<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
VALLEY NATIONAL GASES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WEST VIRGINIA 5172 55-0460738
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
67 43RD STREET, WHEELING, WEST VIRGINIA 26003 (304) 232-1541
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------------------------------------
LAWRENCE E. BANDI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
67 43RD STREET
WHEELING, WEST VIRGINIA 26003
(304) 232-1541
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------------------------
COPIES OF ALL CORRESPONDENCE TO:
LARRY D. IRICK, ESQ. JOHN R. SHORT, ESQ.
BRYAN CAVE LLP PEPER, MARTIN, JENSEN, MAICHEL AND HETLAGE
1200 MAIN STREET, SUITE 3500 720 OLIVE STREET, 24TH FLOOR
KANSAS CITY, MISSOURI 64105 ST. LOUIS, MISSOURI 63101-2396
(816) 374-3200 (314) 421-3850
--------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED<F1> PER SHARE PRICE<F2> REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value....................... 3,105,000 $10.00 $31,050,000.00 $9,410.00
==================================================================================================================================
<FN>
<F1> Includes 405,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters. See ``Underwriting.''
<F2> Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
</TABLE>
--------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE> 2
EXPLANATORY NOTE
The Registrant filing this Registration Statement is a West Virginia
corporation that desires to create a corporate structure in which the
Registrant would be a wholly-owned direct or indirect subsidiary of a newly
formed holding company. The implementation of the holding company structure is
subject to the consent described below. If the consent is obtained, this
Registration Statement and the enclosed Prospectus will be amended to reflect
that the holding company is the registrant under this Registration Statement.
The consent for the implementation of the holding company structure is
required under the terms of an existing agreement between the Registrant and a
third party. The Registrant has requested the consent, but is not certain that
the consent will be given.
If the holding company structure is implemented, the Registrant anticipates
that there will be no material change to the Financial Statements included in
this Registration Statement, other than to reflect the holding company
structure, and that the Registrant's consolidated financial statements will
reflect the same assets, liabilities and results of operations as are reflected
in this initial Registration Statement.
If the consent is not received from the third party, the Registrant intends
to proceed with the Offering described in the enclosed Prospectus. No consent
is required from the third party for such Offering.
<PAGE> 3
********************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE *
* SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR *
* MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT *
* BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR *
* THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE *
* SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE *
* UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS *
* OF ANY SUCH STATE. *
********************************************************************************
SUBJECT TO COMPLETION, DATED JANUARY 17, 1997
2,700,000 SHARES
VALLEY NATIONAL GASES, INC.
COMMON STOCK
--------------
Of the 2,700,000 shares of common stock, par value $0.001 per share (the
``Common Stock''), of Valley National Gases, Inc. (the ``Company'') offered
hereby (the ``Offering''), 2,618,000 shares are being sold by the Company and
82,000 shares are being sold by certain shareholders of the Company (the
``Selling Shareholders''). The Company will not receive any of the proceeds
from the sale of shares by the Selling Shareholders. See ``Principal and
Selling Shareholders.''
Prior to the Offering, there has been no public market for the Company's
Common Stock. It is currently anticipated that the initial public offering
price will be between $ and $ per share. See ``Underwriting'' for
a discussion of the factors to be considered in determining the initial public
offering price. The Company has filed an application for the Common Stock to be
quoted on the Nasdaq National Market under the symbol ``VNGI.''
------------------
SEE ``RISK FACTORS'' BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
=================================================================================================================================
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS<F1> COMPANY<F2> SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share........................................... $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------------
Total<F3>........................................... $ $ $ $
=================================================================================================================================
<FN>
<F1> The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See ``Underwriting.''
<F2> Before deducting offering expenses payable by the Company, estimated
at $ .
<F3> The Company has granted the Underwriters a 30-day option to purchase up to
an additional 405,000 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See ``Underwriting.''
</TABLE>
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer or to reject any orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about
, 1997.
A.G. EDWARDS & SONS, INC. OPPENHEIMER & CO., INC.
The date of this Prospectus is , 1997.
<PAGE> 4
[The map to be included in this space depicts the nine states in which the
Company operates: Delaware, Kentucky, Maryland, North Carolina, Ohio,
Pennsylvania, Tennessee, Virginia and West Virginia. The Company's locations in
those states are named and identified by a dot.]
This discussion contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
``anticipate,'' ``believe,'' ``estimate,'' ``expect'' and similar expressions
as they relate to the Company or its management are intended to identify such
forward looking statements. The Company's actual results, performance or
achievements could differ materially from those expressed in, or implied by,
these forward-looking statements as a result of, among other things, the
factors set forth in the section entitled ``Risk Factors.''
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. All
references in this Prospectus to a fiscal year refer to the fiscal year ending
on June 30 of that year. Unless otherwise indicated, the information in this
Prospectus (i) assumes no exercise of the over-allotment option granted to the
Underwriters and (ii) gives effect to a 228,758.16-for-1 split (the ``Stock
Split'') of the shares of the Common Stock prior to the completion of the
Offering.
THE COMPANY
The Company is a leading packager and distributor of industrial, medical
and specialty gases, welding equipment and supplies, and propane in nine states
in the mid-Atlantic and midwestern regions of the United States. The Company's
net sales have grown, primarily as a result of acquisitions, at a compound
annual rate of approximately 17% per year since the Company started business in
1958, increasing from $190,000 in that year to $64.6 million on a pro forma
combined basis in fiscal 1996. In fiscal 1996, gases accounted for
approximately 46% of net sales, welding equipment and supplies accounted for
approximately 40% of net sales, and cylinder and tank rental accounted for
approximately 14% of net sales.
The Company's gas operations consist primarily of the packaging and mixing
of industrial, medical and specialty gases, such as oxygen, nitrogen and argon,
in pressurized cylinders and the transportation of these cylinders to customers
from one of the Company's 40 distribution and retail locations. The Company
also distributes propane to industrial and residential customers. Customers pay
a rental fee for use of the Company's cylinders. The Company owns approximately
290,000 cylinders, which require minimal maintenance and have useful lives that
the Company expects will extend on average for 50 years or longer. The Company
selectively participates in the small bulk gas market through the delivery of
gases in cryogenic transports and the storage of gases in cryogenic tanks and
propane tanks, which are also rented to bulk gas customers. The Company owns
approximately 7,000 bulk propane tanks and 250 bulk cryogenic tanks, which have
useful lives generally less than those of cylinders. In connection with the
distribution of gases, the Company sells welding equipment and supplies,
including welding machines, wire, fluxes and electrodes and a wide variety of
supporting equipment.
Historically, the industrial gas distribution business had a base of
customers engaged primarily in metal fabrication. In order to better serve
these customers, industrial gas distributors have also traditionally sold
welding equipment and supplies. As certain sectors of the economy have grown,
such as the electronics and chemicals industries, and as new applications for
gases have developed, the customer base of the industry has significantly
broadened to include almost every major industry, including health care,
electronics, chemicals, aerospace, beverages, environmental remediation, food
processing, oil and gas and primary metals, as well as metal fabrication.
The Company's principal business strategy is to aggressively pursue growth
through the acquisition of other independent distributors and also through
internally generated growth. Since the Company was founded, it has completed 38
acquisitions. Since January 1, 1996, the Company has acquired four independent
distributors, including Weldco, Inc. (``Weldco'') with annual sales of
approximately $11 million and operations in Cincinnati and Dayton, Ohio, and
Weber, Inc. (``Weber'') with annual sales of approximately $5 million and
operations in western Pennsylvania. The integration of Weldco and Weber into
the Company's existing operations is currently in progress, with the benefits
of integration expected to be realized in the next two to eight quarters.
Management believes there will continue to be numerous attractive acquisition
candidates available to the Company as a result of the consolidation trend in
the industry and that the Company will be able to successfully integrate
acquired operations into its base business, generating growth and operational
synergies. While highly focused on external growth, management believes that
the Company's competitive strengths will allow it to increase sales and improve
market share in existing markets, while maintaining acceptable levels of
profitability.
The Company's principal executive offices are located at 67 43rd Street,
Wheeling, West Virginia 26003 and its telephone number is (304) 232-1541.
3
<PAGE> 6
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by:
The Company............................... 2,618,000 Shares
Selling Shareholders...................... 82,000 Shares
Common Stock to be outstanding
after the Offering<F1>...................... 10,020,084 Shares
Use of proceeds............................... For repayment of approximately $ million of bank debt,
payment of the estimated $8.5 million S Corporation
Distribution and for general corporate purposes. See ``Use
of Proceeds'' and ``S Corporation Distribution.''
Nasdaq National Market symbol................. VNGI
<FN>
- --------
<F1> Excludes 650,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan, of which options to purchase 175,000
shares have been granted effective as of the closing of the Offering.
Includes (i) 135,000 shares of Common Stock to be issued to Weldco or
certain shareholders of Weldco immediately prior to the closing of the
Offering pursuant to the purchase agreement among the Company, Weldco and
certain other parties, (ii) 170,718 shares of Common Stock to be issued to
two executive officers immediately prior to the closing of the Offering in
connection with the termination of certain deferred compensation
agreements and (iii) 96,366 shares of Common Stock to be issued to a
director immediately prior to the closing of the Offering pursuant to a
right under a consulting agreement to convert deferred consulting payments
to Common Stock. See ``Management--Benefit Plans,''
``Management--Compensation Committee Interlocks and Insider
Participation'' and ``Certain Relationships and Related Transactions.''
</TABLE>
RISK FACTORS
For a discussion of considerations relevant to an investment in the Common
Stock, see ``Risk Factors.''
4
<PAGE> 7
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PRO
PRO FORMA
FORMA THREE MONTHS THREE
YEAR ENDED MONTHS
YEARS ENDED JUNE 30, ENDED SEPTEMBER 30, ENDED
--------------------------------------------------- JUNE 30, ------------------ SEPT. 30,
1992 1993 1994 1995 1996 1996<F1> 1995 1996 1996<F1>
-------- ------- ------- ------- ------- ----------- -------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............ $30,789 $35,251 $39,166 $44,914 $53,612 $64,585 $11,323 $14,514 $17,422
Gross profit......... 17,672 20,340 22,322 24,983 29,995 33,903 6,381 8,183 9,236
Income from
operations........... 2,982 3,281 3,828 4,183 5,000 4,757 1,221 1,069 1,028
Net income<F2>....... 2,020 2,419 3,061 3,555 4,101 3,043 1,064 728 474
Pro forma net
income<F3>........... 1,212 1,451 1,837 2,133 2,461 1,826 638 437 284
Pro forma net income
per common
share<F3>.......... $ 0.17 $ 0.20 $ 0.25 $ 0.29 $ 0.31 $ 0.23 $ 0.09 $ 0.05 $ 0.04
Pro forma weighted
average shares
outstanding<F4>.... 7,267 7,267 7,267 7,267 8,042<F5> 8,042<F5> 7,267 8,042<F5> 8,042<F5>
OTHER FINANCIAL DATA:
EBITDA<F6>........... $ 5,518 $ 5,947 $ 6,889 $ 7,739 $10,362 $11,175 $ 2,225 $ 2,516 $ 2,740
Depreciation and
amortization....... 2,169 2,324 2,790 3,112 4,700 5,756 827 1,373 1,636
Capital
expenditures......... 1,055 1,218 2,908 4,426 3,647 4,151 523 446 533
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA<F1> ADJUSTED<F7>
-------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 7,977 $ 7,799 $
Total assets.................................. 46,383 60,717
Total debt.................................... 23,798 35,593
Shareholders' equity.......................... 16,721 16,721
<FN>
- ---------
<F1> The pro forma statement of operations data gives effect to the acquisition
of Weldco as if it had occurred on July 1, 1995. The pro forma balance
sheet data gives effect to the acquisition of Weldco as if it had occurred
on September 30, 1996.
<F2> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.
<F3> The pro forma net income and pro forma net income per common share reflect
federal and state income taxes, assuming a 40% effective tax rate, as if
the Company had been taxed as a C Corporation for all periods presented.
<F4> Pro forma weighted average number of shares outstanding used to calculate
pro forma net income per share is based on the historical weighted average
number of shares outstanding, as adjusted to reflect (i) the issuance of
170,718 shares of Common Stock to two executive officers immediately prior
to the closing of the Offering in connection with the termination of
certain deferred compensation agreements and (ii) the issuance of 96,366
shares of Common Stock to a director immediately prior to the closing of
the Offering pursuant to a right under a consulting agreement to convert
deferred consulting payments to Common Stock. See
``Management--Compensation Committee Interlocks and Insider
Participation.'' In connection with these compensation and consulting
arrangements, the Company will incur a one-time expense of $2.4 million in
the period in which the closing of the Offering occurs.
<F5> Further adjusted to reflect the assumed issuance of 774,827 shares of
Common Stock to fund the excess of dividends (including the estimated S
Corporation Distribution) over net income for the three months ended
September 30, 1996.
<F6> EBITDA represents the earnings of the Company before income taxes, net
interest expense, depreciation and amortization and other noncash items
reducing net income. EBITDA is not a measure of financial performance
under generally accepted accounting principles (``GAAP''). Accordingly, it
does not represent net income or cash flows from operations as defined by
GAAP and does not necessarily indicate that cash flows will be sufficient
to fund cash needs. As a result, EBITDA should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. The Company has included information
concerning EBITDA as it understands that it is used by certain investors
as one measure of an issuer's historical ability to service its debt.
<F7> Adjusted to give effect to (i) the payment of the S Corporation
Distribution in the estimated amount of $8.1 million, (ii) the recognition
of a deferred tax liability of approximately $4.2 million upon termination
of the Company's S Corporation status, (iii) the offering of 2,618,000
shares of Common Stock by the Company at an assumed initial public
offering price of $ per share and the application of the estimated
net proceeds therefrom, (iv) the issuance of 135,000 shares of Common
Stock to Weldco (or certain shareholders of Weldco), and the retirement of
indebtedness payable to Weldco in the aggregate principal amount of
$ , in each case immediately prior to the closing of the Offering
pursuant to the purchase agreement among the Company, Weldco and certain
other parties, (v) the issuance of 170,718 shares of Common Stock to two
executive officers immediately prior to the closing of the Offering in
connection with the termination of certain deferred compensation
agreements, (vi) the issuance of 96,366 shares of Common Stock to a
director immediately prior to the closing of the Offering pursuant to a
right under a consulting agreement to convert deferred consulting payments
to Common Stock and (vii) recognition of an expense of $2.4 million ($1.4
million after assumed taxes) in connection with the compensation and
consulting arrangements. See ``Use of Proceeds'' and ``S Corporation
Distribution.''
</TABLE>
5
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties.
Actual results could differ from those discussed in the forward-looking
statements as a result of certain factors, including those set forth below and
elsewhere in this Prospectus.
THE COMPANY MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS
The Company has historically expanded its business primarily through
acquisitions. A key part of the Company's business strategy is the continuation
of growth through strategic acquisitions. The Company will consider and
evaluate acquisitions on a continuing basis, although it currently has no
material acquisitions under consideration. There can be no assurance that the
Company will continue to be able to identify attractive or willing acquisition
candidates, or that the Company will be able to acquire such candidates on
economically acceptable terms. The Company will compete with other distributors
for suitable acquisition candidates. The Company has a revolving loan in the
amount of $25 million to finance acquisitions, of which $10 million was
available for borrowing at December 31, 1996. The Company believes that it
could increase the amount of the credit facility, or obtain financing from
other sources, if necessary to finance an acquisition. To the extent cash and
available borrowings are not adequate to finance acquisitions, there can be no
assurance that the Company will be able to obtain adequate financing for any
acquisition or that, if available, such financing would be on terms acceptable
to the Company. See ``Business--Business Strategy'' and ``Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.''
RISKS ASSOCIATED WITH THE SUCCESSFUL ASSIMILATION OF ACQUISITIONS
The success of the Company's acquisition strategy will depend, among other
factors, upon its ability to successfully integrate acquired businesses with
existing operations in a timely manner, at reasonable costs. There can be no
assurance that acquired companies would perform in accordance with management's
expectations or that the Company would not encounter unanticipated problems or
liabilities. Some acquisitions have had, and the Company expects some future
acquisitions may have, a dilutive effect upon the Company's income from
operations and net income before tax for a short period following consummation.
This temporary dilution occurs because some of the benefits of acquisitions,
such as leveraging of operating and administrative expenses, improved product
gross margins and real sales growth, occur over a period ranging from two to
eight quarters, depending upon the complexity of integrating each acquisition
into the Company's existing operations.
RISKS ASSOCIATED WITH MANAGING GROWTH
The Company has grown rapidly in recent years. A continuing period of rapid
growth could place a significant strain on the Company's management, operations
and other resources. The Company's ability to manage its growth will require it
to continue to invest in its operational, financial and management information
systems, and to attract, retain, motivate and effectively manage its employees.
The inability of the Company's management to manage growth effectively would
have a material adverse effect on the financial condition, results of operation
and business of the Company.
COMPETITION
The Company's profitability may be affected by competition, which is based
primarily on customer loyalty, service and to a lesser extent, price. The
Company has several competitors in all of the markets in which it operates,
some of which are substantially larger and have substantially greater resources
than the Company. Many customers tend to develop long-term relationships with
their distributor and, therefore, it may be difficult to obtain new customers
other than through the acquisition of other distribution businesses.
DEPENDENCE ON KEY PERSONNEL
The Company's businesses are managed by a small number of management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company. See ``Management.'' The Company believes
that its ability to manage its planned growth successfully will depend in large
part on its continued ability to attract and retain highly skilled and
qualified personnel. None of the Company's key executives has a written
employment
6
<PAGE> 9
agreement or non-compete agreement with the Company except for John
R. Bushwack who has a non-compete agreement with the Company. The Company
maintains key person life insurance on Gary E. West, Lawrence E. Bandi and John
R. Bushwack. See ``Management'' for detailed information on the Company's
management and directors.
DEPENDENCE ON KEY SUPPLIERS
There are several competing suppliers of most of the products that the
Company purchases. The Company purchases industrial gases pursuant to
short-term supply arrangements and open purchase orders with three of the five
major gas producers in the United States. One such producer accounted for
approximately 80% of the Company's gas purchases in fiscal 1996. The Company
purchases welding equipment and consumable supplies from approximately 85
primary vendors, of which purchases from the top five vendors represented
approximately 61% of total purchases in fiscal 1996. It purchases most of its
propane from three suppliers. The Company is not dependent upon any single
supplier for propane and supplies have historically been readily available. If
a particular supplier were to unexpectedly discontinue sales of a product to
the Company, the Company believes it would be able to readily secure alternate
sources of supply. However, the Company could experience temporary decreases in
its profit margins if its arrangements with such alternate sources of supply
were less favorable to the Company than its current arrangements with
suppliers.
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of the Offering, Gary E. West, Chairman of the Board of
Directors, will control approximately 69.9% of the outstanding shares of Common
Stock (67.1% if the Underwriters' over-allotment option is exercised in full).
If all outstanding options to purchase Common Stock were exercised (and none
are currently vested), Mr. West would control approximately 68.7% of the
outstanding shares of Common Stock (66.0% if the Underwriters' over-allotment
option is exercised in full). Mr. West has the ability to exercise effective
control over the election of the Company's Board of Directors and the outcome
of corporate actions requiring shareholder approval. See ``Management'' and
``Principal and Selling Shareholders.''
PRODUCT LIABILITY
The Company's business entails an inherent risk of liability in the event
of product failure or claim of it caused by use of the Company's products. The
Company has not had any material claims made nor is it aware of any material
claims against it based upon the use or the failure of its products. The
Company maintains product liability insurance against any such claims in
amounts it believes to be adequate. There can be no assurance that the Company
will not be subject to such claims, that any claim will be successfully
defended, or if the Company is found liable, that the claim will not exceed the
limits of the Company's insurance. There is also no assurance that the Company
will be able to continue to obtain product liability insurance on acceptable
terms. Product liability claims could have a material adverse effect on the
Company.
BLANK CHECK PREFERRED STOCK; CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation (the
``Articles'') give the Board of Directors the authority to issue up to
5,000,000 shares of preferred stock (the ``Preferred Stock'') and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by the shareholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of shares of Preferred Stock, while potentially providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present intention to issue shares of Preferred Stock.
The Articles prohibit the Company from engaging in a ``business
combination'' with an ``interested shareholder'' for a period of three years
after the date of the transaction in which the person became an interested
shareholder unless: (i) prior to such date, the Board of Directors approved the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder; or (ii) upon becoming an interested
shareholder, the shareholder then owns at least 85% of the Company's voting
securities; or (iii) subsequent to such date, the business combination is
approved by both the Board of Directors and the shareholders. ``Business
combination'' generally is defined to include mergers, asset sales and certain
other transactions with an ``interested shareholder.'' An
7
<PAGE> 10
``interested shareholder'' generally is defined as a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the Company's voting stock. As a result of these provisions,
potential acquirors of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
of the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above-market prices pursuant to such transactions.
Furthermore, certain provisions of the Articles and the Company's Amended
and Restated Bylaws (the ``Bylaws''), including a provision that provides for
the Board of Directors to be divided into three classes to serve for staggered
three-year terms, could limit the price that certain investors might be willing
to pay in the future for shares of the Common Stock and may have the effect of
delaying or preventing a change-in-control of the Company. These provisions may
also reduce the likelihood of an acquisition of the Company at a premium price
by another person or entity. See ``Description of Capital Stock--Common Stock''
and ``--Anti-Takeover Effects of Provisions of the Company's Articles and
Bylaws.''
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICES; PRAXAIR RIGHT OF FIRST REFUSAL
Sales of substantial numbers of additional shares of Common Stock in the
public market could adversely affect the market price of the Common Stock and
make it more difficult for the Company to raise funds through future equity
offerings. Upon completion of the Offering, Gary E. West, the Company's
Chairman, will hold approximately 69.9% of the Common Stock. See ``Principal
and Selling Shareholders.'' A sale by Mr. West of his shares could adversely
affect the market price of the Common Stock. Mr. West and other shareholders
holding, in the aggregate, 7,320,084 of the 10,020,084 shares to be outstanding
immediately after the closing of the Offering (the ``Previously Issued
Shares'') have entered into agreements under which they have agreed, other than
with the consent of A.G. Edwards & Sons, Inc., not to sell such shares for a
period of 180 days following the completion of the Offering. At the expiration
of such 180-day period, all of the Previously Issued Shares will be eligible
for sale, subject to volume and other limitations of Rule 144 under the
Securities Act of 1933, as amended (the ``Securities Act''). See ``Shares
Eligible for Future Sale.'' Following effectiveness of the registration
statement covering the shares offered hereby, the Company will register on Form
S-8 under the Securities Act 650,000 shares of Common Stock issuable under
employee stock option and purchase plans, which registrations are expected to
become effective upon filing. There are options to purchase 175,000 shares of
Common Stock outstanding on the date hereof, none of which are currently
exercisable. See ``Management--Benefit Plans,'' ``Description of Capital
Stock'' and ``Shares Eligible for Future Sale.''
In September 1991, in connection with the purchase by the Company of
certain assets of a predecessor of Praxair, Inc. (``Praxair''), the Company,
Mr. West and certain of his affiliates entered into a Right of First Refusal
Agreement (the ``Right of First Refusal Agreement'') with Praxair. Pursuant to
this agreement, the Company granted Praxair a right of first refusal to
purchase all or a material part of the assets acquired by the Company from
Praxair or any assets subsequently acquired by the Company, and Mr. West
granted to Praxair a right of first refusal to purchase all of his shares of
Common Stock. The Right of First Refusal Agreement expires in September 2006.
If the Company wishes to sell any such assets or Mr. West wishes to sell his
shares of Common Stock, which neither currently intends to do, they must give
written notice of such proposed sale to Praxair. Praxair will then have 90 days
during which to determine whether to purchase such assets or shares on the same
terms and conditions as any third party offeror. Such right of first refusal
and 90-day time period might limit the interest of a third party in making an
offer to acquire Mr. West's shares or the Company's ability to dispose of
assets on a timely basis, and might reduce the purchase price third parties are
willing to pay for such shares or assets.
In addition, the Right of First Refusal Agreement prohibits the issuance by
the Company of additional shares of Common Stock if, after such issuance, Mr.
West and his family would no longer be the beneficial and record owners of 51%
of the Company's voting stock. After completion of the Offering, giving effect
to the issuance of Common Stock to certain persons contemplated to take place
immediately prior to the Offering, Mr. West will be the beneficial owner of
approximately 69.9% of the voting stock of the Company (67.1% if the
Underwriters' over-allotment option is exercised). The Right of First Refusal
Agreement limits the ability of the Company to raise capital through the sale
of stock to parties other than Praxair and may delay future offerings by the
Company.
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF COMMON STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after the Offering or that investors will be able to sell the
8
<PAGE> 11
Common Stock should they desire to do so. The initial public offering price
will be determined by negotiations between the Company and the representatives
of the Underwriters and may bear no relationship to the price at which the
Common Stock will trade upon completion of the Offering. There can be no
assurance that the market price of the Common Stock after the Offering will not
fall below the initial public offering price. The market price of the shares of
Common Stock could be subject to significant fluctuations in response to
variations in quarterly results, general market conditions and other factors.
The stock market has experienced price and volume fluctuations that often have
been unrelated or disproportionate to a company's operating performance. These
market fluctuations, as well as general economic, political and market
conditions such as recessions, may adversely affect the market price of the
Common Stock. See ``Underwriting'' for a discussion of the factors considered
in determining the initial public offering price.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying dividends on the Common Stock for
the foreseeable future. The payment of dividends is prohibited by certain
covenants in the Company's credit facility. The Company anticipates that it
will reinvest its net income, if any, in its businesses. See ``Dividend
Policy.''
S CORPORATION DISTRIBUTION
Historically, the Company has been treated for federal and certain state
income tax purposes as an S Corporation under the Internal Revenue Code of
1986, as amended (the ``Code''), and comparable state tax laws. As a result,
the Company's earnings have been taxed for federal and certain state income tax
purposes directly to its shareholders. Immediately prior to the closing of the
Offering, the Company's status as an S Corporation will be terminated and the
Company will be taxed as a C corporation thereafter. The Company intends to
declare a distribution (the ``S Corporation Distribution'') of all of its
undistributed earnings through the date of termination of its S Corporation
status to shareholders of record of the Company at such time. As of September
30, 1996, the estimated amount of the S Corporation Distribution totaled
approximately $8.1 million. The actual amount of the S Corporation Distribution
will also include the taxable income of the Company for the period from October
1, 1996, through the date of the termination, less any other taxes payable by
the Company. The S Corporation Distribution will be paid by the Company with a
portion of the net proceeds of the Offering. See ``Use of Proceeds.'' The
purchasers of the Common Stock in the Offering will not receive any portion of
the S Corporation Distribution.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,618,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$ million, assuming an initial public offering price of $ per share (after
deducting the underwriting discount and estimated offering expenses payable by
the Company). The Company will not receive any proceeds from the sale of Common
Stock by the Selling Shareholders.
The Company will use the net proceeds to repay outstanding indebtedness,
including interest thereon, under the Company's credit facility, pay the S
Corporation Distribution and for general corporate purposes. The Company's
credit facility had an outstanding balance of $22.9 million as of December 31,
1996, and accrues interest at a weighted average interest rate of 7.6%.
Following such reduction, the outstanding indebtedness under the revolving
credit facility will be approximately $ and the available borrowings
thereunder will be approximately $ . The outstanding indebtedness under the
credit facility has been used for various acquisitions by the Company. See ``S
Corporation Distribution'' and ``Management's Discussion and Analysis of
Financial Condition and Results of Operations.''
The Company anticipates that the increased borrowings available under the
credit facility will be used for future acquisitions and general corporate
purposes. The Company's business strategy contemplates that it will seek to
complement internal growth with strategic investments and acquisitions. The
Company has no present understandings, agreements or commitments with respect
to any such material acquisitions.
DIVIDEND POLICY
The Company has not paid any cash dividends other than S Corporation
distributions, and does not anticipate that it will pay dividends in the
foreseeable future. The Company currently intends to retain future earnings, if
any, to provide funds for the growth and development of the Company's business.
The payment of dividends is prohibited by certain covenants in the Company's
credit facility.
9
<PAGE> 12
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company on an actual basis as of September 30, 1996 and as adjusted to give
effect to the transactions described in the footnotes below. The information
set forth below should be read in conjunction with ``Management's Discussion
and Analysis of Financial Condition and Results of Operations,'' the Company's
Financial Statements and the related Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA<F1> AS ADJUSTED<F2>
------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total short-term debt.......................................................... $ 3,081 $ 3,396 $
======= ======= =======
Total long-term debt........................................................... $20,718 $32,197 $
Redeemable common stock<F3>....................................................
Shareholders' equity<F4>:
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares
issued and outstanding as adjusted......................................... -- --
Common stock, $.001 par value, 30,000,000 shares authorized, 7,000,000 shares
issued and outstanding excluding treasury stock and 10,020,084 shares
issued and outstanding as adjusted......................................... 18 18
Capital in excess of par value................................................. 96 96
Treasury stock (11,300,653 shares)............................................. (3,705) (3,705)
Retained earnings.............................................................. 20,312 20,312
------- ------- -------
Total shareholders' equity................................................. 16,721 16,721
------- ------- -------
Total capitalization....................................................... $37,439 $48,918 $
======= ======= =======
<FN>
- --------
<F1> Reflects the pro forma effect of the acquisition of Weldco as if it had
occurred on September 30, 1996.
<F2> Adjusted to give effect to (i) the payment of the S Corporation
Distribution in the estimated amount of $8.1 million, (ii) the recognition
of a deferred tax liability of approximately $4.2 million upon termination
of the Company's S Corporation status, (iii) the offering of 2,618,000
shares of Common Stock by the Company at an assumed initial public
offering price of $ per share and the application of the estimated net
proceeds therefrom, (iv) the issuance of 135,000 shares of Common Stock to
Weldco (or certain shareholders of Weldco), and the retirement of
indebtedness payable to Weldco in the aggregate principal amount of
$ , in each case immediately prior to the closing of the Offering
pursuant to the purchase agreement among the Company, Weldco and certain
other parties, (v) the issuance of 170,718 shares of Common Stock to two
executive officers immediately prior to the closing of the Offering in
connection with the termination of certain deferred compensation
agreements, (vi) the issuance of 96,366 shares of Common Stock to a
director immediately prior to the closing of the Offering pursuant to a
right under a consulting agreement to convert deferred consulting payments
to Common Stock, (vii) recognition of an expense of $2.4 million ($1.4
million after assumed taxes) in connection with the compensation and
consulting arrangements and (viii) the cancellation of treasury stock. See
``Use of Proceeds'' and ``S Corporation Distribution.''
<F3> Reflects shares issued to Weldco that Weldco has the right to cause the
Company to repurchase. See ``Certain Relationships and Related
Transactions.''
<F4> Excludes 650,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan. See ``Management.''
</TABLE>
10
<PAGE> 13
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of their Common Stock
from the assumed initial public offering price. The net tangible book value of
the Company at September 30, 1996 was approximately $ million, or $ per
share. Net tangible book value per share is equal to net tangible assets
(tangible assets of the Company less total liabilities) divided by the number
of shares of Common Stock outstanding. Net tangible book value dilution per
share represents the difference between the amount per share paid by purchasers
of shares of Common Stock in the Offering and the pro forma net tangible book
value per share of Common Stock immediately after completion of the Offering.
After giving effect to the payment of the S Corporation Distribution, the
provision for deferred income taxes to be recorded upon the Company's
termination of its S Corporation status, the issuance of 267,084 shares to
certain officers and directors pursuant to agreements to convert deferred
compensation or consulting payments into Common Stock, the issuance of 135,000
shares to Weldco (or certain shareholders of Weldco), and the sale of the
2,618,000 shares of Common Stock offered in the Offering (after deducting the
underwriting discount and estimated offering expenses), the pro forma net
tangible book value of the Company as of September 30, 1996, would have been
approximately $ million, or $ per share. This represents an immediate
dilution of net tangible book value of $ per share to purchasers of Common
Stock in the Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share......................................... $
Net tangible book value per share at September 30, 1996............ $
Decrease attributable to S Corporation Distribution<F1>............
Decrease attributable to provision for deferred income taxes<F2>...
-----
Subtotal...................................................
Increase per share attributable to new investors...................
Increase per share attributable to deferred compensation...........
-----
Pro forma net tangible book value per share after the Offering..................
Net tangible book value dilution per share to new investors..................... $
=====
<FN>
- --------
<F1> As of September 30, 1996, the amount of the S Corporation Distribution
totaled approximately $8.1 million. The actual amount of the S Corporation
Distribution will also include the taxable income of the Company for the
period from October 1, 1996 through the date of the termination of the S
Corporation status, less any other taxes payable by the Company.
<F2> Represents a one-time expense of approximately $4.2 million resulting from
recognition of deferred income taxes to be recorded by the Company upon
termination of its S Corporation status.
</TABLE>
The following table sets forth certain information with respect to the
number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share paid by officers and
directors who have purchased Common Stock during the prior five years and by
new investors purchasing shares from the Company in the Offering:
<TABLE>
<CAPTION>
AVERAGE
PRICE PER
SHARES PURCHASED TOTAL CONSIDERATION SHARE
---------------- ------------------- ---------
<S> <C> <C> <C>
Officers and Directors............................ 367,084 $ 1,437,483 $3.92
New investors..................................... 2,618,000
</TABLE>
The foregoing table assumes no exercise of outstanding options. As of
September 30, 1996, there were no options outstanding. There are options to
purchase 175,000 shares of Common Stock outstanding effective as of the closing
of the Offering, none of which will be exercisable within 60 days of the date
of grant. See ``Management--Benefit Plans'' and ``Shares Eligible for Future
Sale.''
11
<PAGE> 14
SELECTED PRO FORMA FINANCIAL DATA
The following sets forth the unaudited Pro Forma Condensed Statement of
Income of the Company and Weldco for the twelve months ended June 30, 1996 and
the three months ended September 30, 1996, after giving effect to the
acquisition of Weldco by the Company (the ``Acquisition''). The pro forma
condensed statement of income and other data gives effect to the Acquisition as
if it had occurred on July 1, 1995. The pro forma condensed balance sheet
information gives effect to the Acquisition as if it had occurred on September
30, 1996. The unaudited pro forma financial information is presented for
information purposes only and is not necessarily indicative of the results that
actually would have occurred had the Acquisition been consummated on the dates
indicated or the results that may occur or be obtained in the future. The
following information is qualified in its entirety by reference to and should
be read in conjunction with ``Management's Discussion and Analysis of Financial
Condition and Results of Operations'' and the Financial Statements of the
Company and Weldco, respectively, and related Notes thereto and other
historical financial information included elsewhere in this Prospectus.
The Acquisition was accounted for by the Company as a purchase whereby the
basis for accounting for Weldco's assets and liabilities was based upon their
fair market values at the date of the Acquisition. Pro forma adjustments
represent the Company's preliminary determination of these adjustments and are
based upon available information and certain assumptions the Company considers
reasonable under the circumstances. Final amounts could differ from those set
forth below.
12
<PAGE> 15
<TABLE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------
PRO FORMA PRO FORMA
COMPANY WELDCO ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $ 53,612 $ 10,973 $64,585
Cost of products sold............................. 23,617 7,065 30,682
-------- -------- ------
Gross profit...................................... 29,995 3,908 33,903
Operating and administrative expenses............. 20,295 3,406 (311)<F1> 23,390
Depreciation and amortization..................... 4,700 204 852 <F2> 5,756
-------- -------- ------- ------
Income from operations............................ 5,000 298 (541) 4,757
Interest expense.................................. 1,561 33 782 <F3> 2,376
Other income...................................... 662 662
-------- -------- ------- -------
Net income<F4>.................................... 4,101 265 (1,323) 3,043
Pro forma income tax provision<F5>................ 1,640 106 (529) 1,217
-------- -------- ------- -------
Pro forma net income<F5>.......................... $ 2,461 $ 159 $ (794) $ 1,826
======== ======== ======= =======
Pro forma net income per common share<F5>......... $ 0.31 $ 0.23
Pro forma weighted average shares
outstanding<F6>................................. 8,042 8,042
<FN>
- --------
<F1> Reflects elimination of salaries and benefits provided to former
shareholders of Weldco whose employment by Weldco was terminated as part
of the acquisition.
<F2> Reflects (i) $7.9 million related to goodwill amortized over twenty years,
(ii) $1.0 million related to consulting agreements amortized over the
three-year service period and (iii) the fair market value of assets
acquired depreciated over twelve years.
<F3> Reflects increased interest expense from acquisition debt of $3.2 million
under the revolving credit facility at 7.2% and seller notes of $7.9
million at 6.6%.
<F4> The Company and Weldco elected to be treated as S Corporations for the
periods presented. As a result, their income was taxed for federal and
state purposes directly to their respective shareholders.
<F5> The pro forma income tax provision, pro forma net income and pro forma net
income per common share reflect federal and state income taxes (assuming a
40% effective tax rate) as if the Company and Weldco had been taxed as C
Corporations for all periods presented.
<F6> Weighted average number of shares outstanding used to calculate pro forma
net income per share is based on the historical weighted average number of
shares outstanding, as adjusted to reflect (i) the assumed issuance of
774,827 shares of Common Stock to fund the excess of dividends (including
the estimated S Corporation Distribution) over net income for the three
months ended September 30, 1996, (ii) the issuance of 170,718 shares of
Common Stock to two executive officers immediately prior to the closing of
the Offering in connection with the termination of certain deferred
compensation agreements and (iii) the issuance of 96,366 shares of Common
Stock to a director immediately prior to the closing of the Offering
pursuant to a right under a consulting agreement to convert deferred
consulting payments to Common Stock. See ``Management--Compensation
Committee Interlocks and Insider Participation.'' In connection with these
compensation and consulting arrangements, the Company will incur a
one-time expense of $2.4 million in the period in which the closing of the
Offering occurs.
</TABLE>
13
<PAGE> 16
<TABLE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------
PRO FORMA PRO FORMA
COMPANY WELDCO ADJUSTMENTS COMBINED
------- ------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $14,514 $2,908 $17,422
Cost of products sold.............................. 6,331 1,855 8,186
------- ------ -------
Gross profit....................................... 8,183 1,053 9,236
Operating and administrative expenses.............. 5,741 909 (78)<F1> 6,572
Depreciation and amortization...................... 1,373 50 213 <F2> 1,636
------- ------ ----- -------
Income from operations............................. 1,069 94 (135) 1,028
Interest expense................................... 415 19 196 <F3> 630
Other income....................................... 74 2 76
------- ------ ----- -------
Net income<F4>..................................... 728 77 (331) 474
Pro forma income tax provision<F5>................. 291 31 (132) 190
------- ------ ----- -------
Pro forma net income<F5>........................... $ 437 $ 46 $(199) $ 284
Pro forma net income per common share<F5>.......... $ 0.05 $ 0.04
Pro forma weighted average shares
outstanding<F6>.................................. 8,042 8,042
<FN>
- --------
<F1> Reflects elimination of salaries and benefits provided to former
shareholders of Weldco whose employment by Weldco was terminated as part
of the acquisition.
<F2> Reflects (i) $7.9 million related to goodwill amortized over twenty years,
(ii) $1.0 million related to consulting agreements amortized over the
three-year service period and (iii) the fair market value of assets
acquired depreciated over twelve years.
<F3> Reflects increased interest expense from acquisition debt of $3.2 million
under the revolving credit facility at 7.2% and seller notes of $7.9
million at 6.6%.
<F4> The Company and Weldco elected to be treated as S Corporations for the
periods presented. As a result, their income was taxed for federal and
state purposes directly to their respective shareholders.
<F5> The pro forma income tax provision, pro forma net income and pro forma net
income per common share reflect federal and state income taxes (assuming a
40% effective tax rate) as if the Company and Weldco had been taxed as C
Corporations for all periods presented.
<F6> Weighted average number of shares outstanding used to calculate pro forma
net income per share is based on the historical weighted average number of
shares outstanding, as adjusted to reflect (i) the assumed issuance of
774,827 shares of Common Stock to fund the excess of dividends (including
the estimated S Corporation Distribution) over net income for the three
months ended September 30, 1996, (ii) the issuance of 170,718 shares of
Common Stock to two executive officers immediately prior to the closing of
the Offering in connection with the termination of certain deferred
compensation agreements and (iii) the issuance of 96,366 shares of Common
Stock to a director immediately prior to the closing of the Offering
pursuant to a right under a consulting agreement to convert deferred
consulting payments to Common Stock. See ``Management--Compensation
Committee Interlocks and Insider Participation.'' In connection with these
compensation and consulting arrangements, the Company will incur a
one-time expense of $2.4 million in the period in which the closing of the
Offering occurs.
</TABLE>
14
<PAGE> 17
<TABLE>
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------------------------------
PRO FORMA PRO FORMA
COMPANY WELDCO ADJUSTMENTS COMBINED
------- ------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and equivalents................................... $ 2,900 $ 210 $ 3,110
Accounts receivable, net............................... 7,329 1,444 (40)<F1> 8,733
Inventory.............................................. 5,146 659 376 <F2> 6,181
Other current assets................................... 897 46 (18)<F1> 925
------- ------- ------- -------
Total current assets........................... 16,272 2,359 318 18,949
Property, plant and equipment, net..................... 23,043 1,528 1,195 <F2> 25,766
Intangibles............................................ 6,740 8,933 <F2><F3> 15,673
Other assets........................................... 328 136 (135)<F1> 329
------- ------- ------- -------
Total assets................................... $46,383 $ 4,023 $10,311 $60,717
======= ======= ======= =======
Short-term debt........................................ $ 3,080 $ 316 $ 3,396
Accounts payable....................................... 2,215 1,305 3,520
Accrued liabilities.................................... 3,000 158 1,076 <F3> 4,234
------- ------- ------- -------
Total current liabilities...................... 8,295 1,779 1,076 11,150
Long-term debt (less current maturities)............... 20,718 374 11,105 <F2> 32,197
Other long-term liabilities............................ 649 649
------- ------- ------- -------
Total liabilities.............................. $29,662 $ 2,153 $12,181 $43,996
Total shareholders' equity............................. $16,721 $ 1,870 $(1,870)<F1> $16,721
------- ------- ------- -------
Total liabilities and shareholders' equity............. $46,383 $ 4,023 $10,311 $60,717
======= ======= ======= =======
<FN>
- --------
<F1> Reflects the elimination of Weldco shareholders' equity and the assets not
acquired.
<F2> The preliminary allocation of the estimated purchase price to assets
acquired and liabilities assumed as of September 30, 1996 is as follows:
<S> <C>
Purchase price............................... $11,105
=======
$ 3,830
Net book value of assets acquired............
(2,153)
Liabilities assumed..........................
Adjustments to fair value:
376
Inventory................................
1,195
Property, plant and equipment............
7,857
Goodwill.....................................
-------
$11,105
Total................................
=======
<F3> Reflects the recording of consulting agreements payable to the former
shareholders of Weldco over a three-year service period.
</TABLE>
15
<PAGE> 18
SELECTED HISTORICAL FINANCIAL DATA
Set forth below is selected financial data for each of the five years ended
June 30, 1996 and for the three-month periods ended September 30, 1995 and
1996. The selected financial data for each of the three years ended June 30,
1996 has been derived from the Company's Financial Statements included
elsewhere in this Prospectus which have been audited by Arthur Andersen LLP,
independent public accountants. The selected financial data for the years ended
June 30, 1992 and 1993 has been derived from financial statements that are not
included herein. The selected financial data for the three months ended
September 30, 1995 and 1996 has been derived from the Company's unaudited
interim financial statements contained elsewhere in this Prospectus. In the
opinion of management, the unaudited financial statements have been prepared on
the same basis as the audited Financial Statements and include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. Results of operations for the three months ended September 30, 1996
are not necessarily indicative of results to be expected for the year ending
June 30, 1997. The following data should be read in conjunction with
``Management's Discussion and Analysis of Financial Condition and Results of
Operations,'' ``Business,'' ``Risk Factors'' and the Financial Statements and
the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................. $30,789 $35,251 $39,166 $44,914 $53,612 $11,323 $14,514
Cost of products sold..... 13,117 14,911 16,844 19,931 23,617 4,942 6,331
------- ------- ------- ------- ------- ------- -------
Gross profit.............. 17,672 20,340 22,322 24,983 29,995 6,381 8,183
Operating and
administrative
expenses................ 12,521 14,735 15,704 17,688 20,295 4,333 5,741
Depreciation and
amortization............ 2,169 2,324 2,790 3,112 4,700 827 1,373
------- ------- ------- ------- ------- ------- -------
Income from operations.... 2,982 3,281 3,828 4,183 5,000 1,221 1,069
Interest expense.......... 1,329 1,204 1,038 1,072 1,561 334 415
Other income.............. 367 342 271 444 662 177 74
------- ------- ------- ------- ------- ------- -------
Net income<F1>............ $ 2,020 $ 2,419 $ 3,061 $ 3,555 $ 4,101 $ 1,064 $ 728
Pro forma income tax
provision<F2>........... 808 968 1,224 1,422 1,640 426 291
------- ------- ------- ------- ------- ------- -------
Pro forma net
income<F2>.............. $ 1,212 $ 1,451 $ 1,837 $ 2,133 $ 2,461 $ 638 $ 437
======= ======= ======= ======= ======= ======= =======
Pro forma net income per
common share<F2>........ $ 0.17 $ 0.20 $ 0.25 $ 0.29 $ 0.31 $ 0.09 $ 0.05
Pro forma weighted average
shares outstanding<F3>.. 7,267 7,267 7,267 7,267 8,042<F4> 7,267 8,042<F4>
OTHER FINANCIAL DATA:
EBITDA<F5>................ $ 5,518 $ 5,947 $ 6,889 $ 7,739 $10,362 $ 2,225 $ 2,516
Capital expenditures...... 1,055 1,218 2,908 4,426 3,647 523 446
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $ 3,889 $ 4,376 $ 5,116 $ 6,327 $ 7,218 $ 6,467 $ 7,977
Total assets.............. 26,600 25,268 27,133 33,421 45,491 35,552 46,383
Total debt................ 15,145 12,835 11,931 15,099 22,244 16,779 23,799
Shareholders' equity...... 7,848 9,529 11,648 13,796 16,371 14,544 16,721
16
<PAGE> 19
<FN>
- --------
<F1> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.
<F2> The pro forma income tax provision, pro forma net income and pro forma net
income per common share reflect federal and state income taxes, assuming a
40% effective tax rate, as if the Company had been taxed as a C
Corporation for all periods presented.
<F3> Pro forma weighted average number of shares outstanding used to calculate
pro forma net income per common share is based on the historical weighted
average number of shares outstanding, as adjusted to reflect (i) the
issuance of 170,718 shares of Common Stock to two executive officers
immediately prior to the closing of the Offering in connection with the
termination of certain deferred compensation agreements and (ii) the
issuance of 96,366 shares of Common Stock to a director immediately prior
to the closing of the Offering pursuant to a right under a consulting
agreement to convert deferred consulting payments to Common Stock. See
``Management--Compensation Committee Interlocks and Insider
Participation.'' In connection with these compensation and consulting
arrangements, the Company will incur a one-time expense of $2.4 million in
the period in which the closing of the Offering occurs.
<F4> Further adjusted to reflect the assumed issuance of 774,827 shares of
Common Stock to fund the excess of dividends (including the estimated S
Corporation Distribution) over net income for the three months ended
September 30, 1996.
<F5> EBITDA represents the earnings of the Company before income taxes, net
interest expense, depreciation and amortization and other noncash items
reducing net income. EBITDA is not a measure of financial performance
under generally accepted accounting principles (``GAAP''). Accordingly, it
does not represent net income or cash flows from operations as defined by
GAAP and does not necessarily indicate that cash flows will be sufficient
to fund cash needs. As a result, EBITDA should not be considered as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. The Company has included information
concerning EBITDA as it understands that it is used by certain investors
as one measure of an issuer's historical ability to service its debt.
</TABLE>
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto
and the Selected Historical Financial Data included elsewhere in this
Prospectus. This discussion contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this section, the
words ``anticipate,'' ``believe,'' ``estimate,'' ``expect'' and similar
expressions as they relate to the Company or its management are intended to
identify such forward looking statements. The Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by, these forward-looking statements as a result of, among other
things, the factors set forth in the section entitled ``Risk Factors.''
Historical operating results are not necessarily indicative of the trends in
operating results for any future period.
OVERVIEW
The Company is a leading packager and distributor of industrial, medical
and specialty gases, welding equipment and supplies, and propane in nine states
in the mid-Atlantic and midwestern regions of the United States. The Company's
net sales have grown, primarily as a result of acquisitions, at a compound
annual rate of approximately 17% per year since the Company started business in
1958, increasing from $190,000 in that year to $64.6 million on a pro forma
combined basis in fiscal 1996. In fiscal 1996, gases accounted for
approximately 46% of net sales, welding equipment and supplies accounted for
approximately 40% of net sales, and cylinder and tank rental accounted for
approximately 14% of net sales.
The Company believes it has been successful in executing its strategy of
growth through acquisitions, having completed 22 acquisitions since 1990. Some
acquisition have had, and the Company expects some future acquisitions may
have, a dilutive effect upon the Company's income from operations and net
income before tax for a short period following consummation. This temporary
dilution occurs because some of the benefits of acquisitions, such as
leveraging of operating and administrative expenses, improved product gross
margins and real sales growth, occur over a period ranging from two to eight
quarters, depending upon the complexity of integrating each acquisition into
the Company's existing operations. The Company anticipates that the benefits of
the Weldco and Weber acquisitions will be realized over a comparable period.
The consideration for most acquisitions includes a combination of a cash
payment at closing, seller financing and payments under covenants not to
compete and consulting agreements. In most cases, operating cash flow of an
acquired business is positive in a relatively short period of time. For many
acquisitions, the Company believes that projections of future cash flows
justify payment of amounts in excess of the book or market value of the assets
acquired, resulting in goodwill being recorded.
The Company's results are subject to moderate seasonality, primarily due to
fluctuations in the demand for propane, which is highest during winter months
falling in the Company's second and third fiscal quarters.
Operating and administrative expenses are comprised primarily of salaries,
benefits, transportation equipment operating costs, facility lease expenses and
general office expenses. These expenses are generally fixed on a quarter-
to-quarter basis. The Company believes that changes in these expenses as a
percentage of sales should be evaluated over the long term rather than on a
quarter-to-quarter basis due to the moderate seasonality of sales mentioned
above and the generally fixed nature of these expenses.
Historically, the Company's gross profit margins as a percentage of sales
have been higher on the sale of gases than on the sale of welding equipment and
supplies (``hard goods''). As a result of recent acquisitions of some
distributors with a higher proportion of hard goods to gas sales, the Company's
average gross profit as a percentage of sales has decreased in comparison to
prior years, even though the dollar amount of the gross margin has increased.
Future acquisitions may affect this pattern depending upon the product mix of
the acquired businesses.
The Company has been an S Corporation for federal and state income tax
purposes. As a result, the Company has not been subject to federal and state
income taxes. The Company will terminate its S Corporation election in
connection with the Offering and become a C Corporation. Upon termination of
the S Corporation election, the Company will be required to recognize
approximately $4.2 million of deferred income taxes in the period in which the
closing of the Offering occurs.
18
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Company's statements of operations as a percentage of net sales. Results
for any one or more periods are not necessarily indicative of annual results or
continuing trends.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
THREE MONTHS
ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
----------------------------- -----------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold....................................... 43.0 44.4 44.1 43.6 43.6
----- ----- ----- ----- -----
Gross profit................................................ 57.0 55.6 55.9 56.4 56.4
Operating and administrative expenses....................... 40.1 39.4 37.8 38.3 39.6
Depreciation and amortization............................... 7.1 6.9 8.8 7.3 9.5
----- ----- ----- ----- -----
Income from operations...................................... 9.8 9.3 9.3 10.8 7.3
Interest expense............................................ 2.7 2.4 2.9 3.0 2.9
Other income................................................ 0.7 1.0 1.2 1.6 0.6
----- ----- ----- ----- -----
Net income<F1>.............................................. 7.8 7.9 7.6 9.4 5.0
===== ===== ===== ===== =====
EBITDA...................................................... 17.6% 17.2% 19.3% 19.7% 17.3%
<FN>
- --------
<F1> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.
</TABLE>
Comparison of Three Months Ended September 30, 1996 and 1995
Net sales increased 28.2%, or $3.2 million, to $14.5 million from $11.3
million for the quarters ended September 30, 1996 and 1995, respectively.
Acquisitions made during the preceding twelve months contributed $2.9 million
of the increase in net sales, while base business growth contributed $0.3
million of the increase.
Gross profit increased 28.2%, or $1.8 million, to $8.2 million from $6.4
million for the quarters ended September 30, 1996 and 1995, respectively.
Acquisitions made during the preceding twelve months contributed $1.5 million
of the increase in gross profit, while the base business contributed $0.3
million of the increase. Gross profit as a percentage of sales remained at
56.4% for the quarter ended September 30, 1996, the same percentage as for the
quarter ended September 30, 1995. As a result of modest price increases, gross
profit as a percentage of sales improved for both gases and hard goods for the
quarter ended September 30, 1996 compared to the quarter ended September 30,
1995. This improvement was offset by an increase in the proportion of hard
goods sales, which have a lower gross profit margin as a percentage of sales
than gases, to 42.0% of net sales compared to 38.7% of net sales for the same
quarter in 1995. The increased proportion of hard goods sales was partially
attributable to the acquisition of Weber in August 1996.
Operating and administrative expenses increased 32.5%, or $1.4 million, to
$5.7 million from $4.3 million for the quarters ended September 30, 1996 and
1995, respectively. Of this increase, $1.0 million was related to acquired
businesses, $0.2 million was for employee benefits, and $0.2 million was for
facility lease expenses. The acquisition of Weber in August 1996 contributed to
an increase in operating and administrative expense as a percentage of sales,
compared to the same quarter in the prior year. The increase in employee
benefits reflects additional amounts accrued for hospitalization and profit
sharing. The increase in facility lease expense was due to the commencement of
lease payments on certain properties subsequent to the sale of those properties
by the Company to West Rentals, Inc. See ``Management--Compensation Committee
Interlocks and Insider Participation.'' The Company believes that these
expenses as a percentage of sales will decrease during the following two
quarters as Weber facilities are combined with the Company's existing
facilities. Depreciation and amortization expense increased $0.5 million for
the quarter ended September 30, 1996 compared to the same quarter in 1995,
primarily as a result of acquisitions made during the last twelve months.
19
<PAGE> 22
Net income declined $0.3 million for the quarter ended September 30, 1996
compared to the same quarter in 1995, reflecting the temporary dilutive effect
of the last two acquisitions and increased employee benefits and facility lease
expenses, partially offset by increased gross profit from the base business.
Earnings before interest, taxes, depreciation and amortization increased
13.0%, or $0.3 million, to $2.5 million for the quarter ended September 30,
1996 compared to the same quarter in 1995.
Comparison of Years Ended June 30, 1996 and 1995
Net sales increased 19.4%, or $8.7 million, to $53.6 million from $44.9
million in 1996 and 1995, respectively. Acquisitions contributed $7.7 million
of the increase in net sales, while base business growth contributed $1.0
million of the increase, reflecting an increase in sales of packaged gases.
Gross profit increased 20.1%, or $5.0 million, to $30.0 million from $25.0
million in 1996 and 1995, respectively. Acquisitions contributed $4.7 million
of the increase in gross profit, while the base business contributed $0.3
million of the increase. Gross profit as a percentage of sales improved to
55.9% in 1996, compared to 55.6% in 1995, with improvements in gross profit as
a percentage of sales for each of the product groups being partially offset by
sales of hard goods increasing to 39.4% of net sales compared to 38.0% of net
sales in 1995.
Operating and administrative expenses increased 14.7%, or $2.6 million, to
$20.3 million from $17.7 million in 1996 and 1995, respectively. Acquisitions
contributed substantially all of this increase. Operating and administrative
expenses as a percentage of sales improved to 37.8% in 1996, compared to 39.4%
in 1995, reflecting the leveraging of general and administrative costs as sales
were added from acquisitions. Depreciation and amortization expense increased
$1.6 million in 1996 compared to 1995, reflecting increased spending for
acquisitions and capital expenditures. Interest expense increased $0.5 million
in 1996 compared to 1995 reflecting increased borrowings to finance
acquisitions.
