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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 1996.
REGISTRATION NO. ________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
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KMG-B, INC.
(Name of Small Business Issuer in its charter)
TEXAS 75-2404468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10611 HARWIN DRIVE, SUITE 402
HOUSTON, TEXAS 77036
(713) 988-9252
(Address, including zip code, and telephone number, including area code, of
Issuer's principal executive offices)
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND OF THE COMPANY
GENERAL
KMG-B, Inc., a Texas corporation (the "Company") was incorporated in the
State of Texas in 1992 under the name Water Point Manufacturing, Inc. as a
wholly-owned subsidiary of Water Point Systems, Inc. ("Water Point"), a Texas
corporation. Water Point was engaged in the business of selling water
filtration systems for home and office use and designing, constructing and
distributing water vending machines. The Company was formed to purchase
component parts and assemble vending machines for Water Point. However, Water
Point and the Company were unsuccessful in the water filtration business and
they ceased operations late in 1994.
BANKRUPTCY PROCEEDINGS; SUMMARY OF THE PLAN OF REORGANIZATION
Water Point and the Company each filed a petition under Chapter 11 of the
United States Bankruptcy Code on March 10, 1995 and June 30, 1995, respectively,
in the United States Bankruptcy Court for the Northern District of Texas, Dallas
Division (the "Court"). The Court authorized the joint administration of both
cases. On September 1, 1995, the First Amended Joint Plan of Reorganization was
filed for Water Point and the Company by the official committee of unsecured
creditors and the bankruptcy trustee. The First Amended Joint Plan of
Reorganization was confirmed by the Court on October 10, 1995, modified by the
Court on May 29, 1996 and clarified by it on September 12, 1996 (as modified and
clarified, the "Plan").
The Plan provided for the vesting of all the assets of Water Point and the
Company in a liquidating trust administered by a trust committee and
distribution of the proceeds to secured, priority and unsecured creditors.
With respect to the Company, the Plan provided that the Company would
remain in existence, although all capital stock outstanding as of the filing
date of the bankruptcy petition was canceled. Under the Plan, the reorganized
Company issued shares of its common stock, par value $.01 per share (the "Common
Stock") to certain of its creditors. Creditors with allowed unsecured claims
received a PRO RATA distribution of 40% of the newly-issued shares of Common
Stock.
The Company secured a post-petition loan in the amount of $20,000 from
Halter Financial Group, Inc., a Texas corporation ("HFG"), to meet certain of
the costs and expenses associated with the reorganization effort. Under the
Plan, HFG received 60% of the shares of Common Stock in satisfaction of the
$20,000 loan and for services to be rendered and expenses to be incurred by HFG
in connection with an anticipated post-confirmation acquisition or merger
transaction between the Company and a privately-held operating business.
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According to the Plan, the Company was discharged from any and all debts
and liabilities that arose before October 23, 1996.
In connection with the Company's bankruptcy proceedings, the Company's name
was changed to W.P. Acquisition Corp.
ACQUISITION OF KMG-BERNUTH, INC.
The Company's initial business purpose was to seek an acquisition or merger
transaction with an operating business with growth potential, whereby its
shareholders would benefit by owning an interest in a viable business
enterprise. Although the Company had no significant assets or operations, it
possessed a shareholder base which made it an attractive acquisition or merger
candidate to a privately-held corporation.
In order to further its initial business purpose, on October 15, 1996 the
Company acquired all of the issued and outstanding stock of KMG-Bernuth, Inc., a
Delaware corporation ("KMG") formed in 1988, pursuant to a stock exchange
agreement (the "Stock Exchange Agreement") dated September 13, 1996. In
accordance with the Stock Exchange Agreement, the common stock of KMG was
acquired from its former stockholders in exchange for 6,510,000 shares of Common
Stock. After giving effect to a 1 for 1.5 reverse split of Common Stock
outstanding immediately prior to the acquisition of KMG, the former stockholders
of KMG became owners of approximately 93% of the issued and outstanding shares
of Common Stock. See "Item 4. Security Ownership of Certain Beneficial Owners
and Management."
In connection with the acquisition of KMG, the Company changed its name to
KMG-B, Inc., the Company's sole officer and director resigned and the Company's
shareholders elected the persons serving on KMG's board of directors as
directors of the Company.
Unless the context otherwise requires, references hereinafter to the
"Company" shall mean KMG-B, Inc. and any of its subsidiaries, including KMG.
All references hereinafter to share amounts reflect the 1 for 1.5 reverse split
of Common Stock. The Company's principal executive office is located at 10611
Harwin Drive, Suite 402, Houston, Texas 77036 and its telephone number is (713)
988-9252.
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CURRENT BUSINESS OF THE COMPANY
GENERAL
The Company manufactures, markets and distributes wood preserving chemicals
to industrial customers engaged in the wood preserving business. The Company's
principal products are pentachlorophenol ("penta"), creosote and sodium
pentachlorophenate ("sodium penta"). The Company's customers use these products
to treat wood products and then supply the treated wood products to end-users in
a variety of industries, principally the railroad, utility and construction
industries.
The Company acquired a penta manufacturing and distribution business in
1988 from an affiliated company that had been engaged in the penta business
since the early 1970's. The Company made several acquisitions after 1988 to
expand its wood preserving product lines and distribution network. It acquired
a creosote distribution business in early 1991 and a sodium penta distribution
business late that same year.
The Company's strategy is to continue to expand through acquisitions and
internal development. The Company intends to seek, on a selective basis,
acquisitions of businesses that have product lines that complement and expand
its existing product lines, desirable new product lines, strategic distribution
locations or attractive customer bases. The ability of the Company to implement
its growth strategy will be dependent on its ability to identify, consummate and
assimilate acquisitions on desirable economic terms, to successfully integrate
new product lines and expand its existing product lines. There can be no
assurance that the Company will be successful in implementing its growth
strategy. Furthermore, the Company's ability to implement its growth strategy
may be dependent to a certain extent upon obtaining financing for expansion, and
there can be no assurance that financing will be available on acceptable terms.
INDUSTRY OVERVIEW
Wood preservative products are pesticides that prolong the useful life of
treated wood by protecting the wood from mold, mildew, fungus and insects. The
three primary chemicals used by the United States wood preserving industry are
penta, creosote and chromated copper arsenate ("CCA"). Penta is used primarily
to treat electric and telephone utility poles, creosote is used primarily for
railroad cross-ties, bridge timbers and utility poles and CCA is used primarily
for utility poles and lumber. Based on industry statistics available to the
Company, wood preserving chemicals were used in the United States to treat
approximately 578 and 634 million cubic feet of wood in calendar 1995 and 1994,
respectively. CCA was used to treat approximately 78% of the wood in 1995 and
1994. Of the remaining 22%, creosote
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was used to treat approximately 16% and 15% in 1995 and 1994, respectively,
and penta was used to treat 6% and 7% in 1995 and 1994, respectively.
The Company currently supplies the United States wood treating industry
with two of those three wood preservatives, penta and creosote. Penta and
creosote are each supplied to the United States market by only a few companies.
The Company is one of two companies that manufactures penta for distribution to
the United States market. Furthermore, the Company believes that worldwide,
there are only three other penta manufacturers. In addition, the Company is one
of approximately six companies registered to supply creosote to the United
States market. The Company is also one of the few companies that supplies
sodium penta, a wood preserving product used primarily to treat freshly-cut
lumber, to customers outside the United States. See "-Competition."
PRODUCTS AND SERVICES
PENTACHLOROPHENOL AND SODIUM PENTACHLOROPHENATE. Penta is formed through
the reaction of phenol with chlorine. The Company manufactures penta in
Matamoros, Mexico through KMG's subsidiary, Productos de Preservaion, S.A. de
C.V. ("PPSA"), a Mexican maquiladora corporation. The Company arranges for the
required phenol and chlorine to be supplied to PPSA, which in turn sells
substantially all the penta it produces to the Company for sale and distribution
to the Company's customers. As a by-product of the penta manufacturing process,
the Matamoros facility also produces hydrochloric acid which is sold to
distributors for use in the steel and oil well service industries in the United
States and Mexico.
The Matamoros facility produces both solid penta blocks and penta flakes.
Those penta products are sold by the Company to its customers or made into a
liquid solution of penta concentrate at the Matamoros facility or at the
Company's blending and distribution facility in Tuscaloosa, Alabama. The penta
liquid solution is then sold by the Company to its customers. In addition, a
portion of the flaked penta is reacted with caustic soda to produce sodium
penta. The Company sells the sodium penta, which is not registered for use in
the United States, to customers outside the United States.
CREOSOTE; DISTRIBUTION AGREEMENT WITH VFT AG. Creosote is produced by the
distillation of coal tar, a by-product of the transformation of coal into coke.
The Company markets and distributes creosote in the United States on an
exclusive basis for VfT AG ("VfT"), a German corporation that the Company
believes is among the world's largest manufacturers of creosote and other coal
tar products. VfT is the primary supplier of creosote to the Company. VfT
ships creosote from Europe to a public storage facility located in New Orleans,
Louisiana. The creosote is then
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distributed by the Company to its customers in Alabama, Georgia, Louisiana,
Mississippi and Texas.
The Company's distribution agreement with VfT renews automatically each
year but may be terminated by either party upon two years' notice. While the
Company does not have any reason to believe that the distribution agreement will
be terminated, there can be no assurance that the Company will be able to obtain
a suitable alternative source of supply in the event of a termination. See
"-Suppliers." The Company also purchases a limited quantity of creosote
directly from United States manufacturers for distribution to its customers.
SUPPLIERS
The Company is dependent upon outside suppliers for all of its raw material
requirements for its penta and sodium penta manufacturing operations and,
therefore, is subject to fluctuations in the prices of such materials. The
principal raw materials used in those operations are phenol, chlorine, solvent
and caustic, each of which the Company purchases from a limited number of
suppliers. The Company does not maintain supply contracts with any of its raw
material suppliers. However, the Company believes that these raw materials are
each readily available from a variety of sources and the loss of any of its raw
material suppliers would not have a material adverse effect on its business,
financial condition or results of operations.
Most of the creosote sold by the Company is supplied by VfT. If the
Company's contract with VfT were terminated, there can be no assurance that the
Company would be able to obtain a suitable source of supply. The Company
believes that the failure to obtain a suitable alternative source of supply in
the event of such termination would have a material adverse effect upon its
business, financial condition and results of operations.
CUSTOMERS
The Company sells its products to more than 80 customers on a regular
basis. One customer accounted for approximately 10% of the Company's revenues
for each of fiscal 1996 and 1995.
MARKETING
The Company markets its products in the United States through four
employees and one independent commissioned sales agent. Outside the United
States, the Company sells its products directly and through sales agency
contracts in over 20 countries.
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COMPETITION
The Company is one of only two companies producing penta for sale in the
United States. The other company is Vulcan Chemicals, Inc. which is
headquartered in Birmingham, Alabama and produces penta at its facility in
Wichita, Kansas. The Company believes that Vulcan Chemicals, Inc. has larger
sales volumes and greater financial and other resources than the Company. The
Company's international competitors include suppliers from Mexico, China and
India.
The Company believes that there are six producers of creosote that sell the
product commercially in the United States, the largest of which is Koppers
Industries, Inc. located in Pittsburgh, Pennsylvania. Other companies that
produce creosote for sale in the United States include AlliedSignal, Inc. and
Reilly Industries, Inc. The Company believes that each of those three creosote
producers have larger sales volumes and greater financial and other resources
than the Company.
Penta and creosote are pesticides that must be registered prior to sale
under United States law. See "-Environmental and Safety Matters-Licenses,
Permits and Product Registrations." As a condition to registration, any company
wishing to manufacture and sell penta or creosote must provide to the
Environmental Protection Agency substantial scientific research and testing data
regarding the chemistry and toxicology of the products. That data must be
generated by the applicant or the applicant must compensate other data providers
for relying on their information. The Company believes that the cost of
satisfying the data submission requirement serves as an impediment to the entry
of new competitors in the United States market, particularly those with lesser
financial resources. While the Company has no reason to believe that the
licensing requirement will be discontinued or materially modified, there can be
no assurances as to the effect of such a discontinuation or modification on the
Company's competitive position.
The Company believes that its ability to compete effectively is dependent
upon providing its products at competitive prices, anticipating new markets and
distribution channels for its products and maintaining a strong commitment to
product quality and customer service.
EMPLOYEES
As of October 31, 1996, the Company had a total of 75 employees, all of
whom are full-time employees. Nine of the Company's employees were employed at
the Company's corporate offices in Houston, Texas, 60 were employed at the
Matamoros facility and six were employed at the Tuscaloosa facility. None of
the employees in the United States are represented by a labor union but 41 of
PPSA's employees in Mexico are represented under a labor contract. The labor
contract with
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the Mexico employees is due for renewal in December, 1996. The Company
anticipates that it will be able to renegotiate a labor contract with terms
comparable to its existing agreement, although there can be no assurances
that the Company will be able to do so. The Company believes that it has
good relations with its employees.
ENVIRONMENTAL AND SAFETY MATTERS
The Company's operations are subject to extensive federal, state and local
laws, regulations and ordinances in the United States and abroad relating to the
generation, storage, handling, emission, transportation and discharge of certain
materials, substances and waste into the environment, and various other health
and safety matters. Governmental authorities have the power to enforce
compliance with their regulations, and violators may be subject to fines,
injunctions or both. The Company believes that it is currently in substantial
compliance with all such applicable laws and regulations. See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company anticipates that the regulation of its business operations
under federal, state and local environmental regulations in the United States
and abroad will increase over time. The Company cannot at this time estimate
the impact of increased regulation on the Company's operations, future capital
expenditure requirements or the cost of compliance.
UNITED STATES REGULATION. Under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") and comparable
state laws, an owner or operator of property from which releases of hazardous
substances have occurred may be liable for investigation and remediation of any
resulting contamination. In addition, the generator of hazardous substances may
be responsible for all or a portion of any required investigation or remediation
at offsite disposal locations. Under the Resource Conservation and Recovery
Act, as amended ("RCRA"), a facility that treats, stores or disposes of
hazardous wastes on-site may be liable for corrective action costs. In addition
to CERCLA and RCRA, state laws and regulations may impose the same or broader
liability.
The Company's operations also are governed by laws and regulations relating
to workplace safety and worker health, principally the Occupational Safety and
Health Act and the regulations thereunder.
MEXICO REGULATION. The Company's Matamoros facility and its operations in
Mexico are subject to various environmental laws, regulations and ordinances
promulgated by governmental authorities in Mexico. The Secretariat of
Environment, Natural Resources and Fisheries (SECRETARIATE DE MEDIO AMBIENTE,
RECURSOS NATURALES Y PESCA: "SEMARNAP") is given overall responsibility for
environmental regulation in
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Mexico. SEMARNAP's responsibilities include enforcement of Mexico's laws and
regulations concerning air and water emissions and hazardous waste treatment,
storage and disposal. SEMARNAP is given broad authority to enforce
compliance with environmental laws and regulations and can require that
operations be suspended pending completion of required remedial action.
LICENSES, PERMITS AND PRODUCT REGISTRATIONS. Certain licenses, permits and
product registrations are required for the Company's products and operations in
the United States, Mexico and other countries in which the Company does
business. Such licenses, permits and product registrations are subject to
revocation, modification and renewal by governmental authorities. In the United
States in particular, producers of pesticides such as penta and creosote are
required to obtain a registration for their products under the Federal
Insecticide, Fungicide and Rodenticide Act ("FIFRA") from the Environmental
Protection Agency (the "EPA") in order to sell those products in the United
States. Compliance with the registration system under FIFRA has had and will in
the future have a material effect on the Company's business, financial condition
and results of operations. The registration system requires an ongoing
submission to the EPA of substantial scientific research and testing data
regarding the chemistry and toxicology of pesticide products by manufacturers.
Under an agreement reached with the other industry participant, the Company is
responsible for its proportionate share of the research and testing costs
pertaining to penta, based on its market share. The Company incurred expenses
of approximately $552,896 in connection with the FIFRA research and testing
program in fiscal 1996. Although a similar industry group funds a creosote
research and testing program, the cost of that effort is borne by VfT.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales along with certain
financial data expressed as a percentage of net sales:
Year Ended July 31,
1996 1995
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Net sales.................................... $19,801,927 $16,401,205
Cost of sales................................ 58% 66%
Gross profit................................. 42% 34%
Selling, general and
administrative expense...................... 20% 19%
Other expense, net........................... -- (1)%
Income before taxes.......................... 21% 14%
Provision for income taxes................... (8)% (5)%
Net income................................... 13% 9%
SALES REVENUE
Net sales for fiscal 1996 increased $3,400,722 over fiscal year 1995, a 21%
increase. The increase in fiscal 1996 was due to unit price increases and to
increased sales volume. Almost all the unit price increases, which accounted
for approximately half of the 21% increase in net sales, came from sales of the
Company's penta products in the United States. Prices for the Company's
international sales of penta products were essentially unchanged from fiscal
1995. Creosote unit prices were largely unchanged from 1995 to 1996. However,
creosote sales increased in volume in 1996, an increase that accounted for
approximately half of the 1996 net sales increase. The Company believes that
the price and volume of sales of penta and creosote products will be largely
unchanged in fiscal 1997 and, therefore, does not expect that net sales in
fiscal 1997 will increase significantly over fiscal 1996.
GROSS PROFIT
Gross profit as a percent of net sales increased to 42% in fiscal 1996 from
34% in fiscal 1995. Approximately three-quarters of the improvement in gross
profit as a percent of net sales was due to the unit price increases achieved by
the Company in fiscal 1996. The balance of the improvement was caused by a
decrease in cost of goods sold as a percent of net sales to 58% in fiscal 1996
from 66% in fiscal 1995.
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Cost of goods sold as a percent of net sales, after excluding the effect of
the unit price increase, decreased to 64% in fiscal 1996 from 66% in fiscal
1995. The primary reason for that decrease was an increase in production
throughput at the Company's current manufacturing facility in Matamoros,
Mexico. The Company began building penta products inventory in fiscal 1996
in anticipation of the planned closure of that facility and the Company will
continue to build penta products inventories until the shutdown. The Company
plans to close the current facility in December 1996 in order to upgrade it
and move it to a new location in Matamoros. See "-Liquidity and Capital
Resources." The Company does not expect the new facility to start commercial
production until the Spring 1997. Although the new facility will give the
Company the ability to expand into new product lines, it is not expected that
changes to existing plant and equipment will result in material increases in
manufacturing capacity, operating efficiency or cost savings.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 20% of sales
revenue in fiscal 1996 from 19% in fiscal 1995. The increase was due in part
because of certain performance bonuses paid in fiscal 1996 to executive officers
and one other employee. Those bonuses increased to an aggregate of $182,300 in
fiscal 1996 from $31,511 in the prior fiscal year. See "Item 6. Executive
Compensation."
The increase was also due to costs incurred for penta environmental testing
and plant relocation expenses. According to FIFRA, the environmental statute
under which penta is registered for sale in the United States, the Company is
obligated to provide the EPA with test data concerning the chemistry and
toxicology of penta. Prior to fiscal 1996, the Company capitalized penta
testing costs as an intangible asset and amortized them over 15 years. As of
the end of fiscal year 1995, the Company had incurred total costs of $418,444.
The Company amortized $27,896 in fiscal 1996 and $27,432 in fiscal 1995 of that
capitalized testing cost. However, in fiscal 1996 the Company began expensing
the additional costs of penta testing as incurred. In that fiscal year, costs
of $525,000 were incurred. The Company expects to continue to incur and expense
additional costs for penta testing under FIFRA. The Company anticipates that
such costs will not exceed an aggregate of approximately $1,000,000 in the next
two fiscal years, although there can be no assurance that the actual costs will
not exceed current estimates.
The Company's fiscal 1996 plant relocation expenses resulted from
preparation for the Company's move to a new Matamoros manufacturing facility and
to move certain operations from Texas to its current Matamoros facility. Those
expenses amounted to $341,000 in 1996 versus no comparable expense in fiscal
1995.
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INCOME TAX EXPENSE
The Company's net provision for federal income taxes was 33% of income
before tax in fiscal 1996 and in fiscal 1995. As a percent of net sales, the
provision for income taxes (including state taxes) increased to 8% in fiscal
1996 from 5% in fiscal 1995 due to increased gross profit on net sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are primarily for capital expenditures for
maintenance of its property, plant and equipment. The Company believes that its
cash flows from operations and available borrowing under its Revolving Credit
Facility (hereinafter defined) will be sufficient to fund its anticipated cash
requirements in fiscal 1997. In the event that those sources are not sufficient
to fund the Company's expenditures, the Company would be required to obtain
additional funds.
The Company's strategy includes expansion through acquisitions. There can
be no assurance that the Company will be successful in its ability to identify,
consummate and assimilate acquisitions on desirable economic terms.
Furthermore, the Company's ability to consummate such acquisitions may be
dependent to a certain extent upon obtaining additional financing and there can
be no assurance that financing will be available on acceptable terms. No
specific acquisitions are currently contemplated.
As of the end of fiscal 1996 the Company had cash and cash equivalents of
$552,550. On August 1, 1996 the Company obtained a working capital line of
credit by entering into a Revolving Loan Agreement with SouthTrust Bank of
Alabama, National Association (the "Revolving Credit Facility"). The Revolving
Credit Facility replaced the Company's previous loan agreement. Under the
Revolving Credit Facility, the Company may borrow up to the lesser of $2,500,000
or its borrowing base (as defined therein). As of August 31, 1996, the
Company's borrowing base under its Revolving Credit Facility for working capital
purposes was approximately $2,000,000.
Net cash provided by operations in fiscal 1996 was $2,388,155 as compared
with $1,221,404 in fiscal 1995. That increase in net cash flow was due to a
$1,177,469 increase in net income in fiscal 1996 as compared with fiscal 1995.
Trade accounts receivable from operations decreased by $72,957 in fiscal 1996 as
the Company improved its management of customer credit risk and payment terms.
In fiscal 1995, the Company's trade accounts receivable increased by $598,272
because of penta products price increases implemented in the United States
beginning in January 1995. Accounts payable in fiscal 1996 increased $199,593
due to the creosote volume sales increase in that year. Inventories grew by
$864,990 (68%) during fiscal 1996. The growth of inventories was almost
entirely the result of the Company's preparation for the closing of the
Matamoros facility. Inventories of penta
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products are being built to adequately support customer demand until
commercial production of penta begins at the new facility in the Spring of
1997.
The Company's investing activities consist primarily of capital
expenditures to upgrade the efficiency of the existing Matamoros facility, to
acquire the new Matamoros site where the current facility will be moved and
other initial relocation expenditures. In addition, the Company incurred
capital expenditures to relocate certain manufacturing operations from Texas to
the Matamoros facility. Additions to property, plant and equipment were
$824,212 in fiscal 1996 and $210,586 in fiscal 1995. The Company anticipates
that it will incur approximately $1,000,000 in fiscal 1997 for all its capital
expenditures, including expenditures for the relocation of the Matamoros
facility. The Company believes that cash from operations will be sufficient to
pay for those expenditures.
The Company's capital expenditures and operating expenses for environmental
matters, excluding FIFRA testing and data submission costs, were approximately
$240,000 in each of fiscal 1996 and 1995. The Company incurred additional
expenses of approximately $552,896 and $27,432 for FIFRA testing costs in fiscal
1996 and 1995, respectively. The Company estimates that additional FIFRA
testing expenses will not exceed approximately $1,000,000 through fiscal 1998.
Since environmental laws have traditionally become increasingly stringent, costs
and expenses relating to environmental control and compliance may increase in
the future. While the Company does not believe that the cost of compliance with
existing or future environmental laws and regulations will have a material
adverse effect on its business, financial condition or results of operations,
there can be no assurance that costs of compliance will not exceed current
estimates.
In connection with the planned move of the Matamoros facility, the Company
is obligated to clean the current Matamoros site of any environmental
contamination. In addition, the Company conducts periodic ground water sampling
at its facility in Tuscaloosa, Alabama as required by the Alabama Department of
the Environmental Management ("ADEM"). A 1991 sampling revealed the presence of
penta contamination and more recent sampling continues to show some
contamination, although in lesser amounts. ADEM has not required any additional
response at this time. The Company does not believe that costs for
environmental investigation and remediation at either facility will materially
impact liquidity or have a material adverse effect on the Company's business,
financial condition or results of operations, although there can be no
assurances to this effect.
The Company's financing activities are primarily composed of net payments
under its working capital line of credit of $921,184 in fiscal year 1996 and
$823,465 in fiscal year 1995. The Company declared and paid dividends of
$124,995 in August 1996 and $99,996 in August 1995.
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ITEM 3. DESCRIPTION OF PROPERTY
Set forth below is information with respect to certain of the Company's
properties.
LEASE
APPROXIMATE OWNED/ EXPIRATION
LOCATION PRIMARY USE SIZE LEASE DATE
- -------- ----------- ----------- ------ ----------
Houston, Texas Corporate 8,500 square Leased October 31,
Office feet 1997
Matamoros, Mexico Manufacturing 47,000 square Leased Month to
feet month
Tuscaloosa, Alabama Processing 1.5 acres Leased Month to
Distribution month
The Company believes that all of these properties are adequately insured,
in good condition and suitable for their anticipated future use. However, the
Company is currently constructing a new manufacturing facility in Matamoros,
Mexico on approximately seven acres owned by PPSA. The new facility will
replace the existing facility, which will be closed and certain of its equipment
will be moved to the new facility. The Company anticipates that production at
the existing facility will cease in December 1996 and that the new facility will
begin commercial production in the Spring of 1997.
The Company believes that if the leases for any of its facilities were not
renewed or were terminated, other suitable facilities could be leased or
purchased.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 27,
1996 with regard to the beneficial ownership of Common Stock by (i) each
person known to the Company to be the beneficial owner of 5% or more of its
outstanding Common Stock, (ii) the officers and directors of the Company
individually and (iii) the officers and directors of the Company as a group.
All addresses are in care of the Company, 10611 Harwin Drive, Suite 402,
Houston, Texas 77036.
NUMBER OF
NAME SHARES OWNED PERCENT
---- ------------ -------
David L. Hatcher..................... 5,078,003 72
Bobby D. Godfrey (1)................. 780,997 11
Fred C. Leonard III (2).............. 651,000 9
George W. Gilman (3)................. 172,238 2
Charles M. Neff, Jr. ................ -- --
Thomas H. Mitchell (4)............... -- --
Directors and executive officers as a
group (6 persons).................... 6,682,238 96
(1) Mr. Godfrey granted to Valves Incorporated of Texas, Inc. a right of
first refusal to purchase the 780,997 shares of Common Stock owned by Mr.
Godfrey. Mr. Leonard is an officer and a principal shareholder of that
corporation and therefore may be deemed, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the beneficial owner of that right of
first refusal.
(2) Mr. Leonard is an officer and a principal shareholder of Valves
Incorporated of Texas, Inc. and therefore may be deemed, under the Exchange
Act, the beneficial owner of the 651,000 shares of Common Stock owned by that
corporation.
(3) Mr. Gilman is an employee of Gilman Financial Corporation and the
father of Jeffrey L. Gilman, an officer, director and principal shareholder
of Gilman Financial Corporation. Mr. Gilman may therefore be deemed, under
the Exchange Act, the beneficial owner of 34,543 shares of Common Stock owned
by that corporation. In addition, Gilman Financial Corporation or persons
selected by it will receive 137,695 shares to be issued by the Company
pursuant to the GFC Consulting Agreement (hereinafter defined). See "Item 7.
Certain Relationships and Related Transactions." Mr. Gilman disclaims any
beneficial ownership in the shares of Common Stock owned by Gilman Financial
Corporation.
14
<PAGE>
(4) Pursuant to the Company's Stock Option Plan (hereinafter defined)
on October 17, 1996, the Company granted Mr. Mitchell a non-qualified stock
option to purchase 43,671 shares of Common Stock. The option is not
exercisable within six months. See "Item 6. Executive Compensation."
Mr. Hatcher is the owner of approximately 72% of the outstanding shares
of the Common Stock and as such he is able to elect the Board of Directors
and determine the outcome of other matters requiring shareholder action
without the concurrence of any other shareholder.
ITEM 5. MANAGEMENT
Set forth below is certain information regarding the directors, executive
officers and significant employees of the Company. Each of the directors of
the Company will serve until the next annual meeting of shareholders or until
his successor is elected and qualified. Executive officers of the Company
are elected by the Board of Directors to hold office until their respective
successors are elected and qualified.
NAME AGE POSITION(S)
---- --- -----------
David L. Hatcher........ 53 President and Director
Bobby D. Godfrey........ 57 Vice President and Director
Charles M. Neff, Jr. ... 50 Director and Treasurer (KMG only)
Fred C. Leonard III..... 51 Secretary and Director
George W. Gilman........ 54 Director
Thomas H. Mitchell...... 52 Vice President (KMG only)
Jack Vernie............. 52 Controller
Set forth below is a description of the backgrounds of the directors,
executive officers and significant employees of the Company and KMG.
DAVID L. HATCHER has served as a director and President of the Company
since its acquisition of KMG in October 1996. Mr. Hatcher has also served as
a director and President of KMG since 1985. Mr. Hatcher has worked in the
wood treating industry since 1980 for predecessors and affiliates of KMG in
various capacities, including engineer, general manager and President. Mr.
Hatcher is also an officer and director of PPSA, KMG's subsidiary.
15
<PAGE>
BOBBY D. GODFREY has served as a director and Vice President of the
Company since its acquisition of KMG in October 1996. Mr. Godfrey has also
served as a director and Vice President of KMG since 1985.
CHARLES M. NEFF, JR. has served as a director of the Company since its
acquisition of KMG in October 1996. Mr. Neff has also served as a director
of KMG since 1991 and as Treasurer since 1993. Mr. Neff has served as the
Chief Executive Officer and President of Houston National Bank, N.A. since
1988.
FRED C. LEONARD III has served as a director and Secretary of the Company
since its acquisition of KMG in October 1996. Mr. Leonard has also served
as a director of KMG since 1992 and as Secretary since 1993. Mr. Leonard has
served as the Chairman of the Board, Chief Executive Officer and President of
Valves Incorporated of Texas, Inc., a manufacturing company located in
Houston, Texas since 1972. Mr. Leonard also currently serves as the Chairman
of the Board and Treasurer of Agrimpex, Inc., a company that acts as a
manufacturers' representative promoting sales of equipment and services in
Turkey, and as Secretary of North Star Tours, Inc., a travel agency
specializing in tours to Turkey.
GEORGE W. GILMAN has served as a director of the Company since its
acquisition of KMG in October 1996 and has also served as a director of KMG
since 1995. Mr. Gilman has served as the Chief Executive Officer, President
and as a director of Commerce Securities Corporation, a National Association
of Securities Dealers, Inc. member firm, since 1982 and has practiced law
with the law firm of George Gilman, P.C. since 1986.
THOMAS H. MITCHELL has served as Vice President of KMG since 1994.
Mr. Mitchell has been employed by KMG since 1988 in various capacities,
including general sales manager.
JACK VERNIE has served as Controller of the Company since its acquisition
of KMG in October 1996. Mr. Vernie has also served as Controller of KMG since
1994. Prior to his employment with KMG, Mr. Vernie served as Controller of
Golden West Refining Company, a petroleum refining company located in Santa Fe
Springs, California, from 1983 to 1993.
The Company is dependent to a significant extent upon the efforts and
ability of Mr. Hatcher and its other executive officers and key personnel to
manage the Company's business and operations. The loss of the services of Mr.
Hatcher, the Company's other executive officers and key personnel could have a
material adverse effect upon the business, financial condition and results of
operations of the Company. None of the executive officers currently have an
employment agreement with the Company.
16
<PAGE>
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 two independent directors.
The Audit Committee, composed of Messrs. Leonard, Neff and Gilman, makes
recommendations to the Board of Directors regarding the independent public
accountants of the Company and the annual audit of the Company's financial
statements and accounts. The Compensation Commitee, composed of Messrs.
Leonard, Neff and Hatcher, makes recommendations to the Board of Directors
regarding compensation for the Company's executive officers, directors,
employees and agents.
ITEM 6. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by
the Company to its chief executive officer and its two other most highly
compensated executive officers for the fiscal years ended July 31, 1996, 1995
and 1994. None of the Company's other officers or directors received cash or
non-cash compensation in excess of $100,000 for the fiscal year ended July 31,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME AND ---------------------- ---------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION(2)
- ------------------ ---- ------ ---- ---------- ---------------
<S> <C> <C> <C> <C> <C>
David L. Hatcher............ 1996 $274,733 $122,000 $42,673
President 1995 273,435 22,000 44,041
1994 245,943 0 51,699
Bobby D. Godfrey............ 1998 88,899 12,100 16,726
Vice President 1995 82,328 0 17,594
1994 85,123 3,000 20,922
Thomas H. Mitchell,......... 1996 91,596 21,100 4,790
Vice President (KMG only) 1995 84,200 9,511 3,400
1994 79,200 11,500 86 2,400
</TABLE>
(1) On July 31, 1994, KMG granted to Mr. Mitchell an option to purchase
86 shares of its common stock. The option was to become fully vested on July
31, 1997 at an exercise price of $109.93 per share. In connection with the
transactions contemplated by the Stock Exchange Agreement, the option was
canceled and a new nonqualified option was granted on October 17, 1996 under
the Stock Option Plan
17
<PAGE>
with respect to 43,671 shares of Common Stock. The new option will become
fully vested on July 31, 1997 at an exercise price of $.216 per share.
(2) Includes payments made by the Company under its 401(k) Profit
Sharing Plan and, for David L. Hatcher and Bobby D. Godfrey, the economic
benefit of premiums paid by the Company under certain split dollar life
insurance agreements. In fiscal 1996, the economic benefit of the split
dollar agreements was $38,813 for Mr. Hatcher and $14,519 for Mr. Godfrey,
respectively.
STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Stock Option Plan") was
adopted on October 15, 1996 in order to encourage ownership of Common Stock
by certain of the Company's directors, consultants and key employees and thus
to create in them an increased interest in and a greater concern for the
welfare of the Company. The Company has reserved 700,000 shares of Common
Stock for issuance under the Stock Option Plan pursuant to the exercise of
options. Unless extended or earlier terminated, the Stock Option Plan will
terminate on August 31, 2007.
The Stock Option Plan provides for the grant of "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified stock options. The Stock Option Plan will be
administered either by the Board of Directors or by a committee of two or
more "non-employee directors" within the meaning of Rule 16b-3 of the
Exchange Act. Subject to the terms of the Stock Option Plan, the Board of
Directors or the committee has the authority to grant options under the Stock
Option Plan, to amend, construe and interpret it, and to make all other
determinations and take any and all actions necessary or advisable for its
administration. The directors, consultants and key employees of the Company
or any subsidiary or parent corporation are eligible to receive options under
the Stock Option Plan, but only salaried employees of the Company or its
subsidiaries or parent are eligible to receive incentive stock options.
Options will be exercisable during the period specified in each
option agreement and will be exercisable in accordance with a vesting
schedule to be designated by the Board of Directors or the committee. Any
option agreement may provide that options will become immediately exercisable
in the event of a change or threatened change in control of the Company and
in the event of certain mergers and reorganizations of the Company. Options
may be subject to early termination within a designated period following the
optionee's cessation of service with the Company.
18
<PAGE>
As of November 27, 1996, an option to purchase 43,671 shares of
Common Stock had been granted under the Stock Option Plan, no part of which
had been exercised or was exercisable.
DIRECTOR COMPENSATION
Directors who are employees of the Company will not receive
additional compensation for serving as directors. Each director, including
directors who are employees of the Company, will receive a fee of $300 for
attending each meeting of the Board of Directors or any committee of the
Board of Directors. Directors will be reimbursed for out-of-pocket expenses
incurred in attending meetings and for other expenses incurred in performing
in their capacity as directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
George W. Gilman, a director of the Company, is an employee of Gilman
Financial Corporation ("GFC") and the father of Jeffrey L. Gilman, an
officer, director and principal shareholder of GFC. GFC currently owns
34,543 shares of Common Stock and the Company will issue 137,695 additional
shares of Common Stock for services rendered pursuant to a Consulting
Agreement ("GFC Consulting Agreement") with GFC. Such services include
advice regarding the Stock Exchange Agreement and related matters.
The Company initially advanced $218,000 to David L. Hatcher in
fiscal 1992. That indebtedness plus advances in subsequent fiscal years is
evidenced by an unsecured promissory note dated July 15, 1994 in the
principal amount of $252,984. The promissory note provides for semimonthly
payments of $1,000, including interest at 6.5% per year, beginning on January
15, 1995. The amount owing under the promissory note was $260,302 and
$267,265 for the fiscal years ended 1996 and 1995, respectively.
The Company entered into split dollar life insurance agreements in
1991 with David L. Hatcher and Bobby D. Godfrey respecting life insurance
policies. At the time the policies were obtained, David B. Hatcher, Jr., the
son of David L. Hatcher, was the agent for the insurance company that issued
the policies. According to the split dollar life insurance agreements, the
Company is obligated to pay the entire premium due on the insurance policies
and those payments are treated as advances to the insured. See "Item 6.
Executive Compensation." All advances are to be repaid to the Company out of
the proceeds of the policy or upon termination of the agreements. Premiums
totaling $75,000 were paid by the Company in each of fiscal years 1996 and
1995.
19
<PAGE>
The Company's 401(k) Profit-Sharing Plan and its employee
health insurance plan are also provided to the Company by the insurance
company employing David B. Hatcher, Jr. The Company believes that the
premiums and other terms of the split dollar insurance policies, the 401(k)
Profit Sharing Plan and its employee health insurance plan are comparable to
those provided by unrelated insurers.
ITEM 8. LEGAL PROCEEDINGS
The Company is a not a party to any legal actions or proceedings
that it believes will have a material adverse effect on its business, results
of operations or financial position.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no public market for securities of the Company and there
can be no assurance such a market will develop or, if developed, that it will
continue. Purchasers of the Company's securities may, therefore, have
difficulty in selling such securities should they desire to do so. In the
future, the Company's securities may be quoted on the OTC Bulletin Board
maintained by members of the National Association of Securities Dealers, Inc.
There is no assurance that the Company will be successful in obtaining a
market maker.
As of November 27, 1996, there were 6,862,474 shares of Common Stock
issued and outstanding held by 490 holders of record.
KMG declared and paid dividends of $124,995 in August 1996 and
$99,996 in August 1995. However, the Company anticipates that future earnings
will be retained to finance the continuing development of its business.
Accordingly, the Company does not anticipate paying dividends on the Common
Stock in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the Plan, the Company issued an aggregate of 352,474
shares of Common Stock to certain of its creditors. Such shares were issued in
accordance with Rule 1145 under the United States Bankruptcy Code and the
transaction was thus exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act").
20
<PAGE>
On October 15, 1996, the Company issued to three stockholders of KMG
an aggregate of 6,510,000 shares of Common Stock in exchange for an aggregate
of 12,820 shares of common stock of KMG pursuant to the Stock Exchange
Agreement. The Company relied on Section 4(2) of the Securities Act in that
such transactions did not involve a public offering and were thus exempt from
the registration requirements of the Securities Act. No underwriters were
used in connection with the foregoing transaction.
ITEM 11. DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 40,000,000 shares
of Common Stock and 10,000,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock").
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote
on all matters on which holders are permitted to vote. No shareholder has
any preemptive right or other similar right to purchase or subscribe for any
additional securities issued by the Company, and no shareholder has any right
to convert Common Stock into other securities. No shares of Common Stock are
subject to redemption or to any sinking fund provisions. All of the
outstanding shares of Common Stock are fully paid and nonassessable.
Subject to rights of holders of Preferred Stock, if any, the holders
of shares of Common Stock are entitled to dividends when, as and if declared
by the Board of Directors from funds legally available therefor and, upon
liquidation, to a pro rata share in any distribution to shareholders. The
Company does not anticipate declaring or paying any cash dividends on the
Common Stock in the foreseeable future.
PREFERRED STOCK
Pursuant to the Company's Amended and Restated Articles of
Incorporation, the Board of Directors has the authority, without further
shareholder approval, to provide for the issuance of up to 1,000,000 shares
of Preferred Stock in one or more series and to determine the dividend
rights, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences, the number of shares constituting any such series
and the designation of such series. Because the Board of Directors has the
power to establish the preferences and rights of each series, it may afford
the holders of any Preferred Stock preferences, powers and rights (including
voting rights) senior to the rights of the holders of Common Stock. No
shares of Preferred Stock are
21
<PAGE>
currently outstanding. Although the Company has no present intention to
issue shares of Preferred Stock, the issuance of shares of Preferred Stock,
or the issuance of rights to purchase such shares, may have the effect of
delaying, deferring or preventing a change in control of the Company.
CERTAIN OTHER MATTERS
Certain provisions of Texas law, the Amended and Restated Articles
of Incorporation and the Bylaws of the Company are intended to enhance the
likelihood of continuity and stability in the Board of Directors of the
Company and its policies, but might have the effect of delaying or preventing
a change in control of the Company and may make more difficult the removal of
incumbent management even if such transactions could be beneficial to the
interest of the shareholders of the Company.
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS
Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act
(the "Miscellaneous Laws") authorizes corporations to include a provision in
their articles of incorporation limiting or eliminating the personal
liability of directors to corporations or its shareholders for monetary
damages for an act or omission in the director's capacity as a director. The
Amended and Restated Articles of Incorporation limit the liability of
directors to the fullest extent permitted by the Miscellaneous Laws.
Specifically, directors of the Company shall not be liable except for (a) a
breach of the director's duty of loyalty to the Company or its shareholders;
(b) an act or omission not in good faith that constitutes a breach of duty of
the director to the Company or an act or omission that involves intentional
misconduct or a knowing violation of the law; (c) a transaction from which
the director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office; or
(d) an act or omission for which the liability of the director is expressly
provided by an applicable statute. The inclusion of this provision in the
Amended and Restated Articles of Incorporation, may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
shareholders.
BYLAW PROVISIONS AND AMENDMENT OF BYLAWS
The Board of Directors of the Company, acting by a majority of
directors then in office, may fill any vacancy or newly created directorship,
provided that the Board of Directors may not fill more than two such
directorships between successive annual meetings of the shareholders. The
Bylaws provide that a special meeting of the
22
<PAGE>
shareholders may be called only by the President, the Chairman of the Board
of Directors, a majority of the Board of Directors or shareholders owning a
majority of all shares entitled to vote at the meeting. The Amended and
Restated Articles of Incorporation provide that the Board of Directors has
the exclusive power to adopt, alter, amend or repeal the Bylaws.
TRANSFER AGENT
The Company's transfer agent is Securities Transfer Corporation,
16910 Dallas Parkway, Suite 100, Dallas, Texas 75248.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.01-1 of the Texas Business Corporation Act (the "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.
The Company's Bylaws also 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.
