed for redemption, then,
whether or not the certificates representing the shares to be redeemed
are surrendered, all rights with respect to the shares shall terminate
on the date fixed for redemption, except for the holders' right to
receive the redemption price, without interest, on surrendering their
certificates.
(ii) Shares are considered redeemed, and dividends on them cease to
accrue after the date fixed for redemption, if, on or before any date
fixed for redemption of the shares of Series B Preferred Stock as
provided herein, the Corporation deposits as a trust fund with any bank
or trust company a sum sufficient to redeem, on the date fixed for
redemption, with irrevocable instructions and authority to the bank or
trust company (a) to publish the redemption notice (or to complete
publication already begun), and (b) to pay, on and after the date fixed
for redemption or before that date, the redemption price of the shares
to their holders when they surrender their certificates. The deposit is
considered to constitute full payment of the shares to their holders,
and from the date of the deposit the shares will no longer be considered
outstanding. Moreover, the holders of the shares will cease to be
shareholders with respect to the shares and will have no rights with
respect to the shares, except to receive from the bank or trust company
payment of the redemption price of the shares (without interest) on
surrendering of the certificates unless the shares are converted to
Common Stock, as provided herein. Any money so deposited on account of
the redemption price of Series B Preferred Stock share which are
converted after the deposit is made must be repaid immediately to the
Corporation on conversion of the Series B Preferred Stock.
(iii) Share of Series B Preferred Stock redeemed by the Corporation
shall be restored to the status of authorized but unissued shares.
(d) Conversion.
(i) At any time prior to the redemption of any share of Series B
Preferred Stock, the holder of such shares of Series B Preferred Stock
shall have the right to convert such share into 112 shares of Common
Stock. The right to receive the converted shares requires delivery to
the office of the Corporation or its transfer agent of the shareholder's
written notice stating the number of shares the shareholder is electing
to convert. Said notice shall be accompanied by the surrender of the
Series B Preferred Stock certificate or certificates, duly endorsed to
the Corporation. The date of conversion
E-4
<PAGE> 154
shall be the date of receipt by the Company or its transfer agent of the
notice and the duly endorsed certificate(s).
(ii) Neither fractional shares nor scrip or other certificates
representing the shares may be issued by the Corporation on conversion
of shares of Series B Preferred Stock, but the Corporation must pay in
lieu thereof the full value in cash to the holders who would be entitled
to receive the fractional shares but for this provision.
(iii) The Corporation must at all time reserve out of its
authorized but unissued shares of Common Stock the full number of shares
deliverable on conversion of all shares hereunder from time to time
outstanding. Said shares are reserved solely for the purpose of
satisfying the conversion requirements.
(iv) The number of shares and securities or other property issuable
upon the conversion of the Series Preferred Stock shall be subject to
adjustment from time to time in the event of any reclassification of the
Common Stock, the issuance of any stock dividend or stock split in
respect of the Common Stock, share exchange involving the Common Stock
or other similar transaction so that the holders of the Series B
Preferred Stock shall be entitle to receive on conversion of the shares
of Series B Preferred Stock that number of shares and other securities
or property that a holder of a share of Common Stock received in such
reclassification, stock dividend, stock split, share exchange or similar
transaction. Such adjustments shall be determined by the Board of
Directors of the Corporation, whose determination shall be final and
conclusive. Such adjustments shall be made for successive transactions.
(d) Voting. Each share of Series A Preferred Stock shall entitle the
holder thereof to one-tenth (1/10) of one vote on each matter presented to
shareholders generally voting as a single class with the Common Stock and
any other class or series of stock having similar voting rights. The
holders of the Series A Preferred Stock shall not be entitled to vote as a
class on any matter except as required by law.
(e) Exclusion of Other Rights. Unless otherwise required by law, the
shares of Series A Preferred Stock shall not have any powers, preferences,
or relative, participating, option or other special rights other than those
specifically set forth herein.
(f) Stated Value. The stated value of the Series B Preferred Stock is
$100 per share, all of which shall be allocated to the stated capital of
the Corporation.
4. Future Designations
Subject to the provisions of paragraph A of this Article IV, the Board of
Directors of the Corporation is hereby vested with authority from time to time
to establish and designate such series of Preferred Stock from the authorized
but unissued shares of Preferred Stock as it may deem desirable, and within the
limitations prescribed by law or set forth herein, to fix and determine the
relative rights and preferences of the shares of any series so established. The
Board of Directors shall exercise such authority by the adoption of a resolution
or resolutions as prescribed by law, setting forth the designation of the series
and fixing and determining the relative rights and preferences thereof or so
much thereof as shall not be fixed and determined herein. The Board of Directors
may increase or decrease the number of shares of a series by adopting a
resolution fixing and determining the new number of shares of each series in
which the number of shares is increased or decreased; provided, however, no
decrease may reduce the number of shares within a series to less than the number
of shares within such series that are then issued.
C. Provisions Applicable to All Stock.
1. Voting Rights. The holders of a majority of the shares of the
Corporation's stock of any class entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. Subject to the
provisions of paragraph A of this Article IV, the vote of the holders of a
majority of the shares entitled to vote and represented at a meeting at which a
quorum is present shall be the act of the shareholders' meeting, except with
respect to certain actions, which require the affirmative vote of the holders of
a majority of the outstanding shares of the Corporation unless any class of
stock of the Corporation is entitled to vote as a class
E-5
<PAGE> 155
thereon, in which event the action shall be approved upon the affirmative vote
of the holders of a majority of the outstanding shares within each class
entitled to vote as a class thereon as well as a majority of the outstanding
shares. No shareholder of the Corporation shall have the right of cumulative
voting at any election of directors or upon any other matter.
2. Preemptive Rights. No holder of securities of the Corporation shall be
entitled as a matter of right, preemptive or otherwise, to subscribe for or
purchase any securities of the Corporation now or hereafter authorized to be
issued, or securities held in the treasury of the Corporation, whether issued or
sold for cash or other consideration or as a share dividend or otherwise. Any
such securities may be issued or disposed of by the Board of Directors to such
persons and on such terms as in its discretion it shall deem advisable.
ARTICLE V
MAJORITY VOTE FOR APPROVAL OF CERTAIN ACTIONS
If, with respect to any matter for which the affirmative vote or
concurrence of the shareholders of the Corporation is required, any provision of
the Texas Business Corporation Act, as the same may be amended from time to
time, would, but for this Article V, require the affirmative vote or concurrence
of the holders of shares having more than a majority of the votes entitled to
vote on such matter, or of any class or series thereof, the affirmative vote or
concurrence of the holders of shares having only a majority of the votes
entitled to vote on such matter, or of any class or series thereof, shall be
required with respect to any such matter.
ARTICLE VI
WRITTEN CONSENTS
Except for the election of directors of the Corporation, who when elected
by shareholders shall be elected at either an annual or special meeting of
shareholders called for such purpose, any action required to, or which may, be
taken at any annual or special meeting of shareholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE VII
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand ($1,000.00)
Dollars consisting of money, labor done, or property actually received.
ARTICLE VIII
REGISTERED OFFICE AND AGENT
The street address of its initial registered office is 5555 San Felipe,
17th Floor, Houston, Texas 77056 and the name of its initial registered agent at
such address is Gary A. Messersmith.
ARTICLE IX
DIRECTORS
(A) Number of Directors. The business and affairs of the Corporation shall
be managed by or be under the direction of the Board of Directors of the
Corporation. The number of Directors constituting the initial
E-6
<PAGE> 156
Board of Directors is one (1). The number of Directors of the Corporation may
from time to time be changed in accordance with the Bylaws of the Corporation
and the Act.
(B) Name and Address of Director. The name of the person who is to serve
as Director until the first annual meeting of the shareholders, or until his
successor is elected and qualified is DAVID R. LITTLE and his address is 580
Westlake Park Blvd., Suite 1100, Houston, Texas 77079
(C) Directors Liability. No director of the Corporation shall be liable to
the Corporation or any of its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except that this Article IX
shall not authorize the elimination or limitation of liability of a director of
the Corporation to the extent the director is found liable for: (i) a breach of
such director's duty of loyalty to the Corporation or its shareholders; (ii) an
act or omission not in good faith that constitutes a breach of duty of such
director to the Corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (iii) a transaction from which
such director received an improper benefit, whether or not the benefit resulted
from an action taken within the scope of the director's office; or (iv) an act
or omission for which the liability of a director is expressly provided by an
applicable statute.
ARTICLE X
LIMITATION OF LIABILITY OF DIRECTORS
A. No director of the Corporation shall be liable to the Corporation or any
of its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that this Article VIII shall not
authorize the elimination or limitation of liability of a director of the
Corporation to the extent the director is found liable for: (i) a breach of such
director's duty of loyalty to the Corporation or its shareholders; (ii) an act
or omission not in good faith that constitutes a breach of duty of such director
to the Corporation or an act or omission that involves intentional misconduct or
a knowing violation of the law; (iii) a transaction from which such director
received an improper benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office; or (iv) an act or omission for
which the liability of a director is expressly provided by an applicable
statute.
B. If the Texas Business Corporation Act, the Texas Miscellaneous
Corporation Laws Act or any other applicable Texas statute hereafter is amended
to authorize the further elimination or limitation of the liability of directors
of the Corporation, then the liability of a director of the Corporation shall be
limited to the fullest extent permitted by the Texas Business Corporation Act,
the Texas Miscellaneous Corporation Laws Act and such other applicable Texas
statute, as so amended, and such limitation of liability shall be in addition
to, and not in lieu of, the limitation on the liability of a director of the
Corporation provided by the foregoing provisions of this Article VIII.
C. Any repeal of or amendment to this Article VIII shall be prospective
only and shall not adversely affect any limitation on the liability of a
director of the Corporation existing at the time of such repeal or amendment.
ARTICLE XI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
(A) Indemnification of Directors. To the fullest extent permitted by
Section B and Section E of Article 2.02-1 of the Act, the Corporation shall
indemnify each person who was, is, or is threatened to be made a named defendant
or respondent in a proceeding because the person is or was a director of the
Corporation, and this provision for indemnification shall be deemed to
constitute authorization of such indemnification in the manner required by
Section G of said Article 2.02-1 of the Act.
(B) Expenses of a Defendant. To the fullest extent permitted by Section K
of Article 2.02-1 of the Act, reasonable expenses incurred by a director of the
Corporation who was, is, or is threatened to be made a named defendant or
respondent in a proceeding shall be paid or reimbursed by the Corporation, in
advance of
E-7
<PAGE> 157
the final disposition of such proceeding, after the Corporation receives a
written affirmation by the director of his good faith belief that he has met the
standard of conduct necessary for indemnification by the Corporation and the
Corporation receives a written undertaking by or behalf of the director to repay
the amount paid or reimbursed if it is ultimately determined that he has not met
that standard or if it is ultimately determined that indemnification of the
director against expenses incurred by him in connection with that proceeding is
otherwise prohibited by said Article 2.02-1 of the Act. This provision for
payment or reimbursement shall be deemed to constitute authorization of such
payment or reimbursement as provided by said Section K of Article 2.02-1 of the
Act.
(C) Officers. Pursuant to Section O of Article 2.02-1 of the Act, the
Corporation shall indemnify and advance expenses to an officer of the
Corporation to the same extent that the Corporation shall indemnify and pay or
reimburse expenses to directors of the Corporation as set forth in subsections
(A) and (B) hereinabove.
(D) Expenses of a Witness. To the fullest extent permitted by Section N of
Article 2.02-1 of the Act, the Corporation shall pay or reimburse expenses
incurred by a director or officer in connection with his appearance as a witness
or other participation, only in his capacity as a director or officer of the
Corporation, in a proceeding at a time when he is not a named defendant or
respondent in the proceeding as set out therein.
(E) Other. In addition to the foregoing, the Corporation hereby adopts all
other terms, provisions and authorizations of Article 2.02-1 of the Act, not in
conflict with subsections (A), (B), (C) and (d) hereinabove, including but not
limited to Sections H, I, J and O of said Article 2.02-1 of the Act. It is the
intention of the Corporation to provide the maximum indemnification allowed by
law to its directors and officers and to make mandatory in all instances any
permissive provisions of Article 2.02-1 of the Act for the benefit of the
Corporation's directors and officers.
(F) Insurance. The Corporation shall have power to purchase and maintain
insurance or another arrangement on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article or the Act.
(G) Amendment of this Article. No amendment or repeal of this Article shall
apply to or have any affect on the indemnification or reimbursement of any
director or officer of the Corporation for or with respect to any such
indemnification or reimbursement on the part of such director or officer for
events covered by such indemnification or reimbursement occurring prior to such
amendment or repeal.
(H) Amendment of the Act. In the event any provision of the Act set out in
this Article is amended, altered or repealed in any way, then any such
amendment, alteration or repeal shall be incorporated herein without the
necessity of any further action by the corporation upon the effective date of
such action.
ARTICLE XII
AMENDMENT OF BYLAWS
The shareholders of the Corporation hereby delegate to the Board of
Directors the power to adopt, alter, amend or repeal the Bylaws of the
Corporation. Such power shall be vested exclusively in the Board of Directors
and shall not be exercised by the shareholders.
ARTICLE XIII
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS
Special meetings of the shareholders of the Corporation may be called by
the President of the Corporation, the Board of Directors or holders of not less
than thirty (30%) percent of all the shares entitled to vote at the proposed
special meeting of the shareholders.
E-8
<PAGE> 158
ARTICLE XIV
AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation or in its Bylaws in the
manner now or hereafter prescribed by the Act or these Articles of
Incorporation, and all rights conferred on shareholders herein are granted
subject to this reservation.
Executed this the 12th day of August, 1996.
INDEX, INC.
By: /s/ DAVID R. LITTLE
------------------------------------
Name: David R. Little
------------------------------------
Title: Chairman and CEO
------------------------------------
E-9
<PAGE> 159
APPENDIX F:
BYLAWS OF THE COMPANY
<PAGE> 160
CORPORATE BYLAWS OF
INDEX, INC.
(A TEXAS CORPORATION)
<PAGE> 161
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION SUBJECT MATTER PAGE
- ------- -------------------------------------------------------------------------- ----
<S> <C> <C> <C>
ARTICLE I.
NAME AND OFFICES
1.1 Name............................................................................
1.2 Registered Office and Agent.....................................................
(a) Registered Office.........................................................
(b) Registered Agent..........................................................
(c) Change of Registered Office or Agent......................................
1.3 Other Offices...................................................................
ARTICLE II.
SHAREHOLDERS
2.1 Place of Meetings...............................................................
2.2 Annual Meetings.................................................................
2.3 Special Meetings................................................................
2.4 Notice..........................................................................
2.5 Voting List.....................................................................
2.6 Quorum..........................................................................
2.7 Requisite Vote..................................................................
2.8 Withdrawal of Quorum............................................................
2.9 Voting at Meeting...............................................................
(a) Voting Power..............................................................
(b) Exercise of Voting Power; Proxies.........................................
(c) Election of Directors.....................................................
2.10 Record Date for Meetings; Closing Transfer Records..............................
2.11 Action Without Meetings.........................................................
2.12 Record Date for Action Without Meetings.........................................
2.13 Preemptive Rights...............................................................
ARTICLE III.
DIRECTORS
3.1 Management Powers...............................................................
3.2 Number and Qualification........................................................
3.3 Election and Term...............................................................
3.4 Voting on Directors.............................................................
3.5 Vacancies.......................................................................
3.6 New Directorships...............................................................
3.7 Removal.........................................................................
3.8 Meetings........................................................................
(a) Place.....................................................................
(b) Annual Meeting............................................................
(c) Regular Meetings..........................................................
(d) Special Meetings..........................................................
(e) Notice and Waiver of Notice...............................................
(f) Quorum....................................................................
(g) Requisite Vote............................................................
3.9 Action Without Meetings.........................................................
3.10 Committees......................................................................
(a) Designation and Appointment...............................................
</TABLE>
i
<PAGE> 162
<TABLE>
<CAPTION>
SECTION SUBJECT MATTER PAGE
- ------- -------------------------------------------------------------------------- ----
<S> <C> <C> <C>
(b) Members; Alternate Members; Terms.........................................
(c) Authority.................................................................
(d) Records...................................................................
(e) Change in Number..........................................................
(f) Vacancies.................................................................
(g) Removal...................................................................
(h) Meeting...................................................................
(i) Quorum; Requisite Vote....................................................
(j) Compensation..............................................................
(k) Action Without Meetings...................................................
(l) Responsibility............................................................
3.11 Compensation....................................................................
3.12 Maintenance of Records..........................................................
ARTICLE IV.
NOTICES
4.1 Method of Notice................................................................
4.2 Waiver..........................................................................
ARTICLE V.
OFFICERS AND AGENTS
5.1 Designation.....................................................................
5.2 Election of Officers............................................................
5.3 Qualifications..................................................................
5.4 Term of Office..................................................................
5.5 Authority.......................................................................
5.6 Removal.........................................................................
5.7 Vacancies.......................................................................
5.8 Compensation....................................................................
5.9 Chairman of the Board...........................................................
5.10 President.......................................................................
5.11 Vice Presidents.................................................................
5.12 Secretary.......................................................................
5.13 Assistant Secretaries...........................................................
5.14 Treasurer.......................................................................
5.15 Assistant Treasurers............................................................
ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification of Directors....................................................
6.2 Expenses of a Defendant.........................................................
6.3 Officers........................................................................
6.4 Expenses of a Witness...........................................................
6.5 Other...........................................................................
6.6 Insurance.......................................................................
6.7 Amendment of this Article.......................................................
6.8 Amendment of the Act............................................................
</TABLE>
ii
<PAGE> 163
<TABLE>
<CAPTION>
SECTION SUBJECT MATTER PAGE
- ------- -------------------------------------------------------------------------- ----
<S> <C> <C> <C>
ARTICLE VII.
STOCK CERTIFICATES AND TRANSFER REGULATIONS
7.1 Description of Certificates.....................................................
7.2 Delivery........................................................................
7.3 Signatures......................................................................
7.4 Issuance of Certificates........................................................
7.5 Payment for Shares..............................................................
(a) Consideration.............................................................
(b) Valuation.................................................................
(c) Effect....................................................................
(d) Allocation of Consideration...............................................
7.6 Subscriptions...................................................................
7.7 Closing of Transfer Records; Record Date for Action With Meeting................
7.8 Registered Owners...............................................................
7.9 Lost, Stolen or Destroyed Certificates..........................................
(a) Proof of Loss.............................................................
(b) Timely Request............................................................
(c) Bond......................................................................
(d) Other Requirements........................................................
7.10 Registration of Transfers.......................................................
(a) Endorsement...............................................................
(b) Guaranty and Effectiveness of Signature...................................
(c) Adverse Claims............................................................
(d) Collection of Taxes.......................................................
(e) Additional Requirements Satisfied.........................................
7.11 Restrictions on Transfer and Legends on Certificates............................
(a) Shares in Classes or Series...............................................
(b) Restriction on Transfer...................................................
(c) Preemptive Rights.........................................................
(d) Unregistered Securities...................................................
ARTICLE VIII.
GENERAL PROVISIONS
8.1 Distributions...................................................................
(a) Declaration and Payment...................................................
(b) Record Date...............................................................
8.2 Reserves........................................................................
8.3 Books and Records...............................................................
8.4 Annual Statement................................................................
8.5 Contracts and Negotiable Instruments............................................
8.6 Fiscal Year.....................................................................
8.7 Corporate Seal..................................................................
8.8 Resignations....................................................................
8.9 Amendment of Bylaws.............................................................
8.10 Construction....................................................................
8.11 Telephone Meetings..............................................................
8.12 Table of Contents; Captions..................................................... 18
</TABLE>
iii
<PAGE> 164
BYLAWS OF
INDEX, INC.
(A TEXAS CORPORATION)
ARTICLE I.
NAME AND OFFICES
1.1 Name. The name of the Corporation is INDEX, INC. hereinafter referred
to as the "Corporation."
1.2 Registered Office and Agent. The Corporation shall establish,
designate and continuously maintain a registered office and agent in the State
of Texas, subject to the following provisions:
(a) Registered Office. The Corporation shall establish and
continuously maintain in the State of Texas a registered office which may
be, but need not be, the same as its place of business.
(b) Registered Agent. The Corporation shall designate and continuously
maintain in the State of Texas a registered agent, which agent may be
either an individual resident of the State of Texas whose business office
is identical with such registered office, or a domestic corporation or a
foreign corporation authorized to transact business in the State of Texas,
having a business office identical with such registered office.
(c) Change of Registered Office or Agent. The Corporation may change
its registered office or change its registered agent, or both, upon the
filing in the Office of the Secretary of State of Texas of a statement
setting forth the facts required by law, and executed for the Corporation
by its President or a Vice President.
1.3 Other Offices. The Corporation may also have offices at such other
places within and without the State of Texas as the Board of Directors may, from
time to time, determine the business of the Corporation may require.
ARTICLE II.
SHAREHOLDERS
2.1 Place of Meetings. Each meeting of the shareholders of the Corporation
is to be held at the principal offices of the Corporation or at such other
place, either within or without the State of Texas, as may be specified in the
notice of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual Meetings. The annual meeting of the shareholders for the
election of Directors and for the transaction of such other business as may
properly come before the meeting shall be held after the close of the fiscal
year of the Corporation on a day to be selected by the Board of Directors;
provided, however, that the failure to hold the annual meeting within the
designated period of time or on the designated date shall not work a forfeiture
or dissolution of the Corporation.
2.3 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, may be called by the Chairman of the Board or the
President. Special meetings of the shareholders shall be called by the President
or Secretary at the request in writing of a majority of the Board of Directors,
or at the request in writing of shareholders owning thirty percent (30%) of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting and the
business to be transacted at any such special meeting of shareholders, and shall
be limited to the purposes stated in the notice therefor.
2.4 Notice. Written or printed notice of the meeting stating the place,
day and hour of the meeting, and in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board or
the President, the Secretary or a majority of the members of the Board of
Directors calling the meeting, to each shareholder entitled to vote at such
meeting as
1
<PAGE> 165
determined in accordance with the provisions of Section 2.10 hereof. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
Mail, with postage thereon prepaid, addressed to the shareholder entitled
thereto at his address as it appears on the share transfer records of the
Corporation.
2.5 Voting List. The officer or agent having charge and custody of the
share transfer records of the Corporation, shall prepare, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order and containing
the address and number of voting shares held by each, which list shall be kept
on file at the registered office or principal place of business of the
Corporation for a period of not less than ten (10) days prior to such meeting
and shall be subject to inspection by any shareholder at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the entire time of the meeting. The original share ledger or transfer
book, or a duplicate thereof, shall be prima facie evidence as to identity of
the shareholders entitled to examine such list or share ledger or transfer book
and to vote at any such meeting of the shareholders.
2.6 Quorum. The holders of a majority of the shares of the capital stock
issued and outstanding and entitled to vote thereat, represented in person or by
proxy, shall be requisite and shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
statute or by the Articles of Incorporation or by these Bylaws. The shareholders
represented in person or by proxy at a meeting of the shareholders at which a
quorum is not present may adjourn the meeting until such time and to such place
as may be determined by a vote of the holders of a majority of the shares
represented in person or by proxy at that meeting. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
2.7 Requisite Vote. If a quorum is present at any meeting, the vote of the
holders of a majority of the shares of capital stock having voting power and
casting a vote thereon, present in person or represented by proxy, shall
determine any question brought before such meeting, unless the question is one
upon which, by express provision of the Articles of Incorporation or of these
Bylaws, a different vote shall be required or permitted, in which case such
express provision shall govern and control the determination of such question.
2.8 Withdrawal of Quorum. If a quorum is present at the time of
commencement of any meeting, the shareholders present at such duly convened
meeting may continue to transact any business which may properly come before
said meeting until adjournment thereof, notwithstanding the withdrawal from such
meeting of sufficient holders of the shares of capital stock entitled to vote
thereat to leave less than a quorum remaining.
2.9 Voting at Meeting. Voting at meetings of shareholders shall be
conducted and exercised subject to the following procedures and regulations:
(a) Voting Power. In the exercise of voting power with respect to each
matter properly submitted to a vote at any meeting of shareholders, each
shareholder of the capital stock of the Corporation having voting power
shall be entitled to one (1) vote for each such share held in his name on
the records of the Corporation, except to the extent otherwise specified by
the Articles of Incorporation.
(b) Exercise of Voting Power; Proxies. At any meeting of the
shareholders, every holder of the shares of capital stock of the
Corporation entitled to vote at such meeting may vote either in person, or
by proxy executed in writing by such shareholder. A telegram, telex,
cablegram, or similar transmission by a shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing executed by a
shareholder, shall be treated as an execution in writing. No proxy shall be
valid after the expiration of eleven (11) months from the date of its
execution, unless otherwise stated therein. A proxy shall be revocable
unless expressly designated therein as irrevocable and coupled with an
interest. Proxies coupled with an interest include the appointment as proxy
of: (a) a pledgee; (b) a person who purchased or agreed to purchase or owns
or holds an option to purchase the shares voted; (c) a creditor of the
Corporation who extended its credit under terms requiring the appointment;
(d) an employee of the Corporation whose employment contract requires the
appointment; or (e) a party to a voting agreement created under Section B
of Article 2.30 of the Texas Business Corporation Act, as amended (the
"Act").
2
<PAGE> 166
Each proxy shall be filed with the Secretary of the Corporation prior to or
at the time of the meeting. Voting for directors shall be in accordance
with the provisions of paragraph (c) below of this Section 2.9. Any vote
may be taken by voice vote or by show of hands unless someone entitled to
vote at the meeting objects, in which case written ballots shall be used.
(c) Election of Directors. Directors shall be elected in accordance
with Section 3.4 of these Bylaws.
2.10 Record Date for Meetings; Closing Transfer Records. As more
specifically provided in Article 7, Section 7.7 hereof, the Board of Directors
may fix in advance a record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such record date
to be not less than ten (10) nor more than sixty (60) days prior to such
meeting, or the Board of Directors may close the share transfer records for such
purpose for a period of not less than ten (10) nor more than sixty (60) days
prior to such meeting. In the absence of any action by the Board of Directors,
the date upon which the notice of the meeting is mailed shall be deemed the
record date.
2.11 Action Without Meetings. Any action required by the Act, the Articles
of Incorporation or these Bylaws to be taken at any annual or special meeting of
the shareholders, or any action which may be taken at any annual or special
meeting of the shareholders may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing setting forth the action
so taken, shall be signed by the holder or holders of shares having not less
than the minimum number of votes that would be necessary to take such action at
a meeting at which the holders of all of the shares entitled to vote on the
action were present and voted, provided that such action is done in compliance
with Section 9.10 of the Act. Any such executed written consent, or an executed
counterpart thereof, shall be placed in the minute book of the Corporation.
Every written consent shall bear the date of signature of each shareholder who
signs the consent. No written consent shall be effective to take the action that
is the subject of the consent unless, within sixty (60) days after the date of
the earliest dated consent delivered to the Corporation in the manner required
under Section 2.12 hereof, a consent or consents signed by the holders of a
majority of the shares of the capital stock issued and outstanding and entitled
to vote on the action that is the subject of the consent are delivered to the
Corporation.
2.12 Record Date for Action Without Meetings. Unless a record date shall
have previously been fixed or determined by the Board of Directors as provided
in Section 2.10 hereof, whenever action by shareholders is proposed to be taken
by consent in writing without a meeting of shareholders, the Board of Directors
may fix a record date for the purpose of determining shareholders entitled to
consent to that action, which record date shall not precede, and shall not be
more than ten (10) days after, the date upon which the resolution fixing the
record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors and the prior action of the Board of Directors
is not required by statute or the Articles of Incorporation, the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office, its principal place of business, or an
officer or agent of the Corporation having custody of the books in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or by certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the President or
principal executive officer of the Corporation. If no record date shall have
been fixed by the Board of Directors and prior action of the Board of Directors
is required by statute, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be at the close of business
on the date in which the Board of Directors adopts a resolution taking such
prior action.
2.13 Preemptive Rights. Unless otherwise determined by the Board of
Directors in the manner provided under the Act, no holder of shares of capital
stock of the Corporation shall, as such holder, have any right to purchase or
subscribe for any capital stock of any class which the Corporation may issue or
sell, whether or not exchangeable for any capital stock of the Corporation of
any class or classes, whether issued out of unissued shares authorized by the
Articles of Incorporation, as amended, or out of shares of capital stock of the
Corporation acquired by it after the issue thereof; nor, unless otherwise
determined by the Board of Directors in the manner provided under the Act shall
any holder of shares of capital stock of the Corporation, as such
3
<PAGE> 167
holder, have any right to purchase, acquire or subscribe for any securities
which the Corporation may issue or sell whether or not convertible into or
exchangeable for shares of capital stock of the Corporation of any class or
classes, and whether or not any such securities have attached or appurtenant
thereto warrants, options or other instruments which entitle the holders thereof
to purchase, acquire or subscribe for shares of capital stock of any class or
classes.
ARTICLE III.
DIRECTORS
3.1 Management Powers. The powers of the Corporation shall be exercised by
or under the authority of, and the business and affairs of the Corporation shall
be managed under the direction of, its Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
3.2 Number and Qualification. The Board of Directors shall consist of not
less than one (1) member nor more than ten (10) members; provided, however, the
initial Board of Directors shall consist of one (1) member. Directors need not
be residents of the State of Texas nor shareholders of the Corporation. Each
Director shall qualify as a Director following election as such by agreeing to
act or acting in such capacity. The number of Directors may be increased or
decreased from time to time by resolution of the Board of Directors or
shareholders without the necessity of a written amendment to the Bylaws of the
Corporation; provided, however, no decrease shall have the effect of shortening
the term of any incumbent Director.
3.3 Election and Term. Members of the Board of Directors shall hold office
until the annual meeting of shareholders and until their successors shall have
been elected and qualified. At the annual meeting of the shareholders, the
shareholders entitled to vote in an election of Directors shall elect Directors
to hold office until the next succeeding annual meeting. Each Director shall
hold office for the term for which he is elected, and until his successor shall
be elected and qualified or until his death, resignation or removal, if earlier.
3.4 Voting on Directors. Directors shall be elected by the vote of the
holders of a plurality of the shares entitled to vote in the election of
Directors and represented in person or by proxy at a meeting of shareholders at
which a quorum is present. Cumulative voting in the election of Directors is
expressly prohibited.
3.5 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining Directors then in
office, though less than a quorum of the Board of Directors. For purposes of
these Bylaws, a "vacancy" shall be defined as an unfilled directorship arising
by virtue of the death, resignation or removal of a Director theretofore duly
elected to serve in such capacity in accordance with the relevant provisions of
these Bylaws. A Director elected to fill a vacancy shall be elected for the
unexpired portion of the term of his predecessor in office.
3.6 New Directorships. Any directorship to be filled by reason of an
increase in the number of Directors actually serving as such shall be filled by
election at an annual meeting of the shareholders or at a special meeting of
shareholders called for that purpose, or by the Board of Directors for a term of
office continuing only until the next election of one or more Directors by the
shareholders, provided that the Board of Directors may not fill more than two
(2) such directorships during the period between any two (2) successive annual
meetings of shareholders.
3.7 Removal. Any Director may be removed either for or without cause at
any duly convened special or annual meeting of shareholders, by the affirmative
vote of a majority in number of shares of the shareholders present in person or
by proxy at any meeting and entitled to vote for the election of such Director,
provided notice of intention to act upon such matter shall have been given in
the notice calling such meeting.
4
<PAGE> 168
3.8 Meetings. The meetings of the Board of Directors shall be held and
conducted subject to the following regulations:
(a) Place. Meetings of the Board of Directors of the Corporation,
annual, regular or special, are to be held at the principal office or place
of business of the Corporation, or such other place, either within or
without the State of Texas, as may be specified in the respective notices,
or waivers of notice, thereof.
(b) Annual Meeting. The Board of Directors shall meet each year
immediately after the annual meeting of the shareholders, at the place
where such meeting of the shareholders has been held (either within or
without the State of Texas), for the purpose of organization, election of
officers, and consideration of any other business that may properly be
brought before the meeting. No notice of any kind to either old or new
members of the Board of Directors for such annual meeting shall be
required.
(c) Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and at such place or places as shall
from time to time be determined and designated by the Board.
(d) Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board or the President of the Corporation
on notice of two (2) days to each Director either personally or by mail or
by telegram; special meetings shall be called by the Chairman of the Board
or the President or Secretary in like manner and on like notice on the
written request of two (2) Directors.
(e) Notice and Waiver of Notice. Attendance of a Director at any
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular
meeting of the Board of Directors need be specified in the notice or waiver
of notice of such meeting.
(f) Quorum. At all meetings of the Board of Directors, a majority of
the number of Directors fixed by these Bylaws shall constitute a quorum for
the transaction of business, until a greater number is required by law or
by the Articles of Incorporation. If a quorum shall not be present at any
meeting of Directors, the Directors present thereat may adjourn the
meeting, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
(g) Requisite Vote. In the exercise of voting power with respect to
each matter properly submitted to a vote at any meeting of the Board of
Directors, each Director present at such meeting shall have one (1) vote.
The act of a majority of the Directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors.
3.9 Action Without Meetings. Unless otherwise restricted by the Articles
of Incorporation or these Bylaws, any action required or permitted by law to be
taken at any meetings of the Board of Directors, or any committee thereof, may
be taken without a meeting, if prior to such action a written consent thereto is
signed by all members of the Board or of such committee, as the case may be, and
such written consent is filed in the minutes or proceedings of the Board of
Directors or committee.
3.10 Committees. Committees designated and appointed by the Board of
Directors shall function subject to and in accordance with the following
regulations and procedures:
(a) Designation and Appointment. The Board of Directors may, by
resolution adopted by a majority of the entire Board, designate and appoint
one or more committees under such name or names and for such purpose or
function as may be deemed appropriate.
(b) Members; Alternate Members; Terms. Each Committee thus designated
and appointed shall consist of two or more of the Directors of the
Corporation. The Board of Directors may designate one or more of its
members as alternate members of any committee, who may, subject to any
limitations imposed by the entire Board, replace absent or disqualified
members at any meeting of that committee. The members or alternate members
of any such committee shall serve at the pleasure of and subject to the
discretion of the Board of Directors.
5
<PAGE> 169
(c) Authority. Each Committee, to the extent provided in the
resolution of the Board creating same, shall have and may exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as the Board of Directors may
direct and delegate, except, however, those matters which are required by
statute to be reserved unto or acted upon by the entire Board of Directors.
(d) Records. Each such Committee shall keep and maintain regular
records or minutes of its meetings and report the same to the Board of
Directors when required.
(e) Change in Number. The number of members or alternate members of
any Committee appointed by the Board of Directors, as herein provided, may
be increased or decreased (but not below two) from time to time by
appropriate resolution adopted by a majority of the entire Board of
Directors.
(f) Vacancies. Vacancies in the membership of any committee designated
and appointed hereunder shall be filled by the Board of Directors, at a
regular or special meeting of the Board of Directors, in a manner
consistent with the provisions of this Section 3.10.
(g) Removal. Any member or alternate member of any committee appointed
hereunder may be removed by the Board of Directors by the affirmative vote
of a majority of the entire Board, whenever in its judgment the best
interests of the Corporation will be served thereby.
(h) Meetings. The time, place and notice (if any) of committee
meetings shall be determined by the members of such committee.
(i) Quorum; Requisite Vote. At meetings of any committee appointed
hereunder, a majority of the number of members designated by the Board of
Directors shall constitute a quorum for the transaction of business. The
act of a majority of the members and alternate members of the committee
present at any meeting at which a quorum is present shall be the act of
such committee, except as otherwise specifically provided by statute or by
the Articles of Incorporation or by these Bylaws. If a quorum is not
present at a meeting of such committee, the members of such committee
present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present.
(j) Compensation. Appropriate compensation for members and alternate
members of any committee appointed pursuant to the authority hereof may be
authorized by the action of a majority of the entire Board of Directors
pursuant to the provisions of Section 3.11 hereof.
(k) Action Without Meetings. Any action required or permitted to be
taken at a meeting of any committee may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all
members of such committee. Such consent shall have the same force and
effect as a unanimous vote at a meeting. The signed consent, or a signed
copy, shall become a part of the record of such committee.
(l) Responsibility. Notwithstanding any provision to the contrary
herein, the designation and appointment of a committee and the delegation
of authority to it shall not operate to relieve the Board of Directors, or
any member or alternate member thereof, of any responsibility imposed upon
it or him by law.
3.11 Compensation. By appropriate resolution of the Board of Directors,
the Directors may be reimbursed their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum (as determined
from time to time by the vote of a majority of the Directors then in office) for
attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
Corporation in another capacity and receiving compensation therefor. Members of
special or standing committees may, by appropriate resolution of the Board of
Directors, be allowed similar reimbursement of expenses and compensation for
attending committee meetings.
3.12 Maintenance of Records. The Directors may keep the books and records
of the Corporation, except such as are required by law to be kept within the
State, outside the State of Texas or at such place or places as they may, from
time to time, determine.
6
<PAGE> 170
ARTICLE IV
NOTICES
4.1 Method of Notice. Whenever under the provisions of the Act or of the
Articles of Incorporation or of these Bylaws, notice is required to be given to
any Director or shareholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such Director or
shareholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States Mail. Notice to
Directors or shareholders may also be given by telegram.
4.2 Waiver. Whenever any notice whatever is required to be given under the
provisions of the Act or under the provisions of the Articles of Incorporation
or these Bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Attendance by such person or
persons, whether in person or by proxy, at any meeting requiring notice shall
constitute a waiver of notice of such meeting, except as provided in Section
3.8(e) hereof.
ARTICLE V
OFFICERS AND AGENTS
5.1 Designation. The officers of the Corporation shall be chosen by the
Board of Directors and shall consist of the offices of:
(a) President and Secretary; and
(b) Such other offices and officers (including a Chairman of the
Board, one or more Vice Presidents and a Treasurer) and assistant officers
and agents as the Board of Directors shall deem necessary.
5.2 Election of Officers. Each officer designated in Section 5.1(a) hereof
shall be elected by the Board of Directors on the expiration of the term of
office of such officer, as herein provided, or whenever a vacancy exists in such
office. Each officer or agent designated in Section 5.1(b) above may be elected
by the Board at any meeting.
5.3 Qualifications. No officer or agent need be a shareholder of the
Corporation or a resident of Texas. No officer or agent is required to be a
Director, except the Chairman of the Board. Any two or more offices may be held
by the same person.
5.4 Term of Office. Unless otherwise specified by the Board of Directors
at the time of election or appointment, or by the express provisions of an
employment contract approved by the Board, the term of office of each officer
and each agent shall expire on the date of the first meeting of Directors next
following the annual meeting of shareholders each year. Each such officer or
agent shall serve until the expiration of the term of his office or, if earlier,
his death, resignation or removal.
5.5 Authority. Officers and agents shall have such authority and perform
such duties in the management of the Corporation as are provided in these Bylaws
or as may be determined by resolution of the Board of Directors not inconsistent
with these Bylaws.
5.6 Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the Corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
5.7 Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal or otherwise) shall be filled by the Board of
Directors.
7
<PAGE> 171
5.8 Compensation. The compensation of all officers and agents of the
Corporation shall be fixed from time to time by the Board of Directors.
5.9 Chairman of the Board. If a Chairman of the Board is elected, he shall
be chosen from among the Directors and shall be the chief executive and
principal officer of the Corporation. He shall have the power to call special
meetings of the shareholders and of the Directors for any purpose or purposes,
and he shall preside at all meetings of the shareholders and of the Board of
Directors, unless he shall be absent or unless he shall, at his election,
designate the President to preside in his stead. The Chairman of the Board shall
be responsible for the operations and business affairs of the Corporation and
shall possess all of the powers granted by the Bylaws to the President,
including the power to make and sign contracts and agreements in the name and on
behalf of the Corporation. He shall, in general, have supervisory power over the
President and all other officers and the business activities of the Corporation,
subject to the discretion of the Board of Directors.
5.10 President. Subject to the supervision of the Chairman of the Board,
or in the absence of the election of a Chairman of the Board, the President
shall be the chief executive officer of the Corporation; shall preside at all
meetings of the shareholders and the Board of Directors; shall have general and
active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
President shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise executed and except where the execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation. The President shall perform such other duties and possess such
other authority and powers as the Board of Directors may from time to time
prescribe.
5.11 Vice Presidents. The Vice President, or if there shall be more than
one, the Vice Presidents in the order determined by a majority vote of the Board
of Directors, shall, in the prolonged absence or disability of the President
(and Chairman of the Board, if one is elected), perform the duties and exercise
the powers of the President and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe or the
chief executive officer may from time to time delegate.
5.12 Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders of the Corporation and record all
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be maintained for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors, the Chairman of the Board, or President. He shall have
custody of the corporate seal of the Corporation, and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
5.13 Assistant Secretaries. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors, shall in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe or the chief executive officer may from time to time delegate.
5.14 Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President (and Chairman of the Board, if one is elected) and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in
8
<PAGE> 172
case of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his possession
or under his control owned by the Corporation. The Treasurer shall perform such
other duties and have such other authority and powers as the Board of Directors
may from time to time prescribe or as the chief executive officer may from time
to time delegate.
5.15 Assistant Treasurers. The Assistant Treasurer, or, if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe or as the chief executive officer may from time to time delegate.
ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification of Directors. To the fullest extent permitted by
Section B and Section E of Article 2.02-1 of the Act, the corporation shall
indemnify each person who was, is, or is threatened to be made a named defendant
or respondent in a proceeding because the person is or was a director of the
corporation, and this provision for indemnification shall be deemed to
constitute authorization of such indemnification in the manner required by
Section G of said Article 2.02-1 of the Act.
6.2 Expenses of a Defendant. To the fullest extent permitted by Section K
of Article 2.02-1 of the Act, reasonable expenses incurred by a director of the
corporation who was, is, or is threatened to be made a named defendant or
respondent in a proceeding shall be paid or reimbursed by the corporation, in
advance of the final disposition of such proceeding, after the corporation
receives a written affirmation by the director of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
and the corporation receives a written undertaking by or behalf of the director
to repay the amount paid or reimbursed if it is ultimately determined that he
has not met that standard or if it is ultimately determined that indemnification
of the director against expenses incurred by him in connection with that
proceeding is otherwise prohibited by said Article 2.02-1 of the Act. This
provision for payment or reimbursement shall be deemed to constitute
authorization of such payment or reimbursement as provided by said Section K of
Article 2.02-1 of the Act.
6.3 Officers. Pursuant to Section O of Article 2.02-1 of the Act, the
corporation shall indemnify and advance expenses to an officer of the
corporation to the same extent that the corporation shall indemnify and pay or
reimburse expenses to directors of the corporation as set forth in subsections
(a) and (b) hereinabove.
6.4 Expenses of a Witness. To the fullest extent permitted by Section N of
Article 2.02-1 of the Act, the corporation shall pay or reimburse expenses
incurred by a director or officer in connection with his appearance as a witness
or other participation, only in his capacity as a director or officer of the
corporation, in a proceeding at a time when he is not a named defendant or
respondent in the proceeding as set out therein.
6.5 Other. In addition to the foregoing, the corporation hereby adopts all
other terms, provisions and authorizations of Article 2.02-1 of the Act, not in
conflict with subsections (a), (b), (c) and (d) hereinabove, including but not
limited to Sections H, I, J and O of said Article 2.02-1 of the Act. It is the
intention of the corporation to provide the maximum indemnification allowed by
law to its directors and officers and to make mandatory in all instances any
permissive provisions of Article 2.02-1 of the Act for the benefit of the
corporation's directors and officers.
6.6 Insurance. The Corporation shall have power to purchase and maintain
insurance or another arrangement on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article or the Act.
9
<PAGE> 173
6.7 Amendment of this Article. No amendment or repeal of this Article VI
shall apply to or have any affect on the indemnification or reimbursement of any
director or officer of the corporation for or with respect to any such
indemnification or reimbursement on the part of such director or officer for
events covered by such indemnification or reimbursement occurring prior to such
amendment or repeal.
6.8 Amendment of the Act. In the event any provision of the Act set out in
this Article VI is amended, altered or repealed in any way, then any such
amendment, alteration or repeal shall be incorporated herein without the
necessity of any further action by the corporation upon the effective date of
such action. The corporation shall indemnify any director or officer or former
director or officer of the corporation, or any person who may have served at its
request as a director or officer of another corporation in which it owns shares
of capital stock or of which it is a creditor, against expenses actually and
necessarily incurred by him in connection with the defense of any action, suit,
or proceeding in which he is made a party by reason of being or having been such
director or officer, except in relation to matters as to which he shall be
adjudged in some action, suit or proceeding to be liable for negligence or
misconduct in performance of duty, but such indemnification shall not be deemed
exclusive of any other rights to which such director or officer may be entitled,
under any bylaw, agreement, vote of shareholders, or otherwise.
ARTICLE VII.
STOCK CERTIFICATES AND TRANSFER REGULATIONS
7.1 Description of Certificates. The shares of the capital stock of the
Corporation shall be represented by certificates in the form approved by the
Board of Directors and signed in the name of the Corporation by the President or
a Vice President and the Secretary or an Assistant Secretary of the Corporation,
and sealed with the seal of the Corporation or a facsimile thereof. Each
certificate shall state on the face thereof the name of the holder, the number
and class of shares and the designation of the series, if any, which such
certificate represents, the par value of shares covered thereby or a statement
that such shares are without par value, and such other matters as are required
by law. At such time as the Corporation may be authorized to issue shares of
more than one class or any class in series, every certificate shall set forth
upon the face or back of such certificate a statement of the designations,
preferences, limitations and relative rights of the shares of each class or
series authorized to be issued, as required by the laws of the State of Texas.
7.2 Delivery. Every holder of the capital stock in the Corporation shall
be entitled to have a certificate signed in the name of the Corporation by the
President or a Vice President and the Secretary or an Assistant Secretary of the
Corporation, certifying the class of capital stock and the number of shares
represented thereby as owned or held by such shareholder in the Corporation.
7.3 Signatures. The signatures of the President, Vice President, Secretary
or Assistant Secretary upon a certificate may be facsimiles. In case any officer
or officers who have signed, or whose facsimile signature or signatures have
been placed upon any such certificate or certificates, shall cease to serve as
such officer or officers of the Corporation, whether because of death,
resignation, removal or otherwise, before such certificate or certificates are
issued and delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered with the
same effect as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to serve as such officer or officers of the Corporation.
7.4 Issuance of Certificates. Certificates evidencing shares of its
capital stock (both treasury and authorized but unissued) may be issued for such
consideration (not less than par value, except for treasury shares which may be
issued for such consideration) and to such persons as the Board of Directors may
determine from time to time. Shares shall not be issued until the full amount of
the consideration, fixed as provided by law, has been paid.
10
<PAGE> 174
7.5 Payment for Shares. Consideration for the issuance of shares shall be
paid, valued and allocated as follows:
(a) Consideration. The consideration for the issuance of shares shall
consist of money paid, labor done (including services actually performed
for the Corporation), or property (tangible or intangible) actually
received.
(b) Valuation. In the absence of fraud in the transaction, the
determination of the Board of Directors as to the value of consideration
received shall be conclusive.
(c) Effect. When consideration, fixed as provided by law, has been
paid, the shares shall be deemed to have been issued and shall be
considered fully paid and nonassessable.
(d) Allocation of Consideration. The consideration received for shares
shall be allocated by the Board of Directors, in accordance with law,
between the stated capital and capital surplus accounts.
7.6 Subscriptions. Unless otherwise provided in the subscription
agreement, subscriptions of shares, whether made before or after organization of
the Corporation, shall be paid in full in such installments and at such times as
shall be determined by the Board of Directors. Any call made by the Board of
Directors for payment on subscriptions shall be uniform as to all shares of the
same class and series. In case of default in the payment of any installment or
call when payment is due, the Corporation may proceed to collect the amount due
in the same manner as any debt due to the Corporation.
7.7 Closing of Transfer Records; Record Date for Action With Meetings. For
the purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or any adjournment thereof, or entitled to receive a
distribution by the Corporation (other than a distribution involving a purchase
or redemption by the Corporation of any of its own shares) or a share dividend,
or in order to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
of Directors may provide that share transfer records shall be closed for a
stated period of time not to exceed, in any case, sixty (60) days. If the share
transfer records shall be closed for the purpose of determining shareholders,
such records shall be closed for at least ten (10) days immediately preceding
such meeting. In lieu of closing the share transfer records, as aforesaid, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days, and in the case of a meeting of shareholders, not less than ten (10)
days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the share transfer records are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive a distribution (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a share
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such distribution or share
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this Section,
such determination shall be applied to any adjournment thereof except where the
determination has been made through the closing of the stock transfer books and
the stated period of closing has expired.
7.8 Registered Owners. Prior to due presentment for registration of
transfer of a certificate evidencing shares of the capital stock of the
Corporation in the manner set forth in Section 7.10 hereof, the Corporation
shall be entitled to recognize the person registered as the owner of such shares
on its records (or the records of its duly appointed transfer agent, as the case
may be) as the person exclusively entitled to vote, to receive notices and
dividends with respect to, and otherwise exercise all rights and powers relative
to such shares; and the Corporation shall not be bound or otherwise obligated to
recognize any claim, direct or indirect, legal or equitable, to such shares by
any other person, whether or not it shall have actual, express or other notice
thereof, except as otherwise provided by the laws of Texas.
11
<PAGE> 175
7.9 Lost, Stolen or Destroyed Certificates. The Corporation shall issue a
new certificate in place of any certificate for shares previously issued if the
registered owner of the certificate satisfies the following conditions:
(a) Proof of Loss. Submits proof in affidavit form satisfactory to the
Corporation that such certificate has been lost, destroyed or wrongfully
taken; and
(b) Timely Request. Requests the issuance of a new certificate before
the Corporation has notice that the certificate has been acquired by a
purchaser for value in good faith and without notice of an adverse claim;
and
(c) Bond. Gives a bond in such form, and with such surety or sureties,
with fixed or open penalty, as the Corporation may direct, to indemnify the
Corporation (and its transfer agent and registrar, if any) against any
claim that may be made or otherwise asserted by virtue of the alleged loss,
destruction, or theft of such certificate or certificates; and
(d) Other Requirements. Satisfies any other reasonable requirements
imposed by the Corporation.
In the event a certificate has been lost, apparently destroyed or wrongfully
taken, and the registered owner of record fails to notify the Corporation within
a reasonable time after he has notice of such loss, destruction, or wrongful
taking, and the Corporation registers a transfer (in the manner hereinbelow set
forth) of the shares represented by the certificate before receiving such
notification, such prior registered owner of record shall be precluded from
making any claim against the Corporation for the transfer required hereunder or
for a new certificate.
7.10 Registration of Transfers. Subject to the provisions hereof, the
Corporation shall register the transfer of a certificate evidencing shares of
its capital stock presented to it for transfer if:
(a) Endorsement. Upon surrender of the certificate to the Corporation
(or its transfer agent, as the case may be) for transfer, the certificate
(or an appended stock power) is properly endorsed by the registered owner,
or by his duly authorized legal representative or attorney-in-fact, with
proper written evidence of the authority and appointment of such
representative, if any, accompanying the certificate; and
(b) Guaranty and Effectiveness of Signature. The signature of such
registered owner or his legal representative or attorney-in-fact, as the
case may be, has been guaranteed by a national banking association or
member of the New York Stock Exchange, and reasonable assurance in a form
satisfactory to the Corporation is given that such endorsements are genuine
and effective; and
(c) Adverse Claims. The Corporation has no notice of an adverse claim
or has otherwise discharged any duty to inquire into such a claim; and
(d) Collection of Taxes. Any applicable law (local, state or federal)
relating to the collection of taxes relative to the transaction has been
complied with; and
(e) Additional Requirements Satisfied. Such additional conditions and
documentation as the Corporation (or its transfer agent, as the case may
be) shall reasonably require, including without limitation thereto, the
delivery with the surrender of such stock certificate or certificates of
proper evidence of succession, assignment or other authority to obtain
transfer thereof, as the circumstances may require, and such legal opinions
with reference to the requested transfer as shall be required by the
Corporation (or its transfer agent) pursuant to the provisions of these
Bylaws and applicable law, shall have been satisfied.
7.11 Restrictions on Transfer and Legends on Certificates.
(a) Shares in Classes or Series. If the Corporation is authorized to
issue shares of more than one class, the certificate shall set forth,
either on the face or back of the certificate, a full or summary statement
of all of the designations, preferences, limitations, and relative rights
of the shares of each such
12
<PAGE> 176
class and, if the Corporation is authorized to issue any preferred or
special class in series, the variations in the relative rights and
preferences of the shares of each such series so far as the same have been
fixed and determined, and the authority of the Board of Directors to fix
and determine the relative rights and preferences of subsequent series. In
lieu of providing such a statement in full on the certificate, a statement
on the face or back of the certificate may provide that the Corporation
will furnish such information to any shareholder without charge upon
written request to the Corporation at its principal place of business or
registered office and that copies of the information are on file in the
office of the Secretary of State.
(b) Restriction on Transfer. Any restrictions imposed or agreed to by
the Corporation on the sale or other disposition of its shares and on the
transfer thereof must be copied at length or in summary form on the face,
or so copied on the back and referred to on the face, of each certificate
representing shares to which the restriction applies. The certificate may
however state on the face or back that such a restriction exists pursuant
to a specified document and that the Corporation will furnish a copy of the
document to the holder of the certificate without charge upon written
request to the Corporation at its principal place of business.
(c) Preemptive Rights. The preemptive rights of a shareholder to
acquire unissued or treasury shares of the Corporation which are denied by
the Articles of Incorporation must be set forth at length on the face or
back of the certificate representing shares subject thereto. In lieu of
providing such a statement in full on the certificate, a statement on the
face or back of the certificate may provide that the Corporation will
furnish such information to any shareholder without charge upon written
request to the Corporation at its principal place of business and that a
copy of such information is on file in the office of the Secretary of
State.
(d) Unregistered Securities. Any security of the Corporation,
including, among others, any certificate evidencing shares of the Common
Stock or warrants to purchase Common Stock of the Corporation, which is
issued to any person without registration under the Securities Act of 1933,
as amended, or the Blue Sky laws of any state, shall not be transferable
until the Corporation has been furnished with a legal opinion of counsel
with reference thereto, satisfactory in form and content to the Corporation
and its counsel, to the effect that such sale, transfer or pledge does not
involve a violation of the Securities Act of 1933, as amended, or the Blue
Sky laws of any state having jurisdiction. The certificate representing the
security shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN
ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY
NOT BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO, OR (ii) THE CORPORATION SHALL HAVE RECEIVED
AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS
COUNSEL THAT REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION
WITH SUCH PROPOSED OFFER, SALE OR TRANSFER.
13
<PAGE> 177
ARTICLE VIII.
GENERAL PROVISIONS
8.1 Distributions. Subject to the provisions of the Act, as amended, and
the Articles of Incorporation, distributions of the Corporation shall be
declared and paid pursuant to the following regulations:
(a) Declaration and Payment. Distributions on the issued and
outstanding shares of capital stock of the Corporation required or allowed
by the Articles of Incorporation to receive such distribution may be
declared by the Board of Directors at any regular or special meeting and
may be paid in cash, in property, or in shares of capital stock. Such
declaration and payment shall be at the discretion of the Board of
Directors.
(b) Record Date. The Board of Directors may fix in advance a record
date for the purpose of determining shareholders entitled to receive
payment of any distribution, such record date to be not more than sixty
(60) days prior to the payment date of such distribution, or the Board of
Directors may close the stock transfer books for such purpose for a period
of not more than sixty (60) days prior to the payment date of such
distribution. In the absence of action by the Board of Directors, the date
upon which the Board of Directors adopts the resolution declaring such
distribution shall be the record date.
8.2 Reserves. There may be created by resolution of the Board of Directors
out of the surplus of the Corporation such reserve or reserves as the Directors
from time to time, in their discretion, think proper to provide for
contingencies, or to equalize distributions, or to repair or maintain any
property of the Corporation, or for such other purposes as the Directors shall
think beneficial to the Corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall maintain books and records of
account and shall prepare and maintain minutes of the proceedings of its
shareholders, its Board of Directors and each committee of its Board of
Directors. The Corporation shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of the original issuance of shares issued by the Corporation and a record of
each transfer of those shares that have been presented to the Corporation for
registration of transfer. Such records shall contain the names and addresses of
all past and present shareholders of the Corporation and the number and class of
shares issued by the Corporation held by each of them.
8.4 Annual Statement. The Board of Directors shall present at or before
each annual meeting of shareholders a full and clear statement of the business
and financial condition of the Corporation, including a reasonably detailed
balance sheet and income statement under current date.
8.5 Contracts and Negotiable Instruments. Except as otherwise provided by
law or these Bylaws, any contract or other instrument relative to the business
of the Corporation may be executed and delivered in the name of the Corporation
and on its behalf by the Chairman of the Board, the Chief Executive Officer, or
the Chief Operating Officer, if any, or the President of the Corporation. The
Board of Directors may authorize any other officer or agent of the Corporation
to enter into any contract or execute and deliver any contract in the
name and on behalf of the Corporation, and such authority may be general or
confined to specific instances as the Board of Directors may determine by
resolution. All bills, notes, checks or other instruments for the payment of
money shall be signed or countersigned by such officer, officers, agent or
agents and in such manner as are permitted by these Bylaws and/or as, from time
to time, may be prescribed by resolution of the Board of Directors. Unless
authorized to do so by these Bylaws or by the Board of Directors, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement, or to pledge its credit, or to render it liable
pecuniarily for any purpose or to any amount.
8.6 Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
8.7 Corporate Seal. The Corporation seal shall be in such form as may be
determined by the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
14
<PAGE> 178
8.8 Resignations. Any director, officer or agent may resign his office or
position with the Corporation by delivering written notice thereof to the
President or the Secretary. Such resignation shall be effective at the time
specified therein, or immediately upon delivery if no time is specified. Unless
otherwise specified therein, an acceptance of such resignation shall not be a
necessary prerequisite of its effectiveness.
8.9 Amendment of Bylaws. These Bylaws may be altered, amended, or repealed
and new Bylaws adopted at any meeting of the Board of Directors at which a
quorum is present, by the affirmative vote of a majority of the Directors
present at such meeting, provided notice of the proposed alteration, amendment,
or repeal be contained in the notice of such meeting.
8.10 Construction. Whenever the context so requires herein, the masculine
shall include the feminine and neuter, and the singular shall include the
plural, and conversely. If any portion or provision of these Bylaws shall be
held invalid or inoperative, then, so far as is reasonable and possible: (1) the
remainder of these Bylaws shall be considered valid and operative, and (2)
effect shall be given to the intent manifested by the portion or provision held
invalid or inoperative.
8.11 Telephone Meetings. Shareholders, Directors, or members of any
committee may hold any meeting of such shareholders, Directors or committee by
means of conference telephone or similar communications equipment which permits
all persons participating in the meeting to hear each other and actions taken at
such meetings shall have the same force and effect as if taken at a meeting at
which persons were present and voting in person. The Secretary of the
Corporation shall prepare a memorandum of the action taken.
8.12 Table of Contents; Captions. The table of contents and captions used
in these Bylaws have been inserted for administrative convenience only and do
not constitute matter to be construed in interpretation.
IN DUE CERTIFICATION WHEREOF, the undersigned, being the Secretary of
INDEX, INC. confirms the adoption and approval of the foregoing Bylaws,
effective as of the day of , 1996.