Net income increased 15.4%, or $0.5 million, to $4.1 million from $3.6
million in 1996 and 1995, respectively.
Earnings before interest, taxes, depreciation and amortization increased
33.9%, or $2.7 million, to $10.4 million from $7.7 million in 1996 and 1995,
respectively.
Comparison of Years Ended June 30, 1995 and 1994
Net sales increased 14.7%, or $5.7 million, to $44.9 million from $39.2
million in 1995 and 1994, respectively. Acquisitions contributed $1.9 million
of the increase in net sales, while base business growth contributed $3.8
million of the increase, reflecting the growth of propane and welding supplies
sales at existing locations.
Gross profit increased 11.9%, or $2.7 million, to $25.0 million from $22.3
million in 1995 and 1994, respectively. Acquisitions contributed $1.2 million
of the increase in gross profit in 1995, while the base business contributed
$1.5 million of the increase. Gross profit as a percentage of sales declined to
55.6% in 1995, compared to 57.0% in 1994. The decline in gross profit as a
percentage of sales reflects an increase in propane sales, which have a lower
gross profit as a percentage of sales than other gases, and an increase in
product costs for hard goods. In 1995, the Company began directing vendors to
ship hard goods directly to the Company's branch locations, rather than to the
Company's central warehouse as in prior years. Vendors increased purchase
prices for hard goods to cover their additional shipping costs. This increase
in product cost was more than offset by reduced internal distribution costs,
which are reflected in operating expenses.
Operating and administrative expenses increased 12.6%, or $2.0 million, to
$17.7 million in 1995, compared to $15.7 million in 1994. Acquisitions
contributed $1.1 million of the increase in operating and administrative
expenses, while the base business contributed $0.9 million of the increase.
Net income increased 16.1%, or $0.5 million, to $3.6 million from $3.1
million in 1995 and 1994, respectively.
Earnings before interest, taxes, depreciation and amortization increased
12.3%, or $0.8 million, to $7.7 million from $6.9 million in 1995 and 1994,
respectively.
20
<PAGE> 23
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for each of the Company's last nine quarters. The Company believes
that this information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such quarterly
information when read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus. The Company believes that
quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1994 1994 1995 1995 1995 1995 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $10,341 $11,081 $12,028 $11,464 $11,323 $12,815 $14,934 $14,540 $14,514
Cost of products
sold.............. 4,546 5,123 5,294 4,968 4,942 5,737 6,598 6,341 6,331
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 5,795 5,958 6,734 6,496 6,381 7,078 8,336 8,199 8,183
Operating and
administrative
expenses.......... 4,154 4,235 4,754 4,546 4,333 4,862 5,590 5,510 5,741
Depreciation and
amortization...... 676 726 780 929 827 1,171 1,309 1,392 1,373
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations........ 965 997 1,200 1,021 1,220 1,045 1,437 1,297 1,069
Interest expense.... 224 250 273 324 334 341 389 497 415
Other income........ 67 111 154 112 177 128 181 175 74
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income<F1>...... $ 808 $ 858 $ 1,081 $ 809 $ 1,064 $ 832 $ 1,229 $ 975 $ 728
======= ======= ======= ======= ======= ======= ======= ======= =======
EBITDA.............. $ 1,708 $ 1,834 $ 2,134 $ 2,062 $ 2,225 $ 2,344 $ 2,927 $ 2,864 $ 2,516
<FN>
- ---------
<F1> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations, capital expenditures
and debt service with funds provided from operating activities. Acquisitions
have been financed by a combination of seller financing, bank borrowings and
funds generated from operations. Since April 1994, required debt service on
borrowings from banks has been limited primarily to interest payments.
At September 30, 1996, the Company had working capital of approximately
$8.0 million. Funds provided by operations for the quarter ended September 30,
1996 were approximately $0.3 million, reflecting the annual payment of employee
bonuses, profit sharing payments and pension contributions. Funds used for
investing activities were approximately $0.9 million for the quarter,
consisting primarily of capital spending and financing for an acquisition. Uses
of funds for financing activities for the quarter were approximately $0.7
million for debt service and $0.4 million of S Corporation distribution for
payment of shareholder taxes.
Net cash provided by operating activities increased $1.1 million, to $7.4
million for fiscal 1996, compared to $6.3 million for fiscal 1995. Cash used
for acquisitions was approximately $6.4 and $2.8 million for fiscal 1996 and
fiscal 1995, respectively. Capital expenditures, made primarily for the
purchase of cylinders, tanks and delivery trucks, were approximately $3.6
million and $4.4 million for fiscal 1996 and fiscal 1995, respectively. The
Company received proceeds of $0.9 million in fiscal 1996 from the sale of real
estate. See ``Management--Compensation Committee Interlocks and Insider
Participation.'' The Company borrowed $6.5 million and $5.0 million, made debt
service payments of $2.5 million and $2.0 million, and made S Corporation
distributions, principally for payment of taxes, of $1.6 million and $1.4
million during fiscal 1996 and fiscal 1995, respectively.
On October 4, 1996, the Company entered into a new credit facility totaling
$38.0 million, consisting of a $13.0 million term loan, which matures in seven
years and is amortized in equal monthly payments, and a $25.0 million revolving
loan with a $15.0 million sublimit for letters of credit, which matures in
October 1999. The revolving loan is
21
<PAGE> 24
used primarily to fund acquisitions. The Company is not required to make
principal payments on outstanding balances of the revolving loan as long as
certain covenants are satisfied. Interest is charged on both the term loan and
the revolving loan at either the lender's prime rate or various LIBOR rates, at
the Company's discretion, plus an applicable spread. The weighted average
interest rate for substantially all of the borrowings under the credit facility
was 7.62% as of December 31, 1996. The Company pays a fee for the unused
portion of the revolving loan. As of December 31, 1996, availability under the
revolving loan was approximately $9.9 million, with outstanding borrowings of
approximately $10.1 million and outstanding letters of credit of approximately
$5.0 million. The credit facility is secured by all of the Company's assets.
The loan agreement for the credit facility contains various financial
covenants applicable to the Company, including covenants requiring minimum
fixed charge coverage, maximum funded debt to EBITDA, and minimum net worth.
The Company is in compliance with these covenants and believes that it will
continue to be in compliance through at least the next twelve months.
The Company is obligated under various promissory notes related to the
financing of acquisitions that have various rates of interest, ranging from
3.0% to 10.0% per annum, and maturities through 2010. The outstanding balance
of these notes as of June 30, 1996 and 1995 was $3.8 million and $1.1 million,
respectively. The outstanding balance of these notes increased to $5.9 million
as of September 30, 1996, reflecting notes added as a result of the Weber
acquisition. Some of these notes are secured by assets related to the
applicable acquisition, some are unsecured, and some are backed by bank letters
of credit issued under the Company's credit facility. Outstanding letters of
credit as of June 30, 1996 and 1995 were $1.9 million and $0.7 million,
respectively.
The Company intends to use a portion of the net proceeds from the Offering
to reduce the balance of the revolving loan. The Company expects to use the
increased availability to pay for future acquisitions.
The Company believes that cash generated from operations, borrowing
availability under its credit facility and the net proceeds of the Offering
will be sufficient to satisfy the Company's requirements for operating funds,
capital expenditures and future acquisitions for at least the next twelve
months.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company generally has experienced higher sales activity during its
second and third quarters as a result of seasonal sales of propane, with
corresponding lower sales for the first and fourth quarters. As a result,
income from operations and net income typically are higher for the second and
third quarters than for the first and fourth quarters of the year.
INFLATION
The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally low rates of inflation in the
economy and the Company's historical ability to pass purchase price increases
to its customers in the form of sales price increases. While inflation has not
had, and the Company does not expect that it will have, a material impact upon
operating results, there is no assurance that the Company's business will not
be affected by inflation in the future.
SUBSEQUENT EVENTS
In October 1996, the Company purchased substantially all of the assets of
Weldco for approximately $11.1 million. This acquisition was financed through a
combination of seller financing and borrowings under the Company's credit
facility. The acquisition expands the Company's market participation in the
Cincinnati and Dayton, Ohio areas. The Company expects the acquisition will
provide opportunities for operational efficiencies through the consolidation of
Weldco's operations with the Company's existing operations in the same areas.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (``SFAS'') No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of, was issued in March 1995. SFAS No. 121 requires that the carrying
value of long-lived operating assets, when determined to be impaired, be
adjusted so as not to exceed the estimated undiscounted cash flows provided by
such assets. SFAS No. 121 also addresses the accounting for long-lived
22
<PAGE> 25
assets that are to be disposed of in future periods. The Company adopted the
provisions of SFAS No. 121 in the first quarter of fiscal 1997. The adoption of
SFAS No. 121 did not have any effect on the Company's financial position or
results of operations for the quarter ended September 30, 1996.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, was issued in October 1995. The Company will be
required to adopt the new standard no later than fiscal 1997, although early
adoption is permitted. This standard establishes the fair value based method
(the ``SFAS 123 Method'') rather than the intrinsic value based method as the
preferred accounting methodology for stock-based compensation arrangements.
Entities are allowed to either (i) continue to use the intrinsic value based
methodology in their basic financial statements and provide in the footnotes
pro forma net income and earnings per share information as if the SFAS 123
Method had been adopted or (ii) adopt the SFAS 123 Method. Following adoption,
the Company anticipates providing the required disclosures in the notes to its
financial statements.
23
<PAGE> 26
BUSINESS
OVERVIEW
The Company is a leading packager and distributor of industrial, medical
and specialty gases, welding equipment and supplies, and propane in nine states
in the mid-Atlantic and midwestern regions of the United States. The Company's
net sales have grown, primarily as a result of acquisitions, at a compound
annual rate of approximately 17% per year since the Company started business in
1958, increasing from $190,000 in that year to $64.6 million on a pro forma
combined basis in fiscal 1996. In fiscal 1996, gases accounted for
approximately 46% of net sales, welding equipment and supplies accounted for
approximately 40% of net sales, and cylinder and tank rental accounted for
approximately 14% of net sales.
The Company's gas operations consist primarily of the packaging and mixing
of industrial, medical and specialty gases, such as oxygen, nitrogen and argon,
in pressurized cylinders and the transportation of these cylinders to customers
from one of the Company's 40 distribution and retail locations. The Company
also distributes propane to industrial and residential customers. Customers pay
a rental fee for use of the Company's cylinders. The Company owns approximately
290,000 cylinders, which require minimal maintenance and have useful lives that
the Company expects will extend on average for 50 years or longer. The Company
selectively participates in the small bulk gas market through the delivery of
gases in cryogenic transports and the storage of gases in cryogenic tanks and
propane tanks which are also rented to bulk gas customers. The Company owns
approximately 7,000 bulk propane tanks and 250 bulk cryogenic tanks, which have
useful lives generally less than those of cylinders. In connection with the
distribution of gases, the Company sells welding equipment and supplies,
including welding machines, wire, fluxes and electrodes and a wide variety of
supporting equipment.
The Company's principal business strategy is to aggressively pursue growth
through the acquisition of other independent distributors and also through
internally generated growth. Since the Company was founded, it has completed 38
acquisitions. Since January 1, 1996, the Company has acquired four independent
distributors, including Weldco with annual sales of approximately $11 million
and operations in Cincinnati and Dayton, Ohio, and Weber with annual sales of
approximately $5 million and operations in western Pennsylvania. The
integration of Weldco and Weber into the Company's existing operations is
currently in progress, with the benefits of integration expected to be realized
in the next two to eight quarters. Management believes there will continue to
be numerous attractive acquisition candidates available to the Company as a
result of the consolidation trend in the industry and that the Company will be
able to successfully integrate acquired operations into its base business,
generating growth and operational synergies. While highly focused on external
growth, management believes that the Company's competitive strengths will allow
it to increase sales and improve market share in existing markets, while
maintaining acceptable levels of profitability.
INDUSTRY OVERVIEW
GENERAL
Historically, the industrial gas distribution business had a base of
customers engaged primarily in metal fabrication. In order to better serve
these customers, industrial gas distributors have also traditionally sold
welding equipment and supplies. As certain sectors of the economy have grown,
such as the electronics and chemicals industries, and as new applications for
gases have developed, the customer base of the industry has significantly
broadened to include almost every major industry, including health care,
electronics, chemicals, aerospace, beverages, environmental remediation, food
processing, oil and gas, and primary metals, as well as metal fabrication.
The industrial, medical and specialty gas industry consists of two major
segments, the bulk segment and the packaged gas segment. The bulk segment
supplies gases to customers with large volume requirements, generally by truck
or pipeline to a customer's facility, or in some cases by the actual
construction of a gas production plant at a customer's facility. This segment
is primarily supplied by the major gas producers in the United States, although
some large distributors, such as the Company, selectively participate in the
small bulk gas market.
The Company competes primarily in the packaged gas segment, which consists
of the packaging, mixing and distribution of gases to customers with smaller
volume needs or requirements for specially blended or purified gases.
This segment of the industry is estimated to have sales of $6 billion in the
United States, including sales of welding
24
<PAGE> 27
equipment and supplies. Participants in this segment can be further divided into
two groups, large multi-state distributors with annual sales exceeding $25
million, and smaller, privately owned companies with few or single locations and
annual sales below $25 million. Management believes that large, multi-state
distributors, including the Company, account for approximately 50% of sales in
the packaged gas segment. Management estimates that the remaining sales are
generated by approximately 750 smaller distributors, many of which it believes
are potential candidates for acquisition by larger distributors in the current
wave of industry consolidation.
The Company believes that the following characteristics make the
distribution of packaged gases attractive and different from ordinary
industrial distribution: (i) the production, packaging and mixing of gases, as
well as the logistics of a large distribution network, require significant
knowledge and expertise; (ii) customers expect technical support and assistance
in a wide variety of gas applications; and (iii) the currently existing
logistical framework is unlikely to change significantly because of the
economics associated with the delivery and exchange of cylinders.
INDUSTRY CONSOLIDATION
The industry is undergoing significant consolidation, a trend which began
in the early 1980's. The Company believes there are many reasons for this
trend, including:
* Many of the owners who started welding supply distributors after World
War II are reaching retirement age without qualified succession.
* Small distributors are facing increasing competition from large
distributors who generally operate with lower cost structures due to
economies of scale.
* Rapid changes in technology in recent years are providing opportunities
for more efficient order entry, inventory and distribution management.
Larger distributors are more likely to have the capital and human
resources to take advantage of these opportunities, thereby creating
greater cost and service reliability advantages.
* Larger customers are demanding additional services from their suppliers
in such areas as automated order entry, automated restocking and
applications technology support. These services require an investment in
technology and equipment that many smaller distributors are incapable or
unwilling to make.
* The number and complexity of government regulations is increasing,
especially for distributors who produce or package gas products.
Complying with new regulations requires human resource expertise, which
is difficult for the smaller distributor to access and maintain.
* The acquisition of a distributor generally requires greater financial
resources than in the past because the businesses are generally larger,
sellers often demand full payment in cash, and sellers and major
industrial gas producers appear to be less willing to provide financing.
The Company believes this consolidation trend will continue, providing
opportunities for those distributors, such as the Company, who have the
financial and human resources to acquire and effectively assimilate
acquisitions into their base business. The Company believes that distributors
who fail to successfully participate in this consolidation trend and achieve a
strong or leading position in their market areas will be at a cost disadvantage
in the long term.
In recent years, the propane industry has also been undergoing
consolidation for many of the same reasons as the industrial gas industry. The
Company has been taking advantage of this consolidation trend through selective
acquisitions. Except for a few large companies, the propane distribution
industry is highly fragmented. Industry sources indicate there are
approximately 8,000 retail propane companies operating 13,500 local
distribution centers nationwide. The Company believes that the 50 largest
propane distributors have less than a 50% share of the approximately nine
billion gallon annual market.
ECONOMIC CHARACTERISTICS OF THE INDUSTRY
The industrial gas industry is mature with real growth consistent with
growth in the overall economy. Gas sales tend to be less adversely impacted by
a decline in general economic conditions than the sale of welding equipment and
supplies. Management believes that the industrial gas distribution business is
relatively resistant to downturns in the business cycle due to the following
factors: (i) the industry has a broad and diverse customer base; (ii) gases
frequently
25
<PAGE> 28
represent a fixed component of operating costs which does not decline with
production levels; (iii) gases are required for maintenance and renovation
activities, which tend to increase during economic downturns; (iv)
industries less impacted by economic downturns are major purchasers of
industrial gases; and (v) gas purchases represent a small portion of operating
expenses and, therefore, are not a large cost cutting item. The total market
for industrial gases has continued to expand due to strong growth in other
segments, such as electronics, food processing and health care, and significant
growth from new applications for industrial gases. However, some activities
which use industrial gases, such as metal fabrication, have declined in recent
years.
BUSINESS STRATEGY
The Company has implemented a strategic plan designed to (i) sustain
profitable growth through the acquisition of key distributors in selected
markets, (ii) achieve and maintain a low-cost supplier position in each market
segment where the Company participates and (iii) build a unified, cohesive
organization, staffed by skilled employees who are responsive to changing
customer requirements.
GROWTH THROUGH ACQUISITIONS
Prior Acquisitions. Since the formation of the Company in 1958, the Company
has completed the acquisition of the 38 distributors identified below:
<TABLE>
<CAPTION>
DISTRIBUTOR PRINCIPAL LOCATION FISCAL YEAR ACQUIRED
- ----------- ------------------ --------------------
<S> <C> <C>
Weldco, Inc. Cincinnati, OH 1997
Weber Gas & Welding Supply Co., Inc. Pittsburgh, PA 1997
Gas & Oil, Inc. Croydon, PA 1996
U.S. Air & Supplies, Inc. Chambersburg, PA 1996
Wootten Industries, Inc. Salisbury, MD 1996
Quest Welding Supply Columbus, OH 1996
AL Compressed Gases Sharonville, OH 1995
Ted's Bottled Gas, Inc. Tarentum, PA 1995
Allegheny LP Gas Evans City, PA 1995
Evans Welding Supply Co. Johnson City, TN 1995
Ina Oil Co. Southport, NC 1995
Smith LP Gases Bruceton Mills, WV 1995
Green's LP Gases Carrollton, OH 1994
Allegheny Air Gas Washington, PA 1994
A-1 Welding Supply Co. Bluefield, VA 1994
Big Sandy Welding Supply Co. Paintsville, KY 1993
Fort Pitt Paint and Glass Pittsburgh, PA 1992
Linde Gases of Western Pennsylvania Greensburg, PA 1992
Malanzak Bottled Gas Co. Uniontown, PA 1991
Penn-Ohio Welding Supply Co. New Castle, PA 1990
Penn-Air Industrial Gases New Castle, PA 1990
Airco Rare and Specialty Gases Pittsburgh, PA 1990
Speedy Welding Supply Co. Wilmington, NC 1989
Safety Equipment Co. Wilmington, NC 1989
A-B-C Fire Protection Wilmington, NC 1989
Herdman Brothers Welding Supply Co. Steubenville, OH 1989
Dunlap Welding Supply Zanesville, OH 1989
Airco Retail Leetsdale, PA 1988
Interstate Welding Supply Co. Huntington, WV 1985
26
<PAGE> 29
<CAPTION>
DISTRIBUTOR PRINCIPAL LOCATION FISCAL YEAR ACQUIRED
- ----------- ------------------ --------------------
<S> <C> <C>
Welder's Products Connellsville, PA 1984
Wood Brothers Propane Co. Uniontown, PA 1983
Home Bottled Gas Co. Uniontown, PA 1983
Fayette Oxygen Co. Uniontown, PA 1983
Cambridge Welding Cambridge, OH 1980
Washington Welding Supply Co. Washington, PA 1980
Better Welding Supply Wheeling, WV 1978
Fire Safety Service Wheeling, WV 1975
Johnson Welder's Supply Co. Friendly, WV 1973
</TABLE>
Acquisition Strategy. The Company intends to continue to focus its
acquisition efforts both on market areas where the Company has an existing
presence and on new areas where it believes it can achieve a leading presence.
The Company believes there are many potential acquisition candidates with
operations in these market areas. The Company seeks to achieve operating
efficiencies when it acquires a distributor in an overlapping or contiguous
market area by closing redundant locations, eliminating a significant portion
of the acquired distributor's overhead and consolidating distribution routes.
Acquisitions in new markets allow the Company to achieve operating efficiencies
through volume discounts on purchases, lower administrative and professional
expenses and the purchase of new equipment to replace inefficient equipment and
equipment previously leased at relatively expensive rental rates.
The Company believes that its principal competitive advantages in acquiring
distributors are (i) its flexibility in structuring acquisitions to meet the
concerns of sellers, (ii) its ability to offer sellers a continuing role in
management and (iii) its methodology in assimilating acquisitions. The Company
also believes it has a well organized acquisition program which utilizes
individuals who are well respected in the industry and who have extensive
experience in evaluating and negotiating transactions with distributor owners.
Based upon the Company's experience, price is not always the primary
determining factor in a selling distributor's choice of a buyer. Most owners of
independent distributors are sensitive as to whom they sell their business and
have concern for the well being of their employees after the acquisition. The
Company has found that relationships, existing competitive rivalry and
reputation are key elements in the success of acquiring most small,
privately-owned distributors. The Company believes it has earned an excellent
reputation for treating fairly the employees of businesses it has acquired,
providing them with competitive wages and benefits and opportunities for
advancement within the scope of the Company's operations.
Competition for Acquisitions. In seeking to acquire distributors, the
Company competes with the major industrial gas producers and national and
regional gas distributors. The largest national distributor is Airgas Inc.
(``Airgas'') which has been growing through acquisition since the mid-1980's.
The Company expects that Airgas will continue to selectively acquire
distributors in the future, and in some situations will compete with the
Company for acquisitions. The Company believes that Praxair and AGA Gas, Inc.
are the only major industrial gas producers who are actively soliciting
independent distributors for purchase at this time, but that both have
self-imposed size and geographic constraints. The Company also believes that
some major industrial gas producers have limited their acquisition efforts due
primarily to the difficulty of resolving management differences, cultural
differences and cost structure differences between the small, privately-held
business and the large multinational corporation. The smaller independent
distributors with which the Company competes for acquisitions generally do not
seek acquisitions beyond their immediate geographic region.
Acquisition Process. The Company has established formal procedures for
locating, investigating and valuing potential distributor acquisitions.
Criteria used by the Company in evaluating potential acquisitions include (i) a
history of profitability, (ii) realistic projections of future performance,
(iii) a sales mix which is or has the potential to become weighted towards the
sale of gases, which generally have higher profit margins than welding
equipment and supplies, (iv) a cylinder gas market which is serviced primarily
by independent distributors, as opposed to industrial gas producers and (v)
availability of qualified management and key personnel.
Assimilation of Acquired Businesses. The Company believes that the
effective assimilation of acquired businesses into the Company's existing
operations is critical to the success of the Company's acquisition strategy.
The Company has established a transition team comprised of selected personnel
with technical expertise in various areas, such as purchasing, accounting,
operations and sales. This team has primary responsibility for converting the
acquired
27
<PAGE> 30
business from its existing methods and practices to those used by the Company.
A primary goal of the assimilation process is to instill the Company's culture
into the new operations. The Company believes the ability to instill its
culture provides a distinct and key competitive advantage. This is partly
accomplished by requiring the adoption of uniform policies and procedures which
support the Company's operational strategies.
ACHIEVE AND MAINTAIN POSITION AS A LOW-COST SUPPLIER
The Company strives to produce, package and market the Company's products
and services at costs which are lower than its local market competitors. This
is achieved by optimizing branch size and location, requiring adherence to the
Company's uniform policies and procedures, taking advantage of volume discount
purchases not available to smaller competitors and utilizing the Company's
management information systems. Where branch size is suboptimal, the Company
has developed alternatives to increase size or profitability through growth or
product diversification. The Company has implemented a ``best practices''
program involving the identification of the most effective method of performing
a specific activity, such as inventory control, and has adopted procedures and
training to implement the practice as a standard throughout the Company's
operations.
The Company has made a significant investment in its management information
systems as part of its strategy to be a low cost supplier. The Company has
installed an integrated company-wide point-of-sale data entry system that
provides current information on inventory levels and account status. The
Company believes significant costs savings have resulted from the increased
ability to efficiently manage inventory levels and accounts payable.
The Company believes the selective addition of complementary product
offerings will enable it to better serve its diverse, expanding customer base,
reach new customers, increase sales in existing locations and leverage its
distribution system. For this reason, the Company has focused in recent years
on expanding its propane business. The addition of propane distribution at
existing Company locations has proven to be advantageous by providing the
opportunity to leverage fixed costs at existing locations, thereby creating
economies of scale. Certain Company locations are more attractive than others
for propane distribution, due primarily to residential growth potential and
existing branch size. In addition to propane, the Company believes that fire
safety equipment, currently a very small component of total sales, may be
suitable for distribution to portions of the Company's existing customer base.
ENHANCE ORGANIZATIONAL STRENGTH
The Company believes that to be competitive in attracting and maintaining
customers it must have a skilled and responsive work force dedicated to
providing excellent service. The Company works to instill a service culture
through various operational policies. The Company places special emphasis on
customer service, including the ability to quickly respond to technical
questions on products and applications. The Company believes this is a key
value provided to its customers. The Company commits significant resources to
the training and education of its employees through various programs. See
``--Employees.''
The Company strives to utilize to the fullest extent its existing
management resources. The Company recently restructured certain management
reporting relationships and areas of responsibility to place operating and
financial responsibility at the local market level, thereby eliminating a layer
of management and improving communication. These changes also allowed the
Company to redirect the focus of certain key management members on important
operating issues, such as system logistics, training, budgeting and overall
operating performance, that are vital to managing the Company's growth.
PRODUCTS
Gases packaged and distributed by the Company include oxygen, nitrogen,
hydrogen, argon, helium, acetylene, carbon dioxide, nitrous oxide, specialty
gases and propane. Specialty gases include rare gases, high-purity gases and
blended, multi-component gas mixtures. In connection with the distribution of
gases, the Company sells welding equipment and supplies, including welding
machines, wire, fluxes and electrodes and a wide variety of supporting
equipment.
In fiscal 1996, the Company sold approximately eight million gallons of
propane to approximately 2,000 residential, commercial and industrial users.
Propane sales accounted for approximately 6% of net sales in fiscal 1996.
Typical residential and commercial uses include conventional space heating,
water heating and cooking. Typical
28
<PAGE> 31
industrial uses include engine fuel for fork
lifts and other vehicles, metal cutting, brazing and heat treating. The
distribution of propane is seasonal in nature and sensitive to variations in
weather with consumption as a heating fuel peaking sharply in winter months.
While primarily a packager and distributor of gases, the Company also
manufactures a portion of its acetylene requirements at its facility in West
Mifflin, Pennsylvania. Acetylene is produced through a combination of calcium
carbide and water at relatively high temperatures. The reaction of these
elements also produces lime as a by-product, which is sold in bulk to customers
for a variety of applications. In fiscal 1996, acetylene accounted for
approximately 3% of net sales.
The following table sets forth the percentage of the Company's net sales
for the fiscal years ended June 30, 1994, 1995 and 1996 and for the three
months ended September 30, 1996 for each of the following products and
services:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED JUNE 30, ENDED
-------------------------- SEPT. 30,
1994 1995 1996 1996
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Gases............................................. 47.5% 47.2% 45.9% 44.1%
Welding equipment and supplies.................... 37.5 38.0 39.7 42.0
Cylinder rental................................... 15.0 14.8 14.4 13.9
</TABLE>
CUSTOMERS
The Company currently has more than 40,000 customers, none of which
accounted for more than 1.5% of net sales in fiscal 1996. In fiscal 1996,
approximately 23% of the Company's sales were to metal production and
fabrication customers. The second largest customer category was health care,
which represented 9% of the Company's net sales in fiscal 1996 and is one of
the Company's fastest growing categories. The customer base also includes
smaller distributors who are in proximity to one of the Company's larger
packaging facilities and find it economically advantageous to source certain
products from the Company.
The Company believes the industry has been characterized by relatively high
customer loyalty because of the importance of quality service and personal
relations. This characteristic has made it difficult for new entrants in a
market to acquire existing customers. However, service requirements for certain
large customers are becoming more demanding and sophisticated and the Company
expects that this will result in more account turnover in the future.
For some larger volume customers, bulk cryogenic products are delivered in
transports to cryogenic tanks at the customer location. The Company serves
small bulk customers only where it can compete effectively with producers,
primarily on the basis of service and the supply of other products, such as
cylinder gases and hard goods.
SALES AND MARKETING
The distribution of most packaged gases is most economically performed
within approximately a thirty-mile radius of the product packaging or inventory
location due primarily to the costs associated with the delivery of cylinders.
Therefore, the aggregate national market of $6 billion consists of hundreds of
regional markets with an estimated size of $5 million to $100 million in annual
sales. The Company believes the average market size is approximately $20
million.
The Company solicits and maintains business primarily through a direct
selling effort using an experienced sales force of approximately 60 sales
representatives. Sales representatives receive continuous training so that they
are knowledgeable about gas and product performance characteristics and current
application technology. On average, the Company's sales representatives have
more than ten years of industry experience. Sales representatives are paid a
base salary and commissions based upon account profit margin. Efforts are
focused on accounts generating sales of high margin products. Occasionally,
sales representatives make joint sales calls with the Company's suppliers to
address difficult or innovative customer application requirements. The Company
has been testing both telemarketing and catalog solicitation at selected
locations to attract new accounts.
Smaller accounts are usually served from ``walk in'' retail locations,
where the gases and hard goods are picked up rather than delivered. Each retail
location contains a showroom to allow the customer easy access to equipment
and supplies. Branch locations are chosen on the basis of local market
distribution logistics rather than suitability for
29
<PAGE> 32
``walk in'' retail sales. The Company's advertising efforts are limited as
management does not consider advertising to be a significant factor in
generating sales.
COMPETITION
Competition is almost always on a regional market basis and is based
primarily on customer loyalty, service and, to a lesser extent, price. Most
regional markets have between three and six competitors, the majority of whom
are small independent companies, with one or two competitors having a
significantly higher market share than the others. The Company competes in many
markets throughout West Virginia, Pennsylvania, Kentucky, Ohio, Virginia,
Tennessee, Maryland, Delaware and North Carolina. The Company believes it has a
strong or leading position in most of the markets it serves.
While the Company competes with the distribution subsidiaries of the major
industrial gas producers, the Company does not believe that the production of
industrial gas provides these producers with a significant competitive
advantage because in most cases, the cost for base gases represents a
relatively minor component of the total selling price in comparison to the
packaging and distribution expenses.
SUPPLIERS
The Company purchases industrial gases pursuant to short-term supply
arrangements and open purchase orders with three of the five major gas
producers in the United States. If any of these arrangements were terminated,
the Company believes it would be able to readily secure an alternate source of
supply.
The Company purchases welding equipment and consumable supplies from
approximately 85 primary vendors, of which purchases from the top five vendors
represented approximately 61% of total purchases in fiscal 1996. Purchases from
major vendors are made pursuant to purchase orders that are cancelable by the
Company upon minimal notice. With supplier overcapacity in most product lines
and high competitive rivalry for volume purchasers, large distributors such as
the Company are generally able to purchase welding equipment and supplies from
the vendor of their choice. This enables the Company to participate in vendor
discount and rebate programs and obtain products at competitive costs.
The Company purchases propane from pipeline sources at various supply
points in its market areas, generally on a short-term basis at prevailing
market prices. The Company historically has been able to adjust prices to
customers to reflect changes in product cost, which varies with season and
availability. The Company is not dependent upon any single supplier for propane
and supplies have historically been readily available. A significant portion of
the Company's propane sales are made to industrial customers. As a result, the
Company's sales are less seasonal than those of many competitors in the propane
market who focus on the residential segment. Because of the Company's off-peak
season demand, the Company believes that it would be less likely than some
distributors to be placed on allocation by suppliers during a period of tight
supply and accordingly would receive adequate supplies to meet customer demand.
EMPLOYEES
At December 31, 1996, the Company employed 441 people, of whom
approximately 19% were covered by collective bargaining agreements.
Historically, the Company has not been adversely affected by strikes or work
stoppages. Approximately 58% of the Company's employees are hourly workers. The
Company believes it has a skilled and motivated work force and that its
relationship with employees is good. The Company believes that its wages and
benefits, which reflect local conditions, are competitive with those provided
by major competitors.
The Company believes that continuing education is necessary for its
employees to achieve and maintain the skills required to be effective in
today's competitive environment. At its Wheeling, West Virginia training
center, the Company provides a variety of programs and courses covering all
phases of operations, sales, safety and distribution. Key suppliers also
provide employees product training relating primarily to welding and gas
application technology.
PROPERTIES
The Company owns approximately 290,000 cylinders, 7,000 bulk propane tanks
and 250 bulk cryogenic tanks, generally ranging in size from 250 gallons to
11,000 gallons. Most cylinders and storage tanks are located at customer
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<PAGE> 33
sites. Cylinders require minimal maintenance and have useful lives that the
Company expects will extend on average for 50 years or longer. Bulk tanks
have useful lives generally less than those of cylinders.
The Company has 40 industrial gas and welding supply distribution locations
in nine states, twelve of which also package and distribute propane. A typical
location has two acres of property, 5,000 square feet of space used to
warehouse hard goods, 5,000 square feet of space used for gas filling and
cylinder storage and 2,000 square feet of space used for a retail showroom. The
Company's headquarters are located in 20,000 square feet of space located in
Wheeling, West Virginia.
Most of the specialty gas products sold by the Company are purified,
packaged and mixed at a facility operated by the Company in Evans City,
Pennsylvania. This facility normally processes approximately 30,000 cylinders
per month, but has capacity to process approximately 50% more volume, which the
Company believes would be sufficient to meet increased volume requirements in
the future.
All of the Company's facilities are leased on terms which the Company
believes are consistent with commercial rental rates prevailing in the
surrounding rental market. See ``Management--Compensation Committee Interlocks
and Insider Participation.'' The Company believes that its facilities are
adequate for its needs and that its properties are generally in good condition,
well maintained and suitable for their intended use.
REGULATORY MATTERS
The Company is subject to federal and state laws and regulations adopted
for the protection of the environment, and the health and safety of employees
and users of its products. In addition, the Company voluntarily complies with
applicable industry safety standards. Management believes that the Company is
in substantial compliance with all such laws, regulations and standards
currently in effect and that the cost of compliance with such laws, regulations
and standards will not have a material adverse effect on the Company.
PRODUCT LIABILITY AND INSURANCE
The Company maintains insurance coverage which it believes to be adequate.
The nature of the Company's business may subject it to product liability
lawsuits. To the extent that the Company is subject to claims which exceed its
liability insurance coverage, such suits could have a material adverse effect
on the Company. No such lawsuits are pending against the Company and the
Company has not suffered any material losses from such lawsuits in the past.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
31
<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
YEARS
EXPERIENCE IN
NAME AGE INDUSTRY POSITION
---- --- ------------- --------
<S> <C> <C> <C>
Gary E. West...................................... 60 27 Chairman of the Board of Directors
Lawrence E. Bandi................................. 42 23 President, Chief Executive Officer, Director
John R. Bushwack.................................. 46 21 Executive Vice President, Chief Operating
Officer, Director
Robert D. Scherich................................ 36 1 Chief Financial Officer
Ben Exley, IV..................................... 50 1 Director
James P. Hart..................................... 42 1 Director
William A. Indelicato............................. 57 28 Director
R. Bruce Kraemer.................................. 51 30 Director
August E. Maier................................... 67 14 Director
- --------------
</TABLE>
GARY E. WEST, CHAIRMAN OF THE BOARD. Mr. West has served as Chairman of the
Board of Directors of the Company since 1984. From 1970, when he purchased the
Company, to March 1995, Mr. West served as President of the Company. Mr. West
is primarily responsible for the growth and success of the Company. Mr. West
has also served as President of West Rentals, Inc. and Equip Lease Corp. and
Vice President of Acetylene Products, Corp. since 1992, 1988 and 1985,
respectively. See ``Management--Compensation Committee Interlocks and Insider
Participation.'' Since June 1993, he has served as a director of WesBanco
Wheeling, and since June 1990 he has served as a director of H.E. Newmann Co.,
a plumbing, heating and mechanical contracting company. Mr. West received his
Bachelor of Science degree in Business Administration from West Liberty State
College.
LAWRENCE E. BANDI, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr. Bandi has
served as President and Chief Executive Officer of the Company since March 1995
and April 1991, respectively, and as a director of the Company since March
1984. Mr. Bandi has held various positions with the Company since joining it in
1974. Mr. Bandi is a Director of the Ohio Valley Industrial and Business
Development Corporation, a private corporation established for the purpose of
attracting various business entities to West Virginia. Mr. Bandi received his
Bachelor of Science degree in Accounting from Wheeling College and his Masters
in Business Administration degree from Wheeling Jesuit College.
JOHN R. BUSHWACK, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER AND
DIRECTOR. Mr. Bushwack has served as the Executive Vice President, Chief
Operating Officer and a director of the Company since January 1997. From 1991
to 1996, Mr. Bushwack served in various positions with the Company, including
Executive Vice President of Sales and Acquisitions, Vice President of Sales and
Acquisitions, Vice President of Sales and General Manager. From 1987 to 1990,
Mr. Bushwack served as President of the Harvey Company, a gas distributor, and
from 1990 to 1991 he served as Vice President and director of Linde Gases of
the Great Lakes, also a gas distributor. In addition, Mr. Bushwack has been a
director of Convenient Care Products Group, Ltd., a division of Westmoreland
Health System, since 1991.
ROBERT D. SCHERICH, CHIEF FINANCIAL OFFICER. Mr. Scherich has served as the
Company's Chief Financial Officer since May 1996. From January 1993 to April
1996, he served as Controller and General Manager of Wheeling Pittsburgh Steel
Corporation, a subsidiary of WHX Corporation, and from January 1988 to December
1993 he served as Division Controller of such corporation. Mr. Scherich was an
accountant with Ernst & Whinney from 1981 to 1984. Mr. Scherich received his
Bachelor of Science degree in Accounting from Pennsylvania State University and
is a Certified Public Accountant.
BEN EXLEY, IV, DIRECTOR. Mr. Exley was elected a Director of the Company in
January 1997. He has served as the President of Ohio Valley-Clarksburg, Inc.
since 1990 and Bailey Drug Company since 1993, both of which are pharmaceutical
distributors and wholly-owned subsidiaries of Cardinal Health Inc. Mr. Exley
has also served on the
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<PAGE> 35
board of directors of several companies, including
BankOne West Virginia N.A. since 1994, BankOne Wheeling-Steubenville N.A. since
1991 and Stone & Thomas, a chain of clothing department stores, since 1991. Mr.
Exley is a graduate of West Virginia Wesleyan with a Bachelor of Science degree
in Business Administration. He also holds a Masters in Business Administration
degree from Northern Illinois University.
JAMES P. HART, DIRECTOR. Mr. Hart was elected a director of the Company in
January 1997. He has been Vice President and Chief Financial Officer of
Industrial Scientific Corporation (``ISC''), a manufacturer of portable
instruments used for detecting and monitoring a variety of gases, since August
1994. From March 1984 to August 1994, Mr. Hart was Treasurer and Controller of
ISC. Mr. Hart holds a Bachelor of Science degree in Accounting from Scranton
University.
WILLIAM A. INDELICATO, DIRECTOR. Mr. Indelicato was elected a director of
the Company in January 1997. Mr. Indelicato has been President of ADE Vantage,
Inc., a business consulting firm which provides certain services to the
Company, since July 1992. From 1988 to 1991, Mr. Indelicato served as General
Business Director of Union Carbide Industries Gases Inc. Mr. Indelicato is also
an associate professor of strategic management at Pace University in New York.
Mr. Indelicato received his Bachelor of Science degree in Electrical
Engineering from the University of Notre Dame and his Masters in Business
Administration degree from Pace University.
R. BRUCE KRAEMER, DIRECTOR. Mr. Kraemer was elected a Director of the
Company in January 1997. He is the owner of Reading Supplies Inc., a
distributor of pipe, valves and fittings. Mr. Kraemer was President of Weldco
from 1985 to 1996 and a sales representative of Weldco from 1966 to 1985. Mr.
Kraemer received a degree from the Ohio College of Applied Sciences.
AUGUST E. MAIER, DIRECTOR. Mr. Maier was elected a Director of the Company
in January 1997. He has served as Chief Executive Officer of Houston Fearless
79, a manufacturer of film processing equipment, since May 1995. From October
1987 to May 1995, Mr. Maier was Chief Executive officer of Holox, Inc., a
manufacturer and distributor of industrial gases and welding equipment, which
is wholly owned by Hoeklos Ltd. of Holland. Mr. Maier received his Bachelor of
Science degree in Mechanical Engineering from the Indiana Institute of
Engineering and his Masters in Business Administration degree from the Harvard
Business School.
Officers are elected annually and serve at the discretion of the Board of
Directors.
BOARD OF DIRECTORS
Prior to the Offering, the Board of Directors will be divided into three
classes with terms expiring, respectively, at the annual meeting of
shareholders in 1998 (Messrs. Bandi and Kraemer), 1999 (Messrs. Bushwack, Hart
and West) and 2000 (Messrs. Exley, Indelicato and Maier).
The Company's Board of Directors has established an Executive Committee, an
Audit and Finance Committee, and a Nominating and Compensation Committee. The
Executive Committee is comprised of Messrs. West, Bandi and Indelicato. The
Executive Committee has authority to exercise most of the powers of the full
Board during the intervals between meetings. The Audit and Finance Committee is
made up of a majority of independent directors comprised of Messrs. Hart,
Buschwack, Kraemer and Maier. The Audit and Finance Committee reviews the
Company's accounting practices, internal accounting controls and financial
results and oversees the engagement of the Company's independent auditors. The
Nominating and Compensation Committee is comprised of Messrs. West, Indelicato
and Exley. The Nominating and Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company, administers the Company's benefit plans and
recommends policies relating to such plans, and administers the issuance of
stock options and other awards under the Company's 1997 Stock Option Plan to
all Company employees and directors, other than the members of such committee,
and recommends to the Board of Directors nominees for election as directors,
and periodically reviews potential candidates, including incumbent directors.
The Company intends to pay each outside director a $1,000 fee for each
Board meeting attended and a $500 fee for each Committee meeting attended.
Directors are also reimbursed for certain reasonable expenses incurred in
attending Board meetings. Officers of the Company do not receive any additional
compensation for serving as members of the Board of Directors or any of its
Committees.
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<PAGE> 36
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Chief Executive
Officer and the two other executive officers whose annual salary and bonus
exceeded $100,000 for services rendered in all capacities to the Company for
fiscal year 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION<F1>
NAME AND ----------------------- ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ----------------------------------- -------- -------- ------------
<S> <C> <C> <C>
Gary E. West....................... $ 61,159 $125,000 $ 9,712<F3>
Chairman of the Board<F2>
Lawrence E. Bandi.................. 93,408 128,631 64,827<F3>
President and Chief Executive
Officer
John R. Bushwack................... 110,238 46,500 32,260<F3>
Executive Vice President and Chief
Operating Officer
<FN>
- --------
<F1> The named individuals did not receive any annual compensation not properly
categorized as salary or bonus, except for certain perquisites and other
personal benefits which are not shown because the value of such
perquisites and other personal benefits provided by the Company did not
exceed the lesser of $50,000 or 10% of the total of annual salary and
bonus for the named executive officer for such year.
<F2> In addition to salary, Mr. West received S Corporation distributions as a
shareholder of the Company.
<F3> Represents amounts accrued by the Company on behalf of Mr. Bandi and Mr.
Bushwack in the amounts of $54,616 and $21,846, respectively, pursuant to
deferred compensation agreements. Represents contributions by the Company
to the pension and profit sharing plan accounts of Messrs. West, Bandi and
Bushwack in the amount of $9,712 each. Represents premiums paid by the
Company on behalf of Messrs. Bandi and Bushwack in the amounts of $999 and
$702, respectively, for insurance to fund death, disability and retirement
benefits under certain agreements.
</TABLE>
BENEFIT PLANS
1997 STOCK OPTION PLAN
The Company adopted the 1997 Stock Option Plan (the ``Plan'') in January
1997. The Plan provides for the issuance of options to purchase up to 650,000
shares of Common Stock to key employees, officers and directors of the Company
and is administered by the Nominating and Compensation Committee of the Board
of Directors.
The Company has granted to Lawrence E. Bandi, John R. Bushwack and each of
the five independent directors options to purchase 46,000, 26,000 and 5,000
shares, respectively, of the Common Stock. The options vest three years after
the date of the grant and have a term of ten years. The options are exercisable
at a price equal to the fair market value of the shares of Common Stock on the
date of the grant. In the case of key employees and officers, unexercised
options granted under the Plan are subject to forfeiture upon termination of
employment for any reason other than death, disability or normal retirement.
401(K) PLAN
The Company has a qualified 401(k) savings and retirement plan (the
``401(k) Plan''). Eligibility to participate in the 401(k) Plan requires an
employee to have been employed with the Company for twelve months (``Eligible
Employees''). The 401(k) Plan allows Eligible Employees to defer into their
plan account a certain dollar amount or stated percentage of their salary, not
to exceed statutorily mandated annual limits (the ``Employee Contributions'').
Eligible Employees are 100% vested in their Employee Contributions. The Company
makes an annual contribution (the ``Company Contribution'') to all Eligible
Employees' plan account in an amount equal to 5% of their salary or wages.
Company Contributions vest over a term of seven years. The Company also makes a
determination each year based upon performance as to the amount, if any, of
additional contributions to be made to Eligible Employees' plan accounts. If a
determination is made to make additional contributions in any year, such
amounts are contributed on a pro rata basis to the plan accounts of Eligible
Employees who made voluntary contributions during such year. Distributions
under the 401(k) Plan may be made at retirement, death, permanent disability
or other termination of employment, in a lump sum payment.
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<PAGE> 37
CERTAIN AGREEMENTS WITH EXECUTIVE OFFICERS
Lawrence E. Bandi and John R. Bushwack have entered into long-term deferred
compensation agreements with the Company pursuant to which the Company has
awarded units to Mr. Bandi and Mr. Bushwack having a value based upon a
percentage of the value of the Company. For purposes of such agreements, the
value of the Company is generally determined pursuant to a formula based upon a
multiple of earnings before interest, income taxes, depreciation and
amortization, subject to certain adjustments. The value of the units is
adjusted annually. The interests of Mr. Bandi and Mr. Bushwack in their units
vest either over a period of years or automatically upon the occurrence of
certain transactions, including closing of the Offering. These agreements will
be terminated immediately prior to the closing of the Offering and the Company
will issue to Mr. Bandi and Mr. Bushwack 121,942 and 48,776 shares of Common
Stock, respectively, in exchange for their units. In connection with the
termination of these agreements, the Company will recognize a one-time,
non-cash expense of $1.6 million in the period in which the closing of the
Offering occurs.
Lawrence E. Bandi and John R. Bushwack have entered into agreements with
the Company whereby the Company has agreed to pay each of them, or their
respective beneficiaries, certain death, disability and/or retirement benefits,
provided that they are employed with the Company until their respective
retirements or deaths, and that with respect to retirement benefits, they do
not thereafter compete with the Company. In the event of the death or
retirement of Mr. Bandi or Mr. Bushwack, the Company is obligated to make
payments of $2,000 and $1,000 per month, respectively, for eighty-four months.
In the event of disability, the Company is obligated to make payments of $2,000
and $1,000 per month, respectively, for the duration of his disability, but not
after he reaches age 65.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In January, 1997, the Company established a Compensation Committee
comprised of Messrs. West, Indelicato and Exley. The Company did not have a
compensation committee or other board committee performing equivalent functions
prior to 1997. Messrs. West and Bandi made all decisions relating to executive
officer compensation in 1996. None of the Company's directors serve on any
other board which relationship would be construed to constitute a compensation
committee interlock.
WEST RENTALS, INC.
The Company leases 38 buildings from West Rentals, Inc., a West Virginia
corporation (``West Rentals''), 35 of which are leased pursuant to a Master
Lease Agreement (the ``Master Lease'') and three of which are leased pursuant
to pass-through subleases. Gary E. West, the Company's Chairman of the Board,
is the sole shareholder of West Rentals. The Master Lease terminates on October
31, 2006 and may be renewed for an additional five-year term. Currently, the
Company pays an aggregate of $132,118 a month to West Rentals as rent for all
real property leased. In addition, the Company pays all utility bills and fees
as well as all property and local taxes on the real property leased from West
Rentals. In May 1996, the Company sold several of its properties to West
Rentals for an aggregate purchase price of approximately $850,000, which
purchase price was supported by a third-party appraisal.
In addition, the Company rents cylinders and trailers from West Rentals and
currently pays approximately $7,860 a month to West Rentals for such rentals.
Employees of the Company provide occasional construction, maintenance and
clerical related services to West Rentals. The Company bills West Rentals for
such services on an hourly basis. Aggregate expenditures by the Company under
the Master Lease and for rental of cylinders and trailers, for the fiscal year
ended June 30, 1996, was approximately $932,624. The Company believes that the
amounts it has paid for rental of real property, cylinders and trailers have
not been less favorable than could have been obtained in arms-length
transactions with unaffiliated third parties.
ACETYLENE PRODUCTS CORP.
On December 31, 1996, the Company terminated an oral take-or-pay agreement
with Acetylene Products Corp. (``APC''), whose shareholders are all directors,
officers or employees of the Company. The agreement obligated the Company to
purchase a minimum quantity of acetylene on an annual basis regardless of
whether it accepted delivery of the acetylene. During fiscal 1996 and the six
months ended December 31, 1996, the Company paid APC $154,400
and $96,216, respectively. The Company also leases approximately 1,400 square
feet of space located in Wheeling, West Virginia from APC for use as an
employee training center at a cost of $700 per month. The lease has a one year
term expiring in October 1997. Employees of the Company provide occasional
construction, maintenance and clerical related services to APC. The Company
bills APC for such services on an hourly basis and the amounts received in
35
<PAGE> 38
fiscal 1996 were $63,550. The Company believes that the current arrangements
with APC are not less favorable than could be obtained in arms-length
transactions with unaffiliated third parties.
The Company and APC have formed a Pennsylvania business trust through which
the Company conducts its operations in Pennsylvania. The Company and APC hold a
99% and 1% interest in the trust, respectively. The Company realizes certain
tax benefits as a result of this structure. In fiscal 1996, a nominal amount of
cash was distributed by the trust to APC.
INDELICATO CONSULTING ARRANGEMENT
The Company has entered into a consulting agreement (the ``Consulting
Agreement'') with William A. Indelicato, a director of the Company, whereby Mr.
Indelicato provides consulting services concerning all aspects of the Company's
acquisition program. In return for his services, the Company accrues
``credits'' for Mr. Indelicato in amounts based upon hours worked and hourly
rates that vary depending upon criteria related to each particular acquisition.
Mr. Indelicato can redeem accrued credits for cash at any time within seven
years from the date of accrual. The amount of the accrued, unredeemed credits
is adjusted proportionately following the end of each fiscal year based upon
the increase (but not any decrease) in the Company's net worth since the end of
the last fiscal year. In addition, Mr. Indelicato has the right, in connection
with a public offering of the Common Stock, to exchange all or a portion of his
accrued credits (excluding credits accrued for annual adjustments) for shares
of Common Stock based on the book value per share of Common Stock as of the end
of the fiscal year for which the credits were accrued, in which case the
accrued credits for annual adjustments are cancelled. As of June 30, 1996, the
total amount of the accrued credits was approximately $158,000. Mr. Indelicato
will exchange all the accrued credits for 96,366 shares of Common Stock, of
which 30,000 shares are being sold in the Offering. See ``Principal and Selling
Shareholders.'' Pursuant to the Consulting Agreement, the Company also retains
ADE Vantage, Inc. (``ADE''), a consulting company wholly-owned by Mr.
Indelicato, to support Mr. Indelicato in providing consulting services. The
Company pays Mr. Indelicato a monthly retainer fee of $1,000 and reimburses his
out-of-pocket expenses related to the performance of services. Payments to Mr.
Indelicato and ADE for fiscal 1996 totaled $76,000. The term of the Consulting
Agreement expires on March 16, 1999, but either party may terminate it at any
time. The Company intends to continue using the consulting services of Mr.
Indelicato and ADE after the Offering.
EQUIPLEASE, CORP.
EquipLease Corp. (``EquipLease''), a corporation wholly-owned by Gary West,
rents its one airplane and helicopter to the Company at an hourly rate of $220
and $150, respectively. The Company paid a total of $18,800 to EquipLease for
rental of the airplane and helicopter during fiscal 1996. The Company believes
that the arrangements with EquipLease have not been less favorable than could
have been obtained in arms-length transactions with unaffiliated third parties.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the West Virginia Corporation Act, as amended (the
``WVCA''), the Amended and Restated Articles of Incorporation of the Company
will provide that (i) the Company is required to indemnify its directors and
officers to the maximum extent permitted by West Virginia law, (ii) the Company
is permitted to indemnify employees or agents to the maximum extent permitted
by West Virginia law or to such lesser extent as the Company deems appropriate,
if permitted by the WVCA, (iii) the Company is required to advance expenses in
defending a proceeding against its officers and directors and may advance such
expenses to its employees and agents, upon receipt of an undertaking, (iv) the
rights conferred in the WVCA are not exclusive and (v) the Company is
authorized to maintain insurance on behalf of its officers and directors,
employees and agents.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's Amended and Restated Articles of Incorporation, Amended and
Restated By-laws and the WVCA, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
36
<PAGE> 39
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock immediately prior to the Offering as adjusted to
reflect the sale of shares offered hereby, for (i) each person known to the
Company to own beneficially 5% or more of the outstanding shares of Common
Stock, (ii) the Company's directors and named executive officers, (iii) each
Selling Shareholder and (iv) all the Company's directors and executive officers
as a group. Each named beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
OFFERING OFFERED OFFERING<F1>
----------------------- --------- -----------------------
NUMBER PERCENT NUMBER PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Gary E. West....................... 7,000,000 94.6 -- 7,000,000 69.8
Lawrence E. Bandi<F2>.............. 121,942 1.6 37,000 84,942 <F*>
John R. Bushwack<F2>............... 48,776 <F*> 15,000 33,776 <F*>
William A. Indelicato<F3>.......... 96,366 1.3 30,000 66,366 <F*>
Ben Exley, IV...................... -0- -- -- -- --
James P. Hart...................... -0- -- -- -- --
R. Bruce Kraemer<F4>............... 100,000 1.4 -- 100,000 1.0
August E. Maier.................... -0- -- -- -- --
All directors and executive
officers as a group................ 7,367,084 99.5 82,000 7,285,084 72.7
<FN>
- --------
<F*> Less than 1%.
<F1> Assumes no exercise of the Underwriters' over-allotment option.
<F2> Messrs. Bandi and Bushwack are the President and Chief Operating Officer
of the Company, respectively, and each is also a director of the Company.
See ``Management.''
<F3> Mr. Indelicato has been a director of the Company since January 1997 and
provides consulting services to the Company through ADE Vantage, Inc. See
``Management--Compensation Committee Interlocks and Insider
Participation.''
<F4> Subject to adjustment based upon the initial public offering price of the
Common Stock. See ``Certain Relationships and Related Transactions.''
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 11, 1996, the Company purchased substantially all of the assets
of Weldco pursuant to a Purchase and Sale Agreement dated as of September 27,
1996 among the Company, Weldco and certain other persons (the ``Weldco Purchase
Agreement''). Approximately $7.9 million of the purchase price was paid by the
delivery of the Company's promissory notes. Under the Weldco Purchase
Agreement, Weldco (or its shareholders following liquidation) has the right, in
the event of an initial public offering of the Company's Common Stock, to
convert a portion of the indebtedness evidenced by the Company's promissory
notes to shares of the Company's Common Stock based upon the initial public
offering price of the Common Stock. Under this provision, Weldco has the right
to receive 275,000 shares of the Common Stock in exchange for the cancellation
of indebtedness in the amount of $2,750,000. The Company and Weldco have agreed
that rather than issuing 275,000 shares to Weldco, the Company will prepay
$1,400,000 under the Company's promissory notes and issue 135,000 shares of
Common Stock to Weldco (or its shareholders) immediately prior to the closing
of the Offering. The Company understands that certain shareholders of Weldco
intend to purchase up to 100,000 shares of Common Stock in the Offering and
that the Underwriters have agreed to reserve such number of shares for purchase
by Weldco (or its shareholders). See ``Underwriting.'' The Weldco Purchase
Agreement further grants Weldco (or its shareholders) the right to cause the
Company to purchase shares of Common Stock issued to Weldco (or its
shareholders) pursuant to the conversion of indebtedness. Such right shall be
exercised, if at all, within three years following the closing of the Offering
based upon the initial public offering price plus interest from the date of
issuance at the rate of 6.6% per annum. The Company expects that 235,000 shares
will be subject to this right following the closing of the Offering.