Texas law 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
23
<PAGE>
indemnify him against that liability under Article 2.02-1 of the TBCA. The
Company intends to purchase directors' and officers' liability insurance
policies to cover certain liabilities of directors and officers arising out
of claims based on certain acts or omissions by them in their capacity as
directors or officers.
The above discussion of the TBCA and the Bylaws is not intended to be
exhaustive and is qualified in its entirety by such statute and Bylaws,
respectively.
ITEM 13. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)
25 Independent Auditors' Report
26 Balance Sheets as of July 31, 1996 and 1995
27 Statements of Income for the Years Ended July 31, 1996 and
1995
28 Statements of Stockholders' Equity for the Years Ended July
31, 1996 and 1995
29 Statements of Cash Flows for the Years Ended July 31, 1996
and 1995
30-36 Notes to Financial Statements
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
KMG-Bernuth, Inc.
We have audited the accompanying consolidated balance sheets of KMG-Bernuth,
Inc. (a Delaware Corporation) and subsidiaries (the "Company") as of July 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. 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 KMG-Bernuth, Inc.
and subsidiaries at July 31, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
September 20, 1996
25
<PAGE>
KMG-BERNUTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS,
JULY 31, 1996 AND 1995
- ------------------------------------------------------------------------------
<TABLE>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 552,550 $ 70,232
Investment 89,040 89,040
Accounts receivable:
Trade 2,212,942 2,285,899
Other 134,836 74,644
Note receivable - current 7,200 14,831
Inventories 2,129,790 1,264,800
Prepaid expenses and other assets 66,103 68,238
Deferred income tax asset 110,813 68,450
---------- ----------
Total current assets 5,303,274 3,936,134
PROPERTY, PLANT AND EQUIPMENT - Net of accumulated depreciation 1,210,915 730,103
NOTE RECEIVABLE, Less current portion 253,102 264,644
OTHER ASSETS 938,443 974,726
---------- ----------
TOTAL $7,705,734 $5,905,607
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,505,733 $1,306,140
Accrued liabilities 912,310 531,295
Notes payable 14,944 29,978
Income taxes payable 80,175 330,243
---------- ----------
Total current liabilities 2,513,162 2,197,656
LONG-TERM DEBT 921,184
DEFERRED INCOME TAX LIABILITY 106,178 233,801
---------- ----------
Total liabilities 2,619,340 3,352,641
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 500,000 shares authorized,
12,820 shares issued and outstanding 128 128
Additional paid-in capital 1,254,311 1,254,311
Retained earnings 3,831,955 1,298,527
---------- ----------
Total stockholders' equity 5,086,394 2,552,966
---------- ----------
TOTAL $7,705,734 $5,905,607
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
KMG-BERNUTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
- -------------------------------------------------------------------------------
1996 1995
NET SALES $19,801,927 $16,401,205
COST OF SALES 11,529,603 10,876,962
----------- -----------
Gross profit 8,272,324 5,524,243
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,033,638 3,060,460
----------- -----------
Operating income 4,238,686 2,463,783
OTHER INCOME (EXPENSE):
Interest income 38,689 26,031
Interest expense (30,779) (190,823)
Other (89,463) (41,466)
----------- -----------
Total other income (expense) (81,553) (206,258)
----------- -----------
INCOME BEFORE INCOME TAXES 4,157,133 2,257,525
PROVISION FOR INCOME TAXES (1,523,709) (801,570)
----------- -----------
NET INCOME $ 2,633,424 $ 1,455,955
----------- -----------
----------- -----------
See notes to consolidated financial statements.
27
<PAGE>
KMG-BERNUTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
- ---------------------------------------------------------------------------
<TABLE>
COMMON STOCK
--------------- ADDITIONAL TOTAL
SHARES PAR PAID-IN RETAINED STOCKHOLDERS'
ISSUED VALUE CAPITAL EARNINGS EQUITY
------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1994 101,500 $1,015 $1,253,424 $ 155,453 $1,409,892
Conversion of stock (88,680) (887) 887
Effect of merger (Note 1) (312,881) (312,881)
Net income 1,455,955 1,455,955
------- ------ ---------- ---------- ----------
BALANCE AT JULY 31, 1995 12,820 128 1,254,311 1,298,527 2,552,966
Dividends (99,996) (99,996)
Net income 2,633,424 2,633,424
------- ------ ---------- ---------- ----------
BALANCE AT JULY 31, 1996 12,820 $ 128 $1,254,311 $3,831,955 $5,086,394
------- ------ ---------- ---------- ----------
------- ------ ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
KMG-BERNUTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
- -------------------------------------------------------------------------
1996 1995
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,633,424 $1,455,955
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 444,267 369,449
Loss on sale of equipment 166,043
Deferred income tax benefit (142,034) (98,451)
Changes in operating assets and liabilities:
Accounts receivable - trade 72,957 (598,272)
Accounts receivable - other (60,192) 2,463
Inventories (864,990) 110,738
Prepaid expenses and other assets 2,135 (113,635)
Accounts payable 199,593 (1,008,625)
Accrued liabilities 381,015 506,218
Income taxes payable (278,020) 329,521
----------- ----------
Net cash provided by operating activities 2,388,155 1,121,404
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (824,212) (210,586)
Proceeds from the sale of equipment 150,000
Collection of notes receivable 19,173 10,492
Additions to investment (50,000)
Additions to other assets (64,584) (74,997)
----------- ----------
Net cash used in investing activities (869,623) (175,091)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) proceeds from notes payable (15,034) 18,571
Net payments on line of credit (921,184) (823,465)
Payment of dividends (99,996)
Principal payments on borrowings (130,819)
----------- ----------
Net cash used in financing activities (1,036,214) (935,713)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 482,318 10,600
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 70,232 59,632
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 552,550 $ 70,232
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURES FOR CASH FLOW INFORMATION:
Cash paid during the year for interest $ 30,779 $ 190,823
Cash paid during the year for income taxes $ 1,943,763 $ 570,500
See notes to consolidated financial statements.
29
<PAGE>
KMG-BERNUTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1996 and 1995
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
KMG-Bernuth, Inc. ("KMG" or the "Company") owns 96% of its subsidiary,
Products de Preservation, S.A. de C.V. ("PPSA"), a Mexican corporation. On
March 31, 1995, the Company merged with its former parent, Harwin
Interests, Inc. ("HII"), with HII ceasing to exist. HII's principal asset
was its investment in the Company. This transaction has been accounted for
at historical cost in a manner similar to a pooling-of-interests, with the
Company assuming the $312,881 net tax liabilities of its previous parent.
KMG is involved in the manufacture and distribution of wood treatment
products. KMG and its subsidiary, PPSA, operate a pentachlorophenol
("penta") production plant. The penta plant began operations in March 1986
and has operated as a maquiladora in Matamoros, Mexico since that date.
A summary of the Company's significant accounting policies applied in the
preparation of the accompanying financial statements follows:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of KMG, PPSA and a wholly-owned inactive subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS - The Company considers all investments with
original maturities of three months or less to be cash equivalents.
INVENTORIES - Inventories are valued at the lower of cost or market. Cost
is determined using the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Major renewals and betterments are capitalized. Repairs and
maintenance costs are expensed as incurred.
Depreciation is principally computed on a straight-line method over the
estimated useful lives of the assets. Depreciation expense was $272,639
and $279,370 in 1996 and 1995, respectively. The estimated useful lives of
classes of assets are:
ASSET DESCRIPTION LIFE (YEARS)
Leasehold improvements 5 to 8
Office and laboratory equipment 5
Plant and production equipment 5 to 10
Transportation equipment 3
INCOME TAXES - Deferred income taxes are provided on the temporary
differences between financial and taxable income. These differences result
principally from computing depreciation and amortization using different
methods for tax and financial reporting purposes.
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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 reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of financial
instruments including cash and cash equivalents, accounts receivable,
accounts payable and debt approximate fair value because of the relatively
short maturity of these instruments. It was not practicable to estimate
the fair value of the Company's investment since it is in a untraded
closely-held entity. The notes receivable, including the current portion,
are of a related party nature and it is not practicable to estimate the
fair value.
CONCENTRATIONS OF CREDIT RISKS - Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents and accounts receivable. The
Company places its cash investments with high quality financial
institutions and limits the amount of credit exposure to any one
institution. With respect to accounts receivable, such receivables are
primarily from wood treating manufacturers located worldwide. The Company
extends credit based on an evaluation of the customer's financial
condition, generally without requiring collateral. Exposure to losses on
receivables is dependent on each customer's financial condition.
RECLASSIFICATIONS - Certain prior year balances have been reclassed to
conform to the current year's presentation.
2. INVENTORIES
Inventories are summarized as follows:
1996 1995
Chemical raw materials and supplies $ 195,565 $ 117,137
Finished chemical products 1,934,225 1,147,663
----------- -----------
Total $ 2,129,790 $ 1,264,800
----------- -----------
----------- -----------
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
1996 1995
Plant and production equipment $ 2,321,727 $ 2,018,427
Transportation equipment 191,025 244,041
Office and laboratory equipment 171,835 226,778
Leasehold improvements 338,404 418,065
Construction in progress (see Note 8) 427,958
----------- -----------
3,450,949 2,907,311
Less accumulated depreciation (2,240,034) (2,177,208)
----------- -----------
Total $ 1,210,915 $ 730,103
----------- -----------
----------- -----------
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4. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Monetary assets and liabilities are translated to U.S. dollars at current
rates and certain assets (notably plant and production equipment) are
translated at historical rates. Income and expense items for PPSA are
translated at average monthly rates of exchange except for depreciation and
amortization expense. All gains and losses from currency translation for
PPSA are included in operations. Foreign currency translation resulted in
an aggregate exchange gain of $20,666 and $62,270 in 1996 and 1995,
respectively.
5. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1996 1995
Current federal provision $1,529,059 $827,312
Current state provision 136,684 72,709
Deferred income tax benefit (142,034) (98,451)
---------- --------
Total $1,523,709 $801,570
---------- --------
---------- --------
During 1995, the Company utilized approximately $160,000 of net operating
loss carryforward to offset current tax expenses. As of July 31, 1995,
there was no net operating loss carryforward available to offset future
taxable income.
Deferred income taxes are provided for temporary differences between the
financial statement carrying amount of existing assets and liabilities and
their respective tax basis. As of July 31, 1996, deferred income taxes
relating to temporary differences consisted of $110,813 of current deferred
tax assets and $106,178 of noncurrent deferred tax liabilities. As of
July 31, 1995, deferred income taxes relating to temporary differences
consisted of $68,450 of current deferred tax assets and $233,801 of
noncurrent deferred tax liabilities. No valuation allowance was required
as of July 31, 1996 or 1995.
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6. OTHER ASSETS
Other assets consist of the following:
1996 1995
Advances for premiums on employee owned
life insurance policies (see Note 9) $354,023 $279,024
EPA testing costs, net of accumulated
amortization of $105,041 on July 31,
1996 and $77,145 on July 31, 1995
(see Note 8) 313,403 341,299
Licensing agreement, net of accumulated
amortization of $63,452 on July 31,
1996 and $39,524 on July 31, 1995 256,548 280,476
Loan costs, net of accumulated
amortization of $58,097 on
July 31, 1995 48,403
Other 14,469 25,524
-------- --------
Total $938,443 $974,726
-------- --------
-------- --------
7. LONG-TERM DEBT
During 1996, the Company maintained a line of credit with a bank that
provided for borrowings of up to $3,500,000. The borrowing base was
limited by a formula defined in the agreement based upon the amount of
receivables and inventory. Interest payments were due monthly at 1% over
the higher of the prime rate or the federal funds rate plus 1/2% with a
minimum rate of 6%. The Company had no borrowing outstanding as of
July 31, 1996. This agreement was terminated on July 31, 1996.
Effective August 1, 1996, the Company entered into a new revolving line-
of-credit agreement with a different bank that provides for borrowings of
up to $2,500,000. The borrowing base under this agreement is limited by a
formula defined in the agreement based upon the amount of receivables and
inventory. Interest payments will be due monthly at the base rate
designated by the bank (8.25% at August 1, 1996). The line of credit is
subject to a 1/4% unused line fee. Principal is due on November 30, 1997.
The line of credit is secured by the Company's receivables, inventory and
general intangibles and is partially guaranteed by the Company's majority
stockholder. The loan agreement includes, among other things, restrictions
on equity investments and loans made by the Company and requires the
maintenance of a minimum fixed charge coverage ratio and minimum net worth
requirements.
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8. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
OPERATING LEASES - The Company has operating leases for its office and
warehouse facilities and certain transportation equipment. At July 31,
1996, the Company was obligated under these leases for the following future
minimum lease commitments:
YEAR ENDING JULY 31, AMOUNT
1997 $150,000
1998 150,000
1999 112,218
2000 65,756
2001 9,670
Thereafter
--------
Total $487,644
--------
--------
Rent expense relating to the operating leases was $253,713 for the year
ended July 31, 1996 and $258,299 for the year ended July 31, 1995.
MANUFACTURING FACILITY - The Company is in the process of moving its
manufacturing facilities to a new location in Matamoros, Mexico. In
connection with the move, the Company has entered into various agreements
and commitments. The Company estimates that the total costs related to the
move will be $1.4 million, and the new plant will be operational by
mid-April 1997.
CONTINGENCIES
ENVIRONMENTAL - As a manufacturer and supplier of wood treatment products,
the Company is subject to a variety of Federal health, safety and
environmental laws. The Federal government may implement new laws or
regulations which amend or impose restrictions on the sale or use of the
Company's raw materials and products. In management's opinion, the Company
is currently in compliance with all applicable laws and regulations, and no
actions or proceedings against the Company are known to be in process.
In August 1988, the Environmental Protection Agency ("EPA") issued a
comprehensive data call-in notice for test data on all products covered
under the Federal Insecticide, Fungicide and Rodenticide Act. This notice
required product registrants, including KMG, to perform an extensive series
of controlled tests and to provide the EPA with the results.
To meet the EPA requirements and to mitigate the cost of doing so, KMG
joined with another pentachlorophenol manufacturer in the creation of a
"penta data task force" in July 1989. To date, this task force has
performed the bulk of the EPA mandated tests. The data from these tests
are consistent with historical pentachlorophenol test results and, as such,
will not, in management's opinion, hinder the re-registration of
pentachlorophenol products. Costs incurred by KMG of $418,444 as of
July 31, 1996 and 1995 are recorded as intangible assets and are being
amortized over 15 years. During 1996, the Company incurred additional
costs related to the penta data task force of $525,000 which are included
in general and administration expenses.
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Management anticipates that the balance of the required testing will be
completed during 1998. Since the EPA has the authority to amend testing
protocols and/or to mandate additional tests, future costs to KMG are
difficult to quantify. However, management estimates that these future
costs will not exceed $1,000,000 and intends to expense these costs as
incurred.
LAWSUITS - The Company is involved in various claims and lawsuits in the
normal course of business. Management does not believe that the outcome of
any of these matters will have a materially adverse effect on the Company's
consolidated financial condition or operations.
9. RELATED-PARTY TRANSACTIONS
During 1991, the Company entered into "split-dollar insurance" arrangements
with two officers/stockholders. Under these Agreements the Company
advances funds for insurance premiums and records these advances as a
noncurrent asset. The Company has a security interest in the insurance
policies to the extent of the advances made. The security is to be
satisfied either from death benefit proceeds or, in the event of
termination of the Agreement(s), by reimbursement from the
officer(s)/stockholder(s).
The Company advanced funds to an officer under an unsecured promissory note
dated July 15, 1994. The amount is due in semi-monthly installments of
$1,000, including interest at 6.5%. As of July 31, 1996 and 1995 $260,302
and $267,265, respectively, was outstanding under this note.
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) plan covering substantially
all its U.S. employees. The participants may contribute from 3% to 15% of
their compensation, and the Company makes matching contributions under this
plan equal to 3% of the participants' compensation. Company contributions
to the plan totaled $22,000 and $15,000 in fiscal years 1996 and 1995.
11. SIGNIFICANT CUSTOMERS
The Company had one significant customer in 1996 and 1995 whose sales as a
percent of total sales were 9.8% and 10%, respectively.
12. SUBSEQUENT EVENTS (UNAUDITED)
The Company paid dividends of $124,995 in August 1996.
On October 15, 1996, pursuant to a stock exchange agreement dated
September 13, 1996, KMG-B, Inc. (formerly Water Point Manufacturing, Inc.)
issued 6,510,000 shares of common stock (approximately 93% of its issued
and outstanding common stock) in exchange for all of the outstanding shares
of common stock of the Company in a transaction that has been accounted for
as a reverse merger. KMG-B, Inc. had no significant assets or liabilities
prior to the merger.
KMG-B, Inc. also adopted the 1996 Stock Option Plan (the "Plan") on
October 15, 1996 and reserved 700,000 shares of common stock for issuance
under the Plan. The Plan provides for the grant of "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986,
as amended, and nonqualified stock options. The Plan will be administered
either by the KMG-B, Inc. Board of Directors or by a committee of two or
more non-employee directors. Subject to the terms of the Plan, the Board
of Directors or the committee has the authority to grant options under the
Plan, to amend, construe and interpret it, and to make all other
determinations and take any and all actions necessary or advisable
35
<PAGE>
for its administration. The directors, consultants and key employees of
KMG-B, Inc. or any subsidiary or parent corporation are eligible to receive
options under the Plan, but only salaried employees of KMG-B, Inc. or its
subsidiaries or parent are eligible to receive incentive stock options.
Options will be exercisable during the period specified in each option
agreement and will be exercisable in accordance with a vesting schedule to
be designated by the Board of Directors or the committee. Any option
agreement may provide that options will become immediately exercisable in
the event of a change or threatened change in control of KMG-B, Inc. and in
the event of certain mergers and reorganizations of KMG-B, Inc. Options
may be subject to early termination within a designated period following
the optionee's cessation of service with KMG-B, Inc.
As of November 27, 1996, an option to purchase 43,671 shares of common
stock had been granted under the Plan. No part of the option was exercised
or exercisable.
******
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<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements filed as part of this Registration Statement
in Item 13 are listed in the Index to Financial Statements contained
in such Item.
(b) The following documents are filed as exhibits to this Registration
Statement:
2.1 First Amended Joint Plan of Reorganization dated September 1,
1995, as modified and clarified to date.
2.2 Stock Exchange Agreement dated September 13, 1996 by and
between W.P. Acquisition Corp., Halter Financial Group, Inc.,
KMG-Bernuth, Inc. and certain shareholders of KMG-Bernuth, Inc.
3 (i) Amended and Restated Articles of Incorporation.
3 (ii) Bylaws.
4.1 Form of Common Stock Certificate.
10.1 Agency Agreement dated January 1, 1987 by and between Bernuth,
Lembcke Co. Inc. and VfT AG.
10.2 Revolving Loan Agreement dated August 1, 1996 by and between
KMG-Bernuth, Inc. and SouthTrust Bank of Alabama, National
Association.
10.3 $2,500,000 Revolving Note dated August 1, 1996 made payable by
KMG-Bernuth, Inc. to SouthTrust Bank of Alabama, National
Association.
10.4 1996 Stock Option Plan.
10.5 Stock Option Agreement dated October 17, 1996 by and between
KMG-B, Inc. and Thomas H. Mitchell.
10.6 Consulting Agreement dated October 15, 1996 by and between the
Company and Gilman Financial Corporation.
10.7 Split Dollar Insurance Agreement dated November 8, 1991 between
KMG-Bernuth, Inc. and David L. Hatcher.
10.8 Split Dollar Insurance Agreement dated December 13, 1991
between KMG-Bernuth, Inc. and Bobby D. Godfrey.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule.
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SIGNATURES
In accordance with Section 12 of the Securities Act of 1934, the Company
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
KMG-B, INC.
By: /s/ DAVID L. HATCHER Date: December 6, 1996
---------------------------
David L. Hatcher, President
<PAGE>
Mark E. Golman
State Bar No. 08113200
STOREY ARMSTRONG STEGER & MARTIN,
A Professional Corporation
1445 Ross Avenue, Suite 4600
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
CHAPTER 11 TRUSTEE
J. Scott Rose
State Bar No. 17252800
JENKENS & GILCHRIST,
A Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telephone: (214) 855-4500
Telecopy: (214) 855-4300
ATTORNEYS FOR THE OFFICIAL
UNSECURED CREDITORS COMMITTEE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:
WATER POINT SYSTEMS, INC., CASE NO. 395-31514-RCM-11
(Jointly Administered)
DEBTOR.
WATER POINT MANUFACTURING CASE NO. 395-33959-RCM-11
CORP. (Jointly Administered)
DEBTOR.
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE
<PAGE>
September 1, 1995
The Official Committee of Unsecured Creditors (the "Committee") of Water
Point Systems, Inc. (the "Debtor") and Mark E. Golman, Chapter 11 Trustee of
Debtor (the "Bankruptcy Trustee"), propose the following Plan of Reorganization.
ARTICLE I
INTRODUCTION
1.1 INTRODUCTION. The Debtor filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code on March 10, 1995, with debts far exceeding
the value of its assets. Since the filing, all of Debtor's operating assets
have been sold. Debtor continues to own non-operating assets, including water
vending machines, furniture and office equipment, and other miscellaneous
property. Water Point Manufacturing Corp., a wholly-owned subsidiary of the
Debtor (the "Subsidiary"), filed a petition for reorganization under Chapter 11
of the Bankruptcy Code on June 30, 1995. The Subsidiary's only assets are
component parts and equipment used in constructing water vending machines for
the Debtor. Claims asserted against the Subsidiary exceed the value of these
assets. In many instances, creditors who supplied goods or services to the
Subsidiary also assert claims against the Debtor; furthermore, holders of claims
against the Debtor also assert liens against assets held by the Subsidiary. The
Plan provides for the (i) reorganization of the Debtor and the Subsidiary, (ii)
liquidation of all Assets of the Debtor and the Subsidiary and (iii)
satisfaction of all claims against and interests in the Debtor and the
Subsidiary. Assets not previously distributed under the Plan or by order of the
Court on or prior to the Effective Date shall be transferred to the Trust
created hereunder and the Liquidating Trustee and a Trust Committee shall be
responsible for distribution of such Assets in accordance with the provisions of
the Plan and the Trust. To the extent the provisions of the Plan conflict with
the provisions of the Trust, the provisions of the Plan will control. The
Bankruptcy Trustee and the Committee believe the Debtor's and Subsidiary's
assets, including the remaining personal property, all claims, whether arising
under the Bankruptcy Code or other applicable law, and the Debtor's and
Subsidiary's corporate structures can best be liquidated or utilized for the
benefit of creditors pursuant to this First Amended Joint Plan of Reorganization
(the "Plan").
ARTICLE II
CONCEPT AND IMPLEMENTATION OF THE PLAN
2.1 THE PLAN CONCEPT. The Plan proposes to liquidate all of the Debtor's
and Subsidiary's assets through a creditor's trust (the "Trust"), and to
distribute the net proceeds in the manner provided in this Plan to creditors of
both the Debtor and Subsidiary with Allowed Claims. This liquidation will be
conducted in accordance with the provisions of the Plan and will permit the
creditors to control the costs of liquidation as well as determine the best
means for such process through a committee of creditors (the "Trust Committee")
which is directly responsible to the creditors. Terms of the Plan will control
over the terms of the Trust governing the rights of parties. In addition,
through the Chapter 11 process, all of the issued and outstanding shares
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UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE - Page 2
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of stock in the Debtor and Subsidiary will be cancelled and new stock will be
issued to the creditors of the Debtor and Subsidiary. Sixty percent (60%) of
the newly issued shares in the Debtor will be sold to Arcady Capital Holdings,
Inc. ("Arcady"), and sixty percent (60%) of the newly issued shares in the
Subsidiary will be sold to Halter Financial Group, Inc. ("Halter") in full
satisfaction of their respective administrative claims. All holders of Allowed
Class 6 Claims shall receive a PRO RATA share of thirty-seven percent (37%) of
the newly issued shares in the Debtor and a PRO RATA share of forty percent
(40%) of the newly issued shares in the Subsidiary. Three percent (3%) of the
shares in the reorganized Debtor, and $4,500, will be distributed to ARGUS
Capital Corporation ("ARGUS") as a fee for arranging the loan from Arcady to the
Debtor. The Plan provisions relating to the conveyance of all assets of the
Debtor and the Subsidiary into a single liquidating Trust, the unitary treatment
of holders of claims against both the Debtor and the Subsidiary, regardless of
which entity the creditor filed its Claim against, and the issuance of thirty-
seven percent (37%) of the stock of the Debtor and forty percent (40%) of the
stock of the Subsidiary to creditors of either, based on their cumulative PRO
RATA Allowed Unsecured Claims (as is described in detail hereinafter), represent
a compromise and settlement under Federal Rule of Bankruptcy Procedure 9019 of
any and all causes of action by and between the Debtor, the Subsidiary and any
party in interest concerning any allegations that the Debtor and the Subsidiary
should be substantively consolidated or that the Debtor and the Subsidiary are
the alter ego or instrumentality of each other and, hence, each liable for the
debts of the other.
2.2 TRUST OPERATION. The Liquidating Trustee, selected by the Trust
Committee, will be appointed to administer the Trust and will be compensated in
accordance with the Trust Agreement. The Liquidating Trustee will be empowered
to expend Trust funds to preserve Trust assets, to prosecute causes of action to
conclusion through litigation or settlement, collect monies and sell assets for
cash, all in order to make distributions to creditors of cash and stock in the
Debtor and Subsidiary, and to take such other steps as are necessary to
implement the intent of the Plan through the Trust.
2.3 POST-CONFIRMATION DEBTOR. The Debtor shall continue as a Texas
corporation after confirmation but, because of the power to make changes as to
the place of incorporation granted to Arcady by virtue of its post-confirmation
majority ownership, the Debtor may subsequently reincorporate under the laws of
another state. Pursuant to the Plan, the Debtor will change its corporate name
to Arcady Acquisition Corporation and increase the number of authorized shares
of common stock to 40,000,000 and increase the number of authorized shares of
preferred stock to 10,000,000. The new shares issued pursuant to the Plan will
be in an amount sufficient to meet the requirements of the Plan, approximately
500,000. Thirty-seven percent (37%) of the newly issued shares in the
reorganized Debtor shall be distributed PRO RATA to the holders of Allowed Class
6 Claims (including the Deficiency Amounts of Class 4 Claims). Three percent
(3%) of such stock will be issued to ARGUS. Sixty percent (60%) of the newly
issued shares in the reorganized Debtor will be issued to Arcady in full
satisfaction and release of its Allowed Administrative Claim and in exchange for
its agreement to perform services and incur fees related to the anticipated
post-confirmation merger of the reorganized Debtor with an as yet unidentified
company. The Debtor's sole officer, post-confirmation, will be Langhorne Reid
III as president and secretary. Mr. Reid is the owner of 100% of the shares of
Arcady Capital, Inc., the sole
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE OFFICIAL COMMITTEE OF
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<PAGE>
shareholder of Arcady and the president and director of both. Mr. Reid will
also be the Debtor's director after confirmation and prior to the anticipated
reverse merger.
2.4 POST-CONFIRMATION SUBSIDIARY. The Subsidiary shall continue as a
Texas corporation after confirmation but because of the power to make changes as
to the place of incorporation granted to Halter by virtue of its post-
confirmation majority ownership, the Subsidiary may subsequently reincorporate
under the laws of another state. Pursuant to the Plan, the Subsidiary will
change its corporate name to WP Acquisition Corp. and increase the number of
authorized shares of common stock to 40,000,000 and increase the number of
authorized shares of preferred stock to 10,000,000. The amount of new shares of
common stock in the Subsidiary issued pursuant to the Plan will be in an amount
sufficient to meet the requirements of the Plan, approximately 500,000. Forty
percent (40%) of such newly issued shares in the reorganized subsidiary shall be
distributed PRO RATA to the holders of Allowed Class 6 Claims (including the
Deficiency Amounts of Class 4 Claims). Sixty percent (60%) of the newly issued
shares in the reorganized Subsidiary will be issued to Halter in full
satisfaction and release of its Allowed Administrative Claim and in exchange for
its agreement to perform services and incur fees related to the anticipated
post-confirmation merger of the reorganized Subsidiary with an as yet
unidentified company. The Subsidiary's sole officer, post-confirmation, will be
Mr. Timothy Halter as president and secretary. Mr. Halter is the owner of all
of the shares of Halter and its president and sole director. Mr. Halter will
also be the Subsidiary's sole director, post-confirmation and prior to the
anticipated reverse merger.
ARTICLE III
DEFINITIONS
3.1 DEFINITIONS. The terms set out in this Article shall have the
following meanings in the Plan unless the context otherwise requires and, unless
otherwise indicated, the singular shall include the plural. The definitions
contained in Section 101 of the Bankruptcy Code shall control unless different
definitions are stated in this Article or elsewhere in the Plan, in which case
the definitions as stated herein shall control for the purposes of this Plan.
The rules of construction contained in Section 102 of the Bankruptcy Code shall
apply to the construction of the language of this Plan.
(a) "ADMINISTRATIVE CLAIM" means a Claim for a cost or expense of
administration of the Debtor's and Subsidiary's Chapter 11 cases, allowed under
Sections 503(b) and 507(a)(1) of the Bankruptcy Code, including any fees payable
under 28 U.S.C. Section 1930.
(b) "ALLOWED CLAIM" means (i) any claim (A) proof of which has been
timely filed with the Court or (B) which has been scheduled by the Debtor and
Subsidiary and not shown as disputed, contingent, or liquidated; and (C) as to
which no objection has been filed by the deadline set by the Court unless the
Claim has been allowed by Final Order; and (ii) any Administrative Claim for
which a motion or fee application has been filed and approved by the Court by
Final Order.
(c) "ASSETS" means all assets of the Debtor and Subsidiary remaining
on the Effective Date, whether tangible or intangible, liquidated or
unliquidated, and includes all causes of action assertable by the Debtor or the
Subsidiary pursuant to (1) Sections 542, 543, 544, 545,
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547, 548, 549, 550, or 553 of the Bankruptcy Code, (2) any applicable state
law providing for avoidance or recoveries of transfers of assets, (3)
accounts and notes receivable owed to the Debtor or Subsidiary, whether due
prior or subsequent to the Petition Date, and (4) any other claims or causes
of action, whether arising by common law or under the laws of the United
States, the State of Texas, or any other jurisdiction in which such claim or
controversy involving the Debtor arose.
(d) "BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978, as
amended, and codified at Title 11 of the United States Code.
(e) "BANKRUPTCY TRUSTEE" means Mark E. Golman appointed pursuant to
an order of the Bankruptcy Court dated May 11, 1995, and approved by order of
the Bankruptcy Court dated May 22, 1995.
(f) "BAR DATE" with respect to the Debtor means July 17, 1995, and
with respect to the Subsidiary means November 6, 1995, the dates fixed by orders
of the Bankruptcy Court by which a Proof of Claim must be filed against the
Debtor or Subsidiary. The Bankruptcy Court subsequently reset the bar date for
claims to be filed against the Subsidiary to September 20, 1995.
(g) "CLAIM" means any right to payment from the Debtor or Subsidiary,
whether or not such right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, contested, uncontested, legal, equitable,
secured, or unsecured; any right under Section 502(h) of the Bankruptcy Code; or
any right to an equitable remedy for breach of performance if such breach gives
rise to a right of payment from the Debtor or Subsidiary, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, contested, uncontested, secured, or unsecured.
(h) "CONTESTED CLAIM" means any Claim to which an objection is timely
filed.
(i) "COURT" means the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division, Honorable Robert C. McGuire presiding.
(j) "DEFICIENCY AMOUNT" means the amount of a Claim against the
Debtor or Subsidiary equal to the amount by which the Claim exceeds the sum of
(a) any setoff rights of the holder of such Claim against the Debtor or
Subsidiary under Sections 506 and 553 of the Bankruptcy Code plus (b) the actual
proceeds realized from the disposition of any collateral securing such Claim,
or, if such collateral is not liquidated to cash, the value of the interest of
the holder of the Claim in the Debtor's or Subsidiary's interest in the
collateral securing such Claim, as determined under Section 506 of the
Bankruptcy Code; provided, however, that if the holder of such Claim makes the
election provided in Section 1111(b) of the Bankruptcy Code, there shall be no
Deficiency Amount in respect of such Claim.
(k) "DISALLOWED" when used with respect to a Claim, means a Claim to
the extent it has been disallowed by Final Order of the Bankruptcy Court.
(l) "DISCLOSURE STATEMENT" means the First Amended Joint Disclosure
Statement filed pursuant to Section 1125 of the Bankruptcy Code with respect to
the Plan.
(m) "EFFECTIVE DATE" means the first Business Day after the order
confirming the Plan becomes a Final Order; provided, however, that in the event
a party in interest appeals the order but the order has not been stayed on
appeal by a court of competent jurisdiction, the Effective Date shall mean the
eleventh Business Day following the date of entry of the order; and, provided,
further, that in the event the order has been stayed on appeal by a court of
competent
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jurisdiction, the Effective Date shall mean the first Business Day
following the date such stay is lifted or dissolved by a court of competent
jurisdiction. The Effective Date shall also be the date upon which all
necessary corporate resolutions and other documents necessary to effect the
acquisition of the shares of the reorganized Debtor and Subsidiary shall be
executed, unless the intended recipients of the respective shares of the Debtor
or Subsidiary and the Liquidating Trustee, if in place, or the Bankruptcy
Trustee, if not, agree to a later date.
(n) "FINAL ORDER" means an order of the Court or any other court
having jurisdiction that has become conclusive of all matters adjudicated by
such order and (i) that is not subject to a pending appeal and for which the
time to appeal or seek review or rehearing of such order has expired or (ii)
that is the subject of a pending appeal but has not been stayed or to which no
supersedeas bond has been posted during the time to appeal or seek review or
rehearing of such order.
(o) "IMPAIRED", with respect to a Claim, has the meaning set forth in
11 U.S.C. Section 1124.
(p) "INDEMNIFIED PARTIES" means the Bankruptcy Trustee, Liquidating
Trustee, Committee, the Trust Committee, and their employers, members and
professional representatives.
(q) "INDENTURE" shall mean that certain Indenture executed by Debtor
dated as of September 28, 1993, between the Debtor and Kenneth Hornbaker,
Trustee, which Indenture secures the notes held by members of Class 4.
(r) "INTEREST" means the ownership interest in the Debtor and
Subsidiary represented by its respective pre-confirmation outstanding stock.
(s) "INSIDER" shall have the meaning set forth in Bankruptcy Code
Section 101(31).
(t) "NET PROCEEDS" when used in connection with Class 4 Claims shall
mean the actual cash proceeds derived from the sale or other disposition of Lot
1, Lot 2 and Lot 3 Assets, net of (i) any liens or claims of Classes 3 and 5
Claimants in or to said collateral, (ii) the actual and reasonable costs of
selling, closing, or collection of the Assets, (iii) (only in the case of Lot 1
and Lot 2 Assets) fees and expenses of the Indenture Trustee and his counsel in
amounts as determined by the Court to be reasonable and allowable, and (iv) the
commissions awarded the Bankruptcy Trustee or Liquidating Trustee in accordance
with the Bankruptcy Code and the Plan, but excluding any other costs of
administration including the fees and expenses of the Committee or its counsel
or payment of non-Class 2 priority claims.
(u) "PETITION DATE" means March 10, 1995, with respect to Debtor and
June 30, 1995, with respect to the Subsidiary.
(v) "PLAN" shall mean this First Amended Joint Plan of Reorganization
filed by the Committee and Bankruptcy Trustee as it may be amended from time to
time by the Bankruptcy Trustee or Committee or modified by order of the Court.
(w) "POOLED ASSETS" shall be all assets of the Debtor and Subsidiary
except Lot 1 and Lot 2 Assets as defined in Article 5.4(a).
(x) "PRIORITY CLAIM" means any Claim allowed by Final Order pursuant
to Section 507 of the Code.
(y) "PRO RATA SHARE" means the proportion that the amount of an
Allowed Claim in a particular class bears to the aggregate amount of all Claims
in such class, including Contested
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Claims, but not including Disallowed Claims, as calculated by the Bankruptcy
Trustee or Liquidating Trustee on a particular date.
(z) "SUBORDINATED CLAIM(S)" shall mean any claim evidenced by
subordinated notes issued by the Debtor dated as of August 31, 1993, September
20, 1993, September 23, 1993, September 30, 1993, October 5, 1993, October 8,
1993, October 18, 1993, October 25, 1993 and October 29, 1993, all to become due
and payable on August 15, 1998.
(aa) "SUBSIDIARY" means Water Point Manufacturing Corp.
(bb) "SECURED CLAIM" means a Claim secured by a perfected, valid and
enforceable lien on property in which the Debtor or Subsidiary has an interest,
of a value determined in accordance with Section 506(a) of the Bankruptcy Code,
or as may otherwise be agreed by the parties and approved by Final Order of the
Court.
(cc) "SECURED TAX CLAIM" means a Claim by a governmental unit for a
tax to the extent that the same is also a Secured Claim.
(dd) "TRUST" means the liquidating trust established pursuant to
Article 7 of this Plan.
(ee) "TRUST COMMITTEE" means the Committee, initially comprised of the
Committee members appointed pursuant to Article 6 of this Plan to oversee and
direct the activities of the Liquidating Trustee.
(ff) "TRUST PROPERTY" means the Assets conveyed to the Trust upon the
Effective Date pursuant to Article 7 of this Plan.
(gg) "LIQUIDATING TRUSTEE" means Mark E. Golman, the person appointed
as trustee of the Trust (and any successor) pursuant to Article 6 of this Plan.
(hh) "UNIMPAIRED" with respect to a Claim, means that the Claim is not
Impaired under this Plan.
(ii) "UNSECURED CLAIM" means a Claim that is not secured by a valid
and enforceable lien against property of the Debtor or Subsidiary and does not
meet the definitional criteria of any other Class under the Plan.
ARTICLE IV
CLASSIFICATION OF
CLAIMS AND EQUITY INTERESTS
4.1 CLAIMS AND EQUITY INTERESTS CLASSIFIED. The Claims against the Debtor
and Subsidiary, and the Equity Interests in the Debtor, are hereby classified
for the purposes of this Plan as follows:
(a) Class 1 -- Priority Wage and Benefit Claims
(b) Class 2 -- Priority Tax Claims
(c) Class 3 -- Secured Tax Claims
(d) Class 4 -- Secured Claims Represented By Notes made by the Debtor
Secured by the Indenture
(e) Class 5 -- Secured Claim of Elkay Manufacturing Company
(f) Class 5A -- Secured Claim of Camp Bowie National Bank
(g) Class 5B -- Secured Claim of Dependable Acceptance Corp.
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(h) Class 5C -- Secured Claim of Southern Warehousing and
Distributing, Ltd.
(i) Class 6 -- Unsecured Claims
(j) Class 7 -- DE MINIMIS Claims
(k) Class 8 -- Equity Interests in the Debtor
(l) Class 9 -- Insider Claims
4.2 CLASSES DEFINED. Any Claim or Equity Interest is in a particular
class to the extent that such Claim or Equity Interest fits within the
definition applicable to that class and is in such other or different class or
classes to the extent that the remainder of such Claim or Equity Interest fits
the definition of another class or classes, provided, however, any provision of
the Plan placing a claim in a particular class shall control.
ARTICLE V
PROVISIONS FOR TREATMENT OF
CLASSES OF CLAIMS AND EQUITY INTERESTS
5.1 CLASS 1. Class 1 Allowed Priority Wage and Benefit Claims shall be
paid in cash on the Effective Date up to the amount provided by Section
507(a)(3) and (4) of the Bankruptcy Code.
5.2 CLASS 2. Class 2 Allowed Priority Tax Claims shall be paid in full in
cash on the Effective Date.
5.3 CLASS 3. Class 3 Allowed Secured Tax Claims shall be paid in full in
cash on the Effective Date.
5.4 CLASS 4. Class 4 Allowed Secured Claims represented by notes made by
the Debtor secured by the Indenture shall be satisfied when each holder of an
Allowed Class 4 Claim or its designee shall receive payment of a PRO RATA Share
of the allocated Net Proceeds of the disposition of the collateral securing the
Class 4 Claims pursuant to the following formula:
(a) CLASSIFICATION OF ASSETS BY LOT
(i) LOT ONE ASSETS shall consist of all of the assets of the
Debtor related directly or indirectly to the Debtor's Drinking Water
Division and shall include the "Excluded Assets" set forth in the
Indenture (including all rights to the name "Water Point").
(ii) LOT TWO ASSETS shall consist of all of the assets owned by
the Debtor or the Subsidiary related directly or indirectly to the
Debtor's Vended Water Division.
(iii) LOT THREE ASSETS shall consist of all other assets or rights
of the Debtor including liens, claims, licenses, causes of action and
other tangible and intangible assets not specifically encompassed in
Lots One or Two.
(b) DISTRIBUTION OF PROCEEDS BY LOT
(i) DISTRIBUTION OF PROCEEDS OF LOT ONE ASSETS. The first one
million dollars ($1,000,000) in Net Proceeds received from the sale or
disposition of Lot One Assets shall be distributed 90% to the Class 4
Claimants and 10% to Class 6 Claimants. All Net Proceeds from the
sale of Lot One Assets in excess of one million dollars shall be
distributed 95% to the Class 4 Claimants and 5% to the
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Class 6 Claimants, until the Class 6 Claimants shall have received a
total of $150,000 in Net Proceeds from the sale or disposition of Lot
One Assets; thereafter, 100% of all Net Proceeds from the sale or
disposition of Lot One Assets shall be distributed to the Class 4
Claimants.
(ii) DISTRIBUTION OF PROCEEDS OF LOT TWO ASSETS. All Net
Proceeds from the sale or disposition of Lot Two Assets (except the
Assets which are owned by the Subsidiary) shall be distributed to the
Class 4 Claimants until the Class 4 Claimants shall have received a
total of $700,000; thereafter, all Net Proceeds shall be distributed
75% to the Class 4 Claimants and 25% to the Class 6 Claimants until
the Class 6 Claimants shall have received a maximum of $450,000 in Net
Proceeds from the sale or distribution of the Lot Two Assets (other
than the assets owned by the Subsidiary), at which point any remaining
Net Proceeds, other than from Assets owned by the Subsidiary, shall be
distributed to the Class 4 Claimants. The Net Proceeds from the sale
or disposition of Lot Two Assets owned by the Subsidiary shall be
distributed 50% to the Class 6 Claimants and 50% to the Class 4
Claimants.
(iii) DISTRIBUTION OF PROCEEDS OF LOT THREE ASSETS. The Net
Proceeds from the sale or disposition of all Lot Three Assets shall be
distributed 50% to the Class 4 Claimants, and 50% to the Class 6
Claimants; PROVIDED, HOWEVER, the Class 4 Claimants shall not receive
any distribution from the Net Proceeds of Lot Three Assets on account
of any Deficiency Amounts.