------------------------------------
Name:
------------------------------------
Title: Secretary
15
<PAGE> 179
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INDEX, INC.
Report of Independent Auditors................................................... F-2
Balance Sheet.................................................................... F-3
Notes to Balance Sheet........................................................... F-4
SEPCO INDUSTRIES, INC.
Year Ended December 31, 1995
Report of Independent Auditors................................................... F-5
Consolidated Balance Sheets...................................................... F-6
Consolidated Statements of Earnings.............................................. F-7
Consolidated Statements of Shareholders' Equity.................................. F-8
Consolidated Statements of Cash Flows............................................ F-9
Notes to Consolidated Financial Statements....................................... F-10
Six Months Ended June 30, 1996 (unaudited)
Condensed Consolidated Balance Sheets............................................ F-19
Condensed Consolidated Statements of Earnings.................................... F-20
Condensed Consolidated Statements of Cash Flows.................................. F-21
Notes to Condensed Consolidated Financial Statements............................. F-22
NEWMAN COMMUNICATIONS CORPORATION
Nine Months Ended December 31, 1995
Independent Auditor's Report..................................................... F-24
Balance Sheets................................................................... F-25
Statements of Operations......................................................... F-26
Statements of Cash Flows......................................................... F-27
Statements of Changes in Shareholders' Equity.................................... F-28
Notes to Financial Statements.................................................... F-29
Six Months Ended June 30, 1996 (unaudited)
Balance Sheet.................................................................... F-31
Statements of Operations......................................................... F-32
Statement of Cash Flows.......................................................... F-34
Notes to Financial Statements.................................................... F-35
</TABLE>
F-1
<PAGE> 180
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Index, Inc.
We have audited the accompanying balance sheet of Index, Inc., as of July
31, 1996. This balance sheet is the responsibility of the Company's management.
Our responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Index, Inc., at July 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
August 6, 1996
F-2
<PAGE> 181
INDEX, INC.
BALANCE SHEET
JULY 31, 1996
ASSETS
<TABLE>
<S> <C>
Cash................................................................................ $1,000
------
Total Assets........................................................................ $1,000
======
SHAREHOLDERS' EQUITY
Series A Preferred Stock, 1/10th vote per share; $1.00 par value; liquidation
preference of $100 per share; authorized shares -- 1,000,000; issued and
outstanding -- none
Series B Convertible Preferred Stock, 1/10th vote per share; $1.00 par value; $100
stated value; liquidation preference of $100 per share; authorized
shares -- 1,000,000; issued and outstanding -- none
Common Stock, $.01 par value; authorized shares 100,000,000; issued and
outstanding -- 100 shares......................................................... $ 1
Paid-in capital..................................................................... 999
------
Total Shareholders' Equity.......................................................... $1,000
======
</TABLE>
See notes to balance sheet.
F-3
<PAGE> 182
INDEX, INC.
NOTES TO BALANCE SHEET
JULY 31, 1996
1. THE COMPANY
Index, Inc. (the "Company") was incorporated on July 26, 1996 in the State
of Texas. The Company was formed to facilitate a proposed reorganization
transaction whereby subsequent to July 31, 1996 the Company will become a public
holding company and acquire 100% of the outstanding capital stock of Sepco
Industries, Inc. ("Sepco"), a private distribution company with revenues
approximating $120 million, and Newman Communications Corporation ("Newman"), an
inactive public entity with nominal net tangible assets. The Company's only
transaction to date has been the issuance of 100 shares of Common Stock for
$1,000.
Contemporaneously with the proposed reorganization transaction, the Company
will file a registration statement on Form S-4 with the Securities and Exchange
Commission to register 18,584,400 shares of its Common Stock, 19,500 shares of
its Series B Convertible Preferred Stock and 3,366 shares of its Series A
Preferred Stock. Because the Company and Newman are non-operating entities with
nominal tangible net assets, the proposed transaction will be accounted for as a
recapitalization of Sepco into the Company and an issuance of shares for the net
tangible assets of Newman. Accordingly, the historical financial statements for
the Company will be those of Sepco. The proposed reorganization transaction is
subject to the approval by vote of the shareholders of record of both Sepco and
Newman.
2. SHAREHOLDERS' EQUITY
The holders of Series B Convertible Preferred Stock would have the right to
convert each share into 112 shares of Common Stock at any time. The Series B
Convertible Preferred Stock provides for a cumulative 6% dividend. The Company's
Board of Directors may at any time five years from the date of issuance redeem
the Series B Convertible Preferred Stock for $110 per share. The Company must at
all times reserve out of its authorized but unissued shares of Common Stock the
full number of shares deliverable upon conversion of any outstanding shares of
Series B Convertible Preferred Stock.
In the event of liquidation, the holders of Series A Preferred Stock would
be entitled to receive $100 for each share and are first in priority. The
holders of Series A Preferred Stock would not be entitled to participate in the
distribution of assets exceeding the $100 per share liquidation preference. The
holders of Series B Convertible Preferred Stock would be entitled to receive
$100 for each share upon liquidation and would be entitled to participate in the
distribution of assets exceeding the liquidation preferences on a ratable basis
with the holders of Common Stock. An additional 8,000,000 shares of preferred
stock have been authorized and are available for future designation as provided
in the Company's articles of incorporation.
F-4
<PAGE> 183
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
SEPCO Industries, Inc.
We have audited the accompanying consolidated balance sheets of SEPCO
Industries, Inc., as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SEPCO
Industries, Inc., at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, in 1993 SEPCO
Industries, Inc., changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Houston, Texas
March 22, 1996,
except for Notes 8 and 10, as to which the date is
August 7, 1996
F-5
<PAGE> 184
SEPCO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
Current assets:
Cash......................................................................................... $ 1,492 $ 889
Trade accounts receivable, net of allowance for doubtful accounts of $200,000 in 1995 and
$250,000
in 1994.................................................................................... 15,892 13,648
Inventory.................................................................................... 16,706 15,068
Prepaid expenses and other current assets.................................................... 813 797
Deferred income taxes........................................................................ 170 191
------- -------
Total current assets........................................................................... 35,073 30,593
Property and equipment, net.................................................................... 6,744 6,065
Other assets:
Notes receivable from officers and shareholders.............................................. 640 771
Intangible assets, net of accumulated amortization of $1,394,000 in 1995 and $1,105,000 in
1994....................................................................................... 797 734
------- -------
1,437 1,505
------- -------
Total assets........................................................................... $43,254 $38,163
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable....................................................................... $ 6,435 $ 5,711
Employee compensation........................................................................ 1,129 895
Other accrued liabilities.................................................................... 1,419 2,092
Current portion of long-term debt............................................................ 1,888 1,566
Current portion of subordinated debt......................................................... 235 318
------- -------
Total current liabilities...................................................................... 11,106 10,582
Long-term debt, less current portion......................................................... 20,130 17,082
Subordinated debt, less current portion...................................................... 1,145 1,379
Deferred compensation........................................................................ 380 293
Deferred income taxes........................................................................ 205 119
Shareholders' equity:
Preferred stock, nonvoting, noncumulative $1 par value; liquidation preference of $100 per
share:
Authorized shares -- 1,000,000
Issued and outstanding shares -- 10,098, including 1,496 shares and 3,927 shares subject to
redemption in 1995 and 1994, respectively -- Notes 7 and 10............................... 10 10
Class A convertible preferred stock, nonvoting, cumulative $100 par value; liquidation
preference of $100 per share:
Authorized shares -- 1,000,000
Issued and outstanding shares -- 19,500 in 1995, including 4,500 shares subject to
redemption -- Notes 7 and 10.............................................................. 1,950 --
Class B convertible preferred stock, nonvoting, cumulative $100 par value; liquidation
preference of $100 per share:
Authorized shares -- 1,000,000
Issued and outstanding shares -- none...................................................... -- --
Class A common stock, $.01 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 980,300 and 1,100,500 in 1995 and 1994, including 272,000
shares and 322,400 shares subject to redemption in 1995 and 1994, respectively -- Notes 7
and 10.................................................................................... 10 11
Class B common stock, $.01 par value; liquidation preference of $7.5075 per share:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 176,900................................................... 2 2
Paid-in capital.............................................................................. 790 2,057
Retained earnings............................................................................ 9,223 7,158
------- -------
11,985 9,238
Less: treasury stock, 6,732 and 4,301 shares preferred and 221,401 and 81,200 shares Class A
common in 1995 and 1994.................................................................... (1,697) (530)
------- -------
Total shareholders' equity..................................................................... 10,288 8,708
------- -------
Total liabilities and shareholders' equity..................................................... $43,254 $38,163
======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 185
SEPCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales......................................................... $111,328 $102,592 $99,353
Cost of sales................................................. 82,171 75,375 72,561
-------- -------- -------
Gross profit.................................................. 29,157 27,217 26,792
Selling, general, and administrative expenses................. 24,559 23,067 23,504
-------- -------- -------
Operating income.............................................. 4,598 4,150 3,288
Other income.................................................. 867 817 858
Interest expense.............................................. (1,953) (1,929) (1,800)
-------- -------- -------
(1,086) (1,112) (942)
-------- -------- -------
Income before income taxes, minority interest, and cumulative
effect of change in accounting principle.................... 3,512 3,038 2,346
Provision for income taxes.................................... 1,424 1,176 982
-------- -------- -------
Income before minority interest and cumulative effect of
change in accounting principle.............................. 2,088 1,862 1,364
Minority interest in earnings of subsidiaries................. -- -- (403)
-------- -------- -------
Income before cumulative effect of change in accounting
principle................................................... 2,088 1,862 961
Cumulative effect of change in accounting principle........... -- -- 882
-------- -------- -------
Net income.................................................... $ 2,088 $ 1,862 $ 1,843
======== ======== =======
Income before cumulative effect of change in accounting
principle per common and common equivalent share............ $ 1.68 $ 1.41 $ 0.83
======== ======== =======
Primary net income per common and common equivalent share..... $ 1.68 $ 1.41 $ 1.58
======== ======== =======
Number of shares used to compute primary net income per common
and common equivalent share................................. 1,244 1,319 1,163
======== ======== =======
Fully diluted net income per common and common equivalent
share....................................................... $ 1.61 $ 1.40 $ 1.55
======== ======== =======
Number of shares used to compute fully diluted net income per
common and common equivalent share.......................... 1,293 1,328 1,187
======== ======== =======
</TABLE>
See accompanying notes.
F-7
<PAGE> 186
SEPCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS CLASS
CLASS A A B
PREFERRED PREFERRED COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
--------- --------- ------ ------ ------- -------- -------- -------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992............ $10 $ -- $10 $ 2 $ 1,551 $3,453 $ (484) $ 4,542
Issuance of 140,500 shares of Class A
common stock....................... -- -- 1 -- 481 -- -- 482
Acquisition of 10,000 shares of Class
A common stock..................... -- -- -- -- -- -- (22) (22)
Net income............................ -- -- -- -- -- 1,843 -- 1,843
--- ------ --- --- ------- ------ ------- -------
Balance at December 31, 1993............ 10 -- 11 2 2,032 5,296 (506) 6,845
Issuance of 5,300 shares of Class A
common stock....................... -- -- -- -- 25 -- -- 25
Acquisition of 5,300 shares of Class A
common stock....................... -- -- -- -- -- -- (24) (24)
Net income............................ -- -- -- -- -- 1,862 -- 1,862
--- ------ --- --- ------- ------ ------- -------
Balance at December 31, 1994............ 10 -- 11 2 2,057 7,158 (530) 8,708
Issuance of 89,800 shares of Class A
common stock....................... -- -- 1 -- 231 -- -- 232
Issuance of 4,500 shares of Class A
convertible preferred stock........ -- 450 -- -- -- -- -- 450
Conversion of 210,000 shares of Class
A common stock to 15,000 shares of
Class A preferred stock............ -- 1,500 (2) -- (1,498) -- -- --
Acquisition of 140,201 shares of Class
A common stock and 2,431 shares of
preferred stock.................... -- -- -- -- -- -- (1,167) (1,167)
Preferred dividends paid.............. -- -- -- -- -- (23) -- (23)
Net income............................ -- -- -- -- -- 2,088 -- 2,088
--- ------ --- --- ------- ------ ------- -------
Balance at December 31, 1995............ $10 $1,950 $10 $ 2 $ 790 $9,223 $(1,697) $10,288
=== ====== === === ======= ====== ======= =======
</TABLE>
See accompanying notes.
F-8
<PAGE> 187
SEPCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net income................................................ $ 2,088 $ 1,862 $ 1,843
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Cumulative effect of change in accounting principle..... -- -- (882)
Depreciation and amortization........................... 965 1,113 1,196
Deferred compensation on stock option plans............. 87 146 147
Provision (benefit) for deferred income taxes........... 109 791 (100)
Minority interest in earnings of subsidiaries........... -- -- 403
Gain on sale of property and equipment.................. (11) (16) (7)
Changes in operating assets and liabilities:
Trade accounts receivable............................ (1,915) (523) (609)
Inventories.......................................... (1,288) (467) (220)
Prepaid expenses and other assets.................... (88) 41 (51)
Accounts payable and other accrued liabilities....... (6) (302) (988)
--------- --------- ---------
Net cash provided by (used in) operating activities....... (59) 2,645 732
Investing activities
Purchase of minority interest shares...................... -- -- (621)
Purchase of Cunningham Bearing net assets................. -- -- (40)
Purchase of Bayou Pumps common stock, net of cash
received................................................ 38 -- --
Purchase of property and equipment........................ (739) (319) (308)
Proceeds from sale of property and equipment.............. 177 60 14
Payments received on notes receivable from officers....... 172 80 86
--------- --------- ---------
Net cash used in investing activities..................... (352) (179) (869)
Financing activities
Proceeds from debt........................................ 123,261 109,295 104,123
Principal payments on revolving line of credit, long-term
and subordinated debt, and notes payable to bank........ (121,867) (111,689) (103,804)
Issuance of Class A common stock.......................... 232 25 22
Acquisition of common stock............................... (589) (24) (22)
Preferred dividends paid.................................. (23) -- --
Payment of loan costs..................................... -- -- (11)
--------- --------- ---------
Net cash provided by (used in) financing activities....... 1,014 (2,393) 308
--------- --------- ---------
Increase in cash.......................................... 603 73 171
Cash at beginning of year................................. 889 816 645
--------- --------- ---------
Cash at end of year....................................... $ 1,492 $ 889 $ 816
========= ========= =========
Supplemental disclosures of noncash investing and
financing activities:
The Company purchased a computer system in exchange for
cash of $23,000 and a note payable to the leasing
company totaling $776,000
Cash paid for:
Interest............................................. $ 1,901 $ 1,855 $ 1,752
========= ========= =========
Income taxes......................................... $ 1,500 $ 165 $ 795
========= ========= =========
</TABLE>
See accompanying notes.
F-9
<PAGE> 188
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Sepco Industries, Inc. (the "Company") and its wholly owned subsidiary, Bayou
Pumps, purchased December 31, 1995 (see Note 2). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Concentration of Credit Risk
The Company sells rotating equipment to a diversified customer base in the
southwestern region of the United States. The Company believes no significant
concentration of credit risk exists. The Company continually evaluates the
creditworthiness of its customers' financial positions and monitors accounts on
a periodic basis, but does not require collateral.
Inventory
Inventory consists principally of finished goods and is priced at lower of
cost or market, cost being determined using the LIFO (last-in, first-out)
method.
Property, Plant, and Equipment
Assets are carried on the basis of cost. Provisions for depreciation are
computed at rates considered to be sufficient to amortize the costs of assets
over their expected useful lives. Depreciation and amortization of property,
plant, and equipment is computed using principally the straight-line method for
financial reporting purposes. Useful lives assigned to property, plant, and
equipment range from 3 to 20 years. Maintenance and repairs of depreciable
assets are charged against earnings as incurred. Additions and improvements are
capitalized. When properties are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and gains or losses are
credited or charged to earnings.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("Statement 121"), which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt Statement 121 in the first quarter of 1996 and, based
on current circumstances, does not believe the effect of adoption will be
material.
Intangibles
Intangibles consist of non-compete and licensing agreements and goodwill.
The non-compete and licensing agreements are amortized over three to five years
and goodwill is amortized over five to ten years. All amortization of
intangibles is computed using the straight-line method.
Federal Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("Statement 109").
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred taxes are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted marginal tax rates and laws that will be in effect
when the differences reverse.
F-10
<PAGE> 189
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
CARRYING FAIR
VALUE VALUE
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................... $ 1,492 $ 1,492
Notes receivable from officers................................. 355 355
Long-term debt, including current portion...................... 22,028 22,028
Subordinated debt, including current portion................... 1,380 1,380
</TABLE>
The carrying value of the long-term debt and subordinated debt approximates
fair value based upon the current rates and terms available to the Company for
instruments with similar remaining maturities. The carrying value of the notes
receivable from officers approximates fair value because the interest rate of
the notes (9%) is consistent with the interest rate of the Company's revolving
debt and with rates currently available in the market for similar instruments.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25") in accounting for its employee stock
options. In October 1995, Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, was issued, which established a
fair-value based method of accounting for stock-based compensation plans. In
accordance with the provisions of this new accounting standard, the Company has
elected to continue following the provisions of APB 25 and will include in
future financial statements pro forma disclosures for the new standard.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Per Share Amounts
Net income per common and common equivalent share has been computed by
dividing net income applicable to common stock by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Options to purchase common stock issued by the Company within the 12
months preceding the filing of the registration statement on Form S-4 of Index,
Inc. (see Note 10) have been included in the calculation of common equivalent
shares outstanding (using the treasury stock method) as if they were outstanding
for all periods presented. The computation of fully diluted net income per
common and common equivalent share assumes the Class A convertible preferred
stock was converted as of the beginning of the period.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified to conform with the
1995 presentation.
2. ACQUISITION
Effective December 31, 1995, the Company acquired 100% of the outstanding
common stock of Bayou Pumps. The purchase price totaled $500,000 and consisted
of (i) issuance of $450,000 of the Company's Class A convertible preferred stock
and (ii) cash of $50,000. The acquisition has been accounted for using the
F-11
<PAGE> 190
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase method of accounting. Accordingly, no results of operations of the
acquired company are included in the Company's consolidated results of
operations as the acquisition date was December 31, 1995. Goodwill of $400,000
was recorded on the acquisition. Pro forma disclosures of operating results are
omitted because the acquired company's operations were not significant.
3. INVENTORY
The Company uses the LIFO method of inventory valuation for approximately
88% of its inventories as the LIFO method results in a better matching of
current costs and revenues. Remaining inventories are accounted for using the
FIFO (first-in, first-out) method. The reconciliation of FIFO inventory to LIFO
basis is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................................... $18,155 $16,190
Work in process.................................................. 1,798 1,635
------- -------
Inventory at FIFO................................................ 19,953 17,825
LIFO allowance................................................... (3,247) (2,757)
------- -------
Inventory at LIFO................................................ $16,706 $15,068
======= =======
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 1,368 $ 1,441
Buildings and leasehold improvements............................. 5,946 5,969
Furniture, fixtures, and equipment............................... 6,790 5,400
------- -------
14,104 12,810
Less: allowances for depreciation and amortization............... (7,360) (6,745)
------- -------
$ 6,744 $ 6,065
======= =======
</TABLE>
F-12
<PAGE> 191
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM AND SUBORDINATED DEBT
Long-term and subordinated notes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving credit agreement..................................... $16,891 $13,597
Note payable to insurance company, 10.125%, collateralized by
real property, payable in monthly installments through
December 2006............................................... 1,793 1,878
Notes payable to former shareholders, 7% - 10%, unsecured,
payable in varying annual installments through August
2002........................................................ 1,410 1,482
Note payable to credit corporation, 2.25% above prime (10.75%
at December 31, 1995), collateralized by computer equipment,
payable in monthly installments beginning May 1996.......... 776 --
Other.......................................................... 1,148 1,691
------- -------
22,018 18,648
Less current portion........................................... 1,888 1,566
------- -------
$20,130 $17,082
======= =======
Subordinated debt:
Notes payable to former shareholders, 12%, unsecured, payable
in varying installments through January 1997................ $ 1,380 $ 1,697
Less current portion........................................... 235 318
------- -------
$ 1,145 $ 1,379
======= =======
</TABLE>
The Company has a $20 million line of credit available to it. The rate of
interest is prime plus 0.75% (9.25% at December 31, 1995). The line of credit is
secured by receivables, inventory, and machinery and equipment and matures
January 1997. As of December 31, 1995, the unused line is approximately $3
million.
The bank agreements include loan covenants which, among other things,
require the Company to maintain a positive cash flow and other financial ratios,
which are measured monthly. The maturities of long-term and subordinated debt
for the next five years and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................... $ 2,123
1997............................................... 18,449
1998............................................... 445
1999............................................... 480
2000............................................... 518
Thereafter......................................... 1,383
-------
$23,398
=======
</TABLE>
F-13
<PAGE> 192
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement 109. The cumulative effect of adopting this accounting standard as of
January 1, 1993 was to increase net earnings by $882,000 in 1993.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................. $1,172 $ 190 $ 946
State.................................................... 143 195 136
------ ------ ------
1,315 385 1,082
Deferred:
Federal.................................................. 107 797 (94)
State.................................................... 2 (6) (6)
------ ------ ------
109 791 (100)
------ ------ ------
$1,424 $1,176 $ 982
====== ====== ======
</TABLE>
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994 1993
------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at federal statutory income tax rate... $1,194 $1,033 $798
State income taxes, net of federal benefit................... 96 125 86
Nondeductible goodwill amortization.......................... 51 22 22
Other........................................................ 83 (4) 76
------ ------ ----
$1,424 $1,176 $982
====== ====== ====
</TABLE>
The net current and noncurrent components of deferred income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net current assets.................................................... $170 $191
Net noncurrent liabilities............................................ 205 119
---- ----
Net liability (asset)................................................. $ 35 $(72)
==== ====
</TABLE>
F-14
<PAGE> 193
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax liabilities and assets were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liability:
Difference between financial and tax depreciation of assets
acquired......................................................... $214 $220
Deferred tax assets:
Allowance for doubtful accounts..................................... 68 85
Section 263A inventory costs........................................ 102 106
Deferred compensation on stock options.............................. 9 101
---- ----
Total deferred tax assets............................................. 179 292
---- ----
Net deferred tax liability (asset).................................... $ 35 $(72)
==== ====
</TABLE>
During 1994, the Company utilized its net operating loss carryforwards of
approximately $3 million for income tax purposes. Those carryforwards were used
to offset the taxable income of the Company in 1994, eliminating the majority of
the 1993 deferred tax asset.
7. SHAREHOLDERS' EQUITY
During 1995, the Company created two new classes of convertible preferred
stock designated Class A and Class B. Class A convertible preferred stock may be
converted into 7 shares of Class A common stock, and Class B convertible
preferred stock may be converted into 3.5 shares of Class B common stock. Upon
liquidation, the Class A and Class B convertible preferred stock is second in
priority to the preferred stock and the Class B common stock. During 1995,
holders of 210,000 shares of Class A common stock exchanged their shares for
15,000 shares of Class A convertible preferred stock.
Both Class A and Class B convertible preferred stock have a 6% cumulative
monthly dividend. As of December 31, 1995, $23,000 in dividends has been paid.
During 1994, the Board of Directors of the Company approved a 100 to 1
stock split resulting in the modification of the shares authorized, issued, and
outstanding and the par value per share of its Class A and B common stock. The
1993 share disclosures have been adjusted for the effect of the stock split.
During 1993, the Company increased its ownership in Southern Engine & Pump
Company from 68% to 100%. The transaction, accounted for using the purchase
method of accounting, involved acquiring approximately 26% of the stock by
direct purchase. The purchase price was $2,843,845, of which $1,973,856 was
financed by the selling shareholders and $620,602 was paid in cash. The
remaining 6% of Southern Engine & Pump Company was acquired by exchanging 70,700
shares of the Company's Class A common stock valued at $249,387 for 112,068
shares of Southern Engine & Pump Company common stock. The Company recorded
$291,610 of goodwill on the transactions.
The Company has agreements with certain holders of Class A common,
preferred and Class A convertible preferred stock that, upon termination of
employment, the shareholders have an obligation to sell and the Company has the
first opportunity to buy the stock. The Company also has the opportunity to
match a higher offer obtained by the shareholder from another party. The selling
price of the stock will be at a price per share equal to the equity per share
for the Class A common stock and $100 per share for the preferred and Class A
convertible preferred stock. Payment may be in the form of cash or a promissory
note bearing interest at 10% and payable in five equal installments beginning on
the first anniversary date of the note. During 1995, the Company purchased
140,201 shares of Class A common stock and 2,431 shares of preferred stock in
F-15
<PAGE> 194
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exchange for a note payable of $578,000 from a shareholder upon his retirement.
At December 31, 1995 the potential liability to the Company under these
arrangements is approximately as follows (see also Note 10):
<TABLE>
<S> <C>
Class A common stock -- at book value.................................... $1,900,000
Preferred stock -- at liquidation preference............................. 150,000
Class A convertible preferred stock -- at liquidation preference......... 450,000
----------
$2,500,000
=========
</TABLE>
STOCK OPTIONS
Prior to and during 1995, the Company issued nonqualified, book value plan
stock options to certain officers of the Company to purchase shares of its Class
A common stock, which had exercise prices equal to the book value of the common
stock at the date of grant. The option agreement allows the employee to put the
stock acquired back to the Company at the book value at that time. The Company
recognizes compensation expense for increases in the book value of the stock
while the options are outstanding. In 1993, the Company purchased 100,058 shares
acquired by an officer upon exercise of his options at $5.25 per share. The
officer also purchased 59,800 shares of the Company's Class A common stock for
which the Company obtained a note receivable of $211,000. During 1995, the
Company purchased 89,800 shares acquired by an officer upon exercise of his
options at $6.56 per share. Compensation expense related to these option
agreements of $87,000, $155,000, and $372,000 was recorded in 1995, 1994, and
1993, respectively. As of December 31, 1995 and 1994, a deferred compensation
liability of $380,000 and $293,000, respectively, has been recorded in
conjunction with these option agreements. Activity during 1995 with respect to
the stock options follows (see also Note 10):
<TABLE>
<CAPTION>
OPTION
SHARES PRICE PER SHARE
-------- ---------------
<S> <C> <C>
Outstanding at January 1, 1993............................. 100,058 $3.00
Granted.................................................. 100,400 $2.58 - $3.01
Exercised................................................ (100,058) $3.00
-------
Outstanding at December 31, 1993........................... 100,400 $2.58 - $3.01
Exercised................................................ (5,300) $3.01
-------
Outstanding at December 31, 1994........................... 95,100 $2.58 - $3.01
Granted.................................................. 302,000 $5.90 - $7.14
Exercised................................................ (89,800) $2.58
Canceled or expired...................................... -- --
-------
Outstanding at December 31, 1995........................... 307,300
=======
Options exercisable at end of year......................... 307,300
=======
</TABLE>
The outstanding options at December 31, 1995 expire between March 31, 2000
and October 24, 2005 or 90 days after termination of full-time employment.
F-16
<PAGE> 195
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases equipment, automobiles, and office facilities under
various operating leases. The future minimum rental commitments as of December
31, 1995 for noncancelable leases are as follows (in thousands):
<TABLE>
<S> <C>
1996................................................ $1,142
1997................................................ 794
1998................................................ 546
1999................................................ 315
2000................................................ 208
Thereafter.......................................... 206
------
$3,211
======
</TABLE>
Rental expense for operating leases was $1,338,000, $1,084,000, and
$1,274,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
The Company is currently undergoing an examination of its tax returns by
the Internal Revenue Service ("IRS") which is asserting claims against the
Company for additional taxes and penalties of approximately $1 million plus
interest of approximately $240,000. This claim relates primarily to a challenge
by the IRS of the Company's use of the LIFO method of accounting for inventory.
The Company believes that its LIFO elections were valid and currently is
pursuing its rights to administrative appeal. Although an unfavorable outcome on
this matter would result in the payment of additional taxes and impact the
Company's liquidity position, the Company believes that any liability that may
ultimately result from the resolution of this matter will not have a material
adverse effect on the financial position of the Company.
9. RETIREMENT PLANS
The Company provides an Employee Stock Ownership Plan ("ESOP") which is
eligible to employees having 1,000 hours of service in 12 consecutive months of
employment. Employer contributions are at the discretion of the board of
directors. The ESOP held 176,900 shares of the Company's Class B common stock at
December 31, 1995 (see also Note 10). The Company contributed and expensed
$150,000 in 1995, 1994, and 1993. The Company also offers a 401(k) profit
sharing plan for employees having 1,000 hours of service in 12 consecutive
months of employment. The Company matches contributions at a rate of 10%. The
Company contributed $62,000, $56,000, and $49,000 in the years ended December
31, 1995, 1994, and 1993, respectively.
10. SUBSEQUENT EVENTS
Reorganization
On May 7, 1996, the Company's Board of Directors approved a reorganization
plan. Under the reorganization plan, the Company will merge with a newly formed
shell subsidiary of Index, Inc. ("Index"), a newly organized Texas holding
company. The Class A common shareholders of the Company will exchange each of
their shares for 16 shares of Index common stock and the Class B common
shareholders of the Company will exchange each of their shares for 18.1232
shares of Index common stock. The exchange ratios for the Class A common and
Class B common stock are based upon the relative value of each security as
determined by the independent appraisal of the Company's stock for purposes of
valuing the stock owned by the ESOP. As a result, the Class A common and Class B
common shareholders retain the same relative value in relation to each other
after the reorganization. As a result, no compensation expense was recognized.
F-17
<PAGE> 196
SEPCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In aggregate, former Company common shareholders will hold 96% of the
outstanding common stock of Index upon completion of the transaction. In
addition, the holders of each class of the Company's preferred stock will
exchange their shares for shares of Index preferred stock with identical rights
and terms except that the Class A convertible preferred stock will be
convertible into 112 shares of Index common stock. Simultaneously, Newman
Communications Corporation ("Newman"), a public corporation with nominal assets,
will merge with another newly formed shell subsidiary of Index. The common
shareholders of Newman will exchange their shares for approximately 4% of the
outstanding common shares of Index. Index's capital structure after the proposed
reorganization will be as follows:
<TABLE>
<CAPTION>
OUTSTANDING SHARES
------------------
<S> <C>
Preferred stock, nonvoting, noncumulative $1 par value; liquidation
preference of $100 per share: Authorized shares -- 1,000,000...... 10,000
Convertible preferred stock, nonvoting, cumulative $100 par value;
liquidation preference of $100 per share: Authorized
shares -- 1,000,000............................................... 19,500
Common stock, $0.01 par value: Authorized shares -- 100,000,000..... 15,987,900
</TABLE>
Each outstanding option to purchase the Company's Class A common stock will
be exchanged for an option to purchase 16 shares of Index common stock at a
split-adjusted exercise price resulting in aggregate options to purchase
4,916,800 shares of Index common stock.
Index and Newman have nominal assets and no operations; therefore, the
proposed merger will be accounted for as a recapitalization. Accordingly, the
historical financial statements for Index prior to the reorganization will be
those of the Company. The reorganization plan is subject to the approval by vote
of the shareholders of record of both the Company and Newman. In conjunction
with the reorganization, all repurchase arrangements on the Company's stock as
discussed in Note 7 will be eliminated upon the issuance of Index stock to the
Company's shareholders.
Repayment of Notes Receivable From Shareholders
At December 31, 1995 and 1994, the Company held notes receivable from
employees arising from stock purchases which had outstanding balances totaling
$285,000. Such notes were full recourse and were collateralized by shares of
common stock. In June and July 1996, these notes were collected. Prior to
January 1, 1995, the outstanding balances on these notes were classified in the
consolidated balance sheets as a reduction of shareholders' equity. As a result
of the subsequent collection of these notes, the outstanding balances have been
reclassified on the 1995 and 1994 consolidated balance sheets as a noncurrent
asset included in notes receivable from officers and shareholders.
F-18
<PAGE> 197
SEPCO INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 1996
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash............................................................................. $ --
Trade accounts receivable, net of allowance for doubtful accounts of $245,000.... 18,016
Inventory........................................................................ 17,247
Prepaid expenses and other current assets........................................ 971
Deferred income taxes............................................................ 503
-------
Total current assets............................................................... 36,737
Property and equipment, net........................................................ 6,749
Other Assets....................................................................... 1,585
-------
Total assets....................................................................... $45,071
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable........................................................... $ 7,370
Employee compensation............................................................ 1,005
Other accrued liabilities........................................................ 2,289
Current portion of long-term debt................................................ 1,347
Current portion of subordinated debt............................................. 1,308
-------
13,319
Long-term debt, less current portion............................................... 19,660
Deferred income taxes.............................................................. 205
Shareholders' equity:
Preferred stock, nonvoting, noncumulative $1 par value; liquidation preference of
$100 per share:
Authorized shares -- 1,000,000
Issued shares -- 10,098, including 1,496 shares subject to redemption -- Note
8............................................................................. 10
Class A convertible preferred stock, nonvoting, cumulative $100 par value;
liquidation preference of $100 per share:
Authorized shares -- 1,000,000
Issued and outstanding shares -- 19,500, including 4,500 shares subject to
redemption -- Note 8.......................................................... 1,950
Class B convertible preferred stock, nonvoting, cumulative $100 par value;
liquidation preference $100 per share:
Authorized shares -- 1,000,000
Issued and outstanding shares -- none......................................... --
Class A common stock, $.01 par value; liquidation preference of
$7.5075 per share:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 980,300, including 272,000 shares subject to
redemption -- Note 8.......................................................... 10
Class B common stock, $.01 par value; liquidation preference of
$7.5075 per share:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 176,900...................................... 2
Paid-in capital.................................................................. 1,880
Retained earnings................................................................ 9,732
-------
13,584
Less treasury stock, 6,732 shares preferred and 221,401 shares Class A common.... (1,697)
-------
Total shareholders' equity......................................................... 11,887
-------
Total liabilities and shareholders' equity......................................... $45,071
=======
</TABLE>
See accompanying notes.
F-19
<PAGE> 198
SEPCO INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------
1996 1995
------- -------
(IN THOUSANDS
EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales...................................................................... $63,021 $56,395
Cost of sales.............................................................. 46,790 42,005
------- -------
Gross profit............................................................... 16,231 14,390
Selling, general, and administrative expenses.............................. 14,806 12,380
------- -------
Operating income........................................................... 1,425 2,010
Other income............................................................... 514 428
Interest expense........................................................... (1,008) (968)
------- -------
(494) (540)
------- -------
Income before income taxes................................................. 931 1,470
Provision for income taxes................................................. 377 596
------- -------
Net income................................................................. $ 554 $ 874
======= =======
Primary net income per common and common equivalent share.................. $ 0.55 $ 0.66
======= =======
Number of shares used to compute primary net income per common and common
equivalent share......................................................... 1,016 1,331
======= =======
Fully diluted net income per common and common equivalent share............ $ 0.48 $ 0.66
======= =======
Number of shares used to compute fully diluted net income per common and
common equivalent shares................................................. 1,152 1,334
======= =======
</TABLE>
See accompanying notes.
F-20
<PAGE> 199
SEPCO INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities............................ $ 704 $ 1,881
INVESTING ACTIVITIES
Purchase of Austin Bearing net assets................................ (550) --
Purchase of property and equipment................................... (481) (260)
--------- ---------
Net cash used in investing activities................................ (1,031) (260)
FINANCING ACTIVITIES
Proceeds from debt................................................... 60,704 56,773
Principal payments on revolving line of credit, long-term
and subordinated debt, and notes payable to bank................... (61,824) (59,283)
Dividends paid....................................................... (45) --
--------- ---------
Net cash used in financing activities................................ (1,165) (2,510)
--------- ---------
Decrease in cash..................................................... (1,492) (889)
Cash at beginning of period.......................................... 1,492 889
--------- ---------
Cash at end of period................................................ $ -- $ --
========= =========
</TABLE>
See accompanying notes.
F-21
<PAGE> 200
SEPCO INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
1. GENERAL
The unaudited interim condensed consolidated financial statements of Sepco
Industries, Inc. (the "Company") included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. The condensed consolidated financial statements
reflect all elimination entries and adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
condensed consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes included
elsewhere in this registration statement.
2. PER SHARE AMOUNTS
Net income per common and common equivalent share has been computed by
dividing net income applicable to common stock by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Options to purchase common stock issued by the Company within the 12
months preceding the filing of this registration statement have been included in
the calculation of common equivalent shares outstanding (using the treasury
stock method) as if they were outstanding for all periods presented. The
computation of fully diluted net income per common and common equivalent share
assumes the Class A convertible preferred stock was converted as of the
beginning of the period.
3. INVENTORY
An actual valuation of inventory under the LIFO method can be made only at
the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Because these are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
4. ACQUISITION
Effective December 31, 1995, the Company acquired 100% of the outstanding
common stock of Bayou Pumps. The purchase price totaled $500,000 and consisted
of (i) issuance of $450,000 of the Company's Class A convertible preferred stock
and (ii) cash of $50,000. The acquisition has been accounted for using the
purchase method of accounting. Goodwill of $400,000 was recorded on the
acquisition.
Effective February 2, 1996, the Company acquired the net assets of Austin
Bearing Corporation. The purchase price totaled approximately $578,000 and
consisted of (i) issuance of a $249,000 note, bearing interest at 9%, payable
monthly over five years and (ii) cash of $329,000. The acquisition has been
accounted for using the purchase method of accounting. Goodwill of $84,000 was
recorded on the acquisition.
5. COMMITMENTS AND CONTINGENCIES
The Company is currently undergoing an examination of its tax returns by
the Internal Revenue Service ("IRS") which is asserting claims against the
Company for additional taxes and penalties of approximately $1 million plus
interest of approximately $240,000. This claim relates primarily to a challenge
by the IRS of
F-22
<PAGE> 201
SEPCO INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's use of the LIFO method of accounting for inventory. The Company
believes that its LIFO elections were valid and currently is pursuing its rights
to administrative appeal. Although an unfavorable outcome on this matter would
result in the payment of additional taxes and impact the Company's liquidity
position, the Company believes that any liability that may ultimately result
from the resolution of this matter will not have a material adverse effect on
the financial position of the Company.
6. STOCK OPTIONS
Prior to and during 1995, the Company issued nonqualified, book value plan
stock options to certain officers of the Company to purchase shares of its Class
A common stock, which had exercise prices equal to the book value of the common
stock of the date of grant. The option agreement allowed the employee to put the
stock acquired back to the Company at the book value at that time. The Company
recognized compensation expense for increases in the book value of the stock
while the options were outstanding.
Effective March 31, 1996, the stock option agreements were amended to
become nonqualified, market value plan stock options. Under the amended
agreement, the employees can no longer put the acquired stock back to the
Company. In connection with these changes, the Company has recognized
approximately $426,000 of compensation expense, net of a tax benefit of
$284,000, in the six months ended June 30, 1996.
The compensation expense was determined utilizing the deemed fair value of
the shares underlying the options as of March 31, 1996, as estimated by the
Company by updating the December 31, 1995, valuations made by an outside
independent appraiser to reflect earnings from December 31, 1995, to March 31,
1996.
7. LONG-TERM DEBT
In September 1996 the Company amended its credit facility, including its
$20 million line of credit, with its lender to extend the maturity to 1999. The
amendment increased the existing balance of the term loan from $123,898 to
$5,000,000 upon conversion of approximately $4.9 million of the amounts
outstanding under the revolving loan to the term loan. The interest rate on the
line of credit was reduced to prime plus 0.50% from prime plus 0.75%. The line
of credit is secured by accounts receivable, inventory, machinery and equipment
and real estate and matures January 1999. The borrowings available under the
existing credit facility at June 30, 1996 approximated $3,000,000.
8. STOCKHOLDERS' EQUITY
The Company has agreements with certain holders of Class A common,
preferred and Class A convertible preferred stock that, upon termination of
employment, the shareholders have an obligation to sell and the Company has the
first opportunity to buy the stock. The Company also has the opportunity to
match a higher offer obtained by the shareholder from another party. The selling
price of the stock will be at a price per share equal to the equity per share
for the Class A common stock and $100 per share for the preferred and Class A
convertible preferred stock. At June 30, 1996, the potential liability to the
Company under these arrangements is approximately as follows:
<TABLE>
<S> <C>
Class A common stock -- at book value.................................... $2,200,000
Preferred stock -- at liquidation preference............................. 150,000
Class A convertible preferred stock -- at liquidation preference......... 450,000
----------
$2,800,000
==========
</TABLE>
In conjunction with the reorganization discussed in Note 10 to the
Company's December 31, 1995 financial statements, all put arrangements on the
Company's stock will be eliminated upon the issuance of stock of Index, Inc. to
the Company's shareholders.
F-23
<PAGE> 202
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Newman Communications Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of Newman Communications
Corporation (A Development Stage Company) as of December 31, 1995 and March 25,
1995 and the related statements of operations, changes in shareholders' equity
and cash flows for the nine months ended December 31, 1995 and for the years
ended March 25, 1995 and March 26, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newman Communications
Corporation (A Development Stage Company) at December 31, 1995 and March 25,
1995 and the results of their operations and their cash flows for each of the
nine months ended December 31, 1995 and for the years ended March 25, 1995 and
March 26, 1994 in conformity with generally accepted accounting principles.
As discussed in note 4 to the financial statements, an error in the
presentation of the reorganization under bankruptcy was discovered during the
current year. Accordingly, the March 26, 1994 financial statements have been
restated.
CHESHIER & FULLER, INC.
A Professional Corporation
Dallas, Texas
January 27, 1996
F-24
<PAGE> 203
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 25, 1995
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 25,
1995 1995
------------ -----------
<S> <C> <C>
Current Assets
Cash............................................................ $ 12,854 $ 5,832
----------- -----------
Total Assets............................................ $ 12,854 $ 5,832
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Priority claims................................................. $ -0- $ -0-
----------- -----------
Total Liabilities....................................... -0- -0-
=========== ===========
Shareholders' Equity
Preferred stock, no par value, authorized 2,000,000 shares, 0
issued and outstanding....................................... -0- -0-
Common stock, no par value, authorized 8,000,000 shares, 858,500
issued and outstanding at December 31, 1995, 834,500 issued
and outstanding at March 31, 1995............................ 1,409,193 1,387,599
Common stock warrants........................................... 11,406 20,000
Retained earnings (deficit)....................................... (1,392,275) (1,392,275)
Deficit accumulated during the developmental stage (since
November 23, 1993, reorganization)........................... (15,470) (9,492)
----------- -----------
Total Shareholders' Equity.............................. 12,854 5,832
----------- -----------
Total Liabilities and Shareholders' Equity.............. $ 12,854 $ 5,832
=========== ===========
</TABLE>
F-25
<PAGE> 204
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
AND FOR THE YEARS ENDED MARCH 25, 1995 AND MARCH 26, 1994
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 23, 1993
UNAUDITED (DATE OF
NINE MONTHS NINE MONTHS FOR THE YEAR FOR THE YEAR REORGANIZATION)
ENDED ENDED ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, MARCH 25, MARCH 26, DECEMBER 31,
1995 1994 1995 1994 1995
------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
REVENUE................................... $ -- $ -- $ -- $ -- $ --
-------- -------- -------- ----------- ---------
Total Revenue................... -- -- -- -- --
-------- -------- -------- ----------- ---------
EXPENSES
Professional fees....................... 4,726 2,581 2,682 5,600 12,508
Regulatory expense...................... 550 375 375 -- 925
Advertising and marketing............... 607 333 333 -- 940
Miscellaneous expense................... 95 717 817 -- 912
Office supplies......................... -- 185 185 -- 185
-------- -------- -------- ----------- ---------
Total Expenses.................. 5,978 4,191 4,392 5,600 15,470
-------- -------- -------- ----------- ---------
Net income (loss) before taxes............ (5,978) (4,191) (4,392) (5,600) (15,470)
Provision for income taxes................ -- -- -- -- --
-------- -------- -------- ----------- ---------
Net income (loss) before extraordinary
item.................................... (5,978) (4,191) (4,392) (5,600) (15,470)
Extraordinary item -- Relief of debt in
bankruptcy.............................. -- -- -- 4,026,333 --
-------- -------- -------- ----------- ---------
Net income (loss)......................... $ (5,978) $ (4,191) $ (4,392) $ 4,020,733 $ (15,470)
======== ======== ======== =========== =========
PRIMARY EARNINGS PER COMMON SHARE
Earnings (loss) before extraordinary
item.................................... (.01) (.01) (.01) NIL (.03)
Extraordinary item -- relief of debt in
bankruptcy.............................. -0- -0- -0- 1.14 -0-
-------- -------- -------- ----------- ---------
Net earnings (loss)....................... (.01) (.01) (.01) 1.14 $ (.03)
======== ======== ======== =========== =========
Weighted average common shares
outstanding............................. 839,833 740,222 763,792 3,540,407 535,760
======== ======== ======== =========== =========
FULLY DILUTED EARNINGS PER COMMON SHARE
Earnings (loss) before extraordinary
item.................................... (.01) (.01) (.01) NIL (.03)
Extraordinary item -- relief of debt in
bankruptcy.............................. -0- -0- -0- 1.14 -0-
-------- -------- -------- ----------- ---------
Net earnings (loss)....................... (.01) (.01) (.01) 1.14 $ (.03)
======== ======== ======== =========== =========
Weighted average common shares
outstanding.......................... 839,833 740,222 763,792 3,540,407 535,760
======== ======== ======== =========== =========
</TABLE>
See notes to financial statements.
F-26
<PAGE> 205
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
AND FOR THE YEARS ENDED MARCH 25, 1995 AND MARCH 26, 1994
<TABLE>
<CAPTION>
FOR THE PERIOD
UNAUDITED NOVEMBER 23, 1993
NINE MONTHS NINE MONTHS FOR THE YEAR FOR THE YEAR (DATE OF
ENDED ENDED ENDED ENDED REORGANIZATION)
DECEMBER 31, DECEMBER 31, MARCH 25, MARCH 26, THROUGH
1995 1994 1995 1994 DECEMBER 31, 1995
------------ ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (5,978) $ (4,191) $ (4,392) $ 4,020,733 $ (15,470)
Relief of debt in bankruptcy........ -- -- -- (4,026,333) --
-------- -------- -------- ------------ ---------
Net cash used from operating
activities........................ (5,978) (4,191) (4,392) (5,600) (15,470)
-------- -------- -------- ------------ ---------
Cash flows from investing activities..... -- -- -- -- --
-------- -------- -------- ------------ ---------
Cash flows from financing activities:
Warrants exercised..................... 13,000 1,000 1,000 -- 14,000
Subscription of 3,000,000 warrants..... -- -- -- 20,000 --
Priority claims payments............... -- (25) (25) (141) (25)
Unsecured debt payments................ -- -- -- (5,010) --
-------- -------- -------- ------------ ---------
Total financing activities.......... 13,000 975 975 14,849 13,975
Net increase (decrease) in cash..... 7,022 (3,216) (3,417) 9,249 (1,495)
Cash at beginning of period(1)...... 5,832 9,249 9,249 -0- 14,349
-------- -------- -------- ------------ ---------
Cash at end of period............... $ 12,854 $ 6,033 $ 5,832 $ 9,249 $ 12,854
======== ======== ======== ============ =========
</TABLE>
- ---------------
(1) Beginning cash for December 31, 1995 is as of March 25, 1995 as this cash
period is for nine months.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C> <C> <C> <C>
Cash paid during the period for:
Income taxes........................ $ -- $ -- $ -- $ -- $ --
======== ======== ======== ============ =========
Interest............................ $ -- $ -- $ -- $ -- $ --
======== ======== ======== ============ =========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
-- $4,026,333 unsecured debt was forgiven during the fiscal year ended
March 26, 1994.
-- 832,500 of common stock, no par, and 1,650,000 each of warrant A, B and
C have been issued to pre-petition stockholders, creditors and Little.
-- On November 23, 1995 the remaining 1,628,000 A warrants, and 1,648,000
B warrants expired.
See notes to financial statements.
F-27
<PAGE> 206
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
A, B, & C WARRANTS
COMMON STOCK TO BUY COMMON STOCK RETAINED
------------------------- PAID-IN ---------------------- EARNINGS
SHARES AMOUNT CAPITAL NUMBER AMOUNT (DEFICIT) TOTAL
---------- ---------- ---------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 26, 1994... 832,500 $1,386,599 $ 0 4,953,000 $20,000 $(1,397,375) $ 9,224
Warrants erroneously shown as
outstanding at March 26,
1994....................... (3,000)
Warrants exercised........... 2,000 1,000 (2,000) 1,000
Net (loss) for the nine
months ended December 31,
1994 (Unaudited)........... (4,191) (4,191)
------- ----------- ---------- ---------- ------- ----------- -----------
Balances at December 31, 1994
(Unaudited)................ 834,500 1,387,599 0 4,948,000 20,000 (1,401,566) 6,033
Net (loss) for the quarter
ended March 25, 1995
(Unaudited)................ (201) (201)
Warrants exercised........... 24,000 13,000 (24,000) 13,000
Expiration of Warrants....... 8,594 (3,274,000) (8,594 )
Net (loss) for the nine
months ended December 31,
1995....................... (5,978) (5,978)
------- ----------- ---------- ---------- ------- ----------- -----------
Balances at December 31,
1995....................... 858,500 $1,409,193 $ 0 1,650,000 $11,406 $(1,407,745) $ 12,854
======= =========== ========== ========== ======= =========== ===========
Balances at March 27, 1993... 5,310,160 $ 53,102 $1,333,497 $(5,418,108) $(4,031,509)
Net income (loss) for the
period March 27, 1993 to
November 23, 1993 (date of
reorganization)............ 4,025,833 4,025,833
Reorganization November 23,
1993....................... (5,310,160) 1,333,497 (1,333,497) 0
Subscription of warrants..... 3,000,000 $20,000 20,000
Subscription of stock and
warrants................... 832,500 1,953,000
Net (loss) for the period
November 23, 1993 (date of
reorganization) to March
26, 1994................... (5,100) (5,100)
------- ----------- ---------- ---------- ------- ----------- -----------
Balances at March 26, 1994... 832,500 1,386,599 0 4,953,000 20,000 (1,397,375) 9,224
Warrants erroneously shown as
outstanding at March 26,
1994....................... (3,000)
Warrants exercised........... 2,000 1,000 (2,000) 1,000
Net (loss) for the year ended
March 25, 1995............. (4,392) (4,392)
------- ----------- ---------- ---------- ------- ----------- -----------
Balances at March 25, 1995... 834,500 $1,387,599 $ 0 4,948,000 $20,000 $(1,401,767) $ 5,832
======= =========== ========== ========== ======= =========== ===========
</TABLE>
See notes to financial statements.
F-28
<PAGE> 207
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 25, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
History
Newman Communications Corporation ("Company"), was incorporated June 25,
1981 in Albuquerque, New Mexico as a company directed toward the manufacture and
distribution of books on audio cassettes. The company began having financial
difficulties in early 1987, and subsequently ceased operations and liquidated
its assets in November of that year. The Company filed for chapter XI bankruptcy
on August 12, 1992. On November 22, 1993 the Company emerged from bankruptcy as
a reorganized entity.
Little and Company/Southwest ("Little") had no relationship with the
Company before it became illiquid and ceased operations. Little acquired
1,792,000 shares of common stock from previous stockholders for $5,000 and
purchased an outstanding judgment. When the Company filed a Chapter XI petition
under the United States Bankruptcy Code, a Plan of Reorganization (the "Plan")
was proposed by Little that was confirmed by the Court.
Development Stage Operations
The Company currently has no operational activities.
Reorganization
The terms of the recent Chapter XI reorganization are, in general, as
follows:
(A) The articles of incorporation of the Company were amended to authorize
no par common stock. All of the pre-petition common stock held by
stockholders was voided.
(B) The unsecured creditors were given the option of receiving cash or
common stock. Those electing to receive cash were paid $5,010 as a
group. Those creditors that elected to receive common stock of the
Company received four shares of common stock of the Company and four
warrants each of A, B & C for each dollar of claims filed with no claim
exceeding the issuance of more than 7,500 shares of common stock and
7,500 each of warrants A, B & C. All creditors were issued a minimum of
100 shares of common and 100 warrants A, B & C.
(C) Holders of the common stock of the Company were designated as a
separate class in the Plan and allowed to voluntarily participate in the
reorganization. Stockholders that elected to participate were required
to provide proof of ownership and pay a $20.00 administrative fee
directly to the transfer agent. Those pre-petition stockholders that
participated received 500 shares of the new common stock of the
reorganized entity and 1,000 each of Warrants A, B and C. All
stockholders and their respective shares that did not participate in the
Plan were removed from the stockholders list and their respective shares
canceled.
(D) The following is a description of the warrants:
Warrant A will allow the holder to purchase 1 share of the common stock
of the reorganized Company at $.50 per share for a period of 12 months
from November 22, 1993. During the year ended March 25, 1995, the period
in which the warrants may be exercised was extended twelve months.
Warrant B will allow the holder to purchase 1 share of the common stock
of the reorganized Company at $1.00 per share for a period of 24 months
from November 22, 1993.
F-29
<PAGE> 208
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warrant C will allow the holder to purchase 1 share of the common stock
of the reorganized Company at $2.00 per share for a period of 36 months
from November 22, 1993.
(E) Under the Plan, Little contributed $20,000 and received 1,000,000 each
of Warrants A, B and C. Little returned to the Company's treasury
1,792,000 shares of the Company's pre-petition common stock and received
500,000 shares of new common stock under the Plan.
(F) Pre-petition creditors and shareholders had until March 22, 1994
according to the Plan to subscribe to stock and warrants. A total of
332,500 shares of common stock and 650,000 each of warrants A, B & C
were subscribed to by this group.
Fiscal Year
During 1995 the Company changed its year end from a fiscal year, which is
based on a 52 week year ending on the last Saturday in March, to a calendar year
end.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 -- EXTRAORDINARY ITEM
The net result of settling the pre-petition unsecured creditors' claims and
other liabilities of $4,031,343 for $5,010 was accounted for as an extraordinary
item. The discharge of debts in bankruptcy has no tax effect.
NOTE 3 -- INCOME TAXES
There are no temporary timing differences between recognition of revenue
and expenses for financial reporting purposes and income tax purposes.
There are no net operating loss carryforwards available from periods prior
to November 22, 1993. Subsequent to November 22, 1993 there are loss carry
forwards of $15,769 which can be carried forward to reduce taxable income. These
carryforwards expire between 2008 and 2010, respectively. These carryforwards
may be limited under IRS Code Section 382 should significant changes in stock
ownership in the Company occur in the future.
Because there is at least a 50% chance that the carryforward will expire
unused, the benefit associated with the loss carryforward has not been
reflected.
NOTE 4 -- CORRECTION OF ERROR -- PRIOR YEAR
During 1995, it was determined that the forgiveness of debt under
bankruptcy should have been reported as an extraordinary item and shown as a
component of net income for the year ended March 26, 1994. The change had no
effect on net loss before extraordinary items, or the related net loss per share
data. Net income was increased by $4,026,333 and earnings per share was
increased by $1.14. Total equity was not affected. All changes pertain to the
year ended March 26, 1994 only.
F-30
<PAGE> 209
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C> <C>
ASSETS
Current Assets:
Cash........................................................................... $5,200
------
Total Current Assets................................................... $5,200
======
LIABILITIES AND CAPITAL
Current Liabilities:
Accrued liabilities............................................................ $6,034
------
Total Current Liabilities.............................................. 6,034
Capital:
Common stock........................................................ $1,409,193
Warrants subscribed................................................. 11,406
Deficit accumulated/development stage............................... (15,470)
Retained earnings................................................... (1,392,275)
Year-to-date earnings............................................... (13,688)
---------
Total Capital.......................................................... (834)
------
TOTAL LIABILITIES AND CAPITAL.......................................... $5,200
======
</TABLE>
See notes to financial statements.
F-31
<PAGE> 210
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues............................................................. $ -0- $ -0-
Expenses:
Advertising/marketing.............................................. -0- 608
Office supplies and services....................................... 873 -0-
Professional services.............................................. 12,690 4,451
Regulatory expenses................................................ 125 550
Miscellaneous...................................................... -0- 35
-------- --------
Total Expenses............................................. 13,688 5,644
-------- --------
Net income (loss) before taxes....................................... (13,688) (5,644)
Provision for income taxes........................................... -0- -0-
-------- --------
Net income (loss).................................................... $(13,688) $ (5,644)
======== ========
Weighted average common shares outstanding........................... 858,500 834,500
======== ========
Earnings (loss) per share............................................ $ (.02) $ (.01)
======== ========
</TABLE>
See notes to financial statements.
F-32
<PAGE> 211
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues............................................................. $ -0- $ -0-
Expenses
Office supplies and services....................................... 873 -0-
Professional services.............................................. -0- 201
Regulatory expenses................................................ 125 -0-
-------- --------
Total Expenses............................................. 998 201
-------- --------
Net income (loss) before taxes....................................... (998) (201)
-------- --------
Provision for income taxes........................................... -0- -0-
-------- --------
Net income (loss).................................................... $ (998) $ (201)
======== ========
Weighed average common shares outstanding............................ 858,500 834,500
======== ========
Earnings (loss) per share............................................ NIL NIL
======== ========
</TABLE>
See notes to financial statements.
F-33
<PAGE> 212
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX
SIX MONTHS
MONTHS ENDED
ENDED JUNE
JUNE 30, 30,
1996 1995
-------- -------
<S> <C> <C>
Cash Flows from
Operating Activities:
Net income (loss)................................................ $(13,688) $(5,644)
Change in liabilities
Accrued liabilities.............................................. 6,034 2,251
-------- -------
Net cash used from operating activities............................... (7,654) (3,393)
Cash flows from investing activities.................................. -0- -0-
-------- -------
Cash flow from financing activities................................... -0- -0-
-------- -------
Net decrease in cash.................................................. (7,654) (3,393)
Cash at beginning of period........................................... 12,854 6,033
-------- -------
Ending cash........................................................... $ 5,200 $ 2,640
======== =======
</TABLE>
See notes to financial statements.
F-34
<PAGE> 213
NEWMAN COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 1 -- GENERAL
The unaudited interim financial statements of Newman Communications
Corporation (the "Company") included herein have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The Company believes that the
presentations and disclosures herein are adequate to make the information not
misleading. The financial statements reflect all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the interim
periods.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
financial statements should be read in conjunction with the Company's audited
financial statements and notes included elsewhere in this registration
statement.
NOTE 2 -- SUBSEQUENT EVENT
On August 12, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Index, Inc., a Texas corporation ("Index").
Under the terms of the Merger Agreement, each shareholder of the Company will
receive one-fourth ( 1/4) of a share of Index common stock for each share of the
Company's common stock subject to the merger transaction. The effectiveness of
the merger transaction is subject to the satisfaction of numerous contingencies.
A Registration Statement on Form S-4 has been filed with the SEC for the purpose
of registering the shares of Index common stock issuable to shareholders of the
Company under the Merger Agreement. Upon consummation of the transactions
contemplated in the Merger Agreement, the Company will become a wholly-owned
subsidiary of Index.
Subsequent to the execution of the Merger Agreement, the Company issued to
Halter Financial Group, Inc. 1,693,564 shares of the Company's common stock, or
approximately 66.2% of the Company's issued and outstanding common stock, in
exchange for the payment of $1,694.00 The purchase of such shares resulted in a
change in control of the Company from Little & Company Investment Securities to
Halter Financial Group, Inc.
F-35
<PAGE> 214
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
INDEX, INC.