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<PAGE> 40
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and assuming no exercise of outstanding
options, the Company will have outstanding 10,020,084 shares of Common Stock
(10,425,084 shares if the Underwriters' over allotment option is exercised in
full). Of these shares, the 2,700,000 shares sold in the Offering will be
immediately eligible for resale in the public market without restriction under
the Securities Act, except for any shares purchased by an ``Affiliate'' (as
that term is defined under the Securities Act) of the Company, which will be
subject to the resale limitations of Rule 144 under the Securities Act. The
remaining 7,320,084 shares of Common Stock outstanding following the Offering
(the ``Previously Issued Shares'') are deemed to be ``restricted securities''
within the meaning of the Securities Act and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as those provided by Rule 144 promulgated
under the Securities Act.
All of the holders of the Previously Issued Shares have agreed to enter
into agreements with the Company (``Lock-up Agreements'') pursuant to which
they will agree that, during the 180-day period after the date of this
Prospectus, they will not, except with the prior consent of A.G. Edwards &
Sons, Inc., offer, sell, contract to sell or grant an option to purchase any of
such Previously Issued Shares. In addition, the Company has agreed that during
such period it will not, without the prior consent of A.G. Edwards & Sons,
Inc., offer, sell, contract to sell or grant an option to purchase any shares
of Common Stock. See ``Underwriting.'' At the expiration of such lock-up period
all of the Previously Issued Shares will be eligible for sale, subject to the
volume and other limitations of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company or other person (or
persons whose shares are aggregated) who has beneficially owned Previously
Issued Shares for at least two years, will be entitled to sell in any
three-month period a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of the Company's Common Stock (approximately
10,425,084 shares immediately after the offering, if the Underwriters'
over-allotment option is exercised in full) or (ii) the average weekly trading
volume of the Company's Common Stock on the Nasdaq National Market during the
four calendar weeks immediately preceding the date on which notice of the sale
is filed with the Securities and Exchange Commission. Sales pursuant to Rule
144 are subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
Affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned Restricted Shares for at least three
years is entitled to sell such shares pursuant to Rule 144(k) without regard to
the limitations described above.
Previously Issued Shares may also be resold (i) to a person whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A and (ii) in an off-shore transaction complying with
Rules 903 or 904 of Regulation S under the Securities Act.
An employee of the Company who purchased shares or was awarded options to
purchase shares pursuant to a written compensatory plan or contract meeting the
requirements of Rule 701 under the Securities Act is entitled to rely on the
resale provisions of Rule 701 under the Securities Act which permits Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
the holding period restrictions of Rule 144, in each case commencing 90 days
after the date of this Prospectus. In addition, non-Affiliates may sell Rule
701 shares without complying with the public information, volume and notice
provisions of Rule 144.
Following the effectiveness of the registration statement covering the
shares of Common Stock offered hereby, the Company will register under the
Securities Act the shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan covering 650,000 shares. The Company expects
that this registration will automatically become effective upon filing.
Accordingly, shares registered under such registration statement and acquired
pursuant to the Plan will be available for sale in the open market upon the
expiration of the public sale restrictions described below (see
``Underwriting''), subject to Rule 144 volume limitations applicable to
Affiliates, except to the extent such shares are subject to vesting
restrictions with the Company.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to
time. Sales of substantial amounts of Common Stock of the Company in the public
market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
38
<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
Prior to the consummation of the Offering, the Company will amend and
restate both its Articles of Incorporation and Bylaws. The descriptions below
relate to such amended and restated Articles of Incorporation and Bylaws.
AUTHORIZED CAPITAL STOCK
The Company's Articles provide for authorized capital stock to consist of
30,000,000 shares of Common Stock, and 5,000,000 shares of Preferred Stock. The
Company will have outstanding, immediately prior to the issuance and sale of
shares of Common Stock pursuant to the Offering, 7,402,084 shares of Common
Stock. Upon the closing of the Offering, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding stock
options, the Company will have outstanding 10,020,084 shares of Common Stock
and no shares of Preferred Stock.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors or preemptive rights to purchase or subscribe for any
stock or other securities. Subject to the prior rights of the holders of any
shares of Preferred Stock, if any, which subsequently may be issued and
outstanding, holders of Common Stock are entitled to receive dividends as and
when declared by the Board of Directors out of funds legally available for the
purpose. Such dividends shall not be cumulative. The holders of Common Stock
shall share ratably in all assets remaining after payment of liabilities.
Additional shares of authorized Common Stock may be issued without shareholder
approval. All of the shares of Common Stock are, and the shares to be sold in
the Offering will be, upon issuance and payment therefor, fully paid and
non-assessable.
PREFERRED STOCK
The Board has the authority to issue up to an aggregate of 5,000,000 shares
of Preferred Stock from time to time in one or more series, without shareholder
approval. The Board has the authority to establish from time to time the number
of shares to be included in each such series, dividend rate, redemption and
liquidation rights and terms, sinking fund provisions, if any, for the
redemption or purchase of shares, conversion terms and conditions, if any,
voting rights, if any, and to set the designation of the series and to fix and
determine the relative rights and preferences of the shares of each such series
and any qualifications, limitations or restrictions thereof. Depending upon the
rights of such Preferred Stock, the issuance of Preferred Stock could have an
adverse effect on the holders of Common Stock by delaying or preventing a
change of control of the Company, making removal of the present management of
the Company more difficult, or resulting in restrictions upon the payment of
dividends and other distributions to the holders of Common Stock. The Company
has no current plans to issue any Preferred Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon the completion of the Offering, there will be 19,329,916 shares of
Common Stock and 5,000,000 shares of Preferred Stock available for future
issuance without shareholder approval, taking into consideration the 650,000
shares of Common Stock reserved for issuance upon exercise of outstanding
options. These additional shares may be issued for a variety of proper
corporate purposes, including raising additional capital, corporate
acquisitions, and employee benefit plans. Except as contemplated by the 1997
Stock Option Plan and other possible employee benefit or stock purchase plans,
the Company does not currently have any plans to issue additional shares of
Common Stock or Preferred Stock.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management, which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest, or otherwise, and thereby protect the continuity
of the Company's management and possibly deprive the shareholders of
opportunities to sell their shares of Common Stock at prices higher than the
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company
pursuant to the operation of the 1997 Stock Option Plan, or otherwise.
39
<PAGE> 42
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S ARTICLES AND BYLAWS
Certain provisions of the Articles could have an anti-takeover effect.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors of the Company and in
the policies formulated by the Board of Directors and to discourage an
unsolicited takeover of the Company if the Board determines that such takeover
is not in the best interests of the Company and its shareholders. The
provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not contemplate
the acquisition of all of its outstanding shares or an unsolicited proposal for
the restructuring or sale of all or part of the Company. However, the following
provisions could have the effect of discouraging certain attempts to acquire
the Company or remove incumbent management even if some or a majority of
shareholders deemed such an attempt to be in their best interests.
ARTICLES OF INCORPORATION
Classified Board of Directors. The Articles provide for the Board of
Directors to be divided into three classes of Directors serving three-year
terms. The initial terms of the Class I, Class II and Class III directors are
set to expire at the end of the 1998 annual shareholders meeting, the 1999
annual shareholders meeting and the 2000 annual shareholders meeting,
respectively. At each annual meeting of shareholders beginning in 1998,
successors to the directors whose term expires at the annual meeting shall be
elected to a three year term, with each director to hold office until a
successor has been duly elected and qualified. As a result, approximately
one-third of the Board of Directors will be elected each year. The Board of
Directors believes that a classified Board of Directors will help to assure the
continuity and stability of the Board of Directors and the business strategies
and policies of the Company as determined by the Board of Directors.
The classified board provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain
control of the Company and may maintain the incumbency of the Board even though
such an attempt might be beneficial to the Company and its shareholders. The
existence of a classified board could delay shareholders who do not agree with
the policies of the Board of Directors from removing a majority of the Board
for two years, unless they can show cause and obtain the requisite vote.
Number of Directors; Removal. The Articles provide that the Board of
Directors will consist of at least three (3) but not more than ten (10)
directors with the exact number to be fixed from time to time by resolution
adopted by a majority of the Board of Directors. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, the Articles provide
that any director or the entire Board of Directors, may be removed only for
cause and only by the affirmative vote of holders of a majority of the
outstanding shares of the capital stock of the Company entitled to vote
generally in the election of directors. This charter provision prevents a
shareholder from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with its own nominees.
Special Meetings of Shareholders. The Articles provide that special
meetings of the shareholders of the Company may be called only by the Chairman,
the President, a majority of the members of the Board of Directors or the
holders of not less than one-tenth of all the shares entitled to vote at the
meeting.
Certain Business Combinations. The Company's Articles prohibit the Company
from engaging in a ``business combination'' with an ``interested shareholder''
for a period of three years after the date of the transaction in which the
person became an interested shareholder unless (i) prior to such date, the
Board of Directors approved the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder, (ii) upon
becoming an interested shareholder, the shareholder then owns at least 85% of
the Company's voting securities, or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and the shareholders.
``Business combination'' generally is defined to include mergers, asset sales
and certain other transactions with an ``interested shareholder.'' An
``interested shareholder'' generally is defined as a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the Company's voting stock. As a result of these provisions,
potential acquirors of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
of the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above-market prices pursuant to such
transactions.
40
<PAGE> 43
Amendment of Certain Provisions of the Articles. The Articles generally
require the affirmative vote of the holders of a least two-thirds of the
outstanding shares of the voting stock of the Company entitled to vote
generally in the election of directors in order to amend charter provisions
concerning (i) the classified Board of Directors, (ii) the removal of
directors, (iii) the amendment of the Bylaws, (iv) the calling of special
meetings of the shareholders, (v) indemnification of officers and directors,
(vi) certain Business Combinations and (vii) the supermajority voting
requirements described in this paragraph. These voting requirements make it
more difficult for shareholders to make changes in the Articles designed to
facilitate the exercise of control over the Company.
BYLAWS
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the director of the Board of Directors or a
committee thereof, of candidates for election as director and for other
shareholder proposals to be considered at shareholder meetings.
Notice of shareholder proposals and director nominations must be timely
given in writing to the secretary of the Company prior to the meeting at which
the matters are to be acted upon or at which the directors are to be elected.
To be timely, notice must be received at the principal executive offices of the
Company not less than sixty (60) days prior to the shareholder meeting.
A shareholder's notice to the secretary with respect to a shareholder
proposal shall set forth as to each matter the stockholder proposes to bring
before the meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address of the shareholder proposing such business,
(iii) the class or series and number of shares of stock of the Company which
are owned beneficially or of record by such shareholder and the name and
address under which such stock is issued and (iv) a description of any material
interest of such shareholder in such business. A shareholder's notice to the
secretary with respect to a director nomination shall set forth (i) certain
information about the nominee, (ii) the signed consent of the nominee to serve
as a director of the Company if elected, (iii) the name and address of the
nominating shareholder and (iv) the class or series and number of shares of
stock of the Company which are beneficially owned by such shareholder and the
name and address under which such stock is held.
The purpose of requiring advance notice is to afford the Board of Directors
an opportunity to consider the qualifications of the proposed nominees or the
merits of other shareholder proposals and, to the extent deemed necessary or
desirable by the Board of Directors, to inform shareholders about those
matters.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.
41
<PAGE> 44
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement among the
Company, the Selling Shareholders, and A.G. Edwards & Sons, Inc. and
Oppenheimer & Co., Inc. (the ``Representatives''), the underwriters listed
below (the ``Underwriters'') have severally agreed to purchase from the Company
and the Selling Shareholders the aggregate number of shares of the Company's
Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
A.G. Edwards & Sons, Inc...................................................
Oppenheimer & Co., Inc.....................................................
Total.............................................................. 2,700,000
=========
</TABLE>
Pursuant to the terms of the Underwriting Agreement, the Underwriters will
acquire the shares of Common Stock offered hereby from the Company and the
Selling Shareholders at the public offering price set forth on the cover page
hereof less the underwriting discounts and commissions set forth on the cover
page. The Underwriters propose to offer the shares to the public at the public
offering price set forth on the cover page. Some of the shares offered to the
public will be sold to certain dealers at the public offering price less a
dealers' concession not in excess of $ per share. The Underwriters
and such dealers may allow a discount not in excess of $ per share
to other dealers. After the shares are released for sale to the public, the
public offering price and other terms may be varied by the Representatives.
The nature of the obligations of the Underwriters is such that if any of
the shares offered hereby are purchased, all of such shares must be purchased.
The Company has granted to the Underwriters an option for 30 days to
purchase (at the public offering price less the underwriting discounts and
commissions shown on the cover page of this Prospectus) up to 405,000
additional shares. The Underwriters may exercise such option only to cover
over-allotments of shares made in connection with the sale of the shares
offered hereby. To the extent the Underwriters exercise such option, each of
the Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of the option shares that the number
of shares of Common Stock to be purchased by it shown in the above table bears
to 2,700,000, and the Company will be obligated, pursuant to the option, to
sell such shares to the Underwriters.
The Company, its officers and directors and the Selling Shareholders have
agreed that they will not, for 180 days from and after the date of this
Prospectus, sell, offer to sell, or otherwise dispose of, directly or
indirectly, any shares of capital stock of the Company (other than shares
offered hereby, shares issuable pursuant to a plan for employees or
shareholders in effect on the date of this Prospectus, and Common Stock
issuable on conversion of securities or exercise of warrants or options
outstanding on the date of this Prospectus) without the prior written consent
of A.G. Edwards & Sons., Inc.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the shares of Common Stock will be
negotiated among the Company and the Representatives. In addition to prevailing
market conditions, among the factors that may be considered in determining the
initial public offering price of the shares of Common Stock are the Company's
historical financial performance, estimates of the business potential and
earning prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to the market valuations of
companies in similar business.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
42
<PAGE> 45
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Underwriters have reserved approximately 270,000 shares of Common Stock
for sale, at the initial public offering price, to employees of the Company and
certain other individuals. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company and the Selling Shareholders by Bryan Cave LLP, New York,
New York. Certain legal matters will be passed upon for the Underwriters by
Peper, Martin, Jensen, Maichel and Hetlage, St. Louis, Missouri.
EXPERTS
The audited financial statements and related schedules included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of such firm as
experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. (the ``Commission''), a Registration Statement (the
``Registration Statement'') on Form S-1 under the Securities Act, with respects
to the Common Stock offered hereby. This Prospectus, which constitutes part of
the Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including exhibits and schedules
thereto, may be inspected at the principal offices of the Commission at 450
Fifth Street, N.W., Washington, D.C., 20549, and at its regional offices at
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661,
and at Seven World Trade Center, Suite 1300, New York, New York 10048, and
copies may be obtained at the prescribed rates from the Public Reference
Section of the Commission at its principal office in Washington, D.C. The
Commission maintains an Internet Web site (http://www.sec.gov.) that contains
such documents filed electronically by the Company with the Commission through
its Electronic Data Gathering, Analysis and Retrieval System (EDGAR) filing
system. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
43
<PAGE> 46
VALLEY NATIONAL GASES, INC.
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
-----------
<S> <C>
VALLEY NATIONAL GASES, INC.
Condensed Balance Sheets as of June 30, 1996 and September 30, 1996 (unaudited)....... F-2
Unaudited Condensed Statements of Operations for the three month periods ended
September 30, 1995 and 1996.......................................................... F-4
Statements of Changes in Stockholder's Equity for the year ended June 30, 1996 and the
three month period ended September 30, 1996 (unaudited).............................. F-5
Unaudited Condensed Statements of Cash Flows for the three month periods ended
September 30, 1995 and 1996.......................................................... F-6
Notes to Unaudited Condensed Financial Statements..................................... F-7
Report of Independent Public Accountants.............................................. F-10
Balance Sheets as of June 30, 1995 and 1996........................................... F-11
Statements of Operations for the three years ended June 30, 1994, 1995 and 1996....... F-13
Statements of Changes in Stockholder's Equity for the three years ended
June 30, 1994, 1995 and 1996........................................................ F-14
Statements of Cash Flows for the three years ended June 30, 1994, 1995 and 1996....... F-15
Notes to Financial Statements......................................................... F-16
WELDCO, INC.
Report of Independent Public Accountants.............................................. F-24
Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited)............. F-25
Statements of Operations for the year ended December 31, 1995 and the nine month
period ended September 30, 1996 (unaudited).......................................... F-27
Statements of Changes in Stockholder's Equity for the year ended December 31, 1995 and
the nine month period ended September 30, 1996 (unaudited)........................... F-28
Statements of Cash Flows for the year ended December 31, 1995 and for the nine month
period ended September 30, 1996 (unaudited).......................................... F-29
Notes to Financial Statements......................................................... F-30
</TABLE>
F-1
<PAGE> 47
VALLEY NATIONAL GASES, INC.
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1996 1996
------ ----------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $400,000....... $ 4,548,546 $ 2,900,006
Accounts receivable, net of allowance for doubtful accounts of $140,000
and $190,000, respectively........................................... 6,701,939 7,328,126
Inventory.............................................................. 4,157,906 5,146,280
Prepaids and other..................................................... 832,899 897,252
----------- -----------
Total current assets............................................... 16,241,290 16,271,664
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................... 7,000 33,500
Buildings and improvements............................................. 2,664,460 3,085,001
Equipment.............................................................. 30,788,676 32,507,961
Transportation equipment............................................... 5,758,581 6,231,047
Furniture and fixtures................................................. 1,937,110 1,959,811
----------- -----------
Total property, plant and equipment................................ 41,155,827 43,817,320
Accumulated depreciation............................................... (18,029,419) (20,773,994)
----------- -----------
Net property, plant and equipment.................................. 23,126,408 23,043,326
----------- -----------
OTHER ASSETS:
Intangibles, net of amortization of $1,745,353 and $1,765,058,
respectively......................................................... 5,902,885 6,740,440
Deposits and other assets.............................................. 220,265 327,698
----------- -----------
Total other assets................................................. 6,123,150 7,068,138
----------- -----------
TOTAL ASSETS............................................................... $45,490,848 $46,383,128
=========== ===========
<CAPTION>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 48
VALLEY NATIONAL GASES, INC.
CONDENSED BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1996
------------------------------------ ----------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt................................... $ 2,736,814 $ 3,080,580
Accounts payable, trade................................................ 2,835,920 2,214,998
Accrued compensation and employee benefits............................. 2,970,987 2,532,834
Other current liabilities.............................................. 479,126 466,726
----------- -----------
Total current liabilities.......................................... 9,022,847 8,295,138
LONG-TERM DEBT, less current maturities.................................... 19,506,728 20,718,348
OTHER LONG-TERM LIABILITIES................................................ 590,181 648,547
----------- -----------
Total liabilities.................................................. 29,119,756 29,662,033
----------- -----------
STOCKHOLDER'S EQUITY:
Preferred stock, par value, $.01 per share--5,000,000 shares
authorized, no shares issued
Common stock, par value, $.001 per share--Authorized, 30,000,000 shares
Issued, 18,300,653 shares............................................ 18,301 18,301
Paid-in-capital........................................................ 95,914 95,914
Treasury stock, 11,300,653 shares at cost.............................. (3,705,000) (3,705,000)
Retained earnings...................................................... 19,961,877 20,311,880
----------- -----------
Total stockholder's equity......................................... 16,371,092 16,721,095
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY................................. $45,490,848 $46,383,128
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE> 49
VALLEY NATIONAL GASES, INC.
<TABLE>
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1995 1996
----------- -----------
<S> <C> <C>
NET SALES.................................................................. $11,322,521 $14,513,655
COST OF PRODUCTS SOLD...................................................... 4,940,872 6,331,144
----------- -----------
Gross profit....................................................... 6,381,649 8,182,511
----------- -----------
EXPENSES:
Operating and administrative........................................... 4,333,815 5,740,657
Depreciation and amortization.......................................... 827,371 1,373,458
----------- -----------
Total expenses..................................................... 5,161,186 7,114,115
----------- -----------
Income from operations............................................. 1,220,463 1,068,396
----------- -----------
INTEREST EXPENSE........................................................... 334,300 414,814
----------- -----------
OTHER INCOME/(EXPENSE):
Interest and dividend income........................................... 109,239 92,849
Rental income (expense)................................................ 15,265 (10,380)
Gain (loss) on disposal of assets...................................... 649 (7,443)
Other income (expense)................................................. 52,771 (741)
----------- -----------
Total other income................................................. 177,924 74,285
----------- -----------
NET INCOME................................................................. $ 1,064,087 $ 727,867
=========== ===========
<CAPTION>
PRO FORMA INFORMATION
(UNAUDITED)
-----------------------------
<S> <C> <C>
Net income................................................................. $ 1,064,087 $ 727,867
Pro forma income taxes..................................................... 425,635 291,147
----------- -----------
Pro forma net income....................................................... $ 638,452 $ 436,720
=========== ===========
Pro forma net income per share............................................. $ 0.09 $ 0.05
=========== ===========
Pro forma weighted average number of shares outstanding.................... 7,267,074 8,041,901
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE> 50
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED JUNE 30, 1996 AND
THE THREE MONTHS ENDED SEPTEMBER 30, 1996
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
--------------------- PAID-IN- ------------------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EQUITY
---------- ------- -------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1995........ 18,300,653 $18,301 -- 11,300,653 $(3,705,000) $17,482,478 $13,795,779
Net income................ -- -- -- -- -- 4,100,928 4,100,928
Contribution of capital... -- -- $ 95,914 -- -- -- 95,914
Dividends paid............ -- -- -- -- -- (1,621,529) (1,621,529)
---------- ------- -------- ---------- ----------- ----------- -----------
BALANCE, June 30, 1996........ 18,300,653 18,301 95,914 11,300,653 (3,705,000) 19,961,877 16,371,092
Net income................ -- -- -- -- -- 727,867 727,867
Dividends paid............ -- -- -- -- -- (377,864) (377,864)
---------- ------- -------- ---------- ----------- ----------- -----------
BALANCE, September 30, 1996
(Unaudited)................. 18,300,653 $18,301 $ 95,914 11,300,653 $(3,705,000) $20,311,880 $16,721,095
========== ======= ======== ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE> 51
VALLEY NATIONAL GASES, INC.
<TABLE>
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net cash provided by operating activities.................................. $ 831,715 $ 331,713
----------- -----------
Cash flows from investing activities:
Proceeds from disposal of assets....................................... -- 7,000
Purchases of property and equipment.................................... (523,000) (445,649)
Business acquisitions, net of cash acquired............................ (1,984,031) (450,611)
----------- -----------
Net cash used by investing activities...................................... (2,507,031) (889,260)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings............................................... 1,590,440 --
Principal payments on loans............................................ (112,328) (713,129)
Dividends paid......................................................... (315,499) (377,864)
----------- -----------
Net cash provided (used) by financing activities........................... 1,162,613 (1,090,993)
----------- -----------
Net change in cash and cash equivalents.................................... (512,703) (1,648,540)
Cash and cash equivalents, beginning of period............................. 3,854,889 4,548,546
----------- -----------
Cash and cash equivalents, end of period................................... $ 3,342,186 $ 2,900,006
=========== ===========
Supplemental cash flow information:
Cash payments for interest............................................. $ 334,300 $ 414,814
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE> 52
VALLEY NATIONAL GASES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial statements of Valley National Gases, Inc. (the Company)
presented herein are unaudited. Certain information and footnote disclosures
normally prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes that all
adjustments necessary for a fair presentation have been made, interim periods
are not necessarily indicative of the financial results of operations for a
full year. As such, these financial statements should be read in conjunction
with the financial statements and notes thereto included or incorporated by
reference in the Company's audited financial statements for the period ending
June 30, 1996.
2. INVENTORY:
Inventory is carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
The components of inventory are as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
Hardgoods......................................... $ 3,529,294 $ 4,741,399
Gases............................................. 628,612 404,881
----------- -----------
$ 4,157,906 $ 5,146,280
=========== ===========
</TABLE>
3. ACQUISITIONS:
The Company acquires businesses engaged in the distribution of industrial,
medical and specialty gases and related welding supplies and accessories.
Acquisitions have been recorded using the purchase method of accounting and,
accordingly, results of their operations have been included in the Company's
financial statements since the effective dates of the respective acquisitions.
During the three months ended September 30, 1996, the Company purchased
Weber Gas & Welding Supply Co. Inc. for an aggregate purchase price of
approximately $ 1,549,000.
In connection with this acquisition, the total purchase price, fair value
of assets acquired, cash paid and liabilities assumed were as follows:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30,
1996
------------
(UNAUDITED)
<S> <C>
Cash paid....................................................................... $ 549,396
Notes issued to sellers......................................................... 1,000,000
Notes payable and capital leases assumed........................................ 353,549
Other liabilities assumed and acquisition costs................................. 1,911,208
----------
Total purchase price allocated to assets acquired............................... $3,814,153
==========
</TABLE>
The impact of this acquisition on net sales and net income for the three
months ended September 30, 1996, was not material in the aggregate to the
operations of the Company.
F-7
<PAGE> 53
VALLEY NATIONAL GASES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
Acquisitions offering revolving line of credit, interest at prime rate minus
.125%, as defined, payable in full on the maturity date or if notified by
the bank in equal monthly installments. Secured by the assets of the
Company................................................................... $ 9,748,696 $ 9,748,696
Term note, interest at prime rate, as defined, payable in monthly
installments. Secured by the assets of the Company........................ 7,000,010 6,596,165
Term note, interest at prime rate minus .125%, as defined, payable in
monthly installments. Secured by the assets of the Company................ 833,330 797,615
Term note, interest at base rate plus 1%, as defined, payable monthly.
Secured by the assets of the Company...................................... 1,048,184 1,028,849
Individuals and corporations, mortgages and notes, interest at 2.978% to
11.25%, payable at various dates through 2010............................. $ 3,843,591 $ 5,851,247
----------- ------------
22,473,811 24,022,572
Original issue discount..................................................... (230,269) (223,644)
Current maturities.......................................................... (2,736,814) (3,080,580)
----------- ------------
Total long-term debt........................................................ $19,506,728 $ 20,718,348
=========== ============
</TABLE>
On October 4, 1996, the Company executed a three year revolving credit
agreement with Bank One for the purpose of refinancing the then existing
revolving credit agreement with NationsBank and to provide additional
acquisition capital. This agreement provides for a term note of $13,000,000 at
a variable interest rate based upon prime or LIBOR, depending on the Company's
funded debt to EBITDA ratio, payable monthly through September of 2003. The
agreement also provides for a revolving note with a maximum of $25,000,000 at a
variable interest rate equal to that of the term note payable monthly through
September of 1999. A commitment fee of $10,000 was paid upon acceptance of the
agreement. These notes are secured by the Company's accounts receivable,
equipment, inventory, and general intangibles, and the proceeds thereof. The
agreement also contains various financial covenants including minimum fixed
charge coverage, maximum of funded debt to EBITDA, and minimum net worth level.
5. SUBSEQUENT EVENTS:
A. INITIAL PUBLIC OFFERING AND REORGANIZATION
In connection with the proposed initial public offering (the Offering) by
the Company, subsequent to September 30, 1996, the following transactions are
anticipated to occur.
a. Termination of the Company's S Corporation status. In connection with
the termination of S Corporation status, the Company intends to declare
a distribution (the S Corporation Distribution) of all of its
undistributed earnings, estimated to be $8.1 million as of September 30,
1996. In addition, the Company will be required to record a deferred tax
liability with a corresponding one-time tax provision of approximately
$4.2 million in accordance with SFAS No. 109.
b. A 228,758.16-for-1 stock split.
c. An increase in the authorized capital stock to 30,000,000 shares of
common stock and 5,000,000 shares of preferred stock.
F-8
<PAGE> 54
VALLEY NATIONAL GASES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
d. Issuance of 267,084 shares of common stock as part of compensation
agreements with certain executive officers and directors. In connection
with these compensation arrangements, the Company will incur an expense
of approximately $2.4 million in the period in which the closing of the
Offering occurs.
e. The cancellation of treasury stock.
Accordingly, the Company's shareholders' equity accounts and the number of
shares in the accompanying financial statements have been retroactively
restated to give effect to the stock split and increase in authorized capital
stock.
B. WELDCO PURCHASE AGREEMENT
On October 10, 1996, the Company purchased substantially all of the assets
of Weldco Inc. (Weldco) pursuant to a Purchase and Sale Agreement (the Weldco
Purchase Agreement) for approximately $11.1 million. Approximately $7.9 million
of the purchase price was paid by promissory notes from the Company. Under the
Weldco Purchase Agreement, Weldco shareholders have the right, in the event of
an initial public offering of the Company's common stock, to convert a portion
of the Company's promissory notes to shares of the Company's common stock at
the initial public offering price. Under this provision, Weldco shareholders
have the right to receive 275,000 shares of the common stock in exchange for
the cancellation of indebtedness in the amount of $2,750,000. The Company and
Weldco shareholders have agreed that rather than issuing 275,000 shares, the
Company will prepay $1,400,000 under the Company's promissory notes and issue
135,000 shares of common stock to Weldco shareholders immediately prior to the
closing of the Offering. The Company understands that certain Weldco
shareholders intend to purchase up to 100,000 shares of common stock in the
Offering. The Weldco Purchase Agreement further grants Weldco shareholders the
right to cause the Company to purchase shares of common stock issued to Weldco
shareholders pursuant to the conversion of indebtedness for a period of three
years following the closing of the Offering at the initial public offering
price plus interest from the date of issuance at the rate of 6.6% per annum.
The Company expects that 235,000 shares will be subject to this right following
the closing of the Offering. The Company's payment obligation is secured by a
letter of credit.
6. PRO FORMA INFORMATION (UNAUDITED):
The pro forma adjustments for income taxes included in the accompanying
income statements are based upon the statutory rates in effect for
C Corporations during the periods presented. Pro forma earnings per share were
calculated by dividing pro forma net income by the weighted average shares
outstanding for each period. The weighted average number of shares outstanding
used to calculate the pro forma net income per share is based on the historical
weighted average number of shares outstanding as adjusted to reflect (i) the
assumed issuance of 774,827 shares to fund the excess of dividends (including
the estimated S Corporation Distribution) over net income for the three months
ended September 30, 1996 (ii) the issuance of 170,718 shares of common stock to
two executive officers immediately prior to the closing of the Offering in
connection with the termination of certain deferred compensation agreements,
and (iii) the issuance of 96,366 shares of common stock to a director
immediately prior to the closing of the Offering, pursuant to a right under a
consulting agreement to convert deferred consulting payments to common stock.
In connection with these compensation arrangements, the Company will incur an
expense of approximately $2.4 million in the period in which the closing of the
Offering occurs.
F-9
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the proposed transactions discussed in Note 10 to Valley National
Gases, Inc.'s Financial Statements are effected, we expect to be in a position
to render the following audit report.
ARTHUR ANDERSEN LLP
To Valley National Gases, Inc.:
We have audited the accompanying balance sheets of Valley National Gases,
Inc. (an S corporation) as of June 30, 1995 and 1996, and the related
statements of operations, changes in stockholder's equity and cash flows each
of the three years in the period ended June 30, 1996. 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 financial position of Valley National Gases, Inc.
as of June 30, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania,
August 13, 1996
(except for the matters discussed in
Note 10 as to which the date is
February , 1997)
F-10
<PAGE> 56
VALLEY NATIONAL GASES, INC.
<TABLE>
BALANCE SHEETS
<CAPTION>
JUNE 30,
-------------------------------
ASSETS 1995 1996
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $400,000............ $ 3,854,889 $ 4,548,546
Accounts receivable, net of allowance for doubtful accounts of $140,000 in
1995 and 1996............................................................. 5,228,190 6,701,939
Inventory................................................................... 2,933,340 4,157,906
Prepaids and other.......................................................... 493,819 832,899
------------ ------------
Total current assets.................................................... 12,510,238 16,241,290
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................................ 146,242 7,000
Buildings and improvements.................................................. 3,533,507 2,664,460
Equipment................................................................... 26,182,328 30,788,676
Transportation equipment.................................................... 4,448,081 5,758,581
Furniture and fixtures...................................................... 1,228,580 1,937,110
------------ ------------
Total property, plant and equipment..................................... 35,538,738 41,155,827
Accumulated depreciation.................................................... (16,632,432) (18,029,419)
------------ ------------
Net property, plant and equipment....................................... 18,906,306 23,126,408
------------ ------------
OTHER ASSETS:
Intangibles, net of amortization of $552,560 and $1,745,353 respectively.... 1,861,589 5,902,885
Deposits and other assets................................................... 142,714 220,265
------------ ------------
Total other assets...................................................... 2,004,303 6,123,150
------------ ------------
TOTAL ASSETS.................................................................... $ 33,420,847 $ 45,490,848
============ ============
<CAPTION>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 57
VALLEY NATIONAL GASES, INC.
BALANCE SHEETS
JUNE 30,
-----------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1996
------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt........................................ $ 2,134,583 $ 2,736,814
Accounts payable, trade..................................................... 1,919,682 2,835,920
Accrued compensation and employee benefits.................................. 1,819,687 2,970,987
Other current liabilities................................................... 308,804 479,126
----------- -----------
Total current liabilities........................................... 6,182,756 9,022,847
LONG-TERM DEBT, less current maturities......................................... 12,964,092 19,506,728
OTHER LONG-TERM LIABILITIES..................................................... 478,220 590,181
----------- -----------
Total liabilities................................................... 19,625,068 29,119,756
----------- -----------
STOCKHOLDER'S EQUITY:
Preferred stock, par value; $.01 per share-5,000,000 shares authorized; no
shares issued
Common stock, par value, $.001 per share-Authorized, 30,000,000 shares;
Issued, 18,300,653 shares................................................. 18,301 18,301
Paid-in-capital............................................................. -- 95,914
Treasury stock, 11,300,653 shares at cost................................... (3,705,000) (3,705,000)
Retained earnings........................................................... 17,482,478 19,961,877
----------- -----------
Total stockholder's equity.......................................... 13,795,779 16,371,092
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...................................... $33,420,847 $45,490,848
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-12
<PAGE> 58
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES............................................................. $39,166,027 $44,914,252 $53,611,979
COST OF PRODUCTS SOLD................................................. 16,844,386 19,931,377 23,617,062
----------- ----------- -----------
Gross profit.................................................. 22,321,641 24,982,875 29,994,917
----------- ----------- -----------
EXPENSES:
Operating and administrative...................................... 15,704,048 17,688,338 20,295,254
Depreciation and amortization..................................... 2,789,657 3,111,516 4,699,608
----------- ----------- -----------
Total expenses................................................ 18,493,705 20,799,854 24,994,862
----------- ----------- -----------
Income from operations........................................ 3,827,936 4,183,021 5,000,055
----------- ----------- -----------
INTEREST EXPENSE...................................................... 1,037,845 1,071,794 1,561,081
----------- ----------- -----------
OTHER INCOME/(EXPENSE):
Interest and dividend income...................................... 161,063 268,313 332,133
Rental income..................................................... 50,964 61,460 81,565
(Loss) gain on disposal of assets................................. (1,491) 25,211 (5,095)
Other income...................................................... 60,510 88,753 253,351
----------- ----------- -----------
Total other income............................................ 271,046 443,737 661,954
----------- ----------- -----------
NET INCOME............................................................ $ 3,061,137 $ 3,554,964 $ 4,100,928
=========== =========== ===========
<CAPTION>
PRO FORMA INFORMATION
(UNAUDITED)
-------------------------------------------
<S> <C> <C> <C>
Net Income............................................................ $ 3,061,137 $ 3,554,964 $ 4,100,928
Pro forma income taxes................................................ 1,222,455 1,421,986 1,640,371
----------- ----------- -----------
Pro forma net income.................................................. $ 1,836,682 $ 2,132,978 $ 2,460,557
=========== =========== ===========
Pro forma net income per share........................................ $ 0.25 $ 0.29 $ 0.31
=========== =========== ===========
Pro forma weighted average number of shares outstanding............... 7,267,074 7,267,074 8,041,901
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-13
<PAGE> 59
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
--------------------- PAID-IN- ------------------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EQUITY
---------- ------- ------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1993... 18,300,653 $18,301 $ -- 11,300,653 $(3,705,000) $13,216,073 $ 9,529,374
Net income........... -- -- -- -- -- 3,061,137 3,061,137
Dividends paid....... -- -- -- -- -- (942,531) (942,531)
---------- ------- ------- ---------- ----------- ----------- -----------
BALANCE, June 30, 1994... 18,300,653 18,301 -- 11,300,653 (3,705,000) 15,334,679 11,647,980
Net income........... -- -- -- -- -- 3,554,964 3,554,964
Dividends paid....... -- -- -- -- -- (1,407,165) (1,407,165)
BALANCE, June 30, 1995... 18,300,653 18,301 -- 11,300,653 (3,705,000) 17,482,478 13,795,779
---------- ------- ------- ---------- ----------- ----------- -----------
Net income........... -- -- -- -- -- 4,100,928 4,100,928
Contribution of
capital............ -- -- 95,914 -- -- -- 95,914
Dividends paid....... -- -- -- -- -- (1,621,529) (1,621,529)
---------- ------- ------- ---------- ----------- ----------- -----------
BALANCE, June 30, 1996... 18,300,653 $18,301 $95,914 11,300,653 $(3,705,000) $19,961,877 $16,371,092
========== ======= ======= ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-14
<PAGE> 60
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 3,061,137 $ 3,554,964 $ 4,100,928
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation........................................ 2,520,392 2,737,188 3,437,208
Amortization........................................ 269,265 374,328 1,262,400
Loss (gain) on disposal of assets................... 1,491 (25,211) 5,095
Other long-term liabilities......................... 1,712 67,571 111,725
Changes in operating assets and liabilities--
Accounts receivable............................. (242,692) (256,165) (527,257)
Inventory....................................... (34,158) (353,250) (151,906)
Prepaids and other.............................. (255,523) (468,183) (308,617)
Accounts payable, trade......................... 372,551 233,207 421,667
Accrued compensation and employee benefits...... 236,513 437,852 (462,280)
Other current liabilities....................... 161,702 (103,541) 45,073
Deposits and other assets....................... (121,871) 118,620 (511,465)
----------- ----------- -----------
Net cash provided by operating activities... 5,970,519 6,317,380 7,422,571
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets........................ 37,565 66,230 903,621
Purchases of property and equipment..................... (2,907,967) (4,426,384) (3,646,899)
Business acquisitions, net of cash acquired............. (1,209,266) (2,806,545) (6,435,879)
----------- ----------- -----------
Net cash used by investing activities....... (4,079,668) (7,166,699) (9,179,157)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................ 1,642,954 4,996,063 6,530,000
Principal payments on loans............................. (2,546,626) (1,965,495) (2,458,228)
Dividends paid.......................................... (942,531) (1,407,165) (1,621,529)
----------- ----------- -----------
Net cash provided by (used for) financing
activities............................... (1,846,203) 1,623,403 2,450,243
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 44,648 774,084 693,657
CASH AND CASH EQUIVALENTS, at beginning of year............. 3,036,157 3,080,805 3,854,889
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of year................... $ 3,080,805 $ 3,854,889 $ 4,548,546
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-15
<PAGE> 61
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Valley National Gases, Inc. (the Company), formerly Valley Welding Supply
Co., is an S corporation. The Company produces, packages and resells industrial
gases, specialty gases and propane; and resells welding hardgoods and
equipment. The Company has been in operation since 1958 and currently operates
in nine states.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The Company holds a certificate of deposit of $400,000 which is restricted
cash. This certificate of deposit is pledged as collateral for a bank loan
(original amount $1,250,000) and will be released as collateral when the
principal balance of the loan is reduced to $850,000.
The Company invested in certain repurchase agreements during the year ended
June 30.
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Balance as of June 30............................. $3,129,932 $3,589,551
Average amount outstanding........................ 2,602,130 2,554,678
Maximum amount outstanding........................ 3,129,932 3,589,551
</TABLE>
Securities underlying the agreements consist primarily of certificates of
deposit and U.S. government securities held on behalf of the Company.
INVENTORY
Inventory is carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
The components of inventory for the year ended June 30 were as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Hardgoods......................................... $2,545,862 $3,529,294
Gases............................................. 387,478 628,612
---------- ----------
$2,933,340 $4,157,906
========== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
properties as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings and improvements.... 10 - 25
Cylinders..................... 12
Equipment other than
cylinders................... 7
Transportation equipment...... 3 - 7
Furniture and fixtures........ 3 - 7
</TABLE>
The cost of maintenance and repairs is charged to operations as incurred.
Major renewals and betterments are capitalized.
F-16
<PAGE> 62
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INTANGIBLES
Intangibles consist of noncompetition agreements, goodwill, consulting
agreements and deferred loan origination costs. Costs pursuant to
noncompetition agreements entered into in connection with business acquisitions
are amortized over the terms of the arrangements. Goodwill represents costs in
excess of net assets of businesses acquired and is amortized on a straight-line
basis over 15 years. The Company assesses the recoverability of goodwill by
determining whether it can be recovered through projected undiscounted cash
flows. Consulting costs are amortized over the term of the agreement. Deferred
loan origination costs are amortized over the term of the related debt.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the historical financial statements do
not include a provision for income taxes because the Company does not incur
federal or state income taxes. Instead, its earnings and losses are included in
the stockholder's personal income tax return and are taxed based on the
stockholder's personal tax strategy.
Certain events, including the public offering of the Company's Common
Stock, will automatically terminate its S Corporation status, thereby
subjecting future income to federal and state income taxes at the corporate
level. Due to temporary differences in recognition of revenue and expenses,
income for financial reporting purposes has exceeded income for income tax
purposes. Accordingly, the application of the provisions of SFAS No. 109,
``Accounting for Income Taxes'' will result in the recognition of deferred tax
liabilities (and a corresponding one-time charge to expense) in the period in
which the initial public offering occurs. If the S Corporation status had been
terminated as of September 30, 1996, this liability would have been
approximately $4,200,000.
REVENUE RECOGNITION
Revenues are recognized using the point-of-sale method for product sales
and long-term cylinder leases which are the economic equivalent of sales.
Revenue from cylinder leases up to 10 years in duration are reported ratably
over the terms of the leases.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 107, ``Disclosures about Fair Value of Financial Instruments,''
during fiscal 1996.
The following methods and assumptions were used to estimate fair value of
each class of financial instrument for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of those instruments.
LONG-TERM DEBT--The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities.
The estimated fair values of the Company's financial instruments as of June
30, 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents........................................ $4,548,546 $4,548,546
Term notes....................................................... 8,881,524 8,881,524
Acquisitions offering revolving line of credit................... 9,748,696 9,748,696
</TABLE>
F-17
<PAGE> 63
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The fair values and carrying amounts of the Company's term notes and
acquisitions offering revolving line of credit are deemed to be approximately
equivalent as they bear interest at floating rates which are based upon current
market rates.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
---------------------------------------------
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Cash paid for certain items:
Cash payments for interest.................... $ 869,197 $1,082,625 $1,503,680
Noncash investing and financing activities:
Retirement of long-term notes................. $10,289,547 $ -- $ --
Payment of accrued interest on notes.......... 123,055 -- --
Noncash portion of refinancing note issued........ $10,412,602 $ -- $ --
</TABLE>
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 amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts to conform
to the current period presentation.
3. ACQUISITIONS:
The Company acquires businesses engaged in the distribution of industrial,
medical and specialty gases and related welding supplies and accessories.
Acquisitions have been recorded using the purchase method of accounting and,
accordingly, results of their operations have been included in the Company's
financial statements since the effective dates of the respective acquisitions.
During fiscal 1996, the Company purchased four businesses. The largest of
these acquisitions and their effective dates included Quest Welding Supply
(September 1995) and Wootten Industries, Inc. (December 1995). The aggregate
purchase price for all acquisitions amounted to approximately $6,695,000.
During fiscal 1995, the Company purchased six businesses. The largest of
these acquisitions and their effective dates included Evans Welding Supply Co.
(December 1994), Allegheny LP Gas (February 1995). The aggregate purchase price
for all acquisitions amounted to approximately $3,776,000.
During fiscal 1994, the Company purchased three businesses for an aggregate
purchase price of approximately $1,643,000.
F-18
<PAGE> 64
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In connection with these acquisitions, the total purchase price, fair value
of assets acquired, cash paid and liabilities assumed for the year ended June
30 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid......................................... $1,060,847 $2,806,545 $6,435,879
Notes issued to sellers........................... 582,500 969,298 259,417
Notes payable and capital leases assumed.......... -- 132,274 176,678
Other liabilities assumed and acquisition costs... -- 337,482 682,142
---------- ---------- ----------
Total purchase price allocated to assets
acquired........................................ $1,643,347 $4,245,599 $7,554,116
========== ========== ==========
</TABLE>
The following presents unaudited estimated pro forma operating results as
if the 1996 and 1995 acquisitions had been consummated on July 1, 1994. These
pro forma results have been prepared for comparable purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made as of July 1, 1994, or of results which may occur in the future. Pro forma
net income includes an adjustment for income taxes as if the Company had been
taxed as a C Corporation (see Note 11).
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales.......................... $55,813,000 $57,816,000
Net income......................... 3,345,000 4,036,000
Pro forma net income............... 2,007,000 2,422,000
Pro forma net income per share..... 0.28 0.30
</TABLE>
4. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:
The Company markets its products to a diverse customer base in unrelated
industries and, as such, does not have any significant concentrations of credit
risk. No one customer accounted for greater than 10% of revenues in 1994, 1995
and 1996.
5. INTANGIBLE ASSETS:
Intangible assets were recorded at the date of acquisition at their
allocated cost. Amortization is provided over the estimated useful lives of the
assets as disclosed below:
<TABLE>
<CAPTION>
AMORTIZATION ORIGINAL ACCUMULATED BALANCE AT BALANCE AT
PERIOD COST AMORTIZATION JUNE 30, 1996 JUNE 30, 1995
------------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Noncompetition and consulting
agreements.................. 3-7 years $5,798,238 $1,599,471 $ 4,198,767 $ 1,040,997
Goodwill...................... 15 years 1,642,699 116,921 1,525,778 762,651
Deferred financing and
organization costs.......... 5-12 years 207,301 28,961 178,340 57,941
---------- ---------- ----------- -----------
$7,648,238 $1,745,353 $ 5,902,885 $ 1,861,589
========== ========== =========== ===========
</TABLE>
F-19
<PAGE> 65
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt consists of the following as of June 30:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Acquisitions offering revolving line of credit, interest at prime
rate minus .125%, as defined, payable in full on the maturity
date or if notified by the bank in equal monthly installments.
Secured by the assets of the Company........................... $ 3,218,696 $ 9,748,696
Term note, interest at prime rate, as defined, payable in monthly
installments. Secured by the assets of the Company............. 8,615,390 7,000,010
Term note, interest at prime rate minus .125%, as defined,
payable in monthly installments. Secured by the assets of the
Company........................................................ 976,190 833,330
Term note, interest at base rate plus 1%, as defined, payable
monthly.
Secured by the assets of the Company........................... 1,118,300 1,048,184
Individuals and corporations, mortgages and notes, interest at
2.978% to 11.25%, payable at various dates through 2010........ 1,139,266 3,843,591
Wayne County Commission note, interest at 80% of prime, as
defined, payable at various dates through 1996................. $ 30,833 $ --
----------- -----------
15,098,675 22,473,811
Original issue discount.......................................... -- (230,269)
Current maturities............................................... (2,134,583) (2,736,814)
----------- -----------
Total long-term debt............................................. $12,964,092 $19,506,728
=========== ===========
</TABLE>
On April 15, 1994, the Company entered into a loan agreement with
NationsBank. The agreement provides for borrowings in the form of a revolving
operating line of credit, a term loan and an acquisitions offering line of
credit.
Combined borrowings under the agreement can amount to $31,000,000. As of
June 30, 1996, the Company's borrowings under the agreement amounted to
$17,582,036. Borrowings bear interest at the bank's prime rate minus .125%. A
commitment fee of $10,000 was paid upon acceptance of the agreement and .25% is
payable upon each draw of the acquisitions offering line of credit. These fees
totaled $16,325 for the year ended June 30, 1996. The agreement also contains
various financial covenants including current ratio, working capital, tangible
net worth, leverage, interest coverage and debt service.
A $400,000 certificate of deposit, accounts receivable, inventory,
equipment and vehicles are pledged as collateral on the above notes and
acquisitions offering line of credit used to finance or refinance the purchase
of those assets. Additionally, letters of credit of $1,896,667 at June 30, 1996
serve as collateral on the individual notes.
On October 4, 1996, the Company executed a three year revolving credit
agreement with Bank One for the purpose of refinancing the then existing
revolving credit agreement with NationsBank and to provide additional
acquisition capital. This agreement provides for a term note of $13,000,000 at
a variable interest rate based upon prime or LIBOR, depending on the Company's
funded debt to EBITDA ratio, payable monthly through September of 2003. The
agreement also provides for a revolving note with a maximum of $25,000,000 at a
variable interest rate equal to that of the term note payable monthly through
September of 1999. A commitment fee of $10,000 was paid upon acceptance of the
agreement. These notes are secured by the Company's accounts receivable,
equipment, inventory, and general intangibles, and the proceeds thereof. The
agreement also contains various financial covenants including minimum fixed
charge coverage, maximum of funded debt to EBITDA, and minimum net worth level.
F-20
<PAGE> 66
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The schedule of maturities as amended for the new credit agreements for the
next five years and thereafter is as follows as of June 30, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
JUNE 30,
- ------------------
<S> <C>
1997....................... $ 2,727,604
1998....................... 2,715,913
1999....................... 2,567,400
2000....................... 2,271,295
2001....................... 2,030,952
Thereafter................. 9,930,378
-----------
Total...................... $22,243,542
===========
</TABLE>
7. PENSION PLANS:
The Company sponsors a defined contribution pension plan for employees. All
employees are eligible to participate in the Company-sponsored plan after
meeting the age and service requirements. Contributions to the plan are based
on a percentage of employees' compensation. Pension expense for this plan was
$232,066, $337,139 and $413,077, respectively, in 1994, 1995 and 1996.
Certain management employees are also covered by unfunded deferred
compensation agreements which provide supplemental retirement benefits. The
cost of these contracts is being accrued over the period of active employment
of the covered employees. The costs of the deferred compensation plans charged
to expense were $17,543, $83,206 and $78,203, respectively, in 1994, 1995 and
1996.
The Company also maintains a profit sharing plan for its employees. Profit
sharing payments are based on a discretionary amount determined annually by the
Board of Directors and are paid as additional contributions to the pension
plan. In 1994, 1995 and 1996, the amount of additional contributions to be
distributed to the employees' pension plan amounted to $61,233, $83,506 and
$91,961, respectively.
8. LEASE OBLIGATIONS:
The Company leases real estate at several locations for use as branch
stores and warehouses. Certain equipment is also leased. All of the leases,
which are with related and unrelated parties, are classified as operating
leases. The lease terms expire at various dates through the year 2006, with
options to renew for periods of three to five years. Lease expenses charged to
operations were $915,745, $1,330,394 and $1,541,898, respectively, in 1994,
1995 and 1996.
Minimum future rental payments under noncancelable operating leases for
each of the next five years are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
JUNE 30, REAL ESTATE EQUIPMENT TOTAL
- ------------------- ----------- --------- ----------
<S> <C> <C> <C>
1997............................ $1,746,294 $105,549 $1,851,843
1998............................ 1,629,948 73,963 1,703,911
1999............................ 1,576,248 66,720 1,642,968
2000............................ 1,558,746 60,360 1,619,106
2001............................ 1,541,244 41,175 1,582,419
---------- --------- ----------
Totals.......................... $8,052,480 $347,767 $8,400,247
========== ========= ==========
</TABLE>
F-21
<PAGE> 67
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS:
The Company leases buildings and equipment, rents cylinders and has sales
and purchase transactions with related parties, including the sole stockholder
and corporations owned by the sole stockholder and officers of the Company.
These transactions and balances for the year ended June 30 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Transactions--
Lease of buildings and equipment....................................... $731,020 $857,205 $932,624
Rental of aircraft..................................................... 26,100 26,100 18,800
Purchases of acetylene and services........................................ 271,016 267,657 159,915
Sales of material and services............................................. 183,453 533 379
Balances--
Accounts receivable--trade............................................. 280 -- --
Noncurrent receivable.................................................. 10,016 -- --
</TABLE>
During 1996, the Company realized a gain of $95,914 on the sale of
various operating properties to a related party for a total sale price of
$850,000. This gain was reflected as additional paid-in-capital in the
accompanying financial statements.
The Company has entered into a master lease agreement for virtually all of
its operating properties, including those sold in 1996, with this related
party. The terms of this master lease agreement are ten years with annual
minimum lease payments of $1,278,600 with renewal options and have been
accounted for as operating leases in the accompanying financial statements.
10. SUBSEQUENT EVENTS:
A. INITIAL PUBLIC OFFERING AND REORGANIZATION
In connection with the proposed initial public offering (the Offering) by
the Company, subsequent to September 30, 1996, the following transactions are
anticipated to occur.
a. termination of the Company's S Corporation status. In connection with
the termination of S Corporation status the Company intends to declare a
distribution (the S Corporation Distribution) of all of its
undistributed earnings estimated to be $8.1 million as of September 30,
1996. In addition, the Company will be required to record a deferred tax
liability with a corresponding one-time tax provision of approximately
$4.2 million in accordance with SFAS No. 109;
b. a 228,758.16-for-1 stock split;
c. an increase in the authorized capital stock to 30,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock;
d. issuance of 267,074 shares of Common Stock as part of compensation
agreements with certain executive officers and directors. In connection
with these compensation arrangements, the Company will incur an expense
of approximately $2.4 million in the period in which the closing of the
Offering occurs; and
e. The cancellation of treasury stock.
Accordingly, the Company's shareholders' equity accounts and the number of
shares in the accompanying Financial Statements have been retroactively
restated to give effect to the stock split and increase in authorized capital
stock.
F-22
<PAGE> 68
VALLEY NATIONAL GASES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. WELDCO PURCHASE AGREEMENT
On October 10, 1996, the Company purchased substantially all of the assets
of Weldco Inc. (Weldco) pursuant to a Purchase and Sale Agreement (the Weldco
Purchase Agreement) for approximately $11.1 million. Approximately $7.9 million
of the purchase price was paid by promissory notes from the Company. Under the
Weldco Purchase Agreement, Weldco shareholders have the right, in the event of
an initial public offering of the Company's common stock, to convert a portion
of the Company's promissory notes to shares of the Company's common stock at
the initial public offering price. Under this provision, Weldco shareholders
have the right to receive 275,000 shares of the common stock in exchange for
the cancellation of indebtedness in the amount of $2,750,000. The Company and
Weldco shareholders have agreed that rather than issuing 275,000 shares, the
Company will prepay $1,400,000 under the Company's promissory notes and issue
135,000 shares of common stock to Weldco shareholders immediately prior to the
closing of the Offering. The Company understands that certain Weldco
shareholders intend to purchase up to 100,000 shares of common stock in the
Offering. The Weldco Purchase Agreement further grants Weldco shareholders the
right to cause the Company to purchase shares of common stock issued to Weldco
shareholders pursuant to the conversion of indebtedness for a period of three
years following the closing of the Offering at the initial public offering
price plus interest from the date of issuance at the rate of 6.6% per annum.
The Company expects that 235,000 shares will be subject to this right following
the closing of the Offering. The Company's payment obligation is secured by a
letter of credit.
C. WEBER PURCHASE
As of August 31, 1996, the Company consummated the acquisition of Weber Gas
& Welding Supply Co., Inc. (Weber), a business engaged in the distribution of
industrial, medical and specialty gases and related welding supplies and
accessories. Sales for the past fiscal year of the acquired business
approximated 9% of the Company's net sales.