Except as provided in Article 5.4(b)(iii) herein, the Deficiency Amount held by
Class 4 creditors after payment of the proceeds from the liquidation of Lots
One, Two and Three shall become a Class 6 Claim payable in accordance with the
treatment proposed for such class. Pursuant to Section 510 of the Bankruptcy
Code, all Subordinated Claims shall be subject to the subordination provisions
contained in the instruments evidencing such claims and Class 4 Claimants shall
retain whatever benefits derived therefrom and shall therefore receive all
distributions attributable to Subordinated Claims until Class 4 Claimants
receive the full amounts of their Claims. Thereafter, all further payments due
to Subordinated Claims shall be paid to the holder thereof.
5.5 CLASS 5. Class 5 Allowed Secured Claim of Elkay Manufacturing Company
shall be paid in full on the Effective Date from the proceeds of the sale of Lot
One Assets which secured such Claim.
5.6 CLASS 5A. Class 5A Allowed Secured Claim of Camp Bowie National Bank
in the amount of $2,750 shall be paid in full on the Effective Date from the
proceeds of the sale of the Lot One Assets which secured such Claim.
5.7 CLASS 5B. Class 5B Allowed Secured Claim of Dependable Acceptance
Corp. shall be paid in full on the Effective Date from the proceeds of the sale
of Lot One Assets which secured such claim.
5.8 CLASS 5C. Class 5C Allowed Secured Claim of Southern Warehousing and
Distributing, Ltd. shall be paid in full on the Effective Date from the proceeds
of the sale of Lot Two Assets.
5.9 CLASS 6. Class 6 Allowed Unsecured Claims. Each holder of an Allowed
Unsecured Claim shall receive a PRO RATA Share of the proceeds of all Trust
Property after full
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satisfaction or provision for the full satisfaction of all Allowed
Administrative and Priority Claims and Allowed Claims in Classes 1 through 5
(provided however, that Class 4 and Class 5 Claims need be satisfied only to
the extent of proceeds available from the liquidation of assets in Lots One,
Two and Three described in Article 5.4 above. To the extent that any Class 6
Claim is determined to be a Subordinated Claim, such Claim shall be
subordinated in accordance with the provisions of the instruments evidencing
such Subordinated Claims and Bankruptcy Code Section 510. Therefore, holders
of Class 4 Claims shall receive all distributions attributable to
Subordinated Claims in Class 6 until the holders of Class 4 Claims have been
paid the full amount of their Claims. Claims representing the Deficiency
Amount of Class 4 Claims shall receive PRO RATA Shares in the distributions
from the Trust to Class 6 Claims except for the proceeds of the Pooled
Assets, which shall be distributed 50% to such Deficiency Amount Claims and
50% to the holders of the remaining Class 6 Claims. In addition, each holder
of an Allowed Class 6 Claim (including Class 4 Deficiency Amount Claims)
shall receive from the Liquidating Trustee, as nominee holder of the total
interests, a PRO RATA share of 37% of the newly issued stock in the Debtor
and a PRO RATA share of 40% of the newly issued stock in the Subsidiary. No
fractional units will be issued, with all shares to be rounded up or down
from 50% of a single share. The total amount of shares to be issued will be
determined by Arcady and Halter and the Liquidating Trustee, consistent with
the provisions of this Plan. The Liquidating Trustee, as nominee holder
during the claims allowance process, may not sell, transfer or hypothecate
the shares held as nominee. The Liquidating Trustee may cause the shares in
the Debtor and Subsidiary to be distributed to the holders of Allowed Class 6
claims in the same manner as any distribution of cash under the Plan to the
holders of Allowed Class 6 claims.
5.10 CLASS 7. Class 7 Claimants shall be comprised of all Allowed Class 6
Claims in an amount less than $25.00, and all Allowed Class 6 Claims whose
holders agree to reduce such Claims to $25.00. Allowed Class 7 Claims shall be
satisfied by the payment in cash on the Effective Date of the LESSER OF the
Allowed Amount of such claim or $25.00.
5.11 CLASS 8. Class 8 Equity Interests issued and outstanding at the
Effective Date, including all preferred and common shares of the Debtor and of
the Subsidiary, will be cancelled as of the Effective Date and receive no
distributions under the Plan.
5.12 CLASS 9. Class 9 Insiders shall receive no distribution on account of
any Claims against the Debtor or Subsidiary asserted or held by such Insiders.
ARTICLE VI
THE TRUST COMMITTEE
6.1 APPOINTMENT. By acceptance and upon confirmation of the Plan, and
effective upon the Effective Date, the Class 4 and Class 6 creditors of Debtor
will appoint the members of the Committee as the Trust Committee to represent
the Class 6 creditors in connection with the administration of the Trust. The
names of the creditors and their representatives that will comprise the Trust
Committee will be as follows:
ALAN WINSTEAD, SCM, INC.
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JAMES JENSEN, MARKETRONICS
SIDNEY H. SCHEINBERG, GOLDBERG & ALEXANDER, ATTORNEY-AT-LAW
(Representing ACRO Industries, Inc.)
The Committee shall operate pursuant to the provisions of the Trust Agreement.
The Trust Committee shall designate Mark E. Golman as trustee of the Trust (the
"Liquidating Trustee") to operate the Trust in accordance with the Trust
Agreement.
ARTICLE VII
LIQUIDATING TRUST ESTABLISHED
7.1 EFFECTS. The Debtor, the Subsidiary and the Class 4 and Class 6
creditors of the Debtor by this Plan declare and establish the Trust as of the
Effective Date, as defined by Treas. Reg. 301.7701-4(d), for the benefit of said
unsecured creditors. The Trust is organized for the primary purpose of
liquidating and distributing the assets and property of the Debtor and
Subsidiary through the Trust (the "Trust Property") in accordance with the
provisions of the Plan as promptly as is reasonably possible, with no objective
to carry on or conduct a "for profit" trade or business. Upon transfer of the
Trust Property to the Trust, the Debtor and Subsidiary shall retain no interest
in the Trust Property. Provided, however, any Trust Property subject to the
liens of Class 4 creditors distributed to the Trust shall continue to be subject
to such liens and the Liquidating Trustee shall disburse to such Class 4
Claimants their allocable share of the Net Proceeds from the sale of any Trust
Property under Article 5.4(b) within ten (10) days of the closing of such sale.
The Class 4 Claimants shall retain their right to credit bid at any sale of such
property as though such sale was being conducted pursuant to Section 363 of the
Bankruptcy Code; provided, however, any Class 4 Claimant making a credit bid
shall be required to pay cash consideration sufficient to satisfy the interests
of non-bidding Class 4 Claimants and Class 6 Claimants pursuant to Article 5.4.
ARTICLE VIII
ACCEPTANCE OR REJECTION OF PLAN; EFFECT OF REJECTION
BY ONE OR MORE CLASSES OF CLAIMS OR EQUITY INTERESTS
8.1 CLASSES ENTITLED TO VOTE. Each Class of Claims or Equity Interests
that is Impaired shall be entitled to vote separately to accept or reject the
Plan. Any unimpaired class of Claims or Equity Interests shall be deemed to
have accepted the Plan and shall not be entitled to vote to accept or reject the
Plan. Class 4, Class 6, Class 8 and Class 9 are impaired under the Plan. Class
8 and Class 9 receive no distributions under the Plan and are deemed to have
rejected the Plan. Accordingly, Class 8 and Class 9 Claims will not be
solicited to vote on the Plan.
8.2 CLASS ACCEPTANCE REQUIREMENT. A class of Claims shall have accepted
the Plan if it is accepted by at least two-thirds (2/3) in amount and more than
one-half (1/2) in number of the Allowed Claims of such class that have voted on
the Plan. A class of Equity Interests shall have
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accepted the Plan if it is accepted by at least two thirds (2/3) of the
Allowed Equity Interests of such class that have voted on the Plan.
8.3 ERROR IN CLASSIFICATION. In the event that it shall be determined
that this Plan has made any error in placing a particular creditor or group of
creditors in one class rather than in another, then that shall not prevent the
Committee and the Bankruptcy Trustee from seeking confirmation of the Plan with
the membership of the Classes realigned as determined to be proper by the
Bankruptcy Court.
8.4 CRAMDOWN. In the event any impaired class of Claims or Equity
Interests fails to accept the Plan in accordance with Section 1129(a) of the
Bankruptcy Code, the Bankruptcy Trustee and the Committee will request that the
Bankruptcy Court confirm the Plan in accordance with Section 1129(b) of the
Bankruptcy Code.
8.5 WITHDRAWAL. The Committee and the Bankruptcy Trustee reserve the
right at any time to withdraw the Plan from consideration by the Court and
creditors.
ARTICLE IX
MEANS FOR IMPLEMENTATION OF PLAN
9.1 CONTINUED CORPORATE EXISTENCE AND FUTURE CORPORATE GOVERNANCE. The
Debtor shall continue in existence in accordance with the laws of the State
of Texas and pursuant to the charter and bylaws in effect prior to the
Effective Date as specifically modified by this Plan and as authorized to be
modified hereinafter. On or immediately following the Effective Date,
Debtor's articles of incorporation will be amended to effectuate the Plan.
Specifically, confirmation of the Plan will constitute unanimous consent of
the post-confirmation shareholders of the Subsidiary to the amendment and
restatement of the Debtor's Articles of Incorporation to increase the number
of common and preferred shares authorized to 40,000,000 in anticipation of a
reverse merger transaction. The Subsidiary shall continue in existence in
accordance with the laws of Texas and pursuant to its articles of
incorporation and by-laws in affect prior to the Effective Date, except as
specifically modified by this Plan in accordance with Article 9.14 of the
Texas Business Corporations Act and as authorized to be modified hereinafter.
Specifically, confirmation of the Plan will constitute unanimous consent of
the post-confirmation shareholders to the amendment and restatement of its
Articles of Incorporation to effectuate the Plan. On or immediately
following the Effective Date, the Subsidiary's Articles of Incorporation will
be amended to increase the number of common and preferred shares authorized
to 40,000,000 and 10,000,000, respectively, in anticipation of a reverse
merger transaction. The authorized changes will be executed by the Debtor's
and the Subsidiary's successor officers and directors and acknowledged by the
Liquidating or Bankruptcy Trustee. The proposed Amended and Restated
Articles of Incorporation will be filed with the Court and made available
through the Bankruptcy Trustee on or before the earlier of seven (7) days
prior to the ballot deadline or the tenth (10th) day prior to the
confirmation hearing. The shares distributed to Arcady and Halter are
subject to being non transferable, absent registration, due to the
application of Bankruptcy Code Section 1145(b)(1)(A). This Plan will not
make any attempt to discern or influence any such decision by any applicable
government agency. The determination of same shall be the responsibility of
Arcady and Halter respectively. All matters of corporate governance of
either the Debtor or the
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Subsidiary will be controlled by their respective articles of incorporation and
by laws, as modified or authorized to be modified by this Plan. No changes in
the articles of incorporation or the by laws of either the Debtor or the
Subsidiary, except the authorized changes, may be made without the approval of
67% of the shares issued and outstanding, including the approval of anticipated
reverse mergers by the Debtor and by the Subsidiary respectively. Said 67%
requirement is defined to exclude any shares acquired or proxies secured by
Arcady or Halter in the respective entities. Regardless of the total percentage
of shares owned or proxies held, Arcady and Halter's vote in such an instance
shall never account for more than 60% of the 67% required. The restrictions
herein shall be removed upon the completion of an authorized reverse merger or
acquisition, as necessary, to meet the requirements of the reverse merger or
acquisition, without further requirement to secure any authority from the
shareholders of the Debtor or the Subsidiary. SOLELY AS TO THE DEBTOR: a)
during the first six (6) months after the Effective Date of the Plan, Arcady and
its parent Arcady Capital, Inc. shall spend at least 35% of their business
efforts in connection with securing a reverse merger target and thereafter at
least 25% of their business efforts until a merger or acquisition is completed;
b) the above restriction as to the calculation of the 67% of the issued and
outstanding shares for the purpose of corporate governance pre merger or
acquisition shall lapse on the first anniversary date of the Effective Date; c)
Arcady or other shareholders may provide or cause to be provided up to $500,000
in additional capital through either debt or equity in order to facilitate the
merger or acquisition. If such funds are provided as debt, the terms and
conditions shall be consistent with similar credit in the marketplace, whether
or not such credit would be available to the reorganized Debtor. If funds are
provided as additional equity by Arcady or any other shareholder, each
additional share purchased by Arcady shall be at a price not less than the
original price paid by Arcady; and d) if within one year of the Effective Date
Arcady has not secured a merger or acquisition that will enable the shares held
by the Allowed Class 6 Claimants to be traded on a public market, then the
Allowed Class 6 Claimants may put up to 75% of the shares owned by each such
shareholder to Arcady at a purchase price to be determined pursuant to the ratio
of $1,000/1% of stock outstanding. SOLELY AS TO THE SUBSIDIARY: Halter shall
have one year to complete the reverse merger or acquisition and, if such a
transaction is not closed within 12 months of the Effective Date, then Halter
agrees to sell all of its shares in the reorganized Subsidiary to the Trust for
the sum of $100.
9.2 VESTING OF ASSETS. Upon the Effective Date, the Assets, consisting of
all rights and property of the Debtor and Subsidiary and each and every claim or
cause of action that was asserted or could have been asserted by the Debtor or
Subsidiary against any party, under the Bankruptcy Code or otherwise, including
causes of action maintainable under Sections 542 through 553 of the Bankruptcy
Code, shall vest in the Trust and become Trust Property, free and clear of all
Claims and Equity Interests, except as specifically provided in this Plan. The
37% of the shares of the reorganized Debtor and the 40% of the shares in the
reorganized Subsidiary shall vest in the Trust as the nominee holder of those
shares for holders of Allowed Class 6 Claims. Upon the resolution of any dispute
regarding the entitlement of any party to funds or property escrowed or
deposited under this Plan, the available funds or property not awarded pursuant
to such Claims shall revert to and vest in the Trust, and thereafter be Trust
Property. Upon the Effective Date, the Trust, through the Liquidating Trustee,
shall be deemed the successor to the
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Debtor and substituted as a party to all contracts, agreements, contested
matters, adversary proceedings and lawsuits involving the Assets pending as
of the Effective Date. To the extent necessary, the Liquidating Trustee will
be appointed as a representative of the estate under Section 1123 (b)(3)(B).
However, other than the agreement with Class 4 Claimants, stipulations by or
judgments or findings against the Debtor or Subsidiary that were not,
pursuant to applicable law or terms of any such stipulation, finding or
judgment, binding upon the Bankruptcy Trustee and Committee prior to the
Effective Date shall not be binding against the Liquidating Trustee.
9.3 ASSUMPTION OF LIABILITIES. The liability for and obligation to make
the distributions required under the Plan shall be assumed by the Trust, through
the Liquidating Trustee, who shall have the obligation to make all distributions
of Trust Property to be made under this Plan subsequent to the Effective Date.
9.4 POST-EFFECTIVE DATE PAYMENTS MADE BY THE LIQUIDATING TRUSTEE. The
cash payments, escrows and deposits to be made under the Plan shall be made by
the Bankruptcy Trustee prior to the Effective Date and by the Liquidating
Trustee after the Effective Date, except as otherwise provided in this Plan.
9.5 TREATMENT OF CLAIMS BY THE DEBTOR AGAINST AFFILIATES AND INSIDERS.
Subsequent to the Effective Date all claims or causes of action the Debtor may
have against any Insider shall be preserved for and vest in the Trust except for
any claim Debtor may have against the Subsidiary or any claim the Subsidiary may
have against the Debtor, which shall be cancelled.
9.6 PLAN DOCUMENTS. On or before the hearing on confirmation of the Plan,
the Bankruptcy Trustee and Committee shall file with the Bankruptcy Court the
Trust Agreement and such other agreements, indentures, and other documents as
may be necessary or appropriate to effectuate the terms and conditions of the
Plan.
9.7 MANDATORY LIQUIDATION OF REMAINING ASSETS. Unless otherwise
determined by agreement of the Liquidating Trustee and a majority in interest of
Class 4 Claimants, the Liquidating Trustee will sell (i) all unsold vending
machines at public auction to be held no later than November 16, 1995; and (ii)
all other tangible property owned by the Trust at public auction not later than
December 12, 1995. Such public auctions, if held, will be conducted in
accordance with the same procedures approved by the Court for the sale of the
Debtor's Drinking Water division. However, the Liquidating Trustee, with the
concurrence of a majority in interest of Class 4 Claimants, may modify these
procedures if he determines such modifications to be in the best interests of
the creditors.
ARTICLE X
PROVISIONS GOVERNING DISTRIBUTIONS
10.1 DATE OF DISTRIBUTIONS. Any distributions and deliveries to be made
under the Plan (except those to be made under Article 10.2 hereof) shall be made
by the Bankruptcy Trustee or Liquidating Trustee, except as otherwise provided
for herein, or as may be ordered by the Court.
10.2 PRO RATA SHARE DISTRIBUTIONS AND LITIGATION RESERVES. The PRO RATA
Share of any cash or assets to be distributed to or for the benefit of the
holder of an Allowed Claim in any class of Claims under the Plan shall be
distributed as provided in the Plan. Interim distributions
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UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 14
<PAGE>
may be made by the Liquidating Trustee. If and when Contested Claims in any
class become Disallowed Claims, the PRO RATA Share to which each holder of an
Allowed Claim in such class is entitled shall increase commensurately.
Accordingly, the Liquidating Trustee, with the approval and at the direction
of the Trust Committee, shall have the right (but not the obligation) to make
or direct the making of interim and subsequent interim distributions to the
holders of Allowed Claims in such class in order to reflect any increases in
the PRO RATA Share. Similarly, on a periodic basis, the Liquidating Trustee,
with the approval and at the direction of the Trust Committee, shall
distribute PRO RATA Shares of shares retained for Contested Claims to the
holders of Claims that were Contested Claims on the Effective Date, as they
become Allowed Claims. In any event, as soon as practicable after all
Contested Claims in any class receiving PRO RATA Shares have become either
Allowed Claims or Disallowed Claims, a final distribution shall be made to
the holders of Allowed Claims in such class in order to account for any final
adjustment in the PRO RATA Share of such holders. Except as provided in
Article 7.1 hereof, the Liquidating Trustee shall have discretion to retain
funds in the Trust necessary to cover expenses of administering the trust,
unless the Trust Committee otherwise directs that all such funds be
distributed to creditors.
10.3 MEANS OF CASH PAYMENT. Cash payments made pursuant to the Plan shall
be in United States funds, by check drawn on a domestic bank or by wire transfer
from a domestic bank.
10.4 DELIVERY OF DISTRIBUTIONS. Distributions and deliveries to holders of
Allowed Claims shall be made at the addresses set forth on the proofs of Claim
filed by such holders (or at the last known addresses of such holders if no
proof of Claim is filed or if the Liquidating Trustee has been notified of a
change of address). If any holder's distribution is returned as undeliverable,
no further distributions to such holder shall be made unless and until the
Liquidating Trustee is notified of such holder's then current address, at which
time all missed distributions shall be made to such holder without interest.
All Claims for undeliverable distributions shall be made on or before the first
anniversary of the Effective Date. After such date, all unclaimed property
shall be distributed to other holders of Claims in accordance with the terms of
this Plan, and the Claim of any holder with respect to such property shall be
discharged and forever barred.
10.5 TIME BAR TO CASH PAYMENTS. Checks issued by the Liquidating Trustee
in respect of Allowed Claims shall be null and void if not cashed within ninety
days of the date of issuance thereof. Requests for reissuance of any check
shall be made directly to the Liquidating Trustee by the holder of the Allowed
Claim with respect to which such check originally was issued. Any such request
for reissuance of a check shall be made on or before the later of the first
anniversary of the Effective Date or ninety days after the date of issuance of
such check whichever is later. After such date, all Claims in respect of void
checks shall be discharged and forever barred.
10.6 DISTRIBUTION OF SHARES OF THE DEBTOR AND SUBSIDIARY. Shares of stock
in the reorganized Debtor and the reorganized Subsidiary shall be disbursed once
all Class 6 Claims are determined to be Allowed or disallowed. The Liquidating
Trustee shall hold the newly issued shares of the Debtor and newly issued shares
of the Subsidiary, as nominee holder, until such distribution. The Liquidating
Trustee may make interim distributions of stock of the Debtor and the Subsidiary
in the same manner and with the same safeguards as set forth above for the
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 15
<PAGE>
distribution of cash set forth in the Plan. Any distribution required herein
will be made by the Liquidating Trustee tendering the appropriate shares in
the Debtor and Subsidiary to the presidents of the Debtor and the Subsidiary
by letter requesting the issuance of shares to the persons or entities set
forth in the letter.
10.7 PRE-REVERSE MERGER SHAREHOLDER REQUIREMENTS. Under Section 1145(d)
of the Code, the issuance of shares pursuant to this Plan in both the Debtor
and Subsidiary constitutes a public offering. There are, therefore, no
statutory restrictions on the free transferability of the shares received.
However, there is no established market for the shares of either the Debtor
or the Subsidiary. Nonetheless, to assure the value of the Debtor and the
Subsidiary post-confirmation, there will be restrictions on the
transferability of the shares in the Debtor and the Subsidiary, to prevent
the number of holders of twenty (20) or more shares in the Debtor and the
Subsidiary falling below 300. There can be trading of the shares of the
Debtor, so long as the number of shareholders holding twenty (20) or more
shares in the Debtor does not decline below 300. There can be trading of the
shares of the Subsidiary so long as the number of shareholders holding twenty
(20) or more shares in the Subsidiary does not decline below 300. All
intended trades must be reported to the Liquidating Trustee and the president
of the Debtor or Subsidiary as the case may be, prior to any contemplated
transfer. Any transfer made without compliance with this provision will be
void. This shareholder requirement as to the Debtor will be deemed
extinguished upon its completion of the reverse merger or acquisition
contemplated herein. This shareholder requirement as to the Subsidiary will
be deemed extinguished upon its completion of the reverse merger or
acquisition contemplated herein.
ARTICLE XI
TREATMENT OF EXECUTORY
CONTRACTS AND UNEXPIRED LEASES
11.1 REJECTED IF NOT ASSUMED. The Plan constitutes and incorporates a
motion to reject all pre-petition executory contracts and unexpired leases to
which the Debtor or the Subsidiary is a party, or which may otherwise involve or
require executory undertakings on behalf of the Debtor or the Subsidiary, except
for a contract or lease that (a) has been previously assumed or rejected
pursuant to Final Order of the Court, or (b) is specifically designated as to be
assumed under this Plan and assigned to the Trust in the order confirming the
Plan ("Assumed Contracts"). The Indenture, as modified by this Plan, shall be
assumed by the Debtor and assigned to the Trust, but the Trust shall have no
obligation to cure any defaults thereunder or abide by any covenants thereof
after confirmation other than as provided in the Plan.
11.2 DISPUTES. Upon the Effective Date, the Trust shall pay any undisputed
monetary amounts necessary to cure any defaults by the Debtor or the Subsidiary
under any of the executory contracts being assumed and assigned to the Trust
pursuant to the preceding subsection of this Plan. The Court shall resolve
disputes, if any, relating to cure amounts. Except for Claims for payment of
cure amounts, the parties to the Assumed Contracts shall have no Claim against
the Trust or the Liquidating Trustee relating to those contracts except
rejection damage claims.
11.3 BAR TO REJECTION DAMAGES. If the rejection of an executory contract
or unexpired lease by the Debtor or the Subsidiary results in damages to the
other party or parties to such
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 16
<PAGE>
contract or lease, a Claim for such damages shall be forever barred and shall
not be enforceable against the Debtor or the Subsidiary, the Trust, the
Liquidating Trustee or their properties, whether by way of setoff,
recoupment, or otherwise unless a proof of Claim is filed with the Court and
served upon counsel for the Bankruptcy Trustee and the Committee or the
Liquidating Trustee, by the earlier of (i) thirty (30) days after the
Effective Date, or (ii) sixty (60) days after entry of an order rejecting a
contract pursuant to a motion to reject such contract filed by the Debtor or
Subsidiary.
11.4 INDEMNIFICATION OBLIGATIONS. Any obligation of the Debtor or
Subsidiary to indemnify or defend the Debtor's present or former directors,
officers, agents, or partners pursuant to charter, bylaws, and/or applicable
state law shall be deemed to be, and shall be treated as though they are,
executory contracts that are specifically rejected under this Plan, and no such
obligation shall survive confirmation of the Plan.
ARTICLE XII
PROCEDURES FOR RESOLVING
AND TREATING CONTESTED CLAIMS
12.1 OBJECTION DEADLINE. As soon as practicable, but in no event later
than ninety (90) days after (1) the Effective Date (with respect to Claims filed
prior to the Effective Date), or (2) the filing or amendment of the Claim (with
respect to Claims filed or amended after the Effective Date), unless otherwise
ordered by the Court, objections to Claims shall be filed with the Court and
served upon the holders of each of the Claims to which objections are made. If
an objection to a Claim is timely filed by a party in interest, a subsequent
amendment to the objection will also be deemed timely, even if filed subsequent
to the deadline for filing the original Claim objection, and even if the
amendment raises facts or legal theories not raised in original Claim objection.
12.2 PROSECUTION OF OBJECTIONS. After the Effective Date, the Liquidating
Trustee has authority (upon approval and direction of Trust Committee) to (1)
file, litigate to final judgment, settle, or withdraw objections to Claims, (2)
to file proofs of Claim on behalf of creditors who do not file claims within the
period set for doing so pursuant to Bankruptcy Rule 3004, and (3) litigate to
final judgment, settle, or withdraw objections to claims filed pursuant to
Bankruptcy Rule 3004.
12.3 NO DISTRIBUTIONS PENDING ALLOWANCE. No payments or distributions
shall be made with respect to any Claim to the extent all or some portion of it
is a Contested Claim unless and until all objections to such Claim are waived
and such Claim becomes an Allowed Claim.
12.4 ESCROW OF ALLOCATED DISTRIBUTIONS. The Debtor and Subsidiary (prior
to the Effective Date) and the Liquidating Trustee (subsequent to the Effective
Date) shall withhold from the property to be distributed under the Plan, and
shall place in escrow the PRO RATA Share, which shall be an amount sufficient to
be distributed on account of Claims that are Contested Claims as of the
Effective Date. The Debtor and Subsidiary (prior to the Effective Date) and the
Liquidating Trustee (subsequent to the Effective Date) also shall place in
escrow any dividends, payments, or other distributions made on account of, as
well as any obligations arising from, the property withheld pursuant hereto, to
the extent that such property continues to be withheld at the time such
distributions are made or such obligations arise. If practicable, any cash
withheld will be invested
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UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 17
<PAGE>
in a manner that will yield a reasonable net return, taking into account the
safety of the investment. As to any individual Contested Claim, upon a
request for estimation, the Court shall determine what amount is sufficient
to withhold. The Debtor and Subsidiary (prior to the Effective Date) and the
Liquidating Trustee (subsequent to the Effective Date) may also make an
application to the Court for an order estimating Claims, which will estimate
the aggregate amount of Contested Claims (or purposes of calculating
distributions to the holders of Allowed Claims in the various classes or
creditors.
12.5 DISTRIBUTIONS IN RELIANCE ON NO STAY PENDING APPEAL BEING OBTAINED.
In the event the Court enters an order estimating all Contested Claims or
specifically estimating any given Contested Claim, or in the event a Contested
Claim is Disallowed by order or judgment of the Bankruptcy Court, the
Liquidating Trustee shall be entitled to distribute Trust Property, including
property or funds withheld on account of such Contested Claim, without allowance
for such Disallowed Claims, or, with respect to estimated Claims, based on the
amount at which such Contested Claims have been estimated, so long as the holder
of any Contested Claim affected does not obtain a stay, from a court of
competent jurisdiction, of distributions of property without provision for the
contested or Disallowed portion of such holder's Claim. In the event, however,
a Contested Claim that has been Disallowed or estimated subsequently becomes an
Allowed Claim, by Final Order of the Court or any other court having
jurisdiction over the controversy, in an amount greater than previously
estimated or allowed by the Court, the Liquidating Trustee shall make further
distributions of Trust Property so as to equalize distributions for such Allowed
Claim, vis-a-vis other Claims (e.g., (1) if the Allowed Claim is entitled to
priority in distribution it will be paid in its Allowed amount before subsequent
distributions to holders of Claims of a lower priority are made; (2) if the
Allowed Claim is entitled to a PRO RATA Share, the holder will receive priority
distributions equalizing the treatment of the Claim with the treatment of Claims
entitled to the same PRO RATA Share). To the extent Trust Property or funds are
insufficient to equalize the treatment of Contested Claims that are subsequently
allowed in amounts greater than originally allowed or estimated, the holder of
such Claims will have no recourse or rights against the Trust, the Liquidating
Trustee, the Trust Committee, or their members or representatives.
ARTICLE XIII
OTHER PROVISIONS
13.1 BANKRUPTCY TRUSTEE AND COMMITTEE DISCHARGE AND RELEASE. The
positions of the Committee and the Bankruptcy Trustee shall terminate and its
members and their professional representatives shall be discharged from all
further duty in the Chapter 11 case upon the Effective Date and the formation
of the Trust Committee, as a successor to the Committee, pursuant to Article
VI of this Plan. The Liquidating Trustee shall be substituted as a party for
the Bankruptcy Trustee or the Committee in all proceedings in which the
Bankruptcy Trustee or the Committee is a party on the Effective Date. On the
Effective Date, the Bankruptcy Trustee, Committee members and their legal
representatives shall be released and discharged from any claim or cause of
action arising from or relating to any such parties' service on the
Committee, or any action taken or not taken by the Committee or the
Bankruptcy Trustee, except with respect to claims or causes of action
involving willful misconduct.
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 18
<PAGE>
13.2 SETOFFS. Subject to the limitations provided in Section 553 of the
Code, the Liquidating Trustee may, but shall not be required to, setoff against
any Claim and the payments or other distributions to be made pursuant to the
Plan in respect of such Claim, claims of any nature whatsoever that the Debtor
or the Trust may have against the holder of such Claim. However, neither the
failure to setoff nor the allowance of any Claim hereunder shall constitute a
waiver or release by the Debtor or Trust of any such claim that the Debtor or
Trust may have against the holder.
13.3 POST-CONFIRMATION FEES OF PROFESSIONALS. Subject specifically to
the provisions of Article VI hereof, fees to the Liquidating Trustee or fees
to professionals retained by the Liquidating Trustee may be paid in the
ordinary course of business without resort to or approval of the Court if no
objection thereto is made within fifteen (15) days of the giving of notice of
the proposed fees to the Trust Committee and any other party in interest
filing a specific request with the Liquidating Trustee for notice. Any
objection to the payment of fees to the Liquidating Trustee or to
professionals shall be specific as to the amount or items of the particular
expenditure to which an objection is made. In the event of an objection, the
Liquidating Trustee may, but shall not be required to, seek approval of
payment of the fees from the Court. The Liquidating Trustee shall be
authorized to retain adequate reserves for the payment of any outstanding or
anticipated expenses prior to making distributions to creditors pursuant to
this Plan.
13.4 DISCHARGE OF DEBTOR AND THE SUBSIDIARY. The confirmation of this Plan
shall operate to discharge the Debtor and Subsidiary from any and all
liabilities that arose before the Effective Date. The consideration distributed
under this Plan and the Trust shall be in exchange for and in complete
satisfaction, discharge, and release of all Claims of any nature whatsoever
against the Assets of the Debtor or Subsidiary, including but not limited to
demands and liabilities that arose before the Effective Date, and all debts of
the kind specified under the Bankruptcy Code, including in Sections 502(g),
502(h), 502(i), 503 or 507 of the Bankruptcy Code, whether or not (a) a proof of
Claim based upon such debt is filed or deemed filed under Section 501 of the
Bankruptcy Code; (b) a Claim based upon such debt is allowed under Section 502
of the Bankruptcy Code; or (c) the holder of a Claim based upon such debt has
accepted the Plan. The order confirming the Plan shall be a judicial
determination that no recourse may be had by any party on account of any Claim
against the Bankruptcy Trustee, the Liquidating Trustee, the Trust, the Trust
Committee, the Assets, the Trust Property, the Debtor or the Subsidiary, except
as provided herein. The order confirming the Plan shall operate as a permanent
injunction against the prosecution of any action against the Assets, the Trust
Property, the Debtor or the Subsidiary on account of any Claim against the
Debtor or the Subsidiary.
13.5 SURRENDER OF INSTRUMENTS AND RELEASE OF LIENS. Each creditor who is
to receive distributions under the Plan in complete satisfaction of any Secured
Claims shall not receive such distributions until such Creditor executes a
release of such lien(s) (in recordable form if appropriate) relating to the
assets which give rise to the distribution and delivers the same to the
Bankruptcy Trustee or Liquidating Trustee. Notwithstanding the foregoing, all
Class 4 creditors shall retain their liens and rights under the Indenture,
including the right to credit bid, unless and until all collateral securing such
claims has been liquidated.
13.6 ADMINISTRATIVE EXPENSES AND PRIORITY CLAIMS. All administrative or
Class 1 priority claims, excluding fees of the Bankruptcy Trustee, allowed by
the Court pursuant to the
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UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 19
<PAGE>
Bankruptcy Code shall be paid in full from (i) the funds borrowed by the
Debtor from Arcady and Halter, (ii) the funds borrowed by the Subsidiary from
Halter, and (iii) funds allocable to Class 6 Claims pursuant to Article 5.4
of the Plan, upon entry of a final order confirming the Plan or approving
such expense, whichever is later, unless the holder of such claim otherwise
agrees in writing. Notwithstanding the foregoing, the administrative claim
of Arcady shall be satisfied by the distribution to Arcady of 60% of the
newly issued stock in the reorganized Debtor, and the administrative claim of
Halter shall be satisfied by the distribution to Halter of 60% of the newly
issued stock in the Subsidiary and the contribution of $10,000 to the capital
of the reorganized Subsidiary.
ARTICLE XIV
RETENTION OF JURISDICTION
14.1 CONTINUING JURISDICTION. The Court shall retain and have exclusive
jurisdiction over the Trust for the following purposes:
(a) To determine any and all objections to the allowance of Claims or
Interests except as otherwise provided herein;
(b) To determine the Allowed Amount of any claim for the purpose of
payment or other treatment under the Plan.
(c) To determine any assertion of tax liability against the Trust or
the Trust Property which may be asserted and based in whole or in part upon any
occurrence or action taking place after the Petition Date.
(d) To determine any and all applications for allowances of
compensation and reimbursement of expenses and any other fees and expenses
authorized to be paid or reimbursed under the Bankruptcy Code, contracts with
secured creditors or the Plan;
(e) To determine any applications or motions for the rejection,
assumption, or assumption and assignment of any executory contract and to hear
and determine, and if need be, to liquidate any and all Claims arising
therefrom;
(f) To determine any and all applications, adversary proceedings, and
contested matters that may be pending on the Effective Date;
(g) To consider any modification of this Plan, remedy any defect or
omission or reconcile any inconsistency in any order of the Court, to the extent
authorized by the Court;
(h) To determine all controversies, suits and disputes that may arise
in connection with the interpretation, enforcement or consummation of the Plan,
including the sale of assets, or that may involve or affect the value of assets
of the Debtor or Subsidiary administered by the Plan;
(i) To consider and act on the compromise and settlement of any claim
against or cause of action by or against the Debtor or Subsidiary or any other
matter arising under or in connection with the Plan, if requested by the Debtor
or Subsidiary;
(j) To issue such orders in aid of execution of the Plan to the
extent authorized by Section 1142 of the Bankruptcy Code; and
(k) To determine such other matters as may be set forth in any order
or orders confirming the Plan or which may arise in connection with the Plan.
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 20
<PAGE>
The provision for the retention of jurisdiction by the Bankruptcy Court
under this Article XIV shall not be deemed to in any way limit or restrict the
authority expressly granted to the Debtor by this Plan or by applicable law, but
shall be in aid of the powers of the Debtor.
ARTICLE XV
MODIFICATION OF THE PLAN
15.1 PRE-CONFIRMATION. The Committee or Bankruptcy Trustee may propose
amendments or modifications of this Plan at any time prior to the Effective
Date.
15.2 POST-CONFIRMATION. After the Effective Date, the Committee or
Bankruptcy Trustee or Liquidating Trustee may, with approval of the Court,
modify the Plan as to any class, even though such modification materially
affects the rights of the Creditors or Interest Holders in such class; provided,
however, that any material modifications must be accepted as to classes of
impaired Creditors by at least sixty-six and two-thirds percent (66-2/3%) in
amount of Allowed Claims voting in each such class and provided further that
additional disclosure material needed to support such material modifications (i)
shall be approved by the Court in the manner consistent with Section 1125 of the
Bankruptcy Code and Rule 3017 of the Rules of Bankruptcy Procedure or (ii) shall
previously have been held to be unnecessary and dispensed with by order of the
Court. After the Effective Date, the Committee or the Liquidating Trustee may
remedy a default or omission, or reconcile any inconsistencies in the Plan, or
in the Confirmation Order in a manner consistent with the intentions of the
Plan, with approval of the Court with or without notice and a hearing, provided
that the remedy does not materially affect the interest of the Creditors or the
Interest Holders.
THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF WATER POINT SYSTEMS, INC.
/S/ JAMES R. JENSEN
- ----------------------------------------------
By: JAMES R. JENSEN, Chairman
STOREY ARMSTRONG STEGER & MARTIN,
A PROFESSIONAL CORPORATION
By: /S/ MARK E. GOLMAN
------------------------------------------
Mark E. Golman
State Bar No. 08113200
4600 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 21
<PAGE>
CHAPTER 11 TRUSTEE OF WATER POINT SYSTEMS,
THE SOLE SHAREHOLDER OF WATER POINT
MANUFACTURING CORP.
JENKENS & GILCHRIST,
A PROFESSIONAL CORPORATION
By: /S/ J. SCOTT ROSE
--------------------------------------------------
J. Scott Rose
State Bar No. 17252800
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telephone: (214) 855-4500
Telecopy: (214) 855-4300
COUNSEL FOR THE OFFICIAL COMMITTEE
OF UNSECURED CREDITORS OF WATER
POINT SYSTEMS, INC.
FIRST AMENDED JOINT PLAN OF REORGANIZATION FILED BY THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS AND MARK E. GOLMAN, CHAPTER 11 TRUSTEE-Page 22
<PAGE>
Mark E. Golman
State Bar No. 08113200
STOREY ARMSTRONG STEGER & MARTIN
4500 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
LIQUIDATING TRUSTEE
J. Scott Rose
State Bar No. 17252800
JENKENS & GILCHRIST,
A Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telephone: (214) 855-4500
Telecopy: (214) 855-4300
ATTORNEYS FOR THE TRUST COMMITTEE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:
WATER POINT SYSTEMS, INC., CASE NO. 395-31514-RCM-11
(Jointly Administered)
DEBTOR.
WATER POINT MANUFACTURING, INC. CASE NO. 395-33959-HCA-11
(Jointly Administered)
DEBTOR.
MOTION FOR APPROVAL OF POST CONFIRMATION MODIFICATIONS
TO THE FIRST AMENDED JOINT PLAN OF REORGANIZATION
FILED BY THE TRUST COMMITTEE AND THE LIQUIDATING TRUSTEE
<PAGE>
TO THE HONORABLE BANKRUPTCY JUDGE ROBERT C. MCGUIRE:
The Trust Committee of the Liquidating Trust for Water Point Systems, Inc.
and Water Point Manufacturing Inc., and the Liquidating Trustee of the
Liquidating Trust of Water Point Systems, Inc. and Water Point Manufacturing,
Inc., (hereinafter the "Movants") file this their Motion for Approval of Post
Confirmation Modifications to the First Amended Joint Plan of Reorganization and
would respectfully show the Court as follows:
1. The First Amended Joint Plan of Reorganization (the "Plan") was
confirmed by order of this Court entered on October 10, 1995.
2. Since that date, the Liquidating Trustee has been going through the
process of determining the amount of claims of the unsecured creditors in this
case as well as other case administrative actions. The Liquidating Trustee has
distributed funds under the Plan to date, although substantial litigation
remains in the estate and further distribution is anticipated. The Liquidating
Trustee has not substantially consummated the Plan as defined in Section 1101(2)
of the Code.
3. Pursuant to Section 15.2 of the Plan, the Movants may seek to modify
the Plan after confirmation. The provisions of the Plan are effectively a
recitation of the requirements of Section 1127 of the Code.
4. The proposed changes to the Plan are attached hereto as Exhibit "1".
The changes are partially clerical in nature, specifically the repetition of the
same requirements as to corporate governance as to the Debtor and the Subsidiary
that were missed when the Plan was confirmed. The remaining portions involve
clarifying the requirements that a reverse merger, as to the Subsidiary, must
occur within one year and to clarify that the effect of securing and completing
a reverse merger in such time frame will meet the requirements of Section 1141
(d)(3) and enable the reorganized subsidiary to secure the referenced discharge
under that section. The effect of the provision is also to make it impossible
for there to be a subsequent attempt to sell that shell to another entity and
have such shell discharged from its liabilities. This change is in accord with
the proscriptions that the SEC pushed when the Code was adopted in 1978 as to
the creation of public shells without any definite requirement that there be a
continuity of business, so as to prevent the trafficking in public shells. The
restriction of 12 months to consummate the Plan to meet the discharge
requirement is a reasonable restriction, especially when coupled with the
shareholder trading restrictions and creditor/shareholder approval of the merger
partner contained in the Plan as confirmed.
5. The Liquidating Trustee asserts that the changes herein are necessary
to the viability of the reverse merger option set forth in the Plan as to the
Subsidiary. No reverse merger partner will want to merge with the Reorganized
Subsidiary unless there is an assurance that there is a discharge of that
entity's indebtedness.
6. The Liquidating Trustee asserts that the modifications set forth do
not materially affect any payment made to any creditor in this case, but in fact
enhances the value of the shares provided to be disbursed pursuant to the Plan
by providing more certainty to the reverse merger or acquisition partner that
there will be a discharge under Section 1141 of the Code that meets the SEC
requirements. The Liquidating Trustee requests that this modification not be
required to have additional disclosure under Section 1125 of the Code.
MOTION FOR APPROVAL OF POST CONFIRMATION MODIFICATIONS
TO THE FIRST AMENDED JOINT PLAN OF REORGANIZATION PAGE-2
<PAGE>
WHEREFORE PREMISES CONSIDERED, the Movants pray that this Court after
notice and hearing to all creditors in this case, find that just cause exists to
allow the modification of the Plan as set forth in the attached modifications,
that such modifications do not materially affect any class that accepted the
Plan, that the modifications do not cause the Plan as modified to fail to meet
the requirements of Section 1122 and 1123 of the Code and that no additional
disclosure is required under Section 1125 of the Code and for such other and
further relief to which Movants may show themselves justly entitled at law or in
equity.