COMMON STOCK
---------------------
PROSPECTUS
Of the 347,391 shares of Common Stock, $.01 par value per share (the
"Common Stock"), of Index, Inc. (the "Company") offered hereby, all of such
shares are being offered for the account of Halter Financial Group ("Halter").
See "Plan of Distribution".
There is no current market for the Common Stock. The Company intends to
apply for quotation of the Common Stock on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. upon effectiveness of the
Registration Statement of which this Prospectus forms a part.
THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 11.
THE SHARES OF COMMON STOCK, SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES A
PREFERRED STOCK TO BE ISSUED IN CONNECTION WITH THE MERGERS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS ANY
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
<PAGE> 215
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus in connection with
the offering of securities made hereby and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any other person. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities, or the solicitation
of a proxy in any jurisdiction to or from any person to whom it is not lawful to
make any such offer or solicitation in such jurisdiction. Neither the delivery
of this Prospectus nor any distribution of securities made hereunder shall,
under any circumstances, create an implication that there has been no change in
the affairs of the Company since the date hereof or that the information herein
is correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered by this Prospectus,
reference is made to the Registration Statement, including the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
Prior to the date of this Prospectus the Company had not been subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The reports, proxy statements and other information to be
filed by the Company with the Commission may be inspected without charge, and
copies may be obtained at prescribed rates, at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission at
Northwest Atrium Center, 500 West Madison Street, 14th Floor, Chicago, Illinois
60661-2511 and 7 World Trade Center, New York, New York 10048. The Commission
also maintains a WorldWide Web site on the Internet at http://www.sec.gov which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
<PAGE> 216
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
SUMMARY...............................................................................
RISK FACTORS..........................................................................
Control by Existing Shareholders, Directors and Executive Officers of Sepco.........
Substantial Competition.............................................................
Risks Associated with Implementation of Corporate Strategy..........................
Dependence on Key Personnel.........................................................
IRS Examination.....................................................................
Risks Associated with Hazardous Materials...........................................
Limitation on Ability to Pay Dividends..............................................
Dilution............................................................................
Potential Anti-Takeover Effects of Articles of Incorporation and Bylaws.............
No Public Market for the Common Stock; Possible Volatility of Stock Price...........
SEPCO SELECTED CONSOLIDATED FINANCIAL DATA............................................
NEWMAN SELECTED FINANCIAL DATA........................................................
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.....................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..........................................................................
The Company/Sepco...................................................................
General.............................................................................
Results of Operations...............................................................
Liquidity and Capital Resources.....................................................
Accounting Pronouncements...........................................................
Inflation...........................................................................
Newman..............................................................................
BUSINESS INFORMATION CONCERNING THE COMPANY...........................................
General.............................................................................
Industry Overview and Business Objectives...........................................
Products and Services...............................................................
The iPower Consortium...............................................................
Manufacturers.......................................................................
Competition.........................................................................
Customers...........................................................................
Properties..........................................................................
Backlog.............................................................................
Employees...........................................................................
Insurance...........................................................................
Intellectual Property...............................................................
Government Regulation and Environmental Matters.....................................
Legal Proceedings...................................................................
MARKET FOR THE COMMON STOCK AND RELATED SHAREHOLDER MATTERS...........................
DIVIDEND POLICY.......................................................................
MANAGEMENT............................................................................
Board of Directors' Compensation....................................................
Committees of the Board of Directors................................................
Employment Agreements...............................................................
Executive Compensation..............................................................
</TABLE>
<PAGE> 217
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Benefit Plans.......................................................................
The Sepco Industries, Inc. Employee Stock Ownership Plan............................
Nonqualified Stock Option Agreements................................................
Long Term Incentive Plan............................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................
CERTAIN TRANSACTIONS..................................................................
Sepco...............................................................................
DESCRIPTION OF COMPANY CAPITAL STOCK..................................................
General.............................................................................
Common Stock........................................................................
Preferred Stock.....................................................................
Transfer Agent......................................................................
PLAN OF DISTRIBUTION..................................................................
LEGAL MATTERS.........................................................................
EXPERTS...............................................................................
</TABLE>
<PAGE> 218
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
RISK FACTORS
NO PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock is a new issue of security that will have no established
trading market. The Company intends to apply for quotation of the Common Stock
on the OTC Bulletin board of the National Association of Securities Dealers,
Inc. upon effectiveness of the Registration Statement of which this Prospectus
forms a part. While there can be no assurance in this regard, the Company
believes that the Common Stock should qualify for quotation on the OTC Bulletin
Board. There can be no assurance, however, that a market in the Common Stock
will develop, or if developed, will be sustained. Over 90% of the outstanding
shares of Common Stock are held by less than 20 holders. Concentration of
ownership and the lack of a public market for the Common Stock could adversely
affect the liquidity of such shares and the amount that could be realized on a
sale thereof. See "Market for the Common Stock and Related Shareholder Matters".
The limited number of unaffiliated shareholders and factors such as market
expansion, the development of additional services, its competitors and other
third parties, as well as quarterly variations in the Company's anticipated or
actual results of operations or market conditions generally, may cause the
market prices of the Common Stock to fluctuate significantly if a trading market
does in fact develop for the Common Stock. In addition, the stock market has on
occasion experienced extreme price and volume fluctuations, which have
particularly affected the market prices of many companies. These broad market
fluctuations may adversely affect the market price of the Common Stock, if a
public trading market is established.
<PAGE> 219
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
MARKET FOR THE COMMON STOCK AND RELATED SHAREHOLDER MATTERS
There is no current public market for the Common Stock, and there is no
assurance that such a market will develop. The Company intends to apply for
quotation of the Common Stock on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. upon effectiveness of the Registration
Statement of which this Prospectus forms a part. See "Risk Factors -- No Public
Market for the Common Stock; Possible Volatility of Stock Price".
Upon completion of the Reorganization, the Company will have 15,987,900
shares of Common Stock outstanding, approximately 9,398,400 shares of which will
be held by affiliates of the Company and will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years, including an "affiliate", is entitled to sell, within any
three-month period, a number of his restricted shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock or (ii) an
amount equal to the average weekly reported volume of trading in such shares
during the four calendar weeks immediately preceding such sale. Sales under Rule
144 are also subject to certain manner of sale limitations, notice requirements
and the availability of current public information about the Company. A person
(or persons whose shares are aggregate) who is not deemed an "affiliate" of the
Company and who has beneficially owned restricted shares for at least three
years generally is entitled to sell such shares under Rule 144 without
restrictions or registration under the Securities Act, unless thereafter held by
an "affiliate" of the Company.
<PAGE> 220
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
LEGAL MATTERS
The validity of the shares of Common Stock will be passed on by Fulbright &
Jaworski L.L.P., Houston, Texas.
<PAGE> 221
[ALTERNATE SECTION FOR HALTER PROSPECTUS]
PLAN OF DISTRIBUTION
The 347,391 shares of Common Stock offered pursuant to this Prospectus are
being offered for the account of Halter.
Sales of the shares of Common Stock by Halter may be made from time to time
in the over-the-counter market, on any stock exchange on which the Common Stock
may be listed at the time of sale or in private transactions at prices then
prevailing. The shares of Common Stock offered hereby may be sold by any one or
more of the following methods: (i) a block trade (which may involve crosses) in
which the broker or dealer so engaged will attempt to sell the securities as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (ii) purchases by a broker or dealer as principal;
(iii) ordinary brokerage transactions in which the broker solicits purchasers;
and (iv) privately negotiated transactions. Halter may effect such transactions
by selling the shares of Common Stock through broker-dealers, and such broker-
dealers may receive compensation in the form of commissions from Halter (which
commissions will not exceed those customary in the types of transactions
involved). Halter and any broker-dealers that participate in the distribution of
the shares of Common Stock may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profit on the sale
of shares of Common Stock by it and any fees and commissions received by any
such broker-dealers may be deemed to be underwriting discounts and commissions.
The shares of Common Stock also may be sold pursuant to Rule 144 of the
Securities Act to the extent such sales may be made in compliance with the
requirements of Rule 144.
At the time a particular offering of the Common Stock is made hereunder, to
the extent required by law, a Prospectus supplement will be distributed which
will set forth the amount of Common Stock being offered and the terms of the
offering, including the purchase price, the name or names of any dealers or
agents, the purchase price paid for the Common Stock purchased from Halter and
any items constituting compensation from Halter.
<PAGE> 222
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.01-1 of the Texas Business Corporation Act ("TBCA") provides that
a corporation may indemnify any director or officer who was, is or is threatened
to be made a named defendant or respondent in a proceeding because he is or was
a director or officer, provided that the director or officer (i) conducted
himself in good faith, (ii) reasonably believed (A) in the case of conduct in
his official capacity, that his conduct was in the corporation's best interests
or (B) in all other cases, that his conduct was at least not opposed to the
corporation's best interests and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Subject to certain
exceptions, a director or officer may not be indemnified if the person is found
liable to the corporation or if the person is found liable on the basis that he
improperly received a personal benefit. Under Texas law, reasonable expenses
incurred by a director or officer may be paid or reimbursed by the corporation
in advance of a final disposition of the proceeding after the corporation
receives a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined that the director or officer is not
entitled to indemnification by the corporation. Texas law requires a corporation
to indemnify an officer or director against reasonable expenses incurred in
connection with a proceeding in which he is named a defendant or respondent
because he is or was a director or officer if he is wholly successful in defense
of the proceeding.
Texas law also permits a corporation to purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director or officer
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
Article 2.02-1 of the TBCA.
The Company's Articles and the Company's Bylaws provide for indemnification
of its officers and directors, and the advancement to them of expenses in
connection with proceedings and claims, to the fullest extent permitted under
the TBCA. Such indemnification may be made even though directors and officers
would not otherwise be entitled to indemnification under other provisions of the
Company's Bylaws.
The above discussion of the TBCA and the Company's Articles and the
Company's Bylaws is not intended to be exhaustive and is qualified in its
entirety by such statute, the Company's Articles and the Company's Bylaws,
respectively.
A registration rights agreement to be entered into between the Company and
Halter will provide for customary indemnification, including indemnification for
liability under securities laws.
Reference is made to the Newman Merger Agreement filed as Exhibit 2.1 to
this Registration Statement for certain provisions regarding the indemnification
of the Company, its officers, directors and any controlling persons by Newman
and LITCO against certain liabilities for information furnished by Newman or
LITCO.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and therefore is unenforceable.
II-1
<PAGE> 223
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
A. Exhibits:
<TABLE>
<C> <S>
+2.1 -- Agreement and Plan of Merger dated August 12, 1996, by and among
Index , Inc., Newman Acquisition Corporation, Newman Communications
Corporation and Little & Company Investment Securities.
+2.2 -- Agreement and Plan of Merger dated August 12, 1996, by and among
Index, Inc., Sepco Acquisition Corporation and Sepco Industries, Inc.
3.1 -- Restated Articles of Incorporation.
+3.2 -- Bylaws.
4.1 -- Form of Common Stock Certificate.
4.2 -- Form of Series A Preferred Stock Certificate.
4.3 -- Form of Series B Convertible Preferred Stock Certificate.
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
8.1 -- Opinion of Fulbright & Jaworski L.L.P.
+10.1 -- Index, Inc. Long Term Incentive Plan.
+10.2 -- Stock Option Agreement dated effective as of May 7, 1996, between
Sepco Industries, Inc. and Kenneth H. Miller.
+10.3 -- Stock Option Agreement dated effective as of May 7, 1996, between
Sepco Industries, Inc. and Tommy Orr.
+10.4 -- Stock Option Agreement dated effective as of May 7, 1996, between
Sepco Industries, Inc. and Cletus Davis.
+10.5 -- Amended and Restated Stock Option Agreement dated effective as of
March 31, 1996, between Sepco Industries, Inc. and Jerry J. Jones.
+10.6 -- Amended and Restated Stock Option Agreement dated effective as of
March 31, 1996, between Sepco Industries, Inc. and Bryan H. Wimberly.
+10.7 -- Amended and Restated Stock Option Agreement dated effective as of
March 31, 1996, between Sepco Industries, Inc. and David R. Little.
+10.8 -- Employment Agreement dated effective as of July 15, 1996, between
Sepco Industries, Inc. and David R. Little.
+10.9 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Jerry J. Jones.
+10.10 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Bryan H. Wimberly.
10.11 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Bob Evans.
+10.12 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Gary A. Allcorn.
10.13 -- Second Amended and Restated Loan and Security Agreement dated
effective as of April 1, 1994, by and between Barclays Business
Credit, Inc. and Sepco Industries, Inc., as amended by First
Amendment to Second Amended and Restated Loan and Security Agreement
and Secured Promissory Note dated May , 1995, by and between Sepco
Industries, Inc. and Shawmut Capital Corporation, successor-in-
interest by assignment to Barclays Business Credit, Inc., as amended
by Second Amendment to Second Amended and Restated Loan and Security
Agreement dated April 3, 1996, by and between Sepco Industries, Inc.
and Fleet Capital Corporation, formerly known as Shawmut Capital
Corporation, and as amended by Third Amendment to Second Amended and
Restated Loan and Security Agreement dated September 9, 1996, by and
between Sepco Industries, Inc. and Bayou Pumps, Inc. and Fleet
Capital Corporation.
+10.14 -- Promissory Note dated December 31, 1989, in the aggregate principal
amount of $149,910.00, made by David R. Little and payable to Sepco
Industries, Inc.
</TABLE>
II-2
<PAGE> 224
<TABLE>
<C> <S>
+10.15 -- Promissory Note dated December 31, 1989, in the aggregate principal
amount of $58,737.00, made by David R. Little and payable to Sepco
Industries, Inc.
+10.16 -- Vehicle Lease Agreement dated July 28, 1993, by and between World
Omni Financial Corp. and Sepco Industries, Inc.
+10.17 -- Real Estate Note dated November 8, 1979, by Southern Engine & Pump
Company, payable to the order of Southwestern Life Insurance Company.
+10.18 -- Sepco Industries, Inc. Employee Stock Ownership Plan.
+11.1 -- Statement re Computation of Per Share Earnings.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Cheshier & Fuller, Inc., P.C.
23.3 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibits 5.1 and
8.1).
+24.1 -- Powers of Attorney from Certain Members of the Board of Directors of
the Company.
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
B. Financial Statement Schedules:
None
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required in Section 10(a)(3) of the
Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED HOWEVER, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by
II-3
<PAGE> 225
persons who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form;
(5) That every prospectus (a) that is filed pursuant to paragraph (4)
immediately preceding, or (b) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-4
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Houston, State of
Texas, on the 30th day of September, 1996.
INDEX, INC.
(Registrant)
By: /s/ DAVID R. LITTLE
------------------------------------
David R. Little
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
/s/ DAVID R. LITTLE Chairman of the Board, Chief September 30, 1996
-------------------------------- Executive Officer and
David R. Little Director (Principal
Executive Officer)
* Senior Vice September 30, 1996
-------------------------------- President/Corporate
Jerry J. Jones Development and Director
/s/ GARY A. ALLCORN Senior Vice September 30, 1996
-------------------------------- President/Finance
Gary A. Allcorn (Principal Financial and
Accounting Officer)
* Director September 30, 1996
--------------------------------
Bryan H. Wimberly
* Director September 30, 1996
--------------------------------
Cletus Davis
* Director September 30, 1996
--------------------------------
Kenneth H. Miller
* Director September 30, 1996
--------------------------------
Thomas V. Orr
*By: /s/ GARY A. ALLCORN
--------------------------------
Attorney-in-fact
(for each of the persons indicated)
</TABLE>
II-5
<PAGE> 227
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
- --------------------
<C> <S>
+2.1 -- Agreement and Plan of Merger dated August 12, 1996, by and among
Index , Inc., Newman Acquisition Corporation, Newman Communications
Corporation and Little & Company Investment Securities.
+2.2 -- Agreement and Plan of Merger dated August 12, 1996, by and among
Index, Inc., Sepco Acquisition Corporation and Sepco Industries, Inc.
3.1 -- Restated Articles of Incorporation.
+3.2 -- Bylaws.
4.1 -- Form of Common Stock Certificate.
4.2 -- Form of Series A Preferred Stock Certificate.
4.3 -- Form of Series B Convertible Preferred Stock Certificate.
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
8.1 -- Opinion of Fulbright & Jaworski L.L.P.
+10.1 -- Index, Inc. Long Term Incentive Plan.
+10.2 -- Stock Option Agreement dated effective as of May 7, 1996, between
Sepco Industries, Inc. and Kenneth H. Miller.
+10.3 -- Stock Option Agreement dated effective as of May 7, 1996, between
Sepco Industries, Inc. and Tommy Orr.
+10.4 -- Stock Option Agreement dated effective as of May 7, 1996, between
Sepco Industries, Inc. and Cletus Davis.
+10.5 -- Amended and Restated Stock Option Agreement dated effective as of
March 31, 1996, between Sepco Industries, Inc. and Jerry J. Jones.
+10.6 -- Amended and Restated Stock Option Agreement dated effective as of
March 31, 1996, between Sepco Industries, Inc. and Bryan H. Wimberly.
+10.7 -- Amended and Restated Stock Option Agreement dated effective as of
March 31, 1996, between Sepco Industries, Inc. and David R. Little.
+10.8 -- Employment Agreement dated effective as of July 15, 1996, between
Sepco Industries, Inc. and David R. Little.
+10.9 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Jerry J. Jones.
+10.10 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Bryan H. Wimberly.
10.11 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Bob Evans.
+10.12 -- Employment Agreement dated as of July 1, 1996, between Sepco
Industries, Inc. and Gary A. Allcorn.
10.13 -- Second Amended and Restated Loan and Security Agreement dated
effective as of April 1, 1994, by and between Barclays Business
Credit, Inc. and Sepco Industries, Inc., as amended by First
Amendment to Second Amended and Restated Loan and Security Agreement
and Secured Promissory Note dated May , 1995, by and between Sepco
Industries, Inc. and Shawmut Capital Corporation, successor-in-
interest by assignment to Barclays Business Credit, Inc., as amended
by Second Amendment to Second Amended and Restated Loan and Security
Agreement dated April 3, 1996, by and between Sepco Industries, Inc.
and Fleet Capital Corporation, formerly known as Shawmut Capital
Corporation, and as amended by Third Amendment to Second Amended and
Restated Loan and Security Agreement dated September 9, 1996, by and
between Sepco Industries, Inc. and Bayou Pumps, Inc. and Fleet
Capital Corporation.
+10.14 -- Promissory Note dated December 31, 1989, in the aggregate principal
amount of $149,910.00, made by David R. Little and payable to Sepco
Industries, Inc.
</TABLE>
<PAGE> 228
<TABLE>
<CAPTION>
EXHIBIT
- --------------------
<S> <S>
+10.15 -- Promissory Note dated December 31, 1989, in the aggregate principal
amount of $58,737.00, made by David R. Little and payable to Sepco
Industries, Inc.
+10.16 -- Vehicle Lease Agreement dated July 28, 1993, by and between World
Omni Financial Corp. and Sepco Industries, Inc.
+10.17 -- Real Estate Note dated November 8, 1979, by Southern Engine & Pump
Company, payable to the order of Southwestern Life Insurance Company.
+10.18 -- Sepco Industries, Inc. Employee Stock Ownership Plan.
+11.1 -- Statement re Computation of Per Share Earnings.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Cheshier & Fuller, Inc., P.C.
23.3 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibits 5.1 and
8.1).
+24.1 -- Powers of Attorney from Certain Members of the Board of Directors of
the Company.
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF CORRECTION
Pursuant to Article 1302-7.01 of the Texas Revised Civil Statutes, the
undersigned corporation hereby submits the following Articles of Correction:
1. The name of the corporation is Index, Inc.
2, The instrument to be corrected is the Restated Articles of
Incorporation (the "Restated Articles") filed with the Secretary of State of
the State of Texas on August 12, 1996.
3. Sections B(3)(d) (entitled "Voting"), B(3)(e) and B(3)(f) of
Article IV of the Restated Articles are erroneously numbered; such Sections
should be numbered B(3)(e), B(3)(f) and B(3)(g), respectively. Additionally,
Sections B(3)(d) (entitled "Voting") and B(3)(e) of Article IV of the Restated
Articles contain erroneous references to Series A Preferred Stock; such
references should be to Series B Preferred Stock.
4. Sections B(3)(d) (entitled "Voting"), B(3)(e) and B(3)(f) of
Article IV of the Restated Articles are hereby corrected to read as follows:
"(e) Voting. Each share of Series B Preferred Stock shall entitle
the holder thereof to one-tenth (1/10) of one vote on each matter
presented to the shareholders generally voting as a single class with
the Common Stock and any other class or series of stock having similar
voting rights. The holders of the Series B Preferred Stock shall not
be entitled to vote as a class on any matter except as required by
law."
"(f) Exclusion of Other Rights. Unless otherwise required by law,
the shares of Series B Preferred Stock shall not have any powers,
preferences, or relative, participating, option or other special
rights other than those specifically set forth herein."
"(g) Stated Value. The stated value of the Series B Preferred
Stock is $100 per share, all of which shall be allocated to the stated
capital of the Corporation."
INDEX, INC.
Date: September 17, 1996 By: /s/ DAVID R. LITTLE
------------------------
David R. Little
Chairman and
Chief Executive Officer
<PAGE> 2
RESTATED ARTICLES OF INCORPORATION
OF
INDEX, INC.
ARTICLE ONE
Index, Inc., pursuant to the provisions of Article 4.07 of the Texas
Business Corporation Act, hereby adopts restated articles of incorporation
which accurately copy the articles of incorporation and all amendments thereto
that are in effect to date and as further amended by such restated articles of
incorporation as hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE TWO
The articles of incorporation of the corporation are amended by the
restated articles of incorporation as follows:
The total number of shares of stock of all classes which the
Corporation shall have authority to issue has been increased from 102,000,000
shares to 110,000,000 shares. Further, the designated Common Stock, Preferred
Stock and Convertible Preferred Stock have each been designated as a series.
ARTICLE THREE
Each such amendment made by the restated articles of incorporation has
been effected in conformity with the provisions of the Texas Business
Corporation Act and such restated articles of incorporation and each such
amendment made by the restated articles of incorporation were duly adopted by
the shareholders of the corporation on the 2nd day of August, 1996.
ARTICLE FOUR
The number of shares outstanding was 100, and the number of shares
entitled to vote on the restated articles of incorporation as so amended was
100. All of the shareholders have signed a written consent to the adoption of
such restated articles of incorporation as so amended pursuant to Article 9.10
and any written notice required by Article 9.10 has been given.
ARTICLE FIVE
The articles of incorporation and all amendments and supplements
thereto are hereby superseded by the following restated articles of
incorporation which accurately copy the entire text thereof and as amended as
above set forth:
ARTICLE I
Name
The name of the Corporation is Index, Inc. (the "Corporation").
<PAGE> 3
ARTICLE II
Duration
The period of its duration is perpetual.
ARTICLE III
Purpose
The purpose or purposes for which the Corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the Act.
ARTICLE IV
Capital Stock
The total number of shares of stock of all classes which the
Corporation shall have the authority to issue is 110,000,000, of which
100,000,000 shares of the par value of $.01 each shall be designated common
stock ("Common Stock") and 10,000,000 shares of the par value of $1.00 each
shall be designated serial preferred stock ("Preferred Stock"). A statement
of all of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof in respect of the Common Stock and the
Preferred Stock is as follows:
A. Common Stock.
1. Dividends. Subject to any rights of the Preferred Stock or
any series thereof and the conditions set forth in paragraph B of this Article
IV or in any resolution of the Board of Directors of the Corporation providing
for the issuance of any series of Preferred Stock, the holders of the Common
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends payable in cash,
stock or otherwise.
2. Voting Rights. Each holder of Common Stock shall be entitled
to one vote for each share held on each matter presented to shareholders
generally. Notwithstanding the foregoing, the Corporation may, without the
approval or consent of any holder of the Common Stock, amend these Articles of
Incorporation in any manner that would solely effect changes in the
preferences, limitations and relative rights of one or more series of stock of
the corporation which has been established pursuant to the authority granted
the Board of Directors of the corporation pursuant to paragraph B of this
Section 2 if (x) such amendment is approved by the holders of a majority of the
outstanding shares of the series of stock so affected and (y) the preferences,
limitations and relative rights of such series after giving effect to such
amendment and of any new series that may be established as a result of a
reclassification of such series are, in each case, no greater than those
preferences, limitations and rights permitted to be fixed and determined by the
Board of Directors of the corporation with respect to the establishment of any
new series of shares pursuant to the authority granted the Board of Directors
of the corporation in these Articles of Incorporation.
B. Preferred Stock.
1. Authorized Shares. The Preferred Stock may be divided into
and issued in one or more series. Of the 10,000,000 authorized shares of
Preferred Stock, (i) 1,000,000 shares have been designated as Series A
Preferred Stock (the "Series A Preferred Stock"), (ii) 1,000,000 shares have
been designated as Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and (iii) 8,000,000 shares are available for future
designation as provided herein.
2. Series A Preferred Stock
-2-
<PAGE> 4
The holders of the Series A Preferred Stock shall have the
following rights and preferences:
(a) Dividends. The holders of Series A Preferred Stock shall not
as a matter of right be entitled to be paid or receive or have declared or set
apart for such Series A Preferred Stock, any dividends or distributions of the
Corporation in respect thereof.
(b) Liquidation, Dissolution and Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of the Series A Preferred Stock shall be
entitled to receive $100.00 in cash and no more for each share of Series A
Preferred Stock held by them, before any distribution of the assets of the
Corporation shall be made to the holders of any other outstanding shares of the
Corporation, unless funds necessary for such payment shall have been set aside
in trust for the account of the holders of outstanding shares of Series A
Preferred Stock so as to be and continue to be available therefor. The holders
of shares of Series A Preferred Stock shall be entitled to no further
participation in any distribution of the assets of the Corporation. If upon
such liquidation, dissolution or winding up, the assets of the Corporation
distributable as aforesaid among the holders of shares of Series A Preferred
Stock are insufficient to permit the payment to holders of Series A Preferred
Stock of $100.00 per share then the assets of the Corporation shall be
distributed to the holders of shares of Preferred Stock ratably according to
their respective shares until they shall have received the full amount to which
they would otherwise be so entitled.
(c) Redemption. No shares of Series A Preferred Stock shall be
callable or redeemable by the Corporation. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation shall have the status
of treasury shares of Preferred Stock until such time as such shares are
cancelled pursuant to the provisions of the Act.
(d) Voting. Each share of Series A Preferred Stock shall entitle
the holder thereof to one-tenth (1/10) of one vote on each matter presented to
shareholders generally voting as a single class with the Common Stock and any
other class or series of stock having similar voting rights. The holders of
the Series A Preferred Stock shall not be entitled to vote as a class on any
matter except as required by law.
(e) Exclusion of Other Rights. Unless otherwise required by law,
the shares of Series A Preferred Stock shall not have any powers, preferences,
or relative, participating, option or other special rights other than those
specifically set forth herein.
3. Series B Preferred Stock
The holders of the Series B Preferred Stock shall have the
following rights and preferences:
(a) Dividends. The holders of the Series B Preferred Stock shall
be entitled to receive dividends out of any funds legally available for that
purpose at the annual rate of six percent (6%) per annum of the stated value
and no more. These dividends are payable in cash monthly on the last day of
each month. The first dividend, after the issuance of such shares, shall be
payable on the last day of the month of issuance. Dividends will accrue from
the date the shares of Series B Preferred Stock are issued and are considered
to accrue from day to day, whether or not earned or declared. The dividends
will be payable before any dividends are paid, declared, or set apart for any
other capital stock of the Corporation. Dividends are cumulative so that if
for any dividend period the dividends on the outstanding Series B Preferred
Stock are not paid or declared and set apart, the deficiency shall be fully
paid or
-3-
<PAGE> 5
declared and set apart for payment, without interest, before any distribution
(by dividend or otherwise) is paid on, declared, or set apart for any other
capital stock of the Corporation. The holders of shares of Series B Preferred
Stock shall not be entitled to receive any other dividends or distributions.
(b) Liquidation, Dissolution and Winding Up. Subject to the
rights of the holders of the Series A Preferred Stock, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of outstanding shares of Series B Preferred
Stock shall be entitled to receive $100.00 in cash for each share, before any
distribution of the assets of the Corporation shall be made to the holders of
any other class or series of shares of the Corporation unless funds necessary
for such payment shall have been set aside in trust for the account of the
holders of outstanding shares of Series B Preferred Stock so as to be and
continue to be available therefor. If upon such liquidation, dissolution or
winding up, the assets of the Corporation distributable as aforesaid among the
holders of shares of Series B Preferred Stock are insufficient to permit the
payment to the holders of outstanding shares of Series B Preferred Stock of
$100.00 per share, then the assets of the Corporation shall be distributed to
the holders of outstanding shares of Series B Preferred Stock ratably according
to their respective shares until they shall have received the full amount to
which they would otherwise be so entitled. The holders of the Series B
Preferred Stock shall also be entitled to participate on a pro rata basis
(based on the outstanding number of shares) in any distributions made to the
holders of the Common Stock or other class or series of stock that is entitled
to distributions upon satisfaction of all shares entitled to preferred
distribution.
(c) Redemption.
(i) The Corporation, at the option of the Board of
Directors, may at any time five (5) years from the date of initial issuance
redeem the whole, or any part, of the outstanding shares of Series B Preferred
Stock by paying $100.00 per share plus all dividends accrued, unpaid, and
accumulated as provided in this Article through and including the redemption
date and by giving to each record holder of Series B Preferred Stock, at his or
her last known address as shown in the Corporation's records, at least twenty
but not more than sixty days' notice. This redemption notice may be delivered
either in person or in writing, by mail, postage prepaid and must state the
shares to be redeemed, along with the date and plan of redemption, the
redemption price, and the place where the shareholders may obtain payment of
the redemption price on surrendering their share certificates. If only a part
of the outstanding shares of Series B Preferred Stock shares are redeemed,
redemption will be pro rata. No shares of Series B Preferred Stock may be
redeemed unless all accrued dividends on all outstanding shares of Series B
Preferred Stock shares have been paid for all past dividend periods and full
dividends for the current period, except those to be redeemed, have been paid
or declared and set apart for payment. On or after the date fixed for
redemption, each holder of shares called for redemption must, unless the
shareholder has previously exercised the option to convert the holder's shares
of Series B Preferred Stock as provided herein, surrender to the Corporation
the certificate for the shares at the place designated in the redemption notice
and will then be entitled to receive payment of the redemption price. If fewer
than all the shares represented by any surrendered certificate are redeemed, a
new certificate for the unredeemed shares will be issued. If the redemption
notice is duly given and sufficient funds are available to pay all monies
herein required on the date fixed for redemption, then, whether or not the
certificates representing the shares to be redeemed are surrendered, all rights
with respect to the shares shall terminate on the date fixed for redemption,
except for the holders' right to receive the redemption price, without
interest, on surrendering their certificates.
-4-
<PAGE> 6
(ii) Shares are considered redeemed, and dividends on them
cease to accrue after the date fixed for redemption, if, on or before any date
fixed for redemption of the shares of Series B Preferred Stock as provided
herein, the Corporation deposits as a trust fund with any bank or trust company
a sum sufficient to redeem, on the date fixed for redemption, with irrevocable
instructions and authority to the bank or trust company (a) to publish the
redemption notice (or to complete publication already begun), and (b) to pay,
on and after the date fixed for redemption or before that date, the redemption
price of the shares to their holders when they surrender their certificates.
The deposit is considered to constitute full payment of the shares to their
holders, and from the date of the deposit the shares will no longer be
considered outstanding. Moreover, the holders of the shares will cease to be
shareholders with respect to the shares and will have no rights with respect to
the shares, except to receive from the bank or trust company payment of the
redemption price of the shares (without interest) on surrendering of the
certificates unless the shares are converted to Common Stock, as provided
herein. Any money so deposited on account of the redemption price of Series B
Preferred Stock share which are converted after the deposit is made must be
repaid immediately to the Corporation on conversion of the Series B Preferred
Stock.
(iii) Share of Series B Preferred Stock redeemed by the
Corporation shall be restored to the status of authorized but unissued shares.
(d) Conversion.
(i) At any time prior to the redemption of any share of
Series B Preferred Stock, the holder of such shares of Series B Preferred Stock
shall have the right to convert such share into 112 shares of Common Stock.
The right to receive the converted shares requires delivery to the office of
the Corporation or its transfer agent of the shareholder's written notice
stating the number of shares the shareholder is electing to convert. Said
notice shall be accompanied by the surrender of the Series B Preferred Stock
certificate or certificates, duly endorsed to the Corporation. The date of
conversion shall be the date of receipt by the Company or its transfer agent of
the notice and the duly endorsed certificate(s).
(ii) Neither fractional shares nor scrip or other
certificates representing the shares may be issued by the Corporation on
conversion of shares of Series B Preferred Stock, but the Corporation must pay
in lieu thereof the full value in cash to the holders who would be entitled to
receive the fractional shares but for this provision.
(iii) The Corporation must at all time reserve out of its
authorized but unissued shares of Common Stock the full number of shares
deliverable on conversion of all shares hereunder from time to time
outstanding. Said shares are reserved solely for the purpose of satisfying the
conversion requirements.
(iv) The number of shares and securities or other property
issuable upon the conversion of the Series Preferred Stock shall be subject to
adjustment from time to time in the event of any reclassification of the Common
Stock, the issuance of any stock dividend or stock split in respect of the
Common Stock, share exchange involving the Common Stock or other similar
transaction so that the holders of the Series B Preferred Stock shall be
entitle to receive on conversion of the shares of Series B Preferred Stock that
number of shares and other securities or property that a holder of a share of
Common Stock received in such reclassification, stock dividend, stock split,
share exchange or similar transaction. Such adjustments shall be determined by
the Board of Directors of the Corporation, whose determination shall be final
and conclusive. Such adjustments shall be made for successive transactions.
-5-
<PAGE> 7
(d) Voting. Each share of Series A Preferred Stock shall entitle
the holder thereof to one-tenth (1/10) of one vote on each matter presented to
shareholders generally voting as a single class with the Common Stock and any
other class or series of stock having similar voting rights. The holders of
the Series A Preferred Stock shall not be entitled to vote as a class on any
matter except as required by law.
(e) Exclusion of Other Rights. Unless otherwise required by law,
the shares of Series A Preferred Stock shall not have any powers, preferences,
or relative, participating, option or other special rights other than those
specifically set forth herein.
(f) Stated Value. The stated value of the Series B Preferred
Stock is $100 per share, all of which shall be allocated to the stated capital
of the Corporation.
4. Future Designations
Subject to the provisions of paragraph A of this Article IV, the Board
of Directors of the Corporation is hereby vested with authority from time to
time to establish and designate such series of Preferred Stock from the
authorized but unissued shares of Preferred Stock as it may deem desirable, and
within the limitations prescribed by law or set forth herein, to fix and
determine the relative rights and preferences of the shares of any series so
established. The Board of Directors shall exercise such authority by the
adoption of a resolution or resolutions as prescribed by law, setting forth the
designation of the series and fixing and determining the relative rights and
preferences thereof or so much thereof as shall not be fixed and determined
herein. The Board of Directors may increase or decrease the number of shares of
a series by adopting a resolution fixing and determining the new number of
shares of each series in which the number of shares is increased or decreased;
provided, however, no decrease may reduce the number of shares within a series
to less than the number of shares within such series that are then issued.
C. Provisions Applicable to All Stock.
1. Voting Rights. The holders of a majority of the shares of the
Corporation's stock of any class entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. Subject to the
provisions of paragraph A of this Article IV, the vote of the holders of a
majority of the shares entitled to vote and represented at a meeting at which a
quorum is present shall be the act of the shareholders' meeting, except with
respect to certain actions, which require the affirmative vote of the holders
of a majority of the outstanding shares of the Corporation unless any class of
stock of the Corporation is entitled to vote as a class thereon, in which event
the action shall be approved upon the affirmative vote of the holders of a
majority of the outstanding shares within each class entitled to vote as a
class thereon as well as a majority of the outstanding shares. No shareholder
of the Corporation shall have the right of cumulative voting at any election of
directors or upon any other matter.
2. Preemptive Rights. No holder of securities of the Corporation
shall be entitled as a matter of right, preemptive or otherwise, to subscribe
for or purchase any securities of the Corporation now or hereafter authorized
to be issued, or securities held in the treasury of the Corporation, whether
issued or sold for cash or other consideration or as a share dividend or
otherwise. Any such securities may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
ARTICLE V
Majority Vote for Approval of Certain Actions
-6-
<PAGE> 8
If, with respect to any matter for which the affirmative vote or
concurrence of the shareholders of the Corporation is required, any provision
of the Texas Business Corporation Act, as the same may be amended from time to
time, would, but for this Article V, require the affirmative vote or
concurrence of the holders of shares having more than a majority of the votes
entitled to vote on such matter, or of any class or series thereof, the
affirmative vote or concurrence of the holders of shares having only a majority
of the votes entitled to vote on such matter, or of any class or series
thereof, shall be required with respect to any such matter.
ARTICLE VI
Written Consents
Except for the election of directors of the Corporation, who when
elected by shareholders shall be elected at either an annual or special meeting
of shareholders called for such purpose, any action required to, or which may,
be taken at any annual or special meeting of shareholders may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voted.
ARTICLE VII
Commencement of Business
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand
($1,000.00) Dollars consisting of money, labor done, or property actually
received.
ARTICLE VIII
Registered Office and Agent
The street address of its initial registered office is 5555 San
Felipe, 17th Floor, Houston, Texas 77056 and the name of its initial registered
agent at such address is Gary A. Messersmith.
ARTICLE IX
Directors
(A) Number of Directors. The business and affairs of the
Corporation shall be managed by or be under the direction of the Board of
Directors of the Corporation. The number of Directors constituting the initial
Board of Directors is one (1). The number of Directors of the Corporation may
from time to time be changed in accordance with the Bylaws of the Corporation
and the Act.
(B) Name and Address of Director. The name of the person who is to
serve as Director until the first annual meeting of the shareholders, or until
his successor is elected and qualified is DAVID R. LITTLE and his address is
580 Westlake Park Blvd., Suite 1100, Houston, Texas 77079
(C) Directors Liability. No director of the Corporation shall be
liable to the Corporation or any of its shareholders for monetary damages for
an act or omission in the director's capacity as a director, except that this
Article IX shall not authorize the elimination or limitation of liability of a
director of the Corporation to the extent the director is found liable for: (i)
a breach of such director's duty of loyalty to the Corporation or its
shareholders;
-7-
<PAGE> 9
(ii) an act or omission not in good faith that constitutes a breach of duty of
such director to the Corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law; (iii) a transaction
from which such director received an improper benefit, whether or not the
benefit resulted from an action taken within the scope of the director's
office; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
ARTICLE X
Limitation of Liability of Directors
A. No director of the Corporation shall be liable to the
Corporation or any of its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except that this Article
VIII shall not authorize the elimination or limitation of liability of a
director of the Corporation to the extent the director is found liable for: (i)
a breach of such director's duty of loyalty to the Corporation or its
shareholders; (ii) an act or omission not in good faith that constitutes a
breach of duty of such director to the Corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law; (iii) a
transaction from which such director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office; or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute.
B. If the Texas Business Corporation Act, the Texas Miscellaneous
Corporation Laws Act or any other applicable Texas statute hereafter is amended
to authorize the further elimination or limitation of the liability of
directors of the Corporation, then the liability of a director of the
Corporation shall be limited to the fullest extent permitted by the Texas
Business Corporation Act, the Texas Miscellaneous Corporation Laws Act and such
other applicable Texas statute, as so amended, and such limitation of liability
shall be in addition to, and not in lieu of, the limitation on the liability of
a director of the Corporation provided by the foregoing provisions of this
Article VIII.
C. Any repeal of or amendment to this Article VIII shall be
prospective only and shall not adversely affect any limitation on the liability
of a director of the Corporation existing at the time of such repeal or
amendment.
ARTICLE XI
Indemnification of Officers and Directors
(A) Indemnification of Directors. To the fullest extent permitted by
Section B and Section E of Article 2.02-1 of the Act, the Corporation shall
indemnify each person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a director
of the Corporation, and this provision for indemnification shall be deemed to
constitute authorization of such indemnification in the manner required by
Section G of said Article 2.02-1 of the Act.
(B) Expenses of a Defendant. To the fullest extent permitted by
Section K of Article 2.02-1 of the Act, reasonable expenses incurred by a
director of the Corporation who was, is, or is threatened to be made a named
defendant or respondent in a proceeding shall be paid or reimbursed by the
Corporation, in advance of the final disposition of such proceeding, after the
Corporation receives a written affirmation by the director of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Corporation and the Corporation receives a written undertaking by or behalf
of the director to repay the amount paid or reimbursed if it is ultimately
determined that he has not met that standard or if it is ultimately determined
that indemnification of the director against expenses incurred by him
-8-
<PAGE> 10
in connection with that proceeding is otherwise prohibited by said Article
2.02-1 of the Act. This provision for payment or reimbursement shall be deemed
to constitute authorization of such payment or reimbursement as provided by
said Section K of Article 2.02-1 of the Act.
(C) Officers. Pursuant to Section O of Article 2.02-1 of the Act,
the Corporation shall indemnify and advance expenses to an officer of the
Corporation to the same extent that the Corporation shall indemnify and pay or
reimburse expenses to directors of the Corporation as set forth in subsections
(A) and (B) hereinabove.
(D) Expenses of a Witness. To the fullest extent permitted by
Section N of Article 2.02-1 of the Act, the Corporation shall pay or reimburse
expenses incurred by a director or officer in connection with his appearance as
a witness or other participation, only in his capacity as a director or officer
of the Corporation, in a proceeding at a time when he is not a named defendant
or respondent in the proceeding as set out therein.
(E) Other. In addition to the foregoing, the Corporation hereby
adopts all other terms, provisions and authorizations of Article 2.02-1 of the
Act, not in conflict with subsections (A), (B), (C) and (d) hereinabove,
including but not limited to Sections H, I, J and O of said Article 2.02-1 of
the Act. It is the intention of the Corporation to provide the maximum
indemnification allowed by law to its directors and officers and to make
mandatory in all instances any permissive provisions of Article 2.02-1 of the
Act for the benefit of the Corporation's directors and officers.
(F) Insurance. The Corporation shall have power to purchase and
maintain insurance or another arrangement on behalf of any person who is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article or the Act.
(G) Amendment of this Article. No amendment or repeal of this
Article shall apply to or have any affect on the indemnification or
reimbursement of any director or officer of the Corporation for or with respect
to any such indemnification or reimbursement on the part of such director or
officer for events covered by such indemnification or reimbursement occurring
prior to such amendment or repeal.
(H) Amendment of the Act. In the event any provision of the Act set
out in this Article is amended, altered or repealed in any way, then any such
amendment, alteration or repeal shall be incorporated herein without the
necessity of any further action by the corporation upon the effective date of
such action.
ARTICLE XII
Amendment of Bylaws
The shareholders of the Corporation hereby delegate to the Board of
Directors the power to adopt, alter, amend or repeal the Bylaws of the
Corporation. Such power shall be vested exclusively in the Board of Directors
and shall not be exercised by the shareholders.
-9-
<PAGE> 11
ARTICLE XIII
Power to Call Special Shareholders' Meetings
Special meetings of the shareholders of the Corporation may be called
by the President of the Corporation, the Board of Directors or holders of not
less than thirty (30%) percent of all the shares entitled to vote at the
proposed special meeting of the shareholders.
ARTICLE XIV
Amendments
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation or in its Bylaws in
the manner now or hereafter prescribed by the Act or these Articles of
Incorporation, and all rights conferred on shareholders herein are granted
subject to this reservation.
-10-
<PAGE> 12
Executed this the 12th day of August, 1996.
INDEX, INC.
By: /s/ DAVID R. LITTLE
----------------------------------
Name: David R. Little
--------------------------------
Title: Chairman & CEO
-------------------------------
-11-
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE
LAWS OF THE STATE OF TEXAS
NUMBER INDEX, INC. SHARES
I--
CUSIP 454078 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
Index, Inc., transferable on the books of the Corporation by the holder hereof
in person or by a duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized Officers.
Dated:
/s/ DAVID R. LITTLE Countersigned and Registered
President American Stock Transfer & Trust Company
[SEAL]
Transfer Agent and Registrar
/s/ GARY A. ALLCORN By
Secretary Authorized Signature
<PAGE> 2
INDEX, INC
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUESTS MAY BE MADE TO THE SECRETARY OF THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS. COPIES OF SUCH INFORMATION ALSO
ARE ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN - as joint tenants with Uniform Gifts to Minors
right of survivorship Act
and not as tenants
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
----------------------------------------------------------------------------
Attorney,
----------------------------------------------------------------------
----------------------------------------------------------------------------
to transfer the said shares on the books of the within-named Corporation
with full power of substitution in the premises.
X
-------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
-------------------------------------------
------------------------------------------
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER)
WHICH IS A PARTICIPANT IN THE SECURITIES
TRANSFER AGENTS MEDALLION PROGRAM
("STAMP"), THE NEW YORK STOCK EXCHANGE,
INC. MEDALLION SIGNATURE PROGRAM ("MSP"),
OR THE STOCK EXCHANGES MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES
BY A NOTARY PUBLIC ARE NOT ACCEPTABLE.
------------------------------------------
<PAGE> 1
EXHIBIT 4.2
SERIES A PREFERRED STOCK SERIES A PREFERRED STOCK
INCORPORATED UNDER THE
LAWS OF THE STATE OF TEXAS
NUMBER INDEX, INC. SHARES
A--
CUSIP 454078 20 5
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A PREFERRED STOCK,
PAR VALUE $1.00 PER SHARE, OF
Index, Inc., transferable on the books of the Corporation by the holder hereof
in person or by a duly authorized attorney upon surrender of this certificate
properly endorsed.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized Officers.
Dated:
/s/ GARY A. ALLCORN /s/ DAVID R. LITTLE
Secretary President
[SEAL]
<PAGE> 2
INDEX, INC
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUESTS MAY BE MADE TO THE SECRETARY OF THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS. COPIES OF SUCH INFORMATION ALSO
ARE ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN - as joint tenants with Uniform Gifts to Minors
right of survivorship Act
and not as tenants
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of Series A Preferred Stock represented by the within certificate, and do
hereby irrevocably constitute and appoint
----------------------------------------------------------------------------
Attorney,
----------------------------------------------------------------------
----------------------------------------------------------------------------
to transfer the said shares on the books of the within-named Corporation
with full power of substitution in the premises.
X
-------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
-------------------------------------------
------------------------------------------
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER)
WHICH IS A PARTICIPANT IN THE SECURITIES
TRANSFER AGENTS MEDALLION PROGRAM
("STAMP"), THE NEW YORK STOCK EXCHANGE,
INC. MEDALLION SIGNATURE PROGRAM ("MSP"),
OR THE STOCK EXCHANGES MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES
BY A NOTARY PUBLIC ARE NOT ACCEPTABLE.
------------------------------------------
<PAGE> 1
EXHIBIT 4.3
SERIES B PREFERRED STOCK SERIES B PREFERRED STOCK
INCORPORATED UNDER THE
LAWS OF THE STATE OF TEXAS
NUMBER INDEX, INC. SHARES
B--
CUSIP 454078 30 4
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES B PREFERRED STOCK,
PAR VALUE $1.00 PER SHARE, OF
Index, Inc., transferable on the books of the Corporation by the holder hereof
in person or by a duly authorized attorney upon surrender of this certificate
properly endorsed.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized Officers.
Dated:
/s/ GARY A. ALLCORN /s/ DAVID R. LITTLE
Secretary President
[SEAL]
<PAGE> 2
INDEX, INC
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUESTS MAY BE MADE TO THE SECRETARY OF THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS. COPIES OF SUCH INFORMATION ALSO
ARE ON FILE WITH THE SECRETARY OF STATE OF THE STATE OF TEXAS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN - as joint tenants with Uniform Gifts to Minors
right of survivorship Act
and not as tenants
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of Series B Preferred Stock represented by the within certificate, and do
hereby irrevocably constitute and appoint
----------------------------------------------------------------------------
Attorney,
----------------------------------------------------------------------
----------------------------------------------------------------------------
to transfer the said shares on the books of the within-named Corporation
with full power of substitution in the premises.
X
-------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
-------------------------------------------
------------------------------------------
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER)
WHICH IS A PARTICIPANT IN THE SECURITIES
TRANSFER AGENTS MEDALLION PROGRAM
("STAMP"), THE NEW YORK STOCK EXCHANGE,
INC. MEDALLION SIGNATURE PROGRAM ("MSP"),
OR THE STOCK EXCHANGES MEDALLION PROGRAM
("SEMP") AND MUST NOT BE DATED. GUARANTEES
BY A NOTARY PUBLIC ARE NOT ACCEPTABLE.
------------------------------------------
<PAGE> 1
[FULBRIGHT & JAWORSKI LETTERHEAD]
EXHIBIT 8.1
September 30, 1996
Index, Inc.
580 Westlake Park Boulevard, Suite 1100
Houston, Texas 77079
Gentlemen:
You have requested our opinion with respect to the disclosures
relating to the material federal income tax consequences generally applicable
to (i) the proposed statutory merger (the "Sepco Merger") of Sepco Acquisition
Corporation, a Nevada corporation ("Sepco Acquisition") and wholly-owned
subsidiary of Index, Inc., a Texas corporation ("Index"), with and into Sepco
Industries, Inc., a Texas corporation ("Sepco"), and (ii) the proposed
statutory merger (the "Newman Merger") of Newman Acquisition Corporation, a
Nevada corporation and wholly-owned subsidiary of Index ("Newman Acquisition"),
with and into Newman Communications Corporation, a New Mexico corporation
("Newman"). Descriptions of the parties and of the Sepco Merger and Newman
Merger and related transactions are set forth in the Proxy Statement/Prospectus
("the Prospectus") contained in the Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933 filed with the
Securities and Exchange Commission on August 11, 1996, as amended by Amendment
No. 1 filed on August 12, 1996, and Amendment No. 2 filed on September 30,
1996. We prepared the description of the United States federal income tax
consequences of the Sepco Merger and Newman Merger, as contained in the
Prospectus under the caption entitled "The Reorganization-Certain U.S. Federal
Income Tax Consequences" (the "Tax Summary").
In connection with this opinion, we have reviewed the Prospectus
and we have assumed that all facts described in the Prospectus are true,
accurate and complete. Certain representations have been made to us by Sepco,
Index, and Newman, and such representations are included in the certificates
attached hereto as Exhibits A, B and C. We have assumed that the
representations contained in the certificates are true, correct and complete
and will continue to be true, correct and complete on the effective date of the
Sepco Merger and Newman Merger. Based upon the assumptions set forth herein,
such legal considerations as we deem relevant and other qualifications
contained in this letter, it is our opinion that the discussion and the legal
conclusions set forth in the Tax Summary are accurate and complete in all
material respects and address all material United States federal income tax
considerations with respect to the matters set forth therein.
<PAGE> 2
Index, Inc.
September 30, 1996
Page 2
The opinions expressed herein are based upon the Internal Revenue
Code of 1986, as amended, Treasury Department regulations promulgated
thereunder, court decisions and administrative pronouncements published to
date. Any or all of the above are subject to change, possibly with retroactive
effect. Subsequent statutory or administrative changes or clarifications or
court decisions could cause the opinions expressed in the Tax Summary to become
inaccurate or incomplete. No advance ruling has been requested or received from
the Internal Revenue Service (the "Service") pertaining to the transactions
contemplated by the Prospectus. Our opinion is not binding upon the Service
or any court. Accordingly, the Service may challenge some or all of the
conclusions set forth above in an audit of Index, Sepco, Newman or a holder of
the Index capital stock. If such challenge occurs, it may be necessary to
resort to administrative proceedings or litigation in an effort to sustain such
conclusions, and there can be no assurance that such conclusions ultimately
will be sustained.
Our opinions are limited to the specific conclusions of law with
respect to the United States federal income tax consequences set forth in the
Tax Summary, and no other opinions are expressed or implied. Specifically, no
opinions are expressed as to state, local or foreign tax consequences.
This opinion is rendered solely for the benefit of Index and is
not to be used, circulated, copied, quoted or referred to without our prior
written consent. We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and the reference to our firm in the Tax Summary.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P.
Fulbright & Jaworski L.L.P.
Enclosures
<PAGE> 3
Exhibit A
SEPCO INDUSTRIES, INC.
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of SEPCO Industries, Inc., a
Texas corporation ("COMPANY"), and acting as such, in connection with the
opinions to be delivered by the law firm of Fulbright & Jaworski L.L.P. with
respect to the Agreement and Plan of Merger dated as of August 12, 1996 (the
"AGREEMENT"), between Index, Inc., a Texas corporation ("PARENT"), SEPCO
Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary of
Parent ("SUB"), and Company, and recognizing that said law firm will rely on
this Certificate in delivering its opinion, hereby certifies that to the best
knowledge and belief of the management of Company, the facts that relate to the
proposed merger (the "MERGER") of Sub with and into Company and related
transactions pursuant to the Agreement, are true, correct and complete in all
material respects, and the undersigned further certifies to the best knowledge
and belief of the management of Company as follows:
1. The fair market value of the Parent stock and other consideration
to be received by the Company's shareholders will be approximately equal to the
fair market value of Company stock to be surrendered by such shareholders in
exchange therefor.
2. There is no plan or intention on the part of the Company's
shareholders who own one percent or more of the Company's stock, and to the
best of the knowledge of Company's management, there is no plan or intention on
the part of the remaining Company shareholders to sell, exchange, or otherwise
dispose
-1-
<PAGE> 4
of a number of shares of Parent stock received in the Merger that would reduce
the Company's shareholders' ownership of Parent stock to a number of shares
having a value, as of the date of the Merger, of less than 50 percent of the
value of all of the formerly outstanding stock of Company as of the same date.
For purposes of this certification, shares of Company stock exchanged for cash
or other property surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Parent stock will be treated as outstanding Company stock
on the date of the Merger. Moreover, shares of Company stock and shares of
Parent stock held by Company shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the Merger will be considered in making this
representation.
3. Company and Company's shareholders each will pay their respective
expenses, if any, incurred in connection with the Merger.
4. There is no intercorporate indebtedness existing between Parent
and Company or between Sub and Company that was issued or acquired or will be
settled at a discount.
5. In the Merger, shares of Company stock representing control of
Company, as defined in section 368(c) of the Internal Revenue Code of 1986, as
amended (the "CODE"), will be exchanged solely for voting stock of Parent. For
purposes of this representation, shares of Company stock exchanged for cash or
other property originating with Parent will be treated as outstanding Company
stock on the date of the Merger.
6. At the time of the Merger, Company will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Company that, if exercised or
converted,
-2-
<PAGE> 5
would affect Parent's acquisition or retention of control of Company, as
defined in section 368(c) of the Code.
7. Company is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
8. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which the assets are subject.
9. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code. That is,
Company is not a party to a case under Title 11 of the United States Code or to
a receivership, foreclosure or similar proceeding in a federal or state court.
10. Company or its shareholders will file its federal income tax
returns in a manner which treats the Merger as a transfer of property in
exchange for stock pursuant to section 351 of the Code.
11. The Merger and related transactions will be carried out in
accordance with the terms of the Agreement, including attachments thereto.
We understand that you will rely upon the above representations by us in
connection with issuing your opinion, and you may disclose these
representations in connection therewith.
Dated: 9/27 , 1996.
------------
SEPCO INDUSTRIES, INC.
By /s/ GARY A. ALLCORN
-------------------------
-3-
<PAGE> 6
Exhibit B
INDEX, INC.
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of Index, Inc., a Texas
corporation ("PARENT"), and acting as such, in connection with the opinion to
be delivered by the law firm of Fulbright & Jaworski L.L.P. with respect to the
Agreement and Plan of Merger dated as of August 12, 1996 (the "AGREEMENT(1)"),
between Parent, Newman Acquisition Corporation, a Nevada corporation and a
wholly-owned subsidiary of Parent ("SUB(1)"), and Newman Communications
Corporation, a New Mexico corporation ("COMPANY(1)"), and the Agreement and
Plan of Merger dated as of August 12, 1996 (the "AGREEMENT(2)"), between
Parent, SEPCO Acquisition Corporation, a Nevada corporation and a wholly-owned
subsidiary of Parent ("SUB(2)"), and SEPCO Industries, Inc., a Texas
corporation ("COMPANY(2)"), and recognizing that said law firm will rely on
this Certificate in delivering its opinion, hereby certifies that to the best
knowledge and belief of the management of Parent, the facts that relate to the
proposed merger of Sub(1) with and into Company(1) (the "MERGER(1)"), the
proposed merger of Sub(2) with and into Company(2) (the "MERGER(2)"), and
related transactions pursuant to Agreement(1) and Agreement(2), are true,
correct and complete in all material respects, and the undersigned further
certifies to the best knowledge and belief of the management of Parent as
follows:
1. The fair market value of the Parent stock and other consideration
to be received by the shareholders of Company(1) and Company(2) will be
approximately equal to the fair market value of Company(1) and Company(2) stock
surrendered by each such shareholder in exchange therefor.
-1-
<PAGE> 7
2. Before Merger(1), Parent will be in control of Sub(1) and before
Merger(2), Parent will be in control of Sub(2) within the meaning of section
368(c) of the Internal Revenue Code of 1986, as amended (the "CODE").
3. Parent has no plan or intention to reacquire any of its stock
issued in Merger(1) or Merger(2).
4. Following Merger(1), Company(1) will hold at least 90 percent of
the fair market value of its respective net assets and at least 70 percent of
the fair market value of its respective gross assets and at least 90 percent of
the fair market value of the net assets of Sub(1) and at least 70 percent of
the fair market value of the gross assets of Sub(1) held immediately before
Merger(1). Following Merger(2), Company(2) will hold at least 90 percent of
the fair market value of its respective net assets and at least 70 percent of
the fair market value of its respective gross assets and at least 90 percent of
the fair market value of the net assets of Sub(2) and at least 70 percent of
the fair market value of the gross assets of Sub(2) held immediately before
Merger(2). For purposes of this representation, amounts paid by Company(1),
Company(2), Sub(1), and Sub(2) to dissenters, amounts paid by Company(1),
Company(2), Sub(1), and Sub(2) to shareholders who receive cash or other
property, and amounts used by Company(1), Company(2), Sub(1), and Sub(2) to pay
merger reorganization expenses, and all redemptions and distributions (except
for regular, normal dividends) made by Company(1) and Company(2) will be
included as assets of Company(1), Company(2), Sub(1), and Sub(2), respectively,
immediately prior to Merger(1) and Merger(2).
5. Parent has no plan or intention to liquidate Company(1) or
Company(2), to merge Company(1) or Company(2) with and into another
corporation, to sell or otherwise dispose of the stock of Company(1) or
Company(2) except for transfers of
-2-
<PAGE> 8
stock to corporations controlled by Parent, or to cause Company(1) or
Company(2) to sell or otherwise dispose of any of their respective assets or
any of the assets acquired from Sub(1) or Sub(2), respectively, except for
dispositions made in the ordinary course of business or transfers of assets to
a corporation controlled by Company(1) or Company(2).
6. Parent has no plan or intention to cause Company(1) or Company(2)
to issue additional shares of their respective stock that would result in
Parent losing control of Company(1) or Company(2) within the meaning of section
368(c) of the Code.