11. PRO FORMA INFORMATION (UNAUDITED):
The pro forma adjustments for income taxes included in the accompanying
income statements are based upon the statutory rates in effect for
C Corporations during the period presented. Pro forma earnings per share were
calculated by dividing pro forma net income by the weighted average shares
outstanding for each period. The weighted average number of shares outstanding
used to calculate the pro forma net income per share is based on the historical
weighted average number of shares outstanding as adjusted to reflect (i) the
assumed issuance of 774,827 shares to fund the excess of dividends (including
the estimated S Corporation Distribution) over net income for the three months
ended September 30, 1996 (ii) the issuance of 170,718 shares of common stock to
two executive officers immediately prior to the closing of the Offering in
connection with the termination of certain deferred compensation agreements,
and (iii) the issuance of 96,366 shares of common stock to a director
immediately prior to the closing of the Offering, pursuant to a right under a
consulting agreement to convert deferred consulting payments to common stock.
In connection with these compensation arrangements, the Company will incur an
expense of approximately $2.4 million in the period in which the closing of the
Offering occurs.
F-23
<PAGE> 69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Valley National Gases, Inc.:
We have audited the accompanying balance sheet of Weldco, Inc. (an S
corporation) as of December 31, 1995, and the related statement of operations,
changes in stockholder's equity and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Weldco, Inc. as of December
31, 1995, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
December 20, 1996
F-24
<PAGE> 70
WELDCO, INC.
<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1995 1996
------ ------------ -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 115,642 $ 92,684
Marketable securities....................................................... 106,851 117,090
Accounts receivable--trade, net of allowance for doubtful accounts of
$100,823 and $103,093, respectively....................................... 1,596,759 1,444,223
Accounts receivable--stockholders........................................... 34,785 34,785
Inventory................................................................... 487,596 659,391
Prepaids and other.......................................................... 14,781 10,676
------------ -----------
Total current assets.................................................... 2,356,414 2,358,849
------------ -----------
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements...................................................... 321,458 321,458
Equipment................................................................... 1,433,199 1,601,240
Transportation equipment.................................................... 223,379 275,084
Furniture and fixtures...................................................... 661,951 706,653
------------ -----------
Total property, plant and equipment..................................... 2,639,987 2,904,435
Accumulated depreciation.................................................... (1,225,450) (1,376,651)
------------ -----------
Net property, plant and equipment....................................... 1,414,537 1,527,784
------------ -----------
OTHER ASSETS.................................................................... 132,210 136,812
------------ -----------
TOTAL ASSETS.................................................................... $ 3,903,161 $ 4,023,445
============ ===========
<CAPTION>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 71
WELDCO, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1996
------------------------------------ ------------ -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt........................................ $ 184,291 $ 316,260
Accounts payable, trade..................................................... 1,515,559 1,304,874
Accrued compensation and employee benefits.................................. 36,171 103,016
Other current liabilities................................................... 55,759 53,371
---------- -----------
Total current liabilities........................................... 1,791,738 1,779,521
LONG-TERM DEBT, less current maturities......................................... 265,940 373,923
---------- -----------
Total liabilities................................................... 2,057,678 2,153,444
---------- -----------
STOCKHOLDER'S EQUITY:
Common stock, no par value
Authorized, 35,000 shares
Issued, 25,000 shares................................................... 500 500
Paid-in-capital............................................................. 19,919 19,919
Unrealized gain on marketable securities.................................... 106,851 117,090
Retained earnings........................................................... 1,718,213 1,732,492
---------- -----------
Total stockholder's equity.......................................... 1,845,483 1,870,001
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...................................... $3,903,161 $ 4,023,445
========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-26
<PAGE> 72
WELDCO, INC.
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
NET SALES....................................................................... $ 10,973,421 $8,457,952
COST OF PRODUCTS SOLD........................................................... 7,064,773 5,355,557
------------ ----------
Gross profit............................................................ 3,908,648 3,102,395
------------ ----------
EXPENSES:
Operating and administrative................................................ 3,406,556 2,642,033
Depreciation and amortization............................................... 203,610 151,200
------------ ----------
Total expenses.......................................................... 3,610,166 2,793,233
------------ ----------
Income from operations.................................................. 298,482 309,162
------------ ----------
INTEREST EXPENSE................................................................ 33,704 42,647
------------ ----------
OTHER INCOME/(EXPENSE):
Interest and dividend income................................................ 6,886 --
(Loss) on disposal of assets................................................ (6,806) (1,485)
------------ ----------
Total other income...................................................... 80 (1,485)
------------ ----------
NET INCOME...................................................................... $ 264,858 $ 265,030
============ ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-27
<PAGE> 73
WELDCO, INC.
<TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
<CAPTION>
UNREALIZED
COMMON STOCK GAIN ON TOTAL
---------------- PAID-IN- MARKETABLE RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL SECURITIES EARNINGS EQUITY
------- ------ -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 25,000 $500 $19,919 $ -- $1,601,405 $ 1,621,824
Net income.......................... -- -- -- -- 264,858 264,858
Unrealized gain on marketable
securities........................ -- -- -- 106,851 -- 106,851
Dividends paid...................... -- -- -- -- (148,050) (148,050)
------ ---- ------- -------- ---------- -----------
BALANCE, December 31, 1995.............. 25,000 $500 $19,919 $106,851 $1,718,213 $ 1,845,483
Net income.......................... -- -- -- -- 265,030 265,030
Unrealized gain on marketable
securities........................ -- -- -- 10,239 -- 10,239
Dividends paid...................... -- -- -- -- (250,751) (250,751)
------ ---- ------- -------- ---------- -----------
BALANCE, September 30, 1996
(Unaudited)........................... 25,000 $500 $19,919 $117,090 $1,732,492 $ 1,870,001
====== ==== ======= ======== ========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-28
<PAGE> 74
WELDCO, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 264,858 $ 265,030
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation and amortization........................................... 203,610 151,200
Loss on disposal of assets.............................................. 6,806 1,485
Changes in operating assets and liabilities--
Accounts receivable................................................. (356,512) 152,536
Inventory........................................................... 21,842 (171,795)
Prepaids and other.................................................. (19,268) 4,105
Accounts payable and accrued expenses............................... 778,595 (144,186)
Other assets........................................................ 25,995 (4,602)
---------- ----------
Net cash provided by operating activities....................... 925,926 253,773
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets............................................ 3,200 2,700
Purchases of property and equipment......................................... (658,648) (262,265)
---------- ----------
Net cash used by investing activities........................... (655,448) (259,565)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................................................... 5,499 340,062
Principal payments on loans................................................. (98,343) (106,477)
Dividends paid.............................................................. (148,050) (250,751)
---------- ----------
Net cash used by financing activities........................... (240,894) (17,166)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS......................................... 29,584 (22,958)
CASH AND CASH EQUIVALENTS, at beginning of period............................... 86,058 115,642
---------- ----------
CASH AND CASH EQUIVALENTS, at end of period..................................... $ 115,642 $ 92,684
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................................................... $ 33,704 $ 42,646
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-29
<PAGE> 75
WELDCO, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Weldco, Inc. (the Company) is an S corporation involved in the sale and
distribution of industrial gases, welding equipment and supplies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist of 4,090 shares of AllAmerica Financial
Corporation common stock with a cost of $0 and a market value of $106,851 and
$117,090 on December 31, 1995 and September 30, 1996, respectively.
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115. Under SFAS No. 115, the recorded cost of investments
which are considered to be available for sale are adjusted to fair market
value. The difference between cost and fair market value is classified as an
unrealized gain in the stockholder's equity section of the balance sheets.
INVENTORY
Inventory is carried at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method.
The components of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Gross Inventory......................... $862,596 $ 1,034,907
LIFO Reserve............................ (375,000) (375,516)
-------- -----------
Net Inventory........................... $487,596 $ 659,391
======== ===========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
properties as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold improvements............................ 15
Equipment......................................... 7-10
Transportation equipment.......................... 5
Furniture and fixtures............................ 10
</TABLE>
The cost of maintenance and repairs is charged to operations as incurred.
Major renewals and betterments are capitalized.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the financial statements do not include
a provision for income taxes because the Company does not incur federal or
state income taxes. Instead, its earnings and losses are included in the
stockholder's personal income tax return and are taxed based on the
stockholder's personal tax strategy.
F-30
<PAGE> 76
WELDCO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 107, ``Disclosures about Fair Value of Financial Instruments,''
during fiscal year 1995.
The following methods and assumptions were used to estimate fair value of
each class of financial instrument for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of those instruments.
LONG-TERM DEBT--The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities.
The estimated fair values of the Company's financial instruments as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Cash and cash equivalents........................................ $115,642 $115,642
Long-term debt................................................... 398,471 398,471
</TABLE>
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 amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:
The Company markets its products to a diverse customer base in unrelated
industries and, as such, does not have any significant concentrations of credit
risk. No one customer accounted for greater than 10% of revenues in 1995.
F-31
<PAGE> 77
WELDCO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Fixed rate note payable to bank at 8.5% interest rate,
payable in monthly installments through September 1999..... $192,761 $ 159,590
Bank revolving credit line................................... 70,014 162,560
Notes payable on life insurance cash surrender value of life
insurance.................................................. 51,760 51,760
Equipment obligation payable at 16.0% interest rate, payable
in monthly installments through February 1997.............. 11,233 2,978
Variable rate note payable to bank at prime rate (8.5% at
December 31, 1995) plus 1.25%, payable in monthly
installments through March 1997............................ 31,984 15,821
Fixed rate note payable to bank at 7.125% interest rate,
payable in monthly installments through August 1998........ 92,479 68,309
Fixed rate note payable to bank at 8.50% interest rate,
payable in monthly installments through April 2001......... -- 229,165
-------- ---------
$450,231 $ 690,183
Current maturities........................................... (184,291) (316,260)
-------- ---------
Total long-term debt......................................... $265,940 $ 373,923
======== =========
</TABLE>
The schedule of maturities as amended for the new credit agreements for the
next five years and thereafter as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31,
- ------------------
<S> <C>
1996........................ $184,291
1997........................ 91,959
1998........................ 79,009
1999........................ 43,212
2000........................ --
Thereafter.................. 51,760
--------
Total....................... $450,231
========
</TABLE>
These loans have certain covenants regarding current ratio, operating cash
flow to debt service, tangible net worth, total liabilities to tangible net
worth, and capital expenditures. At December 31, 1995, the Company was in
violation of certain covenants. These violations were waived as of December 31,
1995. Carrying value approximates fair value.
F-32
<PAGE> 78
WELDCO INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PENSION PLANS:
The Company sponsors a defined contribution pension plan for employees. All
employees are eligible to participate in the Company-sponsored plan after
meeting the age and service requirements. Contributions to the plan are based
on a percentage of employees' compensation. Pension expense for this plan was
$26,890 for the year ended December 31, 1995 and $28,595 for the nine month
period ended September 30, 1996.
6. LEASE OBLIGATIONS:
The Company leases certain office equipment and delivery vehicles. All of
the leases, which are with unrelated parties, are classified as operating
leases. The lease terms expire at various dates through the year 2002. Lease
expenses charged to operations was $96,064 for the year ended December 31, 1995
and $72,680 for the nine month period ended September 30, 1996.
Minimum future rental payments under noncancelable operating leases for
each of the next five years are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31, TOTAL
- ------------------ --------
<S> <C>
1996........................ $ 97,085
1997........................ 78,736
1998........................ 70,323
1999........................ 65,153
2000........................ 62,451
--------
Totals...................... $373,748
========
</TABLE>
7. RELATED PARTY TRANSACTIONS:
The Company leases office and warehouse facilities and rents equipment from
related parties who are stockholders of the Company. These transactions and
balances are summarized as follows for the year ended December 31, 1995:
<TABLE>
<S> <C>
Transactions--
Lease of office and warehouse
facilities............................. $209,469
Rental of equipment...................... 55,916
</TABLE>
8. SUBSEQUENT EVENT:
In October 1996, substantially all of the Weldco's assets and liabilities
were purchased by Valley National Gases, Inc. for an approximate purchase price
of $11.1 million.
F-33
<PAGE> 79
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................................. 3
Risk Factors.................................................................... 6
S Corporation Distribution...................................................... 9
Use of Proceeds................................................................. 9
Dividend Policy................................................................. 9
Capitalization.................................................................. 10
Dilution........................................................................ 11
Selected Pro Forma Financial Data............................................... 12
Selected Historical Financial Data.............................................. 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 18
Business........................................................................ 24
Management...................................................................... 32
Principal and Selling Shareholders.............................................. 37
Certain Relationships and Related Transactions.................................. 37
Shares Eligible for Future Sale................................................. 38
Description of Capital Stock.................................................... 39
Underwriting.................................................................... 42
Legal Matters................................................................... 43
Experts......................................................................... 43
Additional Information.......................................................... 43
Index to Financial Statements................................................... F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
===============================================================================
===============================================================================
2,700,000 SHARES
VALLEY NATIONAL
GASES, INC.
COMMON STOCK
---------------------
P R O S P E C T U S
---------------------
A.G. EDWARDS & SONS, INC.
OPPENHEIMER & CO., INC.
, 1997
===============================================================================
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................ $ 9,410
NASD Filing Fee............................................................ 3,605
Nasdaq Filing Fee.......................................................... 20,525
Blue Sky Fees and Expenses (including attorneys' fees)..................... <F*>
Printing and Engraving Expenses............................................ 100,000
Legal Fees and Expenses.................................................... <F*>
Accounting Fees and Expenses............................................... <F*>
Transfer Agent and Registrar Fees and Expenses............................. <F*>
Miscellaneous.............................................................. <F*>
--------
Total..............................................................
========
<FN>
- --------
<F*> To be filed by amendment. All expenses listed above are estimates, except
for the Commission, NASD and NASDAQ fees.
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the West Virginia Corporation Act, as amended (the
``WVCA''), the Amended and Restated Articles of Incorporation of the Company
will provide that (i) the Company is required to indemnify its directors and
officers to the maximum extent permitted by West Virginia law, (ii) the Company
is permitted to indemnify employees or agents to the maximum extent permitted
by West Virginia law or to such lesser extent as the Company deems appropriate,
if permitted by the WVCA, (iii) the Company is required to advance expenses in
defending a proceeding against its officers and directors and may advance such
expenses to its employees and agents, upon receipt of an undertaking, (iv) the
rights conferred in the WVCA are not exclusive and (v) the Company is
authorized to maintain insurance on behalf of its officers and directors,
employees and agents.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's Amended and Restated Articles of Incorporation, Amended and
Restated By-laws and the WVCA, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company has not issued any securities in transactions that were not registered
under the Securities Act. Immediately prior to the closing of the Offering, the
Company will issue a total of 402,084 shares of Common Stock in the
transactions described below. In each of such transactions, the Company intends
to rely on the exemption afforded under Section 4(2) of the Securities Act.
(1) The Company will issue 121,942 shares of Common Stock to Lawrence E.
Bandi in connection with the cancellation of a deferred compensation agreement
and in exchange for Mr. Bandi's right to receive accrued compensation in the
amount of $199,631.
(2) The Company will issue 48,776 shares of Common Stock to John R.
Bushwack in connection with the cancellation of a deferred compensation
agreement and in exchange for Mr. Bushwack's right to receive accrued
compensation in the amount of $79,852.
II-1
<PAGE> 81
(3) The Company will issue 96,366 shares of Common Stock to William A.
Indelicato in connection with the conversion to shares of Common Stock of
consulting payments in the amount of $158,000 accrued under an existing
Consulting Agreement.
(4) The Company will issue 100,000 shares of Common Stock to R. Bruce
Kraemer in connection with the conversion to shares of Common Stock of
indebtedness in the amount of $1,000,000 originally payable by the Company to
Weldco, Inc.
(5) The Company will issue 35,000 shares of Common Stock to the estate of
Linda Bott in connection with the conversion to shares of Common Stock of
indebtedness in the amount of $350,000 originally payable by the Company to
Weldco, Inc.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Exhibit Index
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement among the Company, the Selling Shareholders, A.G. Edwards & Sons,
Inc. and Oppenheimer & Co., Inc.
3.1 Form of Amended and Restated Articles of Incorporation
3.2 Form of Amended and Restated Bylaws
4.1 Form of Certificate for Common Stock<F*>
5.1 Opinion of Bryan Cave LLP<F*>
10.1 Credit Agreement dated October 4, 1996 between the Company and Bank One, Indianapolis, National
Association, as amended January 3, 1997
10.2 Master Lease Agreement dated as of November 1, 1996 between the Company and West Rentals, Inc.
10.3 Right of First Refusal Agreement dated September 30, 1991 among the Company, West Rentals, Inc.,
Gary E. West, Phyllis J. West and Union Carbide Industrial Gases, Inc. (currently known as Praxair,
Inc.)
10.4 Deferred Compensation Agreement dated April 3, 1995 by and between the Company and Lawrence E.
Bandi.
10.5 Deferred Compensation Agreement dated April 3, 1995 by and between the Company and John R. Bushwack.
10.6 Agreement dated October 5, 1992 between the Company and Lawrence E. Bandi providing for death,
disability and retirement benefits
10.7 Agreement dated October 5, 1992 between the Company and John R. Bushwack providing for death,
disability and retirement benefits
10.8 Agreement dated March 16, 1994 between the Company and William A. Indelicato providing for certain
consulting payments, as amended January 23, 1995
10.9 Purchase and Sale Agreement made as of September 27, 1996 by and between Weldco, Inc., R.H. Kraemer,
R. Bruce Kraemer, William Bott, Linda Bott, Krabo Limited, Ltd., the Company and West Rentals, Inc.
10.10 Lease Agreement dated as of November 1, 1995 between the Company and Acetylene Products, Inc.
10.11 1997 Stock Option Plan<F*>
10.12 Form of Stock Option Agreement<F*>
10.13 Real Estate Sale Agreement dated April 24, 1996 between the Company and West Rentals, Inc.
10.14 Trailer Lease Agreement dated November 20, 1995 between the Company and West Rentals, Inc.
II-2
<PAGE> 82
10.15 Trailer Lease Agreement dated September 8, 1992 between the Company and West Rentals, Inc.
10.16 Trailer Lease Agreement dated May 29, 1996 between the Company and West Rentals, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Bryan Cave LLP (appears in Exhibit 5.1)<F*>
23.5 Power of Attorney (appears on the signature page of this Registration Statement)
<FN>
- --------
<F*>To be filed by amendment.
</TABLE>
(b) Index to Financial Statement Schedules
II.1 Valuation and Qualifying Accounts--Valley National Gases, Inc.
II.2 Valuation and Qualifying Accounts--Weldco, Inc.--period ended
12-31-95
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as
amended, shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wheeling, State of West
Virginia, on January 17, 1997.
VALLEY NATIONAL GASES, INC.
By: /s/ GARY E. WEST
---------------------------------
Name: Gary E. West
Title: Chairman of the Board of Directors
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Gary E. West and Lawrence E. Bandi and any of them (with full power to each of
them to act alone) the true and lawful attorneys-in-fact and agents of the
undersigned, with full power of substitution and resubstitution, for and in the
name, place and stead of the undersigned, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, including any filings pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission (or any other government or regulatory authority), and
hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute, or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ GARY E. WEST Chairman of the Board of Directors January 17, 1997
---------------------------------------------
Gary E. West
/s/ LAWRENCE E. BANDI President, Chief Executive Officer and Director January 17, 1997
--------------------------------------------- (Principal Executive Officer)
Lawrence E. Bandi
/s/ JOHN R. BUSHWACK Executive Vice President, Chief Operating Officer January 17, 1997
--------------------------------------------- and Director
John R. Bushwack
/s/ ROBERT D. SCHERICH Chief Financial Officer (Principal Financial and January 16, 1997
--------------------------------------------- Accounting Officer)
Robert D. Scherich
/s/ BEN EXLEY, IV Director January 17, 1997
---------------------------------------------
Ben Exley, IV
/s/ JAMES P. HART Director January 17, 1997
---------------------------------------------
James P. Hart
/s/ WILLIAM A. INDELICATO Director January 16, 1997
---------------------------------------------
William A. Indelicato
/s/ R. BRUCE KRAEMER Director January 17, 1997
---------------------------------------------
R. Bruce Kraemer
/s/ AUGUST E. MAIER Director January 17, 1997
---------------------------------------------
August E. Maier
</TABLE>
II-4
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULES
We have audited in accordance with generally accepted auditing standards,
the financial statements of Valley National Gases, Inc. and have issued our
report thereon dated August 13, 1996. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the accompanying index is presented for purposes of
complying with the Securities and Exchange Commission's rules and regulations
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
August 13, 1996
<PAGE> 85
SCHEDULE II
VALLEY NATIONAL GASES, INC.
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
June 30, 1994 Allowance for uncollectible accounts $100,000 $198,437 $(178,437) $120,000
June 30, 1995 Allowance for uncollectible accounts $120,000 $333,228 $(313,228) $140,000
June 30, 1996 Allowance for uncollectible accounts $140,000 $210,246 $(210,246) $140,000
</TABLE>
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULES
We have audited in accordance with generally accepted auditing standards,
the financial statements of Weldco, Inc. and have issued our report thereon
dated December 20, 1996. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the accompanying index is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
December 20, 1996
<PAGE> 87
SCHEDULE II
WELDCO, INC.
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1995 Allowance for uncollectible accounts $68,000 $65,000 $(32,177) $100,823
</TABLE>
<PAGE> 1
VALLEY NATIONAL GASES, INC.
2,700,000 SHARES
COMMON STOCK
($.001 PAR VALUE)
UNDERWRITING AGREEMENT
----------------------
----------------------, 1997
A.G. Edwards & Sons, Inc.
Oppenheimer & Co., Inc.
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, Valley National Gases, Inc., a West
Virginia corporation (the "Company") and the persons listed on
Schedule I hereto (the "Selling Shareholders"), hereby address you
as the representatives (the "Representatives") of each of the
persons, firms and corporations listed on Schedule II hereto
(collectively, the "Underwriters") and hereby confirm their
agreement with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to
issue and sell to the Underwriters 2,618,000 shares of its Common
Stock, par value $0.001 per share, and the Selling Shareholders
propose to sell to the Underwriters a total of 82,000 shares of the
Company's Common Stock, par value $0.001 per share, as set forth on
Schedule I hereto (such 2,700,000 shares of Common Stock are herein
referred to as the "Firm Shares"). Solely for the purpose of
covering over-allotments in the sale of the Firm Shares, the
Company further proposes to grant to the Underwriters the right to
purchase up to an additional 405,000 shares of the Company Common
Stock (the "Option Shares"), as provided in Section 3 of this
Agreement. The Firm Shares and the Option Shares are herein
sometimes referred to as the "Shares" and are more fully described
in the Prospectus hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF FIRM SHARES. On the
basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set
forth, the Company agrees and each Selling Shareholder agrees,
severally and not jointly, to sell to the Underwriters, and each
such Underwriter agrees, severally and not jointly, (a) to purchase
from the Company and from each of the Selling Shareholders, pro
rata, at a purchase price of $-------- per share, the number of
Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto and (b) to purchase from the Company any
additional number of Option Shares which such Underwriter may
become obligated to purchase pursuant to Section 3 hereof.
The Company and the Selling Shareholders will
deliver definitive certificates for the Firm Shares at the office
of A.G. Edwards & Sons, Inc., 77 Water Street, New York, New York
("Edwards' Office"), or such other place as you and the Company may
mutually agree upon, for the accounts of the Underwriters against
payment to the Company and the Selling Shareholders of the purchase
price for the Firm Shares sold by them to the several Underwriters
by wire transfer in immediately available funds to bank accounts
designated by the Company and Selling Shareholders, respectively.
The closing shall take place at A.G. Edwards & Sons, Inc., One
North Jefferson Avenue, St. Louis, Missouri 63103, or at such other
place as may be agreed upon between you and the Company (the "Place
of Closing"), at 10:00 a.m., St. Louis time,
<PAGE> 2
on the third (fourth, if pricing occurs after 3:30 p.m. St. Louis time) full
business day following the date of this Agreement, or at such other time and
date as you and the Company may agree, such time and date of payment and
delivery being herein called the "Closing Date."
The certificates for the Firm Shares so to be
delivered will be made available to you for inspection at Edwards'
Office (or such other place as you and the Company may mutually
agree upon) at least one full business day prior to the Closing
Date and will be in such names and denominations as you may request
at least two full business days prior to the Closing Date.
It is understood that an Underwriter, individually,
may (but shall not be obligated to) make payment on behalf of the
other Underwriters whose checks shall not have been received prior
to the Closing Date for Shares to be purchased by such Underwriter.
Any such payment by an Underwriter shall not relieve the other
Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to
offer the Shares to the public upon the terms and conditions set
forth in the Registration Statement hereinafter defined.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES.
The Company hereby grants options to the Underwriters to purchase
from them on a pro rata basis up to 405,000 Option Shares on the
same terms and conditions as the Firm Shares; provided, however,
that such options may be exercised only for the purpose of covering
any over-allotments which may be made by them in the sale of the
Firm Shares. No Option Shares shall be sold or delivered unless
the Firm Shares previously have been, or simultaneously are, sold
and delivered.
The options are exercisable on behalf of the several
Underwriters by you, as Representatives, at any time, and from time
to time, before the expiration of 30 days from the date of this
Agreement, for the purchase of all or part of the Option Shares
covered thereby, by notice given by you to the Company in the
manner provided in Section 13 hereof, setting forth the number of
Option Shares as to which the Underwriters are exercising the
options, and the date of delivery of said Option Shares, which date
shall not be more than five (5) business days after such notice
unless otherwise agreed to by the parties. You may terminate the
options at any time, as to any unexercised portion thereof, by
giving written notice to the Company to such effect.
You, as Representatives, shall make such allocation
of the Option Shares among the Underwriters as may be required to
eliminate purchases of fractional Shares.
Delivery of the Option Shares with respect to which
the options shall have been exercised shall be made to or upon your
order at Edwards' Office (or at such other place as you and the
Company may mutually agree upon), against payment by you of the per
share purchase price to the Company by wire transfer in immediately
available funds to a bank account designated by the Company. Such
payment and delivery shall be made at 10:00 a.m., St. Louis time,
on the date designated in the notice given by you as above provided
for, unless some other date and time are agreed upon, which date
and time of payment and delivery are called the "Option Closing
Date." The certificates for the Option Shares so to be delivered
will be made available to you for inspection at Edwards' Office at
least one full business day prior to the Option Closing Date and
will be in such names and denominations as you may request at least
two (2) full business days prior to the Option Closing Date. On
the Option Closing Date, the Company shall provide the Underwriters
such representations, warranties, opinions and covenants with
respect to the Option Shares as are required to be delivered on the
Closing Date with respect to the Firm Shares.
2
<PAGE> 3
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
COMPANY AND THE SELLING SHAREHOLDERS.
(a) The Company represents and warrants to and
agrees with each Underwriter that:
(i) A registration statement
(Registration No. 333- )
----------------
on Form S-1 with respect to the
Shares, including a preliminary
prospectus, and such amendments to
such registration statement as may
have been required to the date of
this Agreement, has been carefully
prepared by the Company pursuant to
and in conformity with the
requirements of the Securities Act
of 1933, as amended (the "Act"), and
the Rules and Regulations (the
"Rules and Regulations") of the
Securities and Exchange Commission
(the "Commission") thereunder and
has been filed with the Commission
under the Act. Copies of such
registration statement, including
any amendments thereto, each related
preliminary prospectus (meeting the
requirements of Rule 430 or 430A of
the Rules and Regulations) contained
therein, the exhibits, financial
statements and schedules have
heretofore been delivered by the
Company to you. If such
registration statement has not
become effective under the Act, a
further amendment to such
registration statement, including a
form of final prospectus, necessary
to permit such registration
statement to become effective will
be filed promptly by the Company
with the Commission. If such
registration statement has become
effective under the Act, a final
prospectus containing information
permitted to be omitted at the time
of effectiveness by Rule 430A of the
Rules and Regulations will be filed
promptly by the Company with the
Commission in accordance with Rule
424(b) of the Rules and Regulations.
The term "Registration Statement" as
used herein means the registration
statement as amended at the time it
becomes or became effective under
the Act (the "Effective Date"),
including financial statements and
all exhibits and, if applicable, the
information deemed to be included by
Rule 430A of the Rules and
Regulations. The term "Prospectus"
as used herein means (i) the
prospectus as first filed with the
Commission pursuant to Rule 424(b)
of the Rules and Regulations, or
(ii) if no such filing is required,
the form of final prospectus
included in the Registration
Statement at the Effective Date, or
(iii) if a Term Sheet or Abbreviated
Term Sheet (as such terms are
defined in Rules 434(b) and 434(c),
respectively, of the Rules and
Regulations) is filed with the
Commission pursuant to Rule
424(b)(7) of the Rules and
Regulations, the Term Sheet or
Abbreviated Term Sheet and the last
Preliminary Prospectus filed with
the Commission prior to the time the
Registration Statement became
effective, taken together. The term
"Preliminary Prospectus" as used
herein shall mean a preliminary
prospectus as contemplated by Rule
430 or 430A of the Rules and
Regulations included at any time in
the Registration Statement.
(ii) The Commission has not issued, and
is not to the knowledge of the
Company threatening to issue, an
order preventing or suspending the
use of any Preliminary Prospectus or
the Prospectus nor instituted
proceedings for that purpose. Each
Preliminary Prospectus at its date
of issue, the Registration Statement
and the Prospectus and any
amendments or supplements thereto
contains or will contain, as the
case may be, all
3
<PAGE> 4
statements which are required to be stated
therein by, and in all material respects
conform or will conform, as the case
may be, to the requirements of, the
Act and the Rules and Regulations.
Neither the Registration Statement
nor any amendment thereto, as of the
applicable effective date, and
neither the Prospectus nor any
supplement thereto contains or will
contain, as the case may be, any
untrue statement of a material fact
or omits or will omit to state any
material fact required to be stated
therein or necessary to make the
statements therein, in the light of
the circumstances under which they
were made, not misleading; provided,
however, that the Company makes no
representation or warranty as to
information contained in or omitted
from the Registration Statement or
the Prospectus, or any such
amendment or supplement, in reliance
upon, and in conformity with,
written information furnished to the
Company by or on behalf of the
Underwriters specifically for use in
the preparation thereof.
(iii) The filing of the Registration
Statement and the execution and
delivery of this Agreement have been
duly authorized by the Board of
Directors of the Company; this
Agreement constitutes a valid and
legally binding obligation of the
Company enforceable in accordance
with its terms (except to the extent
the enforceability of the
indemnification and contribution
provisions of Section 7 hereof may
be limited by public policy
considerations as expressed in the
Act as construed by courts of
competent jurisdiction, and except
as enforceability may be limited by
bankruptcy, insolvency,
reorganization, moratorium and other
laws affecting creditors' rights
generally and by general principles
of equity); the issue and sale of
the Shares by the Company and the
performance of this Agreement and
the consummation of the transactions
herein contemplated will not result
in a violation of the Company's
Articles of Incorporation or Bylaws
or result in a breach or violation
of any of the terms and provisions
of, or constitute a default under,
or result in the creation or
imposition of any lien, charge or
encumbrance upon any properties or
assets of the Company under any
statute, or under any indenture,
mortgage, deed of trust, note, loan
agreement, sale and leaseback
arrangement or other agreement or
instrument to which the Company is a
party or by which it is bound or to
which any of the properties or
assets of the Company is subject, or
any order, rule or regulation of any
court or governmental agency or body
having jurisdiction over the Company
or its properties, except to such
extent as does not materially
adversely affect the business of the
Company; no consent, approval,
authorization, order, registration
or qualification of or with any
court or governmental agency or body
is required for the consummation of
the transactions herein
contemplated, except such as may be
required by the National Association
of Securities Dealers, Inc. (the
"NASD") or under the Act or Rules
and Regulations or any state
securities laws.
(iv) Except as described in the
Prospectus, the Company has not
sustained since the date of the
latest audited financial statements
included in the Prospectus any
material loss or interference with
its business from fire, explosion,
flood or other calamity, whether or
not covered by insurance, or from
any labor dispute or court or
governmental action, order or
decree. Except as contemplated in
the Prospectus, subsequent to the
respective dates as of
4
<PAGE> 5
which information is given in the
Registration Statement and the
Prospectus, the Company has not
incurred any material liabilities or
material obligations, direct or
contingent, other than in the
ordinary course of business, or
entered into any material
transactions not in the ordinary
course of business, and there has
not been any material change in the
capital stock or long-term debt of
the Company or any material adverse
change in the condition (financial
or other), net worth, business,
affairs, management, prospects or
results of operations of the
Company. The Company has filed all
necessary federal, state and foreign
income and franchise tax returns and
paid all taxes shown as due thereon;
all tax liabilities are adequately
provided for on the books of the
Company except to such extent as
would not materially adversely
affect the business of the Company;
the Company has made all necessary
payroll tax payments and are current
and up-to-date as of the date of
this Agreement; and the Company has
no knowledge of any tax proceeding
or action pending or threatened
against the Company which might
materially adversely affect its
business or property.
(v) Except as described in the
Prospectus, there is not now pending
or, to the knowledge of the Company
or the Selling Shareholders,
threatened or contemplated, any
action, suit or proceeding to which
the Company is a party before or by
any court or public, regulatory or
governmental agency or body which
might be expected to result
(individually or in the aggregate)
in any material adverse change in
the condition (financial or other),
business or prospects of the
Company, or might be expected to
materially and adversely affect
(individually or in the aggregate)
the properties or assets thereof.
(vi) The Company has duly and validly
authorized capital stock as
described in the Prospectus; all
outstanding shares of Common Stock
of the Company and the Shares
conform, or when issued will
conform, to the description thereof
in the Registration Statement and
the Prospectus and have been, or,
when issued and paid for will be,
duly authorized, validly issued,
fully paid and nonassessable; and
the issuance of the Shares to be
purchased from the Company hereunder
is not subject to preemptive rights.
All offers and sales of the
securities of the Company during the
past three (3) years were at all
relevant times duly registered or
exempt from the registration
requirements of the Act and were
duly registered or the subject of an
exemption from the registration
requirements of applicable state
securities laws. Except as set
forth in the Prospectus, the Company
does not have outstanding, and at
the Closing Date, will not have
outstanding, any options to
purchase, or any rights or warrants
to subscribe for, or any securities
or obligations convertible into, or
any contracts, or commitments to
issue or sell any shares of Common
Stock or any such warrants,
convertible securities or
obligations. Except as disclosed in
the Prospectus, there are no
contracts, agreements or
understandings between the Company
and any person granting such person
the rights to require the Company to
file a registration statements under
the Act with respect to any
securities of the Company owned or
to be owned by such person or to
require the Company to include such
securities in the securities
registered pursuant to the
Registration
5
<PAGE> 6
Statement or in any securities
being registered pursuant to any
other registration statement filed
by the Company under the Act.
(vii) The Company has no subsidiaries, and
except as described in (xxi) below,
it does not conduct business through
any other entity. The Company has
been duly incorporated and is
validly existing as a corporation in
good standing under the laws of West
Virginia, with full power and
authority (corporate and other) to
own, lease and operate its
properties and conduct its business
as described in the Registration
Statement; the Company is duly
qualified to do business as a
foreign Company and is duly
qualified to do business as a
foreign corporation in good standing
in each state or other jurisdiction
in which its ownership or leasing of
property or conduct of business
legally requires such qualification,
except where the failure to be so
qualified would not have a material
adverse effect on the ability of the
Company to conduct its business as
described in the Registration
Statement.
(viii) Arthur Andersen LLP, the accounting
firm which has certified the
financial statements filed with the
Commission as a part of the
Registration Statement, is an
independent public accounting firm
within the meaning of the Act and
the Rules and Regulations.
(ix) 1) The financial statements
(including the condensed
financial statements) and
schedules, including the
notes thereto, included in
the Registration Statement
and the Prospectus with
respect to the Company
comply in all material
respects with the Act and
the Regulations thereunder
and present fairly the
financial position of the
Company as of the dates
indicated and the related
statements of operations,
cash flows and stockholder's
equity of the Company for
the periods specified and
have been prepared in
conformity with generally
accepted accounting
principles applied on a
consistent basis. The
selected and summary
financial information with
respect to the Company
included in the Registration
Statement and the Prospectus
present fairly the
information set forth
therein in compliance with
the applicable regulations
of the Commission and have
been compiled on a basis
consistent with that of the
audited financial statements
of the Company in the
Registration Statement and
the Prospectus.
2) The financial statements and
schedules of Weldco, Inc.,
including the notes thereto,
included in the Registration
Statement and the Prospectus
comply in all material
respects with the Act and
the Regulations thereunder
and present fairly the
financial position of the
Weldco, Inc. as of the dates
indicated and the related
statements of operations,
cash flows and stockholders'
equity for the periods
specified and have been
prepared in conformity with
generally accepted
accounting principles
applied on a consistent
basis. The selected and
summary financial
information with respect to
Weldco, Inc. included in the
Registration Statement and
the Prospectus present
fairly the information set
forth therein and in
compliance with the
applicable regulations of
the Commission and have been
6
<PAGE> 7
compiled on a basis
consistent with that of the
audited financial statements
of Weldco, Inc. in the
Registration Statement and
the Prospectus.
3) The pro forma condensed
combining financial
statements for the Company
and Weldco, Inc. included in
the Registration Statement
and the Prospectus comply in
form in all material
respects with the applicable
accounting requirements of
Article 11 of Regulation S-X
of the commission and the
pro forma adjustments have
been properly applied to the
historical amounts in the
compilation of those
statements. The selected
and summary information
included in the Registration
Statement and the Prospectus
present fairly the
information set forth
therein and have been
compiled on a basis
consistent with that of the
pro forma combined condensed
financial statements in the
Registration Statement and
Prospectus.
(x) The Company is not in default with
respect to any contract or agreement
to which it is a party; provided
that this representation shall not
apply to defaults which in the
aggregate are not materially adverse
to the condition, financial or
other, or the business or prospects
of the Company.
(xi) The Company is not in violation of
any other laws, ordinances or
governmental rules or regulations to
which it is subject, and the Company
has not failed to obtain any other
license, permit, franchise,
easement, consent, or other
governmental authorization necessary
to the ownership, leasing and
operation of its properties or to
the conduct of its business, which
violation or failure would
materially adversely affect the
business, operations, affairs,
properties, prospects, profits or
condition (financial or other) of
the Company. The Company has not,
at any time during the past five (5)
years, (a) made any unlawful
contributions to any candidate for
any political office, or failed
fully to disclose any contribution
in violation of law, or (b) made any
payment to any state, federal or
foreign government official, or
other person charged with similar
public or quasi-public duty (other
than payment required or permitted
by applicable law).
(xii) Except as described in the
Prospectus, the Company owns or
possess, or can acquire on
reasonable terms, adequate patents,
patent licenses, trademarks, service
marks and trade names necessary to
conduct the business now operated by
it, and the Company has not received
any notice of infringement of or
conflict with asserted rights of
others with respect to any patents,
patent licenses, trademarks, service
marks or trade names which, singly
or in the aggregate, if the subject
of an unfavorable decision, ruling
or finding, would have a material
adverse effect on the conduct of the
business, operations, financial
condition or income of the Company.
(xiii) The Company owns no real estate.
The Company has good and marketable
title to all other property owned by
it, free and clear of all liens,
encumbrances, restrictions and
defects except such as are described
in the Registration Statement or do
not interfere with the use made and
proposed to be made of such
property; and any property held
under lease or sublease
7
<PAGE> 8
by the Company is held under valid,
subsisting and enforceable leases or
subleases with such exceptions as
are not material and do not
interfere with the use made and
proposed to be made of such property
by the Company and the Company has
no notice or knowledge of any
material claim of any sort which has
been, or may be, asserted by anyone
adverse to the Company's rights as
lessee or sublessee under any lease
or sublease described above, or
affecting or questioning the
Company's rights to the continued
possession of the leased or
subleased premises under any such
lease or sublease in conflict with
the terms thereof.
(xiv) Except as described in the
Prospectus, there is no factual
basis for any action, suit or other
proceeding involving the Company or
any of its material assets for any
failure of the Company, or any
predecessor thereof, to comply with
any requirements of federal, state
or local regulation relating to air,
water, solid waste management,
hazardous or toxic substances, or
the protection of health or the
environment. Except as described in
the Prospectus, none of the property
leased by the Company is, to the
best knowledge of the Company,
contaminated with any waste or
hazardous substances, and the
Company may not be deemed an "owner
or operator" of a "facility" or
"vessel" which owns, possesses,
transports, generates or disposes of
a "hazardous substance" as those
terms are defined in Section 9601 of the
Comprehensive Environmental
Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601
et seq.
------
(xv) No labor disturbance exists with the
employees of the Company is imminent
which would have a material adverse
effect on the Company.
(xvi) The Company has not taken and will
not take, directly or indirectly,
any action designed to or which
might reasonably be expected to
cause or result in stabilization or
manipulation of the price of the
Company's Common Stock, and the
Company is not aware of any such
action taken or to be taken by
affiliates of the Company.
(xvii) The Company is not an "investment
company" or a company "controlled"
by an "investment company" within
the meaning of the Investment
Company Act of 1940, as amended.
(xviii) The Company's system of internal accounting
controls is sufficient to meet the
broad objectives of internal accounting control
insofar as those objectives pertain
to the prevention or detection of errors or
irregularities in amounts that would be material
in relation to the Company's financial
statements; and, except as disclosed in the
Prospectus, neither the Company nor any employee
or agent of the Company has made any payment of
funds of the Company or received or retained any
funds in violation of any law, rule or
regulation, the receipt or payment of which
could have a material adverse effect on the
Company.
(xix) There is no document or contract of
a character required to be described
in the Registration Statement or the
Prospectus or to be filed as an
exhibit to the Registration
Statement that is not described or
filed as required. All
8
<PAGE> 9
such contracts to which the Company is a
party has been duly authorized,
executed and delivered by the
Company constitute valid and binding
agreements of the Company and are
enforceable by the Company in
accordance with the terms thereof.
(xx) Other than as contemplated by this
Agreement, there is no broker,
finder or other party that is
entitled to receive from the Company
any brokerage or finder's fee or
other fee or commission as a result
of any of the transactions
contemplated by this Agreement.
(xxi) The Company conducts its business in
the State of Pennsylvania through
VNG Holding Company, a Pennsylvania
business trust (the "Trust"); the
Trust has been duly organized and is
validly existing under the laws of
Pennsylvania and is not required to
qualify to do business under the
laws of any other jurisdiction; the
Company holds a 99% beneficial
interest in the Trust free and clear
of any mortgage, pledge, lien,
encumbrance, charge or adverse claim
and is not the subject of any
agreement or understanding with any
person; no options or other rights
to purchase, agreement or other
obligations to issue or other rights
to convert any obligations into
beneficial interests in the Trust
are outstanding; and the
representations and warranties
contained in (v) and (x) through
(xv) above are true and correct with
respect to the Trust.
(b) Each Selling Shareholder severally
represents and warrants to and agrees with
each Underwriter and the Company that:
(i) All authorizations and consents
necessary for the execution and
delivery by it of this Agreement and
the sale and delivery of the Shares
to be sold by such Selling
Shareholder hereunder have been
given and are in full force and
effect on the date hereof and will
be in full force and effect on the
Closing Date (and, if applicable,
the Option Closing Date).
(ii) Such Selling Shareholder has, and on
the Closing Date (and, if
applicable, the Option Closing Date)
will have good and valid title to
the Shares to be sold by such
Selling Shareholder, free and clear
of all liens, mortgages, pledges,
encumbrances, claims, equities and
security interests whatsoever, and
will have, full right, power and
authority to enter into this
Agreement and to sell, assign,
transfer and deliver the Shares to
be sold by such Selling Shareholder
hereunder.
(iii) Upon delivery of and payment for
such Shares hereunder, the several
Underwriters (assuming they are bona
fide purchasers under the Uniform
Commercial Code) will acquire valid
and unencumbered title to such
Shares to be sold by such Selling
Shareholder hereunder, free and
clear of all liens, mortgages,
pledges, encumbrances, claims,
equities and security interests
whatsoever.
(iv) The consummation by such Selling
Shareholder of the transactions
contemplated herein and the
fulfillment by such Selling
Shareholder of the terms hereof will
not result in a violation or breach
of any terms or
9
<PAGE> 10
provisions of, or constitute a default under,
any indenture, mortgage, deed of trust,
note, loan agreement, sale and
leaseback arrangement or other
agreement or instrument to which
such Selling Shareholder is a party,
or of any order, rule or regulation
applicable to such Selling
Shareholder of any court or of any
regulatory body of an administrative
agency or other governmental body
having jurisdiction.
(v) Such Selling Shareholder has not
taken and will not take, directly or
indirectly, any action designed to
or which might be reasonably
expected to cause or result in
stabilization or manipulation of the
price of the Company's Common Stock,
and such Selling Shareholder is not
aware of any such action taken or to
be taken by affiliates of such
Selling Shareholder.
(vi) When the Registration Statement
becomes effective and at all times
subsequent thereto, such information
in the Registration Statement and
Prospectus and any amendments or
supplements thereto as specifically
refers to such Selling Shareholder
will not contain any untrue
statement of a material fact or omit
to state any material fact required
to be stated therein or necessary to
make the statements therein not
misleading.
(vii) Certificates in negotiable form
representing all of the Shares to be
sold by such Selling Shareholder
hereunder have been placed in the
custody of -----------------------
and ------------------------------
(the "Custodians") under a
Custody Agreement (the "Custody
Agreement"), duly executed and
delivered by such Selling
Shareholder, with the Custodians
having the authority to deliver the
Shares to be sold by such Selling
Shareholder hereunder, and that such
Selling Shareholder has duly
executed and delivered a Power of
Attorney (the "Power of Attorney")
appointing ------------------------
and -------------------------------
as such Selling Shareholder's
attorneys-in-fact (the "Attorneys-
in-Fact") with the Attorneys-in-Fact
having authority to execute and
deliver this Agreement on behalf of
such Selling Shareholder, to
determine the purchase price to be
paid by the Underwriters to the
Selling Shareholders as provided in
Section 2, to authorize the delivery
of the Shares to be sold by it
hereunder and otherwise to act on
behalf of such Selling Shareholder
in connection with the transactions
contemplated by this Agreement and
such Custody Agreement.
(viii) The Shares represented by the
certificates held in custody for
such Selling Shareholder under the
Custody Agreement are subject to the
interests of the Underwriters
hereunder, and the arrangements made
by such Selling Shareholder for such
custody, and the appointment by such
Selling Shareholder of the
Custodians under the Custody
Agreement and of the Attorneys-in-
Fact by the Power of Attorney, are
to that extent irrevocable.
(ix) The obligations of such Selling
Shareholders hereunder shall not be
terminated by operation of law,
whether by the death or incapacity
of any individual Selling
Shareholder or by the occurrence of
any other event, and if any Selling
Shareholder should die or become
incapacitated, or if any other such
event should occur before the
delivery of the Shares hereunder,
certificates representing the Shares
shall be delivered by or on behalf of
10
<PAGE> 11
each Selling Shareholder in
accordance with the terms and
conditions of this Agreement and of
the Custody Agreement, and actions
taken by the Custodians pursuant to
the Custody Agreement or by the
Attorneys-in-Fact pursuant to the
Power of Attorney shall be as valid
as if such death, incapacity or
other event had not occurred,
regardless of whether or not the
Custodians or Attorneys-in-Fact, or
any of them, shall have received
notice of such death, incapacity or
other event.
(x) Such Selling Shareholder is not
prompted to sell shares of Common
Stock by any information concerning
the Company which is not included in
the Registration Statement.
(c) Any certificate signed by any officer of the
Company and delivered to you or to counsel
for the Underwriters shall be deemed a
representation and warranty by the Company
to each Underwriter as to the matters
covered thereby; and any certificate signed
by or on behalf of the Selling Shareholders
as such and delivered to you or to counsel
for the Underwriters shall be deemed a
representation and warranty by the Selling
Shareholders to each Underwriter as to the
matters covered thereby.
5. ADDITIONAL COVENANTS. The Company and, where
expressly indicated, the Selling Shareholders, covenant and agree
with the several Underwriters that:
(a) If the Registration Statement is not
effective under the Act, the Company will
use its best efforts to cause the
Registration Statement to become effective
as promptly as possible, and it will notify
you, promptly after it shall receive notice
thereof, of the time when the Registration
Statement has become effective. The Company
(i) will prepare and timely file with the
Commission under Rule 424(b) of the Rules
and Regulations, if required, a Prospectus
containing information previously omitted at
the time of effectiveness of the
Registration Statement in reliance on Rule
430A of the Rules and Regulations or
otherwise or a Term Sheet or Abbreviated
Term Sheet, as applicable; (ii) will not
file any amendment to the Registration
Statement or supplement to the Prospectus
of which the Underwriters shall not
previously have been advised and furnished
with a copy or to which the Underwriters
shall have reasonably objected in writing or
which is not in compliance with the Rules
and Regulations; and (iii) will promptly
notify you after it shall have received
notice thereof of the time when any
amendment to the Registration Statement
becomes effective or when any supplement to
the Prospectus has been filed.
(b) The Company will advise the Underwriters
promptly, after it shall receive notice or
obtain knowledge thereof, of any request of
the Commission for amendment of the
Registration Statement or for supplement to
the Prospectus or for any additional
information, or of the issuance by the
Commission of any stop order suspending the
effectiveness of the Registration Statement
or the use of the Prospectus or of the
institution or threatening of any
proceedings for that purpose, and the
Company will use its best efforts to prevent
the issuance of any such stop order
preventing or suspending the use of the
Prospectus and to obtain as soon as possible
the lifting thereof, if issued.
(c) The Company will cooperate with the
Underwriters and their counsel in
endeavoring to qualify the Shares for sale
under the securities laws of such
jurisdictions as they
11
<PAGE> 12
may have designated and will make such applications,
file such documents, and furnish such information as
may be necessary for that purpose, provided
the Company shall not be required to qualify
as a foreign corporation or to file a
general consent to service of process in any
jurisdiction where it is not now so
qualified or required to file such a consent
or to subject itself to taxation as doing
business in any jurisdiction where it is not
now so taxed. The Company will, from time
to time, file such statements, reports, and
other documents, as are or may be required
to continue such qualifications in effect
for so long a period as the Underwriters may
reasonably request.
(d) The Company will deliver to, or upon the
order of, the Underwriters, without charge
from time to time, as many copies of any
Preliminary Prospectus as they may
reasonably request. The Company will
deliver to, or upon the order of, the
Underwriters without charge as many copies
of the Prospectus, or as it thereafter may
be amended or supplemented, as they may from
time to time reasonably request. The Company
consents to the use of such Prospectus by
the Underwriters and by all dealers to whom
the Shares may be sold, both in connection
with the offering or sale of the Shares and
for such other purposes and for such period
of time thereafter as the Prospectus is
required by law to be delivered in
connection with the offering or sale of the
Shares. The Company will deliver to the
Underwriters at or before the Closing Date
two (2) signed copies of the Registration
Statement and all amendments thereto
including all exhibits filed therewith, and
will deliver to the Underwriters such number
of copies of the Registration Statement,
without exhibits, and of all amendments
thereto, as they may reasonably request.
(e) If, during the period in which a prospectus
is required by law to be delivered by an
Underwriter or dealer, any event shall occur
as a result of which, in the judgment of the
Company or in your judgment or in the
opinion of counsel for the Underwriters, it
becomes necessary to amend or supplement the
prospectus in order to make the statements
therein, in light of the circumstances
existing at the time the prospectus is
delivered to a purchaser, not misleading,
or, if it is necessary at any time to amend
or supplement the prospectus to comply with
any law, the Company promptly will prepare
and file with the Commission an appropriate
amendment to the Registration Statement or
supplement to the prospectus so that the
prospectus as so amended or supplemented
will not, in the light of the circumstances
when it is so delivered, be misleading, or
so that the prospectus will comply with law.
(f) The Company will make generally available to
its stockholders and will file as an exhibit
in a report pursuant to the Securities and
Exchange Act of 1934, as amended (the "1934
Act"), as soon as it is practicable to do
so, but in any event not later than fifteen
(15) months after the effective date of the
Registration Statement, an earnings
statement in reasonable detail, covering a
period of at least twelve (12) consecutive
months beginning after the effective date of
the Registration Statement, which earnings
statement shall satisfy the requirements of
Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and will advise the
Underwriters in writing when such statement
has been so made available.
(g) The Company will, for a period of five (5)
years from the Closing Date, deliver to the
Underwriters at their principal executive
offices a reasonable number of copies of
annual reports, quarterly reports, current
reports and copies of all other
12
<PAGE> 13
documents, reports and information furnished by the
Company to its stockholders or filed with
any securities exchange pursuant to the
requirements of such exchange or with the
Commission pursuant to the Act or the 1934
Act. The Company will deliver to the
Underwriters similar reports with respect to
any significant subsidiaries, as that term
is defined in the Rules and Regulations,
which are not consolidated in the Company's
financial statements. Any report, document
or other information required to be
furnished under this paragraph (g) shall be
furnished as soon as practicable after such
report, document or information becomes
available.
(h) The Company will apply the proceeds from the
sale of the Shares as set forth in the
description under "Use of Proceeds" in the
Prospectus, which description complies in
all respects with the requirements of Item
504 of Regulation S-K.
(i) The Company will supply you with copies of
all correspondence to and from, and all
documents issued to and by, the Commission
in connection with the registration of the
Shares under the Act.
(j) Prior to the Closing Date (and, if
applicable, the Option Closing Date), the
Company will furnish to you, as soon as they
have been prepared, copies of any unaudited
interim financial statements of the Company
for any periods subsequent to the periods
covered by the financial statements
appearing in the Registration Statement and
the Prospectus.
(k) Prior to the Closing Date (and, if
applicable, the Option Closing Date),
neither the Company nor any Selling
Shareholder will issue any press releases or
other communications directly or indirectly
and will hold no press conferences with
respect to the Company the financial
condition, results of operations, business,
properties, assets or liabilities of the
Company, or the offering of the Shares,
without your prior written consent.
(l) The Company will use its best efforts to
obtain approval for, and maintain the
quotation of the Shares on, the National
Association of Securities Dealers, Inc.
Automated Quotation/National Market
(the "NNM").
(m) Except pursuant to this Agreement or with
the prior written consent of A.G. Edwards &
Sons, Inc., the Company will not, and the
Company has provided agreements executed by
Gary E. West, Lawrence E. Bandi, John R.
Bushwack, William A. Indelicato, R. Bruce
Kraemer and [the estate of Linda Bott] providing
that none of them will, and the Company will
use its best efforts to cause its other
directors and officers to not, for a period
of 180 days from the Effective Date,
directly or indirectly sell, contract to
sell or otherwise dispose of any shares of
the Company's Common Stock, any securities
exchangeable for Common Stock or any other
rights to acquire such shares without your
prior written consent, except for the Shares
sold hereunder and except for sales of
shares of Common Stock to the Company's
employees pursuant to the exercise of
options under the Company's stock option
plan.
(n) For a period of 180 days from the Effective
Date, the Selling Shareholders will not
directly or indirectly sell, contract to
sell or otherwise dispose of any shares of
the Company's Common Stock or rights to
acquire such shares without your prior
written consent, except for the Shares sold
hereunder.
13
<PAGE> 14
(o) The Company and its subsidiaries will
maintain and keep accurate books and records
reflecting their assets and maintain
internal accounting controls which provide
reasonable assurance that (i) transactions
are executed in accordance with management's
authorization, (ii) transactions are
recorded as necessary to permit the
preparation of the Company's consolidated
financial statements and to maintain
accountability for the assets of the
Company, (iii) access to the assets of the
Company and its subsidiaries is permitted
only in accordance with management's
authorization, and (iv) the recorded
accounts of the assets of the Company are
compared with existing assets at reasonable
intervals.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The
several obligations of the Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy in all
material respects, as of the date hereof and as of the Closing Date
(and, if applicable, the Option Closing Date), of the
representations and warranties of the Company and the Selling
Shareholders contained herein, to the performance in all material
respects by the Company and the Selling Shareholders of their
covenants and obligations hereunder, and to the following
additional conditions:
(a) All filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have
been made. No stop order suspending the
effectiveness of the Registration Statement,
as amended from time to time, shall have
been issued and no proceeding for that
purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter,
threatened or contemplated by the
Commission, and any request of the
Commission for additional information (to be
included in the Registration Statement or
the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction
of the Underwriters.