Respectfully submitted,
THE LIQUIDATING TRUSTEE FOR THE LIQUIDATING TRUST
FOR WATER POINT SYSTEMS, INC. AND WATER POINT
MANUFACTURING, CORP.
/s/ Mark E. Golman
----------------------------
Mark E. Golman
State Bar No. 08113200
STOREY ARMSTRONG STEGER & MARTIN
4500 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
JENKENS & GILCHRIST,
A PROFESSIONAL CORPORATION
By: /s/ J. Scott Rose
------------------------
J. Scott Rose
State Bar No. 17252800
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telephone: (214) 855-4500
Telecopy: (214) 855-43001
COUNSEL FOR THE TRUST COMMITTEE FOR THE
LIQUIDATING TRUST FOR WATER POINT SYSTEMS, INC.
AND WATER POINT MANUFACTURING, CORP.
MOTION FOR APPROVAL OF POST CONFIRMATION MODIFICATIONS
TO THE FIRST AMENDED JOINT PLAN OF REORGANIZATION PAGE-3
<PAGE>
CERTIFICATE OF SERVICE
THIS IS TO CERTIFY that I did on this 26th day of April, 1996, serve a true
and correct copy of the above and foregoing upon all parties listed on the
attached service list by U.S. mail, properly addressed and postage prepaid.
/s/ Mark Golman
------------------
Mark Golman
MOTION FOR APPROVAL OF POST CONFIRMATION MODIFICATIONS
TO THE FIRST AMENDED JOINT PLAN OF REORGANIZATION PAGE-4
<PAGE>
Mark E. Golman [EXHIBIT 1]
State Bar No. 08113200
STOREY ARMSTRONG STEGER & MARTIN
4500 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
LIQUIDATING TRUSTEE
J. Scott Rose
State Bar No. 17252800
Michael C. Li
State Bar No. 00784474
JENKENS & GILCHRIST,
A Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telephone: (214) 855-4500
Telecopy: (214) 855-4300
ATTORNEYS FOR THE TRUST COMMITTEE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:
WATER POINT SYSTEMS, INC., CASE NO. 395-31514-RCM-11
(Jointly Administered)
DEBTOR.
- ---------------------------------------
WATER POINT MANUFACTURING, INC. CASE NO. 395-33959-HCA-11
(Jointly Administered)
DEBTOR.
POST CONFIRMATION MODIFICATIONS TO THE FIRST AMENDED
JOINT PLAN OF REORGANIZATION FILED BY THE
TRUST COMMITTEE AND THE LIQUIDATING TRUSTEE
<PAGE>
April 26, 1996
The Trust Committee of the Liquidating Trust for Water Point Systems, Inc.
and Water Point Manufacturing Inc., (the "Committee") and Mark E. Golman,
Liquidating Trustee of the Liquidating Trust for Water Point Systems, Inc. and
Water Point Manufacturing Inc., (the "Liquidating Trustee"), propose the
following Post Confirmation Modifications to the confirmed First Amended Joint
Plan of Reorganization.
1. The Definitions in Article 3.1 will be modified as follows:
(g)(i) "CONSUMMATION OF THE PLAN" means when all of the
requirements of the Plan are met. The Consummation of the Plan is defined to
have to occur after substantial consummation as that term is defined in 11
U.S.C. Section 1101 (2).
(g)(ii) "CONSUMMATION OF THE PLAN DATE" means the date one year from
the Effective Date of the Plan by which the reverse merger or acquisition must
have been completed or the discharge set forth under 11 U.S.C. Section 1141
(d)(3) will be deemed to have not been achieved.
2. The Means for Implementation of Plan in Article 9 will be amended as
follows(bolded items are the changes, stricken out portions are deletions):
9.1 CONTINUED CORPORATE EXISTENCE AND FUTURE CORPORATE GOVERNANCE. The
Debtor shall continue in existence in accordance with the laws of the State of
Texas and pursuant to the charter and bylaws in effect prior to the Effective
Date as specifically modified by this Plan and as are authorized to be modified
hereinafter. On or immediately after the Effective Date, Debtor may amend its
articles of incorporation or change its state of incorporation as necessary to
effectuate the Plan. Specifically, confirmation of the Plan will constitute
unanimous consent of the post confirmation shareholders of the DEBTOR to the
amendment and restatement of the Debtor's Article's of Incorporation to increase
the number of common and preferred shares authorized to 40,000,000 in
anticipation of a reverse merger transaction. The DEBTOR shall continue in
existence in accordance with the laws of Texas and pursuant to its articles of
incorporation and by-laws in affect prior to the Effective Date, except as
specifically modified by this Plan in accordance with Article 9.14 of the Texas
Business Corporations Act and as authorized to be modified hereinafter.
Specifically, confirmation of the Plan will constitute unanimous consent of the
post confirmation shareholders to the amendment and restatement of its Articles
of Incorporation to effectuate the Plan. On or immediately following the
Effective Date the Subsidiary's Articles of Incorporation will be amended to
increase the number of common and preferred shares authorized to 40,000,000 and
10,000,000, respectively, in anticipation of a reverse merger transaction. THE
SUBSIDIARY SHALL CONTINUE IN EXISTENCE IN ACCORDANCE WITH THE LAWS OF TEXAS AND
PURSUANT TO ITS ARTICLES OF INCORPORATION AND BY-LAWS IN AFFECT PRIOR TO THE
EFFECTIVE DATE, EXCEPT AS SPECIFICALLY MODIFIED BY THIS PLAN IN ACCORDANCE WITH
ARTICLE 9.14 OF THE TEXAS BUSINESS CORPORATIONS ACT AND AS AUTHORIZED TO BE
MODIFIED HEREINAFTER. The authorized changes will be executed by the Debtor's
and the Subsidiary's successor officers and directors and acknowledged by the
Liquidating or Bankruptcy Trustee. The proposed authorized changes will be made
available on or before the earlier of seven (7) days prior to the ballot
deadline or the tenth (10th) day prior to the confirmation hearing. The shares
distributed to Arcady and HFG are subject to being non transferable, absent
registration, due to the application of Section 1145 (b)(1)(A). This plan will
not make any attempt to discern or influence any such
POST CONFIRMATION MODIFICATIONS TO THE FIRST AMENDED JOINT PLAN OF
REORGANIZATION FILED BY THE TRUST COMMITTEE AND THE LIQUIDATING TRUSTEE
- - Page - 2
<PAGE>
decision by any applicable government agency. The determination of same
shall be the responsibility of Arcady and HFG respectively. THE SUBSIDIARY
MUST COMPLETE THE REVERSE MERGER OR ACQUISITION, SO AS TO MEET THE
REQUIREMENT OF CONTINUING IN BUSINESS BY THE CONSUMMATION OF THE PLAN DATE IN
ORDER TO ACHIEVE THE DISCHARGE AS SET FORTH IN Section 1141 OF THE CODE.
All matters of corporate governance of either the Debtor or the Subsidiary
will be controlled their respective articles of incorporation and by laws, as
modified by the Plan or authorized to be modified by this Plan. No changes
in the articles of incorporation or the by laws of either the Debtor or the
Subsidiary, except the authorized changes, may be made without the approval
of 67% of the shares issued and outstanding, including the approval of
anticipated reverse merger by the Debtor or Subsidiary respectively. Said 67%
requirement is defined to exclude any shares acquired or proxies secured by
Arcady or HFG in the respective entities. Regardless of the total percentage
of shares owned or proxies held, Arcady and HFG's vote in such an instance,
shall never account for more than 60% of the 67% required. The restrictions
herein shall be replaced upon the completion of an authorized reverse merger
or acquisition, as necessary, to meet the requirements of the reverse merger
or acquisition, without further requirement to secure any authority from the
shareholders of the Debtor or the Subsidiary. Solely as to the Debtor: a)
during the first six (6) months after the Effective Date of the Plan Arcady
and its parent Arcady Capital, Inc. shall spend at least 50% of their
business efforts in connection with securing a reverse merger target and
thereafter at least 25% of their time until a merger or acquisition is
completed; b) the restriction above as to the calculation of the 67% of the
issued and outstanding shares for the purpose of corporate governance pre
merger or acquisition, shall lapse on the first anniversary date of the
Effective Date; c) Arcady or other shareholders may provide or cause to be
provided, up to $500,000 in additional capital through either debt or equity
in order to facilitate the merger or acquisition. If such funds are provided
as debt the terms and conditions shall be consistent with similar credit in
the market place, whether or not such credit would be available to the
reorganized Debtor. If such funds are provided as additional equity by Arcady
or any other shareholder, each additional share purchased by Arcady shall be
at a price not less than the original price paid by Arcady; and d) if within
one year after the Effective Date Arcady has not secured a merger or acquisition
that will enable the shares held by the Allowed Unsecured Class 6 holders to
be traded on a public market, then the Allowed Unsecured Class 6 holders may
put up to 75% of the shares owned by each such shareholder at a purchase price
to be determined pursuant to the ratio of $1,000/1% of stock outstanding. Solely
as to the Subsidiary: HFG shall have one year to complete the reverse merger
or acquisition. If such a transaction is not closed BY THE CONSUMMATION OF THE
PLAN DATE, THEN THERE WILL BE NO DISCHARGE OF THE SUBSIDIARY'S DEBTS UNDER
SECTION 1141 OF THE CODE. IN SUCH EVENT, HFG agrees to sell its shares to the
Trust for the sum of $100.
3. The Other Provisions in Article 13 will be amended as follows (bolded
items are the changes):
13.4 DISCHARGE OF DEBTOR. The confirmation of this Plan shall operate to
discharge the Debtor from any and all liabilities that arose before the
Effective Date. THE CONFIRMATION OF THIS PLAN SHALL OPERATE TO DISCHARGE THE
SUBSIDIARY AS A CORPORATE ENTITY, POST CONFIRMATION, FROM ANY AND ALL
LIABILITIES THAT AROSE BEFORE THE EFFECTIVE DATE, PROVIDED THAT THE REVERSE
MERGER OR ACQUISITION IS ACHIEVED BY THE CONSUMMATION OF THE PLAN DATE. The
consideration distributed under this Plan and the Trust shall be in exchange for
and in
POST CONFIRMATION MODIFICATIONS TO THE FIRST AMENDED JOINT PLAN OF
REORGANIZATION FILED BY THE TRUST COMMITTEE AND THE LIQUIDATING TRUSTEE
- - Page - 3
<PAGE>
complete satisfaction, discharge, and release of all Claims of any nature
whatsoever against the Assets of the Debtor or Subsidiary, including but not
limited to demands and liabilities that arose before the Effective Date, and all
debts of the kind specified in Section 502(g), 502(h), or 502(i) of the
Bankruptcy Code, whether or not (a) a proof of Claim based upon such debt is
filed or deemed filed under Section 501 of the Bankruptcy Code; (b) a Claim
based upon such debt is allowed under Section 502 of the Bankruptcy Code; or (c)
the holder of a Claim based upon such debt has accepted the Plan. The order
confirming the Plan shall be a judicial determination that no recourse may be
had by any party on account of any Claim against the Bankruptcy Trustee, the
Liquidating Trustee, the Trust, the Trust Committee, the Assets, or the Trust
Property, except as provided herein. The order confirming the Plan shall
operate as a permanent injunction against the prosecution of any action against
the Assets or Trust Property on account of any Claim against the Debtor.
THE TRUST COMMITTEE FOR THE LIQUIDATING
TRUST FOR WATER POINT SYSTEMS, INC.
AND WATER POINT MANUFACTURING, CORP.
By: /s/ JAMES JENSEN
-----------------------------------
By: JAMES JENSEN, Chairman
STOREY ARMSTRONG STEGER & MARTIN,
a professional corporation
By: /s/ MARK E. GOLMAN
-----------------------------------
Mark E. Golman
State Bar No. 08113200
4500 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
THE LIQUIDATING TRUSTEE FOR THE LIQUIDATING
TRUST FOR WATER POINT SYSTEMS, INC.
AND WATER POINT MANUFACTURING, CORP.
POST CONFIRMATION MODIFICATIONS TO THE FIRST AMENDED JOINT PLAN OF
REORGANIZATION FILED BY THE TRUST COMMITTEE AND THE LIQUIDATING TRUSTEE -
Page - 4
<PAGE>
JENKENS & GILCHRIST,
A PROFESSIONAL CORPORATION
By: /s/ J. SCOTT ROSE
-----------------------------------
J. Scott Rose
State Bar No. 17252800
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telephone: (214) 855-4500
Telecopy: (214) 855-43001
COUNSEL FOR THE TRUST COMMITTEE
FOR THE LIQUIDATING TRUST FOR
WATER POINT SYSTEMS, INC. AND
WATER POINT MANUFACTURING, CORP.
POST CONFIRMATION MODIFICATIONS TO THE FIRST AMENDED JOINT PLAN OF
REORGANIZATION FILED BY THE TRUST COMMITTEE AND THE LIQUIDATING TRUSTEE
- - Page - 5
<PAGE>
Mark E. Golman
State Bar No. 08113200
STOREY ARMSTRONG STEGER & MARTIN
4500 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
LIQUIDATING TRUSTEE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:
WATER POINT SYSTEMS, INC., CASE NO. 395-31514-RCM-11
(Jointly Administered)
DEBTOR.
WATER POINT MANUFACTURING, INC. CASE NO. 395-33959-HCA-11
(Jointly Administered)
DEBTOR.
MOTION FOR CLARIFICATION OF THE
FIRST AMENDED JOINT PLAN OF REORGANIZATION
FILED BY THE TRUST COMMITTEE AND THE LIQUIDATING TRUSTEE
TO THE HONORABLE BANKRUPTCY JUDGE ROBERT C. MCGUIRE:
The Trustee of the Liquidating Trust for Water Point Systems, Inc. and
Water Point Manufacturing, Inc., (hereinafter the "Movant") files Motion for
Clarification of the First Amended Joint Plan of Reorganization and would
respectfully show the Court as follows:
1. The First Amended Joint Plan of Reorganization for Water Point
Systems, Inc. and Water Point Manufacturing, Inc. (the "Plan") was confirmed by
order of this Court entered on October 10, 1995 and was modified by order
entered on May 29, 1996.
2. Since that date, a reverse merger/acquisition entity has been
identified by W. P. Acquisition and contracts are being negotiated.
3. Pursuant to Section 15.2 of the Plan, the Movants may seek
clarification of the Plan after confirmation. Such provision of the Plan is
effectively a recitation of the requirements of Section 1127 of the Code as to
changes that would require creditor participation due to their
<PAGE>
prospects for affecting claimants' treatment. Section 15.2 also provides
that changes that "remedy a default or omission or reconcile any
inconsistency with the Plan, with the approval of the Court, with or without
notice and a hearing, provided that the remedy does not materially affect the
interests of the Creditors or the Interest Holders."
4. The clarifications sought to the Plan involve minor issues of
construction. The first one concerns a specific sentence in Section 9.1 of the
Plan on page 21. Section 9.1 of the Plan says that no changes may be made to
the articles of incorporation or the bylaws of the Subsidiary (now W.P.
Acquisition), including approval of the reverse merger anticipated by the Plan,
without the approval of 67% of the shares issued and outstanding. The sentence
to be clarified reads: "Said 67% requirement is defined to exclude any shares
acquired or proxies secured by Arcady or Halter in their respective entities."
The clarification requested by this Motion is twofold. The first clarification
concerns the word "acquired". The clarification sought is to reflect that
"acquired", as to Halter, meant those shares of stock acquired after
confirmation from other creditors in the case, not those obtained as a result of
treatment of Halter's claim under the confirmed Plan. The intent of the
provision on page 21 was to prevent the dilution or loss of the ability to have
creditor participation in approval of the reverse merger process. The provision
was not intended to prohibit Halter from voting its shares of common stock.
This is apparent from the very next sentence of Section 9.1 which says:
"Regardless of the total percentage of shares owned or proxies held, Arcady and
Halter's vote in such an instance shall never account for more than 60% of the
67% required." The Plan was intended to require approval of the reverse merger
or acquisition and any additional changes to Subsidiary's articles of
incorporation or bylaws by (i) all shares of common stock held by Halter, or
approximately 60% of the outstanding common stock; and (ii) an additional 7% of
the outstanding common stock held by other shareholders. The second
clarification concerns the words "proxies secured." The clarification is to
reflect that "proxies secured", as to Halter, meant general proxies utilized to
change the effect or purpose of the Plan. This provision was not intended to
prohibit Timothy P. Halter, an officer and director of Halter and the
Subsidiary, from being appointed by the Subsidiary's shareholders as a proxy in
connection with a shareholders' meeting called for the purpose of voting upon
the anticipated reverse merger or acquisition, any additional changes to
Subsidiary's articles of incorporation or bylaws and all other relevant matters
to properly come before such meeting. The documentation forwarded to
shareholders relating to the meeting will clearly indicate the specific purposes
for which such proxy is sought.
5. The final point is to clarify that the use of the words "reverse
merger" in the Plan was not meant to limit the type of permitted business
combination to a merger. Such term was intended to include any other business
combination, including a stock exchange or other acquisition, whereby the
benefit from the combination of the viable private entity with the Subsidiary
flows to the shareholders of the Subsidiary.
6. The Liquidating Trustee asserts that the clarification is necessary to
the viability of the reverse merger or other acquisition option set forth in the
Plan as to the Subsidiary.
7. The Liquidating Trustee asserts that the clarifications set forth do
not materially affect any payment made to any creditor in this case, but in fact
enhances the value of the shares provided to be disbursed pursuant to the Plan.
The Liquidating Trustee requests that this clarification not be required to
have additional disclosure under Section 1125 of the Code and that this
clarification be held not require notice to any other parties as set forth in
Section 15.2 of the Plan.
MOTION FOR CLARIFICATION OF THE FIRST AMENDED JOINT PLAN OF REORGANIZATION
PAGE-2
<PAGE>
WHEREFORE PREMISES CONSIDERED, Movant prays that this Court find that just
cause exists to allow the clarification and reconciliations of the Plan as set
forth above, that such clarifications and reconciliations do not materially
affect any class of creditor or interest holder under the Plan, that the
clarifications and reconciliations do not cause the Plan as modified to fail to
meet the requirements of Section 1122 and 1123 of the Code and that no
additional disclosure is required under Section 1125 of the Code, that there
need not be any notice given, as set forth in Section 15.2 of the Plan, and for
such other and further relief to which Movants may show themselves justly
entitled at law or in equity.
Respectfully submitted,
THE LIQUIDATING TRUSTEE FOR THE LIQUIDATING TRUST
FOR WATER POINT SYSTEMS, INC. AND WATER POINT
MANUFACTURING, INC.
/s/ Mark E. Golman
----------------------------------
Mark E. Golman
State Bar No. 08113200
STOREY ARMSTRONG STEGER & MARTIN
4500 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2782
Telephone: (214) 855-6800
Facsimile: (214) 855-6853
MOTION FOR CLARIFICATION OF THE FIRST AMENDED JOINT PLAN OF REORGANIZATION
PAGE-3
<PAGE>
STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE AGREEMENT, dated as of September 13, 1996 (this
"Agreement"), is made and entered into by and among KMG-Bernuth, Inc., a
Delaware corporation ("KMG"), the stockholders of KMG listed on EXHIBIT A hereto
(collectively, the "Stockholders"), W.P. Acquisition Corp., a Texas corporation
(the "Company") and Halter Financial Group, Inc., a Texas corporation ("HFG").
RECITALS
WHEREAS, the respective Boards of Directors of KMG, the Company and HFG
have adopted resolutions approving and adopting the proposed stock exchange (the
"Exchange") upon the terms and conditions hereinafter set forth in this
Agreement;
WHEREAS, the Stockholders hold all of the issued and outstanding shares of
common stock of KMG in the amounts set forth on EXHIBIT A hereto (the "KMG
Shares"), and each Stockholder desires to participate in the Exchange;
WHEREAS, the Exchange is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code");
WHEREAS, KMG will enter into this Agreement for the purpose of making
certain representations, warranties, covenants and agreements; and
WHEREAS, HFG, which holds approximately 60% of the outstanding common stock
of the Company, will enter into this Agreement for the purpose of making certain
representations, warranties, covenants and agreements.
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 EXCHANGE
1.1 THE EXCHANGE. Upon the terms and subject to the conditions hereof, at
the Closing (as hereinafter defined) each Stockholder will sell, convey, assign,
transfer and deliver to the Company stock certificates representing the number
of KMG Shares set forth opposite such Stockholder's name on EXHIBIT A hereto,
and the Company will issue to the Stockholders, in exchange for the KMG Shares,
stock certificates representing an aggregate of 6,510,000 shares of its common
stock (the "Company Shares") in the amounts set forth on EXHIBIT A hereto.
1.2 CLOSING. The closing of the Exchange (the "Closing") shall take place
at 11:00 a.m., local time, at the offices of HFG located at 4851 LBJ Freeway,
Suite 201, Dallas, Texas
<PAGE>
75244 within five business days of the special meeting of shareholders
described in SECTION 6.4 of this Agreement, or as soon as practicable after
the conditions set forth in ARTICLE 7 have been satisfied or waived or at
such other place and time as the parties may agree. Such date is herein
referred to as the "Closing Date."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF KMG
KMG hereby represents and warrants to the Company and HFG as follows:
2.1 ORGANIZATION. KMG 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.
2.2 CAPITALIZATION. The authorized capital stock of KMG consists of
500,000 shares of common stock, par value $.01 per share. As of the date of this
Agreement, (a) 12,906 KMG Shares are issued and outstanding and (b) no options
to acquire common stock of KMG are outstanding. The KMG Shares, which constitute
all of the issued and outstanding capital stock of KMG, are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. At the
Closing, the Stockholders will convey to the Company good and marketable title
to the KMG Shares, free and clear of any security interests, liens, adverse
claims, encumbrances, equities, proxies, options, shareholders' agreements or
restrictions.
2.3 CERTAIN CORPORATE MATTERS. KMG 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 such failure would not
have a material adverse effect on KMG's financial condition, results of
operations or business. KMG has full 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.
2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. KMG 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 KMG and the consummation by KMG of the transactions contemplated hereby have
been duly authorized by the Board of Directors of KMG and no other actions on
the part of KMG are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by KMG and constitutes a valid and binding agreement of KMG,
enforceable against KMG 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.
2
<PAGE>
2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for applicable
requirements of the federal securities laws and the state securities or blue sky
laws, no filing with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by KMG of the
transactions contemplated by this Agreement. Upon obtaining the consent set
forth on SCHEDULE 2.5 HERETO, neither the execution and delivery of this
Agreement by KMG nor the consummation by KMG of the transactions contemplated
hereby, nor compliance by KMG with any of the provisions hereof, will (a)
conflict with or result in any breach of any provisions of the Certificate of
Incorporation or By-Laws of KMG, (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 KMG 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 KMG, 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 are not in the aggregate material to KMG
and its subsidiaries taken as a whole.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each Stockholder severally represents and warrants, as to itself and its
respective ownership in the KMG Shares, as follows:
3.1 OWNERSHIP OF THE KMG SHARES. The Stockholder owns, beneficially and
of record, good and marketable title to the KMG Shares set forth opposite its
name on EXHIBIT A hereto, free and clear of all security interests, liens,
adverse claims, encumbrances, equities, proxies, options or shareholders'
agreements. At the Closing, the Stockholder will convey to the Company good and
marketable title to the KMG Shares set forth opposite its name on EXHIBIT A
hereto, free and clear of any security interests, liens, adverse claims,
encumbrances, equities, proxies, options, shareholders' agreements or
restrictions.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby have been duly authorized by
the Stockholder (and, in the case of the corporate Stockholder, by the Board of
Directors of such Stockholder) and no other actions on the part of the
Stockholder are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder 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
<PAGE>
3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for applicable
requirements of the federal securities laws and the state securities or blue sky
laws, no filing with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by the Stockholder of
the transactions contemplated by this Agreement. Neither the execution and
delivery of this Agreement by the Stockholder nor the consummation by the
Stockholder of the transactions contemplated hereby, nor compliance by the
Stockholder with any of the provisions hereof, will (a) in the case of the
corporate Stockholder, conflict with or result in any breach of any provisions
of the Articles or Certificate of Incorporation or By-Laws of such Stockholder,
(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 Stockholder is a party
or by which the Stockholder or its properties may be bound or (c) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Stockholder (or, in the case of the corporate Stockholder, any of its
subsidiaries or any of such subsidiaries' properties or assets), except in the
case of clauses (b) and (c) for violations, breaches or defaults which are not
in the aggregate material to the Stockholder.
3.4 DISCLOSURE OF INFORMATION. The Stockholder acknowledges that it has
been furnished such information regarding the financial condition, results of
operations and business of the Company necessary to make an informed decision
regarding the Exchange. The Stockholder has had an opportunity to ask questions
of and receive answers regarding the Company and its financial condition,
results of operations or business and the terms and conditions of the Exchange.
3.5 INVESTMENT EXPERIENCE. The Stockholder acknowledges that it is able
to fend for itself, can bear the economic risk of its investment in the Company
Shares, and has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of an investment in the
Company Shares.
3.6 RESTRICTED SECURITIES. The Stockholder acknowledges that the Company
Shares will not be registered pursuant to the Securities Act of 1933, as amended
(the "Securities Act") or any applicable state securities laws, that the Company
Shares will be characterized as "restricted securities" under federal securities
laws, and that under such laws and applicable regulations the Company Shares
cannot be sold or otherwise disposed of without registration under the
Securities Act or an exemption therefrom. In this regard, the Stockholder is
familiar with Rule 144 promulgated under Securities Act, as currently in effect,
and understands the resale limitations imposed thereby and by the Securities
Act. Stop transfer instructions may be issued to the transfer agent (or a
notation may be made in the appropriate records of the Company) in connection
with the Company Shares.
3.7 LEGEND. The Stockholder acknowledges that the certificates
representing the Company Shares shall each conspicuously set forth on the face
or back thereof a legend in
4
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substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND HFG
The Company and HFG hereby jointly and severally represent and warrant to
KMG and the Stockholders 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 to carry on its business as now conducted.
4.2 CAPITALIZATION AND OWNERSHIP OF THE COMPANY. The Company's authorized
capital stock consists of 40,000,000 shares of common stock, par value $.01 per
share, of which 528,457 shares are outstanding as of the date hereof and of
which approximately 7,000,000 will be outstanding as of the Closing, and
10,000,000 shares of preferred stock, par value $.01 per share, of which none
are outstanding. All issued and outstanding shares of common stock of the
Company are duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights. When issued, the Company Shares will be duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. Except
as provided in SECTION 6.3 of this Agreement and in that Consulting Agreement by
and between KMG and Gilman Financial Corporation, 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 HFG are parties or which are binding upon the Company or HFG
providing for the issuance by the Company or transfer by the Company or HFG of
additional shares of its capital stock and the Company has not reserved any
shares of its capital stock for issuance, nor are there any outstanding stock
option rights, stock appreciation or similar rights, contracts, arrangements or
commitments. Except as provided in SECTION 6.4 of this Agreement, there are no
voting trusts or any other agreements or understandings 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 which the failure to be so licensed or qualified
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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 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 KMG true, accurate and complete copies of its Articles of
Incorporation and By-Laws, which reflect all amendments and restatements
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 KMG 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 any 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 any material 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 HFG 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 HFG and the consummation of the transactions
contemplated hereby have been duly authorized by the Boards of Directors of the
Company and HFG and, subject to approval of the Company's shareholders as set
forth in this Agreement, no other actions on the part of the Company or HFG 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 HFG and constitutes, subject to approval of the Company's shareholders as
set forth in this Agreement, a valid and binding obligation of the Company and
HFG, 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 for applicable
requirements of the federal securities laws and the state securities or blue sky
laws, no filing with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by the Company and
HFG of the transactions contemplated by this Agreement. Neither the execution
and delivery of this Agreement by the Company and HFG nor the consummation by
the Company or HFG of the transactions contemplated hereby, nor compliance by
the Company or HFG 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 or HFG, (b) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or
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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 either the Company or HFG is a party or by which
either of them or any of their respective properties or assets may be bound
or (c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or HFG, or any of their respective
properties or assets, except in the case of clauses (b) and (c) for
violations, breaches or defaults which are not in the aggregate material to
the Company or HFG taken as a whole.
4.7 FINANCIAL STATEMENTS. The Company has delivered to KMG the following
audited financial statements: (a) its balance sheets as of July 31, 1996 and
October 31, 1995; (b) its statements of operations for the nine months ended
July 31, 1996 and the 21 days ended October 31, 1995; (c) its statements of cash
flows for the nine months ended July 31, 1996 and the 21 days ended October 31,
1995; and (d) its statements of changes in shareholders' equity for the nine
months ended July 31, 1996 and the 21 days ended October 31, 1995 (collectively,
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.
4.8 EVENTS SUBSEQUENT TO FINANCIAL STATEMENTS. Since July 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 outside the ordinary course of business;
(g) Any waiver or release by the Company of any right of any material
value;
(h) Any compensation or benefits paid to officers or directors of the
Company;
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(i) Except as contemplated by the Proxy Statement (as defined herein) any
change made or authorized in the Articles of Incorporation or By-laws of
the Company; or
(j) 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.
4.9 UNDISCLOSED LIABILITIES. The Company has no material liability or
obligation whatsoever, either direct or indirect, matured or unmatured, accrued,
absolute, contingent or otherwise.
4.10 TAX MATTERS.
(a) The Company has (and as of the Closing Date will have) duly filed all
federal, state, local, and foreign tax returns required to be filed by or
with respect to it with the Internal Revenue Service or other applicable
taxing authority, and no extensions with respect to such tax returns have
(or as of the Closing Date will have) been requested or granted and all
such tax returns shall in all material respects be true, complete and
correct;
(b) The Company has (and as of the Closing Date will have) paid all taxes
due, or claimed by any taxing authority to be due, from or with respect to
it;
(c) The Company has established reserves adequate to pay and fully
discharge all taxes not yet due and payable to the Internal Revenue Service
or any other taxing authority, and such reserves shall be maintained and be
adequate to pay and fully discharge all taxes accrued or incurred through
the Closing;
(d) The Company and, to the Company's knowledge, its former parent company
Water Point Systems, Inc. have withheld and paid in the manner prescribed
by law, rules, regulations and similar authority, all taxes required to
have been withheld or paid or deposited by the Company or, to the Company's
knowledge, by Water Point Systems, Inc. in connection with employee wages
or any other payments or distributions;
(e) No audit or other administrative or court proceeding is presently
pending with regard to any taxes or tax returns of the Company or, to the
Company's knowledge, with regard to Water Point Systems, Inc.;
(f) The Company is not subject to any agreements relating to allocating or
sharing of taxes with any third party;
(g) To the best knowledge of the Company and HFG, there has been no issue
raised or material adjustment proposed (and none is pending) by the
Internal Revenue Service or any other taxing authority in connection with
any of the tax returns;
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(h) No waiver or extension of any statute of limitations as to any
material federal, state, local, or foreign tax matter has been given by or
requested from the Company; and
(i) The Company has not filed a consent under Section 341 (f) of the Code.
For the purposes of this SECTION 4.10, a tax is due (and must therefore
either be paid or adequately reserved against in the Financial Statements) only
on the last date payment of such tax can be made without interest or penalties,
whether such payment is due in respect of estimated taxes, withholding taxes,
required tax credits or any other tax.
4.11 REAL PROPERTY. The Company does not own or lease any real
property.
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. Neither the Company nor HFG 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.
4.14 ENVIRONMENTAL MATTERS.
(a) ENVIRONMENTAL LAWS. To the best knowledge of the Company and HFG, the
Company is not currently in violation of, or subject to any existing,
pending or threatened investigation or inquiry by any governmental
authority or to any remedial obligations under, any laws or regulations
pertaining to health or the environment (hereinafter sometimes collectively
called "Environmental Laws"), including without limitation (i) the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. 9601 ET SEQ.), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("CERCLA"), and the regulations promulgated
thereunder, (ii) the Resource Conservation and Recovery Act of 1976 (42
U.S.C. 6901 ET SEQ.), as amended by the Hazardous and Solid Waste Amendment
of 1984 ("RCRA"), and the regulations promulgated thereunder, (iii) any
statutes, rules or regulations, whether federal, state or local, relating
to asbestos or polychlorinated biphenyls, and (iv) the provisions contained
in any applicable state statutes, rules and regulations. This
representation and warranty would continue to be true and correct following
disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the assets and
operations of the Company.
(b) USE OF ASSETS. To the best knowledge of the Company and HFG, the
assets of the Company have never been used in a manner that would be in
violation of any of the Environmental Laws, including without limitation
CERCLA, RCRA and any applicable
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state statutes, rules or regulations.
(c) PERMITS. To the best knowledge of the Company and HFG, 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.
(d) SUPERFUND LIST. To the best knowledge of the Company and HFG, none of
the assets owned or leased by the Company are on any federal or state
"Superfund" list or subject to any environmentally related liens.
4.15 INTELLECTUAL PROPERTY. The Company does not own or use any
trade-marks, trade-names, service marks, patents, copyrights or any
applications with respect thereto. The Company and HFG have no knowledge of
any claim that, or inquiry as to whether, any product, activity or operation
of the Company infringes upon or involves, or has resulted in the
infringement of, any trade-marks, trade-names, service marks, patents,
copyrights or other proprietary rights of any other person, corporation or
other entity; and no proceedings have been instituted, are pending or are
threatened.
4.16 INSURANCE. The Company has no insurance policies in effect.
4.17 CONTRACTS. 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 any obligation
or liability; (j) partnership or joint venture; (k) noncompetition or
confidentiality; or (l) the sale of personal property.
4.18 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 HFG,
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
HFG know of any basis for such actions, suits, proceedings or investigations.
There are no unsatisfied judgments, orders, decrees or stipulations affecting
the Company or to which the Company is a party.
4.19 EMPLOYEES. Except as set forth on SCHEDULE 4.19 hereto, the
Company does not have any employees. The Company does not owe any compensation
of any kind, deferred or
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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.
4.20 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.
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. Neither the Company, HFG 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 this Agreement.
4.23 DISCLOSURE. The representations and warranties and statements of
fact made by the Company and HFG in this Agreement 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 not misleading.
ARTICLE 5
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING. The Company
and HFG 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;
(b) Except as necessary to effect the proposals contained in the Proxy
Statement, the Company shall not directly or indirectly do any of the
following: (i) sell, pledge, dispose of or encumber any of its assets; (ii)
amend or propose to amend its Articles of
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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; (vi) enter into or
modify any contract, agreement, commitment or arrangement with respect to
any of the foregoing;
(c) The Company shall not, and where applicable, HFG 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 HFG
shall call any meeting of the Company's shareholders;
(g) The Company and HFG 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 KMG 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 HFG shall notify KMG 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
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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 KMG, the Company and HFG
shall not to 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 HFG 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, KMG and the Company 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 Closing 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.
6.2 PROXY STATEMENT. HFG and its representatives shall, with the
assistance of KMG and its representatives (except with respect to the portions
regarding the stock option plan described in SECTION 6.3 of this Agreement,
which shall be the sole responsibility of KMG and its representatives), prepare
a Proxy Statement (the "Proxy Statement") containing proposals relating to (i)
this Agreement and the transactions contemplated hereby, (ii) an amendment to
the Company's Articles of Incorporation to change the Company's name, (iii) an
amendment to the Company's Articles of Incorporation to effect a 1 for 1.5
reverse split of the Company's common stock and (iv) the election of directors
proposed by KMG. The Proxy Statement may also contain such other matters as may
be mutually agreed upon by the parties hereto, including additional amendments
to and the restatement of the Company's Articles of Incorporation, approval of
the grant of certain stock options and approval of a stock option plan. The
Proxy Statement will be forwarded to the shareholders of the Company to be used
with the meeting of the shareholders of the Company to approve the proposals
contained therein. The Proxy Statement will not contain an untrue statement of
material fact or omit any statement of material fact required to be stated or
necessary to be stated to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
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6.3 STOCK OPTIONS AND STOCK OPTION PLAN. The parties agree and
acknowledge that the Company may issue options to purchase shares of common
stock of the Company to David L. Hatcher and other officers of KMG on such terms
and conditions as KMG shall determine and may adopt a stock option plan for key
executives on such terms and conditions as KMG shall determine.
6.4 MEETING OF SHAREHOLDERS. The Company shall call a special meeting of
its shareholders to be held in accordance with the laws of the State of Texas to
consider and vote upon the proposals contained in the Proxy Statement. At such
special meeting of shareholders, HFG shall vote in favor of the proposals
contained in the Proxy Statement.
6.5 PRESS RELEASES. The Company and KMG 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 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 hereto to effect the Closing shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
(a) The proposals contained in the Proxy Statement shall have been
approved by the shareholders of the Company in accordance with Texas law
and that First Amended Joint Plan of Reorganization Filed by the Official
Committee of the Unsecured Creditors and Mark E. Golman, Chapter 11 Trustee
dated September 1, 1995, as applicable; and
(b) No order shall have been entered and remained 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 KMG'S AND THE STOCKHOLDERS' OBLIGATIONS. The
respective obligations of KMG and the Stockholders to effect the Closing are
subject to the satisfaction of the following additional conditions on or before
the Closing Date:
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(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 HFG 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 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 any
of the transactions contemplated hereby or cause such transactions to be
declared unlawful or rescinded;
(e) KMG and its financial and legal representatives 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 KMG in its
sole discretion;
(f) KMG and the Stockholders will have received from Looper, Reed, Mark &
McGraw Incorporated, counsel to the Company, an opinion addressed to KMG
and the Stockholders in a form acceptable to KMG and the Stockholders; and
(g) KMG shall have received the consent required under SECTION 2.5;
(h) At the Closing, the Company shall have delivered or caused to be
delivered to KMG and the Stockholders the following:
(i) a certificate executed on behalf of the Company and HFG 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 HFG's Boards of Directors authorizing and approving the Exchange
and the execution, delivery and performance of this Agreement;
(iii) certified copies of resolutions duly adopted by the Company's
shareholders approving the proposals contained in the Proxy Statement;
(iv) certificates of existence for the Company and HFG from the
Secretary of State
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of the State of Texas, 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 HFG;
(vii) resignation from Timothy P. Halter, the Company's sole officer
and director effective as of the Closing; and
(viii) such other documents as KMG may reasonably request in
connection with the transactions contemplated hereby.
7.3 ADDITIONAL CONDITIONS TO THE COMPANY'S AND HFG'S OBLIGATIONS. The
respective obligations of the Company and HFG 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 ARTICLES 2 AND 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) Each of KMG and the Stockholders shall have performed, in all material
respects, each obligation and agreement and complied with each covenant
required to be performed and complied with by them 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 Woods & Jackson, L.L.P., counsel
to KMG, an opinion addressed to the Company and HFG, dated the Closing Date
in a form acceptable to the Company; and
(e) On the Closing Date, KMG and, where applicable, the Stockholders shall
have delivered to the Company the following:
(i) a certificate executed on behalf of KMG and each Stockholder
stating that the conditions set forth in SECTIONS 7.3(a) THROUGH (c)
of this Agreement have been satisfied;
(ii) a certificate executed on behalf of each Stockholder stating that
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
16
<PAGE>
Closing Date as though then made;
(iii) certified copies of resolutions duly adopted by KMG's and the
corporate Stockholder's Boards of Directors authorizing and approving
the Exchange and the execution, delivery and performance of this
Agreement;
(iv) a good standing certificate for KMG from the Secretary of State
of the State of Delaware, dated not earlier than five days prior to
the Closing Date;
(v) a copy of KMG's Certificate of Incorporation certified by the
Secretary of State of the State of Delaware;
(vi) an incumbency certificate of the officers of KMG and the
corporate Stockholder; and
(vii) such other documents as the Company may reasonably request in
connection with the transactions contemplated hereby, including
executed blank instruments of transfer.
ARTICLE 8
REMEDIES
8.1 SURVIVAL. The respective representations and warranties of HFG and
the Company contained in this Agreement shall survive the Closing. The
obligations to indemnify pursuant to this SECTION 8 shall survive the Closing
for a period of two years from the Closing Date.
8.2 INDEMNIFICATION BY HFG. Subject to the terms and conditions of this
ARTICLE 8, HFG agrees to indemnify, defend and hold KMG 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 by reason of or resulting from a breach of any representation, warranty,
non-fulfillment of any agreement or covenant of the Company or HFG contained in
this Agreement.
8.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of HFG
to KMG under this SECTION 8 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, KMG shall give HFG written notice thereof together with a copy of
such claim, process or other legal pleading, and HFG shall have the right
to undertake the defense thereof by representatives of its own
17
<PAGE>
choosing and at its own expense; provided that KMG may participate in the
defense with counsel of its own choice, the fees and expenses of which
counsel shall be paid by KMG unless (i) HFG has agreed to pay such fees and
expenses, (ii) HFG has failed to assume the defense of such action or (iii)
the named parties to any such action (including any impleaded parties)
include both HFG and KMG and KMG 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 HFG (in which case, if KMG informs HFG in
writing that it elects to employ separate counsel at the expense of HFG,
HFG shall not have the right to assume the defense of such action on behalf
of KMG, it being understood, however, that HFG 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 KMG, which firm shall
be designated in writing by KMG).
(b) In the event that HFG, 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, KMG will (upon further notice to HFG) have the
right to undertake the defense, compromise or settlement of such claim on
behalf of and for the account and risk of HFG and at HFG's expense, subject
to the right of HFG to assume the defense of such claims at any time prior
to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, HFG shall not settle any claim without
the consent of KMG unless such settlement involves only the payment of
money and the claimant provides to KMG a release from all liability in
respect of such claim. If the settlement of the claim involves more than
the payment of money, HFG shall not settle the claim without the prior
consent of KMG.
(d) KMG and HFG will each cooperate with all reasonable requests of the
other.
8.4 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.
18
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ARTICLE 9
TERMINATION
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the mutual consent of the parties hereto.
9.2 TERMINATION BY ANY PARTY. This Agreement may be terminated by 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, however, 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 MATERIAL BREACH. This Agreement may be terminated if there has been a
material breach of this Agreement and such breach has not been cured by the
alleged breaching party within 30 days of receipt of written notice from a
non-breaching party detailing such breach.
9.4 TERMINATION BY KMG. This Agreement may be terminated by KMG in its
sole discretion at any time prior to the Closing.
9.5 EFFECT OF TERMINATION. In the event of termination of this Agreement
pursuant to this ARTICLE 9, all obligations of the parties hereto shall
terminate, except the obligations of the parties pursuant to SECTION 6.1.
ARTICLE 10
GENERAL PROVISIONS
10.1 FEES AND EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, each party shall pay their own fees, expenses
and disbursements and those of their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments to it.
10.2 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):
19
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(a) if to KMG or the Stockholders:
Mr. David Hatcher, President
KMG-Bernuth, Inc.
10611 Harwin Drive
Houston, Texas 77036
(b) if to the Company or HFG:
Timothy P. Halter, President
Halter Financial Group, Inc.
4851 LBJ Freeway, Suite 201
Dallas, Texas 75244
10.3 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.