7. Neither Sub(1) nor Sub(2) will have liabilities assumed by
Company(1) or Company(2), and neither Sub(1) nor Sub(2) will transfer to
Company(1) or Company(2) any assets subject to liabilities, in Merger(1) or
Merger(2).
8. Following Merger(1), Company(1) will continue its respective
historic business or use a significant portion of its respective historic
business assets in a business, and following Merger(2), Company(2) will
continue its respective historic business or use a significant portion of its
respective historic business assets in a business.
9. Parent, Sub(1), and Sub(2) will each pay their respective
expenses, if any, incurred in connection with Merger(1) and Merger(2).
10. There is no intercorporate indebtedness existing between Parent
and Company(1) or Company(2), or between Sub(1) and Company(1), or between
Sub(2) and Company(2) that was issued or acquired or will be settled at a
discount.
11. Parent does not own and has not owned during the past five years,
any shares of Company(1) or Company(2) stock.
-3-
<PAGE> 9
12. Parent is not an investment company as defined in sections
368(a)(2)(F)(iii) and (iv) of the Code.
13. None of the compensation to be received by any
shareholder-employees of Company(1) or Company(2) will be separate
consideration for, or allocable to, any of their shares of Company(1) or
Company(2) stock; none of the shares of Parent stock to be received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder-employee
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
14. The payment of cash in lieu of fractional shares of Parent stock
is solely for the purpose of avoiding the expense and inconvenience to Parent
of issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid instead of
issuing fractional shares of Parent stock will not exceed one percent of the
total consideration that will be issued either pursuant to Merger(1) to the
Company(1) shareholders in exchange for their Company(1) stock or pursuant to
Merger(2) to the Company(2) shareholders in exchange for their Company(2)
stock. The fractional share interests will be aggregated, and no Company(1) or
Company(2) shareholder will receive cash in an amount greater than the value of
one full share of Parent stock.
15. No stock or securities will be issued for services rendered to or
for the benefit of Parent in connection with Merger(1), and no stock or
securities will be issued for indebtedness of Parent or for interest on
indebtedness of Parent.
-4-
<PAGE> 10
16. Merger(1) is not the result of the solicitation by a promoter,
broker, or investment house.
17. The transfers and exchanges will occur under a plan that defines
the rights of the parties and that was agreed upon before Merger(1).
18. All exchanges in Merger(1) will occur on approximately the same
date.
19. There is no plan or intention on the part of Parent to redeem or
otherwise reacquire any stock or indebtedness to be issued in Merger(1).
20. Taking into account any issuance of additional shares of Parent
stock; any issuance of stock for services; the exercise of any Parent stock
rights, warrants, or subscriptions; a public offering of Parent stock; and the
sale, exchange, transfer by gift, or other disposition of any of the stock of
Parent to be received in the exchange, immediately after Merger(1) and
Merger(2) the transferring shareholders of Company(1) and Company(2) will be in
"control" of Parent within the meaning of section 368(c) of the Code.
21. Each transferring Company(1) shareholder will receive stock,
securities or other property approximately equal to the fair market value of
the property transferred to Parent.
22. Parent will remain in existence and retain and use the property
transferred to it in a trade or business.
23. There is no plan or intention by Parent to dispose of the
transferred property other than in the normal course of business operations.
24. Parent will not be an investment company within the meaning of
section 351(e)(1) of the Code and Section 1.351-1(c)(1)(ii) of the regulations.
-5-
<PAGE> 11
25. Parent will not be a "personal service corporation" within the
meaning of section 269A of the Code.
26. Merger(1) and Merger(2) and any related transactions will be
carried out in accordance with the terms of the Agreement, including
attachments thereto.
We understand that you will rely upon the above representations by us in
connection with issuing your opinion, and you may disclose these
representations in connection therewith.
Dated: 9/27 , 1996.
------
INDEX, INC.
By /s/ GARY A. ALLCORN
----------------------------
-6-
<PAGE> 12
Exhibit C
NEWMAN COMMUNICATIONS CORPORATION
OFFICER'S CERTIFICATE
The undersigned, a duly authorized officer of Newman Communications
Corporation, a New Mexico corporation ("COMPANY"), and acting as such, in
connection with the opinions to be delivered by the law firm of Fulbright &
Jaworski L.L.P. with respect to the Agreement and Plan of Merger dated as of
August 12, 1996 (the "AGREEMENT"), between Index, Inc., a Texas corporation
("PARENT"), Newman Acquisition Corporation, a Nevada corporation and a
wholly-owned subsidiary of Parent ("SUB"), and Company, and recognizing that
said law firm will rely on this Certificate in delivering its opinion, hereby
certifies that to the best knowledge and belief of the management of Company,
the facts that relate to the proposed merger (the "MERGER") of Sub with and
into Company and related transactions pursuant to the Agreement, are true,
correct and complete in all material respects, and the undersigned further
certifies to the best knowledge and belief of the management of Company as
follows:
1. The fair market value of the Parent stock and other consideration
to be received by the Company's shareholders will be approximately equal to the
fair market value of Company stock to be surrendered by such shareholders in
exchange therefor.
2. There is no plan or intention on the part of the Company's
shareholders who own five percent or more of Company's stock, and to the best
of the knowledge of Company's management, there is no plan or intention on the
part of the remaining Company shareholders to sell, exchange, or otherwise
dispose of a
-1-
<PAGE> 13
number of shares of Parent stock received in the Merger that would reduce the
Company's shareholders' ownership of Parent stock to a number of shares having
a value, as of the date of the Merger, of less than 50 percent of the value of
all of the formerly outstanding stock of Company as of the same date. For
purposes of this certification, shares of Company stock exchanged for cash or
other property surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Parent stock will be treated as outstanding Company stock
on the date of the Merger. Moreover, shares of Company stock and shares of
Parent stock held by Company shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the Merger will be considered in making this
representation.
3. Company and Company's shareholders each will pay their respective
expenses, if any, incurred in connection with the Merger.
4. There is no intercorporate indebtedness existing between Parent
and Company or between Sub and Company that was issued or acquired or will be
settled at a discount.
5. In the Merger, shares of Company stock representing control of
Company, as defined in section 368(c) of the Internal Revenue Code of 1986, as
amended (the "CODE"), will be exchanged solely for voting stock of Parent. For
purposes of this representation, shares of Company stock exchanged for cash or
other property originating with Parent will be treated as outstanding Company
stock on the date of the Merger.
6. At the time of the Merger, Company will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Company that, if exercised or
converted,
-2-
<PAGE> 14
would affect Parent's acquisition or retention of control of Company, as
defined in section 368(c) of the Code.
7. Company is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
8. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which the assets are subject.
9. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code. That is,
Company is not a party to a case under Title 11 of the United States Code or to
a receivership, foreclosure or similar proceeding in a federal or state court.
10. Company will file its federal income tax returns in a manner
which treats the Merger as a transfer of property in exchange for stock
pursuant to section 351 of the Code.
11. To the best of Company's knowledge, no income items, such as
accounts receivable or commissions due, are being transferred to Parent by the
transferring Company shareholders.
12. The Merger is not the result of the solicitation by a promoter,
broker, or investment house.
13. The transferring Company shareholders will not retain any rights
in the property transferred to Parent.
14. No liabilities of the transferring Company shareholders will be
assumed by Parent in the Merger and the shares of Company stock will not be
subject to any liabilities.
-3-
<PAGE> 15
15. The transfers and exchanges will occur under a plan that defines
the rights of the parties and that was agreed upon before the Merger.
16. All exchanges in the Merger will occur on approximately the same
date.
17. To the best of Company's knowledge, no transferring Company
shareholder is under the jurisdiction of a court in a title II or similar case
(within the meaning of section 368(a)(3)(A) of the Code) and the stock or
securities received in the exchange will not be used to satisfy the
indebtedness of such debtor.
18. The Merger and related transactions will be carried out in
accordance with the terms of the Agreement, including attachments thereto.
We understand that you will rely upon the above representations by us in
connection with issuing your opinion, and you may disclose these
representations in connection therewith.
Dated: 9/27, 1996
NEWMAN COMMUNICATIONS CORPORATION
By /s/ GLENN A. LITTLE
-------------------------------
-4-
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement) by and between SEPCO
INDUSTRIES, INC., a Texas corporation (the "Company"), and BOB EVANS (the
"Executive") is made and entered into as of the Effective Date set forth in
Section 1.3 below:
RECITALS
A. The Company desires to employ the Executive in the capacity
set forth on Exhibit A pursuant to the provisions of this
Agreement; and
B. The Executive desires employment as an employee of the Company
pursuant to the provisions of this Agreement.
ARTICLE I.
TERMS OF EMPLOYMENT
The terms of employment are as follows:
1.1 Employment. The Company hereby employs the Executive for and
during the term hereof in the capacity set forth on Exhibit A, but Company may
subsequently assign Executive to a different position or modify Executive's
duties and responsibilities. The Executive hereby accepts employment under the
terms and conditions set forth in this Agreement.
1.2 Duties of Executive. The Executive shall perform in the
capacity described in Section 1.1 hereof and shall have such duties,
responsibilities, and authorities as may be designated for such office. The
Executive agrees to devote the Executive's best efforts, abilities, knowledge,
experience and full business time to the faithful performance of the duties,
responsibilities, and authorities which may be assigned to the Executive.
Executive may not engage, directly or indirectly, in any other business,
investment, or activity that interferes with Executive's performance of
Executive's duties hereunder, is contrary to the interests of the Company, or
requires any significant portion of Executives's business time. Executive
shall at all times comply with and be subject to such policies and procedures
as the Company may establish from time to time. Executive acknowledges and
agrees that Executive owes a fiduciary duty of loyalty, fidelity and allegiance
to act at all times in the best interests of the Company and to do no act which
would injure Company's business, its interests, or its reputation.
1.3 Term. This Agreement shall become effective as of the 1st day
of July, 1996 (the "Effective Date") and shall continue in force and effect for
one (1) year unless sooner terminated as provided in Section 2.1 hereof.
Unless this Agreement is terminated before its annual anniversary date, the
term hereof shall be automatically extended for one (1) year unless this
Agreement is renewed or extended by written agreement between the Company and
the Executive pursuant to terms and conditions mutually acceptable.
1.4 Compensation. The Company shall pay the Executive, as
"Compensation" for services rendered by the Executive under this Agreement the
following Salary plus Bonus.
-1-
<PAGE> 2
(a) Salary: A base salary per month as set forth on Exhibit A,
prorated for any partial period of employment ("Salary"). Such Salary
shall be paid in installments in accordance with the Company's regular
payroll practices.
(b) Bonus: A bonus as set forth in Exhibit "A" ("Bonus").
1.5 Employment Benefits. In addition to the Salary payable to the
Executive hereunder, the Executive shall be entitled to the following benefits:
(a) Employment Benefits. As an employee of the Company,
the Executive shall participate in and receive all general employee
benefit plans and programs, as may be in effect from time to time,
upon satisfaction by the Executive of the eligibility requirements
therefor. Nothing in this Agreement is to be construed or interpreted
to provide greater rights, participation, coverage, or benefits under
such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans
and programs.
(b) Working Facilities. During the term of this
Agreement, the Company shall provide, at its expense, office space,
furniture, equipment, supplies and personnel as shall be adequate for
the Executive's use in performing Executive's duties and
responsibilities under this Agreement.
(c) Automobile Allowance. During the term of this
Agreement, the Company shall provide Executive with a vehicle in
accordance with the Company's vehicle policy.
(d) Limitations. Company shall not by reason of this Article
1.5 be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such incentive compensation or
employee benefit program or plan, so long as such actions are
similarly applicable to covered employees similarly situated.
ARTICLE II.
TERMINATION
2.1 Termination. Notwithstanding anything herein to the contrary,
this Agreement and the Executive's employment hereunder may be terminated
without any breach of this Agreement at any time during the term hereof by
reason of and in accordance with the following provisions:
(a) Death. If the Executive dies during the term of this
Agreement and while in the employ of the Company, this Agreement shall
automatically terminate as of the date of the Executive's death, and
the Company shall have no further liability hereunder to the Executive
or Executive's estate, except to the extent set forth in Section
2.2(a) hereof.
(b) Disability. If, during the term of this Agreement,
the Executive shall be prevented from performing the Executive's
duties hereunder by reason of becoming disabled as hereinafter
defined, the Company may terminate this Agreement immediately
-2-
<PAGE> 3
upon written notice to the Executive without any further liability
hereunder to the Executive except as set forth in Section 2.2(b)
hereof. For purposes of this Agreement, the Executive shall be deemed
to have become disabled when the Board of Directors of the Company,
upon the written report of a qualified physician designated by the
Board of Directors of the Company or by its insurers, shall have
determined that the Executive has become mentally, physically and/or
emotionally incapable of performing Executive's duties and services
under this Agreement.
(c) Termination by the Company for Cause. Prior to the
expiration of the term of this Agreement, the Company may discharge
the Executive for cause and terminate this Agreement immediately upon
written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.1(c) hereof. For purposes of this Agreement, a "discharge for
cause" shall mean termination of the Executive upon written notice to
the Executive limited, however, to one or more of the following
reasons:
(1) Conviction of the Executive by a court of
competent jurisdiction of a felony or a crime involving moral
turpitude;
(2) The Executive's failure or refusal to comply
with the Company's policies, standards, and regulations of the
Company, which from time to time may be established;
(3) The Executive's engaging in conduct amounting
to fraud, dishonesty, gross negligence, willful misconduct or
conduct that is unprofessional, unethical, or detrimental to
the reputation, character or standing of the Company; or
(4) The Executive's failure to faithfully and
diligently perform the duties required hereunder or to comply
with the provisions of this Agreement.
Prior to terminating this Agreement pursuant to
Section 2.1(c), (2), or (4), the Company shall furnish the
Executive written notice of the Executive's alleged failure to
abide by or alleged breach of this Agreement. The Executive
shall have thirty (30) days after the Executive's receipt of
such notice to cure such failure to abide or breach and the
Company's Board of Directors shall determine if the failure to
abide or breach is cured.
(d) Termination by the Company with Notice. The Company
may terminate this Agreement at any time, for any reason, other than
as set forth in Subparagraphs (a), (b) or (c) of this Section 2.1,
with or without cause, in the Company's sole discretion, immediately
upon written notice to the Executive without any further liability
hereunder to the Executive, except to the extent set forth in Section
2.2(d) hereof.
(e) Termination by the Executive for Good Reason. The
Executive may terminate this Agreement at any time for Good Reason (as
hereinafter defined) in which event the Company shall have no further
liability hereunder to the Executive except to
-3-
<PAGE> 4
the extent set forth in Section 2.2(e) hereof. For purposes of this
Agreement, the term "Good Reason" shall mean, without the Executive's
express written consent, the occurrence of any of the following
circumstances:
(1) The Company's failure to pay the Executive
the Compensation pursuant to the terms of this Agreement that
has not been cured within thirty (30) days after notice of
such noncompliance has been given by the Executive to the
Company;
(2) The failure of the Company to obtain an
agreement, from any successor to assume and agree to perform
this Agreement; or
(3) Any failure by the Company to comply with any
material provision of this Agreement that has not been cured
within thirty (30) days after notice of such noncompliance has
been given by the Executive to the Company.
(f) Termination by the Executive with Notice. The
Executive may terminate this Agreement for any reason other than Good
Reason on thirty (30) days prior written notice, in the sole
discretion of the Executive, in which event the Company shall have no
further liability hereunder to the Executive, except to the extent set
forth in Section 2.2(f) hereof.
2.2 Compensation upon Termination.
(a) Death. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(a)
hereof due to the death of the Executive, the Company shall have no
further obligation to the Executive or Executive's estate, except to
pay to the Executive's spouse, or if none, to the estate of the
Executive any accrued, but unpaid, Salary and any vacation or sick
leave benefits, which have accrued as of the date of death but were
then unpaid or unused. Any amount due the Executive hereunder shall
be paid in a lump sum in cash within thirty (30) days after the death
of the Executive.
(b) Disability. In the event the Executive's employment
hereunder is terminated pursuant to the provisions of Section 2.1(b)
hereof due to Disability of the Executive, the Company shall be
relieved of all of its obligations under this Agreement, except to pay
the Executive any accrued, but unpaid Salary, and vacation or sick
leave benefits which have accrued as of the date on which such
permanent disability is determined, but then remain unpaid. The
provisions of the preceding sentence shall not affect the Executive's
rights to receive payments under the Company's disability insurance
plan, if any. Any amount due the Executive hereunder shall be paid in
a lump sum in cash within thirty (30) days after the termination of
the Executive's employment hereunder.
(c) Cause. In the event the Executive's employment
hereunder is terminated by the Company for Cause pursuant to the
provisions of Section 2.1(c) hereof, the Company shall have no further
obligation to the Executive under this Agreement except
-4-
<PAGE> 5
to pay the Executive any accrued, but unpaid, Salary and any vacation
or sick leave benefits, which have accrued as of the date of
termination of this Agreement, but were then unpaid or unused. Any
amount due the Executive hereunder shall be paid in a lump sum in cash
within sixty (60) days after the termination of the Executive's
employment hereunder.
(d) Termination Pursuant to Section 2.1(d). In the event
the Executive's employment hereunder is terminated by the Company
pursuant to the provisions of Section 2.1(d) hereof, the Executive
shall be entitled to receive (i) any accrued, but unpaid, Salary and
any vacation or sick leave benefits, which have accrued as of the date
of termination of this Agreement, but were then unpaid or unused, (ii)
an amount payable in monthly installments equal to the Executive's
full monthly Salary payable for a period of six (6) months and (iii)
the Termination Bonus set forth in Exhibit A. Any amount due the
Executive hereunder (i) of this Section shall be paid in a lump sum in
cash within thirty (30) days after the termination of the Executive's
employment hereunder.
(e) Termination by the Executive for Good Reason. In the
event this Agreement is terminated by the Executive pursuant to the
provisions of Section 2.1(e) hereof, the Executive shall be entitled
to receive (i) any accrued, but unpaid, Salary and any vacation or
sick leave benefits which have accrued as of the date of
termination-of the Agreement, but were then unpaid or unused, (ii) the
full monthly Salary payable hereunder for a period of six (6) months
after this Agreement is terminated by the Executive in accordance with
the Company's regular payroll periods or over such lesser period as
the Company may determine and (iii) the Termination Bonus set forth in
Exhibit A. Any amount due the Executive hereunder (i) of this Section
shall be paid in a lump sum in cash within thirty (30) days after the
termination of the Executive's employment hereunder.
(f) Termination Pursuant to Section 2.1(f). In the event
the Executive's employment hereunder is terminated by the Executive
pursuant to the provisions of Section 2.1(f) hereof, all future
compensation to which Executive is entitled and all future benefits
for which Executive is eligible shall cease and terminate as of the
date of termination. Executive shall be entitled to pro rata Salary
through the date of termination. Any amount due the Executive
hereunder shall be paid in a lump sum in cash within sixty (60) days
after the termination of Executive's Employment hereunder.
(g) Termination of Obligations of the Company Upon
Payment of Compensation. Upon payment of the amount, if any, due the
Executive pursuant to the preceding provisions of this Section, the
Company shall have no further obligation to the Executive under this
Agreement.
2.3 Merger or Acquisition. In the event the Company should
consolidate, or merge into another corporation, or transfer all or
substantially all of its assets to another entity, or divide its assets among a
number of entities, this Agreement shall continue in full force and effect.
The Company will require any and all successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to expressly assume and agree
pursuant to an
-5-
<PAGE> 6
appropriate written assumption agreement to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
agreement prior to or contemporaneously with the effectiveness of any such
successor shall be a breach of the Agreement and shall entitle the Executive,
as his or her sole remedy, to terminate Executive's employment and this
Agreement for Good Reason.
2.4 Offset. The Company shall have the right to deduct from any
amounts due the Executive hereunder any obligations owed by the Executive to
the Company.
ARTICLE III.
PROTECTION OF INFORMATION AND NON-COMPETITION
Protective Covenants. The Executive recognizes that his employment by
the Company is one of the highest trust and confidence because (i) the
Executive will become fully familiar with all aspects of the Company's business
during the period of his employment with the Company, (ii) certain information
of which the Executive will gain knowledge during his employment is proprietary
and confidential information which is special and peculiar value to the
Company, and (iii) if any such proprietary and confidential information were
imparted to or became known by any person, including the Executive, engaging
in a business in competition with that of the Company, hardship, loss or
irreparable injury and damage could result to the Company, the measurement of
which would be difficult if not impossible to ascertain. The Executive
acknowledges that the Company has developed unique skills, concepts, designs,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, hiring and training methods, financial and
other confidential and proprietary information concerning its operations and
expansion plans ("Trade Secrets"). Therefore, the Executive agrees that it is
necessary for the Company to protect its business from such damage, and the
Executive further agrees that the following covenants constitute a reasonable
and appropriate means, consistent with the best interest of both the Executive
and the Company, to protect the Company against such damage and shall apply to
and be binding upon the Executive as provided herein:
(a) Trade Secrets. The Executive recognizes that his
position with the Company is one of the highest trust and confidence
by reason by of the Executive's access to and contact with certain
Trade Secrets of the Company. The Executive agrees and covenants to
use his best efforts and exercise utmost diligence to protect and
safeguard the Trade Secrets of the Company. The Executive further
agrees and covenants that, except as may be required by the Company in
connection with this Agreement, or with the prior written consent of
the Company, the Executive shall not, either during the term of this
Agreement or thereafter, directly or indirectly, use for the
Executive's own benefit or for the benefit of another, or disclose,
disseminate, or distribute to another, any Trade Secret (whether or
not acquired, learned, obtained, or developed by the Executive alone
or in conjunction with others) of the Company or of others with whom
the Company has a business relationship. All memoranda, notes,
records, drawings, documents, or other writings whatsoever made,
compiled, acquired, or received by the Executive during the term of
this Agreement, arising out of, in connection with, or related to any
activity or business of the Company, including, but
-6-
<PAGE> 7
not limited to, the Company's operations, the marketing of the
Company's products, the Company's customers, suppliers, or others with
whom the Company has a business relationship, the Company's
arrangements with such parties, and the Company's pricing and
expansion policies and strategy, are, and shall continue to be, the
sole and exclusive property of the Company, and shall, together with
all copies thereof and all advertising literature, be returned and
delivered to the Company by the Executive immediately, without demand,
upon the termination of this Agreement, or at any time upon the
Company's demand.
(b) Restriction on Soliciting Employees of the Company.
The Executive covenants that during the term of this Agreement and for
a period of twelve (12) months following the termination of this
Agreement, he will not, either directly or indirectly, call on,
solicit, or take away, or attempt to call on, solicit, induce or take
away any employee of the Company, either for himself or for any other
person, firm, corporation or other entity. Further, Executive shall
not induce any employee of the Company to terminate his or her
employment with the Company.
(c) Covenant Not to Compete. The Executive hereby
covenants and agrees that during the term of this Agreement and for
the period set forth in Exhibit "A" following the termination of this
Agreement ("Non-Compete Period"), he will not, directly or indirectly,
either as an employee, employer, consultant, agent, principal,
partner, shareholder (other than through ownership of publicly-traded
capital stock of a corporation which represents less than five percent
(5%) of the outstanding capital stock of such corporation), corporate
officer, director, investor, financier or in any other individual or
representative capacity, engage or participate in any business
competitive with the business conducted by the Company within Texas,
Oklahoma or Louisiana.
(d) Survival of Covenants. Each covenant of the
Executive set forth in this Article III shall survive the termination
of this Agreement and shall be construed as an agreement independent
of any other provision of this Agreement, and the existence of any
claim or cause of action of the Executive against the Company whether
predicated on this Agreement or otherwise shall not constitute a
defense to the enforcement by the Company of said covenant.
(e) Remedies. In the event of breach or threatened
breach by the Executive of any provision of this Article III, the
Company shall be entitled to relief by temporary restraining order,
temporary injunction, or permanent injunction or otherwise, in
addition to other legal and equitable relief to which it may be
entitled, including any and all monetary damages which the Company may
incur as a result of said breach, violation or threatened breach or
violation. The Company may pursue any remedy available to it
concurrently or consecutively in any order as to any breach,
violation, or threatened breach or violation, and the pursuit of one
of such remedies at any time will not be deemed an election of
remedies or waiver of the right to pursue any other of such remedies
as to such breach, violation, or threatened breach or violation, or as
to any other breach, violation, or threatened breach or violation.
-7-
<PAGE> 8
The Executive hereby acknowledges that the Executive's agreement to be
bound by the protective covenants set forth in this Article III was a material
inducement for the Company entering into this Agreement and agreeing to pay the
Executive the compensation and benefits set forth herein. Further, Executive
understands the foregoing restrictions may limit his or her ability to engage
in certain businesses during the period of time provided for, but acknowledges
that Executive will receive sufficiently high remuneration and other benefits
under this Agreement to justify such restriction.
ARTICLE IV.
GENERAL PROVISIONS
4.1 Notices. all notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered on the date personally delivered or on the date deposited
in a receptacle maintained by the United States Postal Service for such
purpose, postage prepaid, by certified mail, return receipt requested,
addressed to the respective parties as follows:
If to the Executive: As set forth in Exhibit "A"
If to the Company: Sepco Industries, Inc.
6500 Brittmoore
Houston, Texas 77041
ATTN: David R. Little
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
4.2 Severability. If any provision contained in this Agreement is
determined by a court of competent jurisdiction or an arbitrator pursuant to
Section 5 below to be void, illegal or unenforceable, in whole or in part, then
the other provisions contained herein shall remain in full force and effect as
if the provision which was determined to be void, illegal, or unenforceable had
not been contained herein. If the restrictions contained in Article III are
found by a court to be unreasonable or overly broad as to geographic area or
time, or otherwise unenforceable, the parties intend for said restrictions to
be modified by said court so as to be reasonable and enforceable and, as so
modified, to be fully enforced.
4.3 Waiver Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party. This instrument
contains the entire agreement of the parties concerning employment and
supersedes all prior and contemporaneous representations, understandings and
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Company and all such prior or
contemporaneous
-8-
<PAGE> 9
representations, understandings and agreements, both oral and written, are
hereby terminated. This Agreement may not be modified, altered or amended
except by written agreement of all the parties hereto.
4.4 Binding Effect. This Agreement shall be binding and effective
upon the parties and their respective successors. Neither party shall assign
this Agreement without the prior written consent of the other party, except
that the Company shall have the right to assign this Agreement to an entity.
4.5 Governing Law. The parties intend that the laws of the State
of Texas should govern the validity of this Agreement, the construction of its
terms, and the interpretation of the rights and duties of the parties hereto.
4.6 Representation of Executive. The Executive hereby represents
and warrants to the Company that the Executive has not previously assumed any
obligations inconsistent with those contained in this Agreement. The Executive
further represents and warrants to the Company that the Executive has entered
into this Agreement pursuant to Executive's own initiative and that this
Agreement is not in contravention of any existing commitments. The Executive
acknowledges that the Company has entered into this Agreement in reliance upon
the foregoing representations of the Executive.
4.7 Counterpart Execution. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute but one and the same instrument.
4.8 Company. For the purposes of this Agreement, Company shall
include any parent, subsidiary division of the Company, or any entity, who
directly or indirectly, controls, is controlled by, or is under common control
with the Company.
ARTICLE V.
ARBITRATION
5.1 Resolution of Disputes. In any dispute between the Parties,
the Parties shall cooperate in good faith to resolve the dispute. If the
parties cannot resolve the dispute between themselves, they shall each, within
ten (10) days, select one mediator to help resolve the dispute. If a resolution
of the dispute does not occur through mediation within thirty (30) days after
the selection of the two mediators, any Party may demand binding arbitration.
5.2 Arbitration. In the event any dispute cannot be resolved
through mediation the Parties agree to submit such dispute to binding
arbitration. Any such arbitration arising hereunder shall be conducted in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. The costs of arbitration shall be borne equally by
the Parties. However, each Party shall be responsible for such Party's own
attorneys' fees.
-9-
<PAGE> 10
ARTICLE VI.
CONFIDENTIALITY
6.1 Confidentiality. This Agreement is confidential, and the
substance may be disclosed only as mutually agreed by the Parties or as may be
required by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written effective as of the Effective Date.
THE COMPANY:
SEPCO INDUSTRIES, INC.
By: /s/ DAVID R. LITTLE
-------------------------------------
Printed Name: David R. Little
------------------
Title: CEO
-------------------------
EXECUTIVE:
By: /s/ BOB EVANS
-------------------------------------
BOB EVANS
-10-
<PAGE> 11
EXHIBIT "A"
TO
EMPLOYMENT AGREEMENT
<TABLE>
<S> <C>
NAME: Bob Evans
POSITION: President, American MRO, Inc.
MONTHLY BASE: $9,000.00
BONUS: None
NON-COMPETE PERIOD: Twelve (12) months
HOME ADDRESS: 13422 Sweet Surrender Ct.
Houston, TX 77041
TERMINATION BONUS: Six (6) months
</TABLE>
<PAGE> 1
EXHIBIT 10.13
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
AMONG
SEPCO INDUSTRIES, INC.
AS BORROWER
AND
BARCLAYS BUSINESS CREDIT, INC.
AS LENDER
APRIL 1, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i)
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1
GENERAL DEFINITIONS
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.2. Accounting and Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3. Certain Matters of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2
CREDIT FACILITY
2.1. Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3. All Loans to Constitute One Obligation . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4. Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3
INTEREST, FEES, TERM AND REPAYMENT
3.1. Interest and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2. Unused Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3. Term of Agreement; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.5. Application of Payments and Collections . . . . . . . . . . . . . . . . . . . . . . . . .
3.6. Statements of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4
COLLATERAL: GENERAL TERMS
4.1. Security Interest in Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2. Lien on Realty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3. Pledge of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.4. Lien Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.5. Location of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.6. Insurance of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7. Protection of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5
PROVISIONS RELATING TO ACCOUNTS
5.1. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . .
5.2. Assignments, Records and Schedules of Accounts . . . . . . . . . . . . . . . . . . . . . .
5.3. Administration of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.4. Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6
PROVISIONS RELATING TO INVENTORY
6.1. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . .
6.2. Inventory Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3. Returns of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7
PROVISIONS RELATING TO EQUIPMENT
7.1. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . .
7.2. Dispositions of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 8
REPRESENTATIONS AND WARRANTIES
8.1. General Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2. Reaffirmation and Survival of Representations and Warranties . . . . . . . . . . . . . . .
SECTION 9
COVENANTS AND CONTINUING AGREEMENTS
9.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.3. Specific Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10
CONDITIONS PRECEDENT
10.1. Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.2. Other Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11
EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.2. Acceleration of the Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
11.3. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.4. Remedies Cumulative; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 12
MISCELLANEOUS
12.1. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.2. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.3. Modification of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.4. Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.5. Indulgences Not Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.7. Successors and Assigns; Participations by Lender . . . . . . . . . . . . . . . . . . . . .
12.8. Cumulative Effect; Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.9. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.10. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.11. Lender's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.12. Demand Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.13. Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.14. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.15. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.16. Nonapplicability of Article 5069-15.01 et. seq. . . . . . . . . . . . . . . . . . . . . .
12.17. No Preservation or Marshalling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.18. Governing Law; Consent To Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.19. Waivers By Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.20. Special Louisiana Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.21. Oral Agreements Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
EXHIBITS:
- --------
EXHIBIT A Form of Secured Promissory Note (Term Loan)
EXHIBIT B Borrower's Business Locations
EXHIBIT C Corporate Names
EXHIBIT D Litigation
EXHIBIT E Form of Compliance Certificate
EXHIBIT F Existing Indebtedness
EXHIBIT G Real Property
EXHIBIT H Form of Legal Opinion
iii
<PAGE> 5
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made
effective as of the 1st day of April, 1994, by and between BARCLAYS BUSINESS
CREDIT, INC. ("Lender"), a Connecticut corporation with an office at 2711 North
Haskell, Suite 2100, LB 21, Dallas, Texas 75204, and SEPCO INDUSTRIES, INC., a
Texas corporation ("Borrower"), with offices at 6500 Brittmoore Road, Houston,
Texas 77041.
WHEREAS, Southern Engine & Pump Company, a Delaware corporation
("SE&P"), Wesco Equipment, Inc., a Delaware corporation ("Wesco"), and Lender
have entered into that certain General Loan and Security Agreement dated
February 10, 1986 as heretofore amended by amendments dated as of December 19,
1988, and December 31, 1990 (as amended, the "Prior Loan Agreement"); and
WHEREAS, SE&P, Wesco, and Lender have entered into that certain
Amended and Restated Loan and Security Agreement dated January 22, 1992 (the
"Prior Restated SE&P Loan Agreement"); and
WHEREAS, T.L. Walker Bearing Co. ("TLW") and Lender have entered into
that certain Loan and Security Agreement dated January 22, 1992 (the "Prior TLW
Loan Agreement"); and
WHEREAS, pursuant to that certain Plan and Agreement of Merger - Wesco
Equipment, Inc. Into Southern Engine & Pump Company, dated as of March 1, 1994,
Wesco and SE&P agreed that Wesco and SE&P would be merged into a single
corporation, by Wesco merging into and with SE&P, with SE&P being the surviving
corporation, to exist by virtue of and be governed by the laws of the State of
Delaware; and
WHEREAS, pursuant to that certain Plan and Agreement of Merger -
Southern Engine & Pump Company Into Sepco Industries, Inc., dated as of March
1, 1994, SE&P and Borrower agreed that SE&P and Borrower would be merged into a
single corporation, by SE&P merging into and with Borrower, with Borrower being
the surviving corporation, to exist by virtue of and be governed by the laws of
the State of Texas; and
WHEREAS, pursuant to that certain Plan and Agreement of Merger - T.L.
Walker Bearing Co. Into DMS Corporation, dated as of March 1, 1994, TLW and DMS
Corporation, a Texas corporation ("DMS"), agreed that TLW and DMS would be
merged into a single corporation, by TLW merging into and with DMS, with DMS
being the surviving corporation, to exist by virtue of and be governed by the
laws of the State of Texas; and
WHEREAS, pursuant to that certain Plan and Agreement of Merger - DMS
Corporation Into Sepco Industries, Inc., dated as of March 1, 1994, DMS and
Borrower agreed that DMS and Borrower would be merged into a single
corporation, by DMS merging into and with Borrower,
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 6
with Borrower being the surviving corporation, to exist by virtue of and be
governed by the laws of the State of Texas; and
WHEREAS, Borrower and Lender now desire to consolidate, amend and
restate in their entirety the Prior Restated SE&P Loan Agreement and the TLW
Loan Agreement.
NOW, THEREFORE, in consideration of the premises and other value, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Lender
agree as follows:
SECTION 1. GENERAL DEFINITIONS
1.1. Defined Terms. When used herein, the following terms shall
have the following meanings (terms defined in the singular to have the same
meaning when used in the plural and vice versa):
Accounts - all accounts, contract rights, chattel paper, instruments
and documents, whether now owned or hereafter created or acquired by Borrower
or in which Borrower now has or hereafter acquires any interest.
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Adjusted Net Earnings From Operations- with respect to any fiscal
period, means the net earnings (or loss) after provision for income taxes for
such fiscal period of Borrower, all as reflected on the financial statement of
Borrower supplied to Lender pursuant to Section 9.1(J) hereof, but excluding:
(a) any gain or loss arising from the sale of capital assets; (b) any gain
arising from any write-up of assets; (c) earnings of any Subsidiary accrued
prior to the date it became a Subsidiary; (d) earnings of any corporation,
substantially all the assets of which have been acquired in any manner by
Borrower, realized by such corporation prior to the date of such acquisition;
(e) net earnings of any business entity (other than a Subsidiary) in which
Borrower has an ownership interest unless such net earnings shall have actually
been received by Borrower in the form of cash distributions; (f) any portion of
the net earnings of any Subsidiary which for any reason is unavailable for
payment of dividends to Borrower; (g) the earnings of any Person to which any
assets of Borrower shall have been sold, transferred or disposed of, or into
which Borrower shall have merged, or been a party to any consolidation or other
form of reorganization, prior to the date of such transaction; (h) any gain
arising from the acquisition of any Securities of Borrower; and (i) any gain
arising from extraordinary or non-recurring items.
Adjusted Tangible Assets - all assets except: (a) deferred assets,
other than prepaid insurance and prepaid taxes; (b) patents, copyrights,
trademarks, trade names, non-compete agreements, franchises and other similar
intangibles; (c) good will; (d) Restricted Investments; (e) unamortized debt
discount and expense; (f) assets located and notes and receivables due from
obligors outside of the United States of America; and (g) Accounts, notes and
other receivables due from Affiliates or employees.
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 7
Adjusted Tangible Net Worth - at any date means a sum equal to: (a)
the net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves) at which the Adjusted
Tangible Assets of a Person would be shown on a balance sheet at such date in
accordance with GAAP, less (b) the amount at which such Person's liabilities
(other than capital stock and surplus) would be shown on such balance sheet in
accordance with GAAP, plus (c) Subordinated Debt.
Affiliate - a Person (other than a Subsidiary): (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, Borrower; (b) which beneficially owns or holds 5%
or more of any class of the voting Securities of Borrower; or (c) 5% or more of
the voting Securities (or in the case of a Person which is not a corporation,
5% or more of the equity interest) of which is beneficially owned or held by
Borrower or a Subsidiary of Borrower. For purposes hereof, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting Securities, by contract or otherwise.
Agreement - this Second Amended and Restated Loan and Security
Agreement, as amended, modified, supplemented or restated from time to time.
Annual Rate - as defined in Section 3.1(A) of this Agreement.
Applicable Margin - as defined in Section 3.1(F) of this Agreement.
Average Daily Availability - the amount obtained by adding the
difference between the Borrowing Base and the unpaid balance of Loans owing by
Borrower to Lender at the end of each day during the period in question and by
dividing such sum by the number of days in such period.
Average Monthly Loan Balance - the amount obtained by adding the
unpaid balance of Revolving Credit Loans owing by Borrower to Lender at the end
of each day for each day during the month in question and by dividing such sum
by the number of days in such month.
Bank - Barclays Bank PLC.
Base Rate - the rate of interest announced or quoted by Bank from time
to time as its "base rate" for commercial loans, whether or not such rate is
the lowest rate charged by said bank to its most preferred borrowers; and, if
the base rate for commercial loans is discontinued by said bank as a standard,
a comparable reference rate designated by said bank as a substitute therefor
shall be the Base Rate.
Borrower - Sepco Industries, Inc., a Texas corporation, and the
surviving corporation of the mergers of SE&P into Borrower and DMS into
Borrower; SE&P being the surviving corporation of the merger of Wesco into
SE&P; and DMS being the surviving corporation of the merger of TLW into DMS.
LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 8
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(a) Twenty Million Dollars ($20,000,000), minus the
unpaid principal balance of the Term Loan at such date; or
(b) an amount equal to:
(i) 85% of the net amount of Eligible
Accounts outstanding at such date (as determined by
Lender in its sole discretion);
PLUS
(ii) the lesser of (A) Nine Million
Dollars ($9,000,000) or (B) 50% of the value of
Eligible Inventory (as determined by Lender in its
sole discretion) at such date consisting of finished
goods, calculated on the basis of the lower of cost
or fair market value (as determined by Lender in its
sole discretion) with the cost of finished goods
calculated on a first-in, first-out basis;
MINUS (subtract from the sum of clauses (i) and (ii)
above)
(iii) an amount equal to the sum of (A)
the face amount of all LC Guaranties and Letters of
Credit issued by Lender or Affiliates of Lender and
outstanding at such date and (B) any amounts which
Lender may be obligated to pay in the future for the
account of Borrower pursuant to this Agreement, the
Other Agreements or otherwise.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts, (which may, at Lender's option, be calculated on shortest
terms), credits, allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or payable in
connection with such Accounts at such time.
Business Day - a day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of Texas or is a day on which banking
institutions in such state are closed.
Capital Expenditures - expenditures made and liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the direct or indirect acquisition of such assets by way of
increased product or service charges, offset items or otherwise and the
principal portion of payments with respect to capitalized lease obligations.
LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 9
Cash Flow - with respect to any fiscal period, means the Adjusted Net
Earnings From Operations of Borrower for such period, plus non-cash charges in
respect to depreciation and amortization for such period minus Capital
Expenditures made during such period, minus scheduled principal payments on
Indebtedness for such period.
Closing Date - the date on which all of the conditions precedent in
Section 10 are satisfied and the initial Loan is made hereunder.
Code - the Uniform Commercial Code as adopted and in force in the State
of Texas, as from time to time in effect.
Collateral - all of the Property and interests in Property described
in Section 4 hereof, and all other Property and interests in Property that now
or hereafter secure the payment and performance of any of the Obligations.
Commitment - Twenty Million Dollars ($20,000,000.00).
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets on a
balance sheet at such date in accordance with GAAP except that amounts due from
Affiliates and investments in Affiliates shall be excluded there from.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities on a balance sheet at such date in accordance with GAAP excluding
the Loans and current maturities of any long-term indebtedness.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in Section 3.1(A) of this Agreement.
Distribution - in respect of any corporation means and_includes: (a)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (b) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds
of the sale of Securities.
Dominion Account - a special account of Borrower established by
Borrower pursuant to this Agreement at a bank selected by Borrower, but
acceptable to Lender, in its sole discretion, and over which Lender shall have
sole and exclusive access and control for withdrawal purposes.
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition or services which
Lender, in its credit judgment, deems to be an Eligible Account. Without
limiting the generality of the foregoing, no Account shall be an Eligible
Account if:
LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 10
(a) it arises out of a sale made by Borrower to a
Subsidiary or an Affiliate of Borrower or to a Person controlled by an
Affiliate of Borrower; or
(b) it is unpaid for more than 60 days after the original
due date shown on the invoice; or
(c) it is due or unpaid more than 90 days after the
original invoice date; or
(d) 20% or more of the Accounts from the Account Debtor
are not deemed Eligible Accounts hereunder; or
(e) the total unpaid Accounts of the Account Debtor
exceed 25% of the net amount of all Accounts, to the extent of such
excess; or
(f) any covenant, representation or warranty contained in
this Agreement with respect to such Account has been breached; or
(g) the Account Debtor is also Borrower's creditor or
supplier, or the Account Debtor has disputed liability with respect to
such Account, or the Account Debtor has made any claim with respect to
any other Account due from such Account Debtor to Borrower, or the
Account otherwise is or may become subject to any right of setoff by
the Account Debtor; or
(h) the Account Debtor has commenced a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an
involuntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or if the Account Debtor has ceased to be
Solvent or consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant portion
of its assets or affairs; or
(i) it arises from a sale to an Account Debtor outside
the United States; or
(j) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
(k) Lender in good faith believes that collection of such
Account is insecure or that payment thereof is doubtful or will be
delayed by reason of the Account Debtor's financial condition; or
(l) the Account Debtor is the United States of America or
any department, agency or instrumentality thereof; or
LOAN AND SECURITY AGREEMENT - Page 6
<PAGE> 11
(m) the Account Debtor is located in the State of New
Jersey or Minnesota, unless Borrower has filed a Notice of Business
Activities Report with the appropriate officials in those states for
the then current year; or
(n) the Account is subject to a Lien other than a
Permitted Lien; or
(o) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower and accepted
by the Account Debtor or the Account otherwise does not represent a
final sale; or
(p) the total unpaid Accounts of the Account Debtor
exceed a credit limit determined by Lender, to the extent such Account
exceeds such limit; or
(q) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; or
(r) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or allowances
which are made in the ordinary course of business for prompt payment
and which discounts or allowances are reflected in the calculation of
the face value of each invoice related to such Account; or
(s) Borrower has made an agreement with the Account
Debtor to extend the time of payment thereof; or
(t) the Account arises from a retail sale of goods to a
Person who is purchasing same primarily for personal, family or
household purposes.
Eligible Inventory - such Inventory of Borrower which Lender, in its
credit judgment, deems to be Eligible Inventory. Without limiting the
generality of the foregoing, no Inventory shall be Eligible Inventory unless,
in Lender's good faith opinion, it
(a) is raw materials or finished goods,
(b) is in good, new and saleable condition,
(c) is not obsolete or unmerchantable,
(d) has been owned by Borrower for not more than twelve
months,
(e) meets all standards imposed by any governmental
agency or authority,
(f) conforms in all respects to the warranties and
representations set forth in Section 6.1 hereof,
LOAN AND SECURITY AGREEMENT - Page 7
<PAGE> 12
(g) is at all times subject to Lender's duly perfected,
first priority security interest and no other Lien except a Permitted
Lien, and
(h) is situated at a location in compliance with Section
4.5 hereof and is not in transit.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or
hereafter acquired and wherever located, and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, and all
rules and regulations from time to time promulgated thereunder.
Excess - as defined in Section 3.1(C) of this Agreement.
Event of Default - as defined in Section 11.1 of this Agreement.
GAAP - generally accepted accounting principles in the United States of
America in effect from time to time.
General Intangibles - all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, deposit accounts, inventions, designs, patents, patent applications,
trademarks, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, tax refund claims, computer programs, all
claims under guaranties, security interests or other security held by or
granted to Borrower to secure payment of any of the Accounts by an Account
Debtor, all rights to indemnification and all other intangible property of
every kind and nature (other than Accounts).
Guarantors - David Little, Southern Engine & Pump Company (formerly
known as Sepco Compression Services, Inc.), T.L. Walker Bearing Co. (formerly
known as Sepco Power Products, Inc.) and any other Person who may hereafter
guarantee payment or performance of the whole or any part of the Obligations.
Guaranty Agreements - the Continuing Guaranty Agreements which are to
be executed by Guarantors in form and substance satisfactory to Lender.
LOAN AND SECURITY AGREEMENT - Page 8
<PAGE> 13
Indebtedness - as applied to a Person means, without duplication (i)
all items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Indebtedness is to be determined, including, without
limitation, capitalized lease obligations, (ii) all obligations of other
Persons which such Person has guaranteed and (iii) in the case of Borrower
(without duplication), the Obligations.
Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired, and wherever located, including, but not limited to, all goods
intended for sale or lease by Borrower, or for display or demonstration; all
work in process; all raw materials and other materials and supplies of every
nature and description used or which might be used in connection with the
manufacture, printing, packing, shipping, advertising, selling, leasing or
furnishing of such goods or otherwise used or consumed in Borrower's business;
and all documents evidencing and General Intangibles relating to any of the
foregoing.
LC Guaranty - a guaranty executed by Lender at Borrower's request in
favor of a Person who has issued a Letter of Credit.
Letter of Credit - a letter of credit at any time issued for the
account of Borrower.
Leverage Ratio - at any date means the ratio of the Indebtedness of
Borrower to Adjusted Tangible Net Worth of Borrower.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and including, but not limited
to, the security interest, security title or lien arising from a security
agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 2.4 of this Agreement.
Loan Documents - this Agreement and the Other Agreements.
Loans - all loans and advances made by Lender pursuant to this
Agreement, including, without limitation, all Revolving Credit Loans and the
Term Loan.
Maximum Legal Rate - as defined in Section 3.1(B) of this Agreement.
Mortgages - the mortgages and deeds of trust, and extension and
modification agreements as required by Lender with respect to presently
recorded mortgages and deeds of trust, to be executed by Borrower and/or
Guarantor on or about the Closing Date in favor of Lender and by which Borrower
and/or Guarantor shall grant and convey to Lender, as security for the
Obligations, a first priority Lien upon all real Property of Borrower wherever
located and that real Property described in Exhibit G hereto.
LOAN AND SECURITY AGREEMENT - Page 9
<PAGE> 14
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing, arising, due or payable from Borrower
to Lender of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under this Agreement or
any of the Other Agreements or otherwise, whether direct or indirect (including
those acquired by assignment), absolute or contingent, primary or secondary,
due or to become due, now existing or hereafter arising and however acquired.
The term includes, without limitation, all interest, charges, expenses, fees,
attorney's fees and any other sums chargeable to Borrower under this Agreement
or any of the Other Agreements.
Original Term - as defined in Section 3.3(A) of this Agreement.
Other Agreements - any and all agreements, instruments and documents
heretofore, now or hereafter executed by Borrower or Guarantors, as the case
may be, and delivered to Lender in respect to the transactions contemplated by
this Agreement, including, without limitation, the Term Note, the Shareholder
Pledge Agreement, the Guaranty Agreements and the Mortgages.
Overadvance - as defined in Section 2.1 of this Agreement.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in this Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subparagraphs (i)
through (viii) of Section 9.2(E) of this Agreement.
Person - an individual, partnership, corporation, joint stock company,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Prohibited Transaction - any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986.
Projections - Borrower's forecasted (a) balance sheets, (b) profit and
loss statements, (c) cash flow statements, and (d) capitalization statements,
all prepared on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Purchase Money Lien - a Lien upon fixed assets granted by Borrower to
secure Indebtedness incurred by Borrower to purchase such fixed assets.
LOAN AND SECURITY AGREEMENT - Page 10
<PAGE> 15
Renewal Terms - as defined in Section 3.3(A) of this Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following: (a) investments in one or
more Subsidiaries of Borrower; (b) Property to be used in the ordinary course
of business; (c) Current Assets arising from the sale of goods and services in
the ordinary course of business of Borrower; (d) investments in direct
obligations of the United States of America, or any agency thereof or
obligations guaranteed by the United States of America, provided that such
obligations mature within one year from the date of acquisition thereof; (e)
investments in certificates of deposit maturing within one year from the date
of acquisition issued by a bank or trust company organized under the laws of
the United States or any state thereof having capital surplus and undivided
profits aggregating at least $100,000,000; and (f) investments in commercial
paper given the highest rating by a national credit rating agency and maturing
not more than 270 days from the date of creation thereof.
Revolving Credit Loan - a Loan made by Lender as provided in Section
2.1 of this Agreement.
Schedule of Accounts - as defined in Section 5.2 of this Agreement.
Security - shall have the same meaning as in Section 2(l) of the
Securities Act of 1933, as amended.
Shareholder Pledge Agreement - the Pledge Agreement to be executed by
Gary Allcorn, Trustee, in form and substance acceptable to Lender, by which
Gary Allcorn, Trustee, grant to Lender a first priority security interest in
and to approximately 53% of all of the common stock of Borrower.
Solvent - as to any Person, such Person (a) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (b) is able to pay all of its
Indebtedness as such Indebtedness matures, and (c) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Subordinated Debt - Indebtedness of Borrower to whose existence Lender
has consented in writing and that is subordinated to the Obligations pursuant
to a written agreement acceptable to Lender in all respects as to both form and
substance.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the voting
Securities at the time of determination.
LOAN AND SECURITY AGREEMENT - Page 11
<PAGE> 16
Term Loan - the Loan described in Section 2.2 of this Agreement.
Term Note - the Secured Promissory Note to be executed by Borrower on
or about the Closing Date in favor of Lender to evidence the Term Loan, which
shall be in the form of Exhibit A attached hereto.
Working Capital - at any date means Current Assets minus Current
Liabilities.
1.2. Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistent with that applied in preparation of the financial statements
referred to in Section 9.1(J), and all financial data pursuant to the Agreement
shall be prepared in accordance with such principles. All other terms
contained in this Agreement shall have, when the context so indicates, the
meanings provided for by the Code to the extent the same are used or defined
therein.
1.3. Certain Matters of Construction. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. The section titles, table of
contents and list of exhibits appear as a matter of convenience only and shall
not affect the interpretation of this Agreement. All references to statutes
and related regulations shall include any amendments of same and any successor
statutes and regulations. All references to any instruments or agreements,
including, without limitation, references to this Agreement or any of the Other
Agreements, shall include any and all modifications or amendments thereto and
any and all extensions or renewals thereof.
SECTION 2. CREDIT FACILITY
2.1. Revolving Credit Loans. Subject to the terms and conditions
of this Agreement, Lender agrees to make Revolving Credit Loans to Borrower
from time to time, in amounts determined by Lender in its sole discretion, up
to a maximum principal amount at any time outstanding equal to the Borrowing
Base at such time. If the unpaid balance of the Revolving Credit Loans should
exceed the Borrowing Base or any other limitation set forth in this Agreement,
such Revolving Credit Loans shall nevertheless constitute Obligations that are
secured by the Collateral and entitled to all benefits thereof. Insofar as
Borrower may request and Lender may be willing in its sole and absolute
discretion to make Revolving Credit Loans to Borrower at a time when the unpaid
balance of Revolving Credit Loans exceeds, or would exceed with the making of
any such Revolving Credit Loan, the Borrowing Base (any such Loan or Loans
being herein referred to individually as an "Overadvance" and collectively as
"Overadvances"), Lender shall enter such Overadvances as debits in the Loan
Account. All Overadvances shall be payable ON DEMAND, shall be secured by the
Collateral and shall bear interest as provided herein for Revolving Credit
Loans generally. The Revolving Credit Loans shall be used solely for the
satisfaction of existing Indebtedness of Borrower to and for Borrower's general
operating capital needs to the extent not inconsistent with the provisions of
this Agreement.
LOAN AND SECURITY AGREEMENT - Page 12
<PAGE> 17
2.2. Term Loan. Subject to the terms and conditions of this
Agreement, Lender agrees to make a term loan to Borrower in the principal
amount of $1,329,277.37. The Term Loan shall be repayable in accordance with
the terms of the Term Note and shall be secured by the Collateral. The
proceeds of the Term Loan shall be used by Borrower for the purpose of
consolidating and refinancing, in Borrower's name, (a) that certain promissory
note in the original principal sum of $2,000,000, executed by SE&P, payable to
the order of Lender, the proceeds of which were used by SE&P for paying for
costs associated with SE&P's building expansion project in New Orleans,
Louisiana and for working capital purposes, and (b) that certain promissory
note in the original principal sum of $500,000, executed by TLW, payable to the
order of Lender, the proceeds of which were used by TLW for the purpose of
refinancing existing term indebtedness owing to Marine Midland Business Credit,
Inc., First National Bank of Livingston, Texas and certain other lenders or to
provide working capital for TLW in the ordinary course of business. If
Borrower sells any of the Equipment or real Property, or if any of the
Collateral is taken by condemnation, Borrower shall pay to Lender, unless
otherwise agreed by Lender, as and when received by Borrower and as a mandatory
prepayment of the Term Loan (or, at Lender's option, such of the other
Obligations as Lender may elect), a sum equal to the proceeds received by
Borrower from such sale or condemnation less any state or federal income tax
directly attributable thereto.
2.3. All Loans to Constitute One Obligation. All Loans shall
constitute one general obligation of Borrower, and shall be secured by Lender's
security interest in and Lien upon all of the Collateral, and by all other
security interests and Liens heretofore, now or at any time or times hereafter
granted by Borrower to Lender.
2.4. Loan Account. Lender shall enter all Loans as debits to the
Loan Account and shall also record in the Loan Account all payments made by
Borrower on any Obligations and all proceeds of Collateral which are finally
paid to Lender, and may record therein, in accordance with customary accounting
practice, all charges and expenses properly chargeable to Borrower and any
other Obligation.
SECTION 3. INTEREST, FEES, TERM AND REPAYMENT
3.1. Interest and Charges.
(A) Interest shall accrue on the Term Loan in accordance
with the terms of the Term Note and, subject to Section 3.1(F), shall accrue on
the principal amount of the Revolving Credit Loans outstanding at the end of
each day at the lesser of (i) a fluctuating rate per annum equal to the
Applicable Margin (determined in accordance with Section 3.1(F) hereof) above
the Base Rate (the "Annual Rate") or (ii) the Maximum Legal Rate. After the
date hereof, the Annual Rate shall be increased or decreased, as the case may
be, by an amount equal to any increase or decrease in the Base Rate, with such
adjustments to be effective as of the opening of business on the day that any
such change in the Base Rate becomes effective. The Base Rate in effect on the
date hereof shall be the Base Rate effective as of the opening of business on
the date hereof, but if this Agreement is executed on a day that is not a
Business Day, the Base Rate in effect on the date hereof shall be the Base Rate
effective as of the opening of business on the last
LOAN AND SECURITY AGREEMENT - Page 13
<PAGE> 18
Business Day immediately preceding the date hereof. Interest shall be
calculated on a daily basis (computed on the actual number of days elapsed over
a year of 360 days), commencing on the date hereof, and shall be payable
monthly, in arrears, on the first day of each month; provided, however, that
interest at the Maximum Legal Rate shall be computed on the actual number of
days elapsed over a year of 365 or 366 days, as the case may be. Upon and
after the occurrence of an Event of Default, and during the continuation
thereof, the principal amount of the Obligations shall bear interest at the
lesser of (i) the Maximum Legal Rate or (ii) a fluctuating rate per annum,
calculated daily (computed on the actual days elapsed over a year of 360 days),
equal to 4.0% above the Base Rate (the "Default Rate").
(B) Notwithstanding the foregoing or any other provision
in this Agreement, (i) if at any time the amount of interest computed on the
basis of the Annual Rate or the Default Rate would exceed the amount of such
interest computed upon the basis of the maximum rate of interest permitted by
applicable state or federal law in effect from time to time hereafter (the
"Maximum Legal Rate"), the interest payable under this Agreement shall be
computed upon the basis of the Maximum Legal Rate, but any subsequent reduction
in the Annual Rate or Default Rate, as applicable, shall not reduce such
interest thereafter payable hereunder below the amount computed on the basis of
the Maximum Legal Rate until the aggregate amount of such interest accrued and
payable under this Agreement equals the total amount of interest which would
have accrued if such interest had been at all times computed solely on the
basis of the Annual Rate or Default Rate, as applicable; and (ii) unless
preempted by federal law, the Annual Rate or Default Rate, as applicable, from
time to time in effect hereunder may not exceed the "indicated ceiling rate"
from time to time in effect under Tex. Rev. Civ. Stat. Ann. art 5069-1.04(c)
(Vernon 1987).
(C) No agreements, conditions, provisions or stipulations
contained in this Agreement or any other instrument, document or agreement
between Borrower and Lender or default of Borrower, or the exercise by Lender
of the right to accelerate the payment of the maturity of principal and
interest, or to exercise any option whatsoever contained in this Agreement or
any other agreement between Borrower and Lender, or the arising of any
contingency whatsoever, shall entitle Lender to contract for, charge, or
receive, in any event, interest exceeding the Maximum Legal Rate. In no event
shall Borrower be obligated to pay interest exceeding such Maximum Legal Rate
and all agreements, conditions or stipulations, if any, which may in any event
or contingency whatsoever operate to bind, obligate or compel Borrower to pay a
rate of interest exceeding the Maximum Legal Rate, shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such Maximum Legal Rate. In the event any interest is contracted
for, charged or received in excess of the Maximum Legal Rate ("Excess"),
Borrower acknowledges and stipulates that any such contract, charge, or receipt
shall be the result of an accident and bona fide error, and that any Excess
received by Lender shall be applied, first, to reduce the principal then unpaid
hereunder; second, to reduce the other Obligations; and third, returned to
Borrower, it being the intention of the parties hereto not to enter at any time
into a usurious or otherwise illegal relationship. Borrower recognizes that,
with fluctuations in the Base Rate and the Maximum Legal Rate, such a result
could inadvertently occur. By the execution of this Agreement, Borrower
covenants that (i) the credit or return of any Excess shall constitute the
acceptance by Borrower of such Excess, and (ii) Borrower shall not seek or
pursue any other remedy, legal or equitable, against Lender,
LOAN AND SECURITY AGREEMENT - Page 14
<PAGE> 19
based in whole or in part upon contracting for, charging or receiving of any
interest in excess of the maximum authorized by applicable law. For the
purpose of determining whether or not any Excess has been contracted for,
charged or received by Lender, all interest at any time contracted for, charged
or received by Lender in connection with this Agreement shall be amortized,
prorated, allocated and spread in equal parts during the entire term of this
Agreement.