(b) No Underwriter shall have disclosed in
writing to the Company on or prior to the
Closing Date (and, if applicable, the Option
Closing Date), that the Registration
Statement or Prospectus or any amendment or
supplement thereto contains an untrue
statement of fact which, in the opinion of
counsel to the Underwriters, is material, or
omits to state a fact which, in the opinion
of such counsel, is material and is required
to be stated therein or is necessary to make
the statements therein, in light of the
circumstances under which they were made,
not misleading.
(c) On the Closing Date (and, if applicable, the
Option Closing Date), you shall have
received the opinion of counsel for the
Company, addressed to you and dated the
Closing Date (and, if applicable, the
Option Closing Date), to the effect that:
(i) The Company has been duly
incorporated and is validly existing
as a corporation in good standing
under the laws of the State of West
Virginia with the corporate power
and authority to own, lease and
operate its properties and conduct
its business as described in the
Registration Statement; the Company
is duly qualified to do business as
a foreign corporation in good
standing in each state or other
jurisdiction in which its ownership
or leasing of property or conduct of
business legally requires such
qualification, except where the
failure to be so qualified would not
have a material adverse effect on
the ability of the Company to
conduct its business as described in
the Registration Statement.
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<PAGE> 15
(ii) The Company has duly and validly
authorized capital stock as set
forth under the heading
"Capitalization" in the Prospectus;
all outstanding shares of Common
Stock of the Company and the Shares
conform to the description thereof
in the Prospectus under the heading
"Description of Capital Stock", and
the outstanding shares of Common
Stock have been duly authorized and
are validly issued, fully paid and
non-assessable; the Shares to be
sold by the Company have been duly
authorized and, when delivered and
paid for in accordance with this
Agreement, will be validly issued,
fully paid and non-assessable, and
the shareholders of the Company have
no preemptive rights with respect to
the Shares.
(iii) Such counsel has been advised by the
staff of the Commission that the
Registration Statement has become
effective under the Act and, to the
knowledge of such counsel no stop
order suspending the effectiveness
of the Registration Statement has
been issued and no proceedings for
that purpose have been instituted or
are pending or contemplated under
the Act.
(iv) The Registration Statement and the
Prospectus, and each amendment or
supplement thereto, as of their
respective effective or issue dates,
comply as to form and appear on
their face to be appropriately
responsive in all material respects
to the requirements of the Act and
the applicable rules and regulations
(except that such counsel need
express no opinion as to the
financial statements or other
financial data).
(v) The descriptions in the Registration
Statement and Prospectus of
contracts and other documents filed
as exhibits to the Registration
Statement are accurate in all
material respects; all other
material agreements between the
Company and third parties expressly
referenced in the Prospectus are
legal, valid and binding obligations
of the Company.
(vi) No authorization, approval, consent,
order, registration or qualification
of or with of any court or
governmental body, authority or
agency is required with respect to
the Company in connection with the
transactions contemplated by this
Agreement, except such as may be
required under the Act or the Rules
and Regulations or as may be
required by the NASD or under state
securities laws in connection with
the purchase and distribution of the
Shares by the Underwriters.
(vii) The filing of the Registration
Statement has been duly authorized
by the Board of Directors of the
Company. This Agreement has been
duly authorized, executed and
delivered by the Company. The
performance of this Agreement and
the consummation of the transactions
herein contemplated will not result
in a violation of the Company's
Articles of Incorporation or
Bylaws or result in a breach or
violation of any of the terms and
provisions of, or constitute a
default under, or result in the
creation or imposition of any lien,
charge or encumbrance upon any
properties or assets of the Company,
any statute, or under any indenture,
mortgage, deed of trust, note, loan
agreement, sale and leaseback
arrangement, or any other agreement
or instrument known to such counsel
to which the Company is a party or
by which its bound or to which any of
15
<PAGE> 16
the properties or assets of the
Company is subject, or any order,
rule or regulation known to such
counsel of any court or governmental
agency or body having jurisdiction
over the Company or its properties,
except, in the case of any such
violation, breach, default, creation
or imposition, to such extent as
does not materially adversely affect
the business of the Company.
(viii) To the knowledge of such counsel,
(a) there are no material
(individually, or in the aggregate)
legal, governmental or regulatory
proceedings pending or threatened to
which the Company is a party or of
which the business or properties of
the Company is the subject which are
not disclosed in the Registration
Statement and Prospectus; (b) there
are no contracts or documents of a
character required to be described
in the Registration Statement or the
Prospectus or to be filed as an
exhibit to the Registration
Statement which are not described or
filed as required; and (c) there are
no statutes or regulations required
to be described in the Registration
Statement or Prospectus which are
not described as required.
(ix) To the knowledge of such counsel,
the Company holds all licenses,
certificates, permits and approvals
from all state, federal and other
regulatory authorities, and has
satisfied in all material respects
the requirements imposed by
regulatory bodies, administrative
agencies or other governmental
bodies, agencies or officials, that
are required for the Company
lawfully to own, lease and operate
its properties and conduct its
business as described in the
Prospectus, and, to the knowledge of
such counsel, the Company is
conducting its business in
compliance in all material respects
with all of the laws, rules and
regulations of each jurisdiction in
which it conducts its business.
(x) The statements made in the
Registration Statement under the
captions "Dividend Policy",
"Capitalization" and "Description of
Capital Stock" to the extent that they
constitute summaries of documents
referred to therein or matters of
law or legal conclusions, have been
reviewed by such counsel and are
accurate summaries and fairly
present the information disclosed
therein.
(xi) The Company is not, and will not
become as a result of the
consummation of the transactions
contemplated by this Agreement and
application of the net proceeds
therefrom as described in the
Prospectus, required to register as
an investment company under the
Investment Company Act of 1940.
(xii) Except as described in the
Registration Statement, there are no
contracts, agreements or
understanding known to such counsel
between the Company and any person
granting such person the right to
require the Company to file a
registration statement under the Act
with respect to any securities of
the Company owned or to be owned by
such person or to require the
Company to include such securities
in the securities registered
pursuant to the Registration
Statement or in any securities being
registered pursuant to any other
registration statement filed by the
Company under the Act.
16
<PAGE> 17
Such counsel also shall confirm that in the course
of its duties in connection with the preparation of the
Registration Statement and Prospectus, nothing came to such
counsel's attention that would lead them to believe that either the
Registration Statement or Prospectus or any amendment or supplement
thereto (other than the financial statements or other financial
data as to which such counsel need express no opinion) contains any
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
In rendering the foregoing opinion, such counsel may
rely, provided that the opinion shall state that you and they are
entitled to so rely, (a) as to matters involving laws of any
jurisdiction other than -------------- or the United States, upon
opinions addressed to the Underwriters of other counsel
satisfactory to them and Peper, Martin, Jensen, Maichel and
Hetlage, and (b) as to all matters of fact, upon certificates and
written statements of the executive officers of, and accountants
for, the Company.
(d) On the Closing Date (and, if applicable, the
Option Closing Date), you shall have
received the opinion of counsel to the
Selling Shareholders, addressed to you and
dated the Closing Date (and, if applicable,
the Option Closing Date), to the effect
that:
(i) Each Selling Shareholder has duly
authorized, executed and delivered
the Custody Agreement and Power of
Attorney, appointing
------------------ and
------------------ as such Selling
Shareholder's Custodians with
authority to take custody of and
deliver the Shares as represented by
certificates on behalf of such
Selling Shareholder in connection
with the transactions contemplated
by this Agreement and the Custody
Agreement and appointing
------------------ and -------------
as such Selling Shareholder's
attorneys-in-fact with authority to
execute and deliver this Agreement
on behalf of such Selling
Shareholder and otherwise to act on
behalf of such Selling Shareholder
in connection with the transactions
contemplated by this Agreement and
the Power of Attorney.
(ii) This Agreement has been duly
authorized, executed and delivered
on behalf of the Selling
Shareholders.
(iii) Each Selling Shareholder has full
legal right, power and authority to
sell, assign, transfer and deliver
the Shares to be sold by such
Selling Shareholder.
(iv) Each Selling Shareholder has good
and valid title to the Shares being
sold by such Selling Shareholder
hereunder, free and clear of all
liens, mortgages, pledges,
encumbrances, claims, equities and
security interests, and (assuming
the underwriters are bona fide
purchasers within the meaning of the
Uniform Commercial Code) has
transferred to the Underwriters good
and valid title to the Shares being
sold by such Selling Shareholder on
the Closing Date (and, if
applicable, the Option Closing
Date), free and clear of all liens,
mortgages, pledges, encumbrances,
claims, equities and security
interests whatsoever.
17
<PAGE> 18
In rendering the foregoing opinion, such counsel may
rely, provided that the opinion shall state that you and they are
entitled to so rely, (a) as to matters involving laws of any
jurisdiction other than --------------- or the United States, upon
opinions addressed to the Underwriters of other counsel
satisfactory to them and Peper, Martin, Jensen, Maichel and
Hetlage, and (b) as to all matters of fact, upon certificates and
written statements of the Selling Shareholders.
(e) You shall have received on the Closing Date
(and, if applicable, the Option Closing
Date), from Peper, Martin, Jensen, Maichel
and Hetlage, counsel to the Underwriters,
such opinion or opinions, dated the Closing
Date (and, if applicable, the Option Closing
Date) with respect to the incorporation of
the Company, the validity of the Shares, the
Registration Statement, the Prospectus and
other related matters as you may reasonably
require; the Company and Selling
Shareholders shall have furnished to such
counsel such documents as they reasonably
request for the purpose of enabling them to
pass on such matters.
(f) You shall have received at or prior to the
Closing Date from Peper, Martin, Jensen,
Maichel and Hetlage a memorandum or
memoranda, in form and substance
satisfactory to you, with respect to the
qualification for offering and sale by the
Underwriters of the Shares under state
securities laws of such jurisdictions as the
Underwriters may have designated to the
Company.
(g) On the date of this Agreement and on the
Closing Date (and, if applicable, the Option
Closing Date), you shall have received from
Arthur Andersen LLP, a letter or letters,
dated the date of this Agreement and the
Closing Date (and, if applicable, the Option
Closing Date), respectively, in form and
substance satisfactory to you, confirming
that they are independent public accountants
with respect to the Company within the
meaning of the Act and the published Rules
and Regulations, and the answer to Item 509
of Regulation S-K set forth in the
Registration Statement is correct insofar as
it relates to them, and addressing the
matters set forth in Schedule III hereto.
(h) Except as contemplated in the Prospectus,
(i) the Company shall not have sustained
since the date of the latest audited
financial statements included in the
Prospectus any loss or interference with its
business from fire, explosion, flood or
other calamity, whether or not covered by
insurance, or from any labor dispute or
court or governmental action, order or
decree; and (ii) subsequent to the
respective dates as of which information is
given in the Registration Statement and the
Prospectus, the Company shall not have
incurred any liability or obligation, direct
or contingent, or entered into transactions,
and there shall not have been any change in
the capital stock or long-term debt of the
Company or any change in the condition
(financial or other), net worth, business,
affairs, management, prospects or results of
operations of the Company, the effect of
which, in any such case described in clause
(i) or (ii), is in your judgment so material
or adverse as to make it impracticable or
inadvisable to proceed with the public
offering or the delivery of the Shares being
delivered on such Closing Date (and, if
applicable, the Option Closing Date) on the
terms and in the manner contemplated in the
Prospectus.
(i) There shall not have occurred any of the
following: (i) a suspension or material
limitation in trading in securities
generally on the New York Stock Exchange or
the American Stock Exchange or the
establishing on such exchanges by the Commission
18
<PAGE> 19
or by such exchanges of minimum
or maximum prices which are not in force and
effect on the date hereof; (ii) a general
moratorium on commercial banking activities
declared by either federal or state
authorities; (iii) the outbreak or
escalation of hostilities involving or
affecting the United States or the
declaration by the United States of a
national emergency or war, if the effect of
any such event specified in this clause
(iii) in your judgment makes it
impracticable or inadvisable to proceed with
the public offering or the delivery of the
Shares in the manner contemplated in the
Prospectus; (iv) any calamity or crisis,
change in national, international or world
affairs, act of God, change in the
international or domestic markets, or change
in the existing financial, political or
economic conditions in the United States or
elsewhere, if the effect of any such event
specified in this clause (iv) makes it
impracticable or inadvisable to proceed with
the public offering or the delivery of the
Shares in the manner contemplated in the
Prospectus; or (v) the enactment,
publication, decree, or other promulgation
of any federal or state statute, regulation,
rule, or order of any court or other
governmental authority, or the taking of any
action by any federal, state or local
government or agency in respect of fiscal or
monetary affairs, if the effect of any such
event specified in this clause (v) in your
judgment makes it impracticable or
inadvisable to proceed with the public
offering or the delivery of the Shares in
the manner contemplated in the Prospectus.
(j) You shall have received certificates, dated
the Closing Date (and, if applicable, the
Option Closing Date) and signed by the
President and the Chief Financial Officer of
the Company stating that (i) they have
carefully examined the Registration
Statement and the Prospectus as amended or
supplemented and nothing has come to their
attention that would lead them to believe
that either the Registration Statement or
the Prospectus, or any amendment or
supplement thereto as of their respective
effective or issue dates, contained, and the
Prospectus as amended or supplemented at
such Closing Date, contains any untrue
statement of a material fact, or omits to
state a material fact required to be stated
therein or necessary in order to make the
statements therein, in light of the
circumstances under which they were made,
not misleading, and, that (ii) all
representations and warranties made herein
by the Company are true and correct in all
material respects at such Closing Date, with
the same effect as if made on and as of such
Closing Date, and all agreements herein to
be performed by the Company on or prior to
such Closing Date have been duly performed
in all material respects.
(k) The Company and each of the Selling
Shareholders shall not have failed, refused,
or been unable, at or prior to the Closing
Date (and, if applicable, the Option Closing
Date) to have performed in all material
respects any agreement on their part to be
performed or any of the conditions herein
contained and required to be performed or
satisfied by them at or prior to such
Closing Date.
(l) The Company and the Selling Shareholders
shall have furnished to you at the Closing
Date (and, if applicable, the Option Closing
Date) such other certificates as you may
have reasonably requested as to the
accuracy, on and as of such Closing Date, of
the representations and warranties of the
Company and the Selling Shareholders herein
and as to the performance by the Company and
the Selling Shareholders of their
obligations hereunder.
19
<PAGE> 20
(m) The Shares shall have been approved for
trading upon official notice of issuance on
the NNM.
(n) The NASD shall not have raised any objection
with respect to the fairness and
reasonableness of the underwriting terms and
arrangements.
(o) The agreements mentioned in Section 5(m)
shall be in full force and effect.
All such opinions, certificates, letters and
documents will be in compliance with the provisions hereof only if
they are reasonably satisfactory to you and to Peper, Martin,
Jensen, Maichel and Hetlage, counsel for the several Underwriters.
The Company and Selling Shareholders will furnish you with such
conformed copies of such opinions, certificates, letters and
documents as you may request.
If any of the conditions specified above in this
Section 6 shall not have been satisfied at or prior to the Closing
Date (and, if applicable, the Option Closing Date) or waived by you
in writing, this Agreement may be terminated by you on notice to
the Company and the Selling Shareholders.
7. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless
each Underwriter and each person, if any,
who controls any Underwriter within the
meaning of the Act, against any losses,
claims, damages or liabilities, joint or
several, to which such Underwriter or such
controlling person may become subject, under
the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or
are based upon an untrue statement or
alleged untrue statement of a material fact
contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or
arise out of or are based upon the omission
or alleged omission to state therein a
material fact required to be stated therein
or necessary to make the statements therein,
in light of the circumstances under which
they were made, not misleading; and will
reimburse each Underwriter and each such
controlling person for any legal or other
expenses reasonably incurred by such
Underwriter or such controlling person in
connection with investigating or defending
any such loss, claim, damage, liability or
action; provided, however, that the Company
shall not be liable in any such case to the
extent that any such loss, claim, damage or
liability arises out of or is based upon an
untrue statement or alleged untrue statement
or omission or alleged omission made in the
Registration Statement, such Preliminary
Prospectus or the Prospectus, or such
amendment or supplement, in reliance upon
and in conformity with written information
furnished to the Company by you or by any
Underwriter through you, specifically for
use in the preparation thereof; and
provided, further, that if any Preliminary
Prospectus or the Prospectus contained any
alleged untrue statement or allegedly
omitted to state therein a material fact
required to be stated therein or necessary
to make the statements therein not
misleading and such statement or omission
shall have been corrected in a revised
Preliminary Prospectus or in the Prospectus
or in an amended or supplemented Prospectus,
the Company shall not be liable to any
Underwriter or controlling person under this
subsection (a) with respect to such alleged
untrue statement or alleged omission to the
extent that any such loss, claim, damage or
liability of such Underwriter or controlling
person results from the fact that such
Underwriter sold Shares to a person to whom
there was not sent or given, at or prior to
the written confirmation of such sale, such
revised Preliminary Prospectus or
20
<PAGE> 21
Prospectus or amended or supplemented Prospectus.
This indemnity agreement shall be in addition to
any liabilities which the Company may
otherwise have.
(b) Each Selling Shareholder will indemnify and
hold harmless each Underwriter and each
person, if any, who controls any Underwriter
within the meaning of the Act, against any
losses, claims, damages or liabilities,
joint or several, to which such Underwriter
or controlling person may become subject,
under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or
are based upon any untrue statement or
alleged untrue statement of any material
fact contained in the Registration
Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon
the omission or the alleged omission to
state therein a material fact required to be
stated therein or necessary to make the
statements therein not misleading, in each
case to the extent, but only to the extent,
that such untrue statement or alleged untrue
statement or omission or alleged omission
was made in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or
such amendment or supplement, in reliance
upon and in conformity with written
information furnished to the Company or any
Underwriter by such Selling Shareholder
specifically for use in the preparation
thereof; and will reimburse any legal or
other expenses reasonably incurred by each
Underwriter and each person, if any, who
controls any Underwriter within the meaning
of the Act, in connection with investigating
or defending any such loss, claim, damage,
liability or action; provided, however, that
the indemnity contained in this subsection
(b) with respect to any Preliminary
Prospectus shall not inure to the benefit of
any Underwriter (or to the benefit of any
person controlling such Underwriter) in
respect of any action or claim asserted by
a person who purchased any Shares from such
Underwriter, if, within the time required by
the Act such person was not sent or given a
copy of the Prospectus, as then amended or
supplemented. In no event, however, shall
the liability of any Selling Shareholder for
indemnification under this Section 7(b)
exceed the proceeds received by such Selling
Shareholder from the Underwriters in the
offering. This indemnity agreement shall
be in addition to any liabilities which the
Selling Shareholders may otherwise have.
(c) Each Underwriter will indemnify and hold
harmless the Company, each of its directors,
each of its officers who have signed the
Registration Statement and, each person, if
any, who controls the Company within the
meaning of the Act, and each Selling
Shareholder, against any losses, claims,
damages or liabilities, joint or several, to
which the Company or any such director,
officer or controlling person or any such
Selling Shareholder may become subject,
under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or
are based upon any untrue statement or
alleged untrue statement of any material
fact contained in the Registration
Statement, any Preliminary Prospectus, the
Prospectus, any amendment or supplement
thereto, or arise out of or are based upon
the omission or the alleged omission to
state therein a material fact required to be
stated therein or necessary to make the
statements therein, in light of the
circumstances under which they were made,
not misleading, in each case to the extent,
but only to the extent, that such untrue
statement or alleged untrue statement or
omission or alleged omission was made in the
Registration Statement, such Preliminary
Prospectus or the Prospectus, such amendment
or supplement, in reliance upon and in
conformity with written information
furnished to the Company
21
<PAGE> 22
by any such Underwriter specifically for use in the
preparation thereof; and will reimburse any
legal or other expenses reasonably incurred
by the Company or any such director, officer
or controlling person or any such Selling
Shareholder in connection with investigating
or defending any such loss, claim, damage,
liability or action. The Company and each
Selling Shareholder acknowledge that the
statements set forth under the heading
"Underwriting" in any Preliminary Prospectus
and the Prospectus constitute the only
information relating to the Underwriters
furnished in writing to the Company by the
Underwriters expressly for inclusion in the
Registration Statement, any Preliminary
Prospectus or the Prospectus.
(d) Any party which proposes to assert the right
to be indemnified under this Section 7
shall, within ten (10) days after receipt of
notice of commencement of any action, suit
or proceeding against such party in respect
of which a claim is to be made against an
indemnifying party under this Section 7,
notify each such indemnifying party of the
commencement of such action, suit or
proceeding, enclosing a copy of all papers
served, but the omission so to notify such
indemnifying party of any such action, suit
or proceeding shall not relieve such
indemnifying party from any liability which
it may have to any indemnified party
otherwise than under this Section 7. In
case any such action, suit or proceeding
shall be brought against any indemnified
party and it shall notify the indemnifying
party of the commencement thereof, the
indemnifying party shall be entitled to
participate in, and, to the extent that it
shall wish, jointly with any other
indemnifying party, similarly notified, to
assume the defense thereof, with counsel
reasonably satisfactory to such indemnified
party, and after notice from the
indemnifying party to such indemnified party
of its election so to assume the defense
thereof, the indemnifying party shall not be
liable to such indemnified party for any
legal or other expenses, other than
reasonable costs of investigation,
subsequently incurred by such indemnified
party in connection with the defense
thereof. The indemnified party shall have
the right to employ its own counsel in any
such action, but the fees and expenses of
such counsel shall be at the expense of such
indemnified party unless (i) the employment
of counsel by such indemnified party at the
expense of the indemnifying party has been
authorized by the indemnifying party,
(ii) the indemnified party shall have been
advised by such counsel in a written opinion
that there may be a conflict of interest
between the indemnifying party and the
indemnified party in the conduct of the
defense, or certain aspects of the defense,
of such action (in which case the
indemnifying party shall not have the right
to direct the defense of such action with
respect to those matters or aspects of the
defense on which a conflict exists or may
exist on behalf of the indemnified party) or
(iii) the indemnifying party shall not in
fact have employed counsel to assume the
defense of such action, in any of which
events such fees and expenses to the extent
applicable shall be borne by the
indemnifying party. An indemnifying party
shall not be liable for any settlement of
any action or claim effected without its
consent. Each indemnified party, as a
condition of such indemnity, shall cooperate
in good faith with the indemnifying party in
the defense of any such action or claim.
(e) If the indemnification provided for in this
Section 7 is for any reason, other than
pursuant to the terms thereof, judicially
determined (by the entry of a final judgment
or decree by a court of competent
jurisdiction and the expiration of time to
appeal or the denial of the last right to
appeal) to be unavailable to an indemnified
party under subsections (a), (b) or (c)
above in respect of any losses, claims,
damages or
22
<PAGE> 23
liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party,
contribute to the amount paid or payable by
such indemnified party as a result of such
losses, claims, damages or liabilities (or
actions in respect thereof) in such
proportion as is appropriate to reflect the
relative benefits received by the Company,
the Selling Shareholders and the
Underwriters from the offering of the
Shares. If, however, the allocation
provided by the immediately preceding
sentence is not permitted by applicable law,
then each indemnifying party shall
contribute to such amount paid or payable by
such indemnified party in such proportion as
is appropriate to reflect not only such
relative benefits but also the relative
fault, as applicable, of the Company, the
Selling Shareholders and the Underwriters in
connection with the statements or omissions
which resulted in such losses, claims,
damages or liabilities (or actions in
respect thereof), as well as other relevant
equitable considerations. The relative
benefits received by, as applicable, the
Company, the Selling Shareholders and the
Underwriters shall be deemed to be in the
same proportion as the total net proceeds
from the offering (before deducting
expenses) received by the Company and the
Selling Shareholders bear to the total
underwriting discounts and commissions
received by the Underwriters, in each case
as set forth in the table on the cover page
of the Prospectus. The relative fault shall
be determined by reference to, among other
things, whether the untrue statement of a
material fact or the omission or alleged
omission to state a material fact relates to
information supplied by the Company, the
Selling Shareholders or the Underwriters and
the parties' relative intent, knowledge,
access to information and opportunity to
correct or prevent such statement or
omission. The Company, the Selling
Shareholders and the Underwriters agree that
it would not be just and equitable if
contributions pursuant to this subsection
(e) were determined by pro rata allocation
(even if the Underwriters were treated as
one entity for such purpose) or by any other
method of allocation which does not take
account of the equitable considerations
referred to above in this subsection (e).
The amount paid or payable by an indemnified
party as a result of the losses, claims,
damages or liabilities (or actions in
respect thereof) referred to above in this
subsection (e) shall be deemed to include
any legal or other expenses reasonably
incurred by such indemnified party in
connection with investigating or defending
any such action or claim. Notwithstanding
the provisions of this subsection (e): No
Underwriter shall be required to contribute
any amount in excess of the underwriting
discounts and commissions applicable to the
Shares purchased by such Underwriter; no
Selling Shareholder shall be required to
contribute any amount in excess of the
proceeds received by such Selling
Shareholder from the Underwriters in the
offering; and, no person guilty of
fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person
who was not guilty of such fraudulent
misrepresentation. The Underwriters'
obligations in this subsection (e) to
contribute are several in proportion to
their respective underwriting obligations
and not joint.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties, and agreements of the Company and
the Selling Shareholders contained in Sections 7 and 11 herein or
in certificates delivered pursuant hereto, and the agreements of
the Underwriters contained in Section 7 hereof, shall remain
operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation
made by or on behalf of any Underwriter or any controlling person,
the Company or any of its officers, directors or any controlling
persons, or the Selling Shareholders, and shall survive delivery of
the Shares to the Underwriters hereunder.
23
<PAGE> 24
9. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter shall default in its
obligation to purchase the Shares which it
has agreed to purchase hereunder, you may in
your discretion arrange for you or another
party or other parties to purchase such
Shares on the terms contained herein. If
within thirty-six (36) hours after such
default by any Underwriter you do not
arrange for the purchase of such Shares,
then the Company and the Selling
Shareholders shall be entitled to a further
period of thirty-six (36) hours within which
to procure another party or parties
reasonably satisfactory to you to purchase
such Shares on such terms. In the event
that, within the respective prescribed
periods, you notify the Company and the
Selling Shareholders that you have so
arranged for the purchase of such Shares, or
the Company and the Selling Shareholders
notify you that they have so arranged for
the purchase of such Shares, you or the
Company and the Selling Shareholders shall
have the right to postpone the Closing Date
for a period of not more than seven (7)
days, in order to effect whatever changes
may thereby be made necessary in the
Registration Statement or the Prospectus, or
in any other documents or arrangements, and
the Company agrees to file promptly any
amendments to the Registration Statement or
the Prospectus which in your opinion may
thereby be made necessary. The term
"Underwriter" as used in this Agreement
shall include any persons substituted under
this Section 9 with like effect as if such
person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements
for the purchase of the Shares of a
defaulting Underwriter or Underwriters made
by you or the Company and the Selling
Shareholders as provided in subsection (a)
above, the aggregate number of Shares which
remains unpurchased does not exceed one
tenth (1/10) of the total Shares to be sold
on the Closing Date, then the Company and
the Selling Shareholders shall have the
right to require each non-defaulting
Underwriter to purchase the Shares which
such Underwriter agreed to purchase
hereunder and, in addition, to require each
non-defaulting Underwriter to purchase its
pro rata share (based on the number of
Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such
defaulting Underwriter or Underwriters for
which such arrangements have not been made;
but nothing herein shall relieve a
defaulting Underwriter from liability for
its default.
(c) If, after giving effect to any arrangements
for the purchase of the Shares of a
defaulting Underwriter or Underwriters made
by you or the Company and the Selling
Shareholders as provided in subsection (a)
above, the number of Shares which remains
unpurchased exceeds one tenth (1/10) of the
total Shares to be sold on the Closing Date,
or if the Company and the Selling
Shareholders shall not exercise the right
described in subsection (b) above to require
the non-defaulting Underwriters to purchase
Shares of the defaulting Underwriter or
Underwriters, then this Agreement shall
thereupon terminate, without liability on
the part of any non-defaulting Underwriter
or the Company and the Selling Shareholders
except for the expenses to be borne by the
Company and the Underwriters as provided in
Section 11 hereof and the indemnity and
contribution agreements in Section 7 hereof;
but nothing herein shall relieve a
defaulting Underwriter from liability for
its default.
10. EFFECTIVE DATE AND TERMINATION.
24
<PAGE> 25
(a) This Agreement shall become effective at
1:00 p.m., St. Louis time, on the first
business day following the effective date of
the Registration Statement, or at such
earlier time after the effective date of the
Registration Statement as you in your
discretion shall first release the Shares
for offering to the public; provided,
however, that the provisions of Section 7
and 11 shall at all times be effective. For
the purposes of this Section 10(a), the
Shares shall be deemed to have been released
to the public upon release by you of the
publication of a newspaper advertisement
relating to the Shares or upon release of
telegrams, facsimile transmissions or
letters offering the Shares for sale to
securities dealers, whichever shall first
occur.
(b) This Agreement may be terminated by you at
any time before it becomes effective in
accordance with Section 10(a) by notice to
the Company and the Selling Shareholders;
provided, however, that the provisions of
this Section 10 and of Section 7 and Section
11 hereof shall at all times be effective.
In the event of any termination of this
Agreement pursuant to Section 9 or this
Section 10(b) hereof, the Company and the
Selling Shareholders shall not then be under
any liability to any Underwriter except as
provided in Section 7 or Section 11 hereof.
(c) This Agreement may be terminated by you at
any time at or prior to the Closing Date by
notice to the Company and the Selling
Shareholders if any condition specified in
Section 6 hereof shall not have been
satisfied on or prior to the Closing Date.
Any such termination shall be without
liability of any party to any other party
except as provided in Sections 7 and 11
hereof.
(d) This Agreement also may be terminated by
you, by notice to the Company and the
Selling Shareholders, as to any obligation
of the Underwriters to purchase the Option
Shares, if any condition specified in
Section 6 hereof shall not have been
satisfied at or prior to the Option Closing
Date or as provided in Section 9 of this
Agreement.
If you terminate this Agreement as provided in
Sections 10(b), 10(c) or 10(d), you shall notify the Company and
the Selling Shareholders by telephone or telegram, confirmed by
letter.
11. COSTS AND EXPENSES. The Company and the Selling
Shareholders will bear and pay the costs and expenses incident to
the registration of the Shares and public offering thereof,
including, without limitation, (a) the fees and expenses of the
Company's accountants and the fees and expenses of counsel for the
Company, (b) the preparation, printing, filing, delivery and
shipping of the Registration Statement, each Preliminary
Prospectus, the Prospectus and any amendments or supplements
thereto (except as otherwise expressly provided in Section 5(d)
hereof) and the printing, delivery and shipping of this Agreement,
the Agreement Among Underwriters, the Selected Dealer Agreement,
Underwriters' Questionnaires and Powers of Attorney and Blue Sky
Memoranda, (c) the furnishing of copies of such documents (except
as otherwise expressly provided in Section 5(d) hereof) to the
Underwriters, (d) the qualification of the Shares for offering and
sale under the securities laws of the various states and in
connection with qualification under NASD regulations, including the
reasonable fees and disbursements of Underwriters' counsel relating
to such qualifications, (e) the fees payable to the NASD and the
Commission in connection with their review of the proposed offering
of the Shares, (f) all printing and engraving costs related to
preparation of the certificates for the Shares, including transfer
agent and registrar fees, (g) all initial transfer taxes, if any,
(h) all fees and expenses relating to the authorization of the
Shares for trading on NNM, (i) all travel expenses,
including air fare and accommodation expenses, of representatives
of the Company in connection with the offering of the Shares and
(j) all of the other costs and expenses incident to the performance
by the Company and Selling Shareholders of the registration and
offering of the Shares; provided, however, that the
25
<PAGE> 26
Underwriters will bear and pay the fees and expenses of the Underwriters'
counsel (other than fees and disbursements relating to the
qualification of the Shares for offering and sale under the
securities laws of the various states and qualifications under NASD
regulations), the Underwriters' out-of-pocket expenses, and any
advertising costs and expenses incurred by the Underwriters
incident to the public offering of the Shares; and provided,
further, that the Selling Shareholders will bear and pay the fees
and expenses of the Selling Shareholders' counsel.
If this Agreement is terminated by you in accordance
with the provisions of Section 10(c), the Company shall reimburse
the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of counsel to the
Underwriters.
12. DEFAULT OF SELLING SHAREHOLDERS. Failure or refusal
by any of the Selling Shareholders to sell and deliver on the
Closing Date the Shares agreed to be sold and delivered by such
Selling Shareholder shall in no manner relieve the other Selling
Shareholders or the Company of their respective obligations under
this Agreement. If any Selling Shareholder should fail or refuse
to sell and deliver his Shares, the remaining Selling Shareholders
shall have the right hereby granted to increase, pro rata or
otherwise, the number of Shares to be sold by them hereunder to the
total number of Shares to be sold by all Selling Shareholders as
set forth in Schedule I. If the remaining Selling Shareholders do
not fully exercise the right to increase the number of Shares to be
sold by them, the Underwriters, at your option, will have the right
to elect to purchase or not to purchase the Shares to be sold by
the Company and the remaining Selling Shareholders. In the event
the Underwriters purchase the Shares of the Company and such other
Selling Shareholders pursuant to this Section 12, the Closing Date
shall be postponed for a period of not more than seven days in
order that the Registration Statement and Prospectus or other
documents may be amended or supplemented to the extent necessary
under the provisions of the Act and the Rules and Regulations or
under the securities laws of any jurisdiction. If the Underwriters
determine not to purchase the Shares of the Company and the other
Selling Shareholders, if any, this Agreement shall terminate and
neither the Company nor the Underwriters nor any other Selling
Shareholder shall be under any obligation under this Agreement
except as provided in Section 7 hereof and except for the
obligation of the Company to pay for such expenses as are set forth
in Section 11 hereof. Nothing herein shall relieve a defaulting
Selling Shareholder from liability for his default or from
liability under Section 7 hereof or for expenses imposed by this
Agreement upon such Selling Shareholder.
13. NOTICES. All notices or communications hereunder,
except as herein otherwise specifically provided, shall be in
writing and if sent to the Underwriters shall be mailed, delivered,
sent by facsimile transmission, or telegraphed and confirmed c/o
A.G. Edwards & Sons, Inc. at One North Jefferson Avenue, St. Louis,
Missouri 63103, Attention: Syndicate, facsimile number (314) 955-7387,
or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company
at 67 43rd Street, Wheeling, West Virginia 26003, Attention:
Lawrence E. Bandi, facsimile number (304) 232-1558, or if sent to
any Selling Shareholder shall be mailed, delivered, sent by
facsimile transmission or telegraphed and confirmed to such Selling
Shareholder, c/o the Attorney-in-Fact at --------------------------.
Notice to any Underwriter pursuant to Section 7 shall be
mailed, delivered, sent by facsimile transmission, or telegraphed
and confirmed to such Underwriter's address as it appears in the
Underwriters' Questionnaire furnished in connection with the
offering of the Shares or as otherwise furnished to the Company and
the Selling Shareholder.
14. PARTIES. This Agreement shall inure to the benefit
of and be binding upon the Underwriters and the Selling
Shareholders, and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, corporation or
other entity, other than the parties hereto and their respective
successors and assigns and the controlling persons, officers and
directors referred to in Section 7, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any
provision herein contained; this Agreement and all conditions and
26
<PAGE> 27
provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective
successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person,
corporation or other entity. No purchaser of any of the Shares
from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
In all dealings with the Company and the Selling
Shareholders under this Agreement you shall act on behalf of each
of the several Underwriters. The Company and the Selling
Shareholders shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of the Underwriters, made or
given by you on behalf of the Underwriters, as if the same shall
have been made or given in writing by the Underwriters.
15. COUNTERPARTS. This Agreement may be executed by any
one or more of the parties hereto in any number of counterparts,
each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
16. PRONOUNS. Whenever a pronoun of any gender or
number is used herein, it shall, where appropriate, be deemed to
include any other gender and number.
17. APPLICABLE LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Missouri.
If the foregoing is in accordance with your
understanding, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding
agreement among the Company, each of the Selling Shareholders and
the Underwriters.
VALLEY NATIONAL GASES, INC.
By:---------------------------------------------
Title: President
Selling Shareholders Named in Schedule I Hereto
By:--------------------------------------------
Attorney-in-Fact
Accepted in St. Louis,
Missouri as of the date
first above written, on
behalf of ourselves and each
of the several Underwriters
named in Schedule II hereto.
A.G. EDWARDS & SONS, INC.
OPPENHEIMER & CO., INC.
By: A.G. Edwards & Sons, Inc.
27
<PAGE> 28
By:-----------------------------
Title: Senior Vice President
28
<PAGE> 29
<TABLE>
SCHEDULE I
<CAPTION>
Number of
Selling Shareholders Firm Shares
- -------------------- -----------
<S> <C>
Lawrence E. Bandi 37,000
John R. Buchwack 15,000
William A. Indelicato 30,000
Total 82,000
======
</TABLE>
29
<PAGE> 30
<TABLE>
SCHEDULE II
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
A.G. Edwards & Sons, Inc. _________
Oppenheimer & Co., Inc. __________
________________________ __________
________________________ __________
________________________ __________
________________________ __________
________________________ __________
________________________ __________
________________________ __________
________________________ __________
________________________ __________
________________________ __________
Total __________
</TABLE>
30
<PAGE> 31
SCHEDULE III
Pursuant to Section 6(g) of the Underwriting Agreement, Arthur
Andersen LLP shall furnish letters to the Underwriters to the
effect that:
1. In their opinion, the financial statements and any
supplementary financial information and schedules audited
(including pro forma financial information examined) by them and
included in the Prospectus or the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Act and the applicable Rules and Regulations
thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited interim financial
statements, selected financial data, pro forma financial
information, or condensed financial statements derived from audited
financial statements of the Company for the periods specified in
such letter, as indicated in their reports thereon, copies of which
have been furnished to the Representatives of the Underwriters (the
"Representatives").
2. On the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, performing the procedures
specified by the AICPA for a review of interim financial
information as discussed in SAS No. 71, Interim Financial
Information, on the latest available interim financial statements
of the Company and Weldco, Inc., inspection of the minute books of
the Company and Weldco, Inc. since the date of the latest audited
financial statements included in the Prospectus, inquiries of
officials of the Company and Weldco, Inc. responsible for financial
and accounting matters and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention
that caused them to believe that:
(a) any material modifications should be made to the
unaudited balance sheet statements of operations,
statements of cash flows, and statements of changes
in Shareholder's equity included in the Prospectus
for them to be in conformity with generally
accepted accounting principles, or such unaudited
statements, included in the Prospectus do not
comply as to form in all material respects with the
applicable accounting requirements of the Act and
the related published Rules and Regulations
thereunder.
(b) any other unaudited income statement data and
balance sheet items included in the Prospectus do
not agree with the corresponding items in the
unaudited consolidated financial statements from
which such data and items were derived, and any
such unaudited data and items were not determined
on a basis substantially consistent with the basis
for the corresponding amounts in the audited
consolidated financial statements included in the
Prospectus.
(c) the unaudited financial statements which were not
included in the Prospectus but from which were
derived any unaudited condensed financial
statements referred to in Clause (a) and any
unaudited income statement data and balance sheet
items included in the Prospectus and referred to in
Clause (b) were not determined on a basis
substantially consistent with the basis for the
audited consolidated financial statements included
in the Prospectus.
(d) any unaudited pro forma condensed financial
statements included in the Prospectus do not comply
as to form in all material respects with the
applicable accounting
31
<PAGE> 32
requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments
have not been properly applied to the historical
amounts in the compilation of those statements.
(e) as of a specified date not more than five (5) days
prior to the date of such letter, there have been
any changes in the capital stock or any increase in
the long-term debt of the Company, or any decreases
in working capital, net current assets or net
assets or other items specified by the
Representatives, or any changes in any items
specified by the Representatives, in each case as
compared with amounts shown in the latest balance
sheet included in the Prospectus, except in each
case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or
which are described in such letter.
(f) for the period from the date of the latest
financial statements included in the Prospectus to
the specified date referred to in Clause (e) there
were any decreases in net sales or income from
operations or the total or pro forma per share
amounts of net income or any other changes in any
other items specified by the Representatives, in
each case as compared with the comparable period of
the preceding year and with any other period of
corresponding length specified by the
Representatives, except in each case for changes,
decreases or increases which the Prospectus
discloses have occurred or may occur or which are
described in such letter.
3. In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection
of minute books, inquiries and other procedures referred to in
paragraph (3) above, they have carried out certain specified
procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the
Representatives, which are derived from the general accounting
records of the Company for the periods covered by their reports and
any interim or other periods since the latest period covered by
their reports, which appear in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement specified
by the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records
of the Company and have found them to be in agreement.
32
<PAGE> 1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
VALLEY NATIONAL GASES, INC.
------------------------
Pursuant to Section 111, Article I, Chapter 31 of
the West Virginia Corporation Act, as amended, Valley National
Gases, Inc. (the "Corporation") hereby amends and restates its
Articles of Incorporation (the "Amended and Restated Articles of
Incorporation"). The Amended and Restated Articles of
Incorporation correctly set forth without change those
corresponding provisions of the original Articles of
Incorporation as theretofore amended and the Amended and Restated
Articles of Incorporation supersede the original Articles of
Incorporation and all amendments thereto.
ARTICLE ONE - NAME
The name of the corporation is Valley National
Gases, Inc.
ARTICLE TWO - PRINCIPAL OFFICE AND REGISTERED OFFICE
The principal office of the Corporation is located
at 67-43rd Street in the City, of Wheeling, County of Ohio, West
Virginia 26003. The name of the Corporation's registered agent
at such address is
-------------------------------------------------.
ARTICLE THREE - PURPOSE
The purpose of the Corporation is to engage in any
or all lawful business for which corporations may be incorporated
under the West Virginia Corporation Act.
ARTICLE FOUR - AUTHORIZED SHARES
A. Classes and Number of Shares. The
----------------------------
aggregate number of shares of stock which the Corporation shall
have authority to issue is 35,000,000 shares, divided into
classes and with par values as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Number of Shares Par Value
Class in Class Per Share
----- ---------------- ---------
<S> <C> <C>
Common Stock 30,000,000 $0.001
Preferred Stock 5,000,000 $ 0.01
</TABLE>
B. Terms of the Common Stock. The powers,
-------------------------
preferences, and rights, and the qualifications, limitations, or
restrictions thereof, of the shares of the Common Stock are as
follows:
1. Voting Rights. The holders of Common
-------------
Stock shall be entitled to vote on the basis of one vote for each
share held on all matters to be voted on by the shareholders,
except as may be otherwise provided in these Amended and Restated
Articles of Incorporation or by law.
2. Dividends. The holders of the
---------
outstanding shares of Common Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds
legally available for the purpose, dividends at such rate as
shall be determined by the Board of Directors. The dividends
authorized by this paragraph shall not be cumulative, and the
holders of Common Stock shall not have any rights to dividends
for any year or other period of time for which no dividends are
declared by the Board of Directors.
3. Liquidation Rights. In the event of
------------------
any liquidation, dissolution or winding up of this Corporation,
whether voluntary or involuntary, the assets of the Corporation,
if any, remaining for legal distribution to holders of Common
Stock shall be distributed to the holders of Common Stock.
C. Terms of the Preferred Stock. The Board of
----------------------------
Directors is hereby expressly authorized, subject to any
limitations prescribed by law, to provide for the issuance of
shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of West Virginia
(such certificate being hereinafter referred to as a "Certificate
of Designation"), to establish from time to time the number of
shares to be included in each such series, dividend rate,
redemption and liquidation rights and terms, sinking fund
provisions, if any, for the redemption or purchase of shares,
conversion terms and conditions, if any, voting rights, if any,
and to set the designation of the series and to fix and determine
the relative rights and preferences of the shares of each such
series and any qualifications, limitations or restrictions
thereof.
D. No Preemptive Rights or Cumulative Voting.
-----------------------------------------
All preemptive rights and cumulative voting rights of
shareholders are hereby denied. No holder or owner of Common
Stock, or Preferred Stock, if any, or any other security or
securities of the Corporation shall have any preferential or preemptive
right to acquire any additional shares of stock of any class
2
<PAGE> 3
or series or any other security of the Corporation or any
right to vote cumulatively in the election of directors or for
any other purpose.
ARTICLE FIVE - INCORPORATOR
The names and addresses of the original incorporators of
the Corporation are as follows:
<TABLE>
<CAPTION>
Names Address
----- -------
<C> <S>
Alton O. Dodge 158 Miller Street, Wheeling,
West Virginia
Robert E. Butler 103 Edgington Lane, Wheeling,
West Virginia
E. Douglas McKay 83 Twelfth Street, Wheeling,
West Virginia
</TABLE>
ARTICLE SIX - DURATION
The duration of the Corporation is perpetual.
ARTICLE SEVEN - DIRECTORS
A. Number of Directors. The business and affairs
-------------------
of the Corporation shall be managed and controlled by a Board of
Directors consisting of not less than three (3) nor more than ten
(10) persons. The exact number of directors within the minimum
and maximum limitations shall be determined exclusively from time
to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors.
B. Classification of Directors. The directors of
---------------------------
the Corporation, other than those who may be elected by the
holders of any class or series of Preferred Stock, shall be
divided into three classes: Class I, Class II and Class III.
Membership in such classes shall be as nearly equal as possible
and any increase or decrease in the number of directors shall be
apportioned by the Board of Directors among the classes to
maintain the number of directors as nearly equal as possible and
any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class.
The initial Class I directors shall hold office until the annual
meeting of shareholders of the Corporation in 1998, the initial
Class II directors shall hold office until the annual meeting of
shareholders of the Corporation in 1999, and the initial Class
III directors shall hold office until the annual meeting of
shareholders of the Corporation in 2000
3
<PAGE> 4
or, in each case, until their successors are elected and qualified and
subject to such director's prior death, resignation, retirement or removal
from office. Beginning in 1998, and continuing annually thereafter,
at each annual meeting of shareholders of the Corporation, the directors
elected to succeed those whose terms then expire shall belong to the same
class as the directors they succeed and shall hold office until the third
succeeding annual meeting of shareholders or until their successors are
elected and qualified and subject to such director's prior death,
resignation, retirement or removal from office. No decrease in the number
of directors constituting the Board of Directors shall reduce the
term of any incumbent director.
C. Vacancies. Subject to the rights of the
---------
holders of any series of Preferred Stock then outstanding, if
any, newly created directorships resulting from any increase in
the authorized number of directors or any vacancies of any type
in the Board of Directors including those resulting from death,
resignation, retirement, disqualification, removal from office or
other cause may be filled by a majority vote of the directors
then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the annual
meeting of shareholders of the Corporation at which the term of
office of the class to which they have been elected expires, and
until such director's successor shall have been duly elected and
qualified.
D. Removal of Directors. Subject to the rights
--------------------
of the holders of any series of Preferred Stock then outstanding,
any director, or the entire Board of Directors, may be removed
from office at any time, only for cause and only by the
affirmative vote of two-thirds or more of the then currently
outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors (the
"Voting Stock").
E. Nomination By Shareholders. Advance notice of
--------------------------
shareholder nominations for the election of directors and of
business to be brought by shareholders before any meeting of the
shareholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
ARTICLE EIGHT - AMENDMENT OF BYLAWS
The Bylaws of the Corporation may be adopted, amended or
repealed by the affirmative vote of a majority of the entire
Board of Directors of the Corporation.
ARTICLE NINE - SPECIAL MEETINGS
Special meetings of the shareholders for any lawful
purpose or purposes may be called at any time only by a majority
of the entire Board of Directors, by the Chairman of the Board of
Directors, by the President or by the holders of not less that
one-tenth of all the shares entitled to vote at the meeting.
Each call for a special meeting of the shareholders shall state
the time, the day, the place and the purpose or purposes of such
meeting and shall be in writing,
4
<PAGE> 5
signed by the person or persons making the same and delivered to the
Secretary of the Corporation. No business shall be conducted at any
special meeting of the shareholders of the Corporation other than the
business stated in the call for such meeting.
ARTICLE TEN - INDEMNIFICATION
A. Actions Involving Directors and Officers. The
----------------------------------------
Corporation shall indemnify each person (other than a party
plaintiff suing on his or her own behalf or in the right of the
Corporation) who at any time is serving or has served as a
director or officer of the Corporation against any claim,
liability or expense incurred as a result of such service, or as
a result of any other service on behalf of the Corporation, or
service at the request of the Corporation as a director, officer,
employee, member, or agent of another corporation, partnership,
joint venture, trust, or other enterprise (whether incorporated
or unincorporated, for-profit or not-for-profit), to the maximum
extent permitted by law. Without limiting the generality of the
foregoing, the Corporation shall indemnify any such person who
was or is a party (other than a party plaintiff suing on his or
her behalf or in the right of the Corporation), or is threatened
to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, but not limited to,
an action by or in the right of the Corporation) by reason of
such service against expenses (including, without limitation,
attorneys' fees), judgments, fines, taxes and penalties and
interest thereon and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action,
suit or proceeding.
B. Actions Involving Employees or Agents.
-------------------------------------
1. Permissive Indemnification. The
--------------------------
Corporation may, if it deems appropriate and as may be permitted
by this Article Ten, indemnify any person (other than a party
plaintiff suing on his or her own behalf or in the right of the
Corporation) who at any time is serving or has served as an
employee or agent of the Corporation against any claim, liability
or expenses incurred as a result of such service, or as a result
of any other service on behalf of the Corporation, or service at
the request of the Corporation as a director, officer, employee,
member, or agent of another corporation, partnership, joint
venture, trust, or other enterprise (whether incorporated or
unincorporated, for-profit or not-for-profit), to the maximum
extent permitted by law or to such lesser extent as the
Corporation, in its discretion, may deem appropriate. Without
limiting the generality of the foregoing, the Corporation may
indemnify any such person who was or is a party (other than a
party plaintiff suing on his or her own behalf or in the right of
the Corporation), or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(including, but not limited to, an action by or in the right of
the Corporation) by reason of such service, against expenses
(including, without limitation, attorneys' fees), judgments,
fines, taxes and penalties and interest thereon and amounts paid
in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding.
5
<PAGE> 6
2. Mandatory Indemnification. To the
-------------------------
extent that an employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in Section B.1 of this Article
Ten, or in defense of any claim, issue or matter therein, he or
she shall be indemnified by the Corporation against expenses
(including attorneys' fees) actually and reasonably incurred by
him or her in connection with such successful action, suit or
proceeding.
C. Determination of Right to Indemnification.
-----------------------------------------
Any indemnification required under Section A of this Article Ten
or authorized by the Corporation in a specific case pursuant to
Section B of this Article Ten (unless ordered by a court) shall
be made by the Corporation unless a determination is made
reasonably and promptly that indemnification of the director,
officer, employee or agent is not proper under the circumstances
because he or she has not met the applicable standard of conduct
set forth in or established pursuant to this Article Ten. Such
determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who are not
parties to such action, suit or proceeding, or (2) if such quorum
is not obtainable, or even if obtainable if the quorum of
disinterested directors so directs, by independent legal counsel
in a written opinion, or (3) by majority vote of the
shareholders; provided that no such determination shall preclude
an action brought in an appropriate court to challenge such
determination.
D. Advance Payment of Expenses. Expenses
---------------------------
incurred by a person who is or was a director or officer of the
Corporation in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the
final disposition of an action, suit or proceeding, and expenses
incurred by a person who is or was an employee or agent of the
Corporation in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by
the Board of Directors, in either case upon receipt of an
undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the
Corporation as authorized in or pursuant to this Article Ten.
E. Article Ten Provisions Not Exclusive Right.
------------------------------------------
The indemnification or advancement of expenses provided by this
Article Ten shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled, whether under the Bylaws of the Corporation or
any statute, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office.
F. Insurance. The Corporation may purchase and
---------
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who
is or was otherwise serving on behalf or at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and
incurred by him or her in any
6
<PAGE> 7
such capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article Ten.
ARTICLE ELEVEN - CERTAIN BUSINESS COMBINATIONS
A. Restrictions on Certain Business Combinations.
---------------------------------------------
Notwithstanding any other provision applicable under the West
Virginia Corporation Act or contained in these Articles, the
Corporation shall not engage in the following transactions with
any Interested Shareholder (as hereinafter defined) for a period
of three (3) years from the date that such shareholder became an
Interested Shareholder:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter
defined) with (a) any Interested Shareholder or
(b) any other corporation, partnership,
unincorporated association or other entity
(whether or not itself an Interested Shareholder)
caused by such Interested Shareholder; or
(ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions)
to or with any Interested Shareholder or any
Affiliate of any Interested Shareholder, whether
as part of a dissolution of the Corporation or
otherwise, of any assets of the Company or any
Subsidiary having an aggregate fair market value
of $ or more; or
----------
(iii) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction
or a series of transactions) of any securities of
the Corporation or any Subsidiary to any
Interested Shareholder or any Affiliate of any
Interested Shareholder, except (A) pursuant to a
public offering of the Corporation's securities
(B) pursuant to the exercise, exchange or
conversion of securities exercisable for,
exchangeable for or convertible into Common Stock,
or if applicable, Preferred Stock, of the
Corporation or any Subsidiary which was
outstanding prior to the time the shareholder
became an Interested Shareholder; (C) pursuant to
a merger under Section 117 of the West Virginia
Corporation Act; (D) pursuant to a stock dividend
or other pro rata distribution of the
Corporation's capital stock to shareholders, (E)
pursuant to an exchange offer by the Corporation
to purchase stock made on the same terms to all
holders of such stock; (F) any issuance or
transfer of stock by the Corporation provided,
--------
however; in no case under (D)-(F) of this
-------
Article Eleven (A)(iii) shall there be an increase
in the Interested Shareholder's proportionate
7
<PAGE> 8
share of the stock of any class or series of the
Corporation or the Voting Stock of the
Corporation; or
(iv) any reclassification of securities
(including any reverse stock split), or
recapitalization or the Corporation, or any merger
or consolidation of the Corporation with any of
its Subsidiaries or any other transaction (whether
or not with or into or otherwise involving an
Interested Shareholder) which has the effect;
directly or indirectly, of increasing the
proportionate share of the outstanding shares of
any class of equity or convertible securities of
the Corporation or any Subsidiary which is
directly or indirectly owned by any Interested
Shareholder or Affiliate of any Interested
Shareholder; or
(v) any receipt by the Interested
Shareholder of the benefit, directly or indirectly
(except proportionately as a shareholder of the
Corporation) of any loans, advances, guarantees,
pledges or other financial benefits provided by or
through the Corporation or any Subsidiary.
B. Definition of Business Combination. The term
----------------------------------
"Business Combination" as used in this Article Eleven shall mean
any transaction which is referred to in any one or more of
clauses (i) through (v) of paragraph A.
C. Limitation on Restrictions. The provisions of
--------------------------
Section A of this Article Eleven shall not apply to any
particular Business Combination if:
1. Prior Approval by Directors. Prior to
---------------------------
the time such shareholder became an Interested Shareholder, the
Business Combination or the transaction which resulted in the
shareholder becoming an Interested Shareholder was approved by a
majority of the Company's Board of Directors;
2. 85% Shareholder. Upon consummation of
---------------
the transaction which resulted in the shareholder becoming an
Interested Shareholder, such Interested Shareholder acquired at
least 85% of the Voting Stock of the Corporation;
3. Subsequent Director and Shareholder
-----------------------------------
Approval. After the occurrence of a Business Combination, a
- --------
majority of the Corporation's Board of Directors and at least
two-thirds of the Voting Stock of the Corporation which is not
owned by the Interested Shareholder, approved such Business
Combination; or
4. Inadvertent Interested Shareholder. A
----------------------------------
shareholder becomes an Interested Shareholder inadvertently and
as soon as practicable divests itself of ownership of sufficient
shares so the shareholder ceases to be an Interested Shareholder
and would not, at any
8
<PAGE> 9
time within the three (3) year period immediately prior to a Business
Combination between the Corporation and such shareholder, have been an
Interested Shareholder but for the inadvertent acquisition of stock
ownership.
D. Certain Definitions. For the purposes of this
-------------------
Article Eleven:
(1) "Affiliate," means a Person that directly,
or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with another Person.