10.4 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.
10.5 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 as may be mutually agreed upon by the
parties hereto.
10.6 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.
10.7 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.
10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
20
<PAGE>
10.9 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
KMG-BERNUTH, INC.
By: /s/ DAVID L. HATCHER
-------------------------------
David L. Hatcher, President
W.P. ACQUISITION CORP.
By: /s/ TIMOTHY P. HALTER
-------------------------------
Timothy P. Halter, President
HALTER FINANCIAL GROUP, INC.
By: /s/ TIMOTHY P. HALTER
-------------------------------
Timothy P. Halter, President
STOCKHOLDERS:
/s/ DAVID L. HATCHER
-------------------------------
David L. Hatcher
/s/ BOBBY D. GODFREY
-------------------------------
Bobby D. Godfrey
Valves Incorporated of Texas, Inc.
By: /s/ FRED C. LEONARD
-------------------------------
Fred C. Leonard, President
21
<PAGE>
SCHEDULE 2.5
The consent of Southtrust Bank of Alabama, National Association
("Southtrust"), pursuant to the terms of that certain Revolving Loan Agreement
dated August 1, 1996 between KMG and Southtrust to (i) the exchange contemplated
by this Agreement and (ii) the stock options and the stock option plan
contemplated by SECTION 6.3 of this Agreement.
<PAGE>
SCHEDULE 4.20
NAME OF EMPLOYEE: POSITIONS:
---------------- ----------
Timothy P. Halter Chairman of the Board, President,
Secretary and Treasurer
<PAGE>
EXHIBIT A
Number of Shares Owned Number of Shares of the
Stockholders of KMG-Bernuth, Inc. Company to be Issued
- ------------ ---------------------- -----------------------
David L. Hatcher 10,000 5,078,003
Bobby D. Godfrey 1,538 780,997
Valves Incorporated of Texas,
Inc. 1,282 651,000
------ ---------
TOTAL 12,820 6,510,000
<PAGE>
RESTATED AND AMENDED ARTICLES OF INCORPORATION
OF
W. P. ACQUISITION CORPORATION
ARTICLE ONE
W. P. Acquisition Corporation, 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:
(1) The amendment alters or changes Article One to change the name of the
corporation to KMG-B, INC., and the full text of Article One as altered is set
forth on EXHIBIT A, attached.
(2) The amendment alters or changes Article Three to refer to the Texas
Business Corporation Act and to delete Section 2 thereof, and the full text of
Article Three as altered is set forth on EXHIBIT A, attached.
(3) The amendment alters or changes Article Six to change the registered
office of the Corporation and the registered agent of the corporation, and the
full text of Article Ten as altered is set forth on EXHIBIT A, attached.
(4) The amendment deletes Article Eight.
(5) The amendment alters or changes Article Ten to provide that the board
of directors has the exclusive power to adopt, alter, amend or repeal the
bylaws, and the full text of Article Ten as altered is set forth on EXHIBIT A,
attached.
(6) The amendment deletes Article Eleven.
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
<PAGE>
articles of incorporation were duly adopted by the shareholders of the
corporation on October 1, 1996.
ARTICLE FOUR
The number of shares outstanding was 528,457; the number of shares entitled
to vote on the restated articles of incorporation as so amended was 528,457; the
number of shares voted for such restated articles as so amended was 441,636; the
number of shares voted against such restated articles as so amended was 14; and
the number of shares abstaining was 484.
ARTICLE FIVE
The articles of incorporation and all amendments and supplements thereto
are hereby superseded by the restated articles of incorporation, attached hereto
as EXHIBIT A and incorporated herein, which accurately copy the entire text
thereof and as amended as above set forth.
W. P. ACQUISITION CORPORATION
By: /s/ TIMOTHY P. HALTER
-----------------------------------
Timothy P. Halter
President
2
<PAGE>
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
KMG-B, INC.
ARTICLE ONE
NAME
The name of the Corporation is KMG-B, Inc. (hereinafter the "Corporation").
ARTICLE TWO
PERIOD OF DURATION
The period of the Corporation's duration is perpetual.
ARTICLE THREE
PURPOSES AND POWERS
Section 1. PURPOSES. The purpose or purposes for which the Corporation
is organized are to transact any and all lawful business for which corporations
may be incorporated under the Texas Business Corporation Act ("Act").
Section 2. POWERS. This Section is deleted.
ARTICLE FOUR
CAPITALIZATION, PREEMPTIVE RIGHTS AND VOTING
Section 1. AUTHORIZED SHARES: The total number of shares of all classes
of stock which the Corporation shall have authority to issue is 50,000,000 of
which 40,000,000 shares, $0.01 par value, shall be a class designated "Common
Stock" and 10,000,000 shares, $0.01 par value, shall be a class designated
"Preferred Stock". Each one share of the Corporation's Common Stock issued and
outstanding immediately prior to the effective date of these Articles shall be
and hereby is automatically changed without further action into two-thirds
(2/3rds) of a fully paid and
Restated Articles of Incorporation - Page 1
<PAGE>
nonassessable share of the Corporation's Common Stock, provided that no
fractional shares shall be issued pursuant to such change. The Corporation
shall issue to each shareholder who would otherwise be entitled to a
fractional share as a result of such change one full share of the
Corporation's Common Stock.
(1) Shares of Preferred Stock may be issued from time to time in one or
more series. The designations, powers, preferences and relative
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereof, of each series of the Preferred Stock
shall be such as may be fixed by the Board of Directors of the Corporation
("Board of Directors") (authority so to do being hereby expressly granted)
and stated in the resolution(s) providing for the issuance, or affecting the
terms, of the Preferred Stock of such series adopted by the Board of
Directors and filed in accordance with the provisions of the Act. Such
resolution(s), with respect to each series, shall specify the series'
designation and the number of shares issuable in such series, and each
series, as stated or specified in such resolution(s), may:
(a) have such voting powers, full or limited (which may, without
limiting the generality of the foregoing, include the right to vote as a
class on proposals for merger, consolidation or other reorganization, sale
of assets or liquidation, or under such other circumstances as the Board of
Directors may determine), or may be without voting powers;
(b) be subject to redemption at the option of the Corporation or the
respective holder thereof, or upon the occurrence of certain specified
events, for cash, property or rights, including without limitation
securities of the Corporation or another corporation, at certain specified
times and at certain specified prices or rates (which may be subject to
adjustment);
(c) be entitled to receive dividends (which may be cumulative or
noncumulative) at such rate or rates, on such conditions, from such date or
dates, and at such times, and payable in preference to, or in such relation
to, the dividends payable on any other class or classes or series of stock;
(d) have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation, including without limitation
rights in preference to, or in any other relation to, the rights
attributable to any other class or classes or series of stock;
(e) be made convertible into, or exchangeable for, at the option of
the Corporation or the holder thereof or upon the occurrence of certain
specified events, shares of any other class or classes or of any other
series of the same or any other class or classes of the stock of the
Corporation, at certain specified prices or rates of exchange (which may be
subject to adjustment);
Restated Articles of Incorporation - Page 2
<PAGE>
(f) be entitled to the benefit of a sinking fund or purchase fund
to be applied to the purchase or redemption of shares of such series in such
amount or amounts;
(g) be entitled to the benefit of conditions and restrictions upon
the creation of indebtedness of the Corporation or any subsidiary, upon the
issue of any additional stock (including additional shares of such series or
of any other series) and upon the payment of dividends or the making of
other distributions on, and the purchase, redemption or other acquisition
by the Corporation or any subsidiary of any outstanding stock of the
Corporation; and
(h) have such other relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof.
Except where otherwise set forth in the resolution(s) adopted by the Board
of Directors providing for the issuance of any series of Preferred Stock, the
number of shares compromising such series may be increased or decreased (but not
below the number of shares then outstanding) from time to time by like action of
the Board of Directors.
(2) Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased
by the Corporation, or which, if convertible or exchangeable, have been
converted into or exchanged for shares of stock of any other class or classes
shall have the status of authorized and unissued shares of Preferred Stock
and may be reissued as a part of the series of which they were originally a
part or may be reclassified and reissued as a part of a new series of
Preferred Stock to be created by resolution(s) of the Board of Directors or
as a part of any other series of Preferred Stock, all subject to the
conditions or restrictions on issuance set forth in the resolution(s) adopted
by the Board of Directors providing for the issuance of any series of
Preferred Stock and to any filing required by law.
(3) Except as otherwise provided by law or by the resolution(s) of the
Board of Directors providing for the issuance of any series of the Preferred
Stock, the Common Stock shall have the exclusive right to vote for the
election of Directors and for all other purposes.
(4) Subject to all of the rights of the Preferred Stock or any series
thereof, 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, stocks or otherwise.
Restated Articles of Incorporation - Page 3
<PAGE>
(5) Upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, and after holders of the Preferred Stock of
each series shall have been paid in full the amounts to which they respectively
shall be entitled or a sum sufficient for such payment in full shall have been
set aside, the remaining net assets of the Corporation shall be distributed
pro rata to the holders of the Common Stock in accordance with their respective
rights and interests, to the exclusion of the holders of the Preferred Stock
or any series thereof.
(6) All shares of Common Stock shall have identical rights and privileges
in every respect.
Section 2. PREEMPTIVE RIGHTS. Except as otherwise provided by the
resolution(s) of the Board of Directors providing for the issuance of any series
of the Preferred Stock, no holder of shares of capital stock of the Corporation
shall, as such holder, have the 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 these Articles of
Incorporation as originally filed or by any amendment thereof, or out of shares
of capital stock of the Corporation acquired by it after the issue thereof; nor,
except as otherwise provided by the resolution(s) of the Board of Directors
providing for the issuance of any series of the Preferred Stock, shall any
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.
Section 3. VOTING. In the exercise of voting privileges, each holder
of shares of the Common Stock of the Corporation shall be entitled to one (1)
vote for each share held in his name on the books of the Corporation, and each
holder of any series of Preferred Stock of the Corporation shall have such
voting rights, if any, as shall be specified for such series. In all elections
of Directors of the Corporation, cumulative voting is expressly prohibited. As
such, each holder of shares of capital stock of the Corporation entitled to vote
at the election of Directors shall have the right to vote, in person or by
proxy, all or any portion of such shares for or against each individual Director
to be elected and shall not be entitled to vote for or against any one Director
more than the aggregate number of shares held by such holder which are entitled
to vote on the election of Directors. With respect to any action to be taken by
the shareholders of the Corporation as to any matter, the affirmative vote of
the holders of a majority of the shares of the capital stock of the Corporation
entitled to vote thereon and represented in person or by proxy at a meeting of
the shareholders at which a quorum is present shall be sufficient to authorize,
affirm, ratify or consent to
Restated Articles of Incorporation - Page 4
<PAGE>
such action. Any action required by the Act to be taken at any annual or
special meeting of shareholders, or any action 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 a majority of the outstanding shares of the capital stock of the
Corporation entitled to vote thereon. Prompt notice of the taking of any
actions by shareholders without a meeting by less than unanimous written
consent shall be given to those shareholders who did not consent in writing
to the action.
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of at least One Thousand and
No/100 Dollars ($1,000.00), consisting of money, labor done or property actually
received; provided, however, that failure to comply with the requirements of
this Article Five shall not affect the validity of any action taken by the
Corporation.
ARTICLE SIX
REGISTERED AGENT AND OFFICE
Section 1. REGISTERED OFFICE. The address of the registered office of
the Corporation is 1212 Guadalupe, Suite 102, Austin, Texas 78701.
Section 2. REGISTERED AGENT. The name of the registered agent of the
Corporation at such address is Capitol Corporate Services, Inc.
ARTICLE SEVEN
DIRECTORS
The number of Directors of the Corporation shall be fixed from time to time
in accordance with the Bylaws of the Corporation and the Act. The initial Board
of
Restated Articles of Incorporation - Page 5
<PAGE>
Directors shall consist of one (1) member. The name and address 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, or until his
earlier death, resignation, or removal is as follows:
Timothy P. Halter
Suite 201
4851 LBJ Freeway
Dallas, Texas 75244
ARTICLE EIGHT
INDEMNIFICATION
This Article is deleted.
ARTICLE NINE
LIMITATION ON LIABILITY OF DIRECTORS
No Director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for an act or omission in
the Director's capacity as a Director; provided, however, that the foregoing
provision shall not eliminate or limit the liability of a Director to the extent
a Director is found liable for (a) a breach of the Director's duty of loyalty to
the Corporation or its shareholders; (b) an act or omission not in good faith
that constitutes a breach of duty of the Director to the Corporation or an act
or omission that involves intentional misconduct or a knowing violation of the
law, (c) a transaction from which the Director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
Director's office, or (d) an act or omission for which the liability of the
Director is expressly provided by an applicable statute. If the Texas
Miscellaneous Corporation Laws Act or other applicable provision of Texas law
hereafter is amended to authorize further elimination or limitation of the
liability of Directors, then the liability of a Director of the Corporation, in
addition to the limitation on the personal liability provided herein, shall be
limited to the fullest extent permitted by the Texas Miscellaneous Corporation
Laws Act or other applicable provision of Texas law as amended. Any repeal or
modification of this Article by the shareholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a Director of the Corporation existing at the time of such repeal
or modification.
Restated Articles of Incorporation - Page 6
<PAGE>
ARTICLE TEN
BYLAWS
The Board of Directors shall adopt the initial Bylaws of the Corporation.
The power to adopt, alter, amend or repeal the Bylaws of the Corporation shall
be vested exclusively in the Board of Directors.
ARTICLE ELEVEN
TRANSACTIONS WITH DIRECTORS AND OFFICERS
This Article is deleted.
ARTICLE TWELVE
AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE THIRTEEN
INCORPORATOR
This Article is deleted.
Restated Articles of Incorporation - Page 7
<PAGE>
KMG-B, INC.
BYLAWS
ARTICLE 1
OFFICES
1.1 The principal office of the corporation shall be located in
Houston, Texas.
1.2 The corporation may also have offices at such other places both
within and without the State of Texas as the board of directors may from time to
time determine or the business of the corporation may require.
1.3 The corporation shall maintain a registered office and a
registered agent in the State of Texas. The initial registered office of the
corporation shall be at 1212 Guadalupe Street, Austin, Texas 78701 and the
initial registered agent at that address shall be Capital Corporate Service,
Inc. The board of directors may change the registered office and the
registered agent as provided by the Texas Business Corporation Act ("Act").
ARTICLE 2
MEETINGS OF SHAREHOLDERS
2.1 Meetings of shareholders for any purpose may be held at such time
and place within or without the State of Texas as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
2.2 The annual meeting of shareholders shall be held annually at such
date and time as shall be designated from time to time by the board of directors
and stated in the notice of meeting.
2.3 Special meetings of the shareholders for any purpose or purposes
may be called by the president or chairman and 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 a majority of all the shares
entitled to vote at the meetings. A request for a special meeting shall state
the purpose or purposes of the proposed meeting, and business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice.
<PAGE>
2.4 Written notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by mail, by or at
the direction of the president, the secretary or the officer or persons calling
the meeting, to each shareholder of record entitled to vote at such meeting.
2.5 With respect to any matter, the holders of a majority of the
shares issued and outstanding and entitled to vote thereon, present in person or
represented by proxy, 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. If, however, a quorum shall not be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to 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 at that meeting,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting, provided a quorum shall be
present or represented thereat, any business may be transacted which might have
been transacted if the meeting had been held in accordance with the original
notice thereof.
2.6 If a quorum is present at any meeting, the vote of the holders of
a majority of the shares entitled to vote, present in person or represented by
proxy, shall decide any question brought before such meeting, unless the
question is one upon which a different vote is required by law or by the
articles of incorporation.
2.7 Each outstanding share having voting power shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders. A
shareholder may vote either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact.
2.8 Any action required or which may be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all or less than all, if the
articles of incorporation so provide, the shareholders entitled to vote with
respect to the subject matter thereof. Whenever action by shareholders is
proposed to be taken by consent in writing without a meeting of the
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 the Act, the record
date for determining shareholders entitled to consent to action in writing
without a meeting shall be the first
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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 the
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 the 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 the Act, 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 on which the board of directors
adopts a resolution taking the prior action.
ARTICLE 3
DIRECTORS
3.1 The number of directors which shall constitute the whole board of
directors shall be not less than five. Such number of directors shall from time
to time be fixed and determined by the director(s) and shall be set forth in the
notice of any meeting of shareholders held for the purpose of electing
directors. The director(s) shall be elected at the annual meeting of
shareholders, except as specifically provided otherwise in this Article, and
each director elected shall hold office until his successor shall be elected and
qualify. Directors need not be residents of Texas or shareholders of the
corporation.
3.2 Any vacancy occurring in the board of directors may be filled by
a majority of the remaining directors, if any, though less than a quorum of the
board of directors. If a vacancy occurs in the board of directors and no other
directors exist to elect someone to fill such vacancy, such vacancy shall be
filled by election at a special meeting of shareholders. A director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office.
3.3 The number of directors may be increased or decreased from time
to time as provided in these bylaws but no decrease shall have the effect of
shortening the term of any incumbent director. Any directorship to be filled by
reason of an increase in the number of directors may be filled 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 such directorships during the period between any two
successive annual meetings of shareholders.
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3.4 Any director may be removed either for or without cause at any
special meeting of shareholders duly called and held for such purpose.
MEETINGS OF THE BOARD OF DIRECTORS
3.5 Meetings of the board of directors, regular or special, may be
held either within or without the State of Texas.
3.6 The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the shareholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event that the shareholders fail to fix the
time and place of such first meeting, it shall be held without notice
immediately following the annual meeting of shareholders, and at the same place,
unless by the unanimous consent of the directors then elected and serving such
time or place shall be changed.
3.7 Regular meetings of the board of directors may be held upon such
notice, or without notice, and at such time and at such place as shall from time
to time be determined by the board.
3.8 Special meetings of the board of directors may be called by the
chairman of the board of directors or the president and shall be called by the
secretary on the written request of two directors. Notice of each special
meeting of the board of directors shall be given to each director at least five
(5) days before the date of the meeting.
3.9 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 on the ground that the
meeting is not lawfully called or convened. Except as may be otherwise provided
by law or by the articles of incorporation or by these bylaws, neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice of
such meeting.
3.10 At all meetings of the board of directors a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, unless otherwise specifically
provided by law, the articles of incorporation or these bylaws. If a quorum
shall not be present thereat the directors may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
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3.11 The board of directors, by resolution passed by a majority of the
full board, may from time to time designate a member or members of the board of
directors to constitute committees, including an executive committee, which
shall in each case consist of one or more directors and shall have and may
exercise such powers, as the board of directors may determine and specify in the
respective resolutions appointing them. A majority of all the members of any
such committee may determine its action and fix the time and place of its
meetings, unless the board of directors shall otherwise provide. The board of
directors shall have power at any time to change the number, subject as
aforesaid, and members of any such committee, to fill vacancies and to discharge
any such committee.
3.12 Any action required or permitted to be taken at a meeting of the
board of directors or any committee may be taken without a meeting if a consent
in writing, setting forth the action so taken, is signed by all the members of
the board of directors or committee, as the case may be.
3.13 By resolution of the board of directors, the directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and may be paid a fixed sum 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 any other capacity and
receiving compensation therefor.
ARTICLE 4
NOTICES
4.1 Any notice to directors or shareholders shall be in writing and
shall be delivered personally or mailed to the directors or shareholders at
their respective addresses appearing on the records of the corporation. Notice
by mail shall be deemed to be given at the time when the same shall be deposited
in the United States mail, postage prepaid. Notice to directors may also be
given by telegram, telecopy or fax.
4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the articles of incorporation or of 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.
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ARTICLE 5
OFFICERS
5.1 The officers of the corporation shall be elected by the board of
directors and shall consist of a president and a secretary. The board of
directors may also establish the positions of chairman of the board, treasurer,
vice president, an assistant president, assistant vice presidents, and one or
more assistant secretaries and assistant treasurers. Two or more offices may be
held by the same person.
5.2 The board of directors shall elect officers of the corporation,
none of whom need be a member of the board of directors. The board of directors
shall have the power to enter into contracts for the employment and compensation
of officers for such terms as the board of directors deems advisable.
5.3 The board of directors may appoint such other officers and
assistant officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall have such authority and exercise such powers
and perform such duties as shall be determined from time to time by the board of
directors by resolution not inconsistent with these bylaws.
5.4 The salaries of all officers and agents of the corporation shall
be fixed by the board of directors.
5.5 The officers of the corporation shall hold office until their
successors are elected or appointed and qualify, or until their death or until
their resignation or removal from office. Any officer elected or appointed by
the board of directors may be removed at any time by the board of directors, but
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. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise shall be filled by the
board of directors.
THE CHAIRMAN OF THE BOARD OF DIRECTORS
5.6 The chairman of the board of directors, if one be elected, shall
preside at all meetings of the board of directors, shall be the chief executive
officer of the corporation and shall have such other powers and duties as may
from time to time be prescribed by the board of directors, upon written
directions given to him pursuant to resolutions duly adopted by the board of
directors. He shall preside at all meetings of the shareholders.
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THE PRESIDENT
5.7 The president shall be the chief operating officer of the
corporation, 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. He shall preside at all meetings of the
shareholders in the absence of the chairman.
THE VICE PRESIDENTS
5.8 The vice presidents in the order of their seniority, unless
otherwise determined by the board of directors, shall, in the absence or
disability of the president, perform the duties and have the authority and
exercise the powers of the president. They 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 president may from time to time delegate.
THE SECRETARY AND ASSISTANT SECRETARIES
5.9 The secretary shall attend all meetings of the board of directors
and all meetings of shareholders and record all of the proceedings of the
meetings of the board of directors and of the shareholders in a minute book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He 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
or president, under whose supervision he shall act. He shall keep in safe
custody the seal of the corporation and, when authorized by the board of
directors, shall affix the seal to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of an
assistant secretary or of the treasurer.
5.10 The assistant secretaries in the order of their seniority, unless
otherwise 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. They shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe or as the president may
from time to time delegate.
THE TREASURER AND ASSISTANT TREASURERS
5.11 The treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts and records of receipts,
disbursements and other transactions 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.
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5.12 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 the president and the board of directors, at its
regular meetings, or when the president or board of directors so requires, an
account of all his transactions as treasurer and of the financial condition of
the corporation.
5.13 If required by the board of directors, the treasurer shall give
the corporation a bond of such type, character and amount as the board of
directors may require.
5.14 The assistant treasurers in the order of their seniority, unless
otherwise 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. They shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe or the president may from
time to time delegate.
ARTICLE 6
CERTIFICATES REPRESENTING SHARES
6.1 The shares of the corporation shall be represented by
certificates signed by the president and may be sealed with the seal of the
corporation or a facsimile thereof.
6.2 The signature of the president upon a certificate may be a
facsimile if the certificate is countersigned by a transfer agent, or registered
by a registrar, other than the corporation itself or an employee of the
corporation. In case the president who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be president before
such certificate is issued, it may be issued by the corporation at the date of
its issue.
LOST CERTIFICATES
6.3 The board of directors may direct a new certificate to be issued
in place of any certificate theretofore issued by the corporation alleged to
have been lost or destroyed. When authorizing such issue of a new certificate,
the board of directors, in its discretion and as a condition precedent to the
issuance thereof, may prescribe such terms and conditions as it deems expedient
and may require such indemnities as it deems adequate to protect the corporation
from any claim that may be made against it with respect to any such certificate
alleged to have been lost or destroyed.
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6.4 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto and the old
certificate cancelled and the transaction recorded upon the share transfer
records of the corporation.
CLOSING OF SHARE TRANSFER RECORDS
6.5 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 payment of any 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 under section 2.8, the board of directors may provide that the
share transfer records shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the share transfer records shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such records shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the share transfer
records, 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 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 payment of a 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 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 share
transfer records and the stated period of closing has expired.
REGISTERED SHAREHOLDERS
6.6 The corporation shall be entitled to recognize the exclusive
right of a person registered on its records as the owner of shares to receive
dividends, and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Texas.
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LIST OF SHAREHOLDERS
6.7 The officer or agent having charge of the share transfer records
shall make, 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, with the address of each and the number of shares held by
each, which list, for a period of ten (10) days prior to such meeting, shall be
kept on file at the registered office or principal place of business of the
corporation 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 whole time of the meeting. The original share ledger or
transfer record, or a duplicate thereof, shall be prima facie evidence as to who
are the shareholders entitled to examine such list or share ledger or transfer
record or to vote at any meeting of shareholders.
ARTICLE 7
GENERAL PROVISIONS
DIVIDENDS
7.1 Subject to the provisions of the articles of incorporation
relating thereto, if any, dividends may be declared by the board of directors,
in its discretion, at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in the corporation's own shares,
subject to any provisions of the articles of incorporation.
7.2 Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors, from time to time in their absolute discretion, think proper as a
reserve fund for meeting contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
7.3 All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
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FISCAL YEAR
7.4 The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
7.5 The corporate seal shall be in such form as may be prescribed 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.
BOOKS AND RECORDS
7.6 The 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, and 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 shares held by each.
ARTICLE 8
AMENDMENTS
8.1 The bylaws may be altered, amended, or repealed or new bylaws may
be adopted by a majority of the whole board of directors at any regular or
special meeting.
ARTICLE 9
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
INDEMNIFICATION
9.1 Subject to the limitations and conditions as provided in this
Article, each person who was or is made a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative (hereinafter a "proceeding"), or any appeal in such a proceeding
or any inquiry or investigation that could lead to such a proceeding, by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or while a
director or officer of the corporation is or was serving at the request of the
corporation
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as a director, officer, partner, venturer, proprietor, trustee, employee,
agent, or similar functionary of another foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan
or other enterprise shall be indemnified by the corporation to the fullest
extent permitted by the Act, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights
than said law permitted the corporation to provide prior to such amendment)
against judgments, penalties (including excise and similar taxes and punitive
damages), fines, settlements and reasonable expenses (including, without
limitation, attorneys' fees) actually incurred by such person in connection
with such proceeding, and indemnification under this Article shall continue
as to a person who has ceased to serve in the capacity which initially
entitled such person to be indemnified hereunder. The rights granted
pursuant to this Article shall be deemed contract rights, and no amendment,
modification or repeal of this Article shall have the effect of limiting or
denying any such rights with respect to actions taken or proceedings arising
prior to any such amendment, modification or repeal. It is expressly
acknowledged that the indemnification provided in this Article could involve
indemnification for negligence or under theories of strict liability.
ADVANCE PAYMENT
9.2 The right to indemnification conferred in this Article shall
include the right to be paid or reimbursed by the corporation for the reasonable
expenses incurred by a person of the type entitled to be indemnified who was, is
or is threatened to be made a named defendant or respondent in a proceeding in
advance of the final disposition of the proceeding and without any determination
as to the person's ultimate entitlement to indemnification; PROVIDED, HOWEVER,
that the payment of such expenses incurred by any such person in advance of the
final disposition of a proceeding, shall be made only upon delivery to the
corporation of a written affirmation by such director or officer of his or her
good faith belief that he or she has met the standard of conduct necessary for
indemnification under this Article and a written undertaking, by or on behalf of
such person, to repay all amounts so advanced if it shall ultimately be
determined that such indemnified person is not entitled to be indemnified under
this Article or otherwise.
EMPLOYEES AND AGENTS
9.3 The corporation, by adoption of a resolution of the board of
directors, may indemnify and advance expenses to an employee or agent of the
corporation to the same extent and subject to the same conditions under which it
may indemnify and advance expenses to directors and officers under this Article;
and, the corporation may indemnify and advance expenses to persons who are not
or were not directors, officers, employees or agents of the corporation while
serving at the request
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of the corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or
domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in such a capacity or arising out of his
status as such a person to the same extent that it may indemnify and advance
expenses to directors under this Article.
WITNESS EXPENSES
9.4 Notwithstanding any other provision of this Article, the
corporation may pay or reimburse expenses incurred by a director or officer in
connection with his or her appearance as a witness or other participation in a
proceeding at a time when he or she is not a named defendant or respondent in
the proceeding.
9.5 The right to indemnification and the advancement and payment of
expenses conferred in this Article shall not be exclusive of any other right
which a director or officer or other person indemnified pursuant this Article
may have or hereafter acquire under any law (common or statutory), provision of
the certificate of incorporation of the corporation or these bylaws, agreement,
vote of shareholders or disinterested directors or otherwise.
INSURANCE
9.6 The corporation may purchase and maintain insurance, at its
expense, to protect itself and any person who is or was serving as 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 foreign
or domestic corporation, partnership, joint venture, proprietorship, employee
benefit plan, trust or other enterprise against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under this Article.
SHAREHOLDER NOTICE
9.7 To the extent required by law, any indemnification of or advance
of expenses to a director or officer in accordance with this Article shall be
reported in writing to the shareholders with or before the notice or waiver of
notice of the next shareholders' meeting or with or before the next submission
to shareholders of a consent to action without a meeting and, in any case,
within the 12-month period immediately following the date of the indemnification
or advance.
9.8 If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless
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indemnify and hold harmless each director, officer or any other person
indemnified pursuant to this Article as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and
to the fullest extent permitted by applicable law.
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EXHIBIT 4.1
See "Item 11. Description of Securities--Common Stock."
<PAGE>
AGENCY AGREEMENT
This Agreement shall be deemed to have been made the First day of January,
1987 by and between BERNUTH, LEMBCKE CO INC., a Delaware corporation (the
"Agent") and VERKAUFSGESELLSCHAFT FUER TEERERZEUGNISSE MBH, a German Company
("VfT").
W I T N E S S E T H
WHEREAS, for a number of years the Agent has been purchasing creosote oil such
as is commonly used for timber preservation from VfT for sale to customers in
its own name, but for the account of VfT in North and Central America; and
WHEREAS, the Agent wishes to sell creosote oil as VfT's Agent in certain
localities of the United States of America, but under different terms and
conditions from those that existed in the past; and
WHEREAS, VfT wishes to continue selling its creosote oil in the Territory, using
the Agent's services in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
assigned to them herein:
1.01 "In writing" shall include cablegrams, telegrams or telex.
1.02 "Oil" shall mean Creosote Oil such as is commonly
used for timber preservation.
1.03 "Gallon" shall mean U.S. gallon at 100Deg. Fahrenheit.
1.04 "Tonne" shall mean a metric tonne of 1,000 kg.
1.05 "Europe" shall mean countries supplying oil for
shipment from installations situated at ports
in Great Britain (including Eire) or on the
continent of Europe and "European" shall have
the corresponding meaning.
<PAGE>
1.06 "Tank Vessel" shall include any parcel tank or motor or
other mechanically propelled tank vessel or
cargo vessel capable of carrying oil in bulk.
1.07 "Shipment in Bulk" shall mean any delivery into a tank vessel.
1.08 "Handling Charges" shall mean all charges whatsoever incidental
to handling of oil after its arrival at
American port or ports of discharge and
including all insurance from FOB European
port but excepting charges for barging.
1.09 "Tariff(s)" shall mean any import duty or tax of any kind
levied by any government in the Territory for
any reason whatsoever.
1.10 "Year" shall mean a period from 1st January to
31st December.
1.11 "Territory" shall mean the states of Maine, Vermont, New
Hampshire, Massachusetts, Rhode Island,
Connecticut, New York, New Jersey, Delaware,
Maryland, Pennsylvania, West Virginia,
Virginia, North Carolina, South Carolina,
Georgia, Alabama, Kentucky, Mississippi,
Tennessee, Louisiana, Oklahoma, Arkansas,
Texas and Florida.
1.12 "Selling Price" this is the actual monthly average selling
price in U.S. dollars per U.S. gallon,
calculated by dividing the total monthly
sales revenues by the quantity sold.
1.13 "Minimum Selling Price" this is the minimum price as advised from
time to time by VfT to the Agent at which
sales are made ex agreed storage terminal in
the Territory.
1.14 "Sales Price" this is the actual price of sale to any
customer ex terminal which is to be
indicated in the Agent's monthly sales
report to VfT.
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1.15 "List Price" this is the publicly declared selling price
announced by the Agent from time to time as
agreed with VfT.
1.16 "FOB" this is Incoterms - International Chamber of
Commerce in Paris 1980.
1.17 "CIF" this is Incoterms - International Chamber of
Commerce in Paris 1980.
2. APPOINTMENT
Subject to the terms and conditions thereof, VfT hereby appoints the Agent
as its exclusive agent for the sale of Oil to customers in the Territory in
its own name, but for the account of VfT.
3. TERM
This Agreement shall be deemed to have come into force as from the First
day of January, 1987, and shall continue in force through 31st December
1989. Thereafter, subject to mutual agreement, this agreement shall
continue on an annual basis with one calendar year's advance notice of
termination to be given by either party.
In the event of any termination and/or expiration of this agreement, on
whatever grounds, the parties hereby expressly agree that the Agent shall
have no additional compensation besides that of his regular commissions
(clause 4) and/or other payments (clause 10) accrued until termination or
expiration hereof.
4. COMMISSIONS
As full compensation for the Agent's services hereunder (but without
prejudice to the Agent's right to be reimbursed for expenses incurred by it
on VfT's behalf, as provided in Section 10 hereof), VfT shall pay the Agent
a commission equal to seven and one half percent (7.5%) of the FOB port of
export return, on all sales of Oil hereunder to the Agent's customer.
5. QUANTITIES AND DELIVERIES
5.01 Three months prior to the end of each full year the Agent shall advise
VfT in writing of the quantity of Oil which the Agent expects to sell
to its customers during the next following full year. Within
fifteen (15)
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business days from the receipt of such advice VfT shall advise the
Agent the quantity which they are willing to deliver and will have
available for shipment in bulk to the Territory during the ensuing
full year which quantity is estimated to be about 17050 tonnes in any
one year subject to Section 12 of this Agreement.
Both the Agent and VfT at any time on mutual agreement may adjust such
quantities, and no change shall be made unless both parties agree.
5.02 The quantities of Oil shipped under this Agreement shall be
ascertained by a competent qualified inspector to be appointed by the
Agent and approved by VfT at the Agent's shore tank installation at a
temperature of 100Deg. Fahrenheit unless otherwise agreed upon in
writing by the parties. The determination of quantity under this
Article shall be binding upon the parties hereto.
The fees incurred for such ascertainment of quantities to be borne by
VfT.
6. QUALITY AND QUALITY CONTROL
6.01 VfT represents and warrants that all Oil delivered hereunder shall
conform to the A.W.P.A. Specification Standard P1 or P13 current at
the time of shipment. The Oil shall conform if required to any new
specification which may be mutually agreed from time to time. Subject
to Section 6.2 hereof, the Oil loaded into any one vessel shall not
contain more than the maximum one percent of water from any one
loading port and shall not have a residue of more than 22 percent
distilling at 355Deg. Celsius for P1 (Class I) Oil or 32 percent for
P13 (Class III) Oil when tested by the Standard A.W.P.A. method A1.
The Oil loaded into vessels shall not be at a temperature in excess of
105Deg. Fahrenheit at the time of loading.
6.02 Should VfT at any time be unable to deliver oil in conformity with
Section 6.1 hereof, VfT shall so inform the Agent as soon as possible.
6.03 The quality of the Oil delivered into each storage in the Territory
shall be determined by means of two representative samples drawn from
the vessel's tanks before discharge by a competent qualified person to
be appointed by the Agent with the approval of VfT. In the event of
more than one port of discharge, two samples shall be taken at each
port. One of the samples from each port shall then be aggregated and
analyzed by a qualified competent chemist. The second representative
sample(s) shall be retained, separately in the case of more than one
port of discharge, by
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the Agent for a period of six months and made available in the event
of any dispute in quality. The fees for the taking and testing of
samples to be borne by VfT.
7. PROCEDURES GOVERNING SALES AND DELIVERY OF OIL
7.01 The Agent shall notify VfT in writing of its list of customers and
potential customers in the Territory, specifying place of delivery,
proposed sales price, and quantity. VfT shall give the Agent
reasonable flexibility to conduct commercial transactions within the
quantity and price guidelines as shall be established by VfT.
7.02 The Agent shall have the authority to sell Oil to customers pursuant
to the price guidelines and shall make its own arrangements with the
customer for the delivery of the Oil. Upon reaching the intake
manifold of the customer's vehicle or vessel, as the case may be,
title to the Oil so delivered shall pass from VfT to the customer.
Risk of loss, destruction, or deterioration shall pass from VfT to the
Agent CIF U.S. port.
7.03 The Agent shall from time to time advise VfT on the levels of price
attainable for sales in the Territory. VfT will then instruct the
Agent of the minimum selling price to be applied to sales and the
Agent shall not make any sales in the Territory below this price
without specific approval of VfT. No sales shall be made for more
than a three-month period ahead at a fixed price without the specific
approval of VfT.
8. DUTIES OF THE AGENT
In consideration of the commission to be paid to it pursuant to Section 4
hereof, the Agent shall perform the following duties:
8.01 The Agent shall diligently promote the sale of VfT's Oil in the
Territory.
8.02 The Agent shall, unless otherwise requested by VfT obtain and
supervise the storage of Oil in storage tanks, at the points of
delivery in such a manner as shall from time to time be mutually
agreed upon.
8.03 The Agent shall obtain, unless otherwise requested, appropriate
insurance on the stocks of Oil in the Territory. Any settlement of
claims received shall be to the benefit of the Agent. The Agent shall
also obtain, unless otherwise requested, appropriate third party
liability insurance with VfT
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named as an additional insured. The cost of such insurance policies
shall be borne entirely by VfT.
8.04 The Agent shall retain on VfT's behalf the services of the independent
experts set forth in Sections 5.02 and 6.03 hereof.
8.05 (Illegible text) the charter parties under which such Oil is
delivered.
8.06 The Agent shall arrange for barging if it is mutually agreed such
services are necessary to the trade. Any costs for barging will be
for VfT's account.
8.07 The Agent shall pay all storage fees, handling and weighing charges on
behalf of VfT. The Agent shall be responsible for the loss of product
between CIF U.S. port and deliveries to customers. The Agent shall be
responsible for quality maintenance in storage tanks and for quality
of supplies to customers.
8.08 If reasonably requested by VfT the Agent shall on VfT's behalf arrange
for freight and freight insurance from European port to port of
discharge in the Territory.
8.09 Accompanying the remittance of funds to VfT each month, the Agent
shall provide VfT with a report on sales during the previous calendar
month, broken down by customer, quantity, sales in solution, point of
delivery and sales price.
8.10 If reasonably requested by VfT, and subject to the Agent's right to
reimbursement therefor, the Agent shall on VfT's behalf pay the
expenses of the insurance policies obtained pursuant to Section 8.03
hereof, the fees of the independent experts retained as per
Section 8.04 hereof, the costs of barging as per Section 8.06 hereof,
and the expenses for freight and freight insurance as per Section 8.08
hereof. VfT shall reimburse the Agent such expenses on presentation
of invoice.
8.11 The Agent shall represent VfT in its day-to-day relations with
Environmental Protection Administration, the A.W.P.I. and other United
States governmental and administrative bodies provided, however, that
the Agent shall not be responsible for such representation in any
administrative proceeding or lawsuit brought by any of the foregoing
against VfT.
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8.12 The Agent shall make the payments to VfT as set forth in Section 10
hereof and in the manner specified therein.
8.13 The Agent shall not without the prior approval of VfT arrange on
behalf of VfT any swaps, purchases or other Agency Contracts for the
sale of Oil within the Territory.
9. RESPONSIBILITY OF AGENT
9.01 No diminution on the payments to be made pursuant to Section 10 hereof
shall be made by reason of the failure of the Agent's customer to make
full payment for the Oil delivered to such a customer. Any del
credere-commission insofar as included in the fee according to
Section 10.
9.02 The Agent shall be responsible for any deterioration in the quality of
Oil after delivery thereof into the shore tank installation at the
point of discharge.
10. PAYMENTS AND COMMISSIONS
No later than forty-five (45) days following the end of the month in which
the customer shall have taken title to a quantity of Oil pursuant to
Section 7.02 hereof, the Agent shall make payment, therefor, to VfT. The
amount of payment shall be the total invoice value for all such Oil, as is
sold in that month, reduced by the following amounts:
(i) The Agent's commission as specified in Section 4 hereof;
(ii) Monthly storage costs, handling costs, tariffs, and barging costs
as agreed between VfT and the Agent;
(iii) All other costs invoiced to the Agent and to be paid by the Agent
on VfT's behalf pursuant to Section 8.10 hereof.
11. COVENANTS OF VFT
11.01 VfT shall deliver Oil in the quantity and quality and in the manner
specified in Sections 5 and 6 hereof.
11.02 VfT shall not either as principal or agents, directly or indirectly,
and either alone or jointly with any other person, firm or
corporation, handle, sell or deal in or be interested in the handling,
selling or dealing in or Oil for importation or shipment in bulk into
or to the Territory or knowingly sell to any person, firm or
corporation any oil for shipment in bulk to the
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Territory, other than pursuant to this Agreement or with the
Agent's consent.
12. HARDSHIP
If during the period for which this Agreement is in force, the application
of the Agreement would seriously and permanently prejudice one of the
parties, the parties shall meet and make every effort to come to an
amicable agreement so as to lessen or remove such prejudice.
13. FORCE MAJEURE
In the event the performance of this Agreement by either party is affected
by strike, fire, riot, war (declared or undeclared), Act of God, Government
regulations, or Government request or requisitions for national defense or
other purpose, or failure or shortage of railway, or vessel service
normally available to either party hereto, or breakdown of, or injury to
facilities used for production, manufacture, or transportation, or storage
of Oil, or any other cause beyond the reasonable control of the parties
hereto, the suffering party may, at its option, suspend the performance of
this Agreement in whole or in part during the period of such event to the
extent reasonably required by such event, and no liability for damages
shall attach against either party on account thereof. In the event that
the performance of VfT is completely suspended, the Agent shall have the
right to liquidate the Oil owned by VfT that is in storage in the United
States in a commercially reasonable manner for the account of VfT.
14. ENTIRETY OF AGREEMENT
This agreement constitutes the entire agreement between the parties hereto,
and there are no understandings, representations, or warranties of any kind
except those expressly set forth herein. Neither this Agreement nor any of
the rights, obligations, or liabilities of either of the parties hereunder
may be amended, changed or added to in any respect except by written
instrument executed by a duly authorized representative of each of the
parties.
15. TRANSFERS
Neither party shall without the previous consent in writing of the other
assign or dispose of the benefits of this agreement or any part thereof,
but without committing a breach of this clause, the sellers may transfer
the benefits and burdens of this agreement to any other association or
company to which they may transfer their business or that part of it that
relates to the shipment of Oil in bulk.
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The present agreement may be transferred to any associate company in which
the transferring party or its parent company directly or indirectly holds
at least 50% of the capital.
16. GOVERNING LAWS
This Agreement shall be deemed a German Agreement and shall be construed
and operate and have effect in all respects according to the Laws of the
Federal Republic of Germany.