(D) The provisions of Section 3.1(C) shall be deemed to
be incorporated into every document or communication relating to the
Obligations which sets forth or prescribes any account, right or claim or
alleged account, right or claim of Lender with respect to Borrower (or any
other obligor in respect of Obligations), whether or not any provision of
Section 3.1 is referred to therein. All such documents and communications and
all figures set forth therein shall, for the sole purpose of computing the
extent of the Obligations and obligations of the Borrower (or other obligor)
asserted by Lender thereunder, be automatically recomputed by Borrower or
obligor, and by any court considering the same, to give effect to the
adjustments or credits required by Section 3.1(C).
(E) If the applicable state or federal law is amended in
the future to allow a greater rate of interest to be charged under this
Agreement or the Other Agreements than is presently allowed by applicable state
or federal law, then the limitation of interest hereunder shall be increased to
the maximum rate of interest allowed by applicable state or federal law as
amended, which increase shall be effective hereunder on the effective date of
such amendment, and all interest charges owing to Lender by reason thereof
shall be payable upon demand.
(F) "Applicable Margin" initially shall mean 1.00%.
Thereafter, the Applicable Margin shall be adjusted upward on a monthly basis
as follows:
(i) Commencing with June, 1994, if the Average Daily
Availability is $1,500,000 or less for any month (the "Test Month"),
the Applicable Margin for the month immediately succeeding the Test
Month will equal 1.75%; and
(ii) Commencing with June, 1994, if the Average Daily
Availability is less than $2,000,000 but greater than $1,500,000 for
any Test Month, the Applicable Margin for the month immediately
succeeding the Test Month will equal 1.50%.
3.2. Unused Facility Fee. From the date hereof, Borrower agrees to
pay to Lender a quarterly unused facility fee, equal to one-quarter percent
(0.25%) per annum of the average daily unused portion of the Commitment,
payable quarterly in arrears, the first payment being due on July l, 1994 and
continuing on the first day of each July, October, January and April thereafter
during the term of this Agreement and upon the termination hereof. The first
payment due on July 1, 1994 shall include also payment to Lender of the unused
facility fees, if any, that accrued pursuant to the terms of the Prior Restated
SE&P Loan Agreement and the Prior TLW Loan Agreement during the period
beginning April 1, 1994 and ending May 31, 1994.
LOAN AND SECURITY AGREEMENT - Page 15
<PAGE> 20
3.3. Term of Agreement; Termination.
(A) Subject to Lender's right to cease making Loans to
Borrower at any time upon or after the occurrence of a default or an Event of
Default, the provisions of this Agreement shall be in effect for a period from
the date hereof, through and including January 2, 1997 (the "Original Term").
Upon written request by Borrower, Lender may, in its sole and absolute
discretion, renew this Agreement for any number of successive one year periods
thereafter (a "Renewal Term"), but Lender shall have no obligation to do so.
(B) Upon at least 90 days prior written notice to Lender,
Borrower may, at its option, terminate this Agreement; provided, however, no
such termination shall be effective until Borrower has paid all of the
Obligations in immediately available funds. It is understood that Borrower may
elect to terminate this Agreement in its entirety only; no section or lending
facility may be terminated singly.
(C) At the effective date of any such termination by
Borrower, Borrower shall pay to Lender (in addition to the then outstanding
principal, accrued interest and other charges owing under this Agreement and
any of the Other Agreements), as liquidated damages for the loss of the bargain
and not as a penalty, an amount equal to 0.5% of the highest of the Average
Monthly Loan Balances outstanding pursuant to Section 2.1 during the twelve
month period ending on the date of termination if termination occurs at any
time prior to January 2, 1997 or during any Renewal Term thereafter. If
termination occurs on the last day of the Original Term or the last day of any
Renewal Term, no termination charge shall be payable.
(D) All of the Obligations shall be forthwith due and
payable upon any termination of this Agreement. Except as otherwise expressly
provided in this Agreement or any of the Other Agreements, no termination or
cancellation (regardless of cause or procedure) of this Agreement or any of the
Other Agreements shall in any way affect or impair the rights, powers or
privileges of Lender or the obligations or liabilities of Borrower in any way
relating to (i) any transaction or event occurring prior to such termination or
cancellation or (ii) any of the undertakings, agreements, covenants, warranties
or representations of Borrower contained in this Agreement or any of the Other
Agreements. All such undertakings, agreements, covenants, warranties and
representations of Borrower shall survive such termination or cancellation,
and, notwithstanding such termination or cancellation, Lender shall retain its
Liens in the Collateral and all of its rights and remedies under this Agreement
and the Other Agreements until Borrower has paid the Obligations to Lender, in
full, in immediately available funds.
3.4. Payments. Principal and interest on the Term Loan shall be
payable as provided in the Term Note. Except where evidenced by notes or other
instruments issued or made by Borrower to Lender specifically containing
payment provisions which are in conflict with this Section 3.4 (in which event
the conflicting provisions of said notes or other instruments shall govern and
control), the Obligations shall be payable as follows:
(A) Principal payable on account of Revolving Credit
Loans made by Lender to Borrower, shall be payable by Borrower to Lender
immediately upon the earliest of (i) the
LOAN AND SECURITY AGREEMENT - Page 16
<PAGE> 21
receipt by Lender or Borrower of any proceeds of any of the Collateral, to the
extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of
the Obligations, or (iii) termination of this Agreement; provided, however,
that if the principal balance of Revolving Credit Loans outstanding at any time
shall exceed the Borrowing Base at such time, Borrower shall, on demand, repay
the Revolving Credit Loans in an amount sufficient to reduce the aggregate
unpaid principal amount of such Revolving Credit Loans by an amount equal to
such excess.
(B) Interest accrued on the Obligations shall be due on
the earliest of (i) the first day of each month (for the immediately preceding
month), computed through the last calendar day of the preceding month, (ii) the
occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of the Obligations, or (iii) termination of
this Agreement; provided, however, that Borrower hereby irrevocably authorizes
Lender, in Lender's sole discretion, to advance to Borrower, and to charge to
the Loan Account hereunder as a Revolving Credit Loan, a sum sufficient each
month to pay all interest accrued on the Obligations during the immediately
preceding month.
(C) The balance of the Obligations requiring the payment
of money, if any, shall be payable by Borrower to Lender as and when provided
in this Agreement or the Other Agreements, or on demand, whichever is earlier.
(D) All proceeds (less income taxes directly attributable
to such sale), up to a maximum amount of $300,000, received by Borrower from
the sale of its Metairie, Louisiana facility located at 1119 Central Avenue,
Metairie, Louisiana shall be applied as a pre-payment of installments of
principal on the Term Note in inverse order of maturity; such prepayments will
not be subject to any prepayment penalty.
3.5. Application of Payments and Collections. Borrower irrevocably
waives the right to direct the application of any and all payments and
collections at any time or times hereafter received by Lender from or on behalf
of Borrower, and Borrower does hereby irrevocably agree that Lender shall have
the continuing exclusive right to apply and reapply any and all such payments
and collections received at any time or times hereafter by Lender or its agent
against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as
the result of collections of Accounts as authorized by Section 5.4 hereof a
credit balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower, but shall be available to Borrower at any time
or times for so long as no Default or Event of Default exists. In no event
shall such credit balance be applied or be deemed to have been applied as a
prepayment of the Term Loan unless so requested by Borrower, but Lender may
offset such credit against the Obligations upon or after the occurrence of any
Event of Default.
3.6. Statements of Account. Lender will account to Borrower
monthly with a statement of Loans, charges and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower unless Lender is notified by Borrower in writing
to the contrary within 30 days of the date each account is
LOAN AND SECURITY AGREEMENT - Page 17
<PAGE> 22
mailed to Borrower. Such notice shall only be deemed an objection to those
items specifically objected to therein.
SECTION 4. COLLATERAL: GENERAL TERMS
4.1. Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender
a continuing security interest in and Lien upon all of the Property and
interests in Property of Borrower, whether now owned or existing or hereafter
created, acquired or arising and wheresoever located including, without
limitation, the following:
(A) Accounts;
(B) Inventory;
(C) Equipment;
(D) General Intangibles;
(E) all monies and other Property of any kind, now or at
any time or times hereafter, in the possession or under the control of Lender
or a bailee of Lender;
(F) all accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (A), (B), (C), (D) and
(E) above, including, without limitation, Proceeds of and unearned premiums
with respect to insurance Policies insuring any of the Collateral; and
(G) all books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (A), (B), (C), (D), (E)
or (F) above.
4.2. Lien on Realty. The due and punctual payment and performance
of the Obligations shall also be secured by the Lien created by the Mortgages
upon all real Property of Borrower described therein. Borrower shall deliver
to Lender, at Borrower's expense, mortgagee title insurance policies issued by
a title insurance company satisfactory to Lender insuring Lender as mortgagee;
such policies shall be in form and substance satisfactory to Lender and shall
insure a valid first Lien in favor of Lender on the Property covered thereby,
subject only to those exceptions acceptable to Lender and its counsel.
Borrower shall deliver to Lender such other documents, including, without
limitation, as-built survey prints of the real Property, as Lender and its
counsel may reasonably request relating to the real Property subject to the
Mortgage.
4.3. Pledge of Note. The due and punctual payment and performance
of the Obligations shall also be secured by the pledge and security interest
created by the Pledge of Note, dated as of December 2, 1992, covering that
certain promissory note in the principal
LOAN AND SECURITY AGREEMENT - Page 18
<PAGE> 23
amount of $290,000.00, executed by Independent Supply, Inc., payable to the
order of Bearer. Borrower shall deliver to Lender the original of the note,
together with such other documents as Lender and its counsel may reasonably
request relating to the note.
4.4. Lien Perfection. Borrower agrees to execute the UCC-l
financing statements provided for by the Code or otherwise together with any
and all other instruments, assignments or documents and shall take such other
action as may be reasonably required to perfect or to continue the perfection
of Lender's security interest in the Collateral as a first priority Lien
subject to Permitted Liens only. Unless prohibited by applicable law, Borrower
hereby authorizes Lender to execute and file any such financing statement on
Borrower's behalf. The parties agree that a carbon, Photographic or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate office in lieu thereof.
4.5. Location of Collateral. All Collateral, other than Inventory
in transit, will at all times be kept by Borrower at one or more of the
business locations set forth in Exhibit B and shall not, without the prior
written approval of Lender, be moved therefrom except, prior to an Event of
Default, for sales of Inventory in the ordinary course of business and
dispositions of Equipment that are authorized by Section 7.2 hereof.
4.6. Insurance of Collateral. Borrower agrees to maintain and pay
for insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts and with such
insurance companies as shall be reasonably satisfactory to Lender to insure
Lender's interest in the Collateral. Borrower shall deliver the originals of
such policies to Lender with satisfactory endorsements naming Lender as loss
payee and as mortgagee pursuant to a standard mortgagee clause. Each policy of
insurance or endorsement shall contain a clause requiring the insurer to give
not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause that the
interest of Lender shall not be impaired or invalidated by any act or neglect
of Borrower or owner of the Property nor by the occupation of the premises for
purposes more hazardous than are permitted by said policy. If Borrower fails
to provide and pay for such insurance, Lender may, at Borrower's expense,
procure the same, but shall not be required to do so. Borrower agrees to
deliver to Lender, promptly as rendered, true copies of all reports made in any
reporting forms to insurance companies.
4.7. Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral, any and all taxes imposed by any governmental
authority on any Collateral or in respect of the sale thereof shall be borne
and paid by Borrower. If Borrower fails to promptly pay any portion thereof
when due, Lender may, at its option, but shall not be required to, pay the same
and charge the Loan Account therefor. Borrower agrees to reimburse Lender
promptly therefor with interest accruing thereon daily at the Default Rate.
All sums so paid or incurred by Lender for any of the foregoing and all
reasonable costs and expenses (including reasonable attorneys' fees, legal
expenses, and court costs) which Lender may incur in enforcing or protecting
its Lien on or rights and interest in the Collateral or any of its rights or
remedies, together with interest at the
LOAN AND SECURITY AGREEMENT - Page 19
<PAGE> 24
Default Rate, shall be considered Obligations hereunder secured by all
Collateral. Lender shall not be liable or responsible in any way for the
safekeeping of any Collateral or for any loss or damage thereto (except for
reasonable care in the custody thereof while any Collateral is in Lender's
actual possession) or for any diminution in the value thereof, or for any act
or default of any warehouseman, carrier, forwarding agency, or other person
whomsoever, but the same shall be at Borrower's sole risk.
SECTION 5. PROVISIONS RELATING TO ACCOUNTS
5.1. Representations, Warranties and Covenants. With respect to
all Accounts, Borrower represents and warrants to Lender that Lender may rely,
in determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts, and,
unless otherwise indicated in writing to Lender, that with respect to each
Account: it is genuine and in all respects what it purports to be, and it is
not evidenced by a judgment; it arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary course
of its business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part of the
contract between Borrower and the Account Debtor; it is for a liquidated amount
maturing as stated in the duplicate invoice covering such sale or rendition of
services; such Account, and Lender's security interest therein, is not, and
will not be in the future, subject to any offset, Lien, deduction, defense,
dispute, counterclaim or any other adverse condition except for disputes
resulting in returned goods where the amount in controversy is deemed by Lender
to be immaterial, and each such Account is absolutely owing to Borrower and is
not contingent in any respect or for any reason; Borrower has made no agreement
with any Account Debtor thereunder for any deduction therefrom, except
discounts or allowances which are granted by Borrower in the ordinary course of
its business for prompt payment and which are reflected in the calculation of
the net amount of each respective invoice related thereto; there are no facts,
events or occurrences which in any way impair the validity or enforceability
thereof or tend to reduce the amount payable thereunder from the face amount of
the invoice and statements delivered to Lender with respect thereto; to the
best of Borrower's knowledge, the Account Debtor thereunder is Solvent and, at
the time any contract or other document giving rise to the Account was
executed, such Account Debtor had the capacity to contract; and Borrower has no
knowledge of any fact or circumstance which would impair the validity or
collectibility of such Account.
5.2. Assignments, Records and Schedules of Accounts. If requested
to do so by Lender, Borrower shall execute and deliver to Lender formal written
assignments of all of its Accounts weekly (or, if requested by Lender, daily),
together with copies of invoices or invoice registers related thereto.
Borrower shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit to Lender on a daily basis a
sales and collections report for the preceding day, in form satisfactory to
Lender. On or before the fifteenth day of each month from and after the date
hereof, Borrower shall deliver to Lender, in form satisfactory to Lender, a
detailed aged trial balance of all Accounts existing as of the last day of the
preceding month, specifying the names, addresses, face value, dates of invoices
and due dates for each Account Debtor obligated on an Account so listed
("Schedule of Accounts"),
LOAN AND SECURITY AGREEMENT - Page 20
<PAGE> 25
and, upon Lender's request therefor, copies of proof of delivery and the
original copy of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
such other matters and information relating to the status of then existing
Accounts as Lender shall reasonably request. If any amounts due and owing in
excess of $50,000 are in dispute between Borrower and any Account Debtor,
Borrower shall provide Lender with written notice thereof at the time of
submission of the next Schedule of Accounts, explaining in detail the reason
for the dispute, all claims related thereto and the amount in controversy.
5.3. Administration of Accounts. Upon the granting of any
discounts, allowances or credits by Borrower that are not shown on the face of
the invoice for the Account involved, Borrower shall promptly report such
discounts, allowances or credits, as the case may be, to Lender and in no event
later than the time of its submission to Lender of the next Schedule of
Accounts as provided in Section 5.2. If an Account includes a charge for any
tax payable to any governmental taxing authority, Lender is authorized, in its
sole discretion, to pay the amount thereof to the proper taxing authority for
the account of Borrower and to charge the Loan Account therefor. Whether or
not a Default or an Event of Default has occurred, Lender shall have the right,
at any time or times hereafter, in the name of Lender, any designee of Lender
or Borrower, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly conclude any such
verification process.
5.4. Collection of Accounts. To expedite collection, Borrower
shall endeavor in the first instance to make collection of its Accounts for
Lender. All remittances received by Borrower on account of Accounts shall be
held as Lender's property by Borrower as trustee of an express trust for
Lender's benefit and Borrower shall immediately deposit same in the Dominion
Account. After the occurrence of an Event of Default, Lender shall have the
right to notify Account Debtors that Accounts have been assigned to Lender and
to collect Accounts directly in its own name and to charge the collection costs
and expenses, including reasonable attorneys' fees, to Borrower. Lender has no
duty to protect, insure, collect or realize upon the Accounts or preserve
rights in them. For the purpose of computing interest hereunder, all items of
payment received by Lender shall be deemed applied by Lender on account of the
Obligations on the first Business Day after Lender's receipt of payment in
Chicago, Illinois, in immediately available funds.
SECTION 6. PROVISIONS RELATING TO INVENTORY
6.1. Representations, Warranties and Covenants. With respect to
Inventory, Borrower represents and warrants to Lender that Lender may rely, in
determining which items of Inventory constitute Eligible Inventory, on all
statements and representations made by Borrower with respect to any Inventory
and that: All Inventory is presently and will continue to be located at
Borrower's places of business listed on Exhibit B and will not be removed
therefrom except as authorized by Section 4.4 of this Agreement; no Inventory
is now, nor shall any Inventory at any time or times hereafter be, stored with
a bailee, warehouseman or similar party without Lender's prior written consent;
no Inventory is or will be consigned to any Person without Lender's prior
LOAN AND SECURITY AGREEMENT - Page 21
<PAGE> 26
written consent; and no Inventory is or will be produced in violation of the
Fair Labor Standards Act.
6.2. Inventory Reports. Borrower agrees to furnish Lender with
Inventory reports at such times as Lender may request, but at least once each
month. Such reports shall be in form and detail satisfactory to Lender.
Borrower shall conduct a physical inventory no less frequently than annually
and shall provide to Lender a report based on each such physical inventory
promptly thereafter, together with such supporting information as Lender shall
in its discretion request.
6.3. Returns of Inventory. If at any time or times hereafter any
Account Debtor returns any Inventory to Borrower the shipment of which
generated an Account on which such Account Debtor is obligated in excess of
$20,000, Borrower shall notify Lender of the same immediately, specifying the
reason for such return and the location and condition of the returned
Inventory.
SECTION 7. PROVISIONS RELATING TO EQUIPMENT
7.1. Representations, Warranties and Covenants. With respect to
the Equipment, Borrower represents, warrants and covenants to and with Lender
that the Equipment is in good operating condition and repair, and all necessary
replacements of and repairs thereto shall be made so that the value and
operating efficiency of the Equipment shall be maintained and preserved,
reasonable wear and tear excepted. Borrower will not permit any of the
Equipment to become affixed to any real Property leased to Borrower so that an
interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real Property has executed a landlord
waiver or leasehold mortgage in favor of Lender, and Borrower will not permit
any of the Equipment to become an accession to any personal Property other than
Equipment subject to first priority Liens in favor of Lender or subject to
Permitted Liens. Immediately on request therefor by Lender, Borrower shall
deliver to Lender any and all evidence of ownership, if any, of any of the
Equipment (including, without limitation, certificates of title and
applications for title). Borrower shall maintain accurate records itemizing
and describing the kind, type, quality, quantity and value of its Equipment and
all dispositions made in accordance with Section 7.2 hereof, and shall furnish
Lender with a current schedule containing the foregoing information on at least
an annual basis and more often if requested by Lender.
7.2. Dispositions of Equipment. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (A) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $150,000 or less, provided that all proceeds thereof are
turned over to Lender, or (B) replacements of Equipment that is substantially
worn, damaged or obsolete with Equipment of like kind, function and value,
provided that the replacement Equipment shall be acquired prior to or
concurrently with any disposition of the Equipment that is to be replaced, the
replacement
LOAN AND SECURITY AGREEMENT - Page 22
<PAGE> 27
Equipment shall be free and clear of Liens other than Permitted Liens, Borrower
shall give Lender at least five days prior written notice of such disposition
and Borrower shall turn over to Lender all proceeds realized from any such
disposition.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender as follows:
(A) Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas; has duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all states and jurisdictions where the character of its
Properties or the nature of its activities make such qualification necessary;
and has not been known as or used any corporate, fictitious or trade names in
the past seven years except as disclosed on Exhibit C attached hereto and made
a part hereof.
(B) Borrower has the right and power and is duly
authorized to enter into, deliver and perform this Agreement and each of the
Other Agreements to which it is a party, and this Agreement is, and each of the
Other Agreements when delivered under this Agreement will be, a legal, valid
and binding obligation of Borrower enforceable against it in accordance with
their respective terms.
(C) Borrower is not engaged principally, or as one of its
important activities, in the business of purchasing or carrying "margin stock"
(within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Loans to Borrower
will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock, or be used
for any purpose which violates or is inconsistent with the provisions of
Regulations G, T, U or X of said Board of Governors.
(D) Borrower has, and is in good standing with respect
to, all governmental consents, approvals, authorizations, permits,
certificates, inspections, and franchises which materially affect its ability
to conduct its business as heretofore or proposed to be conducted by it and to
own or lease and operate its Properties as now owned or leased by it.
(E) Borrower owns or possesses all the patents,
trademarks, service marks, trade names, copyrights and licenses necessary for
the present and planned future conduct of its business without any known
conflict with the rights of others.
(F) Except as set forth on Exhibit D attached hereto and
made a part hereof, there are no actions, suits, proceedings or investigations
pending, or to the knowledge of Borrower, threatened, against or affecting
Borrower or any of its Properties in any court or before any governmental
authority or arbitration board or tribunal, and no action, suit, proceeding or
investigation shown on Exhibit D involves the possibility of materially and
adversely affecting
LOAN AND SECURITY AGREEMENT - Page 23
<PAGE> 28
the Properties or condition (financial or otherwise) of Borrower or the ability
of Borrower to perform this Agreement.
(G) Borrower has good, indefeasible and marketable title
to and fee simple ownership of, or valid and subsisting leasehold interests in,
all of its real Property, and good title to all of its other Property, in each
case, free and clear of all Liens except Permitted Liens.
(H) The balance sheet of Borrower and such other Persons
described therein as of March 31, 1994, and the related statements of income,
for the periods ended on such dates, have been prepared, to the best of
Borrower's knowledge, in accordance with GAAP (except for changes in
application in which Borrower's independent certified public accountants
concur), and present fairly the financial positions of Borrower at such dates
and the results of Borrower's operations for such periods. Since March 31,
1994, there has been no material change in the condition, financial or
otherwise, of Borrower and such other Persons as shown on the balance sheet as
of such date and no change in the aggregate value of Equipment and real
Property owned by Borrower or such other Persons, except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse. The fiscal year of Borrower for accounting purposes
ends on December 31 of each year.
(I) There is no fact which Borrower has failed to
disclose to Lender in writing which materially affects adversely or, so far as
Borrower can now foresee, will materially affect adversely the Properties,
business, prospects, profits, or condition (financial or otherwise) of Borrower
or the ability of Borrower to perform this Agreement.
(J) Borrower has not received any notice to the effect
that it is not in full compliance with any of the requirements of ERISA and the
regulations promulgated thereunder. No fact or situation that could result in
a material adverse change in the financial condition of Borrower (including,
but not limited to, any Reportable Event or Prohibited Transaction) exists in
connection with any Plan. Borrower has no withdrawal liability in connection
with a Multi-Employer Plan.
(K) Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid, or made
provision for the payment of, all taxes, assessments, fees and other
governmental charges that are due and payable.
(L) Borrower has duly complied with, and its Properties,
business operations and leaseholds are in compliance in all material respects
with, the provisions of all federal, state and local laws, rules and
regulations applicable to Borrower, its Properties or the conduct of its
business.
(M) No Default or Event of Default will exist or result
from the execution and delivery of this Agreement or Borrower's performance
hereunder.
(N) There are no claims for brokerage commissions,
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement.
LOAN AND SECURITY AGREEMENT - Page 24
<PAGE> 29
8.2. Reaffirmation and Survival of Representations. Each request
for a Loan made by Borrower pursuant to this Agreement or any of the Other
Agreements shall constitute (A) an automatic representation and warranty by
Borrower to Lender that there does not then exist any Default or Event of
Default, and (B) a reaffirmation as of the date of said request of all of the
representations and warranties of Borrower contained in this Agreement and the
Other Agreements are true in all material respects, except for any changes in
the nature of Borrower's business or operations that would render the
information contained in any exhibit hereto either materially inaccurate or
materially incomplete, so long as Lender has consented to such changes or such
changes are expressly permitted by this Agreement. Borrower covenants,
warrants and represents to Lender that all representations and warranties of
Borrower contained in this Agreement or any of the Other Agreements shall be
true at the time of Borrower's execution of this Agreement and the Other
Agreements, and shall survive the execution, delivery and acceptance thereof by
Lender and the parties thereto and the closing of the transactions described
therein or related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
(A) Pay and discharge all taxes, assessments and
governmental charges upon it, its income and Properties as and when such taxes,
assessments and charges are due and payable, except and to the extent only that
such taxes, assessments and charges are being actively contested in good faith
and by appropriate proceedings, Borrower maintains adequate reserves on its
books there for and the nonpayment of such taxes does not result in a Lien upon
any Properties or Borrower other than a Permitted Lien. Borrower shall also
pay and discharge any lawful claims which, if unpaid, might become a Lien
against any of Borrower's Properties except for Permitted Liens.
(B) File all federal, state and local tax returns and
other reports Borrower is required by law to file and maintain adequate
reserves for the payment of all taxes, assessments, governmental charges, and
levies imposed upon it, its income, or its profits, or upon any Property
belonging to it.
(C) Pay to Lender, on demand, any and all fees, costs or
expenses which Lender pays to a bank or other similar institution (including,
without limitation, any reasonable fees paid by Lender to any Participating
Lender) arising out of or in connection with (i) the forwarding to Borrower or
any other Person on behalf of Borrower, by Lender of proceeds of loans made by
Lender to Borrower pursuant to this Agreement and (ii) the depositing for
collection, by Lender, of any check or item of payment received or delivered to
Lender on account of the Obligations.
LOAN AND SECURITY AGREEMENT - Page 25
<PAGE> 30
(D) Preserve and maintain its separate corporate
existence and all rights, privileges, and franchises in connection therewith,
and maintain its qualification and good standing in all states in which such
qualification is necessary.
(E) Maintain its Properties in good condition and make
all necessary renewals, repairs, replacements, additions and improvements
thereto.
(F) Comply with all laws, ordinances, governmental rules
and regulations to which it is subject, and obtain and keep in force any and
all licenses, permits, franchises, or other governmental authorizations
necessary to the ownership of its Properties or to the conduct of its business,
which violation or failure to obtain might materially and adversely affect the
Properties or condition (financial or otherwise) of Borrower.
(G) (i) At all times make prompt payment of contributions
required to meet the minimum funding standards set forth in ERISA with respect
to each Plan; (ii) promptly after the filing thereof, furnish to Lender copies
of any annual report required to be filed pursuant to ERISA in connection with
each Plan and any other employee benefit plan of it and its Affiliates subject
to said Section; (iii) notify Lender as soon as practicable of any Reportable
Event and of any additional act or condition arising in connection with any
Plan which Borrower believes might constitute grounds for the termination
thereof by the Pension Benefit Guaranty Corporation or for the appointment by
the appropriate United States district court of a trustee to administer the
Plan; and (iv) furnish to Lender, promptly upon Lender's request therefor, such
additional information concerning any Plan or any other such employee benefit
plan as may be reasonably requested.
(H) Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with GAAP (to the best of Borrower's knowledge) reflecting all its
financial transactions.
(I) Permit representatives of Lender, from time to time,
as often as may be reasonably requested, but only during normal business hours,
to visit and inspect the Properties of Borrower, inspect and make extracts from
its books and records, and discuss with its officers, its employees and its
independent accountants, Borrower's business, assets, liabilities, financial
condition, business prospects and results of operations.
(J) Cause to be prepared and furnished to Lender the
following (all to be kept and prepared in accordance with GAAP applied on a
consistent basis, unless Borrower's certified public accountants concur in any
change therein and such change is disclosed to Lender and are consistent with
GAAP): (i) as soon as possible, but not later than 90 days after the close of
each fiscal year of Borrower, unqualified audited financial statements of
Borrower as of the end of such year, certified as to the statements by a firm
of independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender (except for a qualification for a change in
accounting principles with which such accounting firm concurs) and an unaudited
financial statement of Borrower, certified by the principal financial officer
of Borrower as prepared in accordance with GAAP to the best of his knowledge
and fairly presenting the
LOAN AND SECURITY AGREEMENT - Page 26
<PAGE> 31
financial position and results of operations of Borrower for such year; and
(ii) as soon as possible, but not later than 30 days after the end of each
month hereafter, unaudited interim financial statements of Borrower as of the
end of such month and of the portion of Borrower's fiscal year then elapsed,
certified by the principal financial officer of Borrower as prepared in
accordance with GAAP to the best of his knowledge, and fairly presenting the
financial position and results of operations of Borrower for such month and
period subject only to changes from audit and year-end adjustments and except
that such statements need not contain notes. Concurrently with the delivery of
the financial statements described in clause (i) of this Section 9.1(J),
Borrower shall forward to Lender a copy of the accountants' letter to
Borrower's management that is prepared in connection with such financial
statements and also shall cause to be prepared and furnish to Lender a
certificate of the aforesaid certified public accountants certifying to Lender
that, based upon their examination of the financial statements of Borrower
performed in connection with their examination of said financial statements,
they are not aware of any Default or Event of Default, or, if they are aware of
such Default or Event of Default, specifying the nature thereof. Concurrently
with the delivery of the financial statements described in clauses (i) and (ii)
of this Section 9.1(J), Borrower shall cause to be prepared and furnished to
Lender a certificate from the chief financial officer of Borrower certifying to
Lender that to the best of his knowledge, Borrower has kept, observed,
performed and fulfilled each and every covenant, obligation and agreement
binding upon Borrower in this Agreement and the Other Agreements and that no
Default or Event of Default has occurred, or, if such Default or Event of
Default has occurred, specifying the nature thereof.
(K) At Lender's request, promptly execute or cause to be
executed and deliver to Lender any and all documents, instruments and
agreements reasonably deemed necessary by Lender to perfect or to continue the
perfection of Lender's Liens as first priority Liens subject only to Permitted
Liens, to facilitate collection of the Collateral or otherwise to give effect
to or carry out the terms or intent of this Agreement or any of the Other
Agreements.
(L) Within 30 days after the end of each month, or more
frequently if requested by Lender, cause the chief financial officer of
Borrower to prepare and deliver to Lender a Compliance Certificate in the form
of Exhibit E attached hereto, with appropriate insertions.
(M) As soon as available, and in any event no later than
60 days after the end of each fiscal year of Borrower, deliver to Lender
Projections of Borrower for the forthcoming three fiscal years, year by year,
and the forthcoming fiscal year, month by month.
9.2. Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
(A) Merge or consolidate, or permit any Subsidiary to
merge or consolidate, with any Person; nor acquire all or any substantial part
of the Properties of any Person.
LOAN AND SECURITY AGREEMENT - Page 27
<PAGE> 32
(B) Make any loans or other advances of money (other than
for salary, travel advances, advances against commissions and other similar
advances in the ordinary course of business) to any Person in excess of an
aggregate $100,000 outstanding at any time for all such loans, except those
advances or loans made to various employees as identified in Exhibits I and J.
(C) Enter into any transaction with any Affiliate or
stockholder, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms which
are fully disclosed to Lender and are no less favorable to Borrower than would
obtain in a comparable arm's length transaction with a Person not an Affiliate
or stockholder of Borrower.
(D) Guarantee, assume, endorse or otherwise, in any way,
become directly or contingently liable with respect to the Indebtedness of any
Person except by endorsement of instruments or items of payment for deposit or
collection.
(E) Create or suffer to exist any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet
due or being contested as permitted by Section 9.1(A) hereof, but only if in
Lender's judgment such Lien does not affect adversely Lender's rights or the
priority of Lender's Lien in the Collateral; (iii) Liens securing the claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons for labor, materials, supplies or rentals incurred in the ordinary
course of Borrower's business, but only if the payment thereof is not at the
time required and only if such Liens are junior to the Liens in favor of
Lender; (iv) Liens resulting from deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance,
social security and other like laws; (v) attachment, judgment and other similar
non-tax Liens arising in connection with court proceedings, but only if and for
so long as the execution or other enforcement of such Liens is and continues to
be effectively stayed and bonded on appeal in a manner satisfactory to Lender
for the full amount thereof, the validity and amount of the claims secured
thereby are being actively contested in good faith and by appropriate lawful
proceedings and such Liens do not, in the aggregate, materially detract from
the value of the Property of Borrower or materially impair the use thereof in
the operation of Borrower's business; (vi) reservations, exceptions, easements,
rights of way, and other similar encumbrances affecting real Property, provided
that, in Lender's judgment, they do not in the aggregate materially detract
from the value of said Properties or materially interfere with their use in the
ordinary conduct of Borrower's business and, if said real Property constitutes
Collateral, Lender has consented thereto; and (vii) such other Liens as Lender
may hereafter approve in writing.
(F) Make any payment of any part or all of any
Subordinated Debt in violation of the subordination agreement relating to such
Subordinated Debt or voluntarily prepay any Subordinated Debt; or enter into
any agreement (oral or written) which could in any way be construed to amend,
modify, alter or terminate any one or more instruments or agreements evidencing
or relating to any Subordinated Debt.
LOAN AND SECURITY AGREEMENT - Page 28
<PAGE> 33
(G) Declare or make any Distributions.
(H) Hereafter create any Subsidiary or divest itself of
any material assets by transferring them to any Subsidiary to whose existence
Lender has consented.
(I) Make Capital Expenditures (including, without
limitation, by way of capitalized leases) which, in the aggregate, exceed
$350,000 during any fiscal year of Borrower.
(J) Transfer its principal place of business or chief
executive office, or open new manufacturing plants, or transfer existing
manufacturing plants, or maintain warehouses or records with respect to
Accounts or Inventory, to or at any locations other than those at which the
same are presently kept or maintained, as set forth on Exhibit B hereto, except
upon at least 60 days prior written notice to Lender and after the delivery to
Lender of financing statements, if required by Lender, in form satisfactory to
Lender to perfect or continue the perfection of Lender's Lien and security
interest hereunder.
(K) Enter into any new business or make any material
change in any of Borrower's business objectives, purposes and operations.
(L) Sell, lease or otherwise dispose of any of its
Properties, including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of Borrower's business for so long as no Event
of Default exists hereunder, (ii) a transfer of Property to Borrower by a
Subsidiary or (iii) dispositions expressly authorized by this Agreement.
(M) Use any corporate name (other than its own) or any
fictitious name, tradestyle or "d/b/a" except for names disclosed in writing to
Lender on or before the Closing Date.
(N) Permit the total annual compensation (including,
without limitation, salaries, fees, bonuses, commissions and other payments,
whether direct or indirect, in money, or otherwise but specifically excluding
compensation from existing employee incentive agreements) of its officers,
shareholders and directors to exceed during any fiscal year of Borrower 110% of
the amount paid during the preceding fiscal year.
(O) Own, purchase or acquire (or enter into any contract
to purchase or acquire) any "margin security" as defined by any regulation of
the Federal Reserve Board as now in effect or as the same may hereafter be in
effect unless, prior to any such purchase or acquisition or entering into any
such contract, Lender shall have received an opinion of counsel satisfactory to
Lender to the effect that such purchase or acquisition will not cause this
Agreement to violate Regulations G, T, U, or X or any other regulation of the
Federal Reserve Board then in effect.
(P) Make or have any Restricted Investment.
LOAN AND SECURITY AGREEMENT - Page 29
<PAGE> 34
(Q) Change its fiscal year or permit any Subsidiary to
have a fiscal year different from that of Borrower.
(R) Create, assume or suffer to exist any indebtedness
for borrowed money or issue or sell any obligation of Borrower (whether
absolutely, concurrently or otherwise), excluding only (i) the Obligations;
(ii) accounts payable and accrued liabilities arising in the ordinary course of
Borrower's business; (iii) indebtedness incurred for the payment of Capital
Expenditures permitted by this Agreement; (iv) existing indebtedness of
Borrower which shall have been approved in writing by Lender, and which shall
be set forth on Exhibit F attached hereto and made a part hereof (and to the
extent set forth on Exhibit F, such indebtedness is approved by Lender); and
(v) such other indebtedness as Lender may hereafter approve in writing.
9.3. Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there - are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:
(A) Maintain positive Cash Flow, measured on a rolling
three-month basis at the end of each calendar month, for the three-month period
that ends as of the end of each calendar month, from and including the calendar
month ending March 31, 1994. Cash Flow during any portion of a three-month
period that includes any month prior to March l, 1994 will be determined on a
consolidated basis.
(B) Maintain positive Cash Flow, measured on an annual
basis at the end of each fiscal year of Borrower, for the twelve-month period
that ends as of the end of such fiscal year of Borrower, from and including the
fiscal year of Borrower ending December 31, 1994. Cash Flow during the period
from January l, 1994 to March l, 1994 will be determined on a consolidated
basis.
(C) Maintain at all times a ratio of (i) the aggregate
Indebtedness of Borrower to (ii) Adjusted Tangible Net Worth of Borrower of not
more than 5.0 to one.
(D) Maintain at all times a ratio of Current Assets to
Current Liabilities of not less than 2.0 to one.
SECTION 10. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
Other Agreements, and without affecting in any manner the rights of Lender
under the other sections of this Agreement, it is understood and agreed that
Lender will not make any Loan under Section 2 of this Agreement unless and
until each of the following conditions has been and continues to be satisfied,
all in form and substance satisfactory to Lender and its counsel:
10.1. Documentation. Lender shall have received the following
documents, each in form and substance satisfactory to Lender and its counsel:
LOAN AND SECURITY AGREEMENT - Page 30
<PAGE> 35
(A) certified copies of Borrower's casualty insurance
policies, together with endorsements naming Lender as loss payee and as
mortgagee pursuant to a standard mortgagee clause, and certified copies of
Borrower's liability insurance policies, together with endorsements naming
Lender as a co-insured;
(B) copies of all filing receipts or acknowledgments
issued by any governmental authority to evidence any filing or recordation
necessary to perfect the Liens of Lender in the Collateral and evidence that
such Liens constitute valid and perfected security interests and Liens, having
the Lien priority specified in Section 4.3 hereof;
(C) landlord or warehouseman agreements with respect to
all premises leased by Borrower; except that, in the instances where Lender has
received landlord or warehouseman agreements with respect to all premises
originally leased by SE&P or TLW, confirmation letters with respect to
occupation of the premises by Borrower, as the successor-in-interest, shall be
satisfactory;
(D) a copy of the Articles or Certificate of
Incorporation of Borrower, and all amendments thereto, certified within 15 days
before the closing by the Secretary of State or other appropriate official of
its jurisdiction of incorporation;
(E) a copy of the bylaws of Borrower, and all amendments
thereto, certified as of the closing date by the Secretary of the Borrower;
(F) good standing certificates for Borrower, issued
within 15 days before the closing by the Secretary of State or other
appropriate official of Borrower's jurisdiction of incorporation and each
jurisdiction where the conduct of Borrower's business activities or the
ownership of its Properties necessitates qualification;
(G) a closing certificate signed by the chief executive
officer and chief financial officer of Borrower dated as of the date hereof,
stating that (i) the representations and warranties set forth in Section 8
hereof are true and correct on and as of such date, (ii) Borrower is on such
date in compliance with all the terms and provisions set forth in this
Agreement and (iii) on such date no Default or Event of Default has occurred or
is continuing;
(H) Guaranty Agreements and security agreements from each
Guarantor for the benefit of Lender;
(I) the Other Agreements duly executed and delivered by
Borrower and/or the Guarantors, as appropriate;
(J) the written opinion of Fouts & Moore, L.L.P., counsel
to Borrower and Guarantors, regarding Borrower, Guarantors, the Loan Documents
and the transactions contemplated by this Agreement and the Other Agreements,
the form of which is attached hereto as Exhibit H;
LOAN AND SECURITY AGREEMENT - Page 31
<PAGE> 36
(K) certificates evidencing 53% of the issued and
outstanding common stock of Borrower, with the duly executed blank stock powers
attached;
(L) fully paid endorsements to presently issued policies,
issued by a title insurance company satisfactory to Lender, each in an amount
equal to not less than the fair market value of the real Property or leasehold
interest, as the case may be, described in Exhibit G, insuring the Mortgage to
create a valid Lien on all real Property described in Exhibit G, with the
priority set forth in Exhibit G, with no exceptions (other than prior Liens as
noted in Exhibit G) which Lender shall not have approved in writing and no
survey exceptions; and
(M) such other documents, instruments and agreements as
Lender shall reasonably request in connection with the transaction contemplated
hereby.
10.2. Other Conditions. The following conditions have been and
shall continue to be satisfied:
(A) no Default or Event of Default shall exist;
(B) each of the conditions precedent set forth in the
Other Agreements shall have been satisfied;
(C) since July 31, 1994, there shall not have occurred
any material adverse change in the business, financial condition or results of
operations of Borrower, or the existence or value of any Collateral, or any
event, condition or state of facts which would reasonably be expected
materially and adversely to affect the business, financial condition or results
of operations of Borrower;
(D) no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or prohibit,
or to obtain damages in respect of, or which is related to or arises out of
this Agreement or the consummation of the transactions contemplated hereby or
which, in Lender's judgment, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the Other Agreements; and
(E) Lender shall have received such certificates and
documents reflecting the Solvency of Borrower, after giving effect to the
transactions contemplated by this Agreement, as Lender shall find acceptable.
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
LOAN AND SECURITY AGREEMENT - Page 32
<PAGE> 37
(A) Borrower shall fail to pay any installment of
principal, interest or premium, if any, owing on the Term Note within ten days
after the due date of such installment;
(B) Borrower shall fail to pay any of the Obligations
that are not evidenced by the Term Note on the due date thereof (whether due at
stated maturity, on demand, upon acceleration or otherwise);
(C) any warranty, representation, or other statement made
or furnished to Lender by or on behalf of Borrower or Guarantor or in any
instrument, certificate or financial statement furnished in compliance with or
in reference to this Agreement or any of the Other Agreements proves to have
been false or misleading in any material respect when made or furnished;
(D) Borrower shall fail or neglect to perform, keep or
observe (i) any covenant contained in this Agreement (other than a covenant a
default in the performance or observance of which is dealt with specifically in
clause (ii) hereof or elsewhere in this Section 11.1) and the breach of such
covenant is not cured to Lender's satisfaction within 15 days after the sooner
to occur of Borrower's receipt of notice of such breach from Lender or the date
on which such failure or neglect becomes known to any officer of Borrower or
(ii) shall fail or neglect to perform, keep or observe any covenant contained
in Sections 4.3, 4.4, 4.5, 4.6, 5.2, 5.4, 7.2, 9.1(A), 9.1(E), 9.1(F), 9.1(J),
9.1(K), 9.1(N), 9.2 or 9.3;
(E) any event of default shall occur under, or Borrower
shall default in the performance or observance of any term, covenant, condition
or agreement contained in, any of the Other Agreements and such default shall
continue beyond any applicable period of grace;
(F) there shall occur any default or event of default on
the part of Borrower under any agreement, document or instrument to which
Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Indebtedness (other than the Obligations) if the
payment or maturity of such Indebtedness is accelerated in consequence of such
event of default or demand for payment of such Indebtedness is made;
(G) any material loss, theft, damage or destruction not
materially covered by insurance (as required by this Agreement and subject to
such deductibles as Lender shall have agreed to in writing), or sale, lease or
encumbrance of any of the Collateral or the making of any levy, seizure, or
attachment thereof or thereon except in all cases as may be specifically
permitted by other provisions of this Agreement;
(H) there shall occur any material adverse change in the
financial condition or business prospects of Borrower or any Guarantor;
(I) Borrower or any Guarantor shall cease to be Solvent
or shall suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or any
petition for an order for relief shall be filed by or against Borrower or any
Guarantor under the Bankruptcy Code (if against Borrower or any Guarantor, the
LOAN AND SECURITY AGREEMENT - Page 33
<PAGE> 38
continuation of such proceeding for more than 30 days), or Borrower or any
Guarantor shall make any offer of settlement, extension or composition to their
respective unsecured creditors generally;
(J) a Reportable Event shall occur which Lender shall
determine in good faith constitutes grounds for the termination by the Pension
Benefit Guaranty Corporation of any Plan or for the appointment by the
appropriate United States district court of a trustee for any Plan, or if any
Plan shall be terminated or any such trustee shall be requested or appointed;
(K) any Guarantor shall revoke or attempt to revoke the
Guaranty Agreement signed by such Guarantor, or shall repudiate such
Guarantor's liability thereunder or shall be in default under the terms
thereof;
(L) any money judgment, writ or attachment or similar
process is entered or filed against Borrower or any of its Property and results
in the creation or imposition of any Lien that is not a Permitted Lien;
(M) Borrower shall incur, assume or suffer to exist any
Indebtedness, whether direct or contingent, other than Indebtedness listed on
Exhibit F hereto and other Indebtedness (exclusive of trade payables) up to an
aggregate of $500,000 at any time outstanding;
(N) any of the Indebtedness owed by Borrower to Edith
Leavens Hughs ("Hughs") or George N. Allen, Jr. ("Allen") shall be paid in
violation of the terms of that certain Subordination Agreement dated February
10, 1986 among Hughs, Borrower and certain Affiliates of Borrower (the "Hughs
Agreement") or that certain Subordination Agreement dated February 10, 1986
among Allen, Borrower and certain Affiliates of Borrower (the "Allen
Agreement"), respectively, or the Hughs Agreement or the Allen Agreement shall
be amended without the prior written consent of Lender; or
(O) Lender shall in good faith deem itself insecure.
11.2. Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the Obligations payable
on demand in accordance with Section 3.4 hereof, upon and at any time after the
occurrence of an Event of Default, all or any portion of the Obligations due or
to become due from Borrower to Lender (whether under this Agreement, any Other
Agreement or otherwise) shall, at Lender's option, become at once due and
payable without presentment, demand, protest, notice of dishonor, notice of
default, notice of intent to accelerate, notice of acceleration, or any other
notice whatsoever, and Borrower shall forthwith pay to Lender, in addition to
any and all sums and charges due, the entire principal of and interest accrued
on the Obligations.
11.3. Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
LOAN AND SECURITY AGREEMENT - Page 34
<PAGE> 39
(A) All of the rights and remedies of a secured party
under the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative, and none of which shall be exclusive, and shall be in addition
to any other rights or remedies contained in this Agreement or any of the Other
Agreements.
(B) The right to take immediate possession of the
Collateral, and (i) to require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) to enter any of
the premises of Borrower or wherever any of the Collateral shall be located,
and to keep and store the same on said premises until sold (and if said
premises be the Property of Borrower, Borrower agrees not to charge Lender for
storage thereof).
(C) The right to sell or otherwise dispose of all or any
Inventory or Equipment in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law,. in lots or in bulk, for cash or on
credit, all as Lender, in its discretion, may deem advisable. Borrower agrees
that fifteen days written notice to Borrower of any public or private sale or
other disposition of such Collateral shall be reasonable notice thereof, and
such sale shall be at such locations as Lender may designate in said notice.
Lender shall have the right to conduct such sales on Borrower's premises,
without charge therefor, and such sales may be adjourned from time to time in
accordance with applicable law. Lender shall have the right to sell, lease or
otherwise dispose of such Collateral, or any part thereof, for cash, credit or
any combination thereof, and Lender may purchase all or any part of such
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may set-off the amount of such price
against the Obligations.
(D) Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit.
(E) The proceeds realized from the sale of any Collateral
may be applied, after allowing two Business Days for collection, first to the
costs, expenses and reasonable attorneys' fees incurred by Lender in collecting
the Obligations, in enforcing Lender's rights under the Loan Documents and in
collecting, retaking, completing, protecting, removing, storing, advertising
for sale, selling and delivering any of the Collateral; secondly, to interest
due upon any of the Obligations; and thirdly, to the principal of the
Obligations. If any deficiency shall arise, Borrower shall remain liable to
Lender therefor.
11.4. Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the Other Agreements, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into,
LOAN AND SECURITY AGREEMENT - Page 35
<PAGE> 40
shall be deemed cumulative to and not in derogation or substitution of any of
the terms, covenants, conditions, or agreements of Borrower herein contained.
The failure or delay of Lender to exercise or enforce any rights, Liens, powers
or remedies hereunder or under any of the aforesaid agreements or other
documents or security or Collateral shall not operate as a waiver of such
Liens, rights, powers and remedies, but all such Liens, rights, powers, and
remedies shall continue in full force and effect until all Loans and all other
Obligations owing or to become owing from Borrower to Lender shall have been
fully satisfied, and all Liens, rights, powers, and remedies herein provided
for are cumulative and none are exclusive.
SECTION 12. MISCELLANEOUS
12.1. Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender)
as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or
Lender's agent, may, without notice to Borrower and in either Borrower's or
Lender's name, but at the reasonable cost and expense of Borrower:
(A) At such time or times hereafter as Lender or said
agent may determine, endorse Borrower's name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control;
and
(B) At such time or times upon or after the occurrence of
an Event of Default as Lender or its agent may determine: (i) demand and
enforce payment of the Accounts by legal proceedings or otherwise and exercise
generally all of Borrower's rights and remedies with respect to the collection
of the Accounts; (ii) settle, adjust, compromise, discharge or release any of
the Accounts or other Collateral or any legal proceedings brought to collect
any of the Accounts or other Collateral; (iii) prepare, file and sign
Borrower's name to a proof of claim in bankruptcy or similar document against
any Account Debtor or to any notice of lien, assignment or satisfaction of lien
or similar document in connection with any of the Collateral; (iv) receive and
open all mail addressed to Borrower and to notify postal authorities to change
the address for delivery thereof to such address as Lender may designate; (v)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (vi) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (vii) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (viii)
make and adjust claims under policies of insurance; and (ix) do all other acts
and things necessary, in Lender's reasonable determination, to fulfill
Borrower's obligations under this Agreement.
12.2. Indemnity. Borrower hereby agrees to indemnify Lender and
hold Lender harmless from and against any liability, loss, damage, suit, action
or proceeding ever suffered or incurred by Lender as the result of Borrower's
failure to observe, perform or discharge Borrower's duties hereunder. Without
limiting the generality of the foregoing, this indemnity shall extend to any
claims asserted against Lender by any Person under any Environmental Laws
LOAN AND SECURITY AGREEMENT - Page 36
<PAGE> 41
or similar laws by reason of Borrower's or any other Person's failure to comply
with laws applicable to solid or hazardous waste materials or other toxic
substances, but this indemnity shall specifically exclude liability for breach
of any Environmental Laws caused solely and directly by Lender.
Notwithstanding any contrary provision in this Agreement, the obligation of
Borrower under this Section 12.2 shall survive the payment in full of the
Obligations and the termination of Lender's obligation to make Revolving Credit
Loans for a period of four (4) years beyond the date of such payment in full
and termination.
12.3. Modification of Agreement. This Agreement and the Other
Agreements may not be modified, altered or amended, except by an agreement in
writing signed by Borrower and Lender.
12.4 Reimbursement of Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender employs counsel for advice or other representation, or incurs legal
expenses or other costs or out-of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the Other Agreements,
any amendment of or modification of this Agreement or any of the Other
Agreements; (B) the reasonable administration of this Agreement or any of the
Other Agreements and the transactions contemplated hereby and thereby; (C) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the Other Agreements or Borrower's affairs (other than
litigation in which Borrower is the prevailing party and in which Lender is
adverse to Borrower); (D) any attempt to enforce any rights of Lender against
Borrower or any other Person which may be obligated to Lender by virtue of this
Agreement or any of the Other Agreements, including, without limitation, the
Account Debtors (other than litigation in which Borrower is the prevailing
party and in which Lender is adverse to Borrower); or (E) any attempt to
inspect, verify, protect, preserve, restore, collect, sell, liquidate or
otherwise dispose of or realize upon the Collateral; then, in any such event,
the reasonable attorneys' fees arising from such services and all expenses,
costs, charges and other fees of such counsel or of Lender or relating to any
of the events or actions described in this Section shall be payable, on demand,
by Borrower to Lender and shall be additional Obligations hereunder secured by
the Collateral. Additionally, if any taxes (excluding taxes imposed upon or
measured by the net income of Lender) shall be payable on account of the
execution or delivery of this Agreement, or the execution, delivery, issuance
or recording of any of the Other Agreements, or the creation of any of the
Obligations hereunder, by reason of any existing or hereafter enacted federal
or state statute, Borrower will pay all such taxes, including, but not limited
to, any interest and penalties thereon, and will indemnify and hold Lender
harmless from and against liability in connection therewith. Borrower shall
have no obligation to pay the legal expenses or other costs incurred by a
Participating Lender or by Lender in connection with any sale or attempted sale
of any interest herein to a Participating Lender.
12.5. Indulgences Not Waivers. Lender's failure, at any time or
times hereafter, to require strict performance by Borrower of any provision of
this Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance
LOAN AND SECURITY AGREEMENT - Page 37
<PAGE> 42
therewith. Any suspension or waiver by Lender of an Event of Default by
Borrower under this Agreement or any of the Other Agreements shall not suspend,
waive or affect any other Event of Default by Borrower under this Agreement or
any of the Other Agreements, whether the same is prior or subsequent thereto
and whether of the same or of a different type. None of the undertakings,
agreements, warranties, covenants and representations of Borrower contained in
this Agreement or any of the Other Agreements and no Event of Default by
Borrower under this Agreement or any of the Other Agreements shall be deemed to
have been suspended or waived by Lender, unless such suspension or waiver is by
an instrument in writing specifying such suspension or waiver and is signed by
a duly authorized representative of Lender and directed to Borrower.
12.6. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
12.7. Successors and Assigns; Participations by Lender. This
Agreement and the Other Agreements shall be binding upon and inure to the
benefit of the successors and assigns of Borrower and Lender; provided,
however, that Borrower may not sell, assign or transfer any interest in this
Agreement or any of the Other Agreements, or any portion thereof, including,
without limitation, Borrower's rights, title, interests, remedies, powers and
duties hereunder or thereunder. Any purported assignment by Borrower in
violation of this Section 12.7 shall be void, without Lender's prior written
consent. Borrower hereby consents to Lender's participation, sale, assignment,
transfer or of the disposition, at any time or times hereafter, of this
Agreement, any of the Other Agreements, or any other Obligations, or of any
portion hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder. In the
case of an assignment, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would have if it
were the original "Lender" hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignment. In the case of a
participation, each Participating Lender shall be entitled to receive all
information received by Lender regarding the credit-worthiness of Borrower,
including, without limitation, information required to be disclosed to a
participant pursuant to Banking Circular 181 (Rev., August 2, 1984), issued by
the Comptroller of the Currency (whether such Participating Lender is subject
to the circular or not).
12.8. Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements are hereby made cumulative with the provisions of this
Agreement. Except as otherwise provided in Section 3.4 of this Agreement and
except as otherwise provided in any of the Other Agreements by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the Other Agreements, the provision contained in this
Agreement shall govern and control.
12.9. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so
LOAN AND SECURITY AGREEMENT - Page 38
<PAGE> 43
executed and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same instrument.
12.10. Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto shall be in writing and shall be
sent by certified or registered mail, return receipt requested, personal
delivery against receipt, or by telegraph or telex and, unless otherwise
expressly provided herein, shall be deemed to have been validly served, given
or delivered when delivered against receipt or three Business Days after
deposit in the mail, postage prepaid, or, in the case of telegraphic notice,
when delivered to the telegraph company, or, in the case of telex notice, when
sent, answer-back received, addressed as follows:
(A) If to Lender: Barclays Business Credit, Inc.
2711 North Haskell
Suite 2100, LB 21
Dallas, Texas 75204
Attention: Senior Vice President
w/ a copy to: Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: Larry A. Makel, Esq.
(B) If to Borrower: Sepco Industries, Inc.
6500 Brittmoore Road
Houston, Texas 77041
Attention: David R. Little
w/ a copy to: Fouts & Moore, L.L.P.
5555 San Felipe, 17th Floor
Houston, Texas 77057
Attention: Gary A. Messersmith
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 12.10; provided, however, that any
notice, request or demand to or upon Lender pursuant to Section 3.3 shall not
be effective until received by Lender. Any written notice that is not sent in
conformity with the provisions hereof shall nevertheless be effective on the
date such notice is actually received by the noticed party.
12.11. Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement or any of the Other Agreements as a condition to
any action, inaction, condition or event, Lender shall be authorized to give or
withhold such consent in its sole and absolute discretion (unless otherwise
expressly provided herein) and to condition its consent upon the giving of
additional collateral security for the Obligations, the payment of money or any
other matter.
LOAN AND SECURITY AGREEMENT - Page 39
<PAGE> 44
12.12. Demand Obligations. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Lender's requiring payment of such Obligations.
12.13. Time of Essence. Time is of the essence of this Agreement and
the Other Agreements.
12.14. Entire Agreement. This Agreement and the Other Agreements,
together with all other instruments, agreements and certificates executed by
the parties in connection therewith or with reference thereto, embody the
entire understanding and agreement between the parties hereto and thereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and inducements, whether express or implied, oral or
written.
12.15. Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.
12.16. Nonapplicability of Article 5069-15.01 et seq. Borrower and
Lender hereby agree that, except for Section 15.10(b) thereof, the provisions
of Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq. (Vernon 1987) (regulating
certain revolving credit loans and revolving tri-party accounts) shall not
apply to this Agreement or any of the Other Agreements.
12.17. No Preservation or Marshaling. Borrower agrees that Lender
has no obligation to preserve rights to the Collateral against prior parties or
to marshal any Collateral for the benefit of any Person.
12.18. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
DALLAS, TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN TEXAS, THE LAWS OF
SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF TEXAS. AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER,
BORROWER HEREBY CONSENTS AND AGREES THAT THE DISTRICT COURT OF DALLAS COUNTY,
TEXAS, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
LOAN AND SECURITY AGREEMENT - Page 40
<PAGE> 45
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT
OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE,
AT THE ELECTION OF LENDER, BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF
OR FIVE DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID; PROVIDED
THAT LENDER SHALL ALSO SEND, BY TELECOPY, TO BORROWER A COPY OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS (AN AFFIDAVIT OF AN OFFICER, EMPLOYEE OR AGENT OF
LENDER STATING THAT SUCH TELECOPY WAS SENT TO BORROWER SHALL BE PRESUMPTIVELY
CORRECT IN ALL RESPECTS). NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE
TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR
ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT
TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
12.19. WAIVERS BY BORROWER. BORROWER WAIVES (A) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (B) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, INTENT TO
ACCELERATE, ACCELERATION, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION
OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD; (C) NOTICE PRIOR TO TAKING POSSESSION OR
CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (D)
THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (E) ANY RIGHT
BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE LENDER TO
TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF
BORROWER UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND
THE EXECUTION BY
LOAN AND SECURITY AGREEMENT - Page 41
<PAGE> 46
BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWER IS USED IN WHOLE OR IN PART
TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS
OR DAMAGE LENDER MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF
PAYMENT RECEIVED BY LENDER FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO
THE OBLIGATIONS; AND (F) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES
THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO
THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS
FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
12.20. SPECIAL LOUISIANA PROVISIONS. Insofar as the validity or
perfection of the security interest hereunder or the remedies hereunder are
governed by the laws of the State of Louisiana, Borrower agrees as follows:
(i) For purposes of Louisiana executory process, Borrower
acknowledges the Obligations secured hereby, whether now existing or
to arise hereafter, and confesses judgment thereon if not paid when
due. Upon the occurrence of an Event of Default and at any time
thereafter so long as the same shall be continuing, and in addition to
all of the rights and remedies granted the Lender hereunder, it shall
be lawful for and Borrower hereby authorizes Lender without making a
demand or putting Borrower in default, a putting in default being
expressly waived, to cause all and singular the Collateral to be
seized and sold after due process of law, Borrower waiving the benefit
of any and all laws or parts of laws relative to appraisement of
property seized and sold under executory process or other legal
process, and consenting that the Collateral be sold without
appraisement, either in its entirety or in lots or parcels, as Lender
may determine, to the highest bidder for cash or on such other terms
as the plaintiff in such proceedings may direct. In addition, Lender
shall have all of the-rights and remedies available to it under this
Agreement or under the Louisiana Commercial Laws (Louisiana Revised
Statutes, Title 10), then in effect (La. R.S. 10:9-101 et seq.).