(2) "Associate," when used to indicate a
relationship with any Person, means (i) any corporation,
partnership, unincorporated association or other entity of which
such Person is a director, officer or partner or is, directly or
indirectly, the owner of 20% of more of any class of Voting Stock
of the Corporation, (ii) any trust or other estate in which such
Person has at least a 20% beneficial interest or as to which such
Person serves as trustee or in a similar fiduciary capacity, and
(iii) any relative or spouse of such Person, or any relative of
such spouse, who has the same residence as such Person.
(3) "Control," including the term
"controlling," "controlled by" and "under common control with,"
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a
person, whether through the ownership of voting stock, by
contract, or otherwise. A Person who is the owner of 20% or more
of the outstanding voting stock of any corporation, partnership,
unincorporated association or other entity shall be presumed to
have control of such entity, in the absence of proof by a
preponderance of the evidence to the contrary.
(4) "Interested Shareholder," shall man any
Person (other than the Corporation of any Subsidiary) who or
which:
(i) is the Beneficial Owner, directly
or indirectly of 15% or more of the voting power
of the outstanding Voting Stock of the
Corporation; or
(ii) is an Affiliate of the Corporation
and at any time within the two-year period
immediately prior to the date in question was the
Beneficial Owner, directly or indirectly, of 15%
or more of the voting power of the then
outstanding Voting Stock of the Corporation.
(5) "Person," shall mean any individual, firm,
corporation or other entity.
(6) A Person shall be a "Beneficial Owner" of
any Voting Stock of the Corporation:
9
<PAGE> 10
(a) that such Person or any of its
Affiliates or Associates beneficially owns,
directly or indirectly within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") as in effect on
the date of these Articles; or
(b) that such Person or any of its
Affiliates or Associates has (i) the right to
acquire (whether such right is exercisable
immediately or after the passage of time),
pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding of the
Corporation;
(c) that is beneficially owned,
directly or indirectly within the meaning of Rule
13d-3 under the Exchange Act, as in effect on the
date of these Articles, by any other Person with
which such Person or any of its Affiliates or
Associates has any agreement, arrangement or
understanding for the purposes of acquiring,
holding, voting or disposing of any shares of
Voting Stock of the Corporation.
provided, however, that (1) no director or
-------- -------
officer of the Corporation or any Affiliate of any such
director or officer shall, solely by reason of any or all
of such directors or officers acting in their capacities
as such be deemed, for any purposes hereof, to
beneficially own any Voting Stock of the Corporation
beneficially owned by any other such director or officer
(or any affiliate thereof) and (2) neither any employee
stock ownership or similar plan of the Corporation or any
Subsidiary of the Corporation nor any trustee with
respect thereto (or any affiliate of such trustee) shall,
solely by reason of such capacity as trustee, be deemed,
for any purposes hereof, to beneficially own any Voting
Stock of the Corporation held under any such plan.
(7) "Subsidiary," means any corporation of
which a majority of any class of Equity Security (as that term is
defined in Section 3(a)(11) of the Exchange Act, in effect on the
date of these Articles) is owned, directly or indirectly, by the
Corporation.
(8) "Voting Stock," means outstanding shares
of the capital stock of the Corporation entitled to vote
generally in the election of directors.
ARTICLE TWELVE - AMENDMENT OF ARTICLES OF INCORPORATION
The Corporation reserves the right to amend or repeal any
provisions contained in these Articles in the manner prescribed
by the laws of the State of West Virginia and all rights
conferred upon shareholders are granted subject to this
reservation; provided, however, the
-------- -------
10
<PAGE> 11
affirmative vote of the holders of at least two-thirds of the Voting Stock,
voting together as a single class, shall be required to amend or repeal
Article SEVEN, Article EIGHT, Article NINE, Article TEN, Article
ELEVEN and this Article TWELVE.
Dated this day of January, 1997.
----
VALLEY NATIONAL GASES, INC.
By
--------------------------------
Gary E. West, President
By
--------------------------------
Lawrence E. Bandi, Secretary
11
<PAGE> 1
AMENDED AND RESTATED BYLAWS
OF
VALLEY NATIONAL GASES, INC.
---------------------------
(adopted January----, 1997)
ARTICLE I
OFFICES
-------
SECTION 1.1 REGISTERED OFFICE. The registered
-----------------
office of the Corporation in West Virginia shall be located at
- ---------------, ----------, West Virginia, ------ or at such
other address within the State of West Virginia as may be
determined from time to time by the Board of Directors.
SECTION 1.2 OTHER OFFICES. The Corporation may
-------------
maintain such other offices both within and without the State of
West Virginia as the business of the Corporation may from time to
time require or as the Board of Directors may determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 2.1 PLACE OF MEETINGS. All shareholders
-----------------
meetings shall be held at such place within or without the State
of West Virginia as determined from time to time by the Board of
Directors.
SECTION 2.2. ANNUAL MEETINGS. The annual
---------------
shareholders meeting for the election of directors and
transaction of such other business as may properly be brought
before the meeting, shall be held at 9:00 a.m., Eastern Time, on
the first Tuesday in August of each year or at such other date,
place and time as may be designated from time to time by the
Board of Directors. In the event such annual shareholders
meeting shall fall upon a legal holiday, the meeting shall be
held on the next succeeding business day.
To be properly brought before the annual shareholders
meeting, business must be either (i) specified in the notice of
the meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of
Directors, (iii) otherwise properly brought before the meeting by
a shareholder. In addition to any other applicable requirements,
for business to be properly brought before the meeting by a
shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation (the
"Shareholders Business Notice"). To be timely, the Shareholder
Business Notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than
sixty (60) days nor more than ninety
<PAGE> 2
(90) days prior to the meeting; provided, however, that in the event
-------- ------
that the meeting is designated by the Board of Directors to be held
at a date other than the first Tuesday in August and less than sixty
(60) days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, to be timely, the
Shareholder Business Notice must be received no later than the
close of business on the fifteenth (15th) day following the day
on which such notice of the date of the annual shareholder
meeting was mailed or such public disclosure was made, whichever
first occurs. The Shareholder Business Notice delivered to the
Secretary shall set forth as to each matter the shareholder
proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the
name and address of the shareholder proposing such business,
(iii) the class, series and number of shares of capital stock of
the Corporation which are beneficially owned by the shareholder
and the name and address of record under which such stock, is
held and (iv) any material interest of the shareholder in such
business.
Notwithstanding anything in these Bylaws to the contrary,
no business shall be conducted at the annual shareholder meeting
except in accordance with the procedures set forth in this
Section 2.2, provided, however, that nothing in this
-------- -------
Section 2.2 shall be deemed to preclude discussion by any
shareholder of any business properly brought before the annual
shareholder meeting.
The Chairman of the annual shareholders meeting, in their
sole discretion, shall have the power to determine whether or not
business was properly brought before the meeting in accordance
with the provisions of this Section 2.2, and, if the Chairman
should determine that any such business was not properly brought
before the meeting, the Chairman shall so declare to the meeting
and any such business shall not be transacted.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of
----------------
the shareholders for any lawful purpose or purposes may be called
at any time only by a majority of the entire Board of Directors,
by the Chairman of the Board of Directors, by the President or by
the holders of not less than one-tenth of all the shares entitled
to vote at the meeting. Each call for a special meeting of the
shareholders shall state the time, the day, the place and the
purpose or purposes of such meeting and shall be in writing,
signed by the person or persons making the same and delivered to
the Secretary of the Corporation. No business shall be conducted
at any special meeting of the shareholders of the Corporation
other than the business stated in the call for such meeting.
SECTION 2.4. NOTICE OF MEETINGS. Written notice of
------------------
the shareholder meeting shall be given 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, either
personally or by mail, by or at the direction of the President or
Secretary to each shareholder of record entitled to vote at such
meeting. The written notice of any meeting shall be given not
less than ten (10) nor more than fifty (50) days before the date
of the meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid,
directed to the shareholder at their address as it appears on the
records of the Corporation.
-2-
<PAGE> 3
SECTION 2.5. ADJOURNMENTS. Any meeting of
------------
shareholders, annual or special, may adjourn from time to time to
reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the
meeting in the manner provided in Section 2.4.
SECTION 2.6. QUORUM. At each meeting of
------
shareholders, except where otherwise provided by law or the
Corporation's Articles of Incorporation or these Bylaws, the
holders of a majority of the outstanding shares of each class of
stock entitled to vote at the meeting, present in person or
represented by proxy, shall constitute a quorum. For purposes of
the foregoing, two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to
vote together as a single class at the meeting. In the absence
of a quorum, the shareholders so present may, by majority vote,
adjourn the meeting from time to time in the manner provided by
Section 2.5 of these Bylaws until a quorum is present.
SECTION 2.7. ORGANIZATION. Meetings of shareholders
------------
shall be presided over by the Chairman of the Board, if any, or
in their absence, by the President, or in their absence by any of
the Vice Presidents, or in the absence of the foregoing persons
by a chairman appointed by the Board of Directors. The Secretary
shall act as secretary of the meeting, but in their absence the
chairman of the meeting may appoint any person to act as
secretary of the meeting.
SECTION 2.8. VOTING; PROXIES. Unless otherwise
---------------
provided by law or in the Articles, the holders of voting stock
shall be entitled to vote on the basis of one vote for each Share
held on all matters to be voted on by shareholders and the
majority vote of the quorum present shall constitute a valid
action of the shareholders. The holders of Preferred Stock, if
any, shall have such voting rights as may be provided in any
applicable Certificate of Designation filed with the Secretary of
State of West Virginia. Each shareholder entitled to vote at a
meeting of shareholders, or to express consent or dissent to
corporate action in writing without a meeting, may authorize
another person or persons to act for them by proxy, but no such
proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A
shareholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of shareholders need not be by written ballot
and need not be conducted by inspectors unless the holders of a
majority of the outstanding shares of all classes of stock
entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of shareholders for
the election of directors, a plurality of the votes cast shall be
sufficient to elect. All other elections and questions shall,
unless otherwise provided by law or by the Articles or these
Bylaws, be decided by the vote of the holders of a majority of
the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at the meeting.
-3-
<PAGE> 4
SECTION 2.9. LIST OF SHAREHOLDERS ENTITLED TO VOTE.
-------------------------------------
The Secretary shall prepare and make, at least ten (10) days
before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder
and the number of shares registered in the name of each
shareholder. Such list shall be open to the examination of any
shareholder, for any purpose germane to the meeting, during the
Corporation's ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during
the whole time thereof and may be inspected by any shareholder
who is present.
SECTION 2.10. SHAREHOLDER NOMINATION OF DIRECTORS.
-----------------------------------
Not less than sixty (60) days nor more than ninety (90) days
prior to the date of any meeting of the shareholders at which
directors are to be elected ("the Election Meeting") any
shareholder intending to nominate a director for election to the
Corporation's Board of Directors at the Election Meeting shall
deliver a notice in writing (the "Nominating Notice") to the
Secretary of the Corporation setting forth (a) as to each nominee
whom the shareholder proposes to nominate for election as a
director, (i) the name, age, business address and residence
address of the nominee, (ii) the principal occupation or
employment of the nominee, (iii) the class, series and number of
shares of capital stock of the Corporation which are beneficially
owned by the nominee and (iv) any other information concerning
the nominee that would be required to be disclosed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended; and (b) as to the shareholder giving the Nominating
Notice, (i) the name and address of the shareholder and (ii) the
class and number of shares of capital stock of the Corporation
which are beneficially owned by the shareholder and the name and
address of record under which such stock is held. The Nominating
Notice shall include a signed consent of each such nominee to
serve as a director of the Corporation, if elected. The
Corporation may require any proposed nominee or shareholder
proposing a nominee to furnish such other information as may
reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of
the Corporation or to properly complete any proxy or information
statement used for the solicitation of proxies in connection with
such Election Meeting.
SECTION 2.11. DEFECTIVE NOMINATIONS. No person shall
---------------------
be eligible to serve as a director of the Corporation unless
nominated in accordance with the procedures set forth in Section
2.10 of these Bylaws. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures
prescribed by these Bylaws, and may declare to the meeting that
the defective nomination be disregarded.
-4-
<PAGE> 5
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.1. GENERAL POWERS; QUALIFICATIONS. The
------------------------------
business and affairs of the Corporation shall be managed by the
Board of Directors, except as may be otherwise provided by law or
in the Articles. Directors need not be shareholders of the
Corporation.
SECTION 3.2. NUMBER OF DIRECTORS; CLASSIFICATION; TERM
-----------------------------------------
OF OFFICE. The business and affairs of the Corporation shall
- ---------
be managed and controlled by a Board of Directors consisting of
not less than three (3) nor more than ten (10) persons. The
exact number of directors within the minimum and maximum
limitations shall be determined exclusively from time to time by
the Board of Directors pursuant to a resolution adopted by a
majority of the entire Board of Directors.
The directors of the Corporation, other than those who may
be elected by the holders of any class or series of Preferred
Stock, shall be divided into three classes: Class I, Class II and
Class III. Membership in such classes shall be as nearly equal
as possible and any increase or decrease in the number of
directors shall be apportioned by the Board of Directors among
the classes to maintain the number of directors as nearly equal
as possible and any additional director or any class elected to
fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining
term of that class. The initial Class I directors shall hold
office until the annual meeting of shareholders of the
Corporation in 1998, the initial Class II directors shall hold
office until the annual meeting of the shareholders of the
Corporation in 1999, and the initial Class III directors shall
hold office until the annual meeting of shareholders of the
Corporation in 2000 or, in each case, until their successors are
elected and qualified and subject to such director's prior death,
resignation, retirement or removal from office. Beginning in
1998, and continuing annually thereafter, at each annual meeting
of shareholders of the Corporation, the directors elected to
succeed those whose terms then expire shall belong to the same
class as the directors they succeed and shall hold office until
the third succeeding annual meeting of shareholders or until
their successors are elected and qualified and subject to such
director's prior death, resignation, retirement or removal from
office. No decrease in the number of directors constituting the
Board of Directors shall reduce the term of any incumbent
director.
SECTION 3.3. RESIGNATION; REMOVAL; VACANCIES. Any
-------------------------------
director may resign at any time upon written notice to the Board
of Directors or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it
effective. Any director, or the entire Board of Directors, may
be removed from office at any time, only for cause and only by
the affirmative vote of two-thirds or more of the then
outstanding capital stock entitled to vote generally in the
election of directors. Unless otherwise provided in the
Articles or these Bylaws, vacancies and newly created
directorships resulting from any increase in the authorized
number of directors or from any other cause may be filled by a
majority of the directors then in office, although less than a
quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of shareholders of the Corporation
at which the term of office of the class to which they have been
elected expires, and until such directors successor shall have
been duly elected and qualified.
-5-
<PAGE> 6
SECTION 3.4. REGULAR MEETINGS; NOTICE. Regular
------------------------
meetings of the Board of Directors may be held at such places
within or without the State of West Virginia and at such times as
the Board may from time to time determine. Notice shall be given
to each director by mail, in person or by facsimile to the
address on file with the Corporation at least five (5) days
before the date of such meeting.
SECTION 3.5. SPECIAL MEETINGS; NOTICE. Special
------------------------
meetings of the Board of Directors may be held at any time or
place within or without the State of West Virginia whenever
called by the Chairman of the Board, by the President or in their
absence by the Secretary, or by any two directors. Reasonable
notice thereof shall be given by the person or persons calling
the meeting.
SECTION 3.6. TELEPHONIC MEETINGS PERMITTED. Unless
-----------------------------
otherwise restricted by the Articles or these Bylaws, members of
the Board of Directors, or any committee designated by the Board,
may participate in a meeting of the Board or of such committee,
as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.6 shall
constitute presence in person at such meeting.
SECTION 3.7. QUORUM; VOTE REQUIRED FOR ACTION. A
--------------------------------
majority of the members of the Board of Directors shall
constitute a quorum for the purpose of transacting business. The
vote of a majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board unless the
Articles or these Bylaws shall require a vote of a greater
number. In the event at any meeting of the Board a quorum shall
not be present, the members of the Board present may adjourn the
meeting from time to time until a quorum shall attend.
SECTION 3.8. ORGANIZATION. Meetings of the Board of
------------
Directors shall be presided over by the Chairman of the Board, or
in their absence by the President, or in their absence by a
chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in their absence the chairman of
the meeting may appoint any person to act as secretary of the
meeting.
SECTION 3.9. COMPENSATION. The directors may
------------
receive reasonable fees to be determined from time to time by the
Board of Directors for services actually performed in attending
meetings and for other services actually performed and the
expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board of Directors.
Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and
receiving compensation for such service.
SECTION 3.10. CONSENT OF DIRECTORS IN LIEU OF
-------------------------------
MEETING. Unless otherwise restricted by the Articles or these
- -------
Bylaws, any action required or permitted to be taken at any
meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all the members of the Board of
Directors or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
-6-
<PAGE> 7
SECTION 3.11 COMMITTEES. The Board of Directors, by
----------
resolution adopted by a majority of the entire Board of
Directors, may designate two or more directors to constitute a
committee. Each committee, to the extent provided in such
resolution, shall have and may exercise the authority of the
Board of Directors as so delegated in the resolution, in the
management of the Corporation. Each committee of the Board of
Directors shall keep regular minutes of its proceedings and
report the same to the Board of Directors as hereafter determined
by the Board of Directors. Vacancies in the membership of each
committee shall be filled by the Board of Directors at any
regular or special meeting of the Board of Directors. At all
meetings of a committee, a majority of the committee members then
in office shall constitute a quorum for the purpose of
transacting business, and the acts of a majority of the committee
members present at any meeting at which there is a quorum shall
be the acts of the committee. A director who may be
disqualified, by reason of personal interest, from voting on any
particular matter before a meeting of a committee may
nevertheless by counted for the purpose of constituting a quorum
of the committee.
ARTICLE IV
OFFICERS
--------
SECTION 4.1. ELECTION AND TERM. The officers of the
-----------------
Corporation shall be a Chairman of the Board, a President, a
Secretary and a Treasurer. The Board of Directors may also
choose one or more Vice Presidents, one or more Assistant
Secretaries and Assistant Treasurers and such other officers as
the Board of Directors may deem appropriate. All officers
elected shall serve a one year term unless otherwise prescribed
by the Board. Officers of the Corporation may be given
distinctive designations such as Executive Vice President, Group
Vice President, Senior Vice President, Chief Operating Officer,
Chief Administrative Officer and Chief Financial Officer. Any
officer or agent elected or appointed by the Board of Directors
may be removed by the Board of Directors with or without cause
whenever, in its judgment, the best interests of the Corporation
will be served thereby, by a two-thirds vote in favor of removal
by the entire Board but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Any
vacancy occurring in any such office of the Corporation may be
filled only by the Board of Directors. Any number of offices may
be held by the same person, except the offices of President and
Secretary.
SECTION 4.2. DUTIES. The officers of the
------
Corporation shall have the following duties:
CHAIRMAN OF THE BOARD
The Chairman of the Board shall preside at all Board of
Directors and shareholders meetings. The Chairman of the Board
shall have full power and authority to perform all executive acts
for and on behalf of the Corporation and, in the absence of
disability of the President, shall exercise all of the powers and
discharge all of the duties of the President. Unless otherwise
determined by the Board of Directors, the Chairman of the Board
shall also be, ex officio, a member of all standing Committees of
the Board of Directors, shall preside at
-7-
<PAGE> 8
all meetings of the shareholders and Directors at which such
Chairman of the Board is present and shall perform any other duties
prescribed by the Board of Directors or these Bylaws.
PRESIDENT
In the absence of the Chairman of the Board of Directors,
the President shall preside at all meetings of the shareholders
and Directors at which such President is present. The President
shall be the Chief Executive Officer and shall be responsible for
the general and active management of the business and affairs of
the Corporation, subject only to the control of the Board of
Directors, shall have full authority in respect to the signing
and execution of deeds, bonds, mortgages, contracts and other
instruments of the Corporation and shall perform any duties
prescribed by the Chairman or the Board of Directors and shall
see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall have equal authority
with the Chairman to execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where
permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or
agent of the Corporation.
VICE PRESIDENT
The Vice Presidents, if any, in the order of their
seniority shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President, and
shall perform any other duties prescribed by the Chairman, the
President or the Board of Directors.
SECRETARY AND ASSISTANT SECRETARIES
The Secretary shall keep or cause to be kept a record of
all meetings of the shareholders and the Board of Directors and
record all votes and the minutes of all proceedings in a book to
be kept for that purpose. The Secretary shall give, or cause to
be given, notice of all meetings of the shareholders and the
Board of Directors, and shall perform any other duties prescribed
by the Board of Directors or the President. The Secretary shall
keep in safe custody the seal of the Corporation and shall affix
the same to any instrument requiring it.
The Assistant Secretaries, if any, in order of their
seniority shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and
shall perform any other duties prescribed by the Chairman, the
President or the Board of Directors.
TREASURER AND ASSISTANT TREASURERS
The Treasurer shall have the custody of the corporate
funds and securities, shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation,
shall deposit all monies 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 and shall perform any
other duties prescribed by the Chairman, the President or the
Board of Directors.
-8-
<PAGE> 9
The Treasurer shall disburse the funds of the Corporation
as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the
President and Directors, at the regular meetings of the Board of
Directors, or whenever required, an account of all transactions
and of the financial condition of the Corporation.
The Assistant Treasurers, if any, in the order of their
seniority shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and
shall perform any other duties prescribed by the Board of
Directors.
ARTICLE V
CAPITAL STOCK
-------------
SECTION 5.1. ARTICLES. Every holder of stock in the
--------
Corporation shall be entitled to have a certificate signed by or
in the name of the Corporation by the President or a Vice
President, and by the Secretary, Treasurer or an Assistant
Secretary or an Assistant Treasurer, of the Corporation,
certifying the number of shares owned by such shareholders in the
Corporation and sealed with the corporate seal of the
Corporation. If such certificate is manually signed by one
officer or manually countersigned by a transfer agent or by a
registrar, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
SECTION 5.2. TRANSFER OF STOCK. The shares of stock
-----------------
of the Corporation shall be transferable only upon its books by
the holders thereof in person or by their duly authorized
attorneys or legal representatives. Upon transfer, the old
certificates shall be surrendered to the Corporation by the
delivery thereof to the person in charge of the stock and
transfer books and ledgers, or to such other persons as the Board
of Directors may designate, by whom they shall be cancelled and
new certificates shall thereupon be issued. Except as otherwise
expressly provided by the statutes of the State of West Virginia,
the Corporation shall be entitled to treat the holder of record
of any share or shares of stock as the absolute owner thereof for
all purposes and, accordingly, shall not be bound to recognize
any legal, equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it or
they shall have express or other notice thereof.
SECTION 5.3. CLOSING OF TRANSFER BOOKS AND FIXING OF
---------------------------------------
RECORD DATE. 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, the stock transfer books of the
Corporation shall be closed for a stated period but not to
exceed, in any case, fifty (50) days. If the stock transfer
books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of closing the
-9-
<PAGE> 10
stock transfer books, 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 fifty (50) 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 stock
transfer books 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 5.3, such
determination shall apply to any adjournment thereof.
SECTION 5.4 LOST OR DESTROYED ARTICLES. The holder
--------------------------
of any shares of stock of the Corporation shall immediately
notify the Corporation and its transfer agents and registrars, if
any, of any loss or destruction of the certificates representing
the same. The Corporation may issue a new certificate in place
of any certificate theretofore issued by it which is alleged to
have been lost or destroyed and the Board of Directors may
require the owner of the lost or destroyed certificate or the
owner's legal representative to give the Corporation a bond in a
sum and in a form approved by the Board of Directors, and with a
surety or sureties which the Board of Directors finds
satisfactory, to indemnify the Corporation and its transfer
agents and registrars, if any, against any claim or liability
that may be asserted against or incurred by it or any transfer
agent or registrar on account of the alleged loss or destruction
of any certificate or the issuance of a new certificate. A new
certificate may be issued without requiring any bond when, in the
judgment of the Board of Directors, it is proper so to do. The
Board of Directors may delegate to any Officer or Officers of the
Corporation any of the powers and authorities contained in this
section.
SECTION 5.5 TRANSFER AGENTS AND REGISTRARS. The
------------------------------
Board of Directors may appoint one or more transfer agents or
transfer clerks and one or more registrars which may be banks,
trust companies or other financial institutions located within or
without the State of West Virginia; may define the authority of
such transfer agents and registrars of transfers; may require all
stock certificates to bear the signature of a transfer agent or a
registrar of transfers, or both; and may change or remove any
such transfer agent or registrar of transfer.
ARTICLE VI
INDEMNIFICATION
---------------
SECTION 6.1. Indemnification.
---------------
A. ACTIONS INVOLVING DIRECTORS AND
-------------------------------
OFFICERS. The Corporation shall indemnify each person (other
- --------
than a party plaintiff suing on his or her own behalf or in the
right of the Corporation) who at any time is serving or has
served as a director or officer of the Corporation against any
claim, liability or expense incurred as a result of such service,
or as a
-10-
<PAGE> 11
result of any other service on behalf of the Corporation,
or service at the request of the Corporation as a director,
officer, employee, member, or agent of another corporation,
partnership, joint venture, trust, or other enterprise (whether
incorporated or unincorporated, for-profit or not-for-profit), to
the maximum extent permitted by law. Without limiting the
generality of the foregoing, the Corporation shall indemnify any
such person who was or is a party (other than a party plaintiff
suing on his or her behalf or in the right of the Corporation),
or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, but not limited to,
an action by or in the right of the Corporation) by reason of
such service against expenses (including, without limitation,
attorneys' fees), judgments, fines, taxes and penalties and
interest thereon and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action,
suit or proceeding.
B. ACTIONS INVOLVING EMPLOYEES OR AGENTS.
-------------------------------------
1. Permissive Indemnification. The
--------------------------
Corporation may, if it deems appropriate and as may be permitted
by this Article VI, indemnify any person (other than a party
plaintiff suing on his or her own behalf or in the right of the
Corporation) who at any time is serving or has served as an
employee or agent of the Corporation against any claim, liability
or expenses incurred as a result of such service, or as a result
of any other service on behalf of the Corporation, or service at
the request of the Corporation as a director, officer, employee,
member, or agent of another corporation, partnership, joint
venture, trust, or other enterprise (whether incorporated or
unincorporated, for-profit or not-for-profit), to the maximum
extent permitted by law or to such lesser extent as the
Corporation, in its discretion, may deem appropriate. Without
limiting the generality of the foregoing, the Corporation may
indemnify any such person who was or is a party (other than a
party plaintiff suing on his or her own behalf or in the right of
the Corporation), or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(including, but not limited to, an action by or in the right of
the Corporation) by reason of such service, against expenses
(including, without limitation, attorneys' fees), judgments,
fines, taxes and penalties and interest thereon and amounts paid
in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding.
2. Mandatory Indemnification. To the
-------------------------
extent that an employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in Section B.1 of this Article VI,
or in defense of any claim, issue or matter therein, he or she
shall be indemnified by the Corporation against expenses
(including attorneys' fees) actually and reasonably incurred by
him or her in connection with such successful action, suit or
proceeding.
C. DETERMINATION OF RIGHT TO INDEMNIFICATION.
-----------------------------------------
Any indemnification required under Section A of this Article VI
or authorized by the Corporation in a specific case pursuant to
Section B of this Article VI (unless ordered by a court) shall be
made by the Corporation unless a determination is made reasonably
and promptly that indemnification of the director, officer,
employee or agent is not proper under the circumstances because
he or she has
-11-
<PAGE> 12
not met the applicable standard of conduct set forth in or
established pursuant to this Article VI. Such determination shall
be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not parties to such action, suit or
proceeding, or (2) if such quorum is not obtainable, or even if
obtainable if the quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by majority
vote of the shareholders; provided that no such determination shall
preclude an action brought in an appropriate court to challenge such
determination.
D. ADVANCE PAYMENT OF EXPENSES. Expenses
---------------------------
incurred by a person who is or was a director or officer of the
Corporation in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the
final disposition of an action, suit or proceeding, and expenses
incurred by a person who is or was an employee or agent of the
Corporation in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by
the Board of Directors, in either case upon receipt of an
undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the
Corporation as authorized in or pursuant to this Article VI.
E. ARTICLE VI PROVISIONS NOT EXCLUSIVE RIGHT.
-----------------------------------------
The indemnification or advancement of expenses provided by this
Article VI shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled, whether under the Bylaws of the Corporation or
any statute, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office.
F. INSURANCE. The Corporation may purchase and
---------
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who
is or was otherwise serving on behalf or at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability
under the provisions of this Article VI.
ARTICLE VII
MISCELLANEOUS
-------------
SECTION 7.1. FISCAL YEAR. The fiscal year of the
-----------
Corporation shall be determined by resolution of the Board of
Directors.
SECTION 7.2. SEAL. The Corporation may have a
----
corporate seal which shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from
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<PAGE> 13
time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
SECTION 7.3. WAIVER OF NOTICE OF MEETINGS OF
-------------------------------
SHAREHOLDERS, DIRECTORS AND COMMITTEES. Whenever notice is
- --------------------------------------
required to be given by law or under any provision of the
Articles or these Bylaws, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting
of the shareholders, directors, or members of a committee of
directors need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these
bylaws.
SECTION 7.4. AMENDMENT OF BYLAWS. These Bylaws may
-------------------
be altered or repealed, and new Bylaws made, by the Board of
Directors.
-13-
<PAGE> 1
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is executed this 4th day of
October, 1996, between VALLEY NATIONAL GASES, INC., a West Virginia
corporation (the "Company"), and BANK ONE, INDIANAPOLIS, NATIONAL
ASSOCIATION, a national banking association with its principal
office in Indianapolis, Indiana (the "Bank").
AGREEMENT
---------
NOW THEREFORE, in consideration of the premises, the
mutual covenants and agreements herein, and each act performed and
to be performed hereunder, the Bank and the Company agree as
follows:
ARTICLE I.
----------
DEFINITION OF TERMS
-------------------
SECTION 1.01. ACCOUNTING TERMS -- DEFINITIONS. All
------------
accounting and financial terms used in this Agreement are used with
the meanings such terms would be given in accordance with GAAP
except as may be otherwise specifically provided in this Agreement.
The following terms have the meanings indicated when used in this
Agreement with the initial letter capitalized:
"Acquisition Seller Debt" means, collectively (i) the
-----------------------
Existing Acquisition Seller Debt, and (ii) any deferred purchase
price of a New Acquisition payable by the Company to the
Acquisition Sellers or any of them with respect to that New
Acquisition evidenced by or payable under the terms of a promissory
note or non-compete agreement or other Debt instrument.
"Acquisition Sellers" means, collectively (i) the
-------------------
Existing Acquisition Sellers, and (ii) any and all Persons from
whom the Company acquires a New Acquisition, and when used in the
singular form, means any of the Acquisition Sellers, as the context
so requires.
"Additional EBITDA Amount" means an amount equal to
------------------------
the sum of: (i) such amount as may be approved by the Bank in its
sole discretion of EBITDA of a Related Business Entity acquired in
a New Acquisition for the twelve (12) calendar month period
immediately preceding the New Acquisition Closing Date for such New
Acquisition or for such other twelve (12) calendar month period
preceding such New Acquisition Closing Date as may be agreed and
approved by the Bank, provided that, such amount is subject to
redetermination by the Bank at its sole discretion to reflect
elimination of expenses of such Related Business Entity by virtue
of the acquisition; plus (ii) an amount calculated as set forth
----
on EXHIBIT A attached hereto.
---------
<PAGE> 2
"Advance" means a disbursement of proceeds of the
-------
Revolving Loan.
"Affiliate" means, with, respect to any Person, any
---------
officer, shareholder or director, of such Person and any Person or
group acting in concert in respect of the Person in question that,
directly or indirectly, controls or is controlled by or is under
common control with such Person.
"Agreement" means this Credit Agreement, as amended,
---------
modified, supplemented and/or restated from time to time and at any
time.
"Applicable Spread" means that number of percentage
-----------------
points to be taken into account in determining any LIBOR-based Rate
and any Prime-based Rate as provided in this Agreement, which
number shall be determined by reference to the Ratio of Total
Funded Debt to EBITDA in accordance with the following table:
<TABLE>
<CAPTION>
Ratio of Total If Determining If Determining
Funded Debt to a Prime-based a LIBOR-based
EBITDA Rate Rate
-------------- -------------- --------------
<S> <C> <C>
4.00 or above 0.25% 2.5%
3.50 to 3.99 0.25% 2.5%
3.00 to 3.49 0% 2.25%
2.50 to 2.99 0% 2.0%
2.00 to 2.49 0% 1.75%
less than 2.00 0% 1.5%
</TABLE>
The Applicable Spread shall be determined on the Closing Date on
the basis of the Ratio of Total Funded Debt to EBITDA in effect on
the Closing Date as provided in the definition of Ratio of Total
Funded Debt to EBITDA in this Agreement, and shall be redetermined
and adjusted concurrently with any adjustment to the Ratio of Total
Funded Debt to EBITDA as provided in the definition of Ratio of
Total Funded Debt to EBITDA in this Agreement, with prospective
effect until so redetermined and adjusted.
"Applicable Unused Commitment Fee Percentage" means
-------------------------------------------
the percentage per annum determined by reference to the Ratio of
Total Funded Debt to EBITDA in accordance with the following table:
<TABLE>
<CAPTION>
Ratio of Total Funded Debt Applicable Unused
to EBITDA Commitment Fee Percentage
-------------------------- -------------------------
<S> <C>
4.00 or above 0.375%
3.50 to 3.99 0.375%
3.00 to 3.49 0.375%
2.50 to 2.99 0.25%
2.00 to 2.49 0.25%
less than 2.00 0.25%
</TABLE>
2
<PAGE> 3
The Applicable Unused Commitment Fee Percentage shall be determined
on the Closing Date on the basis of the Ratio of Total Funded Debt
to EBITDA in effect on the Closing Date as provided in the
definition of Ratio of Total Funded Debt to EBITDA in this
Agreement, and shall be redetermined and adjusted concurrently with
any adjustment to the Ratio of Total Funded Debt to EBITDA as
provided in the definition of Ratio of Total Funded Debt to EBITDA
in this Agreement, with prospective effect until so redetermined
and adjusted.
"Application for Revolving Loan Advance" means a
--------------------------------------
written application of the Company for a disbursement of proceeds
of the Revolving Loan substantially in the form of EXHIBIT B
---------
attached hereto.
"Authorized Officer" means the President or the Chief
------------------
Financial Officer of the Company or such other officer whose
authority to perform acts to be performed only by an Authorized
Officer under the terms of this Agreement is evidenced to the Bank
by a certified copy of an appropriate resolution of the Board of
Directors of the Company.
"Bank" has the meaning ascribed to such term in the
----
preamble to this Agreement.
"Banking Day" means a day on which the principal
-----------
office of the Bank in the City of Indianapolis, Indiana, is open
for the purpose of conducting substantially all of the Bank's
business activities.
"Capital Expenditures" for any period shall mean the
--------------------
aggregate amount of all expenditures (whether paid in cash or
accrued as a liability) of the Company during such period that to
the extent required by GAAP are required to be included in or
reflected as property, plant or equipment or similar fixed asset
account in any Financial Statements, including any acquisition,
construction or installation of properties or for any additions and
improvements thereto or any replacement thereof and the amount
capitalized under any Capital Lease, less the net cash proceeds
from any dispositions to the extent specifically permitted under
this Agreement.
"Capital Lease" shall mean any lease of property
-------------
(whether real, personal or mixed) which, to the extent required by
GAAP, is accounted for as a capital lease or a Capital Expenditure
on the balance sheet of the Company.
"Cash Capital Expenditures" means those Capital
-------------------------
Expenditures that are not financed with new Debt (including Debt
incurred under this Agreement) or through Capital Leases.
"Cash Collateral" means any and all cash (or
----------------
qualified investment property as may be acceptable to the Bank in
its sole
3
<PAGE> 4
discretion) required or permitted to be pledged by any
Person to the Bank under this Agreement as security for all or any
part of the Obligations, which shall be held by the Bank, as
secured party, in a cash or securities collateral account
maintained with the Bank or its designee ("Collateral Account")
------------------
under which the Bank is granted a pledge, security interest and
lien in and to the Collateral Account, the cash and any and all
other investment property or other property at any time held in the
Collateral Account, and all proceeds and substitutions of any of
the foregoing (collectively, the "Collateral Account Property"),
---------------------------
pursuant to a pledge agreement, account control agreement, and such other
security instruments as may required by the Bank to perfect and maintain
perfection of its interest in the Collateral Account Property, all in form and
substance satisfactory to the Bank in all respects.
"Code" means the Internal Revenue Code of 1986, as
----
amended.
"Common Stock" means the common stock of the Company
------------
as constituted on the Closing Date, and any class of capital stock
of the Company now or hereafter authorized having the right to
share in distributions either of earnings or assets of the Company
without limit as to amount or percentage.
"Company" has the meaning ascribed to such term in
-------
the preamble to this Agreement.
"Company's Auditors" means one of the six (6) largest
------------------
independent certified public accounting firms in the U.S.
"Convertible Securities" means evidences of
----------------------
indebtedness, shares of stock or other securities which are
convertible into or exchangeable for, with or without payment of
additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the
happening of a specified event.
"Credit Enhancement" means, in reference to the
------------------
prohibited purposes of Letters of Credit described in Section
2.03(a) of this Agreement, the enhancement or support of or
security for any credit extended or to be extended by any Person to
the Company, including any Debt of the Company for borrowed money,
Capital Lease obligations, and any guarantees, endorsements and
other contingent obligations of the Company with respect to
indebtedness, liabilities or obligations of other Persons;
provided, that, the term "Credit Enhancement" shall not include
Acquisition Seller Debt.
"Debt" means, with reference to any Person, all
----
indebtedness, liabilities and obligations, contingent or otherwise,
which in accordance with GAAP should be classified upon such
Person's balance sheet as liabilities, but in any event including
4
<PAGE> 5
(without duplication) liabilities secured by any lien on property
owned or acquired by such Person (whether or not the liability
secured thereby shall have been assumed and whether or not such
Person is personally liable for the payment thereof), obligations
under leases which have been (or which in accordance with GAAP
should be) capitalized for financial reporting purposes, and all
guarantees, endorsements and other contingent obligations of such
Person with respect to indebtedness, liabilities or obligations of
others.
"Draft" shall mean a drawing or other demand for
-----
payment under a Letter of Credit.
"EBITDA" means for any period, with respect of any
------
Person, Net Income of such Person, plus, without duplication and to
the extent deducted in determining Net Income, the sum of interest
expense, income tax expense, depreciation and amortization expense,
determined in accordance with GAAP. For purposes of determining
EBITDA of the Company on a pro forma basis to determine the effect
of a New Acquisition on compliance with the covenants in
subsections 5.01(g) of this Agreement and to determine the
Applicable Spread and the Applicable Unused Commitment Fee
Percentage for any period of twelve (12) months or four fiscal
quarters of the Company that ends ("Period Ending Date"):
------------------
(i) on any New Acquisition Closing Date, EBITDA of the Company for
such period will be deemed to include the Additional EBITDA Amount
calculated with respect to the Related Business Entity acquired on
such New Acquisition Closing Date; and (ii) within one year after
any New Acquisition Closing Date, EBITDA of the Company for such
period will be deemed to include an amount equal to (A) the
Additional EBITDA Amount calculated with respect to the Related
Business Entity acquired on such New Acquisition Closing Date,
minus (B) 1/12 of such Additional EBITDA Amount for each full
calendar month that has elapsed between such New Acquisition
Closing Date and the Period Ending Date, minus (c) 1/30 of such
-----
Additional EBITDA Amount for each day of any partial calendar month
that has elapsed between such New Acquisition Closing Date and the
Period Ending Date.
"Environmental Laws" means all federal, state and
------------------
local laws and implementing regulations, now or hereafter effective
during the term of this Agreement, relating to pollution or
protection of the environment, including laws or regulations
relating to or permitting emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes into the
environment (including without limitation ambient air, surface
water, ground water, or land), or to the manufacture, processing,
distribution, use, treatment, storage disposal, transport, or
handling of pollutants, contaminants chemicals, industrial wastes,
or hazardous substances. Such laws shall include, but not be
limited to: (a) the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Sec. 9601 et
--
5
<PAGE> 6
seq.; (b) the Resource Conservation and Recovery Act, as
- ---
amended, 42 U.S.C. Sec. 6901 et seq., including the
-- ---
statutes regulating underground storage tanks, 42 U.S.C. 6991-
6991h; (c) the Clean Air Act, as amended, 42 U.S.C. 7401 et seq.;
-- ---
(d) the Federal Water Pollution Control Act, as amended, 33 U.S.C. Sec. 1251
et seq., including the statute regulating the National Pollutant Discharge
- -- ---
Elimination System, 33 U.S.C. Sec. 1342; and (e) Indiana Code, Title 13
Environment, as amended.
"ERISA" mean the Employee Retirement Income Security
-----
Act of 1974, as amended.
"Existing Acquisition Sellers" means, collectively,
----------------------------
the Persons identified on EXHIBIT C attached hereto.
---------
"Existing Acquisition Seller Debt" means,
--------------------------------
collectively, the Debt owed by the Company to the Existing
Acquisition Sellers, respectively, identified on EXHIBIT C
---------
attached hereto.
"Event of Default" means any of the events described
----------------
in Section 7.01 of this Agreement.
"Financial Statements" includes, but is not limited
--------------------
to, balance sheets, profit and loss statements, and cash flow
statements, prepared in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to
---------------------------
the Company for any period, a ratio of EBITDA of the Company to
Fixed Charges.
"Fixed Charges" means, with respect to the Company
-------------
for any period, the sum of interest which was due and payable in
cash or was paid in cash during such period, plus Cash Capital
Expenditures made during such period, plus scheduled payments of
Debt of the Company which were due and payable in cash or were paid
during such period, plus income taxes which were due or paid during
such period, plus dividends that were paid in cash during such
period.
"GAAP" means generally accepted accounting principles
----
in the United States of America as in effect from time to time,
which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied (from
and after the date hereof) and for the period as to which such
accounting principles are to apply. Except as otherwise provided
in this Agreement, to the extent applicable, all computations and
determinations as to accounting or financial matters and all
Financial Statements to be delivered pursuant to this Agreement
shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), and, to the extent
applicable, all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP.
6
<PAGE> 7
"Government Acts" has the meaning ascribed to such
---------------
term in subsection 2.03(e) of this Agreement.
"Hazardous Substance" means any hazardous or toxic
-------------------
substance regulated by any Environmental Laws, including but not
limited to the Comprehensive Environmental Response, Compensation
and Liability Act, the Resource Conservation and Recovery Act and
the Toxic Substance Control Act, or by any federal, state or local
governmental agencies having jurisdiction over the control of any
such substance including but not limited to the United States
Environmental Protection Agency.
"Intercreditor Agreements" means one or more
------------------------
intercreditor and subordination agreements between the Bank, the
Company and the Existing Acquisition Sellers, in form and substance
the same as attached hereto as EXHIBIT D, as the same may be
---------
amended, modified, extended, renewed, supplemented, replaced and/or
restated from time to time and at any time.
"Letters of Credit" means all standby letters of
-----------------
credit issued by the Bank pursuant to Section 2.03 of this
Agreement.
"Letter of Credit Exposure" means, as of the date
-------------------------
such amount is to be determined, the sum of:
(a) the aggregate face amounts of all Letters of Credit
that have not expired by their terms or have not
been surrendered by the beneficiary prior to the
expiration thereof (including the face amounts of
any Letters of Credit that have expired by their
terms but have not been surrendered by the
beneficiary and as to which the beneficiary asserts
a right to present and/or have honored Drafts);
less any portion of such face amounts that has
----
been exhausted by the payment or acceptance of
Drafts thereunder or otherwise; plus
----
(b) the total dollar amount of (1) the amount of all
Drafts under Letters of Credit which have been
honored by the Bank or which the Bank has otherwise
been required to pay but with respect to which the
Bank has not yet received reimbursement from the
Company, including without limitation, the
principal amounts of all outstanding Letter of
Credit Loans, and (2) the amount of all Drafts
under Letters of Credit which have been presented
to the Bank but not honored by the Bank, which the
Bank (in its sole discretion) determines it may yet
honor or be required to honor or the amount of
which it may otherwise be required to pay.
"Letter of Credit Loan" has the meaning ascribed to
---------------------
such term in subsection 2.03(d) of this Agreement.
7
<PAGE> 8
"LIBOR-based Rate" means a variable rate at which
----------------
interest may accrue on all or a portion of either of the Loans
under the terms of this Agreement, which rate is determined by
reference to the London Interbank Offered Rate.
"Loans" means, collectively, the Revolving Loan and
-----
the Term Loan and, when used in the singular form, means any of the
Loans, as the context requires.
"Loan Documents" means, collectively, this Agreement,
--------------
the Revolving Note, the Term Note, the Security Agreement, the
intercreditor Agreements, any and all Reimbursement Agreements and
all other instruments, agreements and documents executed and
delivered or to be delivered by the Company pursuant to or by
virtue of this Agreement, as each may be amended, modified,
extended, renewed, supplemented and/or restated from time to time
and at any time, and when used in the singular form, means any of
the Loan Documents, as the context requires.
"London Interbank Offered Rate" means the per annum
-----------------------------
rate of interest, as determined by the Bank, at which dollar
deposits in immediately available funds are offered to the
principal banks in the London interbank market by other principal
banks in that market two Banking Days prior to the commencement of
a period of either one month, two months, three months, or six
months for which the Company shall have requested a quotation of
the rate in amounts equal to the amount for which the Company shall
have requested a quotation of the rate.
"Maximum Availability" means $25,000,000.
--------------------
"Net Income" means, for any period, with respect to
----------
any Person, the net income of such Person, determined in accordance
with GAAP.
"Net Worth" means, as of the date any determination
---------
thereof is to be made, the net worth of the Company of such date.
"New Acquisition" means the acquisition by the
---------------
Company from any Person of the assets and goodwill of such Person
which comprise a Related Business Entity, or of all or
substantially all of the stock, partnership interest, or other
ownership interest of any type whatsoever of such Person in a
Related Business Entity if such Related Business Entity is merged
into the Company with the Company being the surviving entity, in a
transaction or series of transactions closed after the Closing
Date, provided that (i) the consummation of such acquisition
-------- ----
on a pro forma basis will not cause the occurrence of an Event of Default or
an Unmatured Event of Default; and (ii) Financial Statements are maintained
for such Related Business Entity, for such periods preceding the acquisition
as may be reasonably required by the Bank.
8
<PAGE> 9
"New Acquisition Closing Date" means the date on
----------------------------
which a New Acquisition is consummated.
"Notes" means, collectively, the Revolving Note and
-----
the Term Note, and when used in the singular, means any of the
Notes, as the context requires.
"Obligations" means all present and future
-----------
indebtedness, obligations and liabilities, and all renewals and
extensions thereof, now or hereafter owed to the Bank by the
Company, whether arising under, by virtue of or pursuant to any of
this Agreement, the Notes, the Reimbursement Agreements, any other
Loan Documents or otherwise, together with all costs, expenses and
reasonable attorneys, fees (including the reasonable allocated
costs of staff counsel) incurred by the Bank in the enforcement or
collection thereof, whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, liquidated,
unliquidated, joint, several, joint and several, now exist or
hereafter arise, or were prior to acquisition thereof by the Bank
owed to some other Person.
"Officer's Certificate" means a certificate in the
---------------------
form included as a part of EXHIBIT B attached hereto signed by
---------
the President or Chief Financial Officer of the Company, confirming
that all of the representations and warranties contained in Section
3.01 of this Agreement are true and correct as of the date of such
certificate except as specified therein and with the further
exceptions that: (i) the representation contained in subsection
3.01(d) of this Agreement shall be construed so as to refer to the
latest Financial Statements which have been furnished to the Bank
as of the date of any such certificate, (ii) the representations
contained in subsection 3.01(k) (with respect to Hazardous
Substances) will be construed so as to apply not only to the
Company, but also to any Subsidiaries, whether now owned or
hereafter acquired, (iii) the representation contained in
subsection 3.01(l) of this Agreement shall be deemed to be amended
to reflect the existence of any Subsidiary hereafter formed or
acquired by the Company with the consent of the Bank, and (iv) all
other representations will be construed to have been amended to
conform with any changes of which the Company shall have previously
given the Bank notice in writing. The Officer's Certificate shall
further confirm that no Event of Default or Unmatured Event of
Default shall have occurred and be continuing as of the date of the
Officer's Certificate or shall describe any such event which shall
have occurred and be then continuing and the steps being taken by
the Company to correct it.
"Period Ending Date" has the meaning ascribed to such
------------------
term in the text of the definition of EBITDA in this Section 1.01.
"Person" shall mean an individual, a corporation, a
------
limited or general partnership, a limited liability company, a
joint venture, a trust or unincorporated organization, a joint
9
<PAGE> 10
stock company or other similar organization, a government or any
political subdivision thereof, a court, or any other legal entity,
whether acting in an individual, fiduciary or other capacity.
"Plan" means an employee pension benefit plan as
----
defined in ERISA.
"Prepayment Premium" means the excess, if any, as
------------------
determined by the Bank of: (i) the present value at the time of
prepayment of the interest payments which would have been payable
on account of an amount prepaid from the date of prepayment until
the end of the period during which interest would have accrued at
a LIBOR-based Rate but for prepayment over (ii) the present value
at the time of prepayment of interest payments calculated at the
rate (the "Reinvestment Rate") which the Bank then estimates it
-----------------
would receive upon reinvesting the principal amount of the
prepayment in an obligation which presents a credit risk
substantially similar (as determined in accordance with the
commercial credit rating system then used by the Bank) to that
which is then presented by the Loan for a period approximately
equal to the balance of the period during which interest would
accrue on the portion of the Loan prepaid at a LIBOR-based Rate,
but for prepayment. The discount rate used by the Bank in
determining such present values shall be the Reinvestment Rate.
"Prime-based Rate" means any variable rate at which
----------------
interest may accrue on all or a portion of either of the Loans
under the terms of this Agreement, which rate is determined by
reference to the Prime Rate.
"Prime Rate" means a variable per annum interest rate
----------
equal at all times to the rate of interest established and quoted
by the Bank as its prime rate, such rate to change
contemporaneously with each change in such established and quoted
rate, provided that it is understood that the Prime Rate shall not
necessarily be representative of the rate of interest actually
charged by the Bank on any loan or class of loans.
"Public Offering" means a public offering and sale,
---------------
pursuant to a registration statement filed by the Company under the
Securities Act of 1933, as amended, or any successor Federal
statute, and the rules and regulations of the Securities Commission
promulgated thereunder, all as the same shall be in effect from
time to time, with the Securities Commission (other than a
registration statement filed on Form S-8, or any successor form
thereto, with respect to the issuance of capital stock granted or
to be granted to employees or directors of the Company), whether
primary or secondary, of Common Stock or Convertible Securities or
rights to acquire Common Stock or Convertible Securities.
"Ratio of Total Funded Debt to EBITDA" shall mean,
------------------------------------
with respect to any period, the ratio of Total Funded Debt to
EBITDA of the Company. For purposes of determining the Applicable
Spread and
10
<PAGE> 11
the Applicable Unused Commitment Fee, the Ratio of Total Funded Debt to EBITDA
shall be determined on the Closing Date on the basis of the Financial
Statements of the Company provided to the Bank prior to the Closing Date for
the preceding twelve (12) calendar month period ending June 30, 1996, and
thereafter shall be redetermined and adjusted as necessary as follows:
(i) Quarterly Adjustments. For purposes of
---------------------
determining the Applicable Spread and the Applicable Unused
Commitment Fee, the Ratio of Total Funded Debt to EBITDA
shall be redetermined and adjusted as necessary on the basis
of the Financial Statements of the Company for the most recent
preceding four fiscal quarters of the Company provided to the
Bank pursuant to the requirements of subsection 5.01(b) of
this Agreement (a "Quarterly Adjustment"), with prospective
--------------------
effect until the next adjustment date. Quarterly Adjustments shall be
made on the first interest payment date which follows receipt by the Bank
of the Financial Statements for the last month of the first fiscal
quarter of the Company ending after the closing Date, and thereafter on
the first interest payment date which follows receipt by the Bank of the
Financial Statements upon which such adjustment is based (a "Quarterly
---------
Adjustment Date"), but no Quarterly Adjustment shall be effective as to
---------------
any LIBOR-based Rate elected prior to the Quarterly Adjustment Date until
the expiration of the period of time for which such LIBOR-based Rate
shall have been elected by the Company.
(ii) New Acquisition Adjustments. For purposes of
---------------------------
determining the Applicable Spread and the Applicable Unused
Commitment Fee, the Ratio of Total Funded Debt to EBITDA shall
be redetermined and adjusted as necessary on each New
Acquisition Closing Date on the basis of the Financial
Statements of the Company for the most recent twelve (12)
calendar month period that precedes the New Acquisition
Closing Date provided to the Bank pursuant to the requirements
of subsection 5.01(b) of this Agreement (a "New Acquisition
---------------
Adjustment") with prospective effect until the next
----------
adjustment date, but no New Acquisition Adjustment shall be
effective as to any LIBOR-based Rate elected prior to the New
Acquisition Date until the expiration of the period of time
for which such LIBOR-based Rate shall have been elected by the
Company.
Notwithstanding the foregoing, in the event that the Company fails
to deliver when due the Financial Statements and compliance
certificates required under subsection 5.01(b) of this Agreement
for any month which ends a fiscal quarter of the Company and fails
to cure such default within ten (10) days after notice of such
default by the Bank, then the Applicable Unused Commitment Fee
Percentage and the Applicable Spread shall be adjusted (without
prior notice by the Bank to the Company) to the largest number
shown in the table applicable to such definition from such due date
until the first interest payment date which follows delivery to the
11
<PAGE> 12
Bank of such Financial Statements. It is noted that the tables
defining Applicable Unused Commitment Fee Percentage and the
Applicable Spread provide for a Ratio of Total Funded Debt to
EBITDA greater than that which may be permissible under the terms
of subsection 5.01(g) of this Agreement. For the avoidance of
doubt, it is agreed that it is the intent of the parties that the
Bank shall be free to exercise all remedies otherwise provided for
in this Agreement in the event of the violation by the Company as
stated in subsection 5.01(g) this Agreement, notwithstanding the
determination of the Applicable Unused Commitment Fee Percentage
and the Applicable Spread in accordance with and by reference to
this definition.
"Reimbursement Agreement" has the meaning ascribed to
-----------------------
such term in subsection 2.03(a) of this Agreement.
"Reinvestment Rate" has the meaning ascribed to such
-----------------
term in the text of the definition of "Prepayment Premium" in this
Section.
"Related Business Entity" means an operating business
-----------------------
entity, division or unit engaged in one or more lines of business
in which the Company is engaged as of the Closing Date, being the
packaging and wholesale distribution of industrial gas and welding,
propane and fire extinguishment equipment and supplies.
"Remaining Availability" means, at any time a
----------------------
determination thereof is to be made, that amount which results by
subtracting from the Maximum Availability the sum of (i) the
principal balance of the Revolving Loan outstanding at such time,
and (ii) the aggregate Letter of Credit Exposure at such time.
"Revolving Loan" has the meaning ascribed to such
--------------
term in subsection 2.02(a) of this Agreement.
"Revolving Loan Maturity Date" means the earlier of
----------------------------
(i) the Scheduled Revolving Loan Maturity Date, and (ii) that date
upon which the Bank accelerates payment of the Revolving Loan in
accordance with Section 7.02 of this Agreement.
"Revolving Note" has the meaning ascribed to such
--------------
term in subsection 2.02(b) of this Agreement.
"Securities Commission" means the Securities and
---------------------
Exchange Commission or any other Federal agency from time to time
administering the Securities Act of 1933, as amended.
"Security Agreement" has the meaning ascribed to such
------------------
term in Section 4.01 of this Agreement.
"Scheduled Revolving Loan Maturity Date" means the
--------------------------------------
third (3rd) anniversary of the Closing Date.
12
<PAGE> 13
"Scheduled Term Loan Maturity Date" means the seventh
---------------------------------
(7th) anniversary of the Closing Date.