17. ARBITRATION
All disputes arising in connection with this Agreement shall be settled by
a single Arbitrator acceptable to both parties. Should the parties fail to
agree the dispute shall be finally settled under the Laws of the Federal
Republic of Germany.
VERKAUFSGESELLSCHAFT FUER BERNUTH LEMBCKE CO INC.
TEERERZEUGNISSE MBH
By: /s/ ALFRED SOENTGEN By: /s/ PETER BERNUTH
-------------------------- --------------------------
Title: Title: PRESIDENT
----------------------- -----------------------
Date: DUISBURG, 25TH MAY 1987 Date: JULY 2, 1987
------------------------ -----------------------
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REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT (this "Agreement"), dated as of August 1,
1996, is made by and between KMG-BERNUTH, INC., a Delaware corporation
(hereinafter referred to as the "Borrower") and SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to lend it up to the sum of
Two Million Five Hundred Thousand and no/100 Dollars ($2,500,000.00) on a
revolving loan basis, and the Bank is willing to do so upon the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises herein contained, and each
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
1. DEFINITIONS.
1.1 DEFINED TERMS. As used herein:
"ACCOUNTS, "CHATTEL PAPER", "CONTRACTS", "DOCUMENTS", "EQUIPMENT",
"FIXTURES", "GENERAL INTANGIBLES", "GOODS", "INSTRUMENTS" and other terms not
specifically defined herein shall have the same respective meanings as are given
to those terms in the Uniform Commercial Code as presently adopted and in effect
in the State of Alabama.
"ADVANCE" means each loan of money or credit made to the Borrower by
the Bank pursuant to Section 2.1 of this Agreement.
"AFFILIATE" means, as to any Person, each other Person that directly
or indirectly through one or more intermediaries, controls, or is controlled by,
or under common control with, such Person.
"AGREEMENT" means this Revolving Loan Agreement, as amended or
modified from time to time.
"BANK" means SouthTrust Bank of Alabama, National Association.
"BASE RATE" means the rate of interest periodically designated by the
Bank as its Base Rate. THE BASE RATE IS NOT NECESSARILY THE LOWEST INTEREST
RATE CHARGED BY THE BANK. The Base Rate on the date of this Agreement is 8.25%.
"BORROWER" means KMG-Bernuth, Inc., a Delaware corporation.
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"BORROWING BASE" means, at any time, the amount computed on the
Collateral Report most recently delivered to, and accepted by, the Bank in
accordance with this Agreement and equal to the aggregate of:
(A) Eighty percent (80.0%) of Eligible Accounts of the Borrower; plus
(B) Fifty percent (50.0%) of the Eligible Inventory of Borrower (up
to a maximum of $1,250,000.00).
"BORROWER'S CLOSING AFFIDAVIT" means an affidavit in the form of
Exhibit "A" to this Agreement, dated the date of Closing, and signed by the duly
authorized officer of Borrower.
"CASH MANAGEMENT AGREEMENT" means that certain Cash Management
Agreement, in substantially the form of Exhibit "B" hereto, to be entered into
between the Borrower and the Bank, and includes any and all modifications or
amendments to said Cash Management Agreement hereafter made.
"CLOSING" means the time and place of actual execution and delivery of
this Agreement, the Revolving Note, the Security Agreement, the Guaranty, and
any other Loan Documents due to be executed and delivered therewith.
"COLLATERAL" means the property and rights described in Sections 4.1,
4.2 and 4.3 hereof or in the Security Agreement or any of the other Loan
Documents.
"COLLATERAL REPORT" means the Collateral Report and Borrowing Base
Certificate in the form of Exhibit "C" hereto, to be furnished by the Borrower
to the Bank pursuant to Section 6.1(B)(5) hereof.
"CURRENT ASSETS" and "CURRENT LIABILITIES" mean, at any time, all
assets or liabilities, respectively, that, in accordance with Generally Accepted
Accounting Principles consistently applied, should be classified as current
assets or current liabilities, respectively, on a balance sheet of a Person.
"DEFAULT" and "EVENT OF DEFAULT" each mean the occurrence of an event
described in Section 7.1.
"DOLLARS" and "$" each mean U.S. Dollars.
"DOMESTIC ACCOUNTS" means any Account which represents a sale of Goods
for shipment to a location within the United States.
"ELIGIBLE ACCOUNT" means, at any time, an Account that conforms and
continues to conform to the following conditions:
(A) The Account arose from a bona fide outright sale of Goods by the
Borrower or from services performed by the Borrower, and such Goods have been
shipped to the appropriate debtors or their designees (or the sale has otherwise
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been consummated), or the services have been performed for the appropriate
debtor;
(B) The Account is based upon an enforceable order or contract,
written or oral, for Goods shipped or held for services performed and the same
were shipped, held, or performed in accordance with such order or contract;
(C) The title of the Borrower to the Account and, except as to the
debtor, to any Goods is absolute and is not subject to any prior assignment,
claim, lien, or security interest, except Permitted Liens;
(D) The amount shown on the books of the Borrower and on any invoice
or statement delivered to the Bank is owing to the Borrower, less any partial
payment that has been made thereon by any Person;
(E) The Account shall be eligible only to the extent that it is not
subject to any claim of reduction, counterclaim, set off, recoupment, or any
claim for credits, allowances, or adjustments by the debtor because of return,
inferior, or damaged Goods or unsatisfactory services, or for any other reason;
(F) The debtor has not returned or refused to retain, or otherwise
notified the Borrower of any dispute concerning, or claimed nonconformity of,
any of the Goods or services from the sale of which the Account arose;
(G) The Account is due and payable not more than ninety (90) days
from the date of the invoice therefor for Domestic Accounts and one hundred
twenty (120) days for International Accounts;
(H) The Account is not more than sixty (60) days past due;
(I) The Account does not arise out of a contract with, or order from,
a debtor that, by its terms, forbids or makes void or unenforceable the
assignment by the Borrower to the Bank of the Account arising with respect
thereto;
(J) The Borrower has not received any note, trade acceptance, draft
or other Instrument with respect to, or in payment of, the Account nor any
Chattel Paper with respect to the Goods giving rise to the Account, unless, if
any such Instrument or Chattel Paper has been received, the Borrower immediately
notifies the Bank and endorses or assigns and delivers the same to the Bank;
(K) The Borrower has not received any notice of the death of the
debtor or a partner thereof; nor of the dissolution, termination of existence,
insolvency, business failure, appointment of a receiver for any part of the
property of, assignment for the benefit of creditors by, or the filing of a
petition in bankruptcy, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against, the debtor;
(L) The debtor is not an Affiliate of Borrower; and
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(M) The Bank has not deemed such Account ineligible because of
uncertainty about the creditworthiness of the debtor.
In the event of any dispute under the foregoing criteria about whether
an Account is or has ceased to be an Eligible Account, the decision of the Bank,
to be made in the Bank's sole and absolute discretion, shall control.
"ELIGIBLE INVENTORY" means all Inventory of the Borrower physically
located within the United States, valued at the lesser of cost (as established
on the FIFO method of accounting) or fair market value, provided, however, that
the Bank may exclude from the Borrowing Base all or a proportionate part of any
particular portion of the Borrower's Inventory which the Bank reasonably deems
ineligible because its market value has declined or because the Bank otherwise
reasonably considers the collateral value thereof to the Bank to be impaired or
its ability to realize such value to be insecure.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (CERCLA), as amended (42 U.S.C. Sections
9601, ET SEQ.), the Hazardous Materials Transportation Act, as amended (49
U.S.C. Sections 1801, ET SEQ.), the Resource Conservation and Recovery Act
(RCRA), as amended (42 U.S.C. Sections 6901, ET SEQ.), the Clean Water Act, as
amended (42 U.S.C. Sections 7401, ET SEQ.), the Toxic Substances Control Act, as
amended (15 U.S.C. Sections 2601, ET SEQ.), and the rules and regulations
adopted and publications promulgated pursuant thereto, and the rules and
regulations of the Occupational Safety and Health Administration (OSHA)
pertaining to occupational law, ordinance, rule, or regulation now or hereafter
in effect.
"ERISA" means the Federal Employee Retirement Income Security Act of
1974, as amended and in effect from time to time, and the regulations and
published interpretations thereof.
"FINANCIAL STATEMENTS" means the interim balance sheets of the
Borrower as of February 29, 1996, and interim statements of income and retained
earnings of the Borrower for the period ended on such date plus the audited
balance sheets of the Borrower as of July 31, 1995, and the audited statement of
income and retained earnings for the year then-ended.
"FIXED ASSETS" means, at any time, all assets (other than Current
Assets) that should, in accordance with Generally Accepted Accounting Principles
consistently applied, be classified as assets on a balance sheet of the
Borrower.
"FIXED CHARGE COVERAGE" means the quotient which is obtained by
dividing (i) the sum of the net income of the Borrower (after provision for
federal and state taxes) for the 12-month period preceding the applicable date
plus the interest, lease and rental expenses of the Borrower for the same period
plus the sum of non-cash expenses or allowances for such period (including,
without limitation, amortization or write-down of intangible assets,
depreciation, depletion and deferred taxes and expenses) by (ii) the sum of the
current portion of the long-term debt of the Borrower as of the applicable date
plus the interest, lease and rental expenses for the 12-month period preceding
the applicable date.
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"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted
principles of accounting in effect from time to time in the United States
applied in a manner consistent with those used in preparing such financial
statements as have theretofore been furnished to the Bank by the applicable
Person.
"GUARANTOR" means David L. Hatcher.
"GUARANTY" means the Guaranty of Payment and Performance executed by
the Guarantor in favor of the Bank, guaranteeing the payment and performance to
the Bank of the Borrower's obligations hereunder.
"HAZARDOUS MATERIALS" means any asbestos, urea formaldehyde foam
insulation, flammable explosives, radioactive materials, hazardous materials,
hazardous wastes, hazardous or toxic substances, or related or unrelated
substances or materials defined, regulated, controlled, limited or prohibited in
any Environmental Laws.
"INDEBTEDNESS" means, as to any Person, all items of indebtedness,
obligation or liability, whether matured or unmatured, liquidated or
unliquidated, direct or contingent, joint or several, including, but without
limitation:
(A) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or indirectly,
through agreements, contingent or otherwise:
(1) to purchase such indebtedness; or
(2) to purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such indebtedness or to
assure the owner of the indebtedness against loss; or
(3) to supply funds to or in any other manner invest in the
debtor;
(C) All indebtedness secured by (or which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or services
under leases that, in accordance with Generally Accepted Accounting Principles,
should not be reflected on the lessee's balance sheet.
"INTERNATIONAL ACCOUNTS" means any Account which represents a sale of
Goods for shipment outside the United States.
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<PAGE>
"INVENTORY" means all inventory of the Borrower, whether now owned or
hereafter acquired by the Borrower, and wherever located, including, without
limitation, all goods, merchandise, raw materials, work in process, finished
goods, and other tangible personal property held for sale or lease or furnished
or to be furnished under contracts of service or used or consumed in the
Borrower's business; all Documents now or hereafter evidencing any such
Inventory; all returned and repossessed Goods; and all proceeds and products of
the foregoing.
"LAWS" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"LIABILITIES" means all Indebtedness that, in accordance with
Generally Accepted Accounting Principles, should be classified as liabilities on
a balance sheet of a Person.
"LOAN DOCUMENTS" means this Agreement, the Note, the Security
Agreement, the Guaranty, and any and all other agreements, documents and
instruments of any kind executed or delivered in connection with, or evidencing,
securing, guaranteeing or relating to, the Revolving Loan, whether heretofore,
simultaneously herewith or hereafter delivered, together with all modifications
and amendments heretofore or hereafter made to any of the foregoing.
"LOANS" means the aggregate unpaid balance from time to time of the
Revolving Loan.
"LOAN FEE" means the fee of one-quarter of one percent (l/4 of l%),
payable quarterly in arrears, calculated based upon the daily average of the
Revolving Loan Commitment which is not funded and outstanding, payable to the
Bank by the Borrower.
"LONG-TERM LIABILITIES" means Liabilities less the portion thereof
that constitutes Current Liabilities.
"NOTE" means the Revolving Note.
"OBLIGATIONS" means the obligations of Borrower:
(A) To pay the principal of and interest on the Revolving Note in
accordance with the terms thereof and to satisfy all of its other liabilities to
the Bank, whether hereunder or otherwise, whether now existing or hereafter
incurred, matured or unmatured, direct or contingent, joint or several,
including any extensions, modifications, and renewals thereof and substitutions
therefor;
(B) To repay to the Bank all amounts advanced by the Bank hereunder,
under any of the other Loan Documents or otherwise on behalf of the Borrower,
including, but without limitation, advances for principal or interest payments
to prior secured parties, mortgagees, or lienors, or for taxes, levies,
insurance, rent, or repairs to or maintenance or storage of, any of the
Collateral; and
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<PAGE>
(C) To reimburse the Bank, on demand, for all of the Bank's expenses
and costs, including the reasonable fees and expenses of its counsel, in
connection with the preparation, administration, amendment, modification, or
enforcement of this Agreement and the documents required hereunder, including,
without limitation, any proceeding brought or threatened to enforce payment of
any of the obligations referred to in the foregoing paragraphs (A) and (B).
"PARTICIPANT" means any bank, financial institution, Affiliate of the
Bank, or other entity which purchases an interest in the Revolving Note from the
Bank at any time.
"PERMITTED LIENS" means:
(A) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business that are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of business to
secure payment of workmen's compensation, or to participate in any fund in
connection with workmen's compensation, unemployment insurance, old-age pensions
or other social security programs;
(C) Liens of mechanics, materialmen, warehousemen, carriers, or other
like liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, Contracts (other than for the
repayment of borrowed money) or leases, not in excess of ten percent (10%) of
the aggregate amount due thereunder, or to secure statutory obligations, or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business;
(E) Liens in favor of the Bank;
(F) Purchase money security interests granted to secure not more than
one hundred percent (100%) of the purchase price of assets, the purchase of
which does not constitute a breach of this Agreement or any instrument required
hereunder; and
(G) The following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so long as levy
and execution thereon have been stayed and continue to be stayed and they do
not, in the aggregate, materially detract from the value of the property of the
Borrower, or materially impair the use thereof in the operation of its business:
(1) Claims or liens for taxes, assessments or charges due and
payable and subject to interest or penalty;
(2) Claims, liens and encumbrances upon, and defects of title
to, real or personal property, including any attachment of
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personal or real property or other legal process prior to adjudication
of a dispute on the merits;
(3) Claims or liens of mechanics, materialmen, warehousemen,
carriers, or other like liens; and
(4) Adverse judgments on appeal.
"PERSON" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof, and any other legal
entity.
"REVOLVING RATE" is defined in Section 2.4(A) of this Agreement.
"RECORDS" means correspondence, memoranda, tapes, discs, microfilm,
microfiche, papers, books and other documents, or transcribed information of any
type, whether expressed in ordinary or machine language, and all filing cabinets
and other containers in which any of the foregoing is stored or maintained.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as now or from time to time hereafter in effect and shall
include any successor or other regulation or official interpretation of said
Board of Governors relating to the extension of credit by banks for the purpose
of purchasing or carrying margin stocks applicable to member banks of the
Federal Reserve System.
"REVOLVING LOAN" means the aggregate unpaid balance from time to time
of all Advances made under Section 2.1 of this Agreement.
"REVOLVING LOAN COMMITMENT" means the commitment of the Bank to lend
the Borrower up to the sum of Two Million Five Hundred Thousand and no/100
Dollars ($2,500,000.00) in principal amount outstanding from time to time until
the Revolving Loan Termination Date.
"REVOLVING LOAN TERMINATION DATE" means the earlier of November 30,
1997, or the date the maturity of the Revolving Note is accelerated pursuant to
Section 7.2 of this Agreement.
"REVOLVING NOTE" means the promissory note, in substantially the form
of Exhibit "F" to this Agreement, dated of even date herewith and having a
stated maturity on the Revolving Loan Termination Date, made by the Borrower to
evidence the Borrower's obligation to repay the Revolving Loan and the interest
thereon, and includes any amendment to such note and any promissory note given
in extension or renewal of, or in substitution for, such note.
"SECURITY AGREEMENT" means the separate Security Agreement, of even
date herewith, executed by Borrower and granting the Bank a security interest in
any Collateral (as defined in Article IV herein) owned by, or in the possession
of, these entities, and includes any and all modifications or amendments to said
Security Agreement hereafter made.
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"STOCKHOLDERS' EQUITY" means, at any time, the sum of the following
accounts set forth in a balance sheet of the Borrower, adjusted to U.S. Dollars
by means of applicable foreign currency exchange rates and prepared in
accordance with Generally Accepted Accounting Principles consistently applied:
(A) The par or stated value of all outstanding capital stock;
(B) Capital surplus; and
(C) Retained earnings.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly, or indirectly through one or more intermediaries, by the
Borrower.
"TANGIBLE NET WORTH" means, at any time, Stockholders' Equity less the
sum of :
(A) Any surplus resulting from any write-up of assets subsequent to
the date of Closing;
(B) Goodwill, including any amounts, however designated on a balance
sheet of the Borrower, representing the excess of the purchase price paid for
assets or stock acquired over the value assigned thereto on the books of the
Borrower;
(C) Patents, trademarks, trade names and copyrights;
(D) Any amount at which shares of capital stock of the Borrower
appear as an asset on the Borrower's balance sheet;
(E) Loans and advances to stockholders, directors, officers or
employees;
(F) Deferred expenses; and
(G) Any other amount in respect of an intangible that, in accordance
with Generally Accepted Accounting Principles, should be classified as an asset
on a balance sheet of the Borrower, including, without limitation, the
following:
(i) Advances for premiums on employee owned life insurance
policies; secured by the cash surrender value of the
policies;
(ii) EPA testing costs, net of accumulated amortization;
(iii) Licensing agreement;
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and (iv) Loan costs, net of accumulated amortization, amortized on a
straight-line basis over the term of the line of credit.
1.2 ACCOUNTING TERMS. Accounting terms used and not otherwise defined in
this Agreement have the meanings determined by, and all calculations with
respect to accounting or financial matters unless otherwise provided herein
shall be computed in accordance with, Generally Accepted Accounting Principles.
1.3 CONSTRUCTION OF TERMS. Whenever used in this Agreement, the singular
number shall include the plural and the plural the singular, and pronouns of one
gender shall include all genders.
ARTICLE II.
2. THE REVOLVING LOAN
2.1 GENERAL TERMS.
(A) Subject to the terms hereof and of the Cash Management Agreement,
the Bank will lend the Borrower, from time to time until the Revolving Loan
Termination Date, such sums in integral multiples of $1,000 as the Borrower may
request by not less than one business day's notice to the Bank, but which shall
not exceed, in the aggregate principal amount at any one time outstanding, the
lesser of:
(1) The Borrowing Base, or
(2) The Revolving Loan Commitment.
(B) Subject to the terms hereof, the Borrower may borrow, repay
without penalty or premium, and reborrow hereunder, from the date of this
Agreement until the Revolving Loan Termination Date. If at any time the unpaid
principal balance of the Revolving Loan exceeds the amount the Borrower could
borrow at such time under the formula set forth above, the Borrower shall
immediately and without demand pay such sums to the Bank, in multiples of
$1,000, to the extent necessary to reduce the Revolving Loan to an amount which
the Borrower could borrow at that time under such formula.
2.2 DISBURSEMENT OF THE REVOLVING LOAN. The Bank will credit or pay the
proceeds of each Advance to the Borrower's deposit account with the Bank or in
such manner as the Borrower and the Bank may agree.
2.3 THE REVOLVING NOTE. The Borrower's obligation to repay the Revolving
Loan shall be evidenced by the Revolving Note.
2.4 INTEREST RATE AND PAYMENTS OF INTEREST.
(A) Interest on the Revolving Loan shall be calculated and paid as
provided in the Revolving Note.
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(B) If, at any time, the Revolving Rate shall be deemed by any
competent court of law, governmental agency or tribunal to exceed the maximum
rate of interest permitted by any applicable Laws, then, for such time as the
Revolving Rate would be deemed excessive, its application shall be suspended and
there shall be charged instead the maximum rate of interest permissible under
such Laws, and any excess interest actually collected by the Bank shall be
credited as a partial prepayment of principal.
2.5 PAYMENTS OF PRINCIPAL. If not earlier demanded pursuant to Section
7.2 hereof, the outstanding principal balance of the Revolving Loan shall be due
and payable to the Bank on the Revolving Loan Termination Date.
2.6 PAYMENT TO THE BANK. All sums payable to the Bank hereunder shall be
paid directly to the Bank in United States Dollars and immediately available
funds at the place payment is due. If the Bank shall send the Borrower
statements of amounts due hereunder, such statements shall be considered correct
and conclusively binding on the Borrower unless the Borrower notifies the Bank
to the contrary within ninety (90) days of its receipt of any statement which it
deems to be incorrect.
2.7 USE OF PROCEEDS OF REVOLVING LOAN. The proceeds of the Revolving Loan
hereunder shall be used by the Borrower for working capital.
ARTICLE III.
3. CONDITIONS PRECEDENT
The obligation of the Bank to make the Loans and any Advance hereunder is
subject to the following conditions precedent:
3.1 DOCUMENTS REQUIRED FOR THE CLOSING. Prior to the disbursement of the
Loans, the following instruments and documents, duly executed by all proper
Persons shall have been delivered to the Bank:
(A) This Agreement;
(B) The Revolving Note;
(C) The financing statements required by Section 4.5;
(D) The lien waivers required by Section 4.6;
(E) A certificate of the Borrower's corporate secretary dated as of
the date of this Agreement, certifying as to the incumbency and signatures of
the officers of the Borrower signing this Agreement, the Revolving Note, each of
the other Loan Documents to be executed by Borrower, and each other document to
be delivered pursuant hereto, together with the following documents attached
thereto:
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(1) A copy of the resolutions of the Borrower's board of
directors authorizing the execution, delivery and performance of this
Agreement, the Revolving Note, each of the other Loan Documents to be
delivered by Borrower, and each other document to be delivered by
Borrower pursuant hereto;
(2) A copy, certified as of the most recent date practicable by
the secretary of state of the state where the Borrower is
incorporated, of the Borrower's articles or certificate of
incorporation; and
(3) A copy of the Borrower's bylaws;
(F) Certificates, as of the most recent dates practicable, of the
aforesaid secretary of state, the secretary of state of Alabama, Louisiana, and
Texas and the department of revenue or taxation of each of the foregoing states,
as to the good standing of the Borrower;
(G) A written opinion of Woods & Jackson, L.L.P., dated the date of
this Agreement and addressed to the Bank, substantially in the form of Exhibit
"I", attached hereto;
(H) The Borrower's Closing Affidavit;
(I) A Collateral Report as of a date not more than five (5) days
prior to the Closing, acceptable to the Bank and certifying a Borrowing Base of
not less than the amount of the requested initial Advance under the Revolving
Loan Commitment;
(J) The Security Agreement;
(K) The Financial Statements; and
(L) The Cash Management Agreement.
3.2 CERTAIN EVENTS. At the time of the initial Advance and of each
subsequent Advance:
(A) No Event of Default shall have occurred and be continuing, and no
event shall have occurred and be continuing that, with the giving of notice or
passage or time or both, would be an Event of Default;
(B) No material adverse change shall have occurred in the financial
condition of the Borrower since the date of this Agreement;
(C) All of the Loan Documents shall have remained in full force and
effect; and
(D) The Borrower shall have paid each installment of the Loan Fee
then due and payable.
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3.3 LEGAL MATTERS. At the time of disbursements of the initial Advance,
and of each subsequent Advance, all legal matters incidental thereto shall be
satisfactory to Gordon, Silberman, Wiggins & Childs, P.C., counsel to the Bank.
ARTICLE IV.
4. COLLATERAL SECURITY
4.1 COMPOSITION OF THE COLLATERAL. The property in which a security
interest is granted pursuant to the provisions of Sections 4.2 and 4.3 is herein
collectively called the "Collateral." The Collateral, together with all of the
Borrower's other property of any kind held by the Bank, shall stand as one
general, continuing collateral security for all Obligations and may be retained
by the Bank until all Obligations have been satisfied in full.
4.2 RIGHTS IN PROPERTY HELD BY THE BANK. As security for the prompt
satisfaction of all Obligations, the Borrower hereby assigns, transfers and sets
over to the Bank all of the Borrower's right, title and interest in and to, and
grants the Bank a lien on and a security interest in, all amounts that may be
owing from time to time by the Bank to the Borrower in any capacity, including,
without limitation, any balance or share belonging to the Borrower, of any
deposit or other account with the Bank, which lien and security interest shall
be independent of any right of set-off which the Bank may have.
4.3 RIGHTS IN PROPERTY HELD EITHER BY THE BORROWER OR BY THE BANK. As
further security for the prompt satisfaction of all Obligations, the Borrower
hereby assigns to the Bank all of the Borrower's right, title and interest in
and to, and grants the Bank a lien upon and security interest in, all of the
Collateral (as defined in the Security Agreement).
4.4 PRIORITY OF LIENS. The foregoing liens shall be first and prior liens
except for the Permitted Liens.
4.5 FINANCING STATEMENTS.
(A) The Borrower will:
(1) Execute such financing statements (including amendments
thereto and continuation statements thereof) in form satisfactory to
the Bank as the Bank, from time to time, may specify;
(2) Pay, or reimburse the Bank for paying, all costs and taxes
of filing or recording the same in such public offices as the Bank may
designate; and
(3) Take such other steps as the Bank, from time to time, may
direct, including the noting of the Bank's lien on the Collateral and
on any certificates of title therefor all to perfect the Bank's
security interest in the Collateral.
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(B) In addition to the foregoing, and not in limitation thereof:
(1) 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; and
(2) To the extent lawful, the Borrower hereby appoints the Bank
as its attorney-in-fact (without requiring the Bank to act as such) to
execute any financing statement in the name of the Borrower, and to
perform all other acts that the Bank deems appropriate to perfect and
continue its security interest in, and to protect and preserve, the
Collateral.
4.6 LIEN WAIVERS. The Borrower will cause each mortgagee of all real
estate owned by the Borrower and each landlord of all premises leased by the
Borrower (as listed on Exhibit "J" attached hereto) on whose premises any of the
Collateral may be located, to execute and deliver to the Bank instruments, in
form and substance satisfactory to the Bank, by which such mortgagee or landlord
waives his or its rights, if any, in and to all Goods composing a part of the
Collateral.
ARTICLE V.
5. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Bank, knowing that Bank will rely
on such representations and warranties as an inducement to make the Loans, that:
5.1 BORROWER'S EXISTENCE. Borrower is a duly organized and existing
Delaware corporation, is duly qualified to do business in Delaware and in all
other jurisdictions in which its business interest requires it to be so
qualified, and has full power and authority to consummate the transactions
contemplated (except where the failure to so qualify does not have a material
adverse effect on the Borrower) by this Agreement.
5.2 BORROWER'S AUTHORITY. The execution, delivery and performance of all
of the Loan Documents to be delivered by Borrower have been duly authorized by
all requisite corporate action. All of such Loan Documents have been duly
executed and delivered and constitute valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, and the Bank
will be entitled to the benefits of all of the Loan Documents.
5.3 VIOLATIONS OR ACTIONS PENDING. There are no actions, suits, or
proceedings pending or, to the best of Borrower's knowledge, threatened, which
might adversely affect the financial condition of Borrower, or which might
impair the value of any collateral taken or to be taken by Bank in connection
with this Agreement. Borrower is not in violation of any agreement, the
violation of which will or might reasonably be expected to have a materially
adverse effect on Borrower's business or assets, and Borrower, is not in
violation of any order, judgment, or decree of any court, or any statute or
governmental regulation to
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which Borrower is subject. The execution and performance of this Agreement
by Borrower will not result in any breach of any mortgage, lease, credit or
loan agreement or any other instrument which may bind or affect Borrower.
5.4 FINANCIAL STATEMENTS. All financial statements of Borrower, given and
hereafter to be given to Bank are and will be true and complete in all respects
as of their respective dates and will be prepared in accordance with Generally
Accepted Accounting Principles consistently applied, and will fairly represent
the financial conditions of the business or Persons to which they pertain, and
no materially adverse change has occurred in the financial conditions reflected
therein since the respective dates thereof.
5.5 GOOD AND MARKETABLE TITLE. Borrower has good and marketable title to
all its assets, including, without limitation, the Collateral subject to no
encumbrances, liens, or claims of any third parties, except for Permitted Liens.
5.6 ERISA COMPLIANCE. All Defined Benefit Pension Plans, as defined in
ERISA, of the Borrower meet, as of the date hereof, the minimum funding
standards of Section 302 of ERISA and no reportable event or prohibited
transaction as defined in ERISA has occurred.
5.7 ACCURACY OF DOCUMENTS. All documents furnished to Bank by or on
behalf of Borrower as a part of or in support of the application for the Loans
or pursuant to the Bank's Commitment Letter dated March 6, 1996, or this
Agreement are true, correct, complete and accurately represent the matters to
which they pertain.
5.8 ENVIRONMENTAL MATTERS. Neither any property of the Borrower nor the
Borrower, to the best of Borrower's knowledge, are in violation of or subject to
any existing, pending or threatened investigation or inquiry by any governmental
authority or any remedial obligations under any applicable laws, rules or
regulations pertaining to health or the environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), and the Superfund Amendments and Reauthorization
Act of 1986, as amended, and that to the best of its knowledge there are no
facts, conditions or circumstances known to it which could result in any such
investigation or inquiry if such facts, conditions and circumstances, if any,
were fully disclosed to the applicable governmental authority, and Borrower will
promptly notify Bank if it becomes aware of any such facts, conditions or
circumstances or any such investigation or inquiry; Borrower 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 or
equipment in connection with any of Borrower's property constructed or to be
constructed by reason of any environmental laws, rules or regulations; and
Borrower has no knowledge that any oil, toxic or hazardous substances or solid
wastes have been disposed of or released on any of Borrower's property, and
Borrower will not in its use of any of its Property dispose of or release oil,
toxic or hazardous substances or solid wastes on any of its Property (the term
"hazardous substance" and "release" shall have the meanings specified in CERCLA,
and the terms "solid waste" and "disposal", "dispose" or "disposed" shall have
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the meanings specified in RCRA, except that if such acts are amended to broaden
the meanings thereof, the broader meaning shall apply herein). Notwithstanding
anything to the contrary herein, Borrower shall indemnify and hold Bank harmless
from and against any fines, charges, expenses, fees, attorney fees and costs
incurred by Bank in the event the Borrower or any of its Property (whether or
not due to any fault of Borrower) is hereafter determined to be in violation of
any environmental laws, rules or regulations applicable thereto, excluding,
however, any conditions caused by materials placed on any of Borrower's property
following foreclosure or acceptance by Bank of a deed in lieu of foreclosure,
and this indemnity shall survive any foreclosure or deed in lieu of foreclosure.
This indemnification shall specifically include any and all costs due to
hazardous substances that flow, diffuse, migrate, or percolate into, onto, from
or under any of Borrower's property.
5.9 CONTINUING EFFECTIVENESS. All representations and warranties
contained herein shall be deemed continuing and in effect at all times while
Borrower remains indebted to Bank under the Loans and shall be deemed to be
incorporated by reference in each requisition for an advance by Borrower, unless
Borrower specifically notifies Bank in writing of any change therein.
5.10 PRIORITY OF COLLATERAL ASSIGNMENTS. The Security Agreement, when duly
executed, delivered, and recorded will constitute a valid first lien against the
collateral of Borrower, prior to all other liens and encumbrances, including
those which may hereafter accrue, except for Permitted Liens.
ARTICLE VI.
6. THE BORROWER'S COVENANTS
The Borrower does hereby covenant and agree with the Bank that, so long as
any of the Obligations remain unsatisfied or any commitments hereunder remain
outstanding, it will comply at all times with the following covenants:
6.1 AFFIRMATIVE COVENANTS.
(A) The Borrower will use the proceeds of the Revolving Loan only for
the purposes set forth in Section 2.7, and will furnish the Bank such evidence
as it may reasonably require with respect to such uses.
(B) The Borrower will furnish the Bank:
(1) Within thirty (30) days after the close of each calendar
month (a) an income statement of the Borrower for such period and (b)
a balance sheet of the Borrower as of the end of such period,
adjusted to U. S. Dollars, all in reasonable detail with Bank having
full access to all supporting schedules and comments, subject to year-
end audit adjustments, and certified by the Borrower's president or
principal financial officer to have been prepared in accordance with
Generally Accepted Accounting Principles
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consistently applied by the Borrower, except for any inconsistencies
explained in such certificate;
(2) Within one hundred twenty (120) days after the close of each
fiscal year (a) a statement of Stockholders' Equity and a statement of
cash flows of the Borrower for such fiscal year, (b) an income
statement of the Borrower for such fiscal year, and (c) a balance
sheet of the Borrower as of the end of such fiscal year, adjusted to
U. S. Dollars, all in reasonable detail, including all supporting
schedules and comments; the statements and balance sheets to be
audited by an independent certified public accountant selected by the
Borrower and acceptable to the Bank, and certified by such accountants
to have been prepared in accordance with Generally Accepted Accounting
Principles consistently applied by the Borrower, except for any
inconsistencies explained in such certificate; the Bank shall have the
right, from time to time, to discuss the Borrower's affairs directly
with the Borrower's independent certified public accountant after
notice to the Borrower and opportunity of the Borrower to be present
at any such discussions;
(3) Contemporaneously with each monthly and year-end financial
report required by the foregoing paragraphs, a certificate of the
president or principal financial officer of the Borrower stating that,
to the best of his knowledge, the Borrower has observed and performed
each and every undertaking contained in this Agreement and is not at
the time in default in the observance or performance of any of the
terms and conditions hereof or, if the Borrower shall be so in
default, specifying all such defaults and events of which he may have
knowledge;
(4) Promptly after sending or making available or filing of the
same, copies of all reports, proxy statements and financial statements
that the Borrower sends or makes available to its stockholders and all
registration statements and reports that the Borrower files with the
Securities and Exchange Commission or any successor Person; and
(5) Monthly, within twenty (20) days after the end of the prior
month, and at such other times as the Bank may request, a Collateral
Report and Borrowing Base Certificate for the immediately preceding
month, certified to be correct by the president or controller of the
Borrower.
(C) The Borrower will maintain its Inventory, Equipment, real estate
and other properties in good condition and repair (normal wear and tear
excepted), and will pay and discharge or cause to be paid and discharged when
due, the cost of repairs to or maintenance of the same, and will pay or cause to
be paid all rental or mortgage payments due on such real estate. The Borrower
hereby agrees that, in the event it fails to pay or cause to be paid any such
payments, the Bank may do so and on demand be reimbursed therefor by the
Borrower.
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(D) The Borrower will maintain, or cause to be maintained, public
liability insurance, and fire and extended coverage insurance on all tangible
assets owned by it, all in such form and amounts as are consistent with industry
practices and with such insurers as may be satisfactory to the Bank. Such
policies shall contain a provision whereby they cannot be cancelled except upon
thirty (30) days written notice to the Bank and shall contain a New York
standard endorsement or similar provision naming the Bank as loss payee. The
Borrower will, upon request, furnish to the Bank a Request for Insurance, duly
executed by the authorized agent, and other such evidence of insurance as the
Bank may require. The Borrower hereby agrees that, in the event it fails to pay
or cause to be paid the premium on any such insurance, the Bank may do so and be
reimbursed by the Borrower therefor.
(E) The Borrower will pay or cause to be paid when due all taxes,
assessments and charges or levies imposed upon it or on any of its property or
which it is required to withhold and pay over, except where contested in good
faith by appropriate proceedings with adequate reserves therefor having been set
aside on its books; provided, however, that the Borrower shall pay or cause to
be paid all such taxes, assessments, charges or levies forthwith whenever
foreclosure on any lien that attached (or security therefor) appears imminent.
(F) The Borrower will maintain at all times during the term of this
Agreement:
(1) Tangible Net Worth of, at minimum, Two Million Five Hundred
Thousand and no/100 Dollars ($2,500,000.00).
(2) A Fixed Charge Coverage of not less than 1.5 to 1.0 at the
end of each fiscal year.
(3) A ratio of Liabilities to Tangible Net Worth of not more
than 1.75 to 1 at all times.
(4) A Borrowing Base such that the balance of the Borrower's
outstanding Revolving Loan will not, at any time, exceed its
Borrowing Base.
(G) The Borrower will, when requested so to do, make available for
inspection and audit by duly authorized representatives of the Bank any of its
books and records, and will furnish the Bank any information regarding its
business affairs and financial condition within a reasonable time after written
request therefor. Borrower shall reimburse Bank for all costs associated with
such audit if the audit reveals a material discrepancy in any financial report,
statement or other document provided to Bank pursuant to this Agreement.
(H) The Borrower will take all necessary steps to preserve its
corporate existence and franchises and comply with all present and future Laws,
applicable to it in the operation of its businesses, and all material agreements
to which it is subject.
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(I) The Borrower will collect its Accounts and sell its Inventory
only in the ordinary course of business.
(J) The Borrower will keep accurate and complete Records of its
Accounts, Inventory and Equipment, consistent with sound business practices.
(K) The Borrower will give immediate written notice to the Bank of:
(1) Any litigation or proceeding in which it is a party if an
adverse decision therein would require it to pay over more than
$500,000.00 or deliver assets the value of which exceeds such sum
(whether or not the claim is considered to be covered by
insurance); and
(2) The institution of any other suit or proceeding involving it
that might materially and adversely affect its operations,
financial condition, property or business prospects.
(L) Within ten (10) days of the Bank's request therefor, the Borrower
will furnish the Bank with copies of federal income tax returns filed by the
Borrower.
(M) The Borrower will pay when due (or within applicable grace
periods) all Indebtedness due third Persons, except when the amount thereof is
being contested in good faith by appropriate proceedings and with adequate
reserves therefor being set aside on the books of the Borrower.
(N) The Borrower will notify the Bank immediately if it becomes aware
of the occurrence of any Event of Default or of any fact, condition or event
that only with the giving of notice or passage of time or both, could become an
Event of Default, or if it becomes aware of any material adverse change in the
business prospects, financial condition (including, without limitation,
proceedings in bankruptcy, insolvency, reorganization, or the appointment of a
receiver or trustee), or results of operations of the Borrower, or of the
failure of the Borrower to observe any of its undertakings hereunder or under
any of the other Loan Documents.
(O) The Borrower will notify the Bank thirty (30) days in advance of
any change in the location of any of its places of business in the United States
or of the establishment of any new place of business in the United States, or
the discontinuance of any existing place of business in the United States.
(P) The Borrower will:
(1) Fund all its Defined Benefit Pension Plans, as defined in
ERISA, in accordance with no less than the minimum funding
standards of Section 302 of ERISA;
(2) Furnish the Bank, promptly after the filing of the same,
with copies of all reports or other statements filed with the
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United States Department of Labor or the Internal Revenue Service
with respect to all such Plans; and
(3) Promptly advise the Bank of the occurrence of any Reportable
Event or Prohibited Transaction with respect to any such Plan.
(Q) The Borrower will comply with all Environmental Laws, and will
handle, store, treat, discharge, and dispose of any Hazardous Materials only in
compliance with all Environmental Laws.
(S) The Borrower will pay all installments of the Loan Fee when due.
6.2 NEGATIVE COVENANTS. The Borrower does hereby covenant and agree with
the Bank that, so long as any of the Obligations remain unsatisfied or any
commitments hereunder remain outstanding, it will comply at all times with the
following negative covenants:
(A) The Borrower will not change its name, enter into any merger,
consolidation, reorganization or recapitalization, or reclassification of its
capital stock, or dissolve without the prior written consent of the Bank (which
consent shall not be unreasonably withheld).
(B) The Borrower will not sell, transfer, lease, assign or otherwise
dispose of all or (except in the ordinary course of business) any material part
of its assets.
(C) The Borrower will not sell, lease, transfer, assign, or otherwise
dispose of any of the Collateral except in the ordinary course of business and
as permitted under this Agreement.
(D) The Borrower will not replace its Chairman of the Board of
Directors or its President without the prior written consent of the Bank.
(E) The Borrower will not mortgage, pledge, grant or permit to exist
a security interest in or lien upon any of the Collateral, now owned or
hereafter acquired, except for Permitted Liens.
(F) [Intentionally Deleted]
(G) [Intentionally Deleted]
(H) [Intentionally Deleted]
(I) The Borrower will not make any future equity investment(s) or
loan(s) in an amount exceeding, in the aggregate, $250,000.00 in or to any
Subsidiary, foreign or domestic or in or to any other Person during the term of
this Agreement, with the exception of equity investment(s) or loan(s) to
Productos de Preservation, S.A. de C.V. for the construction of a new plant for
the manufacture of pentachlorophenol and related products in Matamoros, Mexico.
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(J) [Intentionally Deleted]
(K) [Intentionally Deleted]
(L) [Intentionally Deleted]
(M) The Borrower will not issue, redeem, purchase or retire any of
its capital stock or grant or issue any warrant, right or option pertaining
thereto or any other security convertible into any of the foregoing. The
Borrower will not permit any voluntary transfer, sale, redemption, retirement,
or other change in the ownership of the outstanding capital stock of the
Borrower by its shareholders which results in a "Change in Control" of the
Borrower. For purposes of this Section 7.2(M), "Change in Control" shall mean a
change in the ownership of the outstanding capital stock of the Borrower such
that the Guarantors own less than fifty and 01/100 percent (50.01%) of the
outstanding capital stock of the Borrower.
(N) [Intentionally Deleted]
(O) The Borrower will not enter into any sale-leaseback transaction.
(P) The Borrower will not furnish the Bank any certificate or other
document that will contain any untrue statement of material fact or that will
omit to state a material fact necessary to make it not misleading in light of
the circumstances under which it was furnished.
(Q) The Borrower will not directly or indirectly apply any part of
the proceeds of the Loans to the purchasing or carrying of any "margin stock"
within the meaning of Regulation U or any regulations, interpretations or
rulings thereunder.
(R) The Borrower will not treat, store, handle, discharge, or dispose
of any Hazardous Materials except in compliance with all Environmental Laws.
ARTICLE VII.
7. DEFAULT
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an Event of Default hereunder:
(A) The Borrower shall fail to pay any installment of principal or
interest or fee payable hereunder or under the Revolving Note within ten (10)
days of the due date thereof.
(B) The Borrower shall fail to observe or perform any other
obligation to be observed or performed by it hereunder or under any of the other
Loan Documents, and such failure shall continue for thirty (30) days after:
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(1) Notice of such failure from the Bank; or
(2) The Bank is notified of such failure or should have been so
notified pursuant to the provisions of Section 6.1(N), whichever
is earlier.
(C) The Borrower shall fail to pay any Indebtedness due any third
Persons and such failure shall continue beyond any applicable grace period.