(ii) Borrower hereby waives:
(a) the benefit of appraisement provided for in
Articles 2332, 2336, 2723 and 2724 of the Louisiana
Code of Civil Procedure and all other laws conferring
the same;
(b) the demand and three (3) days notice of demand as
provided in Articles 2639 and 2721 of the Louisiana
Code of Civil Procedure;
LOAN AND SECURITY AGREEMENT - Page 42
<PAGE> 47
(c) the notice of seizure provided by Articles 2293 and
2721 of the Louisiana Code of Civil Procedure; and
(d) the three (3) day delay provided for in Articles 2331
and 2722 of the Louisiana Code of Civil Procedure.
(iii) Borrower expressly authorizes and agrees that Lender
shall have the right to appoint a keeper of the Collateral pursuant to
the terms and provision of La. R.S. 9:5136.
(iv) All liens and security interests created and
perfected by Borrower prior to the effective date of Chapter 9 of the
Louisiana Commercial Laws (La. R.S. 10:9-101 et seq.) (the "Existing
Liens") shall remain effective according to their terms and the
applicable provisions of law, and nothing contained herein shall
constitute a novation of, or otherwise extinguish such Existing Liens.
12.21 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER
AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
LOAN AND SECURITY AGREEMENT - Page 43
<PAGE> 48
IN WITNESS WHEREOF, this Agreement has been duly executed in Dallas,
Texas, on the day and year specified at the beginning hereof.
"BORROWER"
SEPCO INDUSTRIES, INC.
By: /s/ DAVID R. LITTLE
-------------------------------------
Name: David R. Little
Title: Chief Executive Officer
"LENDER"
BARCLAYS BUSINESS CREDIT, INC.
By: /s/ H. MICHAEL WILLS
-------------------------------------
Name: H. Michael Wills
Title: Group Vice President
LOAN AND SECURITY AGREEMENT - Page 44
<PAGE> 49
EXHIBIT 10.13
EXHIBIT A
SECURED PROMISSORY NOTE
(REAL ESTATE LOAN)
$1,329,277.37 Dallas, Texas April 1, 1994
FOR VALUE RECEIVED, the undersigned ("Borrower"), hereby promises to
pay to the order of Barclays Business Credit, Inc., a Connecticut corporation
("Lender"), at 2711 North Haskell, Suite 2100, LB 21, Dallas, Texas 75204, or
at such other address as the holder hereof shall so notify Borrower, in such
coin or currency of the United States which shall be legal tender in payment of
all debts and dues, public and private, at the time of payment, the principal
sum of ONE MILLION, THREE HUNDRED TWENTY-NINE THOUSAND, TWO HUNDRED
SEVENTY-SEVEN AND 37/100 DOLLARS ($1,329,277.37), together with interest from
and after the date hereof on the unpaid principal balance outstanding at a
variable rate per annum equal to the lesser of (i) 1.50% above the Base Rate
(the "Annual Term Rate"), or (ii) the Maximum Legal Rate.
This Secured Promissory Note (this "Note") is the Term Note referred
to in, and is issued pursuant to, that certain Second Amended and Restated Loan
and Security Agreement between Borrower and Lender dated effective as of the
date hereof (as amended from time to time, the "Loan Agreement"), and is
entitled to all of the benefits and security of the Loan Agreement. All of the
terms, covenants and conditions of the Loan Agreement and all other instruments
evidencing or securing the indebtedness hereunder (including, without
limitation, the "Other Agreements" as defined in the Loan Agreement) are hereby
made a part of this Note and are deemed incorporated herein in full. All
capitalized terms used in this Note, unless otherwise specifically defined
herein, shall have the meanings ascribed to them in the Loan Agreement.
Borrower acknowledges and understands that the Base Rate merely serves
as a basis upon which effective rates of interest are calculated for loans
making reference to the per annum rate of interest publicly announced by Bank
from time to time as its base rate and that such rate may not be the lowest or
best rate at which Bank calculates interest or extends credit. After the date
hereof, the rate of interest in effect hereunder shall be increased or
decreased, as the case may be, by an amount equal to any increase or decrease
in the Base Rate, with such adjustments to be effective as of the opening of
business on the date that any such change in the Base Rate becomes effective.
The Base Rate in effect on the date hereof shall be the Base Rate effective as
of the opening of business on the
Exhibit A--Page 1
(Secured Promissory Note)
<PAGE> 50
date hereof, but if this Note is executed on a day that is not a Business Day,
the Base Rate in effect on the date hereof shall be the Base Rate effective as
of the opening of business on the last Business Day immediately preceding the
date hereof. The rate of interest in effect hereunder may be increased in
accordance with the provisions of the Loan Agreement. Interest due at the
Maximum Legal Rate shall be calculated on the basis of actual days elapsed over
a year of 365 or 366 days, as the case may be.
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the principal amount of this Note shall bear interest, at
a fluctuating rate per annum equal to the lesser of (i) 4% above the Base Rate
(the "Default Rate"), calculated daily (computed on the actual days elapsed
over a year of 360 days), or (ii) the Maximum Legal Rate.
If at any time the amount of such interest computed on the basis of
the Annual Term Rate or the Default Rate, whichever is applicable (the
"Applicable Rate"), would exceed the amount of such interest computed upon the
basis of the maximum rate of interest permitted by applicable state or federal
law in effect from time to time hereafter (the "Maximum Legal Rate"), the
interest payable under this Note shall be computed upon the basis of the
Maximum Legal Rate, but any subsequent reduction in the Applicable Rate shall
not reduce such interest thereafter payable hereunder below the amount computed
on the basis of the Maximum Legal Rate until the aggregate amount of such
interest accrued and payable under this Note equals the total amount of
interest which would have accrued if such interest had been at all times
computed solely on the basis of the Applicable Rate.
The principal amount and accrued interest of this Note shall be due
and payable on the dates and in the manner hereinafter set forth:
(a) interest shall be due and payable monthly, in arrears, on
the first day of each month, commencing on May 1, 1994, and continuing
until such time as the full principal balance, together with all other
amounts owing hereunder, shall have been paid in full;
(b) principal shall be due and payable in thirty-one (31)
equal monthly installments of THIRTY-THREE THOUSAND THREE HUNDRED
THIRTY-THREE AND No/100 DOLLARS ($33,333) each, commencing on May 1,
1994, and continuing on the first day of each month thereafter to and
including the first day of December, 1996; and
(c) the entire unpaid principal balance hereof, together with
any and all other amounts due hereunder,
Exhibit A--Page 2
(Secured Promissory Note)
<PAGE> 51
shall be due and payable on January 2, 1997.
Notwithstanding the foregoing, the entire unpaid principal balance and accrued
interest on this Note shall be due and payable immediately upon any termination
of the Loan Agreement pursuant to Section 3.3 thereof or otherwise.
The occurrence of an Event of Default under the Loan Agreement,
including, without limitation, the failure to pay any installment of principal
or interest on this Note in full on or within ten days after the due date
thereof in accordance with the terms of this Note, shall constitute an event of
default under this Note and shall entitle Lender, at its option, upon, or at
any time after the occurrence of any such Event of Default, to declare the then
outstanding principal balance and accrued interest hereof to be, and the same
shall thereupon become, immediately due and payable without notice to or demand
upon Borrower, all of which Borrower hereby expressly waives. If this Note is
collected by or through an attorney at law, then Borrower shall be obligated to
pay, in addition to the principal balance and accrued interest hereof,
reasonable attorneys' fees and court costs.
This Note shall be subject to mandatory prepayment, without premium or
penalty, in accordance with the provisions of Section 3.4(D) of the Loan
Agreement. Subject to the next sentence, Borrower may voluntarily prepay,
without premium or penalty, this Note in whole at any time or in part from time
to time upon ten days' prior written notice to Lender, provided that each such
prepayment shall be made together with accrued interest on the principal amount
so prepaid on the prepayment date, and any partial prepayment shall be in an
amount equal to $100,000 or in $100,000 multiples thereof. If Borrower
terminates the Loan Agreement pursuant to Section 3.3(A) thereof in connection
with a refinancing of the Revolving Credit Loans and/or any Term Loan, then,
upon the effective date of any such termination, Borrower shall pay to Lender
(in addition to any other charges due under the terms of the Loan Agreement) a
prepayment premium in an amount equal to the applicable percentage set forth
below of the principal amount prepaid:
If Prepayment is Made Between
-----------------------------
The Following Dates, Inclusive: The Premium Shall Be:
------------------------------- ---------------------
April 1, 1994 and 0.5% of principal
January 1, 1997 amount prepaid
All partial prepayments, whether mandatory or voluntary, shall be
applied to installments of principal in the inverse order of their maturities.
Exhibit A--Page 3
(Secured Promissory Note)
<PAGE> 52
No agreements, conditions, provisions or stipulations contained in the
Loan Agreement, this Note or any other instrument, document or agreement
between Borrower and Lender or default of Borrower, or the exercise by Lender
of the right to accelerate the payment of the maturity of principal and
interest, or to exercise any option whatsoever contained in the Loan Agreement,
this Note or any other agreement between Borrower and Lender, or the arising
from any contingency whatsoever, shall entitle Lender to charge or collect, in
any event, interest exceeding the Maximum Legal Rate and in no event shall
Borrower be obligated to pay interest exceeding such Maximum Legal Rate and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Borrower to pay a
rate of interest exceeding the Maximum Legal Rate, shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such Maximum Legal Rate. In the event any interest is charged or
collected in excess of the Maximum Legal Rate ("Excess"), Borrower acknowledges
and stipulates that any such charge or collection shall be the result of an
accident and bona fide error, and such Excess shall be, first, applied to
reduce the principal then unpaid hereunder; second, applied to reduce the
Obligations; and third, returned to Borrower, it being the intention of the
parties hereto not to enter at any time into a usurious or otherwise illegal
relationship. Borrower recognizes that, with fluctuations in the Annual Term
Rate, the Default Rate and the Maximum Legal Rate, such an unintentional result
could inadvertently occur. By the execution of this Note, Borrower covenants
that (i) the credit or return of any Excess shall constitute the acceptance by
Borrower of such Excess, and (ii) Borrower shall not seek or pursue any other
remedy, legal or equitable, against Lender, based in whole or in part upon the
charging or receiving of any interest in excess of the maximum authorized by
applicable law. For the purpose of determining whether or not any Excess has
been contracted for, charged or received by Lender, all interest at any time
contracted for, charged or received by Lender in connection with this Note,
shall be amortized, prorated, allocated and spread in equal parts during the
entire term of this Agreement.
Time is of the essence of this Note. To the fullest extent permitted
by applicable law, Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of nonpayment, notice of acceleration, notice of intent to
accelerate, notice of maturity, notice of protest, presentment for the purpose
of accelerating maturity, diligence in collection, and the benefit of any
exemption or insolvency laws.
Exhibit A--Page 4
(Secured Promissory Note)
<PAGE> 53
Wherever possible each provision of this Note shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial exercise
by Lender of any right or remedy preclude any other right or remedy. Lender, at
its option, may enforce its rights against any collateral securing this Note
without enforcing its rights against Borrower, any guarantor of the
indebtedness evidenced hereby or any other property or indebtedness due or to
become due to Borrower. Borrower agrees that, without releasing or impairing
Borrower's liability hereunder, Lender may at any time release, surrender,
substitute or exchange any collateral securing this Note and may at any time
release any party primarily or secondarily liable for the indebtedness
evidenced by this Note.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas, as more fully provided in
Section 12.18 of the Loan Agreement.
This Note is a renewal, modification and consolidation, and not a
novation or extinguishment, of the following promissory notes (the "Prior
Notes"):
(a) that certain promissory note in the original principal sum
of $2,000,000, dated January 22, 1994, executed by Southern Engine &
Pump Company, a Delaware corporation, and Wesco Equipment, Inc., a
Delaware corporation, payable to the order of Lender, and
(b) that certain promissory note in the original principal sum
of $500,000, dated January 22, 1992, executed by T.L. Walker Bearing
Co., payable to the order of Lender.
All rights, liens, titles and security interests securing the Prior
Notes are and shall be preserved, maintained and carried forward to secure this
Note.
Exhibit A--Page 5
(Secured Promissory Note)
<PAGE> 54
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed,
sealed and delivered on the date first above written.
SEPCO INDUSTRIES, INC.
By:
--------------------------
David R. Little
Chief Executive Officer
Exhibit A--Page 6
(Secured Promissory Note)
<PAGE> 55
EXHIBIT B
BUSINESS LOCATIONS
(1) Borrower currently has the following business locations, and no
others:
I. With respect to business formerly conducted under the name of
Southern Engine & Pump Company:
1. 928 South Treadaway
Abilene, Texas 79602
2. 11646 Industriplex Blvd.
Baton Rouge, Louisiana 70809
3. 4718 Baldwin Blvd. (78408)
P.O. Box 4206 (78469)
Corpus Christi, Texas
4. 12786 O'Connor Road (78233)
P.O. Box 34386 (78265-4386)
San Antonio, Texas
5. 2020 North Loop 12 (75061)
P.O. Box 565105
Irving, Texas
6. 1100 West Marland (88240)
P.O. Box 2406 (88241)
Hobbs, New Mexico
7. 6500 Brittmoore Road (77041)
P.O. Box 1697 (77251)
Houston, Texas
8. 110 KOL Drive (70518)
Broussard, Louisiana
P.O. Box 51409 (70505)
Lafayette, Louisiana
9. 1712 Avenue H (Odessa-Sub-
Branch)
P.O. Box 1119 (79336)
Levelland, Texas
10. 1803 West Cotton (75607)
P.O. Box 7908 (75602)
Longview, Texas
Exhibit B--Page 1
(Business Locations)
<PAGE> 56
11. 320 Time Saver Ave.
Harahan, LA 70123
P.O. Box 10497
New Orleans, LA 70181-0497
12. 3900 West Loop 338 (79764)
P.O. Box 69838 (79769)
Odessa, Texas
13. 1401 S.E. 29th
Oklahoma City, Oklahoma 73129
14. 1206 Grimmett Drive (71107)
P.O. Box 7312 (71137)
Shreveport, Louisiana
15. 5141 South 24th West Avenue
Tulsa, Oklahoma 74107
16. 8497 Jacksboro Highway
Wichita Falls, Texas 76301
17. 4695 College Street
Beaumont, Texas 77707
18. 21 Mulberry
Sulphur, Louisiana 70664
19. 4308 Murray Ave.
Halthom City, Texas 76117
II. With respect to business formerly conducted under the name of
Wesco Equipment:
1. 4302 Creekmont (77018)
P.O. Box 924068 (77292)
Houston, Texas
2. 6860 So. Yosemite Ct. #200
Englewood, Colorado 80112
3. 137 W. Oxmoor Road, Suite 401
Birmingham, Alabama 35226
4. 11646 Industriplex Blvd.
Baton Rouge, Louisiana 70809
Exhibit B--Page 2
(Business Locations)
<PAGE> 57
III. With respect to business formerly conducted under the name of
T. L. Walker Bearing Co.:
1. 2603 LaBranch (77004)
P.O. Box 8235 (77288)
Houston, Texas
2. 112 North 12th Street
La Porte, Texas 77571
3. 5550 Highland Avenue
Beaumont, Texas 77705
4. 113 Rhodes
Conroe, Texas 77301
5. 839 Hwy. 146
Texas City, Texas 77590
6. 13618-13620 Hempstead Hwy
Houston, Texas 77040
7. 9153 Wallisville Road
Houston, Texas 77029
8. 315 South Loop 201
Baytown, Texas 77520
9. 6618 East Highway 332
Freeport, Texas 77541
10. 3165 Summitt
Port Neches, Texas 77651
IV. With respect to business formerly conducted under the name of
Jackson's Industrial Supplies, Inc.
1. 9153 Wallisville Road
Houston, Texas 77029
2. P.O. Box 1079
207 W. Mill
Livingston, Texas 77351
3. P.O. Box 1504
2902 E. Denman
Lufkin, Texas 75901
4. 1108 E. Gibson
Jasper, Texas 75951
Exhibit B--Page 3
(Business Locations)
<PAGE> 58
(2) Borrower maintains its books and records relating to Accounts and
General Intangibles at: 6500 Brittmoore Road, Houston, Texas 77041.
(3) During the preceding three-year period, Borrower has had no
office, place of business or agent for process located in any county other than
as set forth above, except:
1. 2305 Winterstone
Plano, Texas 75023
2. Dallas and Potter Counties
Texas
3. 12047 Old Hammond, Suite B
Baton Rouge, Louisiana 70809
4. 5 miles west of 385 on FM 300
Levelland, Texas 79336
5. 1119 Central Ave.
Metairie, Louisiana
6. 505 N. Big Spring
Midland, Texas 79701
7. 1545 Gulf Shores Parkway
Gulf Shores, Alabama 36542
8. 400 N. 11th Street
La Porte, Texas 77571
9. 2702 North Chenevert
Houston, Texas 77004
10. 4 North Chenevert
Houston, Texas 77002
11. 328 E. Lamar
Jasper, Texas 75951
12. 6868 N. Loop East, Suite 320
Houston, Texas 77028
Exhibit B--Page 4
(Business Locations)
<PAGE> 59
EXHIBIT C
CORPORATE NAMES
(1) Borrower's correct corporate name, as registered with the
Secretary of State of the State of Texas, is:
SEPCO Industries, Inc.
(2) During the preceding seven-year period, Borrower has used the
following names:
Southern Engine & Pump Company
Wesco Equipment, Inc.
Perkins Southwest, Inc.
Shoreline Company, Inc.
Shoreline Supply, Inc.
Shoreline Equipment Company, Inc.
T.L. Walker
T.L. Walker Bearing
Jackson's Industrial Supplies, Inc.
PURC, Inc.
DMS Corporation
Exhibit C--Page 1
(Corporate Names)
<PAGE> 60
EXHIBIT D
LITIGATION
(1) There are no proceedings pending against Borrower in any court,
except as follows:
<TABLE>
<CAPTION>
DESCRIPTION PLAINTIFF COURT CASE NO.
<S> <C> <C> <C>
1. The Plaintiff has alleged a former Joe A. Manjarris 189th Judicial 92-4777
officer of T. L. Walker (Lindley King) vs. T. L. Walker Court, Harris,
negligently and grossly accused Plaintiff Bearing County
of four disparaging and slanderous acts.
Plaintiff has claimed damages of $8,000,000
as a result of corporate officer's remarks.
Plaintiff's accusations are without merit.
Case is being handled by SEPCO's insurance
carrier. We expect no damage in this case.
2. Personal injury lawsuit. Defense and James Stanley 16th Judicial 900781
claims, if any, are covered by insurance. vs. Texaco, et al. District Court,
(includes SEPCO) St. Mary Parish,
State of LA
3. Plaintiff, a former employee of T. L. Riley McDaniel Harris County 632,718
Walker, alleges money is owed to him for vs. T. L. Walker Civil Court
commissions on product sales and salary and SEPCO of Law #3
under an employment contract. Plaintiff Industries, Inc.
originally sought $35,000 in damages but
proposed a settlement offer of $12,500.
T. L. Walker rejected the offer. We believe
the suit is without merit.
</TABLE>
(2) The only threatened litigation of which Borrower is aware is as
follows:
None.
SARGENT:324
- 1 -
<PAGE> 61
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
_________________, 19__
TO: Barclays Business Credit, Inc.
2711 North Haskell
Suite 2100, LB 21
Dallas, Texas 75204
Attention: Michael Wills
The undersigned, the chief financial officer of Sepco Industries,
Inc., a Texas corporation ("Borrower"), gives this certificate to Barclays
Business Credit, Inc. ("Lender") in accordance with the requirements of Section
9.1(L) of that certain Second Amended and Restated Loan and Security Agreement
dated April 1, 1994, between Borrower and Lender (the "Loan Agreement").
Capitalized terms used in this Certificate, unless otherwise defined herein,
shall have the meanings ascribed to them in the Loan Agreement:
(1) Based upon my review of the balance sheets and statements of
income of Borrower for the fiscal [month] [year] ending _____________, 19__,
copies of which are attached hereto, and supported by the calculations shown
below, I hereby certify that as of the end of such [month] [year]:
(a) Capital Expenditures and payments on account of capital leases
for the fiscal year to the date of the financial statements to which
this certificate is attached total $_____________.
The requirement of the Loan Agreement (Section 9.2(I)) is no more than
$350,000 during any fiscal year.
(b) If this certificate is furnished as of the end of a fiscal
year, total annual compensation (other than compensation from existing
incentive agreements) for officers, shareholders and directors is ____
% of the amount paid during the preceding fiscal year.
The requirement of the Loan Agreement (Section 9.2(N)) is no more than
110%.
(c) The Cash Flow, measured on a rolling three-month basis at the
end of each calendar month, for the calendar month ending on the date
of the financial statements to which this certificate is attached is
$________, calculated as set forth below.
Exhibit E--Page 1
(Compliance Certificate)
<PAGE> 62
The requirement of the Loan Agreement is positive Cash Flow, measured on a
rolling three-month basis at the end of each calendar month, for the
three-month period that ended as of the end of each calendar month:
(i) Adjusted Net Earnings From Operations for the
three-month period ended to date:
(1) net earnings or loss after
provision for income taxes $___________
(2) extraordinary items $___________
(3) Adjusted Net Earnings From
Operations ((1) less (2)) $___________
(ii) Non-cash charges in respect
to depreciation and amortization: $___________
(iii) Capital Expenditures: $___________
(iv) Scheduled principal payments
on Indebtedness: $___________
(v) Cash Flow ((i) plus (ii) less
(iii) less (iv)): $___________
(d) If this certificate is furnished as of the end of a fiscal year,
the Cash Flow for the fiscal year ending as of the date of the financial
statements to which this certificate is attached is $______________,
calculated as set forth below.
The requirement of the Loan Agreement is positive Cash Flow, measured on an
annual basis at the end of each fiscal year of Borrower, for the twelve-month
period that ended as of the end of such fiscal year of Borrower, from and
including the fiscal year of Borrower ending December 31, 1994:
(i) Adjusted Net Earnings From Operations for the fiscal year to
date:
(1) net earnings or loss after
provision for income taxes $________________
(2) extraordinary items $________________
(3) Adjusted Net Earnings From
Operations ((1) less (2)) $________________
Exhibit E--Page 2
(Compliance Certificate)
<PAGE> 63
(ii) Non-cash charges in respect
to depreciation and amortization: $________________
(iii) Capital Expenditures: $________________
(iv) Scheduled principal payments
on Indebtedness: $________________
(v) Cash Flow ((i) plus (ii) less
(iii) less (iv)): $________________
(e) The ratio of Indebtedness to Adjusted Tangible Net Worth as of the
date of the financial statements to which this certificate is attached is ___
to 1.0, calculated as set forth below.
The requirement of the Loan Agreement is not less than 5.0 to 1.0:
(i) Aggregate Indebtedness: $_________________
(ii) Adjusted Tangible Assets: $_________________
(iii) Liabilities: $_________________
(iv) Subordinated Debt $_________________
(v) Adjusted Tangible Net Worth
((ii) less (iii) plus (iv)): $_________________
(vi) Ratio of (i) to (v): __________ to 1.0
(f) The ratio of Current Assets to Current Liabilities as of the date
of the financial statements to which this certificate is attached is
_______________ to 1.0, calculated as set forth below.
The requirement of the Loan Agreement is not less than 2.0 to 1.0:
(i) Current Assets: $__________________
(ii) Current Liabilities: $__________________
(2) The financial statements to which this certificate is attached have been
prepared in accordance with GAAP to the best of my knowledge and fairly present
the consolidated financial positions and results of operations of Borrower and
its Subsidiaries (if any) for the period covered thereby.
Exhibit E--Page 3
(Compliance Certificate)
<PAGE> 64
(3) No Default exists on the date hereof, other than:
_____________________________________(if none, so state).
(4) No Event of Default exists on the date hereof, other than:
____________________________________________ (if none, so state).
Very truly yours,
------------------------
Chief Financial Officer
Exhibit E--Page 4
(Compliance Certificate)
<PAGE> 65
EXHIBIT F
EXISTING INDEBTEDNESS
[Attached.]
Exhibit F--Page 1
(Existing Indebtedness)
<PAGE> 66
SEPCO INDUSTRIES, INC.
Notes Payble Rollforward
12/31/93 File: Noterol1
<TABLE>
<CAPTION>
G/L
Account Balance Balance Current Long
Number Lender Collateral 12/31/92 Additions Payments 12/31/93 Portion Term
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
000-2580 Edith Hughes 97,723 97,723 97,723
------------------------------------------------------------------
Total-SEPCO 4,454,490 1,973,856 387,225 6,041,121 1,134,766 4,906,355
==================================================================
000-2030 Barclay's Revolver Inventory and Receivables 6,138,820 61,114,304 59,910,495 7,342,629 7,342,629
000-2410 Barclay's - Real Estate, Certain Real Estate & 1,633,337 438,700 1,194,637 442,224 752,413
PP&E Equipment
------------------------------------------------------------------
Total Barclay's 7,772,157 61,114,304 60,349,195 8,537,266 442,224 8,095,042
000-2430 Parker Square Bank Fort Worth Real Estate 96,754 12,109 86,645 13,320 71,325
000-2430 William B. Ferguson Fort Worth Real Estate 42,795 5,356 37,439 5,891 31,548
(Pledged to Parker Square) ------------------------------------------------------------------
Total - S E & P 7,911,707 61,114,304 60,366,660 8,659,351 461,435 8,197,916
==================================================================
000-2030 Barclay's Revolver Inventory and Receivables 1,458,107 8,551,811 8,114,019 1,895,899 1,895,899
000-2430 William E. Snyder WESCO Real Property 266,855 18,151 248,705 19,853 228,851
------------------------------------------------------------------
Total - WESCO 1,724,962 8,551,881 8,132,170 2,144,603 19,853 2,124,750
==================================================================
</TABLE>
EXHIBIT F
<PAGE> 67
SEPCO INDUSTRIES, INC.
Notes Payable Rollforward
12/31/93
<TABLE>
<CAPTION>
G/L Secured
Account Note Interest Note Maturity or
Number Lender Number Rate Date Date Payment Terms Unsecured
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3 Installments
000-2580 Edith Hughes 18% Int paid monthly.
Principal due in 3
installments to
lender's estate upon Unsecured
Total - SEPCO
000-2030 Barclay's Revolver Prime 1 1/4% 1/22/92 1/02/97 Secured
000-2410 Barclay's - Real Estate, PP&E Prime 1 3/4% 1/22/92 1/02/97 $33,333/mo. Principal Secured
+$3,518.51 Payment from
Sale of New Orleans
Property
Total Barclay's
000-2430 Parker Square Bank 42000 Base Rate + 1 1/2%, 4/24/92 4/24/99 $1,699.77/mo. Principal
Floating & Interest Secured
000-2430 William B. Ferguson Base Rate + 1 1/2%, 4/24/92 4/24/99 $751.82/mo. Principal
(Pledged to Parker Square) Floating & Interest Secured
Total - S E & P
000-2030 Barclay's Revolver Prime 1 1/4% 1/22/92 1/02/97 Secured
000-2430 William E. Snyder 9.0% 8/20/92 8/01/92 452.58/mo. Principal
& Interest Secured
Total - WESCO
</TABLE>
EXHIBIT F
<PAGE> 68
SEPCO INDUSTRIES, INC.
Notes Payable Rollforward
12/31/93 File: Noterol1
<TABLE>
<CAPTION>
G/L
Account Balance Balance Current Long
Number Lender Collateral 12/31/92 Additions Payments 12/31/93 Portion Term
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>> <C> <C> <C> <C> <C> <C>
000-2460 Robert Davenport 0.00 16,000.00 16,000.00 6,000.00 10,000.00
000-2460 Bill Diddle 0.00 10,364.00 10,364.00 3,887.00 6,477.00
000-2460 Fred Jackson, Jr. 0.00 4,000.00 4,000.00 1,500.00 2,500.00
000-2460 Joe Lewallen 0.00 8,000.00 8,000.00 3,000.00 5,000.00
000-2460 Donald Wile 0.00 5,612.00 5,612.00 2,105.00 3,507.00
000-2460 Edward Kelly Trust 0.00 1,200,000.00 1,200,000.00 450,000.00 750,000.00
000-2460 W. H. Blaney, Jr. 0.00 280,000.00 280,000.00 105,000.00 175,000.00
000-2460 Ellen Kelley Trust 0.00 73,620.00 73,620.00 27,608.00 46,012.00
000-2460 Edward W. Kelley, Jr. Trust 0.00 147,236.00 147,236.00 55,214.00 92,022.00
000-2460 Kinsloe Kelley Queen Trust 0.00 80,000.00 80,000.00 30,000.00 50,000.00
000-2460 Michael Kelley Trust 0.00 80,000.00 80,000.00 30,000.00 50,000.00
</TABLE>
EXHIBIT F
<PAGE> 69
SEPCO INDUSTRIES, INC.
Notes Payable Rollforward
12/31/93
<TABLE>
<CAPTION>
G/L Secured
Account Note Interest Note Maturity or
Number Lender Number Rate Date Date Payment Terms Unsecured
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
000-2460 Robert Davenport 7.0% 10/27/93 10/27/96 Principal Due Annually Unsecured
3 Installments
000-2460 Bill Diddle 7.0% 10/21/93 10/21/96 Principal Due Annually Unsecured
3 Installments
000-2460 Fred Jackson, Jr. 7.0% 10/12/93 10/12/96 Principal Due Annually Unsecured
3 Installments
000-2460 Joe Lewallen 7.0% 10/12/93 10/12/96 Principal Due Annually Unsecured
3 Installments
000-2460 Donald Wile 7.0% 9/30/93 9/30/96 Principal Due Annually Unsecured
3 Installments
000-2460 Edward Kelly Trust 7.0% 9/30/93 9/30/96 Principal Due Annually Unsecured
3 Installments
000-2460 W.H. Blaney, Jr. 7.0% 9/30/93 9/30/96 Principal Due Annually Unsecured
3 Installments
000-2460 Ellen Kelley Trust 7.0% 9/30/93 9/30/96 Principal Due Annually Unsecured
3 Installments
000-2460 Edward W. Kelley, Jr. 7.0% 9/30/93 9/30/96 Principal Due Annually Unsecured
Trust 3 Installments
000-2460 Kinsloe Kelley Queen 7.0% 9/30/93 9/30/96 Principal Due Annually Unsecured
Trust 3 Installments
000-2460 Michael Kelley Trust 7.0% 9/30/93 9/30/96 Principal Due Annually Unsecured
3 Installments
</TABLE>
EXHIBIT F
<PAGE> 70
SEPCO INDUSTRIES, INC.
Notes Payable Rollforward
12/31/93 File Noterol1
<TABLE>
<CAPTION>
G/L
Account Balance Balance Current Long
Number Lender Collateral 12/31/92 Additions Payments 12/31/93 Portion Term
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>> <C> <C> <C> <C> <C> <C>
000-2450 Southwestern Life Brittmore Real 2,023,479 69,212 1,954,267 76,555 1,877,712
Property
000-2440 George Allen 316,667 100,000 216,667 100,000 116,667
000-2440 George Allen 138,750 15,000 123,750 15,000 108,750
000-2440 Edith Hughes 1,813,121 196,013 1,617,108 196,013 1,421,095
000-2440 Edith Hughes 64,750 7,000 57,750 7,000 50,750
000-2460 Peter Pianta 0.00 8,000,00 0.00 8,000 3,000,00 5,000.00
000-2460 Charles Pogue 0.00 20,000.00 0.00 20,000 7,500.00 12,500.00
000-2460 John Walls 0.00 7,200.00 0.00 7,200.00 2,700.00 4,500.00
000-2460 Garland Norman 0.00 1,824.00 0.00 1,824.00 684.00 1,140.00
000-2460 Arthur Bleimeyer, Jr. 0.00 24,000.00 0.00 24,000.00 9,000.00 15,000.00
000-2460 Joe Brunson 0.00 8,000.00 8,000 3,000.00 5,000.00
</TABLE>
EXHIBIT F
<PAGE> 71
SEPCO INDUSTRIES, INC.
Notes Payable Rollforward
12/31/93
<TABLE>
<CAPTION>
G/L Secured
Account Note Interest Note Maturity or
Number Lender Number Rate Date Date Payment Terms Unsecured
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
000-2450 Southwestern Life 30515 10.125% 11/08/79 12/01/06 $22,578/mo. Principal and Interest Secured
000-2440 George Allen 11.5% 2/28/91 2/28/96 8,333.33/mo. Principal plus Unsecured
Accrued Interest
000-2440 George Allen 12.0% 1/14/82 1/14/97 Qtrly Principal Pymt of $3,750 Unsecured
beginning April 1992
000-2440 Edith Hughes 12.3333% 1/14/82 1/14/97 Qtrly Principal Pymt of $49,003.28 Unsecured
beginning April 1992
000-2440 Edith Hughes 12.0% 1/14/82 1/14/97 Qtrly Principal Pymt of $1,750 Unsecured
beginning April 1992
000-2460 Peter Pianta 7.0% 10/18/93 10/18/96 Principal Due Annually Unsecured
3 Installments
000-2460 Charles Pogue 7.0% 10/19/93 10/19/96 Principal Due Annually Unsecured
3 Installments
000-2460 John Walls 7.0% 10/29/93 10/29/96 Principal Due Annually Unsecured
3 Installments
000-2460 Garland Norman 7.0% 10/07/93 10/07/96 Principal Due Annually Unsecured
3 Installments
000-2460 Arthur Bleimeyer, Jr. 7.0% 10/08/93 10/08/96 Principal Due Annually Unsecured
3 Installments
000-2460 Joe Brunson 7.0% 10/25/93 10/25/96 Principal Due Annually Unsecured
3 Installments
</TABLE>
EXHIBIT F
<PAGE> 72
<TABLE>
<CAPTION>
SECURED BALANCE BALANCE
OR AT AT
PAYMENT TERMS UNSECURED COLLATERAL 12/31/92 ADDITIONS PAYMENTS 12/31/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/97 Secured Inv. & Rec. 4,776,288.47 34,456,776.63 34,465,527.11 4,767,537.89
2/97 8,333/mo P Secured Certain real estate 408,337.00 99,996.00 308,341.00
and equip.
1/94 725.83/mo P&I Secured Bay City real estate 47,075.52 1,766.84 45,308.68
2/94 1,517.49/mo P&I Secured JIS Stock 53,589.87 13,456.78 40,133.09
2/94 4,349.08/mo P&I Secured JIS Stock 153,587.29 38,566.64 115,020.65
2/96 6,557/mo P&I Secured Computer equip. 213,768.68 48,764.51 165,004.17
1/96 311.24/mo P&I Secured Bay City real estate 11,423.82 2,714.68 8,709.14
5/94 Settlement Secured HP Computer equip. 86,976.81 86,976.81 0.00
1/02 4,246.47/mo P&I Unsecured 342,270.60 65,607.04 276,663.56
5/93 2,486/mo P&I Secured Baytown real estate 18,733.33 18,733.33 0.00
9/93 4,185/mo P&I Secured 2nd lien on A/R 8,282.43 8,282.43 0.00
& Inv.
ee. Unsecured 31,904.08 0.00 31,904.08
---------------------------------------------------------------
6,152,237.90 0.00 384,865.06 5,758,622.26
1/95 6,940/mo P&I Secured DMS Stock 201,926.30 67,860.57 134,065.73
---------------------------------------------------------------
201,926.30 0.00 67,860.57 134,065.73
---------------------------------------------------------------
6,354,164.20 0.00 452,725.63 5,892,687.99
===============================================================
</TABLE>
<PAGE> 73
EXHIBIT G
REAL PROPERTY FORMERLY OWNED IN THE NAME OF SOUTHERN ENGINE &
PUMP COMPANY
1. 1100 West Maryland, Hobbs, Lea County, New Mexico
Title Policy Required: No
Survey Required: No
Permitted Liens: See Attachment 1
2. 3900 West Loop 338, Odessa, Ector County, Texas
Fair Market Value: $335,000
Title Policy Required: Yes
Survey Required: Yes
Permitted Liens: See Attachment 2
3. 1803 W. Cotton, Longview, Gregg County, Texas
Title Policy Required: No
Survey Required: No
Permitted Liens: See Attachment 3
4. 320 Time Saver Avenue, Harahan, Jefferson Parish,
Louisiana
Fair Market Value: $1,050,000
Title Policy Required: Yes
Survey Required: Yes
Permitted Liens: See Attachment 4
REAL PROPERTY OWNED BY SEPCO INDUSTRIES, INC.
1. 2020 N. Loop 12, Irving, Dallas County, Texas
Fair Market Value: $380,000
Title Policy Required: Yes
Survey Required: Yes
Permitted Liens: See Attachment 5
2. 110 KOL Drive, Broussard, Lafayette Parish, Louisiana
Title Policy Required: No
Survey Required: No
Permitted Liens: See Attachment 6
3. 1119 Central Avenue, Metairie, Jefferson Parish, Louisiana
Fair Market Value: $285,000
Title Policy Required: Yes
Survey Required: Yes
Permitted Liens: See Attachment 7
Exhibit G--Page 1
(Property Owned)
<PAGE> 74
4. 4718 Baldwin, Corpus Christi, Nueces County, Texas
Title Policy Required: No
Survey Required: No
Permitted Liens: See Attachment 8
REAL PROPERTY FORMERLY OWNED IN THE NAME OF T.L. WALKER BEARING CO.
1. 2603 LaBranch, Houston, Harris County, Texas
Fair Market Value: $675,000
Title Policy Required: Yes
Survey Required: Yes
Permitted Liens: See Attachment 9
2. 112 North 12th Street, La Porte, Harris County, Texas
Title Policy Required: No
Survey Required: No
Permitted Liens: See Attachment 10
3. Hammond Road, RR2, Bay City, Matagorda County, Texas
Title Policy Required: No
Survey Required: No
Permitted Liens: See Attachment 11
4. 5550 Highland Avenue, Beaumont, Jefferson County, Texas
Title Policy Required: No
Survey Required: No
Permitted Liens: See Attachment 12
Exhibit G--Page 2
(Property Owned)
<PAGE> 75
ATTACHMENTS
to
Exhibit G
ATTACHMENT 1
1. RESERVATIONS, CONDITIONS, AND STIPULATIONS AS CONTAINED IN PATENT FROM THE
UNITED STATES IN BOOK 2, PAGE 309, MISCELLANEOUS RECORDS, LEA COUNTY, NEW
MEXICO.
2. TITLE TO ALL OF THE OIL, GAS, MINERALS AND MINERAL SUBSTANCES WITHIN AND
UNDERLYING THE PREMISES, TOGETHER WITH THE TITLE TO ALL OF THE OIL, GAS,
MINERALS, AND MINERAL SUBSTANCES WITHIN AND UNDERLYING THE PREMISES,
TOGETHER WITH THE DRILLING RIGHTS AND PRIVILEGES THERETO BELONGING IN BOOK
2, PAGE 309, MISCELLANEOUS RECORDS, LEA COUNTY, NEW MEXICO.
3. FINANCING STATEMENT DATED ---, FILED 12-22-88, BOOK 31, PAGE 130,
FINANCING STATEMENT RECORDS, LEA COUNTY, NEW MEXICO. EXECUTED SEPCO POWER
PRODUCTS, INC. TO BARCLAYSAMERICAN/BUSINESS CREDIT, INC.
4. FINANCING STATEMENT DATED ---, FILED 12-22-88, BOOK 31, PAGE 133, FINANCING
STATEMENT RECORDS, LEA COUNTY, NEW MEXICO. EXECUTED BY SEPCO COMPRESSION
SERVICES, INC. TO BARCLAYSAMERICAN/BUSINESS CREDIT, INC.
5. FINANCING STATEMENT DATED ---, FILED 12-22-88, BOOK 31, PAGE 136, FINANCING
STATEMENT RECORDS, LEA COUNTY, NEW MEXICO. EXECUTED BY SHORELINE EQUIPMENT
COMPANY TO BARCLAYSAMERICAN/BUSINESS CREDIT, INC.
6. FINANCING STATEMENT DATED ---, FILED 12-22-88, BOOK 31, PAGE 139, FINANCING
STATEMENT RECORDS, LEA COUNTY, NEW MEXICO. EXECUTED BY SOUTHERN ENGINE &
PUMP COMPANY TO BARCLAYSAMERICAN/BUSINESS CREDIT, INC.
7. FINANCING STATEMENT DATED ---, FILED 12-22-88, BOOK 31, PAGE 142, FINANCING
STATEMENT RECORDS, LEA COUNTY, NEW MEXICO. EXECUTED BY WESCO EQUIPMENT, INC.
TO BARCLAYSAMERICAN/BUSINESS CREDIT, INC.
8. FINANCING STATEMENT DATED, 12-22-88, BOOK 31, PAGE 145, FINANCING STATEMENT
RECORDS, LEA COUNTY, NEW MEXICO. EXECUTED BY SEPCO INTERNATIONAL, INC. TO
BARCLAYSAMERICAN/BUSINESS CREDIT, INC.
Attachments to Exhibit G--Page 1
<PAGE> 76
9. FINANCING STATEMENT DATED ---, FILED 12-22-88, BOOK 31, PAGE 127, FINANCING
STATEMENT RECORDS, LEA COUNTY, NEW MEXICO. EXECUTED BY SEPCO INDUSTRIES,
INC. TO BARCLAYSAMERICAN/BUSINESS CREDIT, INC.
Attachments to Exhibit G--Page 2
<PAGE> 77
ATTACHMENT 2
1. All minerals and/or royalty interest as described in Deed recorded in
Volume 187, Page 200, Deed Records, Ector County, Texas, and amended by
instrument recorded in Volume 342, Page 104, Deed Records, Ector County,
Texas.
2. Oil and Gas Leases recorded in Volume 43, Page 505, and Volume 43, Page 453,
Deed Records, Ector County, Texas.
3. Well Site Designation recorded in Volume 371, Page 328, Deed Records, Ector
County, Texas.
4. Easements and/or rights-of-way:
a) To Barnsdall Oil Co., recorded at Volume 51, Page 55, Deed Records,
Ector County, Texas.
b) To Phillips Petro. Co., recorded at Volume 83, Page 427, and Volume
119, Page 245, Deed Records, Ector County, Texas.
c) To Pan American Petro. Corp., recorded at Volume 278, Page 522, Deed
Records, Ector County, Texas.
d) To Pioneer National Gas Co., recorded at Volume 234, Page 406, Deed
Records, Ector County, Texas.
e) To TESCO recorded at Volume 87, Page 4, Deed Records, Ector County,
Texas.
f) To TESCO recorded at Volume 788, Page 584, Deed Records, Ector County,
Texas, and as shown on a survey dated January 6, 1992, prepared by S.
W. O. Howell, R.P.L.S. #280.
g) To ECUD at Volume 733, Page 568, and Volume 786, Page 733, Deed
Records, Ector County, Texas, and as shown on survey dated January 16,
1992, prepared by S. W. Howell, R.P.L.S. #280.
h) Sunray DX pipelines and Westar Transmission power lines on West side of
property as shown on a survey dated December 9, 1983, by Gary N. Haner,
Registered Surveyor.
i) Overhead Electric Line along Westerly side of property as shown on
survey dated January 16, 1992, prepared by S. W. Howell, R.P.L.S. #280.
Attachments to Exhibit G--Page 3
<PAGE> 78
5. UCC Financing Statement, recorded in Volume 860, Page 233, of the Deed
of Trust Records, Ector County, Texas, from Shoreline Equipment Company,
Debtor, to Barclays American/Business Credit, Inc., Secured Party.
6. UCC Financing Statement, recorded in Volume 860, Page 236, of the Deed of
Trust Records, Ector County, Texas, from Southern Engine and Pump Company,
Debtor, to Barclays American/Business Credit, Inc., Secured Party.
7. UCC Financing Statement, recorded in Volume 860, Page 239, of the Deed of
Trust Records, Ector County, Texas, from Sepco Industries, Inc., Debtor, to
Barclays American/Business Credit, Inc., Secured Party.
8. UCC Financing Statement, recorded in Volume 860, Page 242, of the Deed of
Trust Records, Ector County, Texas, from Sepco International, Inc., Debtor,
to Barclays American/Business Credit, Inc., Secured Party.
9. UCC Financing Statement, recorded in Volume 860, Page 245, of the Deed of
Trust Records, Ector County, Texas, from Sepco Power Products, Inc.,
Debtor, to Barclays American/Business Credit, Inc., Secured Party.
10. UCC Financing Statement, recorded in Volume 860, Page 248, of the Deed of
Trust Records, Ector County, Texas, from Sepco Compression Services, Inc.,
Debtor, to Barclays American/Business Credit, Inc., Secured Party.
11. UCC Financing Statement, recorded in Volume 860, Page 251, of the Deed of
Trust Records, Ector County, Texas, from Wesco Equipment, Inc., Debtor, to
Barclays American/Business Credit, Inc., Secured Party.
Attachments to Exhibit G--Page 4
<PAGE> 79
ATTACHMENT 3
1. Financing Statement executed by Sepco Industries, Inc., Debtor, to Barclays
American/Business Credit, Inc., Secured Party, filed for record on December
22, 1988, in Volume 1988, Page 216, Public Official Records, Gregg County,
Texas.
2. Financing Statement executed by Sepco International, Inc., Debtor, to
Barclays American/Business Credit, Inc., Secured Party, filed for record on
December 22, 1988, in Volume 1988, Page 221, Public Official Records, Gregg
County, Texas.
3. Financing Statement executed by Sepco Power Products, Inc., Debtor, to
Barclays American/Business Credit, Inc., Secured Party, filed for record on
December 22, 1988, in Volume 1988, Page 226, Public Official Records, Gregg
County, Texas.
4. Financing Statement executed by Sepco Compression Services, Inc., Debtor,
to Barclays American/Business Credit, Inc., Secured Party, filed for record
on December 22, 1988, in Volume 1988, Page 231, Public Official Records,
Gregg County, Texas.
5. Financing Statement executed by Shoreline Equipment Company, Debtor, to
Barclays American/Business Credit, Inc., Secured Party, filed for record on
December 22, 1988, in Volume 1988, Page 236, Public Official Records, Gregg
County, Texas.
6. Financing Statement executed by Southern Engine and Pump Company, Debtor,
to Barclays American/Business Credit, Inc., Secured Party, filed for record
on December 22, 1988, in Volume 1988, Page 241, Public Official Records,
Gregg County, Texas.
7. Financing Statement executed by Wesco Equipment, Inc., Debtor, to Barclays
American/Business Credit, Inc., Secured Party, filed for record on December
22, 1988, in Volume 1988, Page 246, Public Official Records, Gregg County,
Texas.
8. Visible, apparent and/or record easements in Gregg County, Texas, on or
across the herein described property.
Attachments to Exhibit G--Page 5
<PAGE> 80
9. Mineral reservations set forth in instrument filed for record in Volume
643, Page 241, Deed Records, Gregg County, Texas.
Attachments to Exhibit G--Page 6
<PAGE> 81
ATTACHMENT 4
1. COB 995, folio 694 - Servitude for sidewalk and utilities measuring 5 feet
in width along the front of the land, granted by LaSalle Properties, Inc.
to the Parish of Jefferson by act dated December 23, 1980.
2. COB 1033, folio 745 - Servitude for sidewalk and utilities measuring 5 feet
in width along Time Saver Avenue granted by LaSalle Properties, Inc. to the
Parish of Jefferson by act dated October 6, 1982.
3. COB 2546, folio 121 - Right of Way Permit granted by Southern Engine & Pump
Company to Louisiana Power & Light Company dated August 16, 1991.
4. Five foot servitude for sidewalk and utilities as shown on a plan of
resubdivision of J. J. Krebs & Sons, Inc., dated November 16, 1990,
approved under Jefferson Parish Ordinance No. 18186 on January 9, 1991 and
recorded in COB 2420, folio 144.
Attachments to Exhibit G--Page 7
<PAGE> 82
ATTACHMENT 5
1. Easement granted by W. A. Courreges, et al to Texas Power & Light Company,
as evidenced by the instrument dated November 5, 1970 recorded in Volume
74080, Page 2211, of the Deed Records, Dallas County, Texas, and as shown
on survey dated January 9, 1992, prepared by L. Lynn Kadleck, R.P.L.S.
#3952.
2. Airport Zoning Ordinance No. 71-100 for Dallas-Fort Worth International
Airport, recorded in Volume 82173, Page 0178, of the Deed Records, Dallas
County, Texas.
3. Encroachment of building over 30 foot set-back line as shown on survey
dated January 9, 1992, prepared by L. Lynn Kadleck, R.P.L.S. #3952.
4. Deed of Trust dated February 10, 1986, recorded in Volume 86036, Page 4406,
of the Deed of Trust Records, Dallas County, Texas, from Sepco Industries,
Inc. to Sue P. Murphy, Trustee, securing the payment of multiple notes
therewith, described as follows: 1) principal sum of $14,500,000.00,
payable to the order of Barclays American/Business Credit, Inc.;
2) principal sum of $2,538,000.00, payable to the order of Barclays
American/Business Credit, Inc.; 3) principal sum of $910,000.00, payable to
the order of Barclays American/Business Credit, Inc.; and subject to all
terms, conditions, and provisions contained in said Deed of Trust.
5. UCC Financing Statement filed February 21, 1986, recorded in Volume 86036,
Page 4389, of the Deed of Trust Records, Dallas County, Texas, from Sepco
Industries, Inc., Debtor, to Barclays American/Business Credit, Inc.,
Secured Party. Amendment recorded in Volume 91019, Page 2707, Deed
Records, Dallas County, Texas, and continuation recorded in Volume 91019,
Page 2209, Deed Records, Dallas County, Texas.
6. UCC Financing Statement filed January 6, 1989, recorded in Volume 89004,
Page 4035, of the Deed of Trust Records, Dallas County, Texas, from
Southern Engine and Pump Company, Debtor, to Barclays American/Business
Credit, Inc., Secured Party.
7. UCC Financing Statement filed January 6, 1989, recorded in Volume 89004,
Page 4040, of the Deed of Trust Records, Dallas County, Texas, from
Shoreline Equipment Company,
Attachments to Exhibit G--Page 8
<PAGE> 83
Debtor, to Barclays American/Business Credit, Inc., Secured Party.
8. UCC Financing Statement filed January 6, 1989, recorded in Volume 89004,
Page 4045, of the Deed of Trust Records, Dallas County, Texas, from Wesco
Equipment, Inc., Debtor, to Barclays American/Business Credit, Inc.,
Secured Party.
9. UCC Financing Statement filed January 6, 1989, recorded in Volume 89004,
Page 4050, of the Deed of Trust Records, Dallas County, Texas, from Sepco
Industries, Inc., Debtor, to Barclays American/Business Credit, Inc.,
Secured Party.
10. UCC Financing Statement filed January 6, 1989, recorded in Volume 89004,
Page 4055, of the Deed of Trust Records, Dallas County, Texas, from Sepco
International, Inc., Debtor, to Barclays American/Business Credit, Inc.,
Secured Party.
11. UCC Financing Statement filed January 6, 1989, recorded in Volume 89004,
Page 4060, of the Deed of Trust Records, Dallas County, Texas, from Sepco
Power Products, Inc., Debtor, to Barclays American/Business Credit, Inc.,
Secured Party.
12. UCC Financing Statement filed January 6, 1989, recorded in Volume 89004,
Page 4065, of the Deed of Trust Records, Dallas County, Texas, from Sepco
Compression Services, Inc., Debtor, to Barclays American/Business Credit,
Inc., Secured Party.
Attachments to Exhibit G--Page 9
<PAGE> 84
ATTACHMENT 6
1. File No. 86-05814 - Collateral Mortgage granted by SEPCO Industries, Inc.
to secure a promissory note in the principal sum of $30,000,000.00 dated
February 10, 1986 before Garvin Gunner, N.P., filed February 20, 1986. Said
mortgage is payable at BarclaysAmerican/Business Credit, Inc., Dallas,
Texas.
2. Entry No. 343727 - Notice of UCC-1 Filing of the above-referenced
collateral mortgage, filed January 31, 1991.
3. File No. 80-027051 - Servitude Agreement granted by Kol Investment
Corporation to Gulf States Utilities Company. Said servitude is ten feet
in width across the front of the land.
4. File No. 81-010933 - Restrictive Covenants established by Kol Investments
Corporation affecting the area known as Kol Industrial Park, together with
the servitudes for drainage measuring 20 feet in width across the rear of
the land and the ten foot utility servitude across the front of the land as
shown on the plan of resubdivision.
5. File No. 81-013456 - Act of Dedication of Servitudes by Kol Investment
Corporation in favor of the Town of Broussard.
Attachments to Exhibit G--Page 10
<PAGE> 85
ATTACHMENT 7
1. MOB 1431, folio 150 - Collateral Mortgage granted by SEPCO Industries, Inc.
in favor of Barclays American/Business Credit, Inc. by act before G.
Gunner, N.P., to secure a promissory note in the principal sum of
$30,000,000.00 dated February 10, 1986, filed February 21, 1986.
2. COB 354, folio 362 - Right of way granted by Southern Engine & Pump Co., to
Louisiana Power & Light Company dated October 26, 1953, filed March 30,
1954 in the office of the Clerk of Court of Jefferson Parish.
3. The discrepancies between actual and title measurements as shown on a plat
of survey by H.E. Sutch dated May 19, 1953 and annexed to an act of sale by
Regina Holloway Mahl, et al, to Southern Engine & Pump Company.
Attachments to Exhibit G--Page 11
<PAGE> 86
ATTACHMENT 8
1. Deed of Trust dated February 10, 1986, executed by SEPCO INDUSTRIES, INC.,
a Texas corporation, to SUE P. MURPHY, Trustee, filed for record in the
Office of the County Clerk of Nueces County, Texas on February 19, 1986,
under Clerk's File No. 478090, Volume 2065, Page 524, Deed of Trust Records
of Nueces County, Texas, payable to the order of BARCLAYS AMERICAN/BUSINESS
CREDIT, INC.
2. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against SEPCO INDUSTRIES, INC., as Debtor, filed on March
25, 1986, under Clerk's File No. 483135, Volume 2073, Page 50, Deed of
Trust Records of Nueces County, Texas. Continuation filed on January 30,
1991, under Clerk's File No. 743524, Volume 2433, Page 593, Deed of Trust
Records of Nueces County, Texas. Amendment filed on January 30, 1991, under
Clerk's File No. 743625, Volume 2433, Page 594, Deed of Trust Records of
Nueces County, Texas.
3. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against SEPCO COMPRESSION SERVICES, INC., a Debtor, filed on
January 9, 1989; UCC File No. 213156; Clerk's File No. 646836, Volume 2310,
Page 752, Deed of Trust Records of Nueces County, Texas.
4. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against SEPCO POWER PRODUCTS, INC., as Debtor, filed on
January 9, 1989; UCC File No. 213157; Clerk's File No. 646837, Volume 2310,
Page 755, Deed of Trust Records of Nueces County, Texas.
5. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against SEPCO INTERNATIONAL, INC., as Debtor, filed on
January 9, 1989; UCC File No. 213158, Clerk's File No. 646838, Volume 2310,
Page 756, Deed of Trust Records of Nueces County, Texas.
6. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against SEPCO INDUSTRIES, INC., as Debtor, filed on January
9, 1989; UCC File No. 213159; Clerk's File No. 646839, Volume 2310, Page
761, Deed of Trust Records of Nueces County, Texas.
7. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against WESCO EQUIPMENT, INC., as Debtor, filed on January
9, 1989; UCC File No.
Attachments to Exhibit G--Page 12
<PAGE> 87
213160; Clerk's File No. 646840, Volume 2310, Page 764, Deed of Trust
Records of Nueces County, Texas.
8. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against SOUTHERN ENGINE AND PUMP COMPANY, as Debtor, filed
on January 9, 1989; UCC File No. 213161; Clerk's File No. 646841, Volume
2310, Page 767, Deed of Trust Records of Nueces County, Texas.
9. Financing Statement filed by BARCLAYS AMERICAN/BUSINESS CREDIT, INC., as
Secured Party, against SHORELINE EQUIPMENT COMPANY, as Debtor, filed on
January 9, 1989; UCC File No. 213162; Clerk's File No. 646842, Volume 2310,
Page 770, Deed of Trust Records of Nueces County, Texas.
Attachments to Exhibit G--Page 13
<PAGE> 88
ATTACHMENT 9
1. The subject property is located within the City of Houston or within its
extra territorial jurisdiction (within 5 miles of the city limits but
outside another municipality) it is subject to the terms, conditions and
provisions of City of Houston Ordinance No. 85-1878, pertaining to, among
other things, the platting and re-platting of real property and to the
establishment of building lines (25 feet along major thoroughfares and 10
feet along other streets). A certified copy of said ordinance was filed for
record on August 1, 1991, under Harris County Clerk's File No. N253886.
Attachments to Exhibit G--Page 14
<PAGE> 89
ATTACHMENT 10
1. None.
Attachments to Exhibit G--Page 15
<PAGE> 90
ATTACHMENT 11
1. State Tax Lien dated August 23, 1991, filed September 3, 1991 of record in
Volume 295, Page 209, Official Records, Matagorda County, Texas.
2. Assumption Deed dated September 22, 1981, filed September 24, 1981,
recorded in Volume 686, Page 713, Deed Records of Matagorda County, Texas
from H P Heathman & wf Peggy Heathman to T L Walker Bearing Company.
3. Deed of Trust dated September 22, 1981, filed September 24, 1981 recorded
in Volume 188, Page 143, Deed of Trust Records of Matagorda County, Texas
from T L Walker Bearing Company by Lindley A King, President to Anthony B
Hamilton, Trustee for H P Heathman & wf Peggy Heathman in the amount of
$28,962.74.
4. Deed of Trust to Secure Assumption dated September 22, 1981, filed
September 24, 1981 recorded in Volume 188, Page 138, Deed of Trust Records
of Matagorda County, Texas from T L Walker Bearing Company, A Corporation
to Anthony B Hamilton, Trustee for H P Heatherman & wf Peggy Heathman
covering all principal & interest remaining unpaid upon that note for
$65,000.00 dated March 20, 1979 executed by E D Wells et ux Bertha M Wells
payable to Bay City Federal Savings & Loan Association of record in Volume
168, Page 302, Deed of Trust Records.
Attachments to Exhibit G--Page 16
<PAGE> 91
ATTACHMENT 12
1. All minerals reserved in Deed dated 5-17-66 filed 5-19-66 recorded in
Vol. 1467 page 140 Deed Records of Jefferson County, Texas.