"Scheduled Term Loam Maturity Date" means any
---------------------------------
corporation, partnership, joint venture or other business entity
over which the Company exercises control, provided that it shall be
conclusively presumed that the Company exercises control over any
such entity 51% or more of the equity interest in which is owned by
the Company, directly or indirectly.
"Term Loan" has the meaning ascribed to such term in
---------
subsection 2.04 of this Agreement.
"Term Loan Maturity Date" means the earlier of (i)
-----------------------
the Scheduled Term Loan Maturity Date, and (ii) that date upon
which the Bank accelerates payment of the Term Loan in accordance
with Section 7.02 of this Agreement.
"Term Note" has the meaning ascribed to such term in
---------
subsection 2.04(b) of this Agreement.
"Total Funded Debt" means, as of the date any
-----------------
determination thereof is to be made, all interest-bearing Debt of
the Company and all Acquisition Seller Debt.
"Unmatured Event of Default" means any event
--------------------------
specified in Section 7.01 of this Agreement, which is not initially
an Event of Default, but which would, if uncured, become an Event
of Default with the giving of notice or the passage of time or
both.
"West Dividend" has the meaning ascribed to such term
-------------
in subsection 5.02(a)(3) of this Agreement.
ARTICLE II.
-----------
BORROWING TERMS
---------------
SECTION 2.01. GENERAL STATEMENT. Subject to and
------------ -----------------
in accordance with the terms of this Agreement, and in reliance
upon the representations, warranties, covenants and agreements of
the Company made in this Agreement and the other Loan Documents,
the Bank will make the Loans and issue the Letters of Credit
described in this Article II.
SECTION 2.02. THE REVOLVING LOAN.
------------ ------------------
(a) The Commitment -- Use of Proceeds. The Bank
---------------------------------
agrees, subject to the terms and conditions of this Agreement, to
make Advances to the Company on a revolving basis (the "Revolving
---------
Loan") from time to time from and after the Closing Date until
- ----
the Revolving Loan Maturity Date, in an amount not exceeding in the
aggregate at any time outstanding the Maximum Availability.
Proceeds of the Revolving Loan may be used by the Company only to
13
<PAGE> 14
fund working capital requirements, Capital Expenditures and New
Acquisitions and to refinance existing Debt of the Company.
(b) Method of Borrowing. The obligation of the
-------------------
Company to repay the Revolving Loan shall be evidenced by a
promissory note executed by the Company to the Bank in the form of
EXHIBIT E attached hereto (as the same may be amended, modified,
- ---------
extended, renewed, supplemented, replaced and/or restated from time
to time and at any time, the "Revolving Note"). So long as no Event of
--------------
Default or Unmatured Event of Default shall have occurred and be continuing
and until the Revolving Loan Maturity Date, the Company may borrow, repay
(subject to the requirements of Section 2.06 of this Agreement) under the
Revolving Note on any Banking Day, provided that Borrower shall not be
entitled to receive and the Bank shall not be obligated to make any
Advance: (i) at any time an Event of Default or an Unmatured Event
of Default has occurred or is continuing; (ii) if the amount of
such Advance would exceed the Remaining Availability; or (iii) if
after making such Advance the principal balance of the Revolving
Loan would exceed the Maximum Availability. Each Advance under the
Revolving Loan shall be conditioned upon receipt by the Bank from
the Company of an Application for Revolving Loan Advance and an
Officer's Certificate, provided that the Bank may, at its
discretion, make a disbursement upon the oral request of the
Company made by an Authorized Officer, or upon a request
transmitted to the Bank by telecopy or by any other form of written
electronic communication (all such requests for Advances being
hereafter referred to as "informal requests"). In so doing,
-----------------
the Bank may rely on any informal request which shall have been
received by it in good faith from a Person reasonably believed to
be an Authorized Officer. Each informal request shall be promptly
confirmed by a duly executed Application for a Revolving Loan
Advance and Officer's Certificate if the Bank so requires and shall
in and of itself constitute the representation of the Company that
no Event of Default or Unmatured Event of Default has occurred and
is continuing or would result from the making of the requested
Advance, that the requested Advance would not exceed the Remaining
Availability, and that the making of the requested Advance would
not cause the principal balance of the Revolving Loan to exceed the
Maximum Availability. All borrowings and reborrowings and all
repayments shall be in amounts of not less than Fifty Thousand
Dollars ($50,000), except for repayment of the entire principal
balance of the Revolving Loan and except for special prepayments of
principal required under the terms of Section 2.06 of this
Agreement. Upon receipt of an Application for a Revolving Loan
Advance, or at the Bank's discretion upon receipt of an informal
request for an Advance and upon compliance with any other
conditions of lending stated in Section 6.01 of this Agreement
applicable to the Revolving Loan, the Bank shall disburse the
amount of the requested Advance to the Company. All Advances by
the Bank and payments by the Company shall be recorded by the Bank
on its books and records, and the principal amount outstanding from
time to time, plus interest payable thereon, shall be determined by
14
<PAGE> 15
reference to the books and records of the Bank. The Bank's books
and records shall be presumed prima facie to be correct as
----- -----
to such matters.
(c) Interest on the Revolving Loan. The principal
------------------------------
amount of the Revolving Loan outstanding from time to time shall
bear interest until the Revolving Note Maturity Date at a rate per
annum equal to the Prime Rate plus the Applicable Spread;
provided that, at the option of the Company, exercised from
- -------- ----
time to time as provided in subsection 2.05(a) of this Agreement,
interest may accrue prior to the Revolving Loan Maturity Date on
any Advance or on the entire outstanding balance of the Revolving
Loan as to which no LIBOR-based Rate previously elected remains in
effect, at a rate per annum equal to a LIBOR-based Rate for a
period of 30, 60, 90 or 180 days, plus the Applicable Spread.
Notwithstanding the foregoing, the Company will not be permitted to
elect an, LIBOR-based Rate for a period extending beyond the
Scheduled Revolving Loan Maturity Date. After the Revolving Loan
Maturity Date, and until paid in full, the principal amount of the
Revolving Loan shall bear interest at a per annum rate equal to the
Prime Rate plus Two Percent (2%). Accrued interest shall be due
and payable monthly on the last Banking Day of each calendar month
until the Revolving Loan Maturity Date, at which time the entire
unpaid principal balance of the Revolving Loan and all unpaid,
accrued interest thereon, shall be due and payable in full without
demand. After the Revolving Loan Maturity Date, interest shall be
payable as accrued and without demand.
(d) Extensions of Scheduled Revolving Loan Maturity
-----------------------------------------------
Date. The Bank may, upon the request of the Company, but at the
- ----
Bank's sole discretion, extend the Scheduled Revolving Loan
Maturity Date from time to time to such date or dates as the Bank
may elect by notice in writing to the Company, and upon any such
extension, the date to which the Scheduled Revolving Loan Maturity
Date is then extended will become the "Scheduled Revolving Loan
Maturity Date" for purposes of this Agreement. The Bank agrees to
respond within forty-five (45) days to a written request for an
extension of the Scheduled Revolving Loan Maturity Date made by the
Company in accordance with Section 8.02 of this Agreement and made
within one hundred eighty (180) days prior to the Scheduled
Revolving Loan Maturity Date, provided that any failure by the Bank
to respond within such period shall be deemed to be a denial of
such request unless otherwise agreed to in writing by the Bank.
(e) Facility Fee. In addition to interest accruing on
------------
the Revolving Loan, the Company shall pay to the Bank a facility
fee for each partial or full calendar quarter from and after the
Closing Date until the Revolving Loan Maturity Date equal to the
Applicable Unused Commitment Fee Percentage per annum on the daily
average "Unused Revolving Loan Commitment" (as hereinafter
defined). As used herein, the term "Unused Revolving Loan
---------------------
Commitment" means, as of the time of any determination thereof is
- ----------
to be made, the positive excess, if any, which results by
15
<PAGE> 16
subtracting from the Maximum Availability the sum of the then
outstanding principal amount of the Revolving Loan plus the then
existing aggregate Letter of Credit Exposure. Facility fees for
each calendar quarter shall be due and payable within ten (10) days
following the Bank's submission of a statement of the amount due.
Such fees may be debited by the Bank when due to any demand deposit
account of the Company carried with the Bank without further
authority.
SECTION 2.03. STANDBY LETTERS OF CREDIT.
------------
(a) Standby Letters of Credit -- General. At any
------------------------------------
time that the Company is entitled to an Advance under the Revolving
Loan, the Bank agrees, subject to the terms and conditions of this
Agreement, to issue upon the application of the Company and for the
account of the Company a standby letter of credit for the purpose
of supporting payment of all or any part of the Acquisition Seller
Debt or for any other general business purpose other than Credit
Enhancement (each a "Letter of Credit"), provided that:
---------------- -------- ----
(1) The aggregate Letter of Credit Exposure shall
not at any time exceed Fifteen Million Dollars ($15,000,000);
(2) The Company shall not request and the Bank
shall have no obligation to issue any Letter of Credit: (i) at
any time any Event of Default or Unmatured Event Default shall
have occurred and be continuing; (ii) at any time after the
Revolving Loan Maturity Date; (iii) if, after giving effect to
such issuance, the aggregate Letter of Credit Exposure would
exceed Fifteen Million Dollars ($15,000,000); (iv), if the
face amount of such Letter of Credit would exceed the
Remaining Availability; or (v) for any purpose than to secure
payment of all or any part of the Acquisition Seller Debt;
(3) The Bank in no event shall be obligated to
issue any Letter of Credit: (i) having an expiration date
later than seven (7) years and thirty (30) days from the date
of issuance; or (ii) if the issuance of such Letter of Credit
on the terms requested would be contrary to, or in violation
of the policies of the Bank or any requirement of applicable
law;
(4) The form of the requested Letter of Credit
shall be satisfactory to the Bank in the reasonable exercise
of the Bank's discretion; and
(5) The Bank shall have received from the Company
an application and reimbursement agreement for the Letter of
Credit in form and substance satisfactory to the Bank in all
respects (as the same may be amended, modified, extended,
renewed, supplemented, replaced and/or restated from time to
time and at any time, "Reimbursement Agreement"), duly
-----------------------
executed by an Authorized officer.
16
<PAGE> 17
(b) Letter of Credit Procedures. Whenever the
---------------------------
Company desires the issuance of a Letter of Credit, it shall
deliver to the Bank not later than 11:30 a.m. (Indianapolis time)
at least three Banking Days (or such shorter period as may be
agreed to by the Bank in any particular instance) in advance of the
proposed date of issuance a Reimbursement Agreement duly executed
by an Authorized Officer. Each Reimbursement Agreement shall
include a precise description of the documents and the verbatim
text of any certificate to be presented by the proposed beneficiary
with, or as a part of any Draft; provided that the Bank, in its
sole judgment, may require changes in the description of any such
documents and the text of such certificates; and provided further
that, at the discretion of the Bank, each Letter of Credit shall
provide that payment against a conforming Draft is not required to
be made thereunder prior to the close of business on the third
Banking Day following presentment of such Draft.
(c) Draws under Letters of Credit. Upon
-----------------------------
presentation of a Draft under any Letter of Credit by the
beneficiary thereof, the Bank shall notify the Company of the
receipt thereof ("Draft Notice") not later than one Banking Day
prior to the date on which the Bank intends to honor such Draft.
The Draft Notice may be given by telephone or telecopy. Failure to
give the Draft Notice or to give the Draft Notice in a timely
manner shall not in any way affect or limit the payment obligation
of the Company hereunder. Upon receipt of the Draft Notice, the
Company shall make or cause to be made an irrevocable deposit with
the Bank not later than 1:00 p.m., Indianapolis time, one (1)
Banking Day prior to the day on which the Draft is to be honored,
in an amount equal to the full amount which is to be paid under
such Draft, in good and collected funds (the "Reimbursement
-------------
Amount"), specifying that it is depositing such money for the
- ------
sole purpose of funding the payment of such Draft.
In determining whether to honor any Draft, the Bank shall
be responsible only to determine that the documents and
certificates required to be delivered with such Draft under the
appropriate Letter of Credit have been delivered and that on their
faces they are in substantial compliance with the requirements of
that Letter of Credit. In the event of any conflict between the
terms of any Reimbursement Agreement and the terms of this
Agreement, the terms of this Agreement shall control; and the terms
of a Reimbursement Agreement shall not be deemed to be in conflict
with the terms of this Agreement solely by reason of the fact that
it addresses one or more subject matters that are addressed by this
Agreement and contains provisions that are different from those set
forth in this Agreement.
(d) Reimbursement Obligations of the Company. The
----------------------------------------
Company hereby agrees to reimburse the Bank, on demand, the amount
paid by the Bank to settle its obligations in respect of each Draft
under each Letter of Credit (whether such amount is paid by virtue
of the Bank's honor of any Draft or otherwise) to the extent that
17
<PAGE> 18
a Reimbursement Amount is not available to the Bank for that
purpose, which reimbursement obligation shall be immediate and
automatic, without the necessity of any further act or the
execution of any additional document, instrument, or agreement.
Any Reimbursement Amount that is not paid in full when due shall be
deemed to be and shall constitute a demand loan made to the Company
by the Bank on such due date in the principal amount of the unpaid
Reimbursement Amount (each such loan being referred to herein as a
"Letter of Credit Loan", and collectively as "Letter of
--------------------- --------
Credit Loans", which Letter of Credit Loans shall bear interest,
- ------------
until paid in full, at a per annum rate equal to the Prime Rate
plus Two Percent (2%). A demand for payment of each Reimbursement
Amount and Letter of Credit Loan shall be deemed to have been made
by the Bank on the date of the corresponding payment by the Bank to
settle its obligations under a Draft. Nothing herein is intended
to preclude the Company from requesting an Advance to the extent
available under the Revolving Loan to pay any Reimbursement Amount.
The obligation of the Company to reimburse the Bank in
respect of drawings made under the Letters of Credit shall be
unconditional and irrevocable and Shall be paid strictly in
accordance with the terms of this Agreement and the applicable
Reimbursement Agreement (if and to extent the terms of such
Reimbursement Agreement do not conflict with this Agreement) under
all circumstances, and notwithstanding any of the following
circumstances:
(1) any lack of validity or enforceability of any
Letter of Credit;
(2) the existence of any claim, set-off, defense or
other right which the Company may have at any time against a
beneficiary or any transferee of any Letter of Credit or (or
any Persons for whom any such transferee may be acting), or
any other Person, whether in connection with this Agreement,
the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between the
Company and the beneficiary of any Letter of Credit;
(3) any draft, demand, certificate or any other
document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any
respect;
(4) payment by the Bank under, any Letter of Credit
against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such
Letter of Credit;
(5) any other circumstance or happening whatsoever
which is similar to any of the foregoing; or
18
<PAGE> 19
(6) the fact that an event of Default or Unmatured
Event of Default shall have occurred and be continuing;
provided however, that the Company shall not be obligated
- -------- -------
to reimburse the Bank for any wrongful payment or disbursement made
or to be made by the Bank under any Letter of Credit as a result of
acts or omissions constituting gross negligence or willful
misconduct on the part of the Bank. Payment of a Draft that does
not comply with the terms of the Letter of Credit against which it
is presented shall not in any event be deemed to be wrongful or an
act or omission constituting gross negligence or willful misconduct
on the part of the Bank if such payment is made at the specific
written request of the Company in which the Company waives the
noncompliance of the Draft.
Upon a written request by the Company made in accordance
with the terms of Section 8.02 of this Agreement, the Bank will
undertake to provide to the Company copies of all instruments and
documents constituting a Draft with the Draft Notice, and in the
event the Company has any knowledge (however obtained) of any claim
of noncompliance with the Company's instructions or with the terms
of the Letter of Credit, or of discrepancies or other
irregularities, the Company shall immediately notify the Bank
thereof in writing, and the Company shall be deemed to have waived
any such claim or defense against the Bank related thereto or
arising therefrom unless such notice is given. The Company shall
be deemed to have knowledge of any such claim that is apparent on
the face of copies of instruments and documents constituting a
Draft that are provided to the Company pursuant to the preceding
sentence.
Unless specified to the contrary in the Reimbursement
Agreement for a Letter of Credit, or any amendment to a Letter of
Credit, the Company agrees that the Bank and its correspondents may
receive and accept any Draft drawn or presented under such Letter
of Credit or other document otherwise in order, issued or
purportedly issued by an agent, (executor, trustee in bankruptcy,
receiver or other representative of the party who is authorized
under such Letter of Credit to issue such Draft or other document,
as complying with the terms of such Letter of Credit.
Indemnity. The Company agrees to protect, indemnify
---------
and save the Bank harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys, fees and allocated costs of
internal counsel) which the Bank may incur or be subject to as a
consequence, direct or indirect, of (a) the issuance of the Letters
of Credit, other than as a result of the negligence or willful
misconduct of the Bank, as determined by a court of competent
jurisdiction, or (b) the failure of the Bank to honor a drawing
under any Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or
19
<PAGE> 20
de facto government or governmental authority (all such acts
- --------
or omissions herein called "Government Acts") .
---------------
As between the Company, on the one hand, and the Bank, on
the other, the Company assume all risks of the acts and omissions
of, or misuse of the Letters of Credit by the respective
beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, the Bank shall not be responsible and
shall have no liability (a) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for and issuance of
such Letters of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent
or forged; (b) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (c) for failure of the
beneficiary of any such Letter of Credit to comply fully with the
terms and conditions of the agreements pursuant to which the Letter
of Credit was procured and pursuant to which the beneficiary is
entitled to draw upon such Letter of Credit; (d) for errors,
omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (e) for errors in interpretation
of technical terms; (f) for any loss or delay in the transmission
or otherwise of any document required in order to make a Draft
under any such Letter of Credit or of the proceeds thereof; (g) for
the misapplication by the beneficiary of any such Letter of Credit
of the proceeds of any Draft under such Letter of Credit; (h) for
any consequences arising from causes beyond the control of the
Bank, including, without limitation, any Government Acts; and (i)
for any action taken or omitted by the Bank under or in connection
with the Letters of Credit, if taken or omitted in good faith.
None of the above shall affect, impair, or prevent the vesting of
any of the Bank's rights or powers hereunder.
Following the occurrence of an Event of Default or an
Unmatured Event of Default which is continuing, the Company agrees
that any action taken by the Bank, if taken in good faith, under or
in connection with any of the Letters of Credit, Reimbursement
Agreements and Drafts, shall be binding on the Company, and shall
not subject the Bank to any resulting liability to the Company. In
furtherance thereof, the Bank shall have the full right and
authority, following an Event of Default or Unmatured Event of
Default which is continuing, to (i) clear and resolve any questions
of noncompliance of documents, (ii) to give any instructions as to
acceptance or rejection of any documents or goods, and (iii) to
grant any extensions of the maturity of time of payment for, or
time of presentation of, any drafts, acceptances, or documents.
(e) Letter of Credit Fees. The Company covenants
---------------------
and agrees to pay to the Bank, on the date each Letter of Credit is
20
<PAGE> 21
issued, and on each anniversary of the issue date for as long as
the Letter of Credit is outstanding, a commission equal to the
"Applicable LOC Fee Percentage", (as hereinafter defined) times the
maximum amount available to be drawn under the Letter of Credit as
of the date such commission is due. As used herein, the term
Applicable LOC Fee Percentage means, with respect to any Letter
- -----------------------------
of Credit (i) One-Half Percent (0.5%), if the reimbursement
obligation of the Company to the Bank under the Reimbursement
Agreement and this Agreement for such Letter of Credit is fully
secured by Cash Collateral, and (ii) Three-Quarters Percent
(0.75%), if the reimbursement obligation of the Company to the Bank
under the Reimbursement Agreement and this Agreement for such
Letter of Credit is not fully secured by Cash Collateral. The
commission shall be deemed fully earned and nonrefundable when due.
The Company shall pay the Bank's standard transaction fees with
respect to any transactions occurring on account of any Letter of
Credit. Transaction fees shall be payable upon completion of the
transaction as to which they are charged. All such commissions and
fees may be debited by the Bank to any deposit account of the
Company carried with the Bank without further authority, and in any
event, shall be paid by the Company within ten (10) days following
billing.
SECTION 2.04. THE TERM LOAN.
------------ -------------
(a) The Term Loan -- General. The Bank agrees,
------------------------
subject to the terms and conditions of this Agreement, to loan to
the Company the principal amount of Thirteen Million Dollars
($13,000,000.00) for the term period beginning on the Closing Date
and ending on the Term Loan Maturity Date (the "Term Loan").
(b) The Term Note. The obligation of the Company to
-------------
repay the Term Loan shall be evidenced by a promissory, note
executed by the Company to the Bank in the form of EXHIBIT F
---------
attached hereto (as the same may be amended, modified, extended,
renewed, supplemented, replaced and/or restated from time to time
and at any time, the "Term Note"). The principal of the Term
---------
Loan shall be repayable in equal monthly installments of
$154,761.90 each, which monthly installments shall be due and
payable on the last Banking Day of October, 1996, and on the last
Banking Day of each successive calendar month thereafter until the
Term Loan Maturity Date, at which time the entire principal balance
of the Term Loan and all unpaid, accrued interest thereon, shall be
due and payable in full without demand. Subject to the
contemporaneous payment of any Prepayment Premium which would
become due on account of any proposed prepayment, the principal of
the Term Loan may be prepaid at any time in whole or in part,
provided that any partial prepayment shall be in an amount which is
an integral multiple of Fifty Thousand Dollars ($50,000) and
provided further that all partial prepayments shall be applied to
the latest maturing installments of principal payable under the
Term Loan in inverse order of maturity.
21
<PAGE> 22
(c) Interest on the Term Loan. The principal
-------------------------
balance of the Term Loan outstanding from time to time shall bear
interest from the Closing Date until the Term Loan Maturity Date at
a rate per annum equal to the Prime Rate plus the Applicable
Spread, provided that, at the option of the Company exercised
-------- ----
from time to time as provided in subsection 2.05(a) of this Agreement,
interest may accrue prior to the Term Loan Maturity Date on the entire
outstanding balance of the Term Loan or on any portion thereof as to which no
LIBOR-based Rate previously selected remains in effect at a rate per annum
equal to a LIBOR-based Rate for a period of 30, 60, 90 or 180 days, plus the
Applicable Spread. The Company will not be permitted to elect any LIBOR-based
Rate for a period extending beyond the Scheduled Term Loan Maturity Date.
After the Term Loan Maturity Date, interest will accrue on the Term Loan at a
rate per annum equal to the Prime Rate plus Two Percent (2%). Prior to the
Term Loan Maturity Date, interest shall be due and payable on the last Banking
Day of each month in addition to the installments of principal due on such
dates. After the Term Loan Maturity Date, interest shall be payable as
accrued and without demand.
(d) Use of Proceeds of the Term Loan. The proceeds
--------------------------------
of the Term Loan shall be used in their entirety to refinance
existing Debt of the Company.
SECTION 2.05. Provisions Applicable to Both of the Loans.
------------ ------------------------------------------
The following provisions are applicable to both of the Loans:
(a) Procedures for Electing LIBOR-based Rates -- Certain
----------------------------------------------------
Effects of Election. LIBOR-based Rates may be elected only in
- -------------------
accordance with the following procedures, shall be subject to the following
conditions, and the election of a LIBOR-based Rate shall have the following
consequences in addition to other consequences stated in this Agreement:
(1) The LIBOR-base Rate may be elected only for
Loans or portions of Loans in a minimum amount of
$1,000,000.00. No more than five (5) LIBOR-based Rate
elections may be in effect under a Loan at any one time.
(2) No LIBOR-based Rate may be elected at any time
that an Event of Default or Unmatured Event of Default has
occurred and is continuing.
(3) Voluntary prepayment prior to scheduled
maturity of all or any portion of a Loan on which interest is
accruing at a LIBOR-based Rate shall be subject to
contemporaneous payment of the Prepayment Premium if, at the
time of prepayment, the Reinvestment Rate is less than the
LIBOR-based Rate at which interest accrues on the Loan. A
Prepayment Premium shall also be due and payable on prepayment
of all or any portion of either Loan prior to scheduled
22
<PAGE> 23
maturity because of acceleration of maturity on account of an
Event of Default if, at the time of acceleration of maturity,
the Reinvestment Rate is less than the LIBOR-based Rate at
which interest is accruing on the Loan. If any portion of the
principal balance of the Revolving Loan is required to be
prepaid in order to reduce the balance of the Revolving Loan
on account of the requirement of Section 2.06 of this
Agreement, and while interest is accruing on such portion at
a LIBOR-based Rate, then a Prepayment Premium shall be due and
payable in addition to the principal amount required to be
prepaid, if, at the time such principal payment is required,
Reinvestment Rate is less than the LIBOR-based Rate at which
interest is accruing on such portion of the Loan. If at the
time of any voluntary or mandatory prepayment of any portion
of the principal of any Loan, interest accrues at both a
LIBOR-based Rate or Rates and at a Prime-based Rate on
portions of the Loan, then any prepayment of principal will be
applied first to the portion of the Loan on which interest
accrues at the Prime-based Rate and next to the portion or
portions at which interest accrues at a LIBOR-based Rate or
Rates, and if interest accrues on the Loan at more than one
LIBOR-based Rate, first to that portion or those portions on
which interest accrues at a Rate or Rates which results in no
Prepayment Premium or the lowest Prepayment Premium or
Premiums.
(4) On any Banking Day, the Company may request a
quotation of the LIBOR-based Rates then in effect from the
Bank. As soon as possible, and in any event before the close
of business on the next following Banking Day, the Bank shall
quote such LIBOR-based Rates. The Company shall then have
until the end of the Banking Day on which such quotation is
given or within such shorter time as the Bank may specify, to
exercise its option to elect any LIBOR-based Rate quoted,
subject to all other conditions and limitations stated in this
Agreement. The period for which any LIBOR-based Rate is
effective shall begin on the second Banking Day following the
day on which the quotation is given.
(5) An election of a LIBOR-based Rate may be
communicated to the Bank on behalf of the Company only by an
Authorized Officer. Such election may be communicated by
telephone or by telecopy or any other form of written
electronic communication, or by a writing delivered to the
Bank. At the request of the Bank, the Company shall confirm
any election in writing and such written confirmation shall be
signed by an Authorized Officer. The Bank shall be entitled
to rely on any oral or written electronic communication of an
election of a LIBOR-based Rate which is received by an
appropriate Bank employee from anyone reasonably believed in
good faith by such employee to be an Authorized Officer.
23
<PAGE> 24
(6) The Bank may elect not to quote a LIBOR-based
Rate (the "Unavailable LIBOR-based Rate") to any of its
customers otherwise eligible for the Unavailable LIBOR-based
Rate on any day (the "Unavailability Date") on which the Bank
has determined that it is not practical to quote the
Unavailable LIBOR-based Rate because of the unavailability of
sufficient funds to the Bank for appropriate terms at rates
approximating the then relevant London Interbank Offered Rate,
or because of legal or regulatory changes which make it
impractical or burdensome for the Bank to lend money at the
Unavailable LIBOR-based Rate. In such event, and provided
that no Event of Default or Unmatured Event of Default has
occurred and is continuing, the Company shall be entitled by
written notice given to the Bank within ten (10) days of the
Unavailability Date to continue the LIBOR-based Rate or Rates
then accruing on any portion or portions of the Loans
(regardless of when the such LIBOR-based Rate or Rates
otherwise are scheduled to expire), until the earlier of (i)
that date which is ninety (90) days after the Unavailability
Date, (ii) that date upon which the Bank resumes quoting the
Unavailable LIBOR-based Rate; and (iii) the occurrence of an
Event of Default or Unmatured Event of Default.
(7) If, as a result of any regulatory change, the
basis of taxation of payments to the Bank of the principal of
or any interest on any Loan bearing interest at a LIBOR-based
Rate or any other amounts payable hereunder in respect
thereof, other than taxes imposed on the overall net income of
the Bank, is changed, or any reserve, special deposit, or
similar requirement relating to any extensions of credit or
other assets of or any deposits with or other liabilities of
the Bank are imposed, modified, or deemed applicable, and the
Bank reasonably determines that, by reason thereof, the cost
to it of making, issuing, or maintaining any Loan at a LIBOR-
based Rate is increased by an amount deemed by it to be
material, then the Company shall pay promptly upon demand to
the Bank such additional amounts as the Bank reasonably
determines will compensate for such increased costs
("Increased Costs"); provided, however, that (i) the Bank
shall give the Company ninety (90) days' prior written notice
of the Bank's intention to collect Increased Costs from the
Company ("Increased Cost Notice"), and the Bank shall not be
entitled to pass-through to or collect from the Company
Increased Costs incurred by the Bank prior to that date which
is the ninetieth (90th) day after the delivery of the
Increased Cost Notice to the Company by the Bank, and (ii) the
Company shall not be the only borrower of the Bank that is
singled out from a group of similarly situated borrowers of
the Bank subject to this type of provision that is requested
to remit Increased Costs. Any determination by the Bank of
Increased Costs made pursuant to the provisions of this
section shall be final, absent manifest error.
24
<PAGE> 25
(b) Calculation of Interest. Interest on each of
-----------------------
the Loans shall be calculated on the basis that an entire year's
interest is earned in 360 days.
(c) Manner of Payment - Application. All payments
-------------------------------
of principal and interest on the Loans shall be payable at the
principal office of the Bank in Indianapolis, Indiana, in funds
available for the Bank's immediate use in that city and no payment
will be considered to have been made until received in such funds.
All payments received on account of either of the Loans will be
applied (i) first, to any expenses of collection, (ii) next, to any
late payment fees which are due and payable and other outstanding
Obligations other than principal and interest, (iv) next, to
interest which is due and payable, and (v) next, to principal.
(d) Commitment Fee. The Bank acknowledges receipt
--------------
from the Company of the sum of $10,000 prior to the Closing Date in
partial payment of the $32,500 commitment fee charged by the Bank
for its commitment to make the Term Loan. The unpaid $22,500
balance of such commitment fee shall be paid by the Company to the
Bank at or prior to the execution of this Agreement.
(e) Automatic Debit. The Bank may debit when due
---------------
all payments of principal and interest due under the terms of this
Agreement to any deposit account of the Company carried with the
Bank without further authority.
SECTION 2.06. Mandatory Prepayment. If at any
------------ --------------------
time a determination thereof is to be made, the sum of (a) the
principal balance of the Revolving Loan outstanding at such time,
plus (b) the aggregate Letter of Credit Exposure existing at
- ----
such time, exceeds the Maximum Availability, the Company shall
immediately repay the Revolving Note in an aggregate principal
amount, together with such additional amount as may be necessary,
equal to such excess. If an Event of Default or an Unmatured Event
of Default has occurred and is continuing and the Bank shall have
notified the Company of its election to take any action specified
in Section 7.02 of this Agreement, the Maximum Availability shall
be automatically reduced to $0 without any action on the part of or
the giving of notice to the Company by the Bank.
ARTICLE III.
------------
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 3.01. REPRESENTATIONS AND WARRANTIES. To
------------
induce the Bank to make the Loans, the Company represents and
warrants to the Bank that:
(a) Organization of Company. The Company is a
-----------------------
corporation organized, existing and in good standing under the laws
of the State of West Virginia. The Company is qualified to do
25
<PAGE> 26
business in every jurisdiction in which: (i) the nature of the
business conducted or the character or location of properties owned
or leased, or the residences or activities of employees make such
qualification necessary, and (ii) failure so to qualify might
impair the title of the Company to material properties or the
Company's right to enforce material contracts or result in exposure
of the Company to liability for material penalties in such
jurisdiction. No jurisdiction in which the Company is not
qualified to do business has asserted that the Company is required
to be qualified therein. The principal office and chief executive
office of the Company is located at 67 43rd Street, Wheeling, West
Virginia 26003-7601. The Company does not conduct any material
operations or keep any material amounts of property at any location
other than the locations specified in the Security Agreement. The
Company has not done business under any name other than its present
corporate name at any time during the six years preceding the date
of this Agreement except as disclosed in the Security Agreement.
(b) Authorization; No Conflict. The execution and
--------------------------
delivery of this Agreement, the borrowings hereunder, the execution
and delivery of all of the other Loan Documents and the performance
by the Company of its obligations under this Agreement and all of
the other Loan Documents are within the Company's corporate powers,
have been duly authorized by all necessary corporate action, have
received any required governmental or regulatory agency approvals
and do not and will not contravene or conflict with any provision
of law or of the articles of incorporation or bylaws of the Company
or of any agreement binding upon the Company or its properties.
(c) Validity and Binding Nature. This Agreement and
---------------------------
all of the other Loan Documents are the legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws enacted for the relief of
debtors generally and other similar laws affecting the enforcement
of creditors, rights generally or by equitable principles which may
affect the availability of specific performance and other equitable
remedies.
(d) Financial Statements. (i) The Company has
--------------------
delivered to the Bank its audited Financial Statements as of June
30, 1996, and for the fiscal year of the Company then ended and its
unaudited interim Financial Statements as of August 31, 1996, and
for the month and partial fiscal year then ended, which Financial
Statements have been prepared in accordance with GAAP except, as to
the interim statements, for the absence of a statement of cash
flows, footnotes and adjustments normally made at year end which
are not material in amount. Such Financial Statements present
fairly the financial position of the Company as of the dates
thereof and the results of its operations for the periods covered.
(ii) Since the date of the most current Financial Statement
provided by the Company to the Bank there has been no material
26
<PAGE> 27
adverse change in the financial position of the Company or in the
results of its operations.
(e) Litigation and Contingent Liability. No
-----------------------------------
litigation, arbitration proceedings or governmental proceedings are
pending or to the best of the Company's knowledge threatened
against the Company which would, if adversely determined,
materially and adversely affect its financial position or
continued operations. The Company has no material contingent
liabilities not provided for or disclosed in the Financial
Statements referred to in subsection 3.01(d) of this Agreement or
on EXHIBIT G attached hereto.
---------
(f) Liens. None of the assets of the Company are
-----
subject to any mortgage, pledge, title retention lien, or other
lien, encumbrance or security interest except for liens and
security interests described in subsections 5.02(b)(1) through (7)
of this Agreement.
(g) Employee Benefit Plans. Each Plan maintained by
----------------------
the Company is in material compliance with ERISA, the Code, and all
applicable rules and regulations adopted by regulatory authorities
pursuant thereto, and the Company has filed all reports and returns
required to be filed by ERISA, the Code and such rules and
regulations. No Plan maintained by the Company and no trust
created under any such Plan has incurred any "accumulated funding
deficiency" within the meaning of Section 412(c)(l) of the Code,
and the present value of all benefits vested under each Plan did
not exceed, as of the last annual valuation date, the value of the
assets of the respective Plans allocable to such vested benefits.
The Company has no knowledge that any "reportable event" as defined
in ERISA has occurred with respect to any Plan.
(h) Payment of Taxes. The Company has filed all
----------------
federal, state and local tax returns and tax related reports which
the Company is required to file by any statute or regulation and
all taxes and any tax related interest payments and penalties that
are due and payable have been paid, except for such as are being
contested in good faith and by appropriate proceedings and as to
which appropriate reserves have been established. Adequate
provision has been made for the payment when due of all tax
liabilities which have been incurred, but are not as yet due and
payable.
(i) Investment Company Act. Company is not an
----------------------
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended.
(j) Regulation U. The Company is not engaged
------------
principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying
margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System. Not more than twenty-five
27
<PAGE> 28
percent (25%) of the assets of the Company consists of margin
stock, within the contemplation of Regulation U, as amended.
(k) Hazardous Substances. Except as disclosed on
--------------------
EXHIBIT H attached hereto, to the best knowledge of the Company
- ---------
(i) no premises owned or occupied by or under lease to any Company
have ever been used, and as of the date of this Agreement, no such
premises are being used for any activities involving the use,
treatment, transportation, generation, storage or disposal of any
Hazardous Substances except in compliance with Environmental Laws,
and (ii) no Hazardous Substances have been released on any such
premises in violation of any Environmental Law, nor is there any
threat of release of any Hazardous Substances on any such premises.
(l) Subsidiaries. The Company has no Subsidiaries
------------
as of the date of this Agreement.
(m) Existing Seller Acquisition Debt. The nature
--------------------------------
and outstanding balances of the Existing Seller Acquisition Debt
identified on EXHIBIT C attached hereto is true and accurate in
---------
all respects and the Company is not in default with respect to any
of the Existing Acquisition Seller Debt.
(n) Real Estate Leases. The Company is not in
------------------
default under any of its leases of real estate.
ARTICLE IV.
-----------
SECURITY FOR OBLIGATIONS
------------------------
SECTION 4.01. COLLATERAL FOR THE OBLIGATIONS. The
------------
Obligations will be secured by a security interest in all personal
property of the Company, tangible and intangible, now owned and
existing or hereafter acquired or arising, including, without
limitation, all equipment, inventory, accounts receivable and
general intangibles and all proceeds thereof, which security
interest will be created by a Security Agreement (as the same may
be amended, modified, extended, renewed, supplemented, replaced
and/or restated from time to time and at any time, the "Security
--------
Agreement") in the form attached as EXHIBIT I. The Security
- --------- ---------
Agreement will provide security interests in the collateral
described therein subject only to liens and security interests
described in the exceptions enumerated in subsections 5.02(b)(1)
through (7) of this Agreement. In the event the Company owns or
acquires tangible or intangible personal property that the Bank
deems is or may not be covered as collateral by the Security
Agreement or in which the Bank deems its security interest therein
is or may not be perfected, the Company covenants and agrees
promptly upon the request of the Bank to execute such other
security instruments and documents and take such other actions as
the Bank may require to grant to the Bank a perfected security
interest therein, all of which security instruments and documents
28
<PAGE> 29
shall be in form and substance satisfactory to the Bank in all
respects.
Upon request by the Bank, the Company, covenants and
agrees, within ten (10) days after receiving such request, to grant
to the Bank as security for the Obligations security interests and
liens on all real estate and improvements, including all fixtures,
equipment, furnishings, systems, and related Property located
thereon (collectively, the "Real Estate") now owned or hereafter
acquired and owned by the Company for a period of 90 consecutive
days, including all proceeds thereof, pursuant to real estate
mortgages or deeds of trust in form and substance satisfactory to
the Bank in all respects duly executed, acknowledged and delivered
to the Bank in recordable form. Upon request by the Bank, the
Company covenants and agrees, within ten (10) days after receiving
such request, to grant to the Bank security interest and lien in
and to all of the Company's right, title and interest in any Real
Estate as a lessee thereof pursuant to leasehold mortgages or deeds
of trust in form and substance satisfactory to the Bank in all
respects duly executed, acknowledged and delivered to the Bank in
recordable form. The Company further covenants and agrees to
provide to the Bank at or prior to the execution and delivery of
any real estate mortgages or deeds of trust or leasehold mortgages
or deeds of trust, at the Company's expense: (i) evidence
satisfactory to the Bank showing, in the case of owned Real Estate,
that such Real Estate is owned in fee simple by the Company free
and clear of all liens, encumbrances and exceptions which are not
acceptable to the Bank, and in the case of leased Real Estate,
showing the Company leasehold interest therein; and (ii) a Phase I
environmental assessment (and where reasonably deemed appropriate
by the Bank based upon information disclosed in such assessment, a
Phase II environmental assessment) prepared by a registered
engineer or environmental consultant acceptable to the Bank
confirming there are no material environmental problems associated
with such Real Estate.
ARTICLE V.
----------
AFFIRMATIVE AND
NEGATIVE COVENANTS OF BORROWER
------------------------------
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY.
------------
Until all Obligations of the Company terminate or are paid and
satisfied in full, and for so long as Borrower is entitled to
receive any Advance or any Letter of Credit Exposure exists, the
Company shall strictly observe the following covenants:
(a) Corporate Existence. The Company shall preserve
-------------------
its corporate existence.
29
<PAGE> 30
(b) Reports, Certificates and Other Information.
-------------------------------------------
The Company shall furnish to the Bank copies of the following
Financial Statements, certificates and other information:
(1) Annual Statements. As soon as available
-----------------
and in any event within one hundred and twenty (120) days
after the close of each fiscal year of the Company, annual
audited Financial Statements for the Company, audited by the
Company's Auditors, showing its financial condition and
results of operations as at the close of such fiscal year and
for such fiscal year, all prepared in accordance with GAAP,
accompanied by an opinion of the Company's Auditors, which
opinion shall be without Qualification and shall state that
such audited Financial Statements present fairly the financial
position of the Company as of the date of such Financial
Statements and the results of its operations and changes in
its financial position for the period covered thereby, and
that their examination in connection with such Financial
Statements has been made in accordance with GAAP.
(2) Interim Monthly Statements. As soon as
--------------------------
available and in any event within thirty (30) days after the
end of each calendar month ending after the Closing Date
(other than a calendar month which ends a fiscal quarter of
the Company), unaudited Financial Statements showing its
financial condition and results of operations as at, and for
such calendar month and year-to-date, all in reasonable
detail, and certified to the Bank by the Company's President,
Chief Financial Officer, or Treasurer, together with
comparable prior year-to-date Financial Statements as at the
end of same calendar month of the prior year;
(3) Interim Quarterly Statements. As soon as
----------------------------
available and in any event within forty-five (45) days after
the close of each fiscal quarter of the Company ending after
the Closing Date, unaudited Financial Statements showing its
financial condition and results of operations as at, and for
such fiscal quarter and year-to-date, all in reasonable
detail, prepared in accordance with GAAP (except that footnote
disclosures normally included in Financial Statements prepared
in accordance with GAAP may be condensed or omitted if and to
the extent such condensation or omission is consistent with
past practices of the Company, and if the information so
omitted is not necessary for a fair presentation of the
results for such fiscal quarter), and certified to the Bank by
the Company's President, Chief Financial Officer, or
Treasurer, together with comparable prior year-to-date
Financial Statements as at the end of same fiscal quarter of
the prior year;
(4) Certificates. Contemporaneously with the
------------
furnishing of each set of Financial Statements provided for in
30
<PAGE> 31
subsections 5.01(b)(1) and (2) of this Agreement, an Officer's
Certificate.
(5) Orders. Prompt notice of any orders in any
------
material proceedings to which the Company is a party, issued
by any court or regulatory agency, federal or state, and if
the Bank should so request, a copy of any such order.
(6) Notice of Default or Litigation.
-------------------------------
Immediately upon learning of the occurrence of an Event of
Default or Unmatured Event of Default, or the institution of
or any adverse determination in any litigation, arbitration
proceeding or governmental proceeding which is material to the
Company, or the occurrence of any event which could have a
material adverse effect upon the Company, written notice
thereof describing the same and the steps being taken with
respect thereto.
(7) Compliance Certificates. Within forty-five
-----------------------
(45) days after the end of each calendar month ending after
the Closing Date that is also the end of a calendar quarter,
a certificate of the Chief Financial officer or other
appropriate officer of the Company demonstrating compliance
with the financial covenants stated in subsection 5.01(g) of
this Agreement and compliance with the covenant limiting
capital expenditures of the Company stated in subsection
5.02(k) of this Agreement. Such certificate shall relate the
covenants to the month-end figures and shall otherwise be in
such form and provide such detail as may be reasonably
satisfactory to the Bank.
(8) Registration Statements and Reports.
-----------------------------------
Promptly upon filing with the Securities Commission or any
state securities regulatory authority, copies of all
registration statements and all periodic and special reports
required or permitted to be filed under federal or state
securities laws and regulations.
(9) Other Information. From time to time such
-----------------
other information concerning the Company as the Bank may
reasonably request.
(c) Books, Records and Inspections. The Company
------------------------------
shall maintain complete and accurate books and records, and permit
access thereto by the Bank for purposes of inspection, copying and
audit, and the Company shall permit the Bank to inspect its
properties and operations at all reasonable times.
(d) Insurance. In addition to any insurance
---------
required by any other Loan Documents, the Company shall maintain
such insurance as may be required by law and such other insurance,
to such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated. The
Company agrees to
31
<PAGE> 32
name the Bank as additional insured and lender's loss payee on any such
insurance policy under a standard lender's loss payable clause and to provide
a copy of any such policy to the Bank.
(e) Taxes and Liabilities. The Company shall pay
---------------------
when due all taxes, license fees, assessments and other liabilities
except such as are being contested in good faith and by appropriate
proceedings and for which appropriate reserves have been
established.
(f) Compliance with Legal and Regulatory Requirements.
-------------------------------------------------
The Company shall maintain material compliance with the applicable provisions
of all federal, state and local statutes, ordinances and regulations and any
court orders or orders of regulatory authorities issued thereunder.
(g) Financial Covenants. The Company shall observe
-------------------
each of the following financial covenants:
(1) Net Worth. The Company shall at all times
---------
from and after the Closing Date maintain its Net Worth at a
level not less than (i) Ninety-Five Percent (95%) of its Net
Worth as at the end of the calendar month in which the Closing
Date occurs, (ii) Forty Percent (40%) of the cumulative Net
Income of the Company for each fiscal quarter of the Company
ending after the end of the calendar month in which the
Closing Date occurs, provided, that, such amount shall in no
event be less than zero, (iii) the amount by which Net Worth
is increased by virtue of any sale after the Closing Date by
the Company of any Common Stock and Convertible Securities of
the Company, whether by virtue of a Public offering or any
private placement or other sale (the amount of any such
increase being referred to herein as an "Adjustment Amount"),
-----------------
subject to the terms of subsection 5.01(g)(4) of this Agreement.
(2) Fixed Charge Coverage Ratio. As of the
---------------------------
close of each fiscal quarter of the Company ending after the
Closing Date, the Company, for the period of the four
consecutive fiscal quarters which end on such close, shall
have a Fixed Charge Coverage Ratio of not less than 1.2:1,
subject to the terms of subsection 5.01,(g)(4) of this
Agreement.
(3) Ratio of Total Funded Debt to EBITDA. As
------------------------------------
of the close of each fiscal quarter of the Company ending
after the Closing Date, the Company, for the period of the
four consecutive fiscal quarters which end on such close,
shall have a Ratio of Total Funded Debt to EBITDA of not
greater than (i) 4.00:1 until September 30, 1998, (ii) 3.75
from October 1, 1998, until September 30, 2000, and (iii) 3.50
from October 1, 2000, and thereafter.
32
<PAGE> 33
(4) Special Provision. Solely for the purposes
-----------------
of determining the Company's compliance with the financial
covenants set forth in subsections 5.01(g)(1) and (2) of this
Agreement, in the event the West Dividend is paid by the
Company to West: (i) the West Dividend will be treated as
having been paid by the Company to West on the date the Bank
releases its security interest in the Cash Collateral
described in subsection 5.02(a)(3), notwithstanding the
earlier date of actual payment of the West Dividend by the
Company to West; and (ii) for the purposes of determining the
Company's compliance with subsection 5.01(g)(1)(iii), the
cumulative total of all Adjustment Amounts shall be reduced on
the date the Bank releases its security interest in the Cash
Collateral described in subsection 5.02(a)(3) by the amount of
the West Dividend.
(h) Primary Banking Relationship. Within one
----------------------------
hundred twenty (120) days after the Closing Date, the Company shall
maintain its primary concentration and deposit accounts with the
Bank, provided, that, the Company shall use its best effort to
effect same prior to such date.
(i) Employee Benefit Plans. The Company shall
----------------------
maintain and shall cause any Subsidiary to maintain any Plan in
material compliance with ERISA, the Code, and all rules and
regulations of regulatory authorities pursuant thereto and shall
file and shall cause any Subsidiary to file all reports required to
be filed pursuant to ERISA, the Code, and such rules and
regulations.
(j) Hazardous Substances. If the Company or any
--------------------
Subsidiary should commence the use, treatment, transportation,
generation, storage or disposal of any Hazardous Substance in
reportable quantities in its operations in addition to those noted
in EXHIBIT H attached hereto, the Company shall immediately
---------
notify the Bank of the commencement of such activity with respect
to each such Hazardous Substance. The Company shall cause any
Hazardous Substances which are now or may hereafter be used or
generated in the operations of the Company or any Subsidiary in
reportable quantities to be accounted for and disposed of in
compliance with all Environmental Laws and other applicable
federal, state and local Laws and regulations. The Company shall
notify the Bank immediately upon obtaining knowledge that:
(1) any premises which have at any time been owned
or occupied by or have been under lease to the Company or any
Subsidiary are the subject of an environmental investigation
by any federal, state or local governmental agency having
jurisdiction over the regulation of any Hazardous Substances,
the purpose of which investigation is to quantify the levels
of Hazardous Substances located on such premises, or
(2) the Company or any Subsidiary has been named or
is threatened to be named as a party responsible for the
33
<PAGE> 34
possible contamination of any real property or ground water
with Hazardous Substances, including, but not limited to the
contamination of past and present waste disposal sites.
If the Company or any Subsidiary is notified of any event
described in subsections 5.01(j)(1) or (2) above, the Company shall
immediately engage or cause the Subsidiary to engage a firm or
firms of engineers or environmental consultants appropriately
qualified to determine as quickly as practical the extent of
contamination and the potential financial liability of the Company
or the Subsidiary with respect thereto, and the Bank shall be
provided with a copy of any report prepared by such firm or by any
governmental agency as to such matters as soon as any such report
becomes available to the Company, and Company shall immediately
establish reserves in the amount of the potential financial
liability of the Company or the Subsidiary identified by such
environmental consultants or engineers. The selection of any
engineers or environmental consultants engaged pursuant to the
requirements of this Section shall be subject to the approval of
the Bank, which approval shall not be unreasonably withheld.
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY.
------------
Until all obligations of the Company terminate or are paid and
satisfied in full, and so long as Borrower is entitled to receive
any Advance or any Letter of Credit exists, the Company shall
strictly observe the following covenants:
(a) Restricted Payments. The Company shall not
-------------------
purchase or redeem any shares of the Common Stock or declare or pay
any dividends thereon except for dividends payable entirely in
Common Stock, or make any other distributions to shareholders as
shareholders, or set aside any funds for any such purpose, or
prepay, purchase or redeem any subordinated indebtedness of the
Company; provided that:
-------- ----
(1) The Company may pay cash dividends not to
exceed an aggregate of $250,000 in any calendar year to
shareholders on their Common Stock if no Event of Default or
Unmatured Event of Default has occurred and is continuing at
the time of such payment and if no Event of Default or
Unmatured Event of Default would result from such payment;
(2) In addition to the cash dividends described in
subsection 5.02(a)(1) above, the Company may pay dividends to
shareholders on their Common Stock, from Net Income for any
fiscal year of the Company during which the Company is an "S
corporation" as defined in the Code (an "S Year") at the
------
maximum Permissible Dividend Rate (as hereafter defined), but
only during the first three fiscal quarters of the following
fiscal year and only if no Event of Default or Unmatured Event
of Default has occurred and is continuing at the time of such
payment and if no Event of Default or Unmatured Event of
Default would result from such payment. For purposes of this
34
<PAGE> 35
subsection, the term "Maximum Permissible Dividend Rate"
---------------------------------
means a dividend rate determined as follows: The Company
shall determine the net increase in federal income tax and
state adjusted gross income tax liabilities of each of its
shareholders for the S Year on account of items of income,
loss, or credit of the Company attributable to the respective
shareholders for federal income tax and state adjusted gross
income tax purposes. The Company shall then divide the amount
so determined with respect to each shareholder by the number
of shares of the Common Stock held by that shareholder. The
highest quotient obtained by such calculation shall be the
Maximum Permissible Dividend Rate.
(3) In addition to the cash dividends described in
subsections 5.02(a)(1) and (2) above, the Company may pay a
lump sum cash dividend to Gary E. West as a shareholder on his
Common Stock ("West Dividend") in an amount not to exceed
-------------
the lesser of (i) "the accumulated adjustment account" (as
such term is defined in Section 1368 of the Internal Revenue
Code) of the Company, or (ii) $7,000,000, provided that:
-------- ----
(a) immediately prior to the payment of the West Dividend Gary E. West is
the sole shareholder of the Company; and (b) immediately upon and
concurrently with the payment of the West Dividend Payment to West, West
shall pledge and deliver the full amount of the West Dividend to the Bank
as Cash Collateral to secure payment of all of the obligations.
Provided that no Event of Default or Unmatured Event of
Default has occurred and is continuing, the Bank shall release
its security interest in such Cash Collateral upon the earlier
of (i) the date upon which the obligations are fully paid and
the Bank has no further obligation to issue Advances or
Letters of Credit; and (ii) the date upon which (A) the
cumulative total of all Adjustment Amounts shall exceed the
amount of the West Dividend, and (B) the level of the Net
Worth of the Company shall be restored to the level of Net
Worth of the Company that existed immediately prior to the
payment of the West Dividend to West, and (C) the Bank shall
have received an opinion of counsel from Gary E. West
satisfactory to the Bank covering such matters as the Bank may
reasonably require.
Notwithstanding the foregoing, the cash dividends paid by
the Company in any calendar year under subsections 5.02(a)(1) and
(2) of this Agreement shall not exceed in the aggregate the Net,
Income of the Company during such calendar year.
(b) Liens. The Company shall not create or permit
-----
to exist any mortgage, pledge, title retention lien or other lien,
encumbrance or security interest (all of which are hereafter
referred to in this subsection as a "lien" or "liens") with respect
to any property or assets now owned or hereafter acquired,
including, without limitation any of the Company's rights, title
35
<PAGE> 36
and interests in and to any Real Estate, whether leased or owned,
except:
(1) liens in favor of the Bank created pursuant to
the requirements of this Agreement or otherwise;
(2) any lien or deposit with any governmental
agency required or permitted to qualify the Company to conduct
business or exercise any privilege, franchise or license, or
to maintain self-insurance or to obtain the benefits of or
secure obligations under any law pertaining to worker's
compensation, unemployment insurance, old age pensions, social
security or similar matters, or to obtain any stay or
discharge in any legal or administrative proceedings, or any
similar lien or deposit arising in the ordinary course of
business;
(3) any mechanic's, worker's, repairmen's,
carrier's, warehousemen's or other like liens arising in the
ordinary course of business for amounts not yet due and for
the payment of which adequate reserves have been established,
or deposits made to obtain the release of such liens;
(4) easements, licenses, minor irregularities in
title or minor encumbrances on or over any real property which
do not, in the judgment of the Bank, materially detract from
the value of such property or its marketability or its
usefulness in the business of the Company;
(5) liens for taxes and governmental charges which
are not yet due or which are being contested in good faith and
by appropriate proceedings and for which appropriate reserves
have been established;
(6) liens created by or resulting from any
litigation or legal proceeding which is being contested in
good faith and by appropriate proceedings and for which
appropriate reserves have been established;
(7) those liens in favor of Acquisition Sellers
which secure Acquisition Seller Debt, including those liens in
favor of Existing Acquisition Sellers which secure Acquisition
Seller Debt as described on EXHIBIT J attached, hereto;
---------
provided that (i) the maximum aggregate amount of Acquisition
-------- ----
Seller Debt secured by such liens shall be $6,000,000 and (ii) the
Acquisition Seller holding any such lien is a party to (a) the
Intercreditor Agreements, or (b) other intercreditor and subordination
agreement with the Bank and the Company in substance and form the same as
the Intercreditor Agreements and in all events satisfactory to the Bank
in all respects; and
36
<PAGE> 37
(8) liens on property that secure only Debt
incurred for the purchase price of such property, but only to
the extent such Debt is permitted under Section 5.02(m)(iii)
of this Agreement and to the extent such Debt is not greater
than the fair market value of such property.
(c) Guaranties. The Company shall not be a
----------
guarantor or surety of, or otherwise be responsible in any manner
with respect to any undertaking of any other person or entity,
whether by guaranty agreement or by agreement to purchase any
obligations, stock, assets, goods or services, or to supply or
advance any funds, assets, goods or services, or otherwise, except
for:
(1) guaranties in favor of the Bank;
(2) guaranties by endorsement of instruments for
deposit made in the ordinary course of business; and
(3) those specific existing guaranties listed on
EXHIBIT K attached hereto.
---------
(d) Loans or Advances. The Company shall not make
-----------------
or permit to exist any loans or advances; to any other person or
entity, except for:
(1) extensions of credit or credit accommodations
to customers or vendors made by the Company in the ordinary
course of its business as now conducted;
(2) reasonable salary advances to non-executive
employees, and other advances to agents and employees for
anticipated expenses to be incurred on behalf of the Company
in the course of discharging their assigned duties;
(3) loans made to employees of the Company in
accordance with the Company's customary employee loan program,
provided that, the amount of each loan made to any such
employee shall not exceed a principal amount in excess of such
employee's salary for two (2) pay periods for a term not to
exceed twelve (12) pay periods for such employee;
(4) the specific items listed on EXHIBIT L
---------
attached hereto.