(D) Any financial statement, representation, warranty or certificate
made or furnished by the Borrower to the Bank in connection with this Agreement,
or as inducement to the Bank to enter into this Agreement, or in any separate
statement or document to be delivered hereunder to the Bank, shall be materially
false, incorrect, or incomplete when made.
(E) The Borrower shall admit its inability to pay its debts as they
mature, or shall make an assignment for the benefit of itself or any of its
creditors.
(F) Proceedings in bankruptcy, or for reorganization of the Borrower,
or for the readjustment of any of their respective debts, under the Bankruptcy
Code, as amended, or any part thereof, or under any other Laws, whether state or
federal, for the relief of debtors, now or hereafter existing, shall be
commenced by the Borrower, or shall be commenced against the Borrower and shall
not be discharged within sixty (60) days of commencement.
(G) A receiver or trustee shall be appointed for the Borrower or for
any substantial part of their respective assets, or any proceedings shall be
instituted for the dissolution or the full or partial liquidation of the
Borrower, and such receiver or trustee shall not be discharged within thirty
(30) days of his appointment, or such proceedings shall not be discharged within
sixty (60) days of its commencement, or the Borrower shall discontinue business
or materially change the nature of its business.
(H) The Borrower shall suffer final judgments for payment of money
aggregating in excess of $100,000.00 and shall not discharge the same within a
period of thirty (30) days unless, pending further proceedings, execution has
not been commenced or if commenced has been effectively stayed.
(I) A judgment creditor of the Borrower shall obtain possession of
any of the Collateral by any means, including, without limitation, levy,
distraint, replevin or self-help.
(J) The validity or enforceability of this Agreement, the Revolving
Note, or any of the other Loan Documents shall be contested by the Borrower
and/or Borrower shall deny that it has any or further liability or obligation
hereunder or thereunder.
(K) Any Defined Benefit Pension Plan, as defined in ERISA, shall fail
to meet the minimum funding standards of the Internal Revenue Code of 1986, as
now in effect or hereafter amended.
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<PAGE>
7.2 ACCELERATION. All Obligations shall, at the option of Bank, become
immediately due and payable, without notice, upon the occurrence of an Event of
Default without further action of any kind.
7.3 REMEDIES. After any acceleration, as provided for in Section 7.2, the
Bank shall have, in addition to the rights and remedies given it by this
Agreement and each of the other Loan Documents, all those allowed by all
applicable Laws, including, but without limitation, the Uniform Commercial Code
as enacted in any jurisdiction in which any Collateral may be located. Without
limiting the generality of the foregoing, the Bank may immediately, without
demand for performance and without other notice (except as specifically required
by this Agreement or any of the other Loan Documents, or as required by law and
which cannot be waived) or demand to the Borrower, all of which are hereby
expressly waived, and without advertisement, sell at public or private sale or
otherwise realize upon, the whole or, from time to time, any part of the
Collateral, or any interest which the Borrower may have therein. After
deducting from the proceeds of sale or other disposition of the Collateral all
expenses (including all reasonable expenses for legal services), the Bank shall
apply such proceeds toward the satisfaction of the Obligations in such order as
the Bank may elect. Any remainder of the proceeds after satisfaction in full of
the Obligations shall be distributed as required by applicable Laws. Notice of
any sale or other disposition shall be given to the Borrower at least five (5)
days before the time of any intended public sale or of the time after which any
intended private sale or other disposition of the Collateral is to be made,
which the Borrower hereby agrees shall be reasonable notice of such sale or
other disposition. The Borrower agrees to assemble, or to cause to be
assembled, at its own expense, the Collateral at such place or places as the
Bank shall designate. At any such sale or other disposition, the Bank may, to
the extent permissible under applicable Laws, purchase the whole or any part of
the Collateral, free from any right of redemption on the part of the Borrower,
which right is hereby waived and released. Without limiting the generality of
any of the rights and remedies conferred upon the Bank under this paragraph, the
Bank may, to the full extent permitted by applicable Laws:
(A) Enter upon the premises of the Borrower, exclude therefrom the
Borrower or any Affiliate thereof, and take immediate possession of the
Collateral, either personally or by means of a receiver appointed by a court of
competent jurisdiction, using all necessary force to do so;
(B) At the Bank's option, use, operate, manage and control the
Collateral in any lawful manner;
(C) Collect and receive all rents, income, revenue, earnings, issues
and profits therefrom; and
(D) Maintain, repair, renovate, alter or remove the Collateral as the
Bank may determine in its discretion.
7.4 RIGHT OF SET-OFF. Upon the occurrence of any Event of Default, the
Bank may, and is hereby authorized by the Borrower, at any time and from time to
time, to the fullest extent permitted by applicable Laws, and without advance
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<PAGE>
notice to the Borrower (any such notice being expressly waived by the Borrower),
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and any other Indebtedness at any time
owing by the Bank to, or for the credit or the account of, the Borrower against
any or all of the Obligations of the Borrower now or hereafter existing whether
or not such Obligations have matured and irrespective of whether the Bank has
exercised any other rights that it has or may have with respect to such
Obligations, including without limitation any acceleration rights. The
aforesaid right of set-off may be exercised by the Bank against the Borrower or
against any trustee in bankruptcy, debtor in possession, assignee for the
benefit of the creditors, receiver, or execution, judgment or attachment
creditor of the Borrower, or such trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, receiver, or execution, judgment or
attachment creditor, notwithstanding the fact that such right of set-off shall
not have been exercised by the Bank prior to the making, filing or issuance, or
service upon the Bank of, or of notice of, any such petition; assignment for the
benefit of creditors; appointment or application for the appointment of a
receiver; or issuance of execution, subpoena, order or warrant. The Bank agrees
to promptly notify the Borrower after any such set-off and application, provided
that the failure to give such notice shall not affect the validity of such set-
off and application. The rights of the Bank under this Section 7.4 are in
addition to the other rights and remedies (including, without limitation, other
rights of set-off) which the Bank may have.
ARTICLE VIII.
8. MISCELLANEOUS
8.1 CONSTRUCTION. The provisions of this Agreement shall be in addition
to those of any guaranty, pledge or security agreement, note or other evidence
of liability held by the Bank, all of which shall be construed as complementary
to each other. Nothing herein contained shall prevent the Bank from enforcing
any or all other notes, guaranties, pledges or security agreements in accordance
with their respective terms.
8.2 FURTHER ASSURANCE. From time to time, the Borrower will execute and
deliver to the Bank such additional Documents and will provide such additional
information as the Bank may reasonably require to carry out the terms of this
Agreement and be informed of the status and affairs of the Borrower.
8.3 INDEMNITY. The Borrower hereby agrees to indemnify the Bank and its
officers, directors, agents and attorney's against, and to hold the Bank and all
such other persons harmless from, any claims, demands, liabilities, costs,
damages, and judgments (including, without limitation, liability under any
Environmental Laws and costs of defense and attorneys' fees) resulting from any
representation or warranty made by Borrower or on Borrower's behalf pursuant to
Article V of this Agreement having been false when made, or resulting from
Borrower's breach of any of the covenants set forth in Article VI of this
Agreement. This agreement of indemnity shall be a continuing agreement and
shall survive payment of the Loans and termination of this Agreement.
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<PAGE>
8.4 ENFORCEMENT AND WAIVER BY THE BANK. The Bank shall have the right at
all times to enforce the provisions of this Agreement, the Revolving Note, and
the other Loan Documents in strict accordance with the terms hereof and thereof,
notwithstanding any conduct or custom on the part of the Bank in refraining from
so doing at any time or times. The failure of the Bank at any time or times to
enforce its rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of this Agreement or as having in any way or manner
modified or waived the same. All rights and remedies of the Bank are cumulative
and concurrent and the exercise of one right or remedy shall not be deemed a
waiver or release of any other right or remedy.
8.5 EXPENSES OF THE BANK. The Borrower will, on demand, reimburse the
Bank for all reasonable expenses, including the fees and expenses of legal
counsel for the Bank, incurred in connection with the preparation,
administration, amendment, modification or enforcement of this Agreement and the
other Loan Documents and the collection or attempted collection of the Loans and
the Revolving Note.
8.6 NOTICES. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt requested,
or telegraph, as follows, unless such address is changed by written notice
hereunder:
(A) If to the Borrower:
KMG-Bernuth, Inc.
10611 Harwin, Suite 402
Houston, Texas 77036
Attention: David L. Hatcher
with copy to:
Roger Jackson, Esq.
Woods & Jackson
2001 Kirby, Suite 1111
Houston, Texas 77019
(B) If to the Bank:
SouthTrust Bank of Alabama, National Association
P.O. Box 2554
Birmingham, Alabama 35290
Attention: Business Center
with a copy to:
Timothy D. Davis, Esq.
Gordon, Silberman, Wiggins & Childs, P.C.
1400 SouthTrust Tower
Birmingham, Alabama 35203
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<PAGE>
8.7 WAIVER AND RELEASE BY THE BORROWER. To the maximum extent permitted
by applicable Laws, the Borrower:
(A) Waives protest of all commercial paper at any time held by the
Bank on which the Borrower is any way liable;
(B) Except as the same may herein be specifically granted, waives
notice of acceleration and of intention to accelerate;
(C) Waives notice and opportunity to be heard, after acceleration in
the manner provided in Section 7.2, before exercise by the Bank of the remedies
of self-help, set-off, or of other summary procedures permitted by any
applicable Laws or by any agreement with the Borrower, and except where required
hereby or by any applicable Laws which requirement cannot be waived, notice of
any other action taken by the Bank; and
(D) Releases the Bank and its officers, attorneys, agents and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them except willful misconduct.
8.8 PARTICIPATION. Notwithstanding any other provision of this Agreement,
the Borrower understands that the Bank may enter into participation agreements
with Participants whereby the Bank will allocate certain percentages of its
commitment to them. The Borrower acknowledges that, for the convenience of all
parties, this Agreement is being entered into with the Bank only and that its
obligations under this Agreement are undertaken for the benefit of, and as an
inducement to each of any such Participant as well as the Bank, and the Borrower
hereby grants to each such Participant, to the extent of its participation in
the Loans, the right to set off deposit accounts maintained by the Borrower with
such Participant. The Borrower authorizes the Bank to disclose financial and
other information regarding the Borrower to Participants and potential
Participants.
8.9 GOVERNING LAW. This Agreement is entered into and performable in
Jefferson County, Alabama, and the substantive Laws, without giving effect to
principles of conflict of laws, of the United States and the State of Alabama
shall govern the construction of this Agreement and the documents executed and
delivered pursuant hereto, and the rights and remedies of the parties hereto and
thereto, except to the extent that the location of any Collateral in a state or
jurisdiction other than Alabama requires that the perfection of the Bank's
security interest hereunder, and the enforcement of certain of the Bank's
remedies with respect to the Collateral, be governed by the laws of such other
state or jurisdiction.
8.10 SUBMISSION TO JURISDICTION; WAIVERS.
(A) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(1) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
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<PAGE>
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
ALABAMA, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
NORTHERN DISTRICT OF ALABAMA, AND APPELLATE COURTS FROM ANY
THEREOF;
(2) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN
AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(3) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM
OF MAIL), POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET
FORTH IN SECTION 8.6 OR AT SUCH OTHER ADDRESS OF WHICH THE BANK
SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND
(4) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(B) THE BORROWER AND THE BANK HEREBY:
(1) IRREVOCABLY AND UNCONDITIONALLY WAIVE THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM OF ANY TYPE
AS TO ANY MATTER ARISING DIRECTLY OR INDIRECTLY OUT OF OR WITH
RESPECT TO THIS AGREEMENT, THE REVOLVING NOTE, ANY OF THE OTHER
LOAN DOCUMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION
HEREWITH OR THEREWITH; AND
(2) AGREE THAT EITHER OF THEM MAY FILE A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND
BARGAINED FOR AGREEMENT BETWEEN THE PARTIES IRREVOCABLY TO WAIVE
TRIAL BY JURY, AND THAT ANY DISPUTE OR CONTROVERSY OF ANY KIND
WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
8.11 BINDING EFFECT, ASSIGNMENT. This Agreement shall inure to the benefit
of, and shall be binding upon, the respective successors and permitted assigns
of the parties hereto. The Borrower has no right to assign any of its rights or
obligations hereunder without the prior written consent of the Bank.
8.12 ENTIRE AGREEMENT, AMENDMENTS. This Agreement, including the Exhibits
hereto, all of which are hereby incorporated herein by reference, and the
documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties, and may be amended only by a writing signed on
behalf of each party.
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<PAGE>
8.13 SEVERABILITY. If any provision of this Agreement, the Revolving Note,
or any of the other Loan Documents shall be held invalid under any applicable
Laws, such invalidity shall not affect any other provision of this Agreement or
such other instrument or agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
8.14 HEADINGS. The paragraph and subparagraph headings hereof are inserted
for convenience of reference only, and shall not alter, define, or be used in
construing the text of such paragraphs or subparagraphs.
8.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
8.16 SEAL. This Agreement is intended to take effect as an instrument
under seal.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the day and year
first above written.
THE BORROWER:
KMG-BERNUTH, INC.
By: /S/ DAVID L. HATCHER [SEAL]
-----------------------------
Its: PRESIDENT
-----------------------------
THE BANK:
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION
By: /S/ ALAN T. DRENNEN III [SEAL]
-----------------------------
Its VICE PRESIDENT
-----------------------------
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<PAGE>
STATE OF TEXAS )
COUNTY OF HARRIS )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that DAVID L. HATCHER whose name as PRESIDENT of KMG-Bernuth,
Inc., a Delaware corporation, is signed to the foregoing Agreement, and
who is known to me, acknowledged before me on this day that, being informed of
the contents of said Agreement, he, as such officer and with full authority,
executed the same voluntarily for and as the act of said corporation.
Given under my hand and official seal, this the 30 day of July, 1996.
/s/ CARRIE DANIELSON
-----------------------------
Notary Public
(SEAL) My Commission Expires: 9-25-99
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that ALAN T. DRENNEN III, whose name as VICE PRESIDENT of
SouthTrust Bank of Alabama, National Association, a national banking
association, is signed to the foregoing Agreement, and who is known to me,
acknowledged before me on this day that, being informed of the contents of said
Agreement, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said banking association.
Given under my hand and official seal, this the 1st day of August,
1996.
/s/ NOTARY
-----------------------------
Notary Public
(SEAL) My Commission Expires: 2-13-99
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<PAGE>
REVOLVING NOTE
$2,500,000.00 AUGUST 1, 1996
FOR VALUE RECEIVED, the undersigned KMG-BERNUTH, INC., a Delaware
corporation (hereinafter referred to as "Maker"), promises to pay to the order
of SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking
association (hereinafter, together with any holder of this Note, the "Bank"), at
its main office in the City of Birmingham, Alabama, or at such other address as
the Bank may from time to time designate in writing, the principal sum of Two
Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00), or so much as
may be advanced hereunder, together with interest thereon, such principal and
interest to be payable as follows:
A. On the 31st day of August, 1996, (viz., one month from the date of
this Note), and on the last day of each successive calendar month
thereafter until this Note is paid in full, Maker shall pay to Bank all
accrued and unpaid interest on the outstanding principal balance.
B. On the 30th day of November, 1997, the Maker shall pay to Bank the
then outstanding principal balance, together with all accrued and unpaid
interest thereon.
During the entire term of this Note, the outstanding principal amount shall
bear interest at the Base Rate (the "Interest Rate"). As used in this Note, the
term "Base Rate" means the per annum rate of interest designated by the Bank
periodically as its Base Rate. THE BASE RATE IS NOT NECESSARILY THE LOWEST RATE
CHARGED BY THE BANK. The Base Rate on the date of this Note is eight and on
quarter percent (8-1/4%). The Interest Rate payable under this Note during the
term of this Note will change to reflect any change in the Base Rate, as and
when the Base Rate changes.
All payments shall be applied first to interest then due and payable and
any balance shall be applied in reduction of principal. The principal and
interest shall be payable in lawful money of the United States which shall be
legal tender for public and private debts at the time of payment. All interest
payable herein shall be calculated on the basis of a 360-day year by multiplying
the outstanding principal amount by the applicable per annum rate, multiplying
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<PAGE>
the product thereof by the actual number of days elapsed, and dividing the
product so obtained by 360.
During the entire term of this Note, Maker may borrow up to the maximum
principal amount hereof, repay all or any portion thereof, and reborrow up to
such amount on a revolving basis, subject to the terms and conditions set forth
in the Loan Agreement referred to hereinafter.
Maker will pay a late charge equal to five percent (5.0%) of any payment
not received by Bank within fifteen (15) days after the due date thereof.
Collection or acceptance by Bank of such late charge shall not constitute a
waiver of any remedies of Bank provided herein.
This Note is the Revolving Note referred to in, and entitled to the
security of, and proceeds of which will be advanced in accordance with, that
certain Revolving Loan Agreement between Maker and Bank of even date herewith
(herein, together with any and all extensions, revisions, modifications or
amendments hereafter made, referred to as the "Loan Agreement"). This Note is
subject to the terms and conditions of the Loan Agreement, which Loan Agreement
(including all defined terms set forth therein) is hereby incorporated herein in
its entirety. This Note is further secured by a Security Agreement (as defined
in the Loan Agreement), which Security Agreement, and all terms and conditions
thereof (including all defined terms set forth therein), are hereby incorporated
herein by this reference. This Note is guaranteed by a Guaranty of Payment and
Performance (hereinafter, together with any and all extensions, revisions,
modifications or amendments hereafter made, referred to as the "Guaranty")
executed by David L. Hatcher (the "Guarantor") (this Note, the Loan Agreement,
the Security Agreement, the Guaranty, and any and all other agreements,
instruments or documents, now existing or hereafter arising, executed or
delivered in connection with the Loan, together with any and all extensions,
revisions, modifications or amendments heretofore, simultaneously herewith or
hereafter made to any of the foregoing, hereinafter referred to collectively as
the "Loan Documents").
The principal sum evidenced by this Note, together with accrued interest,
shall become immediately due and payable at the option of the Bank upon the
occurrence of (1) any failure to pay any installment of principal or interest
due hereunder within ten (10) days of the due date thereof; (2) any "Event of
2
<PAGE>
Default" under the terms of the Loan Agreement, the Security Agreement, and/or
any of the other Loan Documents; (3) any transfer of any property or any
interest therein or any further encumbrance of any property or any interest
therein in violation of any one or more of the Loan Agreement, the Security
Agreement, and/or any of the other Loan Documents; (4) any change in the
composition, form of business association or ownership of the Maker in violation
of the Loan Agreement; or (5) at Bank's election, the death or incompetency of
any Guarantor (unless Borrower shall cause to be substituted another guarantor
acceptable to Bank, in its sole and absolute discretion, within thirty (30) days
of the death or determination of incompetency of such Guarantor); each of which
shall constitute an "Event of Default" hereunder. Upon any Event of Default, in
addition to any late charge which may be due as provided for hereinabove, Maker
agrees to pay interest to Bank at a rate equal to two percentage points (2.0%)
in excess of the interest rate from time to time accruing, as set forth herein,
on the aggregate indebtedness represented hereby, including accrued interest,
until such aggregate indebtedness is paid in full. Maker will also pay to Bank,
in addition to the amount due, all costs of collecting, securing or attempting
to collect or secure this Note, including without limitation, court costs and
reasonable attorneys' fees, including attorneys' fees on any appeal by either
Maker or Bank.
With respect to the amounts due pursuant to this Note, Maker waives the
following:
(1) All rights of exemption of property from levy or sale under execution
or other process for the collection of debts under the Constitution or laws
of the United States or any state thereof;
(2) Demand, presentment, protest, notice of dishonor, notice of
nonpayment, suit against any party, diligence in collection, and all other
requirements necessary to enforce this Note; and
(3) Any further receipt by or acknowledgment of any collateral now or
hereafter deposited as security for the obligations hereunder.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by applicable law, and in the event such
payment is inadvertently paid by Maker or inadvertently received by Bank, then
such excess sum shall be credited as a payment of principal, unless Maker elects
3
<PAGE>
to have such excess sum refunded to it forthwith. It is the express intent
hereof that Maker not pay and Bank not receive, directly or indirectly, interest
in excess of that which may be legally paid by Maker under applicable law. Bank
shall not by any act, delay, omission, or otherwise be deemed to have waived any
of its rights or remedies, and no waiver of any kind shall be valid unless in
writing and signed by Bank. All rights and remedies of Bank under the terms of
this Note and applicable statutes or rules of law shall be cumulative, and may
be exercised successively or concurrently. Maker agrees that there are no
defenses, equities or setoffs with respect to the obligations set forth herein.
The obligations of Maker hereunder shall be binding upon and enforceable against
Maker and its successors and assigns. This Note is being held by the Bank in
the State of Alabama, and shall be governed by, and construed in accordance
with, the laws of the State of Alabama, and Maker hereby consents to the
jurisdiction of the state and federal courts presiding in and over Jefferson
County, Alabama, and agrees that the receipt of this Note by Bank in the State
of Alabama shall constitute sufficient minimum contacts of the Maker with the
State of Alabama. Any provisions of this Note which may be unenforceable or
invalid under any law shall be ineffective to the extent of such
unenforceability or invalidity without affecting the enforceability or validity
of any other provision hereof.
MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM,
SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY
PERTAINING OR RELATING TO THIS NOTE, THE LOAN AGREEMENT, ANY OF THE COLLATERAL
DOCUMENTS, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS NOTE OR (B) IN ANY WAY
CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALING WITH
RESPECT TO THIS NOTE, THE LOAN AGREEMENT, ANY OF THE COLLATERAL DOCUMENTS, ANY
OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR IN CONNECTION WITH THE
TRANSACTIONS RELATED THERETO OR CONTEMPLATED THEREBY OR THE EXERCISE OF ANY
RIGHTS AND REMEDIES THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE. MAKER AGREES THAT BANK MAY FILE A COPY OF THIS PARAGRAPH WITH ANY
COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF
MAKER WITH BANK IRREVOCABLY TO WAIVE TRIAL BY JURY, AND THAT ANY DISPUTE OR
4
<PAGE>
CONTROVERSY WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
Bank may, at its option, release any collateral given to secure the
indebtedness evidenced hereby or release the Guarantor from his obligations
under the Guaranty, and no such release shall impair the obligations to Bank of
Maker not expressly released by Bank.
All capitalized terms used herein shall be as defined in the Loan Agreement
unless otherwise indicated.
IN WITNESS WHEREOF, the undersigned Maker has caused this instrument to be
executed by its duly authorized officer on the day and year first above written.
MAKER:
KMG-BERNUTH, INC.
By: /s/ DAVID L. HATCHER
-------------------------------------
Its PRESIDENT
----------------------------------
STATE OF TEXAS )
----------------
COUNTY OF HARRIS )
---------------
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that DAVID L. HATCHER, whose name as PRESIDENT of KMG-Bernuth,
Inc., a Delaware corporation, is signed to the foregoing Revolving Note, and
who is known to me, acknowledged before me on this day that, being informed
of the contents of said Revolving Note, he, as such officer and with full
authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal, this the 30 day of JULY, 1996.
/S/ CARRIE DANIELSON
-----------------------------------
Notary Public
(SEAL)
My Commission Expires: 9-25-99
------------
5
<PAGE>
1996 STOCK OPTION PLAN
OF
KMG-B, INC.
ARTICLE 1
PURPOSES OF THE PLAN
KMG-B, Inc. (the "Company") desires to afford certain of its directors,
consultants and key employees and the directors, consultants and key employees
of any subsidiary corporation or parent corporation of the Company who are
responsible for the continued growth of the Company an opportunity to acquire a
proprietary interest in the Company, and thus to create in them an increased
interest in and a greater concern for the welfare of the Company.
The Company, by means of this 1996 Stock Option Plan (the "Plan"), seeks to
retain the services of persons now holding key positions and to secure the
services of persons capable of filling such positions.
The stock options ("Options") offered pursuant to the Plan are a matter of
separate inducement and are not in lieu of any salary or other compensation for
the services of any director, consultant or key employee.
The Options granted under the Plan are intended to be either incentive
stock options ("Incentive Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options that do not
meet the requirements for Incentive Options ("Non-Qualified Options"), but the
Company makes no warranty as to the qualification of any Option as an Incentive
Option.
ARTICLE 2
AMOUNT OF STOCK SUBJECT TO THE PLAN
The total number of shares of common stock of the Company which either may
be purchased pursuant to the exercise of Options granted under the Plan shall
not exceed, in the aggregate, 700,000 shares of the authorized common stock,
$.015 par value per share, of the Company (the "Shares").
Shares which may be acquired under the Plan may be either authorized but
unissued Shares, Shares of issued stock held in the Company's treasury, or both,
at the discretion of the Company. If and to the extent that Options granted
under the Plan expire or terminate without having been exercised, new Options
may be granted with respect to the Shares covered by such expired or terminated
Options, provided
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that the grant and the terms of such new Options shall in all respects comply
with the provisions of the Plan.
ARTICLE 3
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on the date (the "Effective Date") on which
it is adopted by the board of directors of the Company (the "Board of
Directors"); provided, however, that if the Plan is not approved by a vote of
the shareholders of the Company within twelve (12) months before or after the
Effective Date, the Plan and any Options granted thereunder shall terminate.
The Company may, from time to time during the period beginning on the
Effective Date and ending on August 31, 2007 (the "Termination Date"), grant
Options to persons eligible to participate under the terms of the Plan. Options
granted prior to the Termination Date may extend beyond that date, in accordance
with the terms thereof.
As used in the Plan, the terms "subsidiary corporation" and "parent
corporation" shall have the meanings ascribed to such terms, respectively, in
Sections 425(f) and 425(e) of the Code.
An employee, director or consultant to whom Options are granted hereunder
may be referred to herein as a "Participant."
ARTICLE 4
ADMINISTRATION
The Board of Directors may designate an option committee (the "Committee")
which shall consist of no fewer than two directors, all of whom shall be
"non-employee directors" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to administer the Plan. A majority of the members of the
Committee shall constitute a quorum, and the act of a majority of the members of
the Committee shall be the act of the Committee. Any member of the Committee
may be removed at any time either with or without cause by resolution adopted by
the Board of Directors, and any vacancy on the Committee may at any time be
filled by resolution adopted by the Board of Directors.
Any or all powers and functions of the Committee may at any time and from
time to time be exercised by the Board of Directors. Any reference in the Plan
to the Committee shall be deemed also to refer to the Board of Directors, to the
extent that the Board of Directors is exercising any of the powers and functions
of the Committee.
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Subject to the express provisions of the Plan, the Committee shall have the
authority, in its discretion,
(a) to determine the directors, consultants and employees to whom Options
shall be granted, the time when such Options shall be granted, the number of
Shares which shall be subject to each Option, the purchase price or exercise
price of each Share which shall be subject to each Option, the period(s)
during which such Options shall be exercisable (whether in whole or in part),
and the other terms and provisions of the respective Options (which need not
be identical);
(b) to construe the Plan and Options granted thereunder;
(c) to prescribe, amend and rescind rules and regulations relating to the
Plan; and
(d) to make all other determinations necessary or advisable for
administering the Plan.
Without limiting the foregoing, the Committee also shall have the authority
to require, in its discretion, as a condition of the granting of any Option,
that the Participant agree (i) not to sell or otherwise dispose of Shares
acquired pursuant to the Option for a period of six (6) months following the
date of acquisition of such Shares and (ii) that in the event of termination of
employment of such Participant, other than as a result of dismissal without
cause, such Participant will not, for a period to be fixed at the time of the
grant of the Option, enter into any employment or participate directly or
indirectly in any business or enterprise which is competitive with the business
of the Company or any subsidiary corporation or parent corporation of the
Company, or enter into any employment in which such employee will be called upon
to utilize special knowledge obtained through a directorship or employment with
the Company or any subsidiary corporation or parent corporation thereof.
The determination of the Committee on matters referred to in this Article 4
shall be conclusive.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company. No member or former member of the Committee or of the Board of
Directors shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
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ARTICLE 5
ELIGIBILITY
Non-Qualified Options may be granted only to directors, consultants,
officers and other key employees of the Company, or of any subsidiary
corporation or parent corporation of the Company now existing or hereafter
formed or acquired, except as hereinafter provided.
An Incentive Option may be granted to any salaried employees of the Company
or any subsidiary corporation or parent corporation of the Company now existing
or hereafter formed or acquired, and not to any director who is not also an
employee.
ARTICLE 6
LIMITATION ON EXERCISE OF INCENTIVE OPTIONS
Except as otherwise provided under the Code, to the extent that the
aggregate fair market value of Shares with respect to which Incentive Options
are exercisable for the first time by an employee during any calendar year
(under all stock options plans of the Company and any parent corporation or
subsidiary corporation of the Company) exceeds $100,000, such Options shall be
treated as Non-Qualified Options. For purposes of this limitation, (i) the fair
market value of Shares is determined as of the time the Option is granted, and
(ii) the limitation will be applied by taking into account Options in the order
in which they were granted.
ARTICLE 7
OPTIONS: PRICE AND PAYMENT
The purchase price for each Share purchasable under any Non-Qualified
Option granted hereunder shall be such amount as the Committee shall deem
appropriate and may be less than, greater than or equal to the fair market value
of the Shares, but in no event shall the purchase price be less than the par
value of the Shares.
The purchase price for each Share purchasable under any Incentive Option
granted hereunder shall be such amount as the Committee shall, in its best
judgment, determine to be not less than one hundred percent (100%) of the fair
market value per Share on the date the Option is granted; provided, however,
that in the case of an Incentive Option granted to a Participant who, at the
time such Incentive Option is granted, owns stock of the Company or any
subsidiary corporation or parent corporation of the company possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any subsidiary corporation or parent corporation of the
Company, the purchase price for each Share shall be such amount as the Committee
shall, in its best judgment, determine to be not
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less than one hundred ten percent (110%) of the fair market value per Share
at the date the Option is granted.
If the Shares are listed on a national securities exchange in the United
States on any date on which the fair market value per Share is to be determined,
the fair market value per Share shall be deemed to be the average of the high
and low quotations at which such Shares are sold on such national securities
exchange on such date. If the Shares are listed on a national securities
exchange in the United States on such date but the Shares are not traded on such
date, or such national securities exchange is not open for business on such
date, the fair market value per Share shall be determined as of the closest
preceding date on which such exchange shall have been open for business and the
Shares were traded. If the Shares are listed on more than one national
securities exchange in the United States on the date any such Option is granted,
the Committee shall determine which national securities exchange shall be used
for the purpose of determining the fair market value per Share.
If a public market exists for the Shares on any date on which the fair
market value per Share is to be determined but the Shares are not listed on a
national securities exchange in the United States, the fair market value per
Share shall be deemed to be the mean between the closing bid and asked
quotations in the over-the-counter market for the Shares on the closest date
preceding such date for which such quotations are available.
If no public market exists for the Shares on any date on which the fair
market value per Share is to be determined, the Committee shall, in its sole
discretion and best judgment, determine the fair market value of a Share.
For purposes of this Plan, the determination by the Committee of the fair
market value of a Share shall be conclusive.
Upon the exercise of an Option, the Company shall cause the purchased
Shares to be issued only when it shall have received the full purchase price for
the Shares in cash or by certified check; provided, however, that in lieu of
cash or certified check, the Participant may, if and to the extent the terms of
the Option so provide and to the extent permitted by applicable law, exercise an
Option in whole or in part, by having shares of common stock of the Company
withheld or by delivering to the Company shares of common stock of the Company
(in proper form for transfer and accompanied by all requisite stock transfer tax
stamps or cash in lieu thereof) owned by such Participant, which in the
aggregate have a fair market value equal to the purchase price of the Shares as
to which the Option is being exercised. The fair market value of the stock so
withheld or delivered shall be determined as of the date immediately preceding
the date on which the Option is exercised, or as may be required in order to
comply with or to conform to the requirements of any applicable laws or
regulations.
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ARTICLE 8
USE OF PROCEEDS
The cash proceeds of the sale of Shares subject to Options are to be added
to the general funds of the Company and used for its general corporate purposes
as the Board of Directors shall determine.
ARTICLE 9
TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Any Option shall be exercisable at such times, in such amounts and during
such period or periods as the Committee shall determine at the date of the grant
of such Option; provided, however, that an Incentive Option shall not be
exercisable after the expiration of ten (10) years from the date such Option is
granted; and provided further that, in the case of an Incentive Option granted
to a Participant who, at the time such Option is granted, owns stock of the
Company or any subsidiary corporation or patent corporation of the Company
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any subsidiary corporation or parent
corporation of the Company, such Option shall not be exercisable after the
expiration of five (5) years from the date such Option is granted.
Subject to the provisions of Article 10, the Committee shall have the right
to accelerate, in whole or in part, from time to time, conditionally or
unconditionally, rights to exercise any Option.
To the extent that an Option is not exercised within the period of
exerciseability specified therein, it shall expire as to the then unexercised
part.
In no event shall an Option granted hereunder be exercisable for a fraction
of a Share.
ARTICLE 10
EXERCISE OF OPTIONS
Any Option shall be exercised by the Participant holding such Option as to
all or part of the shares covered by such Option by giving written notice of
such exercise to the Corporate Secretary of the Company at the principal
business office of the Company, specifying the number of Shares to be purchased
and specifying a business day not more than fifteen (15) days from the date such
notice is given, for the payment of the purchase price against delivery of the
Shares being purchased. Subject to the terms of Articles 16, 18 and 19, the
Company shall cause certificates for the Shares so purchased to be delivered to
the Participant at the principal business office
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of the Company, against payment of the full purchase price, on the date
specified in the notice of exercise.
ARTICLE 11
NONTRANSFERABILITY OF OPTIONS
No Option shall be transferable, whether by operation of law or otherwise,
other than by will or the laws of descent and distribution, and any Option shall
be exercisable, during the lifetime of the Participant, only by such
Participant.
ARTICLE 12
TERMINATION OF DIRECTORSHIP OR
EMPLOYMENT
Upon termination of the directorship or employment of any Participant with
the Company and all subsidiary corporations and parent corporations of the
Company, any Option previously granted to the Participant, unless otherwise
specified by the Committee in the Option, shall, to the extent not theretofore
exercised, terminate and become null and void, provided that:
(a) if the Participant shall die while serving as a director or while in the
employ of such corporation or during either the three (3) month or one (1) year
period, whichever is applicable, specified in clause (b) below and at a time
when such Participant was entitled to exercise an Option as herein provided, the
legal representative of such Participant, or such person who acquired such
Option by bequest or inheritance or by reason of the death of the Participant,
may, not later than one (1) year from the date of death, exercise such Option,
to the extent not theretofore exercised, in respect of any or all of such number
of Shares as specified by the Committee in such Option; and
(b) if the directorship or employment of any Participant to whom such Option
shall have been granted shall terminate by reason of the Participant's
retirement (at such age or upon such conditions as shall be specified by the
Committee), disability (as described in Section 22(e)(3) of the Code) or
dismissal by the employer other than for cause (as defined below), and while
such Participant is entitled to exercise such Option as herein provided, such
Participant shall have the right to exercise such Option, to the extent not
theretofore exercised, in respect of any or all of such number of Shares as
specified by the Committee in such Option, at any time up to and including (i)
three (3) months after the date of such termination of a directorship or
employment in the case of termination by reason of retirement or dismissal other
than for cause and (ii) one (1) year after the date of termination of a
directorship or employment in the case of termination by reason of disability.
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In no event, however, shall any person be entitled to exercise any Option
after the expiration of the period of exerciseability of such Option as
specified therein.
If a Participant voluntarily terminates his directorship or employment, or
is discharged for cause, any Option granted hereunder shall, unless otherwise
specified by the Committee in the Option, forthwith terminate with respect to
any unexercised portion thereof.
If an Option shall be exercised by the legal representative of a deceased
Participant, or by a person who acquired an Option by bequest or inheritance or
by reason of the death of any Participant, written notice of such exercise shall
be accompanied by a certified copy of letter testamentary or equivalent proof of
the right of such legal representation or other person to exercise such Option.
For the purposes of the Plan, the term "for cause" shall mean (i) with
respect to an employee who is a party to a written agreement with, or,
alternatively, participates in a compensation or benefit plan of the Company or
a subsidiary corporation or parent corporation of the Company, which agreement
or plan contains a definition of "for cause" or "cause" (or words of like
import) for purposes of termination of employment thereunder by the Company or
such subsidiary corporation or parent corporation of the Company, "for cause" or
"cause" as defined in the most recent of such agreements or plans, or (ii) in
all other cases as determined by the Board of Directors, in its sole discretion,
(a) the willful commission by an employee of a criminal or other act that causes
or probably will cause substantial economic damage to the Company or a
subsidiary corporation or parent corporation of the Company or substantial
injury to the business reputation of the Company or a subsidiary corporation or
parent corporation of the Company; (b) the commission by an employee of an act
of fraud in the performance of such employee's duties on behalf of the Company
or a subsidiary corporation or parent corporation of the Company; (c) the
continuing willful failure of an employee to perform the duties of such employee
to the Company or a subsidiary corporation or parent corporation of the Company
(other than such failure resulting from the employee's incapacity due to
physical or mental illness) after written notice thereof (specifying the
particulars thereof in reasonable detail) and a reasonable opportunity to be
heard and cure such failure are given to the employee by the Board of Directors;
or (d) the order of a court of competent jurisdiction requiring the termination
of the employee's employment. For purposes of the Plan, no act, or failure to
act, on the employee's part shall be considered "willful" unless done or omitted
to be done by the employee not in good faith and without reasonable belief that
the employee's action or omission was in the best interest of the Company or a
subsidiary corporation or parent corporation of the Company.
For the purposes of the Plan, an employment relationship shall be deemed to
exist between an individual and a corporation if, at the time of the
determination, the
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individual was an "employee" of such corporation for purposes of Section
422(a) of the Code. If an individual is on maternity, military, or sick
leave or other bona fide leave of absence, such individual shall be
considered an "employee" for purposes of the exercise of an Option and shall
be entitled to exercise such Option during such leave if the period of such
leave does not exceed ninety (90) days, or, if longer, so long as the
individual's right to reemployment with his employer is guaranteed either by
statute or by contract. If the period of leave exceeds ninety (90) days, the
employment relationship shall be deemed to have terminated on the
ninety-first (91st) day of such leave, unless the individual's right to
reemployment is guaranteed by statute or contract.
A termination of employment shall not be deemed to occur by reason of (i)
the transfer of a Participant from employment by the Company to employment by a
subsidiary corporation or a parent corporation of the Company or (ii) the
transfer of a Participant from employment by a subsidiary corporation or a
parent corporation of the Company to employment by the Company or by another
subsidiary corporation or parent corporation of the Company.
ARTICLE 13
ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS
In the event of any change in the outstanding Shares through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
split-up, split-off, spin-off, combination or exchange of shares, or other like
change in capital structure of the Company, an adjustment shall be made to each
outstanding Option such that each such Option shall thereafter be exercisable
for such securities, cash and/or other property as would have been received in
respect of the Shares subject to such Option had such Option been exercised in
full immediately prior to such change, and such an adjustment shall be made
successively each time any such change shall occur. The term "Shares" after any
such change shall refer to the securities, cash and/or property then receivable
upon exercise of an Option. In addition, in the event of any such change, the
Committee shall make any further adjustment as may be appropriate to the maximum
number of Shares subject to the Plan, the maximum number of Shares, if any, for
which Options may be granted to any one employee, and the number of Shares and
price per Share subject to outstanding Options as shall be equitable to prevent
dilution or enlargement of rights under such Options, and the determination of
the Committee as to these matters shall be conclusive. Notwithstanding the
foregoing, (i) each such adjustment with respect to an Incentive Option shall
comply with the rules of Section 425(a) of the Code, and (ii) in no event shall
any adjustment be made which would render any Incentive Option granted hereunder
other than an "incentive stock option" for purposes of Section 422 of the Code.
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For purposes of the Plan, a "change in control" of the Company occurs if:
(a) any "person" (defined as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act, as amended) other than David L. Hatcher is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the Company's outstanding securities then entitled to vote for the election of
directors; or (b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof; or (c) the Board of Directors
shall approve the sale of all or substantially all of the assets of the company
or any merger, consolidation, issuance of securities or purchase of assets, the
result of which would be the occurrence of any event described in clause (a) or
(b) above.
In the event of a change in control of the Company (defined above), the
Committee, in its discretion, may determine that, upon the occurrence of a
transaction described in the preceding paragraph, each Option outstanding
hereunder shall terminate within a specified number of days after notice to the
holder, and such holder shall receive, with respect to each Share subject to
such Option, an amount of cash equal to the excess of the fair market value of
such Share immediately prior to the occurrence of such transaction over the
exercise price per Share of such Option.
Alternatively, the Committee may determine, in its discretion, that all
then outstanding Options shall immediately become exercisable upon a change of
control of the Company.
ARTICLE 14
RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation thereof to continue the employment
of any Participant; and it shall not impose any obligation on the part of any
Participant to remain in the employ of the Company or of any subsidiary
corporation or parent corporation thereof.
ARTICLE 15
PURCHASE FOR INVESTMENT
Except as hereafter provided, a Participant shall, upon any exercise of an
Option, execute and deliver to the Company a written statement, in form
satisfactory to the Company, in which such Participant represents and warrants
that such Participant is purchasing or acquiring the Shares acquired thereunder
for such Participant's own account, for investment only and not with a view to
the resale or distribution thereof, and agrees that any subsequent offer for
sale or sale or distribution of any of such
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Shares shall be made only pursuant to either (a) a Registration Statement on
an appropriate form under the Securities Act of 1933, as amended (the
"Securities Act"), which Registration Statement has become effective and is
current with regard to the Shares being offered or sold, or (b) a specific
exemption from the registration requirements of the Securities Act, but in
claiming such exemption the holder shall, if so requested by the Company,
prior to any offer for sale or sale of such Shares, obtain a prior favorable
written opinion, in form and substance satisfactory to the Company, from
counsel for or approved by the Company, as to the applicability of such
exemption thereto. The foregoing restriction shall not apply to (i)
issuances by the Company so long as the Shares being issued are registered
under the Securities Act and a prospectus in respect thereof is current or
(ii) reofferings of Shares by affiliates of the Company (as defined in Rule
405 or any successor rule or regulation promulgated under the Securities Act)
if the Shares being reoffered are registered under the Securities Act and a
prospectus in respect thereof is current.
ARTICLE 16
ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
Upon any exercise of an Option and, in the case of an Option, payment of
the purchase price, a certificate or certificates for the Shares as to which the
Option has been exercised shall be issued by the Company in the name of the
person exercising the Option and shall be delivered to or upon the order of such
person or persons.
The Company may endorse such legend or legends upon the certificates for
Shares issued upon exercise of an Option granted hereunder and may issue such
"stop transfer" instructions to its transfer agent in respect of such Shares as,
in its discretion, it determines to be necessary or appropriate to (i) prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act, (ii) implement the provisions of the Plan and any agreement
between the Company and the optionee with respect to such Shares, or (iii)
permit the Company to determine the occurrence of a disqualifying disposition,
within the meaning of Section 421(b) of the Code, of Shares transferred upon
exercise of an Incentive Option granted under the Plan.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares, as well as all fees and expenses incurred by the
Company in connection with such issuance or transfer.