2. All minerals reserved in Deed dated 5-17-66 filed 5-19-66 recorded in
Vol. 1467 page 121 Deed Records of Jefferson County, Texas.
3. Oil and gas lease in favor of J. D. Boone, dated August 24, 1950, filed
March 22, 1951, in Volume 804, Page 432, Deed Records of Jefferson County,
Texas.
4. Oil and gas lease in favor of H. E. Dishman and Harvey Lucas, dated
February 12, 1951, filed March 28, 1951, in Volume 805, Page 304, Deed
Records of Jefferson County, Texas.
5. Fence encroachment as shown on survey prepared by Matt Racki, Registered
Professional Surveyor, dated September 25, 1984.
Attachments to Exhibit G--Page 17
<PAGE> 92
EXHIBIT H
FORM OF OPINION OF BORROWER'S COUNSEL
(To Be Placed on Borrower's Counsel's Stationery)
April 1, 1994
Barclays Business Credit, Inc.
2711 North Haskell
Suite 2100, LB 21
Dallas, Texas 75204
Re: Barclays Business Credit, Inc. Loan to Sepco Industries, Inc.
("Borrower")
Gentlemen:
We have represented Borrower, Sepco Power Products, Inc. ("Sepco
Power"), Sepco Compression Services, Inc. ("Compression"), David Little and
Gary Allcorn, Trustee (Borrower, Sepco Power, Compression, David Little and
Gary A. Allcorn, Trustee, are collectively called the "Sepco Parties" and
individually, a "Sepco Party") in connection with extensions of credit by
Barclays Business Credit, Inc. ("Lender") to Borrower. In connection with such
transaction, our firm has been requested by Lender to render an opinion to
Lender relative to certain matters. Terms used but not defined in this opinion
letter shall have the meanings assigned to them in the Loan Agreement (as such
term is defined below).
In rendering the following opinion, we have examined copies of the
following documents:
1. Second Amended and Restated Loan and Security Agreement between
Borrower and Lender dated as of the date hereof (the "Loan Agreement").
2. Secured Promissory Note (Real Estate Loan) in the original
principal amount of $1,329,277.37 dated as of the date hereof from Borrower to
Lender (the "Term Note").
3. Pledge Agreement dated as of the date hereof between Gary A.
Allcorn, Trustee for the benefit of Kacey Joyce Little, Nicholas David Little
and Andrea Rae Little 1988 Trusts and Lender.
Exhibit H--Page 1
(Opinion)
<PAGE> 93
Barclays Business Credit, Inc.
April 1, 1994
Page 2
4. Unconditional Guaranty dated as of the date hereof from David R.
Little for the benefit of Lender relating to Borrower.
5. Unconditional Guaranty dated as of the date hereof from Sepco
Power for the benefit of Lender.
6. Unconditional Guaranty dated as of the date hereof from
Compression for the benefit of Lender.
7. Deceptive Trade Practices Act Waiver dated as of the date hereof
executed by the Sepco Parties.
The above-described documents are at times hereinafter collectively
referred to as the "Operative Documents". Borrower, Sepco Power and
Compression are referred to herein as the "Corporate Parties").
As counsel for each of the Corporate Parties, we have also examined
copies of the Articles/Certificate of Incorporation of each of the Corporate
Parties and all amendments thereto which have been duly filed, and the Bylaws
of each of the Corporate Parties, as amended to date. We are familiar with the
proceedings of each of the Corporate Parties with respect to the authorization,
execution, and delivery of the Operative Documents executed by them and the
transactions contemplated thereby. In addition to the foregoing, we have
examined and relied upon such other matters of law, documents, certificates,
and statements of public officials and certificates and representations of the
Corporate Parties as we have deemed relevant to rendering our opinion. In all
of our examinations, we have assumed the accuracy of all information furnished
to us (and nothing has come to our attention that would lead us to question the
accuracy of such information), the genuineness of all documents submitted to us
as original or certified documents, the conformity to original or certified
documents of all copies submitted to us as conformed or photostatic copies and
the genuineness of all signatures on all documents not signed in our presence.
On the basis of the foregoing, we are of the opinion that:
(a) Each of the Corporate Parties is a corporation duly organized
and existing in good standing under the laws of the state of its incorporation.
Exhibit H--Page 2
(Opinion)
<PAGE> 94
Barclays Business Credit, Inc.
April 1, 1994
Page 3
(b) Borrower is duly qualified and licensed as a foreign corporation
in each state where the nature of its business or properties requires such
qualification.
(c) Each of the Corporate Parties has full power and authority to
execute, deliver and perform its obligations under the Operative Documents to
which it is a party. The transactions between each of the Corporate Parties
and Lender contemplated by the Operative Documents have been duly authorized by
all necessary corporate proceedings of each of the Corporate Parties. Each of
the Corporate Parties and its officers executing such Operative Documents to
which it is a party have been duly authorized to execute and deliver to Lender
such Operative Documents and any other documents required to obtain and secure
the credit being extended.
(d) The Operative Documents have been duly executed and delivered on
behalf of each Sepco Party that is a party thereto and the Operative Documents
constitute legal, valid and binding obligations of each Sepco Party that is a
party thereto and may be enforced in accordance with their terms except as may
be limited by bankruptcy, reorganization, moratorium, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
(e) To the best of our knowledge, there is no action, suit,
investigation or proceeding pending or threatened against any Sepco Party or any
of its properties before any court or administrative agency which, if adversely
determined, would result in a materially adverse change in the business or
condition of any Sepco Party.
(f) To the best of our knowledge, no Corporate Party is in default
under the provisions of any instruments evidencing any obligation for borrowed
money or of any agreement relating thereto, or in default under or in violation
of any order, writ, injunction or decree of any court, or any order, regulation
or demand of any administrative or governmental instrumentality which default or
violation might have consequences which would materially and adversely affect
its business or properties.
(g) The execution and delivery of the Operative Documents and the
consummation of the transactions therein contemplated and the fulfillment of and
compliance with the respective terms, conditions, and provisions thereof or of
any
Exhibit H--Page 3
(Opinion)
<PAGE> 95
Barclays Business Credit, Inc.
April 1, 1994
Page 4
instruments required thereby will not conflict with or result in a breach of
any of the terms, conditions or provisions of, the Articles/Certificate of
Incorporation, any bylaw or any law, rule or regulation of any administrative
or governmental instrumentality applicable to any Corporate Party or, to the
best of our knowledge, of any writ, injunction or decree of any court, or, to
the best of our knowledge, the terms, conditions or provisions of any agreement
or instrument to which any Corporate Party is a party or by which any Corporate
Party is bound or to which it is subject.
(h) Other than the filing of financing statements, deeds of trust and
mortgages to perfect Liens, no registration with or authorization, consent,
order or approval of any federal, state or other governmental authority or
regulatory body is required with respect to any Sepco Party in connection with
the execution and delivery of the Operative Documents, the consummation of the
transactions therein contemplated, and/or the fulfillment of and compliance with
the respective terms, conditions and provisions thereof or any of the
instruments required thereby.
(i) We understand that Lender has filed or soon will file financing
statements, copies of which have been examined by us, covering Borrower's
accounts receivable, equipment, fixtures, chattel paper, documents, instruments,
general intangibles, contracts, contract rights, inventory and the proceeds and
products of such items. Assuming that Lender gives value to Borrower and duly
files the financing statements in the form reviewed by us with the Secretary of
the State of Texas, Lender will thereupon have a duly perfected security
interest in all of the above-described property and the proceeds and products
thereof to the extent that the property is owned by Borrower and a security
interest may be taken and perfected by filing in Texas under the Uniform
Commercial Code of Texas.
(j) Borrower has no direct Subsidiaries other than __________________.
(k) No taxes, including, without limitation, intangible or documentary
stamp taxes, mortgage taxes, transfer taxes or similar charges, are payable to
the State of Texas, or any political subdivision thereof, or to any other
jurisdiction in which Borrower conducts its business, on account of the
execution or delivery of the Operative Documents, or the
Exhibit H--Page 4
(Opinion)
<PAGE> 96
Barclays Business Credit, Inc.
April 1, 1994
Page 5
creation of the indebtedness evidenced or secured by any of the foregoing or the
recording or filing of any of the foregoing, except for nominal filing or
recording fees.
(1) The compensation contracted for in the Operative Documents
constitutes lawful interest, and the Operative Documents do not violate any laws
of the State of Texas relating to interest or usury, and will not violate any
such law by virtue of any fluctuations in any base, prime, index or equivalent
rate or rates on which interest charged may be based under such agreements.
Yours very truly,
By:
----------------------------
Exhibit H--Page 5
(Opinion)
<PAGE> 97
Sepco Industries, Inc.
Exhibit I
Schedule of Existing Loans and advance to David R. Little
<TABLE>
<S> <C>
1. Interest Bearing Note $137,635.00
2. Interest Bearing Note 53,927.00
3. Non Interest Bearing Note 227,000.00
4. Interest Bearing Note (Stk) 210,939.00
5. Miscellaneous Advances 35,734.00
-----------
$665,235.00
===========
</TABLE>
Explanation:
1. Original note was $149,910 of which $138,000 existed at time David R. Little
purchased Sepco and was secured by stock of Sepco. Subsequent to stock
transfer to Little's children's trust Sepco accepted equity interest in
Little's home as collateral. Monthly principal and interest payments of
$1348.78 due the 1st of each month.
2. Original note of $58,737 originated in July 1990. Proceeds used by David R.
Little for settlement of amount due at Texas American Bank for activities
related to Tryit Enterprises. Principal and interest payment of $528.47 due
the 1st of each month.
3. Advance made to David R. Little in April of 1992 for payment of personal
income tax. Tax liability resulted from income generated by dissolution of
Tryit related entities. Income to partners was created with no cash proceeds
for payment of taxes.
4. Interest bearing note created in December, 1993 for purpose of selling five
percent of Sepco to David R. Little. Interest only payments due in December
of each year.
5. Miscellaneous advances made to David R. Little.
<PAGE> 98
Sepco Industries, Inc.
Exhibit J
Schedule of Amount Due Stock Acquisition Debt
<TABLE>
<S> <C>
Marvin Steffek $ 4770.00
Nelvin Luke 1060.00
Norman Schenk 1360.00
Charles E. Jacob 5730.00
Gary A. Allcorn 10,906.54
Bryan H. Wimberly 27,216.32
J. Michael Wappler 17,210.32
----------
Total $68,253.18
==========
</TABLE>
Note: Notes originated with employee listed above for purpose of allowing
various employees to acquire Sepco stock through a non qualified stock plan.
Notes require yearly interest payment.
<PAGE> 99
FIRST AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT AND
SECURED PROMISSORY NOTE
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT AND SECURED PROMISSORY NOTE ("this Amendment") is made and entered
into this ____ day of May, 1995, by and between SEPCO INDUSTRIES, INC., a Texas
corporation ("Borrower"), and SHAWMUT CAPITAL CORPORATION, a Connecticut
corporation and successor-in-interest by assignment to Barclays Business
Credit, Inc. ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Second
Amended and Restated Loan and Security Agreement, dated as of April 1, 1994
(the "Loan Agreement").
B. In connection with the Loan Agreement, Borrower executed that
certain Secured Promissory Note (Real Estate Loan) dated April 1, 1994 (the
"Term Note"), in the original principal amount of $1,329,277.37, payable to the
order of Lender.
C. Borrower and Lender desire to amend the Loan Agreement, the
Term Note and the Other Agreements as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the
Loan Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the date hereof, the Loan Agreement is hereby amended
as follows:
2.01 AMENDMENT TO SECTION 1.1; ADDITION OF CERTAIN DEFINITIONS.
Section 1.1 of the Loan Agreement is hereby amended by adding the following new
definitions thereto, in the proper alphabetical order:
-1-
<PAGE> 100
"First Amendment - the First Amendment to Second Amended and Restated
Loan and Security Agreement and Secured Promissory Note dated as of
May ___, 1995 by and between Borrower and Lender.
Eurodollar Base Rate - with respect to a Eurodollar Loan for the
relevant Eurodollar Interest Period, a rate per annum equal to the
quotient of the following: (a) the rate at which deposits in U.S.
dollars in immediately available funds are offered by Lender or Bank
to first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two (2) Business Days prior to the first day
of such Eurodollar Interest Period, in the approximate amount of the
Eurodollar Loan and having a maturity approximately equal to the
Eurodollar Interest Period divided by (b) the difference of 1.00 minus
the Eurodollar Reserve Requirement.
Eurodollar Borrowing Notice - as defined in Section 3.7(A) of this
Agreement.
Eurodollar Interest Period- with respect to a Eurodollar Loan, a
period of one (1), two (2), three (3) or six (6) months commencing on
a Business Day selected by Borrower pursuant to this Agreement. Such
Eurodollar Interest Period shall end on (but exclude) the day which
corresponds numerically to such date one (1), two (2), three (3) or
six (6) months thereafter, provided, however, that if there is no such
numerically corresponding day in such first (1st), second (2nd), third
(3rd) or sixth (6th) succeeding month, such Eurodollar Interest Period
shall end on the last Business Day of such first (1st), second (2nd),
third (3rd) or sixth (6th) succeeding month. If a Eurodollar Interest
Period would otherwise end on a day which is not a Business Day, such
Eurodollar Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day
falls in a new month, such Eurodollar Interest Period shall end on the
immediately preceding Business Day.
Eurodollar Loan - a Revolving Credit Loan which bears interest at a
Eurodollar Base Rate.
Eurodollar Reserve Requirement- on any day, means that percentage
(expressed as a decimal fraction) which is in effect on such day, as
provided by the Board of Governors of the Federal Reserve System (or
any successor governmental body) applied for determining the maximum
reserve requirements (including without limitation, basic,
supplemental, marginal and emergency reserves) under Regulation D with
respect to "eurocurrency liabilities" as currently defined in
Regulation D, or under any similar or successor regulation with
respect to eurocurrency liabilities or eurocurrency funding. Each
determination by Lender of the Eurodollar Reserve Requirement shall,
in the absence of manifest error, be conclusive and binding."
2.02 AMENDMENT TO DEFINITION OF "BANK" IN SECTION 1.1. The
definition of "Bank" in Section 1.1 of the Loan Agreement is hereby amended by
deleting the reference to "Barclays Bank PLC" therefrom and substituting
"Shawmut Bank Connecticut, N.A." in lieu thereof.
- 2 -
<PAGE> 101
2.03 AMENDMENT TO SECTION 1.1; DELETION OF DEFINITION. Section 1.1
of the Loan Agreement is hereby amended by deleting the definition of
"Applicable Margin" therefrom.
2.04 AMENDMENT TO SECTION 3.1(A); INTEREST AND CHARGES. Subsection
3.1(A) of the Loan Agreement is hereby deleted in its entirety and the
following is hereby substituted therefor:
"(A) Interest shall accrue on the outstanding principal on the Term
Loan in accordance with the terms of the Term Note, and the
outstanding principal on the Revolving Credit Loans shall bear
interest, calculated daily, at the following rates per annum
(individually called, as applicable, an "Applicable Annual Rate"):
(i) Eurodollar Loans shall bear interest at a rate per annum equal to
3.25% above the Eurodollar Base Rate for the Eurodollar Interest
Period applicable thereto and (ii) all other Revolving Credit Loans
shall bear interest at a rate per annum equal to .75% above the Base
Rate. Revolving Credit Loans shall bear interest at a rate per annum
equal to .75% above the Base Rate unless the Borrower provides a
Eurodollar Borrowing Notice to the Lender in accordance with Section
3.7(A) irrevocably electing that all or a portion of the Revolving
Credit Loans are to bear interest at a Eurodollar Base Rate. Each
Revolving Credit Loan that is not a Eurodollar Loan shall be increased
or decreased, as the case may be, by an amount equal to any increase
or decrease in the Base Rate, with such adjustments to be effective as
of the opening of business on the day that any such change in the Base
Rate becomes effective. The Base Rate in effect on the date hereof
shall be the Base Rate effective as of the opening of business on the
date hereof, but if this Agreement is executed on a day that is not a
Business Day, the Base Rate in effect on the date hereof shall be the
Base Rate effective as of the opening of business on the last Business
day immediately preceding the date hereof. Interest shall be
calculated on a daily basis (computed on the actual number of days
elapsed over a year of 360 days), commencing on the date hereof, and
shall be payable monthly, in arrears, on the first day of each month;
provided, however, that interest at the Maximum Legal Rate shall be
computed on the actual number of days elapsed over a year of 365 or
366 days, as the case may be. Upon and after the occurrence of an
Event of Default, and during the continuation thereof, the principal
amount of the Obligations shall bear interest at the lesser of (i) the
Maximum Legal Rate or (ii) a fluctuating rate per annum, calculated
daily (computed on the actual days elapsed over a year of 360 days),
equal to 4.0% above the Applicable Annual Rate or other applicable
rate of interest (the "Default Rate").
2.05 AMENDMENT TO SECTION 3.1; DELETION OF SUBSECTION. Section 3.1
of the Loan Agreement is hereby amended by deleting Subsection 3.1(F) in its
entirety therefrom.
2.06 AMENDMENT TO SUBSECTION 3.1(C). The fourth sentence of
Subsection 3.1(C) of the Loan Agreement is hereby deleted in its entirety and
the following is hereby substituted therefor:
"Borrower recognizes that, with fluctuations in the Base Rate, the
Eurodollar Base Rate and the Maximum Legal Rate, such a result could
inadvertently occur."
- 3 -
<PAGE> 102
2.07 AMENDMENT TO ARTICLE III; ADDITION OF SECTIONS. Article III
of the Loan Agreement is hereby amended by adding new Sections 3.7 and 3.8
thereto which shall read as follows:
"3.7. Additional Provisions Regarding Eurodollar Loans.
(A) Manner of Borrowing a Eurodollar Loan.
Borrower shall give Lender notice of its intention to
borrow a Eurodollar Loan in the form of Annex B to
the First Amendment (a "Eurodollar Borrowing
Notice"), in which notice Borrower shall specify (x)
the aggregate amount of such Eurodollar Loan, (y) the
requested date of such Eurodollar Loan, and (z) the
Eurodollar Interest Period applicable thereto.
Borrower shall give Lender the Eurodollar Borrowing
Notice at least two (2) Business Days prior to the
requested date of the Eurodollar Loan. With respect
to such Eurodollar Loans, (i) each Eurodollar Loan
shall be in an integral multiple of $1,000,000, (ii)
no more than four (4) Eurodollar Interest Periods may
be in existence at any one time, and (iii) Borrower
may not request a Eurodollar Loan if there exists a
Default or Event of Default. The Borrower shall
select Eurodollar Interest Periods with respect to
Eurodollar Loans so that no Eurodollar Interest
Period expires after the end of the Original Term, or
if extended pursuant to Section 3.3(A), any Renewal
Term. An outstanding Revolving Credit Loan may be
converted to a Eurodollar Loan at any time subject to
the provisions of this Section 3.7.
(B) Interest on Eurodollar Loans. Each
Eurodollar Loan shall bear interest from and
including the first day of the Eurodollar Interest
Period applicable thereto (but not including the last
day of such Eurodollar Interest Period) at the
interest rate determined as applicable to such
Eurodollar Loan, but interest on such Eurodollar Loan
shall be payable as provided in Section 3.4. If at
the end of a Eurodollar Interest Period for an
outstanding Eurodollar Loan, Borrower has failed to
deliver to Lender a new Eurodollar Borrowing Notice
with respect to such Eurodollar Loan or to pay such
Eurodollar Loan, then such Eurodollar Loan shall be
converted to a Revolving Credit Loan bearing interest
at a rate, and subject to all other terms and
conditions of this Agreement, applicable to Revolving
Credit Loans not constituting Eurodollar Loans on and
after the last day of such Eurodollar Interest Period
until paid or until the effective date of a new
Eurodollar Borrowing Notice with respect thereto.
(C) Availability of Eurodollar Loans. If Lender
determines that maintenance of any of its Eurodollar
Loans would violate any applicable law, rule,
regulation or directive, whether or not having the
force of law, Lender shall suspend the availability
of Eurodollar Loans and require any Eurodollar Loans
outstanding to be repaid (provided, that, without in
any
- 4 -
<PAGE> 103
way impairing Borrower's obligations under Section
3.7(D) and Section 3.7(E), to the extent that
Borrower is entitled to request a Revolving Credit
Loan bearing interest at the Base Rate, Borrower may
request such a Revolving Credit Loan in order to
repay the Eurodollar Loans); or if Lender determines
that (x) deposits of a type or maturity appropriate
to match fund Eurodollar Loans are not available or
(y) the Eurodollar Base Rate does not accurately
reflect the cost of making a Eurodollar Loan, then
Lender shall suspend the availability of Eurodollar
Loans after the date of any such determination.
(D) Funding Indemnification. If any payment of a
Eurodollar Loan occurs on a date which is not the
last day of the applicable Eurodollar Interest
Period, whether because of acceleration, prepayment
or otherwise, or a Eurodollar Loan is not made on the
date specified by Borrower because Borrower has not
satisfied the conditions precedent to such Eurodollar
Loan contained in this Agreement or has otherwise
breached the terms of this Agreement, Borrower will
indemnify Lender for any loss or cost incurred by it
resulting therefrom, including without limitation any
loss or cost in liquidating or employing deposits
acquired to fund or maintain the Eurodollar Loan.
(E) Lender Statements: Survival of Indemnity.
Within sixty (60) days of the date upon which Lender
suspends the availability of Eurodollar Loans under
Section 3.7(C) hereof or learns of any loss or cost
for which Borrower has indemnified Lender under
Section 3.7(D) hereof, Lender shall deliver a written
statement as to the amount due under Section 3.7(C)
or (D). Such written statement shall set forth in
reasonable detail the calculations and basis therefor
upon which Lender determined such amount and shall be
final, conclusive and binding on Borrower in the
absence of manifest error. Determination of amounts
payable under such Sections in connection with a
Eurodollar Loan shall be calculated as though the
Lender funded its Eurodollar Loan through the
purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in
determining the Eurodollar Base Rate applicable to
such Eurodollar Loan whether in fact that is the case
or not. Unless otherwise provided herein, the amount
specified in the written statement shall be payable
on demand after receipt by Borrower of the written
statement.
3.8. Yield Protection. If either (i) the adoption of any
applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by Lender with any request or directive (whether or
not having the force of law) of any such authority, central
bank or comparable agency shall subject Lender to any tax
(including without limitation any United States interest
equalization or similar
- 5 -
<PAGE> 104
tax, however named), duty or other charge with respect to any
Eurodollar Loan or Lender's obligation to compute interest on
the principal balance of any Eurodollar Loan at a rate based
upon the Eurodollar Base Rate, or shall change the basis of
taxation of payments to Lender of the principal of or interest
on any Eurodollar Loan or any other amounts due under this
Agreement in respect of any Eurodollar Loan or Lender's
obligation to compute the interest on the principal balance of
any Eurodollar Loan at a rate based upon the Eurodollar Base
Rate, or (ii) any governmental authority, central bank or
other comparable authority shall at any time impose, modify or
deem applicable any reserve (including, without limitation,
any imposed by the Board of Governors of the Federal Reserve
System), special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended
by, Lender, or shall impose on Lender (or its eurodollar
lending office) or any relevant interbank eurodollar market
any other condition affecting any Eurodollar Loan or Lender's
obligation to compute the interest on the principal balance of
any Eurodollar Loan at a rate based upon the Eurodollar Base
Rate; and the result of any of the foregoing is to increase
the cost to Lender of maintaining any Eurodollar Loans, or to
reduce the amount of any sum received or receivable by Lender
under this Agreement by an amount deemed by Lender to be
material, then upon demand by Lender, Borrower shall pay to
Lender such additional amount or amounts as will compensate
Lender for such increased cost or reduction. Lender will
promptly notify Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle
Lender to compensation pursuant to this Section 3.8. A
certificate of Lender claiming compensation under this Section
3.8 and setting forth the additional amount or amounts to be
paid to Lender hereunder shall be conclusive in the absence of
manifest error."
2.08 AMENDMENT TO REFERENCES TO "ANNUAL RATE". The Loan Agreement
is hereby amended by deleting any and all references to "Annual Rate" therefrom
and substituting "Applicable Annual Rate" in lieu thereof.
2.09 REFERENCES TO "BARCLAYS BUSINESS CREDIT, INC.". The Loan
Agreement and the Other Agreements are hereby amended by deleting any and all
references to "Barclays Business Credit, Inc." therefrom and substituting
"Shawmut Capital Corporation" in lieu thereof.
ARTICLE III
AMENDMENTS TO TERM NOTE
Effective as of the date hereof, the Term Note is hereby amended as
follows:
3.01 AMENDMENT TO INTEREST RATE. The first full paragraph on page 1
of the Term Note is hereby amended by deleting the reference to "1.50%"
contained therein and substituting "1.00%" in lieu thereof.
ARTICLE IV
- 6 -
<PAGE> 105
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent,
unless specifically waived in writing by Lender:
(a) Lender shall have received this Amendment, duly
executed by Borrower together with such additional documents, instruments and
information as Lender or its legal counsel may request;
(b) The representations and warranties contained herein
and in the Loan Agreement and the Other Agreements, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date hereof;
(c) No Default or Event of Default shall have occurred
and be continuing, unless such Default or Event of Default has been
specifically waived in writing by Lender; and
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents, instruments
and other legal matters incident thereto shall be satisfactory to Lender and
its legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the Other Agreements, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the Other Agreements are ratified and confirmed and shall
continue in full force and effect. Borrower and Lender agree that the Loan
Agreement and the Other Agreements, as amended hereby, shall continue to be
legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all Other Agreements executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and
complete copy of presently effective resolutions of Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all Other Agreements executed and/or delivered in connection
herewith, certified by the Assistant Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any Other Agreement are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as
of each such date; (d) no Default or Event of Default under the Loan Agreement,
as amended hereby, has occurred and is continuing, unless such Default or Event
of Default has been specifically waived in writing by Lender; (e)
- 7 -
<PAGE> 106
Borrower is in full compliance with all covenants and agreements contained in
the Loan Agreement and the Other Agreements, as amended hereby; and (f)
Borrower has not amended its Articles of Incorporation or its Bylaws since the
date of the Loan Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Loan Agreement or any Other
Agreement, including, without limitation, any document furnished in connection
with this Amendment, shall survive the execution and delivery of this Amendment
and the Other Agreements, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and
the Other Agreements, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are
hereby amended so that any reference in the Loan Agreement and such Other
Agreements to the Loan Agreement shall mean a reference to the Loan Agreement
as amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement,
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the Other Agreements executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
costs and fees of Lender's legal counsel, and all costs and expenses incurred
by Lender in connection with the enforcement or preservation of any rights
under the Loan Agreement, as amended hereby, or any Other Agreements,
including, without, limitation, the costs and fees of Lender's legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Lender and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations hereunder without the prior written consent of
Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
- 8 -
<PAGE> 107
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Lender to or for any breach of or deviation from any covenant or condition
by Borrower shall be deemed a consent to or waiver of any other breach of the
same or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED.
THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY BORROWER AND LENDER.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES
OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER
HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM
ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN
AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS
AMENDMENT.
- 9 -
<PAGE> 108
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
Title: Vice President Finance
"LENDER"
SHAWMUT CAPITAL CORPORATION,
SUCCESSOR-IN-INTEREST BY
ASSIGNMENT TO BARCLAYS
BUSINESS CREDIT, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ANNEXES:
A - Certified Resolutions of Borrower's Board of Directors
B - Eurodollar Borrowing Notice
- 10 -
<PAGE> 109
ANNEX A
CERTIFIED RESOLUTIONS OF BORROWER'S BOARD OF DIRECTORS
RESOLVED: That any officer of Sepco Industries, Inc., a Texas
corporation (the "Corporation"), acting alone, by his signature be, and the
same hereby is, authorized and directed, in the name of and on behalf of the
Corporation (a) to amend the Corporation's existing Second Amended and Restated
Loan and Security Agreement by and between the Corporation and Barclays
Business Credit, Inc., predecessor-in-interest to Shawmut Capital Corporation
("Lender"), (b) to execute and deliver to Lender with such changes in the terms
and provisions thereof as the officer executing same shall, in his sole
discretion, deem advisable, (i) a certain proposed First Amendment to Second
Amended and Restated Loan and Security Agreement and Term Note, a draft of each
of which has been reviewed and discussed by the Board of Directors of the
Corporation, and (ii) such other agreements, instruments, statements and
writings as the officer or officers executing the same may deem desirable or
necessary in connection therewith, and (c) to perform such other acts as the
officer or officers performing such acts on behalf of the Corporation may deem
desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by any officer of
the Corporation shall be presumed conclusively to be the instruments, the
execution of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the
same hereby are, authorized and directed to execute, in the name of and on
behalf of the Corporation, security agreements, financing statements,
assignments, collateral reports, loan statements, confirmations of delivery,
lien statements, pledge certificates, release certificates, removal reports,
guaranties, cross- collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with Lender, and any
such papers executed and any such actions taken by any of them prior to this
time are approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of
the Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A - Page 1 of 2
<PAGE> 110
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: May ___, 1995.
/s/ GARY A. ALLCORN
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A - Page 2 of 2
<PAGE> 111
ANNEX B
FORM OF EURODOLLAR BORROWING NOTICE
This Eurodollar Borrowing Notice is executed and delivered to Shawmut
Capital Corporation, successor-in-interest by assignment to Barclays Business
Credit, Inc. ("Lender"), by the undersigned officer of Sepco Industries, Inc.,
a Texas corporation ("Borrower"), this ____ day of __________________,
19______, pursuant to Section 3.7(A) of that certain Second Amended and
Restated Loan and Security Agreement, dated April 1, 1994 (together with any
and all renewals, modifications, extensions and amendments thereof, the "Loan
Agreement"), between Borrower and Lender. All capitalized terms not otherwise
defined herein shall have the definitions assigned to such terms in the Loan
Agreement.
<TABLE>
<S> <C> <C>
1. Outstanding principal
amount of Revolving Credit Loans $______________
2. Borrowing Base as of
, 19 (within
------------- --
Business Days of the
----
date hereof) $______________
3. Amount of Eurodollar
Loan requested $______________
4. Date Eurodollar Loan is requested _________, 19___
5. The Eurodollar Interest Period _______________
</TABLE>
In connection with the foregoing Eurodollar Loan and pursuant to the
terms and provisions of the Loan Agreement, the undersigned hereby certifies
that:
(i) The undersigned is the duly elected, qualified and
acting officer of Borrower specified below and as such officer is
authorized to make and deliver this certificate.
(ii) The representations and warranties contained in
Section 8 of the Loan Agreement and in each of the Other Agreements
are true and correct in all material respects on and as of the date
hereof with the same force and effect as though made on and as of the
date hereof.
(iii) No Default or Event of Default has occurred and is
continuing or will exist after giving effect to the Eurodollar Loan
requested hereby.
ANNEX B - Page 1 of 2
<PAGE> 112
(iv) The Loans will not, after giving effect to the
Eurodollar Loan requested hereby, exceed the amount permitted by
Section 2.1 of the Loan Agreement.
(v) Enclosed herewith is a Borrowing Base Certificate
prepared as of a date not more than _____ Business Days prior to the
date hereof.
EXECUTED and delivered this _____ day of _____________________,
19______.
By:
------------------------------------
Its:
------------------------------------
ANNEX B - Page 2 of 2
<PAGE> 113
CONSENT AND RATIFICATION
The undersigned, DAVID R. LITTLE, has executed that certain Amended
and Restated Unconditional Guaranty dated September 16, 1994 (the "Guaranty"),
in favor of BARCLAYS BUSINESS CREDIT, INC., predecessor-in-interest to SHAWMUT
CAPITAL CORPORATION ("Lender"). The undersigned hereby (i) consents and agrees
to the terms of the First Amendment to Second Amended and Restated Loan and
Security Agreement and Term Note dated as of May ___, 1995 (the "Loan
Amendment"), between Sepco Industries and Lender, a copy of which has been
reviewed by the undersigned, and (ii) agrees that the Guaranty shall remain in
full force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a)
the obligations, indebtedness and liabilities arising in connection with the
Loan Amendment comprise some, but not all, of the "Obligations" as such term is
used in the Guaranty, (b) the Guaranty is an "Other Agreement" as such term is
defined in the Loan Agreement, (c) the Guaranty, is not as of this date subject
to any claims, defenses or offsets, (d) nothing contained in the Loan Agreement
or any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: May ___, 1995.
-------------------------------------
David R. Little, individually
<PAGE> 114
CONSENT AND RATIFICATION
The undersigned, T. L. WALKER BEARING CO., has executed that certain
Amended and Restated Unconditional Guaranty dated September 16, 1994 (the
"Guaranty"), in favor of BARCLAYS BUSINESS CREDIT, INC.,
predecessor-in-interest to SHAWMUT CAPITAL CORPORATION ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the First Amendment
to Second Amended and Restated Loan and Security Agreement and Term Note dated
as of May ___, 1995 (the "Loan Amendment"), between Sepco Industries and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that the Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of
the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an
"Other Agreement" as such term is defined in the Loan Agreement, (c) the
Guaranty, is not as of the date hereof subject to any claims, defenses or
offsets, (d) nothing contained in the Loan Agreement or any Other Agreement
entered into prior to or as of the date hereof shall adversely affect any right
or remedy of Lender under the Guaranty, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty and shall not
constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: May ___, 1995.
T. L. WALKER BEARING CO.
By:
-------------------------------------
Name:
-----------------------------------
<PAGE> 115
CONSENT AND RATIFICATION
The undersigned, SOUTHERN ENGINE & PUMP COMPANY, has executed that
certain Amended and Restated Unconditional Guaranty dated September 16, 1994
(the "Guaranty"), in favor of BARCLAYS BUSINESS CREDIT, INC.,
predecessor-in-interest to SHAWMUT CAPITAL CORPORATION ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the First Amendment
to Second Amended and Restated Loan and Security Agreement and Term Note dated
as of May ___, 1995 (the "Loan Amendment"), between Sepco Industries and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that the Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of
the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an
"Other Agreement" as such term is defined in the Loan Agreement, (c) the
Guaranty, is not as of the date hereof subject to any claims, defenses or
offsets, (d) nothing contained in the Loan Agreement or any Other Agreement
entered into prior to or as of the date hereof shall adversely affect any right
or remedy of Lender under the Guaranty, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty and shall not
constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: May ____, 1995.
SOUTHERN ENGINE & PUMP COMPANY
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 116
CONSENT AND RATIFICATION
The undersigned, GARY A. ALLCORN, TRUSTEE FOR KACEY JOYCE LITTLE,
NICHOLAS DAVID LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS, has executed that
certain Amended and Restated Pledge Agreement dated September 16, 1994 (the
"Pledge Agreement"), in favor of BARCLAYS BUSINESS CREDIT, INC.,
predecessor-in-interest to SHAWMUT CAPITAL CORPORATION ("Lender"). The
undersigned hereby (i) consents and agrees to the terms of the First Amendment
to Second Amended and Restated Loan and Security Agreement and Term Note dated
as of May ___, 1995 (the "Loan Amendment"), executed by Sepco Industries, Inc.
and Lender, a copy of which has been reviewed by the undersigned, and (ii)
agrees that the Pledge Agreement shall remain in full force and effect and
shall continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Secured Indebtedness" as such term is used
in the Pledge Agreement, (b) the Pledge Agreement is an "Other Agreement" as
such term is defined in the Loan Agreement, (c) the Pledge Agreement, is not as
of the date hereof subject to any claims, defenses or offsets, (d) nothing
contained in this Agreement or any Other Agreement entered into prior to or as
of the date hereof shall adversely affect any right or remedy of Lender under
the Pledge Agreement, and (e) the execution and delivery of the Loan Amendment
shall in no way reduce, impair or discharge any obligations of the undersigned
pursuant to the Pledge Agreement and shall not constitute a waiver by Lender of
any of Lender's rights against the undersigned.
Dated: May ___, 1995.
----------------------------------------
GARY A. ALLCORN, TRUSTEE FOR KACEY
JOYCE LITTLE, NICHOLAS DAVID
LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS
<PAGE> 117
SECOND AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("this Amendment") is made and entered into this 3rd day of April,
1996, to be effective as of the respective date herein indicated, by and
between SEPCO INDUSTRIES, INC., a Texas corporation ("Borrower"), and FLEET
CAPITAL CORPORATION, a Connecticut corporation, formerly known as Shawmut
Capital Corporation, and successor-in-interest by assignment to Barclays
Business Credit, Inc. ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Second
Amended and Restated Loan and Security Agreement, dated as of April 1, 1994, as
amended by that certain First Amendment to Second Amended and Restated Loan and
Security Agreement and Secured Promissory Note, dated May, 1995, executed by
Borrower and Lender (as amended, the "Loan Agreement").
B. Borrower and Lender desire to further amend the Loan Agreement
and the Other Agreements as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the
Loan Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the respective date herein indicated, the Loan
Agreement is hereby amended as follows:
2.01 AMENDMENT TO DEFINITION OF "BANK" IN SECTION 1.1. Effective
as of December 8, 1995, the definition of "Bank" in Section 1.1 of the Loan
Agreement is hereby amended by deleting the reference to "Shawmut Bank
Connecticut, N.A." therefrom and substituting "Fleet National Bank of
Connecticut" in lieu thereof.
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 118
2.02 REFERENCES TO "SHAWMUT CAPITAL CORPORATION". The Loan
Agreement and the Other Agreements are hereby amended by deleting any and all
references to "Shawmut Capital Corporation" therefrom and substituting "Fleet
Capital Corporation" in lieu thereof.
2.03 AMENDMENT TO SECTION 9.2(G). Effective as of December 31,
1995, Section 9.2(G) of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:
"(G) Declare or make any Distributions; provided, however, that
notwithstanding the foregoing, Borrower may pay cash dividends
on Borrower's preferred stock provided that (i) the aggregate
amount of such paid dividends does not exceed $117,000 in any
fiscal year of Borrower, and (ii) at the time of such payment,
no Default or Event of Default shall be in existence."
2.04 AMENDMENT TO EXHIBIT I. Effective as of December 31, 1995,
Exhibit I to the Loan Agreement, which is the Schedule of Existing Loans and
advances to David R. Little, is amended as follows:
(a) The reference in Exhibit I to the dollar amount "$137,635.00"
is hereby deleted and substituted therefor is the dollar
amount "$136,028.00".
(b) The reference in Exhibit I to the dollar amount "$53,927.00"
is hereby deleted and substituted therefor is the dollar
amount "$53,298.00".
(c) The reference in Exhibit I to the dollar amount "$35,734.00"
is hereby deleted and substituted therefor is the dollar
amount "$122,735.00".
(d) The reference in Exhibit I to the dollar amount "$665,235.00"
is hereby deleted and substituted therefor is the dollar
amount "$750,000.00".
ARTICLE III
LIMITED WAIVERS
3.01 LIMITED WAIVERS. Upon satisfaction of the conditions
precedent specified in Article IV hereof, Lender hereby waives any Default or
Event of Default which occurred solely from the following:
(a) Failure by Borrower to furnish to Lender not later than 90
days after the close of Borrower's 1995 fiscal year, the
audited financial statements described in Section 9.1(J) of
the Loan Agreement, which failure is a violation of Section
9.1(J) of the Loan Agreement; provided, however, this waiver
is conditioned on Borrower's supplying such audited financial
statements to Lender by April 30, 1996;
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 119
(b) The payment by Borrower to the Littles' children's trusts of
Distributions in the aggregate amount of $22,500 during
Borrower's 1995 fiscal year, which is a violation of Section
9.2(G) of the Loan Agreement;
(c) Making aggregate Capital Expenditures of $1,515,000 during
Borrower's 1995 fiscal year, which is a violation of Section
9.2(I) of the Loan Agreement; and
(d) (i) Creation by Borrower of a new wholly-owned Subsidiary,
Bayou Pumps, Inc., a Texas corporation ("Bayou Pumps-Texas"),
(ii) acquisition of the shares of Bayou Pumps, Inc., a
Louisiana corporation ("Bayou Pumps-Louisiana"), by Bayou
Pumps-Texas, pursuant to the provisions of that certain
Agreement and Plan of Reorganization, entered into effective
as of December 27, 1995, by and among Denny Lawrence, Gary
Pappas, Bayou Pumps-Texas, Bayou Pumps-Louisiana, and
Borrower, and (iii) the merger of Bayou Pumps-Louisiana into
Bayou Pumps-Texas, which events constitute violations of
Sections 9.2(A) and 9.2(H) of the Loan Agreement.
Except as otherwise specifically provided for in this Amendment,
nothing contained herein shall be construed as a waiver by Lender of
any covenant or provision of the Loan Agreement, the Other Agreements,
this Amendment, or of any other contract or instrument between
Borrower and Lender, and the failure of Lender at any time or times
hereafter to require strict performance by Borrower of any provision
thereof shall not waive, affect or diminish any right of Lender to
thereafter demand strict compliance therewith. Lender hereby reserves
all rights granted under the Loan Agreement, the Other Agreements,
this Amendment and any other contract or instrument between Borrower
and Lender.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent,
unless specifically waived in writing by Lender:
(a) Lender shall have received this Amendment, duly
executed by Borrower together with such additional documents, instruments and
information as Lender or its legal counsel may request;
(b) The representations and warranties contained herein
and in the Loan Agreement and the Other Agreements, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date hereof;
(c) No Default or Event of Default shall have occurred
and be continuing, unless such Default or Event of Default has been
specifically waived by the provisions of Article III hereof or otherwise
specifically waived in writing by Lender; and
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 120
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents, instruments
and other legal matters incident thereto shall be satisfactory to Lender and
its legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the Other Agreements, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the Other Agreements are ratified and confirmed and shall
continue in full force and effect. Borrower and Lender agree that the Loan
Agreement and the Other Agreements, as amended hereby, shall continue to be
legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all Other Agreements executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) attached hereto as Annex A is a true, correct and
complete copy of presently effective resolutions of Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all Other Agreements executed and/or delivered in connection
herewith, certified by the Assistant Secretary of Borrower; (c) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any Other Agreement are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as
of each such date; (d) no Default or Event of Default under the Loan Agreement,
as amended hereby, has occurred and is continuing, unless such Default or Event
of Default has been specifically waived in writing by Lender; (e) Borrower is
in full compliance with all covenants and agreements contained in the Loan
Agreement and the Other Agreements, as amended hereby; and (f) Borrower has not
amended its Articles of Incorporation or its Bylaws since the date of the Loan
Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Loan Agreement or any Other
Agreement, including, without limitation, any document furnished in connection
with this Amendment, shall survive the execution and delivery of this Amendment
and the Other Agreements, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and
the Other Agreements, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Loan
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 121
Agreement, as amended hereby, are hereby amended so that any reference in the
Loan Agreement and such Other Agreements to the Loan Agreement shall mean a
reference to the Loan Agreement as amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement,
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the Other Agreements executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
costs and fees of Lender's legal counsel, and all costs and expenses incurred
by Lender in connection with the enforcement or preservation of any rights
under the Loan Agreement, as amended hereby, or any Other Agreements,
including, without, limitation, the costs and fees of Lender's legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Lender and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations hereunder without the prior written consent of
Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Lender to or for any breach of or deviation from any covenant or condition
by Borrower shall be deemed a consent to or waiver of any other breach of the
same or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED.
THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 122
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY BORROWER AND LENDER.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES
OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY
RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF
ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE
THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER
HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF
CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM
ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN
AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS
AMENDMENT.
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 6
<PAGE> 123
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
SEPCO INDUSTRIES, INC.
By: /s/ GARY A. ALLCORN
--------------------
Name: Gary A. Allcorn
Title: Sr. VP Finance
"LENDER"
FLEET CAPITAL CORPORATION, FORMERLY
KNOWN AS SHAWMUT CAPITAL CORPORATION,
SUCCESSOR-IN-INTEREST BY
ASSIGNMENT TO BARCLAYS
BUSINESS CREDIT, INC.
By: /s/ H. MICHAEL WILLS
-----------------------
Name: H. Michael Wills
Title: Vice President
ANNEX:
A - Certified Resolutions of Borrower's Board of Directors
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 7
<PAGE> 124
ANNEX A
CERTIFIED RESOLUTIONS OF BORROWER'S BOARD OF DIRECTORS
RESOLVED: That any officer of Sepco Industries, Inc., a Texas
corporation (the "Corporation"), acting alone, by his signature be, and the
same hereby is, authorized and directed, in the name of and on behalf of the
Corporation (a) to amend the Corporation's existing Second Amended and Restated
Loan and Security Agreement by and between the Corporation and Barclays
Business Credit, Inc., predecessor-in-interest to Fleet Capital Corporation,
formerly known as Shawmut Capital Corporation ("Lender"), (b) to execute and
deliver to Lender with such changes in the terms and provisions thereof as the
officer executing same shall, in his sole discretion, deem advisable, (i) a
certain proposed Second Amendment to Second Amended and Restated Loan and
Security Agreement, a draft of which has been reviewed and discussed by the
Board of Directors of the Corporation, and (ii) such other agreements,
instruments, statements and writings as the officer or officers executing the
same may deem desirable or necessary in connection therewith, and (c) to
perform such other acts as the officer or officers performing such acts on
behalf of the Corporation may deem desirable or necessary in connection
therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by any officer of
the Corporation shall be presumed conclusively to be the instruments, the
execution of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the
same hereby are, authorized and directed to execute, in the name of and on
behalf of the Corporation, security agreements, financing statements,
assignments, collateral reports, loan statements, confirmations of delivery,
lien statements, pledge certificates, release certificates, removal reports,
guaranties, cross- collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with Lender, and any
such papers executed and any such actions taken by any of them prior to this
time are approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of
the Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A TO SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 125
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: April 4, 1996.
/s/ GARY A. ALLCORN
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A TO SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 126
CONSENT AND RATIFICATION
The undersigned, DAVID R. LITTLE, has executed that certain Amended
and Restated Unconditional Guaranty dated September 16, 1994 (the "Guaranty"),
in favor of BARCLAYS BUSINESS CREDIT, INC., predecessor-in-interest to FLEET
CAPITAL CORPORATION, formerly known as Shawmut Capital Corporation ("Lender").
The undersigned hereby (i) consents and agrees to the terms of the Second
Amendment to Second Amended and Restated Loan and Security Agreement, dated as
of April 3, 1996 (the "Loan Amendment"), between Sepco Industries, Inc. and
Lender, a copy of which has been reviewed by the undersigned, and (ii) agrees
that the Guaranty shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the undersigned enforceable
against it in accordance with its terms. Furthermore, the undersigned hereby
agrees and acknowledges that (a) the obligations, indebtedness and liabilities
arising in connection with the Loan Amendment comprise some, but not all, of
the "Obligations" as such term is used in the Guaranty, (b) the Guaranty is an
"Other Agreement" as such term is defined in the Loan Agreement, (c) the
Guaranty is not as of this date subject to any claims, defenses or offsets,
(d) nothing contained in the Loan Agreement or any Other Agreement entered into
prior to or as of the date hereof shall adversely affect any right or remedy of
Lender under the Guaranty, and (e) the execution and delivery of the Loan
Amendment shall in no way reduce, impair or discharge any obligations of the
undersigned as guarantor pursuant to the Guaranty and shall not constitute a
waiver by Lender of any of Lender's rights against the undersigned.
Dated: April __, 1996.
/s/ DAVID R. LITTLE
---------------------------------
David R. Little, individually
CONSENT AND RATIFICATION TO SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 127
CONSENT AND RATIFICATION
The undersigned, T. L. WALKER BEARING CO., has executed that certain
Amended and Restated Unconditional Guaranty dated September 16, 1994 (the
"Guaranty"), in favor of BARCLAYS BUSINESS CREDIT, INC.,
predecessor-in-interest to FLEET CAPITAL CORPORATION, formerly known as Shawmut
Capital Corporation ("Lender"). The undersigned hereby (i) consents and agrees
to the terms of the Second Amendment to Second Amended and Restated Loan and
Security Agreement, dated as of April 3, 1996 (the "Loan Amendment"), between
Sepco Industries, Inc. and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Guaranty shall remain in full force and
effect and shall continue to be the legal, valid and binding obligation of the
undersigned enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement" as such term is defined in
the Loan Agreement, (c) the Guaranty, is not as of the date hereof subject to
any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or
any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: April ___, 1996.
T. L. WALKER BEARING CO.
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
Title: Senior VP Finance
CONSENT AND RATIFICATION TO SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 2
<PAGE> 128
CONSENT AND RATIFICATION
The undersigned, SOUTHERN ENGINE & PUMP COMPANY, has executed that
certain Amended and Restated Unconditional Guaranty dated September 16, 1994
(the "Guaranty"), in favor of BARCLAYS BUSINESS CREDIT, INC.,
predecessor-in-interest to FLEET CAPITAL CORPORATION, formerly known as Shawmut
Capital Corporation ("Lender"). The undersigned hereby (i) consents and agrees
to the terms of the Second Amendment to Second Amended and Restated Loan and
Security Agreement, dated as of April 3, 1996 (the "Loan Amendment"), between
Sepco Industries, Inc. and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Guaranty shall remain in full force and
effect and shall continue to be the legal, valid and binding obligation of the
undersigned enforceable against it in accordance with its terms. Furthermore,
the undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement" as such term is defined in
the Loan Agreement, (c) the Guaranty, is not as of the date hereof subject to
any claims, defenses or offsets, (d) nothing contained in the Loan Agreement or
any Other Agreement entered into prior to or as of the date hereof shall
adversely affect any right or remedy of Lender under the Guaranty, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned as guarantor pursuant to the
Guaranty and shall not constitute a waiver by Lender of any of Lender's rights
against the undersigned.
Dated: April 4, 1996.
SOUTHERN ENGINE & PUMP COMPANY
By: /s/ GARY A. ALLCORN
-------------------------------------
Name: Gary A. Allcorn
Title: Senior VP Finance
CONSENT AND RATIFICATION TO SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 3
<PAGE> 129
CONSENT AND RATIFICATION
The undersigned, GARY A. ALLCORN, TRUSTEE FOR KACEY JOYCE LITTLE,
NICHOLAS DAVID LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS, has executed that
certain Amended and Restated Pledge Agreement dated September 16, 1994 (the
"Pledge Agreement"), in favor of BARCLAYS BUSINESS CREDIT, INC.,
predecessor-in-interest to FLEET CAPITAL CORPORATION, formerly known as Shawmut
Capital Corporation ("Lender"). The undersigned hereby (i) consents and agrees
to the terms of the Second Amendment to Second Amended and Restated Loan and
Security Agreement, dated as of April 3, 1996 (the "Loan Amendment"), executed
by Sepco Industries, Inc. and Lender, a copy of which has been reviewed by the
undersigned, and (ii) agrees that the Pledge Agreement shall remain in full
force and effect and shall continue to be the legal, valid and binding
obligation of the undersigned enforceable against it in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a)
the obligations, indebtedness and liabilities arising in connection with the
Loan Amendment comprise some, but not all, of the "Secured Indebtedness" as
such term is used in the Pledge Agreement, (b) the Pledge Agreement is an
"Other Agreement" as such term is defined in the Loan Agreement, (c) the Pledge
Agreement, is not as of the date hereof subject to any claims, defenses or
offsets, (d) nothing contained in this Agreement or any Other Agreement entered
into prior to or as of the date hereof shall adversely affect any right or
remedy of Lender under the Pledge Agreement, and (e) the execution and delivery
of the Loan Amendment shall in no way reduce, impair or discharge any
obligations of the undersigned pursuant to the Pledge Agreement and shall not
constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: April 4, 1996.
/s/ GARY A. ALLCORN
--------------------------------------
GARY A. ALLCORN, TRUSTEE FOR KACEY
JOYCE LITTLE, NICHOLAS DAVID LITTLE
AND ANDREA RAE LITTLE 1988 TRUSTS
CONSENT AND RATIFICATION TO SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 4
<PAGE> 130
THIRD AMENDMENT TO SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("this Amendment") is made and entered into this 9th day of
September, 1996, to be effective as of the respective date herein indicated, by
and among SEPCO INDUSTRIES, INC., a Texas corporation ("Sepco") and BAYOU
PUMPS, INC., a Texas corporation ("Bayou") (Sepco and Bayou being hereinafter
individually and collectively referred to as "Borrower", as governed by the
provisions of Section 1.4 and Section 1.5 of the Loan Agreement, as hereinafter
defined), and FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"),
successor-in-interest by merger to Fleet Capital Corporation, a Connecticut
corporation (Fleet Capital Corporation, a Connecticut corporation, having been,
formerly known as Shawmut Capital Corporation, and having been the
successor-in-interest by assignment to Barclays Business Credit, Inc., a
Connecticut corporation).
RECITALS
A. Sepco and Barclays Business Credit, Inc., have entered into
that certain Second Amended and Restated Loan and Security Agreement, dated as
of April 1, 1994, as amended by that certain First Amendment to Second Amended
and Restated Loan and Security Agreement and Secured Promissory Note, dated
May, 1995, executed by Sepco and Fleet Capital Corporation, a Connecticut
corporation (at that time known as Shawmut Capital Corporation), and as amended
by that certain Second Amendment to Second Amended and Restated Loan and
Security Agreement, entered into on April 3, 1996, executed by Sepco and Fleet
Capital Corporation, a Connecticut corporation (as amended, the "Loan
Agreement").
B. Lender, effective May 1, 1996, as successor-in-interest by
merger to Fleet Capital Corporation, a Connecticut corporation, succeeded to,
and today remains the present holder of, all right, title and interest of Fleet
Capital Corporation, a Connecticut corporation, in the Loan Agreement and each
of the Other Agreements.
C. Borrower and Lender desire to further amend the Loan Agreement
and the Other Agreements as hereinafter set forth, including, without
limitation, to amend the Loan Agreement to make Bayou a party to the Loan
Agreement and to make Bayou a joint and several co-obligor for certain
obligations and indebtedness incurred under the Loan Agreement, all as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE> 131
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the
Loan Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the respective date herein indicated, the Loan
Agreement is hereby amended as follows:
2.01 AMENDMENT TO DEFINITION OF "BANK" IN SECTION 1.1. Effective
as of May 1, 1996, the definition of "Bank" in Section 1.1 of the Loan
Agreement is hereby amended by deleting the reference to "Fleet National Bank
of Connecticut" therefrom and substituting "Fleet National Bank" in lieu
thereof.
2.02 REFERENCES TO "FLEET CAPITAL CORPORATION". Effective as of
May 1, 1996, the Loan Agreement and the Other Agreements are hereby amended
such that any and all references to "Fleet Capital Corporation" shall be deemed
to be a reference to Fleet Capital Corporation, a Rhode Island corporation.
2.03 AMENDMENT TO DEFINITION OF "EURODOLLAR LOAN" IN SECTION 1.1.
Effective as of the date of execution of this Amendment, the definition of
"Eurodollar Loan" in Section 1.1 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"Eurodollar Loan - a Revolving Credit Loan or any portion of
the Term Loan which bears interest at a Eurodollar Base Rate."
2.04 AMENDMENT TO DEFINITION OF "TERM LOAN" IN SECTION 1.1.
Effective as of the date of execution of this Amendment, the definition of
"Term Loan" in Section 1.1 of the Loan Agreement is hereby amended and restated
to read in its entirety as follows:
"Term Loan - as defined in Section 2.2 of this Agreement."
2.05 AMENDMENT TO DEFINITION OF "TERM NOTE" IN SECTION 1.1.
Effective as of the date of execution of this Amendment, the definition of
"Term Note" in Section 1.1 of the Loan Agreement is hereby amended and restated
to read in its entirety as follows:
"Term Note - that certain Secured Promissory Note, dated March
1, 1994, in the original principal amount of $1,329,277.37,
executed by Sepco, and payable to the order of Lender, as
renewed, extended, modified and restated from time to
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 132
time, including, without limitation, as modified and extended
by the third Amendment Modification Agreements (which Third
Amendment Modification Agreements, among other things,
modified the Term Note to reflect the increase of the Term
Loan to $5,000,000)."
2.06 AMENDMENT TO SECTION 1.1; ADDITION OF CERTAIN DEFINITIONS.
Section 1.1 of the Loan Agreement is hereby amended by adding the following new
definitions thereto, to be inserted in their proper alphabetical order:
"Base Rate Loans - all Loans other than Eurodollar Loans.
Bayou - Bayou Pumps, Inc., a Texas corporation.
Bayou Guaranty Agreement - that certain Continuing Guaranty
Agreement, executed by Bayou, in connection with the Third
Amendment, whereby Bayou unconditionally guarantees payment of
all Obligations of Sepco to Lender, such Continuing Guaranty
Agreement to be in form and substance satisfactory to Lender,
in its sole discretion.
Sepco - Sepco Industries, Inc., a Texas corporation.
Third Amendment - the Third Amendment to Second Amended and
Restated Loan and Security Agreement, dated as of September 9,
1996, by and among Sepco, Bayou and Lender.
Third Amendment Deed of Trust - that certain Deed of Trust,
Security Agreement, Financing Statement and Assignment of
Rents, executed by Sepco, for the benefit of Lender (executed
in connection with the Third Amendment), covering the real
property in Harris County, Texas, legally described on Exhibit
G attached to the Third Amendment, whereby Lender is granted a
first priority Lien in such real property securing the
Obligations, such Deed of Trust, Security Agreement, Financing
Statement, and Assignment of Rents to be in form and substance
satisfactory to Lender, in Lender's sole discretion.
Third Amendment Modification Agreements - each of the following
documents, each dated on or about the date hereof, and each executed by Sepco
and Lender:
(A) Modificaton of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Harris County,
Texas];
(B) Modification of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Gregg County,
Texas];
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 3
<PAGE> 133
(C) Modification of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Ector County,
Texas];
(D) Modification of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Matagorda County,
Texas];
(E) Modification of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Jefferson County,
Texas];
(F) Modification of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Lea County, New
Mexico];
(G) Modification of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Dallas County,
Texas];
(H) Modification of Secured Promissory Note and
Second Modification to Deed of Trust, Security Agreement,
Financing Statement and Assignment of Rents [Nueces County,
Texas];
(I) Modification of Secured Promissory Note and
Second Modification to Mortgage, Security Agreement, Financing
Statement and Assignment of Rents [Lafayette Parish,
Louisiana]; and
(J) Modification of Secured Promissory Note and
Second Modification to Mortgage, Security Agreement, Financing
Statement and Assignment of Rents [Jefferson Parish,
Louisiana]."
2.07 REFERENCES TO "GUARANTORS". Effective as of the date of
execution of this Amendment, all references in the Loan Agreement to
"Guarantors" shall be deemed to also refer to Bayou.
2.08 REFERENCES TO "GUARANTY AGREEMENTS". Effective as of the date
of execution of this Amendment, all references in the Loan Agreement to
"Guaranty Agreements" shall be deemed to also refer to Bayou Guaranty
Agreement.
2.09 REFERENCES TO "MORTGAGES". Effective as of the date of
execution of this Amendment, all references in the Loan Agreement to
"Mortgages" shall be deemed to also refer to the Third Amendment Deed of Trust.
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 4
<PAGE> 134
2.10 REFERENCES TO "BORROWER". Effective as of the date of
execution of this Amendment, all references in the Loan Agreement to "Borrower"
shall be deemed to include references to Bayou, subject to the provisions of
Section 1.4 and Section 1.5 of the Loan Agreement.
2.11 ADDITION OF SECTION 1.4; THE TERM "BORROWER" OR "BORROWERS".
Effective as of the date of execution of this Amendment, a new Section 1.4 is
added to the Loan Agreement, to read in its entirety as follows:
"1.4 The Term 'Borrower' or 'Borrowers'. All references
to 'Borrower' or 'Borrowers' herein shall refer to and include each
Borrower separately and all representations contained herein shall be
deemed to be separately made by each of them, and each of the
covenants, agreements and obligations set forth herein shall be deemed
to be the joint and several covenants, agreements and obligations of
them. Any notice, request, consent, report or other information or
agreement delivered to Lender by any Borrower shall be deemed to be
ratified by, consented to and also delivered by the other Borrower.
Each Borrower recognizes and agrees that each covenant and agreement
of 'Borrower' or 'Borrowers' under this Agreement and the Other
Agreements shall create a joint and several obligation of the
Borrowers, which may be enforced against Borrowers, jointly, or
against each Borrower separately. Without limiting the terms of this
Agreement and the Other Agreements, security interests granted under
this Agreement and Other Agreements in properties, interests, assets
and collateral shall extend to the properties, interests, assets and
collateral of each Borrower. Similarly, the term 'Obligations' shall
include, without limitation, all obligations, liabilities and
indebtedness of such corporations, or any one of them, to Lender,
whether such obligations, liabilities and indebtedness shall be joint,
several, joint and several or individual."
2.12 ADDITION OF SECTION 1.5; "SEPCO OBLIGATIONS". Effective as of
the date of execution of this Amendment, a new Section 1.5 is added to the Loan
Agreement, to read in its entirety as follows:
"1.5 Sepco Obligations. Notwithstanding any other
provision of the Term Note or this Agreement to the contrary, it is
hereby agreed that Bayou is not assuming payment of either (x) the
indebtedness evidenced by the Term Note (whether such indebtedness was
incurred on the date of execution of the Third Amendment or earlier)
or (y) of the unpaid principal balance of the other Obligations which
was incurred by Sepco prior to the date of execution of the Third
Amendment pursuant to this Agreement and the Other Agreements
(collectively, the 'Sepco Obligations'). However, the parties hereto
agree and acknowledge that the preceding sentence shall not (i) limit
any contingent liability of Bayou for payment of any of the Sepco
Obligations which arises pursuant to the Bayou Guaranty Agreement, or
(ii) limit the security interest and Liens in favor of Lender granted
by Bayou against the assets of Bayou as a result of Bayou becoming an
additional named 'Borrower', which Liens shall secure payment of all
Obligations arising in connection with this Agreement, whether
currently existing or hereafter arising. For purposes of determining
on or after the date hereof which Obligations outstanding
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 5
<PAGE> 135
constitute Sepco Obligations and how payments are applied to Sepco
Obligations, (x) all payments received by Lender from Sepco on account
of the Obligations shall be deemed to be applied first in payment of
all then due and payable Sepco Obligations (until such time as the
Sepco Obligations shall have been reduced to zero), and thereafter to
the other Obligations as hereinafter set forth and unless Borrower
specifically indicates to the contrary in writing to Lender, all
payments received by Lender through the Dominion Account shall be
deemed to be payments received by Lender from Sepco, (y) all payments
received by Lender from Bayou shall be deemed to be applied on account
of Obligations which are not Sepco Obligations, and to the extent
that, notwithstanding the foregoing, for any reason anshall instead be
determined to have been applied on account of any Sepco Obligations,
such payment shall be deemed to have been made by Bayou pursuant to
the Bayou Guaranty Agreement, and (z) unless Borrower specifically
indicates to the contrary in writing to Lender, all payments received
by Lender on the Term Note shall be deemed to be payments received
from Sepco, and to the extent that, notwithstanding the foregoing, for
any reason any payment received by Lender on the Term Note shall
instead be determined to have been made by Bayou, such payment shall
be deemed to have been made by Bayou pursuant to the Bayou Guaranty
Agreement."
2.13 AMENDMENT TO SECTION 2.2. Effective as of the date of
execution of this Amendment, Section 2.2 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"2.2 Term Loan. The parties hereto agree that
effective as of April 1, 1994, Lender made to Sepco that
certain term loan in the original principal amount of
$1,329,277.37, which term loan is currently evidenced by that
certain Secured Promissory Note, dated March 1, 1994, in the
original principal amount of $1,329,277.37, executed by Sepco,
and payable to the order of Lender. Sepco further agrees,
represents and warrants that as of the date of execution of
the Third Amendment, the unpaid principal amount of such term
loan is $82,231.76, and that there are no claims or offsets
against, or defenses or counterclaims to, payment of such
amount to Lender. Sepco further agrees, represents and
warrants that it has requested that Lender convert
$4,917,768.24 of the principal amount of Revolving Credit
Loans made to Sepco by Lender which are outstanding on the
date of execution of the Third Amendment to a term loan, which
term loan will be combined and consolidated with the
outstanding principal amount of the term loan made to Sepco on
April 1, 1994, such that the combined term loan shall be in
the aggregate principal amount of $5,000,000 (such $5,000,000
term loan made on the date of execution of the Third Amendment
being referred to in this Agreement as the 'Term Loan').
Subject to the terms and conditions of this Agreement, Lender
agrees to make the Term Loan to Borrower. The Term Loan shall
be repayable in accordance with the terms of the Term Note,
and shall be secured by the Collateral. The parties hereto
agree that the Term Loan represents a portion of the 'Sepco
Obligations' referred to and defined in Section 1.5 of this
Agreement. If Sepco sells any of its Equipment or real
Property, or if any of the other Property
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 6
<PAGE> 136
owned by Sepco is taken by condemnation, Sepco shall pay to
Lender, unless otherwise agreed by Lender, as and when
received by Sepco and as a mandatory prepayment of the Term
Loan (or, at Lender's option, such of the other Obligations as
Lender may elect), a sum equal to the proceeds received by
Sepco from such sale or condemnation, less any state or
federal income tax directly attributable thereto."
2.14 ADDITION OF SECTION 2.5; JOINT AND SEVERAL LIABILITY; RIGHTS
OF CONTRIBUTION. Effective as of the date of execution of this Amendment, a
new Section 2.5 is added to the Loan Agreement to read in its entirety as
follows:
"2.5 Joint and Several Liability; Rights of Contribution.
(A) Each Borrower states and acknowledges that: (i)
pursuant to this Agreement, Borrowers desire to utilize their
borrowing potential on a consolidated basis to the same extent
possible if they were merged into a single corporate entity; (ii) it
has determined that it will benefit specifically and materially from
the advances of credit contemplated by this Agreement; (iii) it is
both a condition precedent to the obligations of Lender hereunder and
a desire of the Borrowers that each Borrower execute and deliver to
Lender this Agreement; and (iv) Borrowers have requested and bargained
for the structure and terms of and security for the advances
contemplated by this Agreement.
(B) Each Borrower hereby irrevocably and unconditionally:
(i) agrees that it is jointly and severally liable to Lender for the
full and prompt payment of the Obligations and the performance by each
Borrower of its obligations hereunder in accordance with the terms
hereof; (ii) agrees to fully and promptly perform all of its
obligations hereunder with respect to each advance of credit hereunder
as if such advance had been made directly to it; and (iii) agrees as a
primary obligation to indemnify Lender on demand for and against any
loss incurred by Lender as a result of any of the obligations of any
Borrower being or becoming void, voidable, unenforceable or
ineffective for any reason whatsoever, whether or not known to Lender
or any Person, the amount of such loss being the amount which Lender
would otherwise have been entitled to recover from Borrower.
(C) It is the intent of each Borrower that the
indebtedness, obligations and liability hereunder of no one of them be
subject to challenge on any basis. Accordingly, as of the date
hereof, the liability of each Borrower under this Section 2.5,
together with all of its other liabilities to all Persons as of the
date hereof and as of any other date on which a transfer is deemed to
occur by virtue of this Agreement, calculated in amount sufficient to
pay its probable net liabilities on its existing Indebtedness as the
same become absolute and matured ('Dated Liabilities') is, and is to
be, less than the amount of the aggregate of a fair valuation of its
Property as of such corresponding date ('Dated Assets'). To this end,
each Borrower under this Section 2.5, (i) grants to and recognizes in
each other Borrower, ratably, rights of subrogation and contribution
in the amount, if any, by which the Dated Assets of such Borrower, but
for the aggregate of subrogation
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 7
<PAGE> 137
and contribution in its favor recognized herein, would exceed the
Dated Liabilities of such Borrower or, as the case may be, (ii)
acknowledges receipt of and recognizes its right to subrogation and
contribution ratably from the other Borrower in the amount, if any, by
which the Dated Liabilities of such Borrower, but for the aggregate of
subrogation and contribution in its favor recognized herein, would
exceed the Dated Assets of such Borrower under this Section 2.5. In
recognizing the value of the Dated Assets and the Dated Liabilities,
it is understood that Borrowers will recognize, to at least the same
extent of their aggregate recognition of liabilities hereunder, their
rights to subrogation and contribution hereunder. It is a material
objective of this Section 2.5 that each Borrower recognizes rights to
subrogation and contribution rather than be deemed to be insolvent (or
in contemplation thereof) by reason of an arbitrary interpretation of
its joint and several obligations hereunder."
2.15 AMENDMENT TO SECTION 3.1(A). Effective as of the date of
execution of this Amendment, the first three sentences of Section 3.1(A) of the
Loan Agreement are amended and restated to read in their entirety as follows:
"(A) Outstanding principal on the Loans shall bear interest,
calculated daily (computed on the actual number of days elapsed over a
year of 360 days) at the following rates per annum (individually
called, as applicable, an 'Applicable Annual Rate'): (i) Eurodollar
Loans shall bear interest at a rate per annum equal to 2.75% above the
Eurodollar Base Rate for the Eurodollar Interest Period applicable
thereto and (ii) all other Loans shall bear interest at a rate per
annum equal to .50% above the Base Rate. All Loans shall bear
interest at a rate per annum equal to .50% above the Base Rate, unless
the Borrower provides a Eurodollar Borrowing Notice to the Lender in
accordance with Section 3.7(A) irrevocably electing that all or a
portion of the Loans are to bear interest at a Eurodollar Base Rate.
Each Loan that is not a Eurodollar Loan shall be increased or
decreased, as the case may be, by an amount equal to any increase or
decrease in the Base Rate, with such adjustments to be effective as of
the opening of business on the day that any such change in the Base
Rate becomes effective."
2.16 AMENDMENT TO SECTION 3.3(A). Effective as of the date of
execution of this Amendment, Section 3.3(A) of the Loan Agreement is amended by
deleting therefrom the reference to the date "January 2, 1997" and substituting
therefor the date "January 2, 1999".
2.17 AMENDMENT TO SECTION 3.3(C). Effective as of the date of
execution of this Amendment, Section 3.3(C) of the Loan Agreement is amended by
deleting therefrom the reference to the date "January 2, 1997" and substituting
therefor the date "January 2, 1999".
2.18 AMENDMENT TO SECTION 3.7(A). Effective as of the date of
execution of this Amendment, Section 3.7(A) of the Loan Agreement is amended
and restated to read in its entirety as follows:
"(A) Manner of Borrowing a Eurodollar Loan. Borrower shall give
Lender notice of its intention to either (i) borrow a Eurodollar Loan
or (ii) designate a portion of the Base
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 8
<PAGE> 138
Rate Loans to bear interest based upon the Eurodollar Base Rate, in
the form of Annex B to the Third Amendment (a 'Eurodollar Borrowing
Notice'), in which notice Borrower shall specify (x) the aggregate
amount of such Eurodollar Loan, (y) the requested date of such
Eurodollar Loan, and (z) the Eurodollar Interest Period applicable
thereto. Borrower shall give Lender the Eurodollar Borrowing Notice
at least two (2) Business Days prior to the requested date of the
Eurodollar Loan. With respect to such Eurodollar Loans, (I) each
Eurodollar Loan shall be in an integral multiple of $1,000,000, (II)
no more than four (4) Eurodollar Interest Periods may be in existence
at any one time, and (III) Borrower may not request a Eurodollar Loan
if there exists a Default or Event of Default. The Borrower shall
select Eurodollar Interest Periods with respect to Eurodollar Loans so
that no Eurodollar Interest Period expires after the end of the
Original Term, or if extended pursuant to Section 3.3(A), any Renewal
Term. An outstanding Loan may be converted to a Eurodollar Loan at
any time subject to the provisions of this Section 3.7."
2.19 AMENDMENT TO SECTION 3.7(B). Effective as of the date of
execution of this Amendment, the second sentence of Section 3.7(B) of the Loan
Agreement is amended and restated to read in its entirety as follows:
"If at the end of a Eurodollar Interest Period for an
outstanding Eurodollar Loan, Borrower has failed to deliver to
Lender a new Eurodollar Borrowing Notice with respect to such
Eurodollar Loan or to pay such Eurodollar Loan, then such
Eurodollar Loan shall be converted to a Base Rate Loan bearing
interest at a rate, and subject to all other terms and
conditions of this Agreement, applicable to Base Rate Credit
Loans on and after the last day of such Eurodollar Interest
Period until paid or until the effective date of a new
Eurodollar Borrowing Notice with respect thereto."
2.20 GRANT BY BAYOU OF SECURITY INTEREST IN COLLATERAL. Bayou
hereby agrees that by becoming a party to the Loan Agreement, it is subject to
all the provisions of the Loan Agreement, including, without limitation, the
grant of a continuing security interest in and Lien upon all of the Property
and interests in Property of Bayou, whether now owned or existing or hereafter
created, acquired or arising and wheresoever located, as specified in Section
4.1 of the Loan Agreement. In accordance therewith, in order to secure the
prompt payment and performance to Lender of the Obligations, Bayou hereby
grants to Lender a continuing security interest in and Lien upon all of the
Property and interests in Property of Bayou, whether now owned or existing or
hereafter created, acquired or arising and wheresoever located including,
without limitation, the following:
(A) Accounts;
(B) Inventory;
(C) Equipment;
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 9
<PAGE> 139
(D) General Intangibles;
(E) all monies and other Property of any kind, now or at
any time or times hereafter, in the possession or under the control of Lender
or a bailee of Lender;
(F) all accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (A), (B), (C), (D) and
(E) above, including, without limitation, Proceeds of and unearned premiums
with respect to insurance Policies insuring any of the Collateral; and
(G) all books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Bayou pertaining to any of (A), (B), (C), (D), (E) or
(F) above.
2.21 DELETION OF SECTION 10.2(C). Effective as of April 30,
1996, Section 10.2(C) of the Loan Agreement is deleted in its entirety.
2.22. DELETION OF SECTION 11.1(H). Effective as of April 30, 1996,
Section 11.1(H) of the Loan Agreement is deleted in its entirety.
2.23. DELIVERY TO LENDER OF MORTGAGEE CONSENT AND FIRST LIENHOLDER
ESTOPPEL LETTER REGARDING PROPERTY DESCRIBED IN THIRD AMENDMENT DEED OF TRUST.
In addition to and not in limitation of its other agreements under the Loan
Agreement, Borrower agrees to deliver to Lender within ninety (90) days after
the date of execution of this Amendment, each of the following, each in form
and substance satisfactory to Lender, in its sole discretion:
(a) Mortgagee Consent regarding the property described in
the Third Amendment Deed of Trust, duly executed by William E. Snyder
and Helen B. Snyder ("Snyders"); and
(b) First Lienholder Estoppel Letter regarding the
property described in the Third Amendment Deed of Trust, duly executed
by the Snyders.
Borrower agrees that failure by Borrower to deliver either or both of the
above-described documents by the above date shall constitute an Event of
Default under the Loan Agreement.
ARTICLE III
CONDITIONS PRECEDENT
3.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent,
unless specifically waived in writing by Lender:
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 10
<PAGE> 140
(a) Lender shall have received each of the following,
each in form and substance satisfactory to Lender, in its sole discretion, and
each duly executed by each party thereof, other than Lender:
(i) This Amendment, duly executed by Lender,
together with the relevant Consent, Ratification, and Amendment,
respectively duly executed by David R. Little, individually, T.L.
Walker Bearing Co., Southern Engine & Pump Company, and Gary A.
Allcorn, Trustee for Kacey Joyce Little, Nicholas David Little and
Andrea Rae Little 1988 Trusts;
(ii) Bayou Guaranty Agreement, duly executed by
Bayou;
(iii) The Third Amendment Modification Agreements,
duly executed by Sepco;
(iv) The Third Amendment Deed of Trust, duly
executed by Sepco, accompanied by a commitment for issuance of
mortgagee title insurance policy, issued by a title company reasonably
satisfactory to Lender, whereby such title company agrees to issue to
Lender a mortgagee title insurance policy regarding such real
property, such mortgagee title insurance commitment to be in form and
substance satisfactory to Lender, in its sole discretion; and
(v) All other documents Lender may request with
respect to any matter relevant to this Amendment or the transactions
contemplated hereby;
(b) Lender shall have received in immediately available
funds from Sepco payment of the $25,000 restructuring fee described in Section
5.03 of this Amendment.
(c) The representations and warranties contained herein
and in the Loan Agreement and the Other Agreements, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date hereof;
(d) No Default or Event of Default shall have occurred
and be continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender; and
(e) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all documents, instruments
and other legal matters incident thereto shall be satisfactory to Lender and
its legal counsel.
ARTICLE IV
NO WAIVER
4.01 NO WAIVER. Except as otherwise specifically provided for in
this Amendment, nothing contained herein shall be construed as a waiver by
Lender of any covenant or provision
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 11
<PAGE> 141
of the Loan Agreement, the Other Agreements, this Amendment, or of any other
contract or instrument between any Borrower and Lender, and the failure of
Lender at any time or times hereafter to require strict performance by any
Borrower of any provision thereof shall not waive affect or diminish any right
of Lender to thereafter demand strict compliance therewith. Lender hereby
reserves all rights granted under the Loan Agreement, the Other Agreements,
this Amendment and any other contract or instrument between any Borrower and
Lender.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the Other Agreements, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the Other Agreements are ratified and confirmed and shall
continue in full force and effect. Each Borrower and Lender agree that the
Loan Agreement and the Other Agreements, as amended hereby, shall continue to
be legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Each Borrower hereby
represents and warrants to Lender that (a) the execution, delivery and
performance of this Amendment and any and all Other Agreements executed and/or
delivered in connection herewith have been authorized by all requisite
corporate action on the part of such Borrower and will not violate the Articles
of Incorporation or Bylaws of such Borrower; (b) attached hereto as Annex A is
a true, correct and complete copy of presently effective resolutions of each
Borrower's Board of Directors authorizing the execution, delivery and
performance of this Amendment and any and all Other Agreements executed and/or
delivered in connection herewith, certified by the Assistant Secretary of
Borrower; (c) the representations and warranties contained in the Loan
Agreement, as amended hereby, and any Other Agreement are true and correct on
and as of the date hereof and on and as of the date of execution hereof as
though made on and as of each such date; (d) no Default or Event of Default
under the Loan Agreement, as amended hereby, has occurred and is continuing,
unless such Default or Event of Default has been specifically waived in writing
by Lender; (e) each Borrower is in full compliance with all covenants and
agreements contained in the Loan Agreement and the Other Agreements, as amended
hereby; (f) Sepco has not amended its Articles of Incorporation or its Bylaws
since the date of the Loan Agreement, and (g) Bayou has not amended its
Articles of Incorporation or its Bylaws since the date of incorporation of
Bayou.
5.03 RESTRUCTURING FEE. In consideration for the agreements of
Lender contained herein including, without limitation, extending the Original
Term and restructuring and increasing the Term Loan, but subject to the
provisions of Section 3.1(C) of the Loan Agreement, Sepco agrees to pay Lender
a fee of $25,000. Such fee shall be fully earned, and due and payable, on the
date of execution of this Amendment.
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 12
<PAGE> 142
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Loan Agreement or any Other
Agreement, including, without limitation, any document furnished in connection
with this Amendment, shall survive the execution and delivery of this Amendment
and the Other Agreements, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and
the Other Agreements, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Loan Agreement, as amended hereby, are
hereby amended so that any reference in the Loan Agreement and such Other
Agreements to the Loan Agreement shall mean a reference to the Loan Agreement
as amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, each
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the Other Agreements executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
costs and fees of Lender's legal counsel, and all costs and expenses incurred
by Lender in connection with the enforcement or preservation of any rights
under the Loan Agreement, as amended hereby, or any Other Agreements,
including, without, limitation, the costs and fees of Lender's legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Lender and each Borrower and their respective
successors and assigns, except that no Borrower may assign or transfer any of
its rights or obligations hereunder without the prior written consent of
Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Lender to or for any breach of or deviation from any covenant or condition
by any Borrower shall be deemed a consent to or waiver of any other breach of
the same or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 13
<PAGE> 143
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER AGREEMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED.
THE LOAN AGREEMENT AND THE OTHER AGREEMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY EACH BORROWER AND LENDER.
6.11 RELEASE. EACH BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO
DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR
NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART
OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR
DAMAGES OF ANY KIND OR NATURE FROM LENDER. EACH BORROWER HEREBY VOLUNTARILY
AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS PREDECESSORS, AGENTS,
EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS,
CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN
OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN
PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH ANY BORROWER MAY
NOW OR HEREAFTER HAVE AGAINST LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND
ARISING FROM ANY "LOANS", INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE
HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER
THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND EXECUTION OF
THIS AMENDMENT.
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 14
<PAGE> 144
"BORROWER"
SEPCO INDUSTRIES, INC.
By: /s/ DAVID R. LITTLE
-------------------------------------
Name: David R. Little
----------------------------------
Title: CEO
---------------------------------
BAYOU PUMPS, INC.
By:
-------------------------------------
Name:
----------------------------------
Title:
---------------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
-------------------------------------
Name: H. Michael Wills
----------------------------------
Title: Vice President
---------------------------------
ANNEXES:
A-1 - Certified Resolutions of Sepco Industries, Inc.
A-2 - Certified Resolutions of Bayou Pumps, Inc.
B - Form of Eurodollar Borrowing Notice
THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 15
<PAGE> 145
ANNEX A-1
CERTIFIED RESOLUTIONS OF
SEPCO INDUSTRIES, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of Sepco Industries, Inc., a Texas
corporation (the "Corporation"), acting alone, by his signature be, and the
same hereby is, authorized and directed, in the name of and on behalf of the
Corporation (a) to amend the Corporation's existing Second Amended and Restated
Loan and Security Agreement by and between the Corporation and Fleet Capital
Corporation, a Rhode Island corporation ("Lender"), successor-in-interest by
merger to Fleet Capital Corporation, a Connecticut corporation (Fleet Capital
Corporation, a Connecticut Corporation having been formerly known as Shawmut
Capital Corporation and having been the successor-in-interest by assignment to
Barclays Business Credit, Inc.), (b) to execute and deliver to Lender with such
changes in the terms and provisions thereof as the officer executing same
shall, in his sole discretion, deem advisable, (i) a certain proposed Third
Amendment to Second Amended and Restated Loan and Security Agreement to be
executed by Corporation, Bayou Pumps, Inc. and Lender, a draft of which has
been reviewed and discussed by the Board of Directors of the Corporation, and
(ii) such other agreements, instruments, statements and writings as the officer
or officers executing the same may deem desirable or necessary in connection
therewith, and (c) to perform such other acts as the officer or officers
performing such acts on behalf of the Corporation may deem desirable or
necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by any officer of
the Corporation shall be presumed conclusively to be the instruments, the
execution of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the
same hereby are, authorized and directed to execute, in the name of and on
behalf of the Corporation, security agreements, financing statements,
assignments, collateral reports, loan statements, confirmations of delivery,
lien statements, pledge certificates, release certificates, removal reports,
guaranties, cross-collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with Lender, and any
such papers executed and any such actions taken by any of them prior to this
time are approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of
the Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-1 TO THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 146
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: September 9, 1996.
/s/ GARY A. ALLCORN
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-1 TO THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 147
ANNEX A-2
CERTIFIED RESOLUTIONS OF
BAYOU PUMPS, INC.'S BOARD OF DIRECTORS
RESOLVED: That any officer of Bayou Pumps, Inc., a Texas corporation
(the "Corporation"), acting alone, by his signature be, and the same hereby is,
authorized and directed, in the name of and on behalf of the Corporation (a) to
become a party to and amend that certain Second Amended and Restated Loan and
Security Agreement by and between Sepco Industries, Inc. ("Sepco") and Fleet
Capital Corporation, a Rhode Island corporation ("Lender"),
successor-in-interest by merger to Fleet Capital Corporation, a Connecticut
corporation (Fleet Capital Corporation, a Connecticut Corporation having been
formerly known as Shawmut Capital Corporation and having been the
successor-in-interest by assignment to Barclays Business Credit, Inc.), (b) to
execute and deliver to Lender with such changes in the terms and provisions
thereof as the officer executing same shall, in his sole discretion, deem
advisable, (i) a certain proposed Third Amendment to Second Amended and
Restated Loan and Security Agreement to be executed by Corporation, Sepco and
Lender, a draft of which has been reviewed and discussed by the Board of
Directors of the Corporation, and (ii) such other agreements, instruments,
statements and writings as the officer or officers executing the same may deem
desirable or necessary in connection therewith, and (c) to perform such other
acts as the officer or officers performing such acts on behalf of the
Corporation may deem desirable or necessary in connection therewith; and be it
FURTHER RESOLVED: That said agreements will benefit the Corporation,
both directly and indirectly, and are in the best interests of the Corporation;
and be it
FURTHER RESOLVED: That said agreements and other statements in
writing executed in the name and on behalf of the Corporation by any officer of
the Corporation shall be presumed conclusively to be the instruments, the
execution of which is authorized by these resolutions; and be it
FURTHER RESOLVED: That the officers of the Corporation be, and the
same hereby are, authorized and directed to execute, in the name of and on
behalf of the Corporation, security agreements, financing statements,
assignments, collateral reports, loan statements, confirmations of delivery,
lien statements, pledge certificates, release certificates, removal reports,
guaranties, cross- collateralization agreements and such other writings and to
take such other actions as are necessary in their dealings with Lender, and any
such papers executed and any such actions taken by any of them prior to this
time are approved, ratified and confirmed; and be it
FURTHER RESOLVED: That the Secretary or any Assistant Secretary of
the Corporation, by the signature of any one or more of them, be, and the same
hereby are, authorized and directed to attest the execution by the Corporation
of the papers signed pursuant to these resolutions, to affix the seal of the
Corporation thereto, if required by Lender, and to certify to Lender the
adoption of these resolutions.
ANNEX A-2 TO THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 1
<PAGE> 148
CERTIFICATION
The undersigned hereby certifies that the within and foregoing
resolutions are in effect as of the date hereof, without modification, and that
the person signing the within and foregoing Amendment on behalf of the
Corporation is the duly elected officer stated below his name, that he is
authorized to sign such Amendment, and that his signature thereon is genuine.
DATED: September 9, 1996.
/s/ GARY A. ALLCORN
----------------------------------------
[Assistant] Secretary of the Corporation
ANNEX A-2 TO THIRD AMENDMENT TO SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT - Page 2
<PAGE> 149
Exhibit "G"
to
Third Amendment to Second Amended and Restated
Loan and Security Agreement
Description of Creekmont, Houston, Texas Real Property
Lot(s) Twelve (12) in Block One (1) of ROSLYN HEIGHTS ACRES HOME SECTION NO.
ONE, an addition to Harris County, Texas, according to the map or plat thereof
recorded in Volume 5, Page 28 of the Map Records of Harris County, Texas.
<PAGE> 150
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, DAVID R. LITTLE, has executed that certain Amended
and Restated Unconditional Guaranty, dated September 16, 1994 (the "Guaranty"),
in favor of FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Lender"),
successor-in-interest by merger to Fleet Capital Corporation, a Connecticut
corporation (Fleet Capital Corporation, a Connecticut corporation, having
formerly been known as Shawmut Capital Corporation and having been the
successor-in-interest by assignment to Barclays Business Credit, Inc.). The
undersigned hereby (i) consents and agrees to the terms of the Third Amendment
to Second Amended and Restated Loan and Security Agreement, dated as of
September 9, 1996 (the "Loan Amendment"), by and among Sepco Industries, Inc.,
a Texas corporation, Bayou Pumps, Inc., a Texas corporation, and Lender, a copy
of which has been reviewed by the undersigned, (ii) agrees, effective as of the
date hereof, that the Guaranty is amended such that hereafter all references to
"Borrower" in the Guaranty shall, in addition to Sepco Industries, Inc., a
Texas corporation, also include Bayou Pumps, Inc., a Texas corporation, and
(iii) agrees that the Guaranty shall remain in full force and effect and shall
continue to be the legal, valid and binding obligation of the undersigned
enforceable against it in accordance with its terms. Furthermore, the
undersigned hereby agrees and acknowledges that (a) the obligations,
indebtedness and liabilities arising in connection with the Loan Amendment
comprise some, but not all, of the "Obligations" as such term is used in the
Guaranty, (b) the Guaranty is an "Other Agreement", as such term is defined in
the Loan Agreement, (c) the Guaranty, is not as of this date subject to any
claims, defenses or offsets, (d) nothing contained in the Loan Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Guaranty, and (e) the execution
and delivery of the Loan Amendment shall in no way reduce, impair or discharge
any obligations of the undersigned as guarantor pursuant to the Guaranty and
shall not constitute a waiver by Lender of any of Lender's rights against the
undersigned.
Dated: September 9, 1996.
/s/ DAVID R. LITTLE
----------------------------------------
David R. Little, individually
AGREED TO THIS 16
DAY OF September, 1996:
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
--------------------------
Name: H. Michael Wills
------------------------
Title: Vice President
-----------------------
CONSENT AND RATIFICATION TO THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 1
<PAGE> 151
CONSENT, RATIFICATION AND AMENDMENT
The undersigned, T. L. WALKER BEARING CO., has executed (x) that
certain Amended and Restated Unconditional Guaranty, dated September 16, 1994
(the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island
corporation ("Lender"), successor-in-interest by merger to Fleet Capital
Corporation, a Connecticut corporation (Fleet Capital Corporation, a
Connecticut corporation, having been formerly known as Shawmut Capital
Corporation and having been the successor-in-interest by assignment to Barclays
Business Credit, Inc.), and (y) that certain Amended and Restated Security
Agreement, dated as of April 1, 1994, executed by the undersigned and Fleet
(the "Security Agreement"). The undersigned hereby (i) consents and agrees to
the terms of the Third Amendment to Second Amended and Restated Loan and
Security Agreement, dated as of September 9, 1996 (the "Loan Amendment"), by
and among Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a
Texas corporation, and Lender, a copy of which has been reviewed by the
undersigned, (ii) agrees, effective as of the date hereof, that the Guaranty is
amended such that hereafter all references to "Borrower" in the Guaranty shall,
in addition to Sepco Industries, Inc., a Texas corporation, also include Bayou
Pumps, Inc., a Texas corporation, (iii) agrees, effective as of the date
hereof, that the Security Agreement is amended such that hereafter the
definition of "Borrower" in the Security Agreement shall mean "each of Sepco
Industries, Inc., a Texas corporation, and Bayou Pumps, Inc., a Texas
corporation, and any and all successors and assigns thereof", and (iv) agrees
that each of the Guaranty and the Security Agreement shall remain in full force
and effect and shall continue to be the legal, valid and binding obligation of
the undersigned, enforceable against it in accordance with its terms.
Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations", as such term is
used in the Guaranty, and some, but not all, of the "Secured Indebtedness", as
such term is used in the Security Agreement, (b) each of the Guaranty and the
Security Agreement is an "Other Agreement", as such term is defined in the Loan
Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the
date hereof, subject to any claims, defenses or offsets, (d) nothing contained
in the Loan Agreement or any Other Agreement entered into prior to or as of the
date hereof shall adversely affect any right or remedy of Lender under the
Guaranty or under the Security Agreement, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty or as debtor pursuant
to the Security Agreement and shall not constitute a waiver by Lender of any of
Lender's rights against the undersigned.
Dated: September 9, 1996.
T. L. WALKER BEARING CO.
By: /s/ DAVID R. LITTLE
--------------------------------
Name: David R. Little
------------------------------
Title: CEO
-----------------------------
AGREED TO THIS 16
DAY OF September, 1996:
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
--------------------------
Name: H. Michael Wills
------------------------
Title: Vice President
-----------------------
CONSENT AND RATIFICATION TO THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 2
<PAGE> 152
CONSENT AND RATIFICATION
The undersigned, SOUTHERN ENGINE & PUMP COMPANY, has executed (x) that
certain Amended and Restated Unconditional Guaranty, dated September 16, 1994
(the "Guaranty"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island
corporation ("Lender"), successor-in-interest by merger to Fleet Capital
Corporation, a Connecticut corporation (Fleet Capital Corporation, a
Connecticut corporation, having been formerly known as Shawmut Capital
Corporation and having been the successor-in-interest by assignment to Barclays
Business Credit, Inc.), and (y) that certain Amended and Restated Security
Agreement, dated as of April 1, 1994, executed by the undersigned and Fleet
(the "Security Agreement"). The undersigned hereby (i) consents and agrees to
the terms of the Third Amendment to Second Amended and Restated Loan and
Security Agreement, dated as of September 9, 1996 (the "Loan Amendment"), by
and among Sepco Industries, Inc., a Texas corporation, Bayou Pumps, Inc., a
Texas corporation, and Lender, a copy of which has been reviewed by the
undersigned, (ii) agrees, effective as of the date hereof, that the Guaranty is
amended such that hereafter all references to "Borrower" in the Guaranty shall,
in addition to Sepco Industries, Inc., a Texas corporation, also include Bayou
Pumps, Inc., a Texas corporation, (iii) agrees, effective as of the date
hereof, that the Security Agreement is amended such that hereafter the
definition of "Borrower" in the Security Agreement shall mean "each of Sepco
Industries, Inc., a Texas corporation, and Bayou Pumps, Inc., a Texas
corporation, and any and all successors and assigns thereof", and (iv) agrees
that each of the Guaranty and the Security Agreement shall remain in full force
and effect and shall continue to be the legal, valid and binding obligation of
the undersigned, enforceable against it in accordance with its terms.
Furthermore, the undersigned hereby agrees and acknowledges that (a) the
obligations, indebtedness and liabilities arising in connection with the Loan
Amendment comprise some, but not all, of the "Obligations", as such term is
used in the Guaranty, and some, but not all, of the "Secured Indebtedness", as
such term is used in the Security Agreement, (b) each of the Guaranty and the
Security Agreement is an "Other Agreement", as such term is defined in the Loan
Agreement, (c) neither the Guaranty nor the Security Agreement is, as of the
date hereof, subject to any claims, defenses or offsets, (d) nothing contained
in the Loan Agreement or any Other Agreement entered into prior to or as of the
date hereof shall adversely affect any right or remedy of Lender under the
Guaranty or under the Security Agreement, and (e) the execution and delivery of
the Loan Amendment shall in no way reduce, impair or discharge any obligations
of the undersigned as guarantor pursuant to the Guaranty or a debtor pursuant
to the Security Agreement and shall not constitute a waiver by Lender of any of
Lender's rights against the undersigned.
Dated: September 9, 1996.
SOUTHERN ENGINE & PUMP COMPANY
By: /s/ DAVID R. LITTLE
--------------------------------
Name: David R. Little
------------------------------
Title: CEO
-----------------------------
AGREED TO THIS 16
DAY OF September, 1996:
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
--------------------------
Name: H. Michael Wills
------------------------
Title: Vice President
-----------------------
CONSENT AND RATIFICATION TO THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 3
<PAGE> 153
CONSENT, RATIFICATION, AND AMENDMENT
The undersigned, GARY A. ALLCORN, TRUSTEE FOR KACEY JOYCE LITTLE,
NICHOLAS DAVID LITTLE AND ANDREA RAE LITTLE 1988 TRUSTS, has executed that
certain Amended and Restated Pledge Agreement dated September 16, 1994 (the
"Pledge Agreement"), in favor of FLEET CAPITAL CORPORATION, a Rhode Island
corporation ("Lender"), successor-in-interest by merger to Fleet Capital
Corporation, a Connecticut corporation (Fleet Capital Corporation, a
Connecticut corporation, having been formerly known as Shawmut Capital
Corporation and having been the successor-in-interest by assignment to Barclays
Business Credit, Inc.). The undersigned hereby (i) consents and agrees to the
terms of the Third Amendment to Second Amended and Restated Loan and Security
Agreement, dated as of September 9, 1996 (the "Loan Amendment"), executed by
Sepco Industries, Inc., a Texas corporation, and Bayou Pumps, Inc., a Texas
corporation and Lender, a copy of which has been reviewed by the undersigned,
(ii) agrees, effective as of the date hereof, that the Pledge Agreement is
amended such that hereafter all references to "Borrower" in the Pledge
Agreement shall, in addition to Sepco Industries, Inc., a Texas corporation,
also include Bayou Pumps, Inc., a Texas corporation, and (iii) agrees that the
Pledge Agreement shall remain in full force and effect and shall continue to be
the legal, valid and binding obligation of the undersigned enforceable against
it in accordance with its terms. Furthermore, the undersigned hereby agrees
and acknowledges that (a) the obligations, indebtedness and liabilities arising
in connection with the Loan Amendment comprise some, but not all, of the
"Secured Indebtedness" as such term is used in the Pledge Agreement, (b) the
Pledge Agreement is an "Other Agreement" as such term is defined in the Loan
Agreement, (c) the Pledge Agreement, is not as of the date hereof subject to
any claims, defenses or offsets, (d) nothing contained in this Agreement or any
Other Agreement entered into prior to or as of the date hereof shall adversely
affect any right or remedy of Lender under the Pledge Agreement, and (e) the
execution and delivery of the Loan Amendment shall in no way reduce, impair or
discharge any obligations of the undersigned pursuant to the Pledge Agreement
and shall not constitute a waiver by Lender of any of Lender's rights against
the undersigned.
Dated: September 9, 1996.
/s/ GARY A. ALLCORN
----------------------------------------
GARY A. ALLCORN, TRUSTEE FOR
KACEY JOYCE LITTLE, NICHOLAS
DAVID LITTLE AND ANDREA RAE
LITTLE 1988 TRUSTS
AGREED TO THIS 16
DAY OF September, 1996:
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
--------------------------
Name: H. Michael Wills
------------------------
Title: Vice President
-----------------------
CONSENT AND RATIFICATION TO THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY - Page 4
<PAGE> 154
WHEN RECORDED, RETURN TO:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: Kenneth M. Vesledahl, Esq.
MODIFICATION OF SECURED PROMISSORY NOTE AND
SECOND MODIFICATION TO DEED OF TRUST, SECURITY
AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF RENTS
[NUECES COUNTY, TEXAS]
STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS
COUNTY OF NUECES )
THIS MODIFICATION OF SECURED PROMISSORY NOTE AND SECOND MODIFICATION
TO DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF
RENTS (this "Amendment") is entered into on September 9, 1996, but effective
for all purposes as of the 9th day of September, 1996, and is executed by SEPCO
INDUSTRIES, INC. ("Grantor"), a Texas corporation, with its principal place of
business at 580 Westlake Park Boulevard, Suite 1100, Houston, Texas 77079, for
the benefit of FLEET CAPITAL CORPORATION ("Beneficiary"), a Rhode Island
corporation, with offices at 2711 Haskell Avenue, Suite 2100, LB 21, Dallas,
Texas 75204, Beneficiary being the successor-in-interest by merger to Fleet
Capital Corporation, a Connecticut corporation (Fleet Capital Corporation, a
Connecticut corporation, having been formerly known as Shawmut Capital
Corporation, and having been the successor-in-interest by assignment to
Barclays Business Credit, Inc., a Connecticut corporation).
RECITALS
A. Grantor previously entered into that certain Deed of Trust,
Security Agreement, Financing Statement and Assignment of Rents dated January
22, 1992 and recorded at Volume 2347, Page 269 of the real property records of
Nueces County, Texas (as heretofore amended, including, without limitation, as
amended by the First Amendment to Deed of Trust [as hereinafter defined], the
"Deed of Trust"), pursuant to which Grantor granted to Barclays Business
Credit, Inc., a Connecticut corporation ("Barclays") various liens and security
interests on, among other things, the real property described on Exhibit A
attached hereto and incorporated herein by reference and all attachments,
fixtures and other property located thereon or related thereto (collectively,
the "Property").
<PAGE> 155
B. Wesco Equipment, Inc. ("Wesco") was merged into Southern
Engine & Pump Company ("Sepco") on March 1, 1994, pursuant to that certain
Plan and Agreement of Merger - Wesco Equipment, Inc. Into Southern Engine &
Pump Company (the "Wesco Merger").
C. Sepco was merged into Grantor on March 1, 1994 pursuant to
that certain Plan and Agreement of Merger - Southern Engine & Pump Company Into
Sepco Industries, Inc. (the "Sepco Merger").
D. T. L. Walker Bearing Co.("Walker") was merged into DMS
Corporation ("DMS") on March 1, 1994 pursuant to that certain Plan and
Agreement of Merger - T.L. Walker Bearing Co. Into DMS Corporation (the "Walker
Merger").
E. DMS was merged into Grantor on March 1, 1994 pursuant to that
certain Plan and Agreement of Merger - DMS Corporation Into Sepco Industries,
Inc. (the "DMS Merger"). The Wesco Merger, the Sepco Merger, the Walker Merger
and the DMS Merger are collectively referred to herein as the "Mergers".
F. (i) Grantor and Barclays entered into that certain Second
Amended and Restated Loan Agreement, dated as of April 1, 1994, which amended,
restated, consolidated and combined (but did not extinguish) that certain
Amended and Restated Loan and Security Agreement, dated January 22, 1992, by
and between Walker and Beneficiary (the "Walker Loan Agreement") and that
certain Amended and Restated Loan and Security Agreement, dated January 22,
1992, executed by Sepco and Barclays (the "Sepco Loan Agreement") into one
agreement in order to reflect the effect of the Mergers (such amended, restated
and combined loan agreement, as thereafter amended from time to time, is
hereinafter referred to as the "Loan Agreement"; and (ii) in order to preserve,
maintain and carry forward all of the liens and security interests previously
granted to Barclays in relation to the Walker Loan Agreement, and Sepco Loan
Agreement and the other contracts, instruments, documents and agreements
executed in connection therewith, Grantor and Barclays modified the Deed of
Trust by executing that certain First Amendment to Deed of Trust, Security
Agreement, Financing Statement and Assignment of Rents, which was entered into
on September 16, 1994, but was effective for all purposes as of April 1, 1994,
and which was recorded on October 20, 1994, as Document No. 934157, of the real
property records of Nueces County, Texas (the "First Amendment to Deed of
Trust"), which First Amendment to Deed of Trust in part (x) modified the
definition of "Secured Indebtedness" contained in the Deed of Trust to
include, without limitation, all indebtedness, liabilities and obligations
incurred by Grantor arising under the Loan Agreement, the Term Note (as
hereinafter defined), and the Deed of Trust (hereinafter, the "Secured
Indebtedness"), and (y) modified the definition of Term Note to be that certain
Secured Promissory Note, dated as of April 1, 1994, in the original
principal amount of $1,329,277.37, executed by Grantor and payable to the order
of Barclays, and any and all renewals, modifications and extensions thereof
(hereinafter, the "Term Note") (the Deed of Trust, the Term Note, the Loan
Agreement and all other contracts, instruments, documents, and agreements
related thereto and/or executed in connection therewith being hereinafter
collectively referred to as the "Documents").
2
<PAGE> 156
G. All right, title and interest of Barclays in the Deed of
Trust, the Term Note and the other Secured Indebtedness was assigned by
Barclays to Fleet Capital Corporation, a Connecticut corporation, pursuant to
that certain Assignment of Deed of Trust, dated to be effective as of January
31, 1995, executed by Barclays, in favor of Fleet Capital Corporation, a
Connecticut corporation (then known as Shawmut Capital Corporation), and
recorded in the real property records of Neuces County, Texas.
H. Beneficiary, as successor-in-interest by merger to Fleet
Capital Corporation, a Connecticut corporation, succeeded on May 1, 1996, to
all right, title and interest of Fleet Capital Corporation, a Connecticut
corporation, in the Deed of Trust, the Term Note and the other Secured
Indebtedness.
I. Beneficiary is the present holder of all right, title and
interest in the Deed of Trust, the Term Note and the other Secured
Indebtedness.
J. Beneficiary and Grantor desire (i) that the indebtedness
evidenced by the Term Note be increased to reflect that as of the date hereof
Beneficiary and Grantor are converting a portion of the outstanding Revolving
Credit Loans (as defined in the Loan Agreement) into a term loan to be combined
with the term loan presently evidenced by the Term Note, such that such
combined term loan will be in the aggregate principal amount of $5,000,000, and
such combined term loan will hereafter be evidenced by the Term Note, as
modified hereby, (ii) to extend the maturity of the combined term loan
evidenced by the Term Note, as modified hereby, (iii) to revise the payment
terms of the combined term loan evidenced by the Term Note, as modified hereby,
and (iv) to modify certain other provisions of the Deed of Trust and the Term
Note.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Unless otherwise defined herein, capitalized terms shall have
the meaning ascribed to them in the Deed of Trust.
ARTICLE II
AMENDMENTS
2.01 EXTENSIONS OF MATURITY OF TERM NOTE. The maturity of the Term
Note is hereby renewed and extended until January 2, 1999.
2.02 PRINCIPAL BALANCE OF TERM NOTE. Beneficiary and Grantor agree
that effective as of April 1, 1994, Beneficiary made to Grantor that certain
term loan in the original principal amount of $1,329,277.37, which term loan is
currently evidenced by the Term Note. Grantor
3
<PAGE> 157
further agrees, represents and warrants that as of the date of execution of
this Amendment, the unpaid principal amount of such term loan is $82,231.76 and
that there are no claims or offsets against, or defenses or counterclaims to,
payment of such amount to Beneficiary. Grantor further agrees, represents and
warrants that it has requested that Beneficiary convert $4,917,768.24 of the
principal amount of Revolving Credit Loans made to Grantor by Beneficiary which
are outstanding on the date hereof to a term loan, which term loan will be
combined and consolidated with the outstanding principal amount of the term
loan made to Grantor on April 1, 1994, such that the combined term loan shall
be in the aggregate principal amount of $5,000,000. Beneficiary and Grantor
hereby agree and acknowledge that such combined term loan in the aggregate
principal amount of $5,000,000 has been made by Beneficiary to Grantor and that
such combined $5,000,000 term loan shall hereafter be evidenced by the Term
Note, as modified by this Amendment. In furtherance of the foregoing,
Beneficiary and Grantor hereby amend the Term Note such that (i) each reference
in the Term Note to the dollar amount "$1,329,277.37" is deleted and
substituted therefor is the dollar amount "$5,000,000" and (ii) the reference
to the phrase "ONE MILLION, THREE HUNDRED TWENTY-NINE THOUSAND, TWO HUNDRED
SEVENTY-SEVEN AND 37/100 DOLLARS" is deleted and substituted therefor is the
clause "FIVE MILLION AND NO/100 DOLLARS".
2.03 INTEREST RATE PROVISIONS IN THE TERM NOTE. Beneficiary and
Grantor hereby further amend the Term Note as follows:
(a) The first paragraph on the first page of the Term
Note is amended by deleting therefrom the phrase "1.50% above the Base
Rate (the 'Annual Term Rate')," and substituting therefor the phrase
"the Applicable Annual Rate (as defined in the Loan Agreement)", and
each other reference in the Term Note to the words "Annual Term Rate"
is deleted and substituted therefor are the words "Applicable Annual
Rate".
(b) The last paragraph on page one of the Term Note (as
it carries forward on page two of the Term Note) is hereby amended and
restated to read in its entirety as follows:
"Borrower acknowledges and understands that the Base
Rate merely serves as a basis upon which effective rates of
interest are calculated for loans making reference to the per
annum rate of interest established by Bank from time to time
as its base rate and that such rate may not be the lowest or
best rate at which Bank calculates interest or extends credit.
Each portion of the outstanding principal amount of this Note
that is not a Eurodollar Loan (as defined in the Loan
Agreement) shall be increased or decreased, as the case may
be, by an amount equal to any increase or decrease in the Base
Rate, with such adjustments to be effective as of the opening
of business on the date that any such change in the Base Rate
becomes effective. The Base Rate in effect on the date hereof
shall be the Base Rate effective as of the opening of business
on the date hereof, but if this Note is executed on a day that
is not a Business Day, the Base Rate in effect on the date
hereof shall be the Base Rate effective as of the opening of
business on the last Business Day immediately preceding the
date hereof. The rate of interest
4
<PAGE> 158
in effect hereunder may be increased in accordance with the
provisions of the Loan Agreement. Interest on this Notice
shall be calculated on a daily basis (computed on the actual
number of days elapsed over a year of 360 days); provided,
however, interest due at the Maximum Legal Rate shall be
calculated on the basis of actual days elapsed over a year of
365 or 366 days, as the case may be."
(c) The first full paragraph on page two of the Term Note
is amended by deleting therefrom the words "Base Rate" and
substituting therefor the words "Applicable Annual Rate".
2.04 PAYMENT TERMS. Effective as of the date of execution of this
Amendment, the last paragraph on page two of the Term Note is amended and
restated to read in its entirety as follows:
"The principal amount of and accrued interest on this Note
shall be due and payable on the dates and in the manner hereinafter
set forth:
(a) interest shall be due and payable monthly, in
arrears, on the first day of each month, commencing on August
1, 1996, and continuing until such time as the full principal
balance, together with all other amounts owing hereunder,
shall have been paid in full;
(b) principal shall be due and payable in equal
monthly installments of EIGHTY-THREE THOUSAND AND NO/100
DOLLARS ($83,000) each, commencing on August 1, 1998, and
continuing on the first day of each month thereafter to and
including the first day of December, 1998; and
(c) the entire unpaid principal balance hereof,
together with any and all other amounts due hereunder, shall
be due and payable on January 2, 1999."
2.05 PREPAYMENT PREMIUM. The Term Note is further amended (i) by
deleting the reference on page three to "Section 3.3(A)" and substituting
therefor a reference to "Section 3.3(B)" and (ii) by deleting the reference on
page three of the Term Note to the date "January 1, 1997" and substituting
therefor the date "January 1, 1999".
2.06 AMENDMENT TO SECTION 9.18(A) OF THE DEED OF TRUST. The first
portion of Section 9.18(A) of the Deed of Trust is hereby deleted therefrom and
the following is hereby substituted therefor:
5
<PAGE> 159
"(A) If to Beneficiary:
Fleet Capital Corporation
2711 North Haskell
Suite 2100, LB 21
Dallas, Texas 75204
Attention: Loan Administration Manager"
ARTICLE III
NO WAIVER
3.01 Except as otherwise specifically provided for in this
Amendment, nothing contained herein shall be construed as a waiver by
Beneficiary of any covenant or provision of the Deed of Trust, the Term Note,
this Amendment, the Loan Agreement, or of any other Document, and Beneficiary's
failure at any time or times hereafter to require strict performance by Grantor
of any provision thereof shall not waive, affect or diminish any right of
Beneficiary to thereafter demand strict compliance therewith. Beneficiary
hereby reserves all rights granted under the Deed of Trust, the Term Note, this
Amendment, the Loan Agreement, the other Documents, and any other contract or
instrument between Grantor and Beneficiary.
ARTICLE IV
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
4.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Term Note, the Deed of Trust, the Loan Agreement and the other
Documents, and, except as expressly modified and superseded by this Amendment,
the terms and provisions of the Term Note, the Deed of Trust, the Loan
Agreement and the other Documents are ratified and confirmed and shall continue
in full force and effect. Grantor and Beneficiary agree that the Deed of
Trust, as amended hereby, the Term Note, as amended hereby, the Loan Agreement
and the other Documents shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
4.02 REPRESENTATIONS AND WARRANTIES. Grantor hereby represents and
warrants to Beneficiary that (a) the execution, delivery and performance of
this Amendment and any and all other Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Grantor and will not violate the Articles of Incorporation or
Bylaws of Grantor; (b) the representations and warranties contained in the Deed
of Trust, as amended hereby, the Term Note, as amended hereby, the Loan
Agreement and any other Loan Document are true and correct on and as of the
date hereof and on and as of the date of execution hereof as though made on and
as of each such date; (c) no Default or Event of Default under the Deed of
Trust, as amended hereby, the Term Note, as amended hereby, the Loan Agreement
or any other Loan Document has occurred and is continuing, unless such Default
or Event or Default has been specifically waived in writing by Beneficiary; and
(d) Grantor is in full compliance with all covenants and agreements contained
in the Deed of Trust, as amended hereby, the Term Note, as amended hereby, the
Loan Agreement and the other Documents, as amended hereby.
6
<PAGE> 160
ARTICLE V
MISCELLANEOUS PROVISIONS
5.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Deed of Trust, the Term Note, the
Loan Agreement or any other Document, including, without limitation, any
document furnished in connection with this Amendment, shall survive the payment
in full of the Secured Indebtedness and the termination of Lender's obligation
to make Revolving Credit Loans under the Loan Agreement for a period of four
(4) years beyond the date of such payment in full and termination, and no
investigation by Beneficiary or any closing shall affect the representations
and warranties or the right of Beneficiary to rely upon them.
5.02 REFERENCE TO DEED OF TRUST AND TERM NOTE. Each of the Deed of
Trust, the Term Note, the Loan Agreement and the other Documents, and any and
all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Deed of
Trust, as amended hereby, the Term Note, as amended hereby, the Loan Agreement
or any other Document are hereby amended so that any reference in the Deed of
Trust, the Term Note, the Loan Agreement or the other Documents to the Deed of
Trust shall mean a reference to the Deed of Trust as amended hereby, and to the
Term Note shall mean the Term Note, as amended hereby.
5.03 EXPENSES OF BENEFICIARY. As provided in the Loan Agreement,
Grantor agrees to pay on demand all costs and expenses incurred by Beneficiary
in connection with the preparation, negotiation and execution of this Amendment
and the other Documents to be executed in connection herewith and any and all
amendments, modifications, and supplements thereto, including, without
limitation, the costs and fees of Beneficiary's legal counsel, and all costs
and expenses incurred by Beneficiary in connection with the enforcement or
preservation of any rights under the Loan Agreement, as amended hereby, or any
other Document, including, without limitation, the costs and fees of
Beneficiary's legal counsel.
5.04 SEVERABILITY. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
5.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Beneficiary and Grantor and their respective
successors and assigns, except Grantor may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of
Beneficiary.
5.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
7
<PAGE> 161
5.07 EFFECT OF WAIVER. No consent or waiver, express or implied,
by Beneficiary to or for any breach of or deviation from any covenant or
condition by Grantor shall be deemed a consent to or waiver of any other breach
of the same or any other covenant, condition or duty.
5.08 HEADINGS. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
5.09 VALIDITY AND PRIORITY OF LIENS. All of the Property shall
remain in all respects subject to the lien, charge or encumbrance of the Deed
of Trust and nothing herein contained and nothing done pursuant hereto shall
affect or be construed to affect the lien, charge or encumbrance of the Deed of
Trust or the priority thereof over any other liens, charges or encumbrances or
to release or affect the liability of Grantor under or on account of the Term
Note, the Loan Agreement, or any other Document, nor shall anything herein
contained or done in pursuance hereof affect or be construed to affect any
other security for the Term Note held by Beneficiary.
5.10 APPLICABLE LAW. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
AMENDMENT.
5.11 FINAL AGREEMENT. THE DEED OF TRUST, AS AMENDED HEREBY, THE
TERM NOTE, AS AMENDED HEREBY, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE DEED OF TRUST, AS
AMENDED HEREBY, THE TERM NOTE, AS AMENDED HEREBY, THE LOAN AGREEMENT AND THE
OTHER DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE
OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A
WRITTEN AGREEMENT SIGNED BY GRANTOR AND BENEFICIARY.
5.12 RELEASE. GRANTOR HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "SECURED INDEBTEDNESS" OR TO SEEK AFFIRMATIVE RELIEF OR
DAMAGES OF ANY KIND OR NATURE FROM BENEFICIARY. GRANTOR HEREBY VOLUNTARILY AND
KNOWINGLY RELEASES AND FOREVER DISCHARGES BENEFICIARY, ITS PREDECESSORS,
AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES
WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR
8
<PAGE> 162
UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY,
ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS
EXECUTED, WHICH THE GRANTOR MAY NOW OR HEREAFTER HAVE AGAINST BENEFICIARY, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND
IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION
OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY "LOANS", INCLUDING,
WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR
THE OTHER LOAN DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
Executed and effective as of the dates indicated above.
GRANTOR:
SEPCO INDUSTRIES, INC.
By: /s/ DAVID R. LITTLE
-------------------------------------
David R. Little
Chief Executive Officer
BENEFICIARY:
FLEET CAPITAL CORPORATION
By: /s/ H. MICHAEL WILLS
-------------------------------------
Name: H. Michael Wills
-----------------------------------
Title: Vice President
----------------------------------
EXHIBIT:
A - Property Description
9
<PAGE> 163
THE STATE OF Texas )
)
COUNTY OF Harris )
This instrument was acknowledged before me on 9/11, 1996, by DRL, the
CEO of Sepco Industries, Inc., a Texas corporation, on behalf of said
corporation.
/s/ TERRI E. HATFIELD
---------------------------------------
[NOTARY STAMP] Notary Public in and for
the State of Texas
Terri E. Hatfield
---------------------------------------
Notary's Printed Name
My Commission Expires:
6/24/2000
- --------------
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on 9/11, 1996, by H.
Michael Wills, the Vice President of Fleet Capital Corporation, a Rhode Island
corporation, on behalf of said corporation.
/s/ SANDRA REVLETT LANNEN
[NOTARY STAMP] -------------------------------------------
Notary Public in and for the State of Texas
Sandra Revlett Lannen
-------------------------------------------
Notary's Printed Name
My Commission Expires:
03/06/00
- ------------------
10
<PAGE> 164
EXHIBIT A
PROPERTY DESCRIPTION
Lot Fourteen (14), Block Two (2), RUSSELL INDUSTRIAL AREA, a Subdivision of the
City of Corpus Christi, Texas, as shown by the map or plat thereof recorded in
Volume 22, Page 36, Map Records of Nueces County, Texas.
Exhibit A - Page 1
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Sepco Industries, Inc., a Texas corporation ("Sepco").
American MRO, Inc., a Texas corporation and wholly owned subsidiary of
Sepco.
Bayou Pumps, Inc., a Texas corporation and wholly owned
subsidiary of Sepco.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and in
the headnotes to "Sepco Summary Consolidated Historical Financial Data" and
"Sepco Selected Consolidated Financial Data" and to the use of our reports dated
August 6, 1996, with respect to the balance sheet of Index, Inc., and March 22,
1996 (except for Notes 8 and 10 as to which the date is August 7, 1996), with
respect to the consolidated financial statements of Sepco Industries, Inc.,
which are included in the Proxy Statement/Prospectus of Index, Inc., that is
made a part of Amendment No. 2 to the Registration Statement (Form S-4 No.
333-10021) of Index, Inc., for the registration of 18,584,400 shares of its
common stock, 3,366 shares of its Series A preferred stock and 19,500 shares of
its Series B convertible preferred stock.
ERNST & YOUNG LLP
Houston, Texas
September 30, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement
of Index, Inc. on Form S-4 of our report dated January 27, 1996, appearing in
the Proxy/Prospectus, which is part of this Registration Statement, and to the
references to us under the headings "Newman Summary Historical Financial Data",
"Newman Selected Historical Financial Data" and "Experts" in such
Proxy/Prospectus.
CHESHIER & FULLER, INC.
A Professional Corporation
Dallas, Texas
September 30, 1996