All Shares issued as provided herein shall be fully paid and non-assessable
to the extent permitted by law.
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ARTICLE 17
WITHHOLDING TAXES
The Company may require an employee exercising a Non-Qualified Option
granted hereunder, or disposing of Shares acquired pursuant to the exercise of
an Incentive Option in a disqualifying disposition (within the meaning of
Section 421(b) of the Code), to reimburse the corporation that employs such
employee for any taxes required by any government to be withheld or otherwise
deducted and paid by such corporation in respect of the issuance or disposition
of such Shares. In lieu thereof, the employer corporation shall have the right
to withhold the amount of such taxes from any other sums due or to become due
from such corporation to the employee upon such terms and conditions as the
Committee shall prescribe. The Committee may permit or require Shares to be
used to satisfy required tax withholding and such Shares shall be valued at
their fair market value. The employer corporation may, in its discretion, hold
the stock certificate to which such employee is entitled upon the exercise of an
Option as security for the payment of such withholding tax liability, until cash
sufficient to pay that liability has been accumulated.
ARTICLE 18
LISTING OF SHARES AND RELATED MATTERS
If at any time the Board of Directors shall determine in its discretion
that the listing, registration or qualification of the Shares covered by the
Plan upon any national securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
Shares under the Plan, no Shares shall be issued unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board of Directors.
ARTICLE 19
AMENDMENT OF THE PLAN
The Board of Directors or the Committee may, from time to time, amend the
Plan, provided that, notwithstanding anything to the contrary herein, no
amendment shall be made, without the approval of the shareholders of the
Company, that will (i) increase the total number of Shares reserved for Options
under the Plan (other than an increase resulting from an adjustment provided for
in Article 13), or (ii) change the eligibility of persons to whom an Incentive
Option may be granted. The Board of Directors or the Committee shall be
authorized to amend the Plan and the Options granted thereunder to permit the
Incentive Options granted thereunder to qualify as "incentive stock options"
within the meaning of Section 422 of the Code. The rights and obligations under
any Option granted before amendment of the Plan or any
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unexercised portion of such Option shall not be adversely affected by
amendment of the Plan or the Option without the consent of the holder of the
Option.
ARTICLE 20
TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors or the Committee may at any time and for any or no
reason suspend or terminate the Plan. The Plan, unless sooner terminated under
Article 3 or by action of the Board of Directors, shall terminate at the close
of business on the Termination Date. An Option may not be granted while the
Plan is suspended or after it is terminated. Options granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except upon the consent of the person to whom the Option was granted. The
power of the Committee under Article 4 to construe and administer any Options
granted prior to the termination or suspension of the Plan shall continue after
such termination or during such suspension.
ARTICLE 21
GOVERNING LAW
The Plan, such Options as may granted thereunder and all related matters
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Texas from time to time obtaining.
ARTICLE 22
PARTIAL INVALIDITY
The invalidity or illegality of any provision herein shall not be deemed to
affect the validity of any other provision.
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TABLE OF CONTENTS
ARTICLE 1: PURPOSES OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2: AMOUNT OF STOCK SUBJECT TO THE PLAN . . . . . . . . . . . . . . . 1
ARTICLE 3: EFFECTIVE DATE AND TERM OF THE PLAN . . . . . . . . . . . . . . . 2
ARTICLE 4: ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 5: ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 6: LIMITATION ON EXERCISE OF INCENTIVE OPTIONS . . . . . . . . . . . 4
ARTICLE 7: OPTIONS: PRICE AND PAYMENT. . . . . . . . . . . . . . . . . . . . 4
ARTICLE 8: USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 9: TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE. . . . . 6
ARTICLE 10: EXERCISE OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 11: NONTRANSFERABILITY OF OPTIONS. . . . . . . . . . . . . . . . . . 7
ARTICLE 12: TERMINATION OF DIRECTORSHIP OR EMPLOYMENT. . . . . . . . . . . . 7
ARTICLE 13: ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS . . . . . . 9
ARTICLE 14: RIGHT TO TERMINATE EMPLOYMENT. . . . . . . . . . . . . . . . . . 11
ARTICLE 15: PURCHASE FOR INVESTMENT. . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 16: ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES . . . . . 11
ARTICLE 17: WITHHOLDING TAXES. . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 18: LISTING OF SHARES AND RELATED MATTERS. . . . . . . . . . . . . . 12
ARTICLE 19: AMENDMENT OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 20: TERMINATION OR SUSPENSION OF THE PLAN. . . . . . . . . . . . . . 13
i
<PAGE>
ARTICLE 21: GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 22: PARTIAL INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . 14
ii
<PAGE>
NEITHER THIS OPTION NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER THIS OPTION NOR THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS OPTION MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS EXPRESSLY PERMITTED UNDER THE
TERMS OF THIS OPTION.
OPTION TO PURCHASE 43,671 SHARES
OF COMMON STOCK
of
KMG-B, INC.
THIS OPTION AGREEMENT ("Option") is executed effective as of October 17, 1996
by and between THOMAS H. MITCHELL ("Holder") and KMG-B, INC. ("Company"), a
Texas corporation, and pursuant to which Holder is entitled to purchase an
aggregate of Forty-three Thousand Six Hundred Seventy-one (43,671) shares of
the common stock, $.01 par value, of Company (such shares of the common stock
of Company to which an option is being granted herein called the "Option
Shares" and all shares of common stock of Company being herein called the
"Common Stock"), upon payment of the exercise price of 21.6/100 Dollars
($.216) per Option Share (the "Exercise Price"), in accordance with the terms
and conditions hereof. This Option is granted to the Holder pursuant to the
1996 Stock Option Plan ("Plan") of the Company, a copy of which has been
provided to Holder. This Option is subject to all the terms and conditions
of the Plan and this Option as set forth herein.
1. VESTING OF OPTION SHARES. Holder shall not be entitled to purchase
Option Shares until such shares shall become vested ("Vested Shares"). The
Option Shares shall vest and become Vested Shares, provided the other
conditions of this Option are met, as follows: One Hundred percent (100%) of
the Option Shares shall vest on the earlier of ("Vesting Date") (i) July 31,
1997 or (ii) the effective date of any sale, lease, exchange or other
disposition (not including any pledge, mortgage, deed of trust or trust
indenture) of all, or substantially all, the property and assets, with or
without goodwill, of the Company, if not made in the usual and regular course
of business. Holder may exercise the Option for Vested Shares within seven
(7) years after the date upon which such shares become Vested Shares ("Option
Period"). Upon the expiration of the Option Period applicable to Vested
Shares, Holder shall have no right to purchase such shares and this Option,
with respect to such shares, shall terminate. Option Shares shall not become
Vested Shares if prior to the Vesting Date applicable to such shares,
Holder's employment with the Company shall have terminated for any reason.
<PAGE>
2. EXERCISE OF OPTION. The Option shall be exercised upon delivery of
written notice to the Company setting forth the number of Vested Shares with
respect to which this Option is being exercised, and specifying a business
day not more than fifteen (15) days nor less than five (5) days from the date
such notice is given, for the payment of the Exercise Price against delivery
of the Vested Shares being purchased. Notice shall be delivered in person or
by registered mail, return receipt requested, addressed to the Company at
10611 Harwin, Suite 402, Houston, Texas 77036, or at such other office as the
Company may designate by written notice to the Holder, and shall be deemed
received on actual delivery or within three (3) days after the date such
notice is deposited in the mail.
Subject to the terms of this Option and the Plan, the Company shall
cause certificates for the Vested Shares so purchased to be delivered to the
Holder at the principal business office of the Company on the date specified
in the notice of exercise or as soon thereafter as is reasonably practicable,
and in any event within ten (10) days, against payment of the full Exercise
Price in cash or certified check, in form and substance satisfactory to
Company; provided, however, that in lieu of cash or certified check, the
Holder may to the extent permitted by applicable law, exercise this Option in
whole or in part, by having shares of Vested Stock being purchased withheld
or by delivering to the Company shares of Common Stock (in proper form for
transfer and accompanied by all requisite stock transfer tax stamps or cash
in lieu thereof) owned by such Holder, which in the aggregate have a fair
market value equal to the purchase price of the Vested Shares as to which the
Option is being exercised. The fair market value of the Vested Shares so
withheld or the or Common Stock so delivered shall be determined as provided
in the Plan as of the date immediately preceding the date on which the Option
is exercised, or as may be required in order to comply with or to conform to
the requirements of any applicable laws or regulations.
This Option may be exercised either in whole or in part and, if in
part, from time to time in part; provided, however, that this Option may not
be exercised for less than 1,000 Vested Shares (or such lesser number of
Vested Shares as is covered by this Option); and, provided further, that this
Option may only be exercised by the Holder for the purchase of whole Vested
Shares and not fractions thereof.
The Vested Shares so purchased shall be and are deemed to be
transferred to the Holder as the record owner of such Vested Shares as of the
close of business on the date on which this Option shall have been exercised
and payment shall have been made for such Vested Shares as aforesaid.
3. RESERVATION OF STOCK; REGISTRATION OF STOCK. The Company covenants
and agrees that (a) it has or will at all appropriate times, so long as this
Option is outstanding, reserve and keep available out of its treasury, Common
Stock or authorized but unissued Common Stock, solely for the purpose of
issuing shares, from
2
<PAGE>
time to time, upon the exercise of this Option, an adequate number of shares
of Common Stock for delivery at the times and in the manner provided herein
upon exercise of this Option; (b) the shares delivered upon exercise of the
Option shall be validly issued and outstanding and fully paid and
nonassessable shares of Common Stock; and (c) it will pay when due any and
all Federal and state original issue or similar taxes which may be payable in
respect of the issuance of the Option or of any shares of Common Stock upon
exercise of the Option. The Company shall not, however, be required to pay
any transfer tax which may be payable with respect to any transfer of the
Option, the issuance of certificates of Common Stock in a name other than
that of the Holder or any transfer of shares, all such tax being payable by
the Holder. Subject to Section 10 of this Option, upon the exercise by the
Holder of this Option with respect to all Vested Shares, all shares of Common
Stock issued pursuant to this Option will be registered under the Securities
Act of 1933 ("Act") on Form S-8 or other appropriate registration form unless
in the opinion of the Company registration is not necessary or appropriate or
should be delayed, as to each of which the determination of the Company shall
be conclusive.
4. RESTRICTIONS ON TRANSFER. Unless this Option or the Option Shares,
as applicable, have been registered, this Option and the Certificates
representing the Option Shares purchased by Holder shall be stamped or
otherwise imprinted with a legend substantially in the following form:
"This Option has not been registered under the Securities Act of 1933,
and neither this Option nor the shares of Common Stock issuable upon
exercise of this Option may be sold, transferred or otherwise disposed of
except as expressly permitted under the terms of this Option."
This Option shall not be transferable, whether by operation of law or
otherwise, other than by will or the laws of descent and distribution, and
this Option shall be exercisable, during the lifetime of the Holder, only by
such Holder. No sale, transfer or other disposition of any of the Option
Shares shall be made by the Holder thereof unless (i) such sale, transfer or
other disposition of the Option Shares is covered by an effective
registration statement (on the then appropriate form) under the Act, or (ii)
if requested by the Company, the Holder shall have furnished an opinion of
Holder's counsel (which opinion and counsel shall be satisfactory to the
Company in its reasonable discretion) with respect to the sale, transfer or
other disposition of such Option Shares as not requiring registration under
the Act or other federal and state laws or regulations or (iii) the Holder
sells such Option Shares in full compliance with all of the provisions of
Rule 144 promulgated under the Act, as the same is then in effect, or of a
successor or similar rule ("Rule") of the Securities and Exchange Commission
("Commission"), affording an exemption from the registration requirements of
the Act in the circumstances and provides the Company with such supporting
documentation as may be required by law.
3
<PAGE>
5. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of this
Option shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalization,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, common stock, preferred or prior preference stock ahead of
or affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
In the event of any change in the outstanding Common Stock through
merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, split-up, split-off, spin-off, combination or exchange of
shares, or other like change in capital structure of the Company, an
adjustment shall be made to this Option such that this Option shall
thereafter be exercisable for such securities, cash and/or other property as
would have been received in respect of the Option Shares subject to this
Option had this Option been exercised in full immediately prior to such
change, and such an adjustment shall be made successively each time any such
change shall occur. The term "Option Shares" after any such change shall
refer to the securities, cash and/or property then receivable upon exercise
of this Option. In addition, in the event of any such change, the Company
shall make any further adjustment as may be appropriate to the number of
Option Shares and the Exercise Price per share as shall be equitable to
prevent dilution or enlargement of rights under this Option, and the
determination of the Company as to such matters shall be conclusive.
Except as hereinbefore expressly provided, the issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock
of any class, for cash or property, or for labor or services either upon
direct sale or upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company convertible into
such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, this Option.
6. NO RIGHTS AS STOCKHOLDER. The Holder shall not, based on his being
a Holder, be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other security of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the Holder of this Option, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue of stock, reclassification of
stock, change to or of par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or
4
<PAGE>
otherwise except for that portion of Vested Shares in respect of which this
Option has been exercised and payment made.
7. NONNEGOTIABILITY. The Holder of this Option, by accepting the same,
consents and agrees with the Company that this Option is not transferable, in
whole or in part, except pursuant to the laws of descent and distribution.
8. MODIFICATIONS. This Option and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against whom enforcement of such change, waiver, discharge or
termination is sought.
9. NOTICES. Any notice to be given to the Company under the terms
hereof shall be addressed to the Company at the address set forth hereinabove
and any notice to the Holder shall be addressed to the Holder's address as
reflected on the signature page of this Option, or at such other address as
the Company and the Holder may hereafter designate in writing to the other.
Any such notice shall have been deemed given when actually received or on the
third day after it is enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified and deposited (postage and
registry or certification fee prepaid) in a post office regularly maintained
by the United States Government.
10. VIOLATION OF LAW. In addition to any other restrictions contained
in this Option, the Holder may not exercise this Option, in whole or in part
at such times and from time to time as, in the reasonable opinion of counsel
to the Company, the issuance and sale to Holder of the Option Shares, upon
exercise of this Option, is not exempt from the registration provisions of
the Act (unless the Option and/or Option Shares, as applicable, have been
registered under the Act), or violates other applicable laws or regulations.
The Company shall use its best efforts to cure such violation and/or
potential violation so as to permit exercise of this Option.
11. TAX WITHHOLDING. The Holder further agrees that the Company may
withhold other cash compensation due to the Holder in an amount equal to any
required withholding amount under Federal or state income tax laws owing as a
result of this Option or the exercise thereof and that the Holder will pay to
the Company any additional cash, if necessary, to satisfy such withholding
requirement. The Company, at its option, may also retain and withhold Common
Stock issued upon the exercise of this Option in an amount necessary to
satisfy such withholding requirement.
12. EMPLOYMENT. Nothing within this Option shall be construed to
impose upon the Company or any affiliate any obligation to employ or to
continue to employ or maintain any other affiliation with the Holder.
5
<PAGE>
13. FORMS OF ELECTION TO EXERCISE OPTION. Any notice of exercise shall
be in a form substantially similar to the form attached hereto as EXHIBIT A.
14. ARBITRATION. Any controversy or claim arising out of or relating
to the issuance of this Option, or the issuance or any other matter relating
to the Option Shares hereunder, or the actual or alleged breach of this
Option, or the rights or duties or obligations of the Company or the Holder
hereunder, shall be settled by arbitration conducted in the City of Houston
in accordance with and by an arbitrator appointed pursuant to the rules of
the American Arbitration Association in effect at the time, and judgment upon
the award rendered pursuant thereto may be entered in any court having
jurisdiction thereof, and all rights or remedies of the Company, the Holder
and their successors to the contrary are hereby expressly waived. The costs
in connection with any arbitration proceeding shall be assessed against the
parties in the manner decided by the arbitrator(s).
15. SUCCESSORS AND ASSIGNS. This Option and each provision herein
shall be binding upon and applicable to, and shall inure to the benefit of
the Company and the Holder, their successors, assigns, heirs and
representatives, except as otherwise specifically provided in this Option.
16. GENDER, SECTION REFERENCES. Pronouns, wherever used herein, and of
whatever gender, shall include natural persons, corporations and entities of
every kind, the singular shall include the plural wherever and as often as
may be appropriate and the plural shall include the singular wherever and as
often as may be appropriate. The section titles and subtitles ("Titles")
used in this Option are solely for convenience of reference and shall not
affect, modify nor limit the provisions of this Option. Any reference to a
particular Title in this Option shall be construed as referring to the
provisions in the indicated Title within this Option.
17. SEVERABILITY. If any provision of this Option, or the application
of such provision to any person or circumstance, shall be held invalid or
unenforceable for any reason, the remainder of this Option, or the
application of such provision to persons or circumstances other than those to
which it is held invalid or unenforceable, shall not be affected thereby.
6
<PAGE>
18. GOVERNING LAWS. This Option shall be interpreted, construed, and
enforced in accordance with the laws of the State of Texas.
DATED effective as of the date first above written.
COMPANY:
KMG-B, INC.
By: /S/ DAVID L. HATCHER
-------------------------------------
David L. Hatcher,
President
HOLDER:
/S/ THOMAS H. MITCHELL
------------------------------------------
Thomas H. Mitchell
Holder Address:
3007 Plumb
Houston, Texas 77005
7
<PAGE>
EXHIBIT A
ELECTION TO EXERCISE OPTION
The undersigned, THOMAS H. MITCHELL, pursuant to the provisions of an
Option dated effective October 17, 1996, hereby elects to purchase __________
(_____) shares of common stock of the Company covered by such Option.
Dated:
----------------- --------------------------------------
Thomas H. Mitchell
Address:
3007 Plumb
Houston, Texas 77005
Social Security No.
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and entered into this
15th day of October, 1996, by and among Gilman Financial Corporation, a Texas
corporation ("GFC"), KMG-Bernuth, Inc., a Delaware corporation (the "Client"),
and David Hatcher, an individual residing in Texas.
RECITALS
A. KMG desires to enter into a reverse acquisition transaction pursuant
to a Stock Exchange Agreement (the "Stock Exchange Agreement") by and among KMG,
the shareholders of KMG, W.P. Acquisition Corp., a Texas corporation (the
"WPA"), and Halter Financial Group, Inc., a Texas Corporation ("HFG"), whereby
100% of KMG's issued and outstanding capital stock will be exchanged for an
aggregate of approximately 6,510,000 shares of the issued and outstanding common
stock of WPA, resulting in KMG becoming a wholly-owned subsidiary of WPA.
B. GFC has provided and is willing to provide certain consulting services
to KMG with respect to the transactions contemplated by the Stock Exchange
Agreement and certain other related matters on the terms and conditions set
forth in this Agreement.
C. As a result of the transactions contemplated by the proposed Stock
Exchange Agreement, it is anticipated that Mr. Hatcher will become a controlling
shareholder of WPA. Mr. Hatcher enters into this Agreement for the purpose of
making certain agreements with GFC.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. CONSULTING SERVICES. GFC hereby agrees to provide consulting services
to KMG under the terms and conditions set forth in this Agreement as follows:
(i) Finding WPA;
(ii) Advising KMG concerning the structure of the transactions
contemplated by this Agreement;
(iii) Reviewing the form of the Stock Exchange Agreement; and
(iv) Performing additional reasonable services related to the
foregoing subparagraphs (i)-(iii) or as is otherwise contemplated by
this Agreement.
<PAGE>
2. PUBLIC COMPANY OBLIGATIONS. Subsequent to the completion of the
transactions contemplated by the proposed Stock Purchase Agreement, Mr. Hatcher
hereby agrees to cause WPA, KMG and any successor corporation thereof to comply
with the obligations of this Agreement.
3. COMPENSATION. As compensation for entering into this Agreement,
Mr. Hatcher hereby agrees to cause WPA to issue to GFC or to the persons or
entities designated by GFC an aggregate of 137,695 shares of its common stock
(the "WPA Shares"). WPA Shares shall have been duly authorized for such
issuance and, when issued and delivered by WPA in accordance with the provisions
of this Agreement, will be validly issued, fully paid and nonassessable.
4. ISSUANCE AND REGISTRATION OF WPA SHARES. The Public Company Shares
will be issued to GFC or the persons and the entities designated by GFC and
registered with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act") under a Registration Statement on Form S-8 as soon as WPA is
eligible to use such Form S-8, or as soon as practicable thereafter. At the
request of KMG, GFC will assist KMG and WPA in the preparation and filing of the
Registration Statement on Form S-8 and all documentation required thereunder.
GFC will also assist KMG and WPA in the preparation of any filings necessary
under state securities laws related to the issuance of such shares.
This Agreement is intended to qualify as an "employee benefit plan" within
the meaning of Rule 405 of Regulation C under the Securities Act. Moreover, it
is intended that WPA Shares be eligible for registration under the Securities
Act on Form S-8. This Agreement shall be interpreted as to so qualify and that
such shares will be so eligible. In particular, notwithstanding any possible
contrary interpretation of any provision of this Agreement, this Agreement is
meant to be and shall be interpreted so that the consulting services which GFC
is obligated to provide hereunder do not include any services in connection with
the offer or sale of securities in a capital-raising transaction. If for any
reason WPA Shares are not eligible for registration under the Securities Act on
Form S-8, GFC may, at its option, prepare and file on behalf of WPA a
registration statement on an appropriate form under the Securities Act. KMG
will assist GFC in its preparation and filing of such registration statement as
GFC may request.
5. EXPENSES. GFC will be responsible for all costs, fees and expenses
that it incurs in connection with the performance of the consulting services
within the scope of Section 1 hereof, provided, however, KMG will be responsible
for its own legal, accounting and other professional fees incurred in connection
with the transactions contemplated by this Agreement.
2
<PAGE>
6. ACCURACY OF INFORMATION AND INDEMNIFICATION. KMG agrees to fully
cooperate with GFC in the performance of GFC's consulting services as GFC may
request. In this regard, KMG agrees to furnish to GFC complete, truthful and
accurate information in all respects. KMG agrees to indemnify and hold harmless
GFC from any loss, liability, damages, costs and expenses (including attorneys'
and other professional fees) that GFC may incur as a result of KMG furnishing to
GFC any untruthful or inaccurate information or failing to provide any material
information necessary to make the statements being made or the information being
furnished accurate and truthful in light of all the circumstances.
7. MISCELLANEOUS.
(a) AMENDMENT. This Agreement and the Amended Consulting Agreement of
even date by and among HFG, KMG and Mr. Hatcher amend and supersede that
Consulting Agreement I by and among the Client, HFG, GFC and Mr. Hatcher
and that Consulting Agreement II, by and among the Client, HFG, GFC and
Mr. Hatcher, each dated April 3, 1996.
(b) ASSIGNABILITY. Unless otherwise agreed to in writing by the parties
hereto, the rights, obligations and benefits established by this Agreement
shall be nonassignable by either of the parties hereto and any such attempt
of assignment shall be null and void and of no effect whatsoever.
(c) RELATIONSHIP OF THE PARTIES. The management and employees of GFC
shall not be considered employees of KMG. Furthermore, the parties agree
that GFC shall not be deemed to be an employee, servant, partner or joint
venturer of KMG. GFC shall be considered an independent contractor for all
purposes.
(d) ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof, and may not be
changed except by a writing signed by the party against whom enforcement or
discharge is sought.
(e) WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by any other party.
(f) CONSTRUCTION OF LANGUAGE. The language used in this Agreement shall
be construed as a whole according to its fair meaning, and not strictly for
nor against either party.
(g) CAPTIONS AND HEADINGS. The paragraph headings throughout this
Agreement are for convenience and reference only, and shall in no way be
3
<PAGE>
deemed to define, limit or add to the meaning of any provision of this
Agreement.
(h) STATE LAW. This Agreement, its interpretation and its application
shall be governed by the laws of the State of Texas.
(i) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Execution and
delivery of this Agreement by exchange of facsimile copies bearing
facsimile signature of a party shall constitute a valid and binding
execution and delivery of this Agreement by such party. Such facsimile
copies shall constitute enforceable original documents.
(j) COSTS. In the event of any legal proceeding between any of the
parties to enforce or defend the terms and rights set forth in this
Agreement, the prevailing party or parties shall be paid all reasonable
costs of such legal proceeding, including but not limited to, attorneys'
fees by the other party or parties.
(k) NOTICES AND WAIVERS. Any notice or waiver required or permitted to
be given by the parties hereto shall be in writing and shall be deemed to
have been given, when delivered, three business days after being mailed by
certified or registered mail, faxed during regular business hours of the
recipient and there is confirmation of receipt, or sent by prepaid full
rate telegram to the following addresses:
To KMG:
Mr. David Hatcher, President
KMG-Bernuth, Inc.
10611 Harwin, Suite 402
Houston, Texas 77036
To GFC:
Mr. George W. Gilman
Gilman Financial Corporation
710 N. Post Oak Road, #400
Houston, Texas 77024
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the day first above written.
KMG-BERNUTH, INC.
By: /s/ DAVID HATCHER
--------------------------------
David Hatcher, President
/s/ DAVID HATCHER
- -----------------------------------
David Hatcher, individually
GILMAN FINANCIAL CORPORATION
By: /s/ JEFFREY L. GILMAN
--------------------------------
Name: JEFFREY L. GILMAN
--------------------------
5
<PAGE>
SPLIT DOLLAR INSURANCE AGREEMENT
THIS AGREEMENT made effective this 13th day of December, 1991, between
KMG-BERNUTH, INC., (hereinafter called the Employer), and BOBBY D. GODFREY, an
employee of Employer, (hereinafter called the Employee).
WHEREAS, the Employee has been employed by the Employer and the Employer
desires to encourage the Employee to remain in its service by the establishment
of a Split Dollar life insurance plan, and
WHEREAS, the Employee agrees to participate in such plan as hereinafter
provided.
NOW, THEREFORE, it is agreed that:
1. PURCHASE OF POLICY/POLICY OWNERSHIP
The Employee shall apply to The Prudential Insurance Company of
America (Prudential) for a Life Insurance Policy in the face amount of
$405,000 on the life of the Employee (with a $175,000 Decreasing Term
Rider), which policy shall be owned by the Employee or his transferee
(hereinafter called the Transferee), and is described on the attached
Schedule A. The Employee reserves all rights of ownership in the policy
except those specifically granted to the Employer in this Agreement.
In the event that the Employee has transferred or shall transfer all
of his interest in the policy which is the subject of this Agreement (other
than rights collectively assigned to the Employer pursuant to this
Agreement), then all of the Employee's interest in the policy and in this
Agreement shall be vested in the Transferee and the Employee shall have no
further interest in the policy and this Agreement, and any and all rights,
duties or obligations of the Employee shall thereafter be exercisable by
the Transferee.
2. PAYMENT OF PREMIUMS
The Employer shall pay from its funds and remit to Prudential each
premium due in accordance with the mode of premium payment as provided in
the policy on or before the due date.
3. COLLATERAL ASSIGNMENT
The Employee shall assign the policy to the Employer as the Employer's
interest may appear to secure the return to the Employer of payments made
under Section 2. The interest of the Employer at any time shall be the sum
of
<PAGE>
the amounts applied to the payment of premiums on the policy by the Employer
less any indebtedness on the policy previously incurred by Employer.
The Employer shall release its interest in the policy, cancel the
collateral assignment, and transfer physical possession of the policy to
the Employee upon payment of the total indebtedness owed by the Employee to
the Employer. Such release, cancellation and transfer shall terminate all
obligations of the Employer under this Agreement.
4. DIVIDEND OPTION
The annual dividend, if any, shall be applied to provide paid-up
additional insurance on the life of the Employee.
5. AVAILABILITY OF LOAN VALUES TO EMPLOYER
Upon the request of the Employer, the Employee shall join in an
application for a policy loan in an amount not greater than the interest of
the Employer and direct Prudential to make the checkin payment thereof
payable to the joint order of the Employer and the Employee. The Employee
shall endorse such check to make it payable to the order of the Employer.
6. TERMINATION OF AGREEMENT
This Agreement shall terminate on the first to occur of (i) the
receipt of Notice of Termination by either party from the other party to
the Agreement, (ii) the date the Employee leaves the Employer's service.
Within 30 days after termination of this Agreement for any reason, the
Employee shall have the right to pay the interest of the Employer to the
Employer. If the Employee does not exercise that right, the Employee shall
upon the request of the Employer, apply for a loan in an amount not to
exceed the interest of the Employer under this Agreement. The Employee
shall direct Prudential to make the check in payment thereof payable to the
joint order of the Employer and the Employee.
7. SATISFACTION OF EMPLOYER'S INTEREST FROM DEATH PROCEEDS
The Employee further agrees that in the event of the death of
Employee, the Employer shall receive, as collateral assignee, directly from
Prudential an amount equal to the total amount of the Employee's
indebtedness to the Employer under this Agreement, less any amounts
borrowed against the policy, including interest thereon, by the Employer,
existing as of the date of the death of the Employee, and that no
beneficiary under the said policy shall have any right to the said
indebtedness repayment from the policy proceeds or avails.
2
<PAGE>
The Employer agrees that upon the death of Employee it will satisfy the
indebtedness to it out of the proceeds of said policy, and will release
all other interest in such proceeds in favor of the beneficiary or
beneficiaries designated in said policy.
8. AGREEMENT BINDING
This Agreement shall be binding upon the parties hereto, their heirs,
legal representatives or successors.
9. AMENDMENT
This Agreement shall not be modified or amended except by a written
Agreement signed by the parties.
10. STATE LAW
This Agreement shall be subject to and governed by the laws of the
State of Texas.
11. INSURANCE COMPANY NOT A PARTY TO AGREEMENT
Notwithstanding the provisions of this Agreement, Prudential is not a
party to this Agreement and shall have no rights, obligations or duties
with respect thereto.
12. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
The person holding the position of corporate Secretary of the Employer
from time to time is hereby designated the "named fiduciary". The named
fiduciary shall be responsible for the management, control and
administration of the Split Dollar Plan as established herein.
The named fiduciary may allocate to others certain aspects of the
management and operational responsibilities of the plan, including the
employment of advisors and the delegation of any ministerial duties to the
qualified individuals.
13. CLAIMS PROCEDURE
3
<PAGE>
A. Filing of Benefit Claims
1. When an Employee, beneficiary, or his or her duly authorized
representative (hereinafter referred to as the "Claimant") have a
claim which may be covered under the provisions of the insurance
policy described in the attached Schedule A, he or she should
contact Prudential.
2. Claim forms and claim information can be obtained from
Prudential.
3. The claim must be in writing on a Prudential Claim Form and
delivered, along with a certified copy of the death certificate,
to Prudential either in person or by mail, postage paid.
B. Initial Disposition of Benefit Claims
1. Within ninety (90) days after receipt of a claim, Prudential
shall send to the Claimant, by mail, postage prepaid, a notice
granting or denying, in whole or in part, a claim for benefits.
2. If a claim for benefits is denied, Prudential shall provide to
the Claimant written notice setting forth in a manner calculated
to be understood by the Claimant:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent policy provisions on which
the denial is based;
(c) A description of any additional material or information
necessary for the Claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(d) Appropriate information as to the steps to be taken if the
Claimant wishes to submit his or her claim for review.
3. If the claim is payable, a benefit check will be issued to the
Claimant.
4. The ninety (90) day period may be extended if special
circumstances require an extension of time to process the claim
for benefits.
4
<PAGE>
5. Written notice of the extension shall be furnished to the
Claimant prior to the termination of the initial 90-day period by
Prudential.
6. The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which Prudential
expects to render the final decision.
7. In no event shall such extension exceed a period of 90 days from
the end of the initial 90-day period.
8. If a notice of denial is not received within 90 days of the claim
being filed, the claim shall be deemed denied and the Claimant
shall be permitted to proceed to the review stage.
C. Review Procedure
1. Within sixty (60) days of:
(a) The receipt by the Claimant of written notification denying,
in whole or in part, his or her claim, or
(b) A deemed denial resulting from Prudential's failure to
provide the Claimant with written notice of denial within 90
days of the claim being filed, the Claimant may appeal a
denied claim to Prudential or a person designated by
Prudential.
2. The Claimant may:
(a) Request a review upon written application to Prudential;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
3. The decision on review shall be made within sixty (60) days of
Prudential's receipt of a request for review.
4. The sixty (60) day period may be extended if special
circumstances require an extension of time to process the review.
5
<PAGE>
5. If an extension is required:
(a) Written notice of the extension shall be furnished to the
Claimant prior to the commencement of the extension; and
(b) A decision shall be rendered within 60 days or within 120
days if an extension is granted, then the claim shall be
deemed denied on review.
D. Other Remedies
1. After exhaustion of the claims procedures, nothing shall prevent
any person from pursuing any other legal or equitable remedy
otherwise available.
CORPORATE SEAL KMG-BERNUTH, INC.
/s/ MAREEN S. GILROY /s/ DAVID L. HATCHER
- ---------------------------------- ---------------------------------
Secretary President
In presence of:
Employee's
/s/ MAREEN S. GILROY Signature /s/ BOBBY D. GODFREY
- ---------------------------------- ------------------------
6
<PAGE>
SCHEDULE A
It is agreed, pursuant to the foregoing Split Dollar Life Insurance
Agreement dated December 13, 1992 that the following described policy of life
insurance shall be subject to the provisions of said Agreement.
Policy No. 61345996 issued by The Prudential Insurance Company of American
on December 13, 1991, insuring the life of Bobby D. Godfrey.
7
<PAGE>
SPLIT DOLLAR INSURANCE AGREEMENT
THIS AGREEMENT made effective this 8th day of November, 1991, between
KMG-BERNUTH, INC., (hereinafter called the Employer), and DAVID L. HATCHER, an
employee of Employer, (hereinafter called the Employee).
WHEREAS, the Employee has been employed by the Employer and the Employer
desires to encourage the Employee to remain in its service by the establishment
of a Split Dollar life insurance plan, and
WHEREAS, the Employee agrees to participate in such plan as hereinafter
provided.
NOW, THEREFORE, it is agreed that:
1. PURCHASE OF POLICY/POLICY OWNERSHIP
The Employee shall apply to The Prudential Insurance Company of
America (Prudential) for a Life Insurance Policy in the face amount of
$1,000,000 on the life of the Employee (with a $700,000 Decreasing Term
Rider), which policy shall be owned by the Employee or his transferee
(hereinafter called the Transferee), and is described on the attached
Schedule A. The Employee reserves all rights of ownership in the policy
except those specifically granted to the Employer in this Agreement.
In the event that the Employee has transferred or shall transfer all
of his interest in the policy which is the subject of this Agreement (other
than rights collectively assigned to the Employer pursuant to this
Agreement), then all of the Employee's interest in the policy and in this
Agreement shall be vested in the Transferee and the Employee shall have no
further interest in the policy and this Agreement, and any and all rights,
duties or obligations of the Employee shall thereafter be exercisable by
the Transferee.
2. PAYMENT OF PREMIUMS
The Employer shall pay from its funds and remit to Prudential each
premium due in accordance with the mode of premium payment as provided in
the policy on or before the due date.
3. COLLATERAL ASSIGNMENT
The Employee shall assign the policy to the Employer as the Employer's
interest may appear to secure the return to the Employer of payments made
under Section 2. The interest of the Employer at any time shall be the sum
of
<PAGE>
the amounts applied to the payment of premiums on the policy by the
Employer less any indebtedness on the policy previously incurred by
Employer.
The Employer shall release its interest in the policy, cancel the
collateral assignment, and transfer physical possession of the policy to
the Employee upon payment of the total indebtedness owed by the Employee to
the Employer. Such release, cancellation and transfer shall terminate all
obligations of the Employer under this Agreement.
4. DIVIDEND OPTION
The annual dividend, if any, shall be applied to provide paid-up
additional insurance on the life of the Employee.
5. TERMINATION OF AGREEMENT
This Agreement shall terminate on the first to occur of (i) the
receipt of Notice of Termination by either party from the other party to
the Agreement, (ii) the date the Employee leaves the Employer's service.
Within 30 days after termination of this Agreement for any reason, the
Employee shall have the right to pay the interest of the Employer to the
Employer. If the Employee does not exercise that right, the Employee shall
upon the request of the Employer, apply for a loan in an amount not to
exceed the interest of the Employer under this Agreement. The Employee
shall direct Prudential to make the check in payment thereof payable to the
joint order of the Employer and the Employee.
6. SATISFACTION OF EMPLOYER'S INTEREST FROM DEATH PROCEEDS
The Employee further agrees that in the event of the death of
Employee, the Employer shall receive, as collateral assignee, directly from
Prudential an amount equal to the total amount of the Employee's
indebtedness to the Employer under this Agreement, less any amounts
borrowed against the policy, including interest thereon, by the Employer,
existing as of the date of the death of the Employee, and that no
beneficiary under the said policy shall have any right to the said
indebtedness repayment from the policy proceeds or avails. The Employer
agrees that upon the death of Employee it will satisfy the indebtedness to
it out of the proceeds of said policy, and will release all other interest
in such proceeds in favor of the beneficiary or beneficiaries designated in
said policy.
2
<PAGE>
7. AGREEMENT BINDING
This Agreement shall be binding upon the parties hereto, their heirs,
legal representatives or successors.
8. AMENDMENT
This Agreement shall not be modified or amended except by a written
Agreement signed by the parties.
9. STATE LAW
This Agreement shall be subject to and governed by the laws of the
State of Texas.
10. INSURANCE COMPANY NOT A PARTY TO AGREEMENT
Notwithstanding the provisions of this Agreement, Prudential is not a
party to this Agreement and shall have no rights, obligations or duties
with respect thereto.
11. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
The person holding the position of corporate Secretary of the Employer
from time to time is hereby designated the "named fiduciary". The named
fiduciary shall be responsible for the management, control and
administration of the Split Dollar Plan as established herein.
The named fiduciary may allocate to others certain aspects of the
management and operational responsibilities of the plan, including the
employment of advisors and the delegation of any ministerial duties to the
qualified individuals.
12. CLAIMS PROCEDURE
A. Filing of Benefit Claims
1. When an Employee, beneficiary, or his or her duly authorized
representative (hereinafter referred to as the "Claimant") have a
claim which may be covered under the provisions of the insurance
policy described in the attached Schedule A, he or she should
contact Prudential.
3
<PAGE>
2. Claim forms and claim information can be obtained from
Prudential.
3. The claim must be in writing on a Prudential Claim Form and
delivered, along with a certified copy of the death certificate,
to Prudential either in person or by mail, postage paid.
B. Initial Disposition of Benefit Claims
1. Within ninety (90) days after receipt of a claim, Prudential
shall send to the Claimant, by mail, postage prepaid, a notice
granting or denying, in whole or in part, a claim for benefits.
2. If a claim for benefits is denied, Prudential shall provide to
the Claimant written notice setting forth in a manner calculated
to be understood by the Claimant:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent policy provisions on which
the denial is based;
(c) A description of any additional material or information
necessary for the Claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(d) Appropriate information as to the steps to be taken if the
Claimant wishes to submit his or her claim for review.
3. If the claim is payable, a benefit check will be issued to the
Claimant.
4. The ninety (90) day period may be extended if special
circumstances require an extension of time to process the claim
for benefits.
5. Written notice of the extension shall be furnished to the
Claimant prior to the termination of the initial 90-day period by
Prudential.
6. The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which Prudential
expects to render the final decision.
4
<PAGE>
7. In no event shall such extension exceed a period of 90 days from
the end of the initial 90-day period.
8. If a notice of denial is not received within 90 days of the claim
being filed, the claim shall be deemed denied and the Claimant
shall be permitted to proceed to the review stage.
C. Review Procedure
1. Within sixty (60) days of:
(a) The receipt by the Claimant of written notification denying,
in whole or in part, his or her claim, or
(b) A deemed denial resulting from Prudential's failure to
provide the Claimant with written notice of denial within 90
days of the claim being filed, the Claimant may appeal a
denied claim to Prudential or a person designated by
Prudential.
2. The Claimant may:
(a) Request a review upon written application to Prudential;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
3. The decision on review shall be made within sixty (60) days of
Prudential's receipt of a request for review.
4. The sixty (60) day period may be extended if special
circumstances require an extension of time to process the review.
5. If an extension is required:
(a) Written notice of the extension shall be furnished to the
Claimant prior to the commencement of the extension; and
(b) A decision shall be rendered within 60 days or within 120
days if an extension is granted, then the claim shall be
deemed denied on review.
5
<PAGE>
D. Other Remedies
1. After exhaustion of the claims procedures, nothing shall prevent
any person from pursuing any other legal or equitable remedy
otherwise available.
CORPORATE SEAL KMG-BERNUTH, INC.
/s/ Maureen M. Gilroy /s/ David L. Hatcher
- ------------------------------------ ----------------------------------
Secretary President
In presence of:
Employee's
/s/ Mareen M. Gilroy Signature /s/ David L. Hatcher
- ------------------------------------ -----------------------
6
<PAGE>
SCHEDULE A
It is agreed, pursuant to the foregoing Split Dollar Life Insurance
Agreement dated November 8, 1991 that the following described policy of life
insurance shall be subject to the provisions of said Agreement.
Policy No. 61348039 issued by The Prudential Insurance Company of American
on November 8, 1991, insuring the life of David L. Hatcher.
7
<PAGE>
[EXHIBIT 21.1]
Subsidiary State of Incorporation
- ----------------- ----------------------
KMG-Bernuth, Inc. Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUL-31-1996 JUL-31-1995
<PERIOD-END> JUL-31-1996 JUL-31-1995
<CASH> 552,550 70,232
<SECURITIES> 0 0
<RECEIVABLES> 2,212,942 2,285,899
<ALLOWANCES> 0 0
<INVENTORY> 2,129,790 1,264,800
<CURRENT-ASSETS> 5,303,274 3,936,134
<PP&E> 3,450,949 2,907,311
<DEPRECIATION> (2,240,034) (2,177,208)
<TOTAL-ASSETS> 7,705,734 5,905,607
<CURRENT-LIABILITIES> 2,513,162 2,197,656
<BONDS> 0 921,184
0 0
0 0
<COMMON> 128 128
<OTHER-SE> 5,086,266 2,552,838
<TOTAL-LIABILITY-AND-EQUITY> 7,705,734 5,905,607
<SALES> 19,801,927 16,401,205
<TOTAL-REVENUES> 19,801,927 16,401,205
<CGS> 11,529,603 10,876,962
<TOTAL-COSTS> 4,033,638 3,060,460
<OTHER-EXPENSES> 50,774 15,435
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 30,779 190,823
<INCOME-PRETAX> 4,157,133 2,257,525
<INCOME-TAX> 1,523,709 801,570
<INCOME-CONTINUING> 2,633,424 1,455,955
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,633,424 1,455,955
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