(e) Mergers, Consolidations, Sales, Acquisition or
----------------------------------------------
Formation of Subsidiaries. The Company shall not be a party to
- -------------------------
any consolidation or to any merger and shall not purchase the
capital stock of or otherwise acquire any equity interest in any
other business entity other than New Acquisitions. The Company
shall not acquire any material part of the assets of any other
business entity other than New Acquisitions, except in the ordinary
course of business. The Company shall not sell, transfer, convey
or lease all or any material part of its assets, except in the ordinary
37
<PAGE> 38
course of business, or sell or assign with or without
recourse any receivables. The Company shall not cause to be
created or otherwise acquire any Subsidiaries without the prior
written consent of the Bank.
(f) Margin Stock. The Company shall not use or
------------
cause or permit the proceeds of the Loans to be used, either
directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, as amended from time to time.
(g) Other Agreements. The Company shall not enter
----------------
into any agreement containing any provision which would be violated
or breached in material respect by the performance of its
obligations under this Agreement or under any other Loan Document.
(h) Judgments. The Company shall not permit any
---------
uninsured judgment or monetary penalty rendered against it in any
judicial or administrative proceeding to remain unsatisfied for a
period in excess of forty-five (45) days unless such judgment or
penalty is being contested in good faith by appropriate proceedings
and execution upon such judgment has been stayed, and unless an
appropriate reserve has been established with respect thereto.
(i) Principal Office. The Company shall not change
----------------
the location of its principal office unless it gives not less than
ten (10) days prior written notice of such change to the Bank.
(j) Hazardous Substances. The Company shall not
--------------------
allow or permit to continue the release or threatened release of
any Hazardous Substance on any premises owned or occupied by or
under lease to the Company or any Subsidiary, except as permitted
by and in accordance with that certain permit No. 25656 issued by
the Allegheny Health Department, State of Pennsylvania, a copy of
which is attached hereto as EXHIBIT M.
---------
(k) Lease Obligations. The Company shall not incur
-----------------
obligations under any Capital Leases.
(l) Additional Debt. The Company shall not create,
---------------
incur, assume or suffer to exist any Debt or liability on account
of deposits or advances or for borrowed money or for the deferred
purchase price of any property or services or for Capital Lease
obligations, except (i) Acquisition Seller Debt, (ii) the
Obligations, (iii) Debt incurred to finance the acquisition of
property and secured only by a security interest in the property so
acquired, provided that, the amount of all such Debt outstanding
shall not exceed $1,000,000 in the aggregate at any time, and
(iv) the existing Debt for borrowed money disclosed on
EXHIBIT N attached hereto.
- ---------
38
<PAGE> 39
ARTICLE VI.
-----------
LENDING CONDITIONS
------------------
SECTION 6.01. CONDITIONS OF LENDING. The obligation
------------
of the Bank to make any Advance, to make the Term Loan and to issue
any Letters of Credit shall be subject to fulfillment of each of
the following conditions precedent:
(a) No Default. No Event of Default or Unmatured
----------
Event of Default shall have occurred and be continuing, and the
representations and warranties of the Company contained in Section
3.01 of this Agreement shall be true and correct as of the date of
this Agreement and as of the date of each Advance, except that
after the date of this Agreement: (i) the representations
contained in subsection 3.01(d)(ii) of this Agreement will be
construed so as to refer to the latest Financial Statements
furnished to the Bank by the Company pursuant to the requirements
of this Agreement, (ii) the representations contained in subsection
3.01(k) (with respect to Hazardous Substances) will be construed so
as to apply not only to the Company, but also to any Subsidiaries,
(iii) the representation contained in subsection 3.01(l) of this
Agreement will be construed so as to except any Subsidiary which
may hereafter be formed or acquired by the Company with the consent
of the Bank, and (iv) all other representations will be construed
to have been amended to conform with any changes of which the Bank
shall previously have been given notice in writing by the Company.
(b) Documents and other Items to be Furnished at Closing.
----------------------------------------------------
The Bank shall have received contemporaneously with the execution of this
Agreement, the following, each duly executed, currently dated (as applicable)
and in form and substance satisfactory to the Bank:
(1) The Revolving Note and the Term Note.
(2) The Security Agreement.
(3) The Intercreditor Agreements.
(4) A certified copy of a Resolution of the Board
of Directors of the Company authorizing the execution,
delivery and performance, respectively, of this Agreement and
the other Loan Documents provided for in this Agreement to
which the Company is a party.
(5) A certificate of the Secretary of the Company
certifying the names of the officer or officers authorized to
sign this Agreement and the other Loan Documents provided for
in this Agreement to which the Company is a party, together
with a sample of the true signature of each such officer.
39
<PAGE> 40
(6) A copy of the file-marked Articles of
Incorporation of the Company certified as complete and correct
by the Secretary of State of West Virginia, and a copy of the
By-Laws of the Company, certified as complete and correct by
the Secretary of the Company.
(7) A currently dated certificate of existence of
the Company issued by the Secretary of State of West Virginia
and certificates of good standing for each other state in
which the Company engages in business.
(8) The opinion of counsel for the Company
addressed to the Bank to the effect that the representations
stated in subsections 3.01(a), (b), (c), (i) and (1) of this
Agreement are correct. Such opinion shall be in such form as
may be reasonably acceptable to the Bank.
(9) Certificates evidencing the existence of all
insurance required under the terms of this Agreement or any
other Loan Documents.
(10) Payment to the Bank of the $22,500 unpaid
balance of the commitment fee described in subsection 2.05(d)
of this Agreement, together with payment to the Bank of an
amount not to exceed $5,000 in reimbursement for expenses
incurred by the Bank in conducting its preclosing collateral
audit.
(11) Such other documents as the Bank may reasonably
require.
(c) Documents to be Furnished at Time of Each Advance.
-------------------------------------------------
The Bank shall have received the following prior to making any Advance, each
duly executed and currently dated, unless waived at the Bank's discretion as
provided in subsection 2.02(b) of this Agreement:
(1) An Application for a Revolving Loan Advance.
(2) An Officer's Certificate.
(3) Such other documents as the Bank may reasonably
require.
ARTICLE VII.
------------
EVENTS OF DEFAULT--ACCELERATION
-------------------------------
SECTION 7.01. EVENTS OF DEFAULT. Each of the
------------
following shall constitute an Event of Default under this
Agreement:
(a) Nonpayment of the Loans. Default in the payment
-----------------------
when due of any amount payable under the terms of either of the
40
<PAGE> 41
Notes, or otherwise payable to the Bank or any other holder of the
Notes under the terms of this Agreement.
(b) Nonpayment of Other Debt. Default by the
------------------------
Company in the payment when due, whether by acceleration or
otherwise, of any other material Debt for borrowed money, or
default in the performance or observance of any obligation or
condition with respect to any such other Debt if the effect of such
default is to accelerate the maturity of such other Debt or to
permit the holder or holders thereof, or any trustee or agent for
such holders, to cause such Debt to become due and payable prior to
its scheduled maturity, unless the Company is contesting the
existence of such default in good faith and by appropriate
proceedings.
(c) Other Material Obligations. Subject to the
--------------------------
expiration of any applicable grace period, default by the Company
in the payment when due, or in the performance or observance of any
material obligation of, or condition agreed to by the Company with
respect to any material purchase or lease of goods, securities or
services except only to the extent that the existence of any such
default is being contested in good faith and by appropriate
proceedings and that appropriate reserves have been established
with respect thereto.
(d) Bankruptcy, Insolvency, etc. The Company
---------------------------
admitting in writing its inability to pay its debts as they mature
or an administrative or judicial order of dissolution or
determination of insolvency being entered against the Company; or
the Company applying for, consenting to, or acquiescing in the
appointment of a trustee or receiver for the Company or any
property thereof, or the Company making a general assignment for
the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee or receiver being appointed for
the Company or for a substantial part of its property and not being
discharged within sixty (60) days; or any bankruptcy,
reorganization, debt arrangement, or other proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation
proceeding being instituted by or against the Company, and, if
involuntary, being consented to or acquiesced in by the Company or
remaining for sixty (60) days undismissed.
(e) Warranties and Representations. Any warranty or
------------------------------
representation made by the Company in this Agreement proving to
have been false or misleading in any material respect when made, or
any schedule, certificate, financial statement, report, notice, or
other writing furnished by the Company to the Bank proving to have
been false or misleading in any material respect when made or
delivered, provided that the foregoing shall not be deemed to be an
Event of Default until the Bank gives the Company ten (10) days'
prior written notice of same.
41
<PAGE> 42
(f) Violations of Negative and Financial Covenants.
----------------------------------------------
Failure by the Company to comply with or perform any covenant
stated in subsection 5.01(g), or Section 5.02 of this Agreement.
(g) Noncompliance With Other Provisions of this Agreement.
-----------------------------------------------------
Failure of the Company to comply with or perform any covenant or other
provision of this Agreement or to perform any other Obligation (which failure
does not constitute an Event of Default under any of the preceding provisions
of this Section 7.01) and continuance of such failure for thirty (30) days
after notice thereof to the Company from the Bank.
SECTION 7.02. EFFECT OF EVENT OF DEFAULT. If any
------------
Event of Default described in Section 7.01 of this Agreement shall
occur, maturity of the Loans shall immediately be accelerated and
the Notes and the Loans evidenced thereby, and all other
indebtedness and any other payment Obligations of the Company to
the Bank shall become immediately due and payable, and the
obligation of the Bank to make any Advance or issue any Letter of
Credit shall immediately terminate, all without notice of any kind.
When any other Event of Default has occurred and is continuing, the
Bank or any other holder of the Notes may accelerate payment of the
Loans and declare the Notes and all other payment Obligations due
and payable, whereupon maturity of the Loans shall be accelerated
and the Notes and the Loans evidenced thereby, and all other
payment Obligations shall become immediately due and payable and
the obligation of the Bank to make any Advance or issue any Letter
of Credit shall immediately terminate, all without notice of any
kind. The Bank or such other holder shall promptly advise the
Company of any such declaration, but failure to do so shall not
impair the effect of such declaration. The remedies of the Bank
specified in this Agreement or in any other Loan Document shall not
be exclusive, and the Bank may avail itself of any other remedies
provided by law as well as any equitable remedies available to the
Bank.
ARTICLE VIII.
-------------
MISCELLANEOUS
-------------
SECTION 8.01. WAIVER -- AMENDMENTS. No delay on the
------------
part of the Bank, or any holder of the Notes in the exercise of any
right, power or remedy shall operate as a waiver thereof, nor shall
any single or partial exercise by any of them of any right, power
or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy. No amendment,
modification or waiver of, or consent with respect to any of the
provisions of this Agreement or the other Loan Documents or
otherwise of the obligations shall be effective unless such
amendment, modification, waiver or consent is in writing and signed
by the Bank.
SECTION 8.02. NOTICES. Any notice given under or
------------
with respect to this Agreement to the Company or the Bank shall be in
42
<PAGE> 43
writing and, if delivered by hand or sent by overnight courier
service, shall be deemed to have been given when delivered and, if
mailed, shall be deemed to have been given five (5) days after the
date when sent by registered or certified mail, postage prepaid,
and addressed to the Company or the Bank (or other holder of the
Notes) at its address shown below, or at such other address as any
such party may, by written notice to the other party to this
Agreement, have designated as its address for such purpose. The
addresses referred to are as follows:
The Company: Valley National Gases, Inc.
67 43rd Street
Wheeling, West Virginia 26003-7601
Attention: President
The Bank: Bank One, Indianapolis, NA
Bank One Center/Tower - Suite 1911
111 Monument Circle
P.O. Box 7700
Indianapolis, Indiana 46277
Attention: Manager, Regional Department A
SECTION 8.03. COSTS, EXPENSES AND TAXES. The
------------
Company agrees to pay (without duplication), all of the following
fees, costs and expenses incurred by the Bank: (i) all reasonable
costs and expenses in connection with the negotiation, preparation,
printing, typing, reproduction, execution and delivery of the Loan
Documents and any and all other documents furnished pursuant hereto
or in connection herewith, and all investigation of and due
diligence regarding the Company and the security for the
obligations undertaken and performed with respect thereto,
including without limitation the reasonable fees and out-of-pocket
expenses of Messrs. Baker & Daniels, special counsel to the Bank,
and local counsel for the State of Tennessee and Maryland (if any)
retained by the Bank relative thereto (or, but not as well as the
reasonable allocated costs of staff counsel) as well as the fees
and out-of-pocket expenses of counsel, independent public
accountants and other outside experts retained by the Bank, and in
connection with the foregoing and the administration of this
Agreement, (ii) all reasonable costs and expenses in connection
with the negotiation, preparation, printing, typing, reproduction,
execution and delivery of any amendments or modifications of (or
supplements to) any of the foregoing and any and all other
documents furnished pursuant thereto or in connection therewith,
and all investigation of and due diligence regarding the Company
and the security for the obligations undertaken and performed with
respect thereto, including without limitation the reasonable fees
and out-of-pocket expenses of counsel retained by the Bank relative
thereto (or, but not as well as the reasonable allocated costs of
staff counsel) as well as the fees and out-of-pocket expenses of
counsel, independent public accountants and other outside experts
retained by the Bank, and in connection with the foregoing and the
administration of this Agreement, (iii) all search fees, appraisal
43
<PAGE> 44
fees and expenses, title insurance policy fees, costs and expenses
and filing and recording fees and taxes and, (iv) all costs and
expenses (including, without limitation, reasonable attorneys' fees
and expenses of the Bank), if any, in connection with the
enforcement of this Agreement, any Note and/or any other Loan
Documents or other agreement furnished pursuant hereto or thereto
or in connection herewith or therewith. In addition, the Company
shall pay any and all stamp, transfer and other similar taxes
payable or determined to be payable in connection with the
execution and delivery of this Agreement, or any of the other Loan
Documents or the issuance of any Note or the making of any of the
Loans, and agrees to save and hold the Bank harmless from and
against any and all liabilities with respect to or resulting from
any delay in paying, or omission to pay, such taxes. Any portion
of the foregoing fees, costs and expenses which remains unpaid
following the Bank's statement and request for payment thereof
shall bear interest from the date of such statement and request to
the date of payment at a per annum rate equal to the Prime Rate
plus Two Percent (2%).
SECTION 8.04. SEVERABILITY. If any provision of
------------
this Agreement or any other Loan Document is determined to be
illegal or unenforceable, such provision shall be deemed to be
severable from the balance of the provisions of this Agreement or
such Document and the remaining provisions shall be enforceable in
accordance with their terms.
SECTION 8.05. CAPTIONS. Section captions used in
------------
this Agreement are for convenience only and shall not affect the
construction of this Agreement.
SECTION 8.06. GOVERNING LAW. Except as may
------------
otherwise be expressly provided in any other Loan Document, this
Agreement and all other Loan Documents are made under and will be
governed in all cases by the substantive laws of the State of
Indiana, notwithstanding the fact that Indiana conflicts of law
rules might otherwise require the substantive rules of law of
another jurisdiction to apply. THE COMPANY WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON THE COMPANY AND AGREES THAT ALL SERVICE
OF PROCESS MAY BE MADE BY MESSENGER, BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, OR BY REGISTERED MAIL DIRECTED TO THE COMPANY AT
THE ADDRESS STATED IN SECTION 8.02 OF THIS AGREEMENT. NOTHING
CONTAINED IN THIS SECTION SHALL AFFECT THE RIGHT OF THE BANK TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 8.07. PRIOR AGREEMENTS, ETC. This Agreement
------------
supersedes all previous agreements and commitments made by the Bank
and the Company with respect to the Loans and all other subjects of
this Agreement, including, without limitation, any oral or written
proposals or commitments made or issued by the Bank.
SECTION 8.08. SUCCESSORS AND ASSIGNS. This
------------
Agreement and the other Loan Documents shall be binding upon and
shall inure
44
<PAGE> 45
to the benefit of the Company and the Bank and their
respective successors and assigns, provided that the Company's
rights under this Agreement shall not be assignable without the
prior written consent of the Bank.
SECTION 8.09. WAIVER OF JURY TRIAL. THE BANK AND
------------
THE COMPANY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
TRIAL BY JURY OF ANY DISPUTE OR CLAIM, WHETHER BASED UPON CONTRACT
OR ALLEGED WRONGFUL ACT OR OMISSION, WHICH DISPUTE OR CLAIM ARISES
OUT OF, OR IS INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THE COMPANY AND THE BANK BY THIS OR ANY OTHER LOAN DOCUMENT. THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO ENTER INTO THIS
AGREEMENT.
SECTION 8.10. POST-CLOSING ITEMS. The Company
------------
hereby covenants and agrees that within thirty (30) days after the
Closing Date, either (a) the Bank shall receive from each of Fort
Pitt Paint and Welders Supply Co. ("Fort Pitt") and Harry Green
("Green"), respectively, intercreditor and subordination agreements
executed by the Bank and each of Fort Pitt and Green, each in form
and substance satisfactory to the Bank in all respects, or (b) all
of the Existing Acquisition Seller Debt owed by the Company to each
of Fort Pitt and Green shall be fully paid and all security
interests and liens of each of Fort Pitt and Green in or on any
assets of the Company shall be terminated and released. In the
event the Bank notifies the Company at any time after the Closing
Date that the Bank has discovered UCC filings of record against the
Company which do not perfect or otherwise relate to Permitted
Liens, the Company shall cause such UCC filings to be released and
terminated of record within forty-five (45) days after such notice,
provided that, nothing herein shall waive or be deemed to be a
waiver of the Bank's rights to declare an Event of Default by
reason of the existence of such UCC filings.
45
<PAGE> 46
IN WITNESS WHEREOF, the Bank and the Company have by
their duly authorized officers executed this Agreement on the date
first set forth above.
VALLEY NATIONAL GASES, INC.,
A West Virginia corporation
By: /s/ Lawrence E. Bandi
----------------------------------------------
Printed: Lawrence E. Bandi
-----------------------------------------
Title: President & CEO
-------------------------------------------
(the "Company")
BANK ONE, INDIANAPOLIS, NATIONAL
ASSOCIATION
By: /s/ Scott J. Brown
----------------------------------------------
Printed: Scott J. Brown
-----------------------------------------
Title: Vice President
-------------------------------------------
(the "Bank")
46
<PAGE> 47
BANK ONE, INDIANAPOLIS, NA
Indianapolis IN 46277
BANK1ONE
January 3, 1997
Robert D. Scherich
Chief Financial Officer
Valley National Gases, Inc.
67 43rd Street
Wheeling, WV 26003
Dear Bob:
Bank One, Indianapolis, NA has approved a modification to the
Credit Agreement concerning the "West Dividend". Section
5.02(a)(3)(ii) will be modified form $7,000,000 to $8,500,000.
This will permit Valley National Gases, Inc. "the Company" to pay
Gary E. West the lesser of the "accumulated adjustment account"
or "$8,500,000" from the proceeds of the pending IPO.
This is a one time modification to the Credit Agreement. If you
need any additional information or have questions, please feel
free to contact me.
Sincerely,
/s/ Stacey E. Roberts
Stacey E. Roberts
Assistant Vice President
/bjt
<PAGE> 1
"ADDENDUM #1"
THIS AGREEMENT, made November 1, 1996 by and between WEST
RENTALS, INC., party of the first part as "LESSOR", said party
being of the City of Wheeling, Ohio County, West Virginia, VALLEY
NATIONAL GASES, INC., party of the second part as "LESSEE", whereby
the parties agree as follows:
LESSOR, in consideration of the rents to be paid and
covenants to be performed by LESSEE hereunder, hereby leases to
LESSEE for the term and subject to the covenants and conditions
hereinafter set forth, the following described premises:
SEE SCHEDULE "A"
TO HAVE AND TO HOLD the above described real estate for
the term of (1) TEN YEARS commencing on November 1, 1996 and end
October 31, 2006 accordingly.
LESSEE for and in consideration of the premises and
covenants aforesaid hereby obligates and binds itself to pay or
cause to be paid unto said LESSOR, its heirs, administrators,
executors, and assigns, the just and minimum sum according to the
following schedule:
NOVEMBER 01, 1996 - OCTOBER 31, 2001
------------------------------------
$7,437,000.00, payable in (60) SIXTY installments $123,950.00 each,
NOVEMBER 01, 1996 - OCTOBER 31, 2001
------------------------------------
THE MINIMUM OF $7,437,000.00, PAYABLE IN (60) SIXTY INSTALLMENTS
$123,950,00 EACH TIMES THE DIFFERENCE BETWEEN THE CPI (1967 100)
SERIES "A" 1996 AND THE CPI SERIES "A" 2001,
payable monthly in advance, with the first said installments to be
paid on the first day of the month of occupancy hereinabove
referred to and each of the $123,950.000 minimum installments to be
paid on the first day of each and every succeeding month
thereafter.
LESSOR does further grant to LESSEE the option of
renewing this lease for an additional period of FIVE (5) years and
upon the same terms and conditions as are herein contained, except
that the rental shall be in an amount to be agreed upon between the
parties; provided, however that notice of such intention to renew
must be served in writing by LESSEE upon LESSOR at least sixty (60)
days before said expiration date.
IN the event the said parties shall be damaged by fire,
flood, storm, civil commotion, or other unavoidable cause, to an
extent not repairable within ninety (90) days from the date of such
damage, this lease shall terminate as of the date of such damage.
And it is further agreed that the said LESSOR, its heirs,
administrators, executors and assigns, may enter into and upon the
said leased premises at reasonable hours in the
<PAGE> 2
daytime, from ten o'clock in the morning to five o'clock in the afternoon,
to examine the same and for three (3) months next preceding the expiration
of said terms to permit the usual notices of "FOR RENT" and "FOR SALE"
to be placed on any outside wall of said premises and remain
thereon without hindrance or molestation.
The said LESSEE hereby agrees that it will not transfer
or assign this lease, or sublet or underlet the premises aforesaid
or any part thereof, without the written consent of the said
LESSOR, its heirs, administrators, executors and assigns, which
consent shall not be unreasonably or arbitrarily withheld.
the said LESSEE covenants and agrees that it will during
the term of this lease, maintain and take good care of the exterior
and interior of the Premises including the HVAC equipment and
system and plumbing and all equipment and fixture therein; except
that LESSOR shall be responsible for replacements to the roof,
foundation, and exterior walls. The LESSEE shall repair and
maintain the parking areas, roadways, curbs, sidewalks, and fences
as are necessitated by normal wear and tear.
LESSEE may, at its own expense, either at the
commencement of or during the term of this lease, make such
alterations in and/or addition to the leased premises, including,
without prejudice to the generality of the foregoing, alterations
in the water, gas, and electric wiring systems, as may be necessary
to fit the same for its business, upon first obtaining the written
approval of the LESSOR as to the materials to be used and the
manner of making such alterations and/or additions proposed to be
made by LESSEE. LESSEE may also, at its own expense, install such
counters, racks, shelving, fixtures, fittings, machinery and
equipment upon or within the leased premises as LESSEE may consider
necessary to the conduct of its business. At any time prior to the
expiration or earlier termination of this lease, LESSEE may remove
any or all such alterations, additions, or installations in such
manner as will not substantially injure the leased premises. In
the event LESSEE shall elect to make any such removal, LESSEE shall
restore the premises, or the portion or portions affected by such
removal, to the same condition as existed prior to the making of
such alterations, addition or installation, ordinary wear and tear,
damage or destruction by fire, flood, storm, civil commotion or
other unavoidable cause excepted. All alterations, additions or
installations not so removed by LESSEE shall become the property of
LESSOR, without liability on LESSOR's part to pay for the same.
Any person or persons employed by the said LESSEE in the making of
any alterations or improvements shall do so at his own risk, and
LESSEE has no authority to do anything in relation to the premises
leased which will give any person or persons the right of a
mechanic's or other lien on said premises, or any part thereof.
And it is expressly agreed between the parties hereto
that any indulgence in not enforcing prompt payment of any
installment of rent when due, or any other indulgence or deviation
from the condition herein granted to the said LESSEE by said
LESSOR, shall not be construed as waiving any of the conditions or
stipulations herein, and the same shall continue thereafter in as
full force and effect as though such indulgence has not been
granted.
2
<PAGE> 3
And, if at any time during the continuance of said lease
the LESSEE shall fail to comply with any of the terms, covenants
and conditions herein contained, the said LESSOR, its heirs,
administrators, executors or assigns, shall have the right to re-
enter and possess the premises aforesaid, the same as though this
lease had not been made provided, however, that LESSOR shall notify
LESSEE promptly in writing of any default under this lease,
whereupon LESSEE shall be entitled to fifteen (15) days from
receipt of said notice in which to cure the default before the
provisions of this paragraph becomes operative.
It is expressly agreed between the parties hereto that at
the expiration of this lease, or any renewal thereof, should the
LESSEE hold over for any reason and the LESSOR accept the payment
of any rent covering any period of time beyond the term of this
lease, or any renewal thereof, then, in the absence of any written
agreement to the contrary, continuance by the LESSEE hereunder
shall be on a month-to-month basis only.
The LESSEE hereby covenants that it will not make or
suffer any use or occupancy of the leased premises contrary to the
laws of the States or cities referred to in "Schedule "A", now or
hereafter, in force.
LESSEE agrees to pay all utility bills and fees.
LESSOR agrees to make the following alterations on the
premises at it's expense prior to LESSEE taking possession.
It is also agreed that if all or any part of the premises
is taken by or sold under threat of appropriations, this lease will
terminate as of the date of such taking or sale. The entire award
or compensation paid for the property taken or acquired and for
damages to residue, if any, will belong entirely to LESSOR, and no
amount will be payable to LESSEE.
LESSEE agrees to pay all property taxes and any related
state and local service fees (i.e., fire service). LESSEE will
also pay and maintain insurance on the premises and upon request by
the LESSOR will show proof of insurance coverage. LESSEE will also
pay or be responsible for all maintenance of the building.
LESSOR and LESSEE agree that all of the provisions hereof
are to be construed as covenants and agreements, as though the word
imparting such covenants and agreements were used in each separate
paragraph hereof, and should any term or provision of this lease be
held to be invalid or unenforceable, then the remainder of this
lease shall not be affected thereby, and each term and provision
shall be valid and enforceable to the fullest extent permitted by
law.
It is further understood and agreed that the LESSOR shall
not be liable for any damage, loss or injury which may be sustained
or suffered by the said LESSEE or by any third party or parties to
it or to their person or property while on said premises, not for
any damage or loss to the property of the LESSEE situate in said
leased premises, except insofar as said loss, damage or injury may be
occasioned by the negligence of the LESSOR, its servants, agents or
3
<PAGE> 4
representatives, while upon said premises, and said LESSEE is to
be responsible for and to indemnify and save harmless the LESSOR of
and from any and all loss, damage, injury, fines, suits,
proceedings, claims, demands and actions of any kind or nature, of
anyone whomsoever arising or growing out of or in any wise
connected with the occupancy or use of said premises, except as
hereinabove expressly excepted.
This lease shall be binding upon the parties hereto,
their heirs, successors, administrators and assigns.
This lease supercedes and replaces all real estate
leases between West Rentals, Inc. and Valley National Gases, Inc.
IN WITNESS WHEREOF, the parties hereto have set their
hands on the day and year first above written.
WITNESSETH:
BY:
- ----------------------- ----------------------------------------
VALLEY NATIONAL GASES, INC. LESSEE
BY:
- ----------------------- ----------------------------------------
WEST RENTAL, INC. LESSOR
4
<PAGE> 5
SCHEDULE "A"
LOCATION
- --------
Friendly
Wheeling Main
Wheeling Sales
Wheeling Fire
Wheeling Fuel Dock
Altoona
Ashland
Beckley
Charleston
Wheeling Cooey
Cranberry
Fairmont
Greensburg
Indiana
Johnstown
Wheeling Kalot
New Castle
Marietta
Parkersburg
Philipsburg
Prestonsburg
Punxsutawney
Steubenville
West Mifflin
Zanesville
Fort Pitt
Carrollton
Charleroi
Bluefield
Huntington
Cambridge
Uniontown
Girard
Spruce Way, Pittsburgh
Cincinnati
<PAGE> 1
RIGHT OF FIRST REFUSAL AGREEMENT
--------------------------------
THIS AGREEMENT is dated as of September 30, 1991, among
VALLEY WELDING SUPPLY CO., a West Virginia Corporation, having an
office at 67 - 43rd Street, Wheeling, West Virginia ("VALLEY");
WEST RENTALS, INC., a West Virginia Corporation, having an office
at 67 - 43rd Street, Wheeling, West Virginia ("WEST"); GARY E.
WEST, (the "VALLEY SHAREHOLDER"); and PHYLLIS J. WEST (referred to
herein with Gary E. West as the "WEST SHAREHOLDERS"); and UNION
CARBIDE INDUSTRIAL GASES INC., a Delaware corporation with an
office at 39 Ridgebury Road, Danbury, Connecticut 06817-0001
("UCIG").
Valley, West and Linde Gases of the Great Lakes, Inc.
("LINDE"), a wholly-owned subsidiary of UCIG, are parties to an
Asset Purchase Agreement dated as of August ----, 1991, (the
"PURCHASE AGREEMENT") pursuant to which, among other things, Valley
and West are to acquire substantially all of the assets of Linde's
retail and wholesale packaged gas business located in Western
Pennsylvania ("BUSINESS"). The Valley Shareholders and the West
Shareholders expect to benefit substantially from the transactions
contemplated by the Purchase Agreement. It is a condition
precedent to the obligations of Linde and UCIG to proceed with the
transactions contemplated by the Purchase Agreement that Valley,
West, the Valley Shareholders and the West Shareholders grant to
UCIG certain Rights of First Refusal rights and Rights of First
Discussion rights with respect to proposed future transfers of
certain business and assets or stock of Valley and West. In order
to induce UCIG to consummate the transactions contemplated by the
<PAGE> 2
Purchase Agreement, each of Valley, West, the Valley Shareholders
and the West Shareholders have agreed to enter into this Agreement
affording to UCIG certain rights of first refusal or first
discussion.
Capitalized terms used herein without definition are used
with the meaning given to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing
premises and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Representations and Warranties. Valley, West,
------------------------------
the Valley Shareholders and the West Shareholders hereby jointly
and severally represent and warrant to UCIG that:
(a) Each of Valley and West is a corporation duly
organized, validly existing and in good standing under the laws of
its state of incorporation, with full corporate power to enter into
and perform this agreement; each of Valley and West has taken all
corporate action necessary to authorize the execution and
performance of this Agreement and the transactions contemplated
hereby by it; the execution, delivery and performance of this
Agreement by Valley and West does not violate any provisions of the
respective charters or bylaws or any other agreement to which
either is a party; and the Agreement is enforceable against each of
Valley and West in accordance with its terms.
(b) The execution, delivery and performance of this
Agreement by Valley Shareholder and the West Shareholders does not
violate any provision of any agreement to which either is a party.
2
<PAGE> 3
(c) Exhibit A attached hereto and made a part
---------
hereof, correctly describes Valley's capitalization on the date
hereof and correctly identify each subsidiary of Valley (Valley's
authorized capital stock together with and additional shares of
capital stock authorized after the date hereof being hereinafter
referred to as the "VALLEY SHARES"). The Valley Shares issued and
outstanding on the date hereof are owned beneficially and of record
by the Valley Shareholder, as set forth in Exhibit A, and all
---------
such outstanding Valley Shares are validly issued, fully paid and
nonassessable. No agreements of any type exist which provide for
the issuance, sale, redemption, exchange or other transfer of
Valley Shares.
(d) Exhibit B attached hereto and made a part
---------
hereof, correctly describes West's capitalization on the date
hereof and correctly identify each subsidiary of West (West's
authorized capital stock together with and additional shares of
capital stock authorized after the date hereof being hereinafter
referred to as the "WEST SHARES"). The West Shares issued and
outstanding on the date hereof are owned beneficially and of record
by the West Shareholder, as set forth in Exhibit B, and all
---------
such outstanding West Shares are validly issued, fully paid and
nonassessable. No agreements of any type exist which provide for
the issuance, sale, redemption, exchange or other transfer of West
Shares.
(e) The Valley Shareholder and the West
Shareholders have full power to enter into and perform this
Agreement; this Agreement constitutes a valid and binding agreement
3
<PAGE> 4
of each of the Valley Shareholder and the West Shareholders
enforceable against each in accordance with its terms. All of the
Valley Shares and the West Shares are free of any liens, claims,
encumbrances or rights of others under any redemption, option,
shareholders or similar agreement.
2. Right of First Refusal.
----------------------
(a) Valley, West, the Valley Shareholder and the
West Shareholders hereby grant to UCIG a right of first refusal
(the "RIGHT OF FIRST REFUSAL") with respect to any (A) proposed
"transfer" (as hereinafter defined) of all or a material part of
(i) the Business and Assets acquired by Valley or West pursuant to
the Purchase Agreement, (ii) any business operations, branches or
assets opened or acquired after the date hereof by Valley, West,
the Valley Shareholder, the West Shareholders or any entity owned
or controlled by any of them, (iii) the Valley Shares, or (iv) the
West Shares or (B) issuance, sale of grant, or agreement to issue,
sell or grant, by Valley or West of any shares of this capital
stock or any security exchangeable or convertible into shares of
its capital stock or any options or acquire any such securities,
which could result in a "Change in Control" (as hereinafter
defined) of Valley or West. For purposes of this Agreement a
"Change of Control" shall mean the Valley Shareholder or the West
Shareholders ceasing to be the holders, beneficially and of record
of 51% of the voting stock of Valley or West, as applicable.
As used herein, the term "TRANSFER" means any sale,
transfer, conveyance or other disposition, whether by sale of
4
<PAGE> 5
assets, sale of stock, merger, consolidation, reorganization,
exchange or conversion of securities, gift or otherwise.
(b) In the event of any proposed Transfer to which
the Right of First Refusal applies, Valley, West, the Valley
Shareholder or the West Shareholders, or any of them (individually
or collectively "SELLER"), as the case may be, prior to any such
Transfer, shall give UCIG prior written notice of each such
proposed Transfer, which notice will (i) set forth the price and
all the terms and conditions of such proposed transaction
(including without limitation any collateral agreements by a party
to this Agreement or any affiliate or associate of any such party,
such as agreements for the sale and/or lease of property owned by
others and used by Valley, West or a subsidiary thereof, covenant
not to compete, etc.) and identify the proposed Transferee (the
"PROSPECTIVE PURCHASER"); (ii) contain an offer on behalf of Seller
to sell to UCIG the assets or securities which are the subject of
the proposed Transfer and to enter into with UCIG any and all such
collateral agreements, all upon the same terms and conditions,
offered by Seller to the Prospective Purchaser, or offered by the
Prospective Purchaser and accepted by Seller; (provided, however,
that if the consideration proposed to be paid by the Prospective
Purchaser is not payable all in cash, the offer to UCIG shall also
afford UCIG an option to accept such offer by paying all cash to
Seller in an amount which is the economic equivalent of the
consideration proposed to be paid by such Prospective Purchaser or,
if some portion of the non-cash consideration offered by the
Prospective Purchaser does not have an ascertainable cash
5
<PAGE> 6
equivalent, by providing to Seller cash or other consideration
acceptable to Seller which is the substantial economic equivalent
of the non-cash or deferred consideration offered by the
Prospective Purchaser); (iii) contain a true and complete copy of
the offer to the Prospective Purchaser, or offer acceptable to
Seller from Prospective Purchaser which offer must be bona fide;
(iv) contain a copy of all financial, business or other information
and material furnished the Prospective Purchaser (or its
representatives) by Seller; and (v) disclose the terms of each
brokerage, sales consultant, finders and other similar arrangements
applicable to the proposed Transfer (or any portion thereof).
(c) UCIG shall have the right to accept such offer
from Seller (hereinafter the "OFFER") by giving written notice
thereof to the Seller at any time until ninety (90) days following
the date Seller furnished the notice required to be delivered to
UCIG pursuant to Paragraph 2(b) (such period of time being
hereinafter referred to as the "OPTION PERIOD"). If UCIG does not
accept the Offer within the Option Period, then Seller may sell
such assets or securities as are described in the Offer to the
Prospective Purchaser; but only in strict accordance with the
price, terms and conditions set forth in the original offer, being
the Offer to UCIG.
(d) It is the intention of the parties that this
Article 2 shall apply to each and every proposed Transfer described
in Paragraph 2(a) above, regardless of whether one or more earlier
Offers for the same assets or securities have been made or are
outstanding.
(e) The term of this Right of First Refusal granted
UCIG by Valley and West and all powers, rights and options relative
thereto is fifteen (15) years and shall expire at midnight (EDT) on
September 29, 2006.
(f) If UCIG accepts an Offer, closing shall occur
within the later to occur of (i) ten (10) days after the date of
UCIG's delivery of its acceptance, (ii) the date which is ten (10)
days after all applicable bulk transfer laws have been compiled with
(unless such compliance has been waived by UCIG), or (iii) the
expiration of any applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any
similar law all in accordance with the Offer terms and conditions.
3. Right of First Discussion. Valley, West, the
-------------------------
Valley Shareholder, and the West Shareholders hereby grant to UCIG
a Right of First Discussion with respect to any proposed Transfer
of [i] all or substantially all of the assets of Valley not subject
of paragraph 2(a), [ii] all or substantially all of the assets of
West not subject of paragraph 2(a) and utilized in conjunction with
6
<PAGE> 7
the business and operations of Valley, and [iii] ownership or
control of any entity which owns assets of the type described in
items (i) and (ii) above and does not own any assets subject to the
Right of First Refusal (paragraph items [i], [ii], and [iii]
collectively or individually "FIRST DISCUSSION ASSETS"). Prior to
any such proposed Transfers of First Discussion Assets, Valley,
West, the Valley Shareholder, or the West Shareholders, as the case
may be, shall give UCIG prior written notice of each such proposed
Transfer and afford UCIG the opportunity to engage in good faith
negotiations with such proposed transferor regarding a Transfer of
such Right of First Discussion Assets to UCIG. The term of this
Right of First Discussion granted to UCIG by Valley, West, the
Valley Shareholder and the West Shareholders and all powers, rights
and options relative thereto is fifteen (15) years and shall expire
at midnight (EDT) on September 29, 2006.
4. Permitted Transfer. Notwithstanding the
------------------
provisions of Articles 2 and 3 hereof, the Valley Shareholder, and
the West Shareholders or either of them, may from time to time,
sell or transfer any or all of the Valley Shares or the West
Shares, as applicable, to such Valley Shareholder's or West
Shareholders' parents, children, grandchildren, spouse, siblings,
Valley or West (collectively or individually "PERMITTED
TRANSFEREES") without first offering UCIG a right of first refusal
or entering into the discussions with UCIG as required by Article
2 or 3 hereof. Such Permitted Transferees shall execute and
deliver to UCIG as well as Valley and West an instrument, pursuant
to which such Permitted Transferee becomes a party to and is
legally bound as Valley
7
<PAGE> 8
Shareholders or West Shareholders, as applicable, under this Agreement.
5. Access to Information. Upon receipt of an
---------------------
Offer, each Seller shall promptly provide UCIG with access to (and
permit UCIG to copy) the Seller's books and records. All such
information, materials and documents provided or made available to
UCIG shall, unless and until conveyed to UCIG, be treated by UCIG
as proprietary and confidential information of the Seller and shall
not at any time be used in any manner or disclosed or revealed to
any third party (other than for purposes of having Seller and its
agents and representatives evaluate the offer or as may be required
by law).
6. Conduct of Business. During the Option Period
-------------------
and, if the Offer is accepted, until the closing held pursuant to
UCIG's acceptance of the Offer, Valley or West, as applicable,
shall conduct the business of the target of the Offer diligently
and in the ordinary course and will not make or institute any
unusual or novel methods of business operations or declare or pay
any dividends on, or make any other distribution in respect of, its
capital stock.
7. Restrictive Covenants. In the event of any
---------------------
purchase by UCIG pursuant to this Agreement:
(a) No Seller shall, directly or indirectly, except
at the request of UCIG, use or disclose to any third party any of
the technical, financial, operational, marketing or similar or
different information pertaining to the assets and the business
which are the subject of the sale, except when, after and to the
8
<PAGE> 9
extent such information is or becomes generally available to the
public through no fault of the Seller.
(b) For a period of three (3) years from and after
the date of any such purchase by UCIG, no Seller shall, directly or
indirectly, engage in any business which sells or engages in the
sale of any industrial gas and or welding products in any county
which an office or retail outlet then sold to UCIG is located or in
any other county contiguous with any such county, except that this
restriction shall not apply to any Seller's sale of industrial gas
and/or welding products in any such counties or counties contiguous
thereto where Seller has an established business operation
(including retail outlet or other branch) which Seller retains
after date of such purchase by UCIG, or to the sale by Seller to
customers (wherever located) with whom such Seller has established
industrial gas and/or welding products customers which Seller
retains after any such sale or transfer to UCIG. In applying the
preceding sentence to a sale of stock which results in UCIG
becoming a majority shareholder of Valley, West and/or any
subsidiary thereof, UCIG shall be deemed to have acquired all the
offices and retail outlets of the entity for which a change of
control has occurred and/or of each subsidiary of such entity. To
the extent that the obligations of a Seller (or any of them)
provided in this clause (ii) are invalid or unenforceable because
they are not sufficiently limited in respect of duration,
geographic area or otherwise, they shall be deemed to be limited so
that they are enforceable to the maximum extent permitted by law.
9
<PAGE> 10
8. Integration; Amendments; etc. This Agreement
-----------------------------
contains the entire understanding of the parties with respect to
the subject matter contained herein and may be amended only by a
written instrument executed by Seller and UCIG.
9. Notices. It shall be a sufficient giving of any
-------
notice or other communication hereunder if the party giving the
same shall either deliver said notice personally or shall mail a
copy thereof by Express Mail or registered or certified first class
mail, postage prepaid, addressed in the case of UCIG to the
attention of its President at its address first set forth above,
and in the case of Valley, West and/or one or more of Valley
Shareholders or West Shareholders to Valley's office to attention
of its President at its address first set forth above. The date of
giving any such notice or other communication shall be deemed to be
the date on which such notice was personally delivered or deposited
in accordance herewith. The Post Office receipt showing the date
of such deposit shall be prima facie evidence of these
----- -----
facts. Any party may change the address to which notices to such
person are sent by so notifying the other parties in the manner
herein provided for giving notice. A change of address shall be
effective only after actually received by the recipient.
10. Expenses. Each party to this Agreement shall
--------
bear its own expenses incurred in the performance hereof,
irrespective of whether the transactions contemplated herein are
consummated. This Agreement, however, shall not be deemed to
include expenses of any Seller whose expenses of any proposed
transaction, in whole or
10
<PAGE> 11
in part, are to be paid by a Prospective Purchaser as part of an Offer or
transfer agreement.
11. Counterparts. This Agreement may be signed in
------------
any number of counterparts, each of which shall be deemed an
original.
12. No Restriction on Valley or West Financing.
------------------------------------------
Nothing in this Agreement shall impair or restrict present or
future financing arrangements (including all financing collateral
requirements) of either Valley or West. UCIG expressly agrees that
any power, right or option granted it in this Agreement shall be
subordinate to any and all collateral security rights and interests
in and to Valley and West's assets, which are or may be, either now
or in the future, required by any and all of Valley and/or West's
sources of business financing.
13. Legend. Until the expiration of UCIG's rights
------
pursuant to Article 2 hereof, Valley, West and the Valley and West
Shareholders shall cause to be noted on each certificate evidencing
any of the Valley or West Shares, the following legend:
"The shares represented by this certificate
are subject to the terms and conditions of a
Right of First Refusal Agreement with Union
Carbide Industrial Gases Inc., dated as of
September 30, 1991, and may be transferred
only in accordance with the provisions
thereof."
14. Further Assurances. At any time and from time
------------------
to time upon the request of UCIG, Valley, West, the Valley
Shareholder or the West Shareholders shall execute, deliver and
acknowledge or cause to be executed, delivered and acknowledged,
such further documents and instruments and do such other acts and
things as UCIG may reasonably request in order to fully effect the
purpose of this
11
<PAGE> 12
Agreement and to validly transfer or confirm the transfer of any business,
assets, shares and/or securities sold to UCIG pursuant to this Agreement.
15. Waiver. Except as expressly provided herein, no
------
failure or delay on the part of UCIG in exercising any power, right
or option hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or option
preclude any other, further or subsequent exercise thereof or an
exercise of any other power, right or option hereunder; it being
understood that the powers, rights and options of UCIG under this
Agreement are cumulative, repetitive and in addition to any rights
and remedies now or hereafter existing in law or in equity.
Nothing herein contained shall be construed to extend the option
period or rights except as specifically provided herein.
16. Governing Law. This Agreement and the rights
-------------
and obligations of the parties hereunder shall be construed and
interpreted in accordance with the laws of the State of
Connecticut.
17. Severability. The provisions of this Agreement
------------
are severable, and if any provision shall be held invalid or
unenforceable in whole or in part, then such invalidity or
unenforceability shall not affect any other provision of this
Agreement, which shall remain in full force and effect.
18. Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of Valley, West, the Valley
Shareholder, the West Shareholders and their respective heirs,
personal representatives, successors and assigns. The powers,
12
<PAGE> 13
rights and options of UCIG under this Agreement are personal to it
and are not assignable or otherwise transferable; provided, however
that UCIG may transfer and assign such powers, rights and options
under this Agreement to any subsidiary, of which UCIG is the record
and beneficial holder of not less than one hundred percent (100%)
of the issued and outstanding capital stock, and which subsidiary,
for the purposes of this Agreement shall be subject to all such
UCIG prohibitions against assignment and transfer.
IN WITNESS WHEREOF, the parties hereto have set their
hands and seals as of the day and year first above written.
UNION CARBIDE INDUSTRIAL GASES, INC.
By -----------------------------------
Its--------------------------------
VALLEY WELDING SUPPLY CO.
By -----------------------------------
Its President
WEST RENTALS, INC.
By -----------------------------------
Its President
-----------------------------------
Gary E. West, Shareholder of VALLEY
WELDING SUPPLY CO. as well as
Shareholder of WEST RENTALS, INC.
-----------------------------------
Phyllis J. West, Shareholder of WEST
RENTALS, INC.
13
<PAGE> 14
EXHIBIT "A"
CAPITALIZATION OF VALLEY
------------------------
The authorized capital stock of VALLEY WELDING SUPPLY CO.
("Company") consists of 80 shares of common stock, par value
$100.00 per share, and -0- shares of preferred stock, $-0- per
share. On the date hereof 30.6 shares of Company's common stock
are issued and outstanding and -0- shares of its preferred stock
are issued and outstanding, and Company holds 49.4 shares of its
common stock in its treasury and -0- shares of its preferred stock
in its treasury.
* GARY E. WEST HOLDS AND OWNS 30.6 SHARES.
Set forth below for each Subsidiary (as defined in
Section 1 of this Agreement) is: (a) its correct name, (b) state
of incorporation, (c) an accurate description of its authorized,
outstanding and treasury stock and (d) a description of such
capital stock which is owned by Company.
COMPANY HAS NO SUBSIDIARIES.
14
<PAGE> 15
EXHIBIT "B"
CAPITALIZATION OF WEST
----------------------
The authorized capital stock of WEST RENTALS, INC.
("Company") consists of 5000 shares of common stock, par value
$1.00 per share, and -0- shares of preferred stock, $-0- per share.
On the date hereof 1000 shares of Company's common stock are issued
and outstanding and ----- shares of its preferred stock are issued
and outstanding, and Company holds 4000 shares of its common stock
in its treasury and -0- shares of its preferred stock in its
treasury.
* GARY E. WEST OWNS AND HOLDS 500 SHARES.
* PHYLLIS J. WEST OWNS AND HOLDS 500 SHARES.
Set forth below for each Subsidiary (as defined in
Section 1 of this Agreement) is: (a) its correct name, (b) state
of incorporation, (c) an accurate description of its authorized,
outstanding and treasury stock and (d) a description of such
capital stock which is owned by Company.
COMPANY HAS NO SUBSIDIARIES.
15
<PAGE> 1
DEFERRED COMPENSATION AGREEMENT
This Agreement is entered into as of the 3rd day of
April, 1995, by and between Valley National Gases, Inc., a West
Virginia corporation having its principal office at 67 - 43rd
Street, Wheeling, West Virginia 26003 ("VALLEY"), and Lawrence E.
Bandi of 2 Halstead Avenue, Wheeling, West Virginia 26003
("EMPLOYEE").
W I T N E S S E T H:
Whereas, the Employee is employed by Valley in the
capacity of President;
Whereas, Valley is motivated to retain the valuable
services and business counsel of Employee and to induce Employee
to remain in his executive capacity with Valley;
Whereas, Valley wishes to retain Employee in order to
prevent the substantial financial loss which Valley would incur
if Employee were to leave and were to enter the employment of a
competitor;
Whereas, Employee is considered a highly compensated
Employee and member of a select senior management group of
Valley;
Whereas, Employee is willing to continue in the
employment of Valley, provided Valley will agree to provide an
additional fringe benefit in the form of deferred compensation in
accordance with and upon the terms and conditions set forth in
this Agreement; and,
Now, therefore, Employee and Valley agree as follows:
<PAGE> 2
1. Deferred Compensation Plan.
--------------------------
(a) There is established by Valley for the benefit of
Employee in accordance with the terms and conditions of this
Agreement, a non-qualified Deferred Compensation Plan ("PLAN").
(b) Valley awards Employee a deferred compensation
unit ("UNIT"). Employee's Unit has a value ("UNIT VALUE") which
is equivalent to one half of one percent (0.5%) of the Valley
Value as hereinafter defined in paragraph 2 [Valley Value
multiplied by 0.005 equals the Unit Value].
(c) Employee shall have a deferred compensation
account ("ACCOUNT"). The Account shall be credited with a per
dollar amount equal to the Unit Value, as adjusted and affixed
annually, pursuant to the Plan under this Agreement ("ACCOUNT
BALANCE"). The Account shall be credited with an initial Account
Balance of One Hundred Thirty-eight Thousand Eight Hundred
Seventy-four Dollars ($138,874.00), being the initial Unit Value.
(d) As long as the Plan is in effect, annually as of
the close of Valley's fiscal year, Employee's Account Balance
will be adjusted to reflect the then current Unit Value. The
Account Balance will thereupon be affixed at the adjusted per
dollar equivalent of the Unit Value. Depending upon the Valley
Value at any annual Unit Value adjustment date, the Account
Balance may increase or decrease.
2. Valley Value. Annually, as of Valley's fiscal
------------
year, the value of Valley ("VALLEY VALUE") for the purposes of
agreement will be determined and affixed as follows:
2
<PAGE> 3
(a) In the absence of any contingent event set forth
hereinafter in subparagraphs (b), (c), or (d) of this paragraph
2, the Valley Value for the purposes of this Agreement will be
adjusted and affixed as follows:
(i) The net income of Valley shall be adjusted to
reflect Valley's earnings before interest, income taxes,
depreciation and amortization ("EBITDA"). EBITDA shall be
determined by adding to Valley's net income as reported in
Valley's financial statements, all interest, income taxes,
depreciation, amortization and the excess, if any, by which the
compensation (per W-2 form) of Gary E. West, Valley's Shareholder
and Chairman of the Board ("WEST"), exceeds 130% of the
compensation (per W-2) of the next highest paid Employee of
Valley, and making any adjustment necessary to compensate for
diminished revenue or higher cost resulting from current or prior
sale, distribution or transfer of operating assets to
shareholders (see Example set forth on Exhibit "A" attached
hereto and incorporated herein by reference); and,
(ii) EBITDA determined above will be multiplied by
a factor of six (6); and,
(iii) The total of the interest-bearing debt,
excluding debt incurred to finance transactions with Employees or
Shareholders, as reported in the financial statements of Valley
shall be subtracted from the amount determined in subparagraph
(ii) above. The result shall be the Valley Value.
3
<PAGE> 4
(b) If West, his successors or assigns, enters into an
agreement to sell the stock of Valley through a private placement
("PRIVATE PLACEMENT"), the Valley Value shall be determined by
multiplying the Private Placement selling price of one hundred
percent (100%) of the Valley stock shares, as set forth in the
agreement for sale of West's shares less sales expenses. If less
than one hundred percent (100%) of the shares are sold, the
selling price of the shares sold shall be applied pro rata to
determine the Private Placement selling price of one hundred
percent (100%) of the shares.
(c) If Valley, West, his successors or assigns, should
offer shares of stock to the public ("PUBLIC PLACEMENT"), the
Valley Value shall be determined based on the market price per
share at the time of the initial offering less the pro rata costs
of issuance. After Public Placement, the Valley Value adjusted
annually as of the close of the fiscal year shall be equal to the
closing stock price of one (1) share of Valley stock as of the
end of Valley's fiscal year multiplied by the total number of
Valley shares issued.
(d) If West, his successors or assigns, enters into an
agreement to sell substantially all of the assets of Valley
("SUBSTANTIAL ASSET SALE"), the Valley Value shall be determined
by adjusting the net worth of Valley's balance sheet as of the
date of the execution of such agreement by adding the excess, if
any, of the sales price of the assets to be sold over the net
book value of those assets; subtracting all liabilities,
4
<PAGE> 5
including those incurred or to be incurred in consummating the
sale and/or liquidating Valley including income taxes on gains,
attorney, accounting and other fees. The sales price for the
purposes of this Substantial Asset Sale provision shall also
include all related sale transaction consideration including, but
not limited to, Non-Competition Agreement payments, Consultation
Agreement payments and the like; provided, however, such sales
price shall not include reasonable salary or compensation to be
paid West, his successors or assigns, commensurate with future
services required to be performed under an Employment or
Consultation Agreement. The resulting proforma net worth shall
be the Valley Value.
3. Vesting of Employee's Interest in Account.
-----------------------------------------
(a) Vesting of Employee's interest in the Account
shall occur based upon years of participation by Employee in the
Plan. The date of this Agreement shall be the beginning date for
the calculation of vesting. The vesting schedule shall be as
follows:
<TABLE>
<CAPTION>
Years of Participation Percentage of Vesting
---------------------- ---------------------
<S> <C>
0-10 0%
11 20%
12 40%
13 60%
14 80%
15 100%
</TABLE>
(b) Employee's vested interest in the Account balance
under the Plan shall be accelerated to one hundred percent (100%)
5
<PAGE> 6
vested interest, upon the occurrence of any of the following
events:
(i) Private Placement.
(ii) Public Placement.
(iii) Substantial Asset Sale.
(iv) Employee becomes permanently disabled.
(v) Employee dies.
(vi) Employee retires from Valley after reaching
normal retirement age as defined in Valley's qualified retirement
plan.
(vii) Termination of the Plan.
4. Payment of Deferred Compensation Account Balance.
------------------------------------------------
(a) Employee shall be entitled to payment of the
deferred compensation Account Balance of Employee's Account
("PAYMENT") only in accordance with Employee's vested interest
and only upon the occurrence of any of the following events:
(i) Termination of Plan.
(ii) Termination of Employee's employment with
Valley.
(iii) Private Placement.
(iv) Substantial Asset Sale.
(b) In the event Employee's employment with Valley is
terminated, the amount of Payment to which Employee is entitled
under the terms of the Plan shall be reduced if:
(i) Employee's termination is initiated by
Employee. In this event, Employee's vested Account interest and
6
<PAGE> 7
right to Payment under the Plan shall be reduced by fifty percent
(50%), unless, however, the combination of the number of the
Employee's years of service with Valley as defined in Valley's
qualified retirement plans added to the numerical equivalent of
Employee's age at date of termination equals 80 or above.
(ii) Employee's employment is terminated by Valley
"for cause". In this event, any vested Account interest shall be
reduced to zero percent (0%), and Employee shall forfeit right to
Payment under the Plan. The term "for cause" as defined in this
Plan shall mean: gross negligence; dishonesty; conviction of
plea or nolo contendere in a felony case; defalcation;
intoxication on the job; and/or drug addiction.
(c) In the event of Employee's death, permanent
disability, retirement at normal retirement age as set forth in
Valley's qualified retirement plans, or termination of employment
based upon Valley's initiative for any reason other than "for
cause" as defined hereinabove, Employee shall be entitled to
Payment equal to the entire vested amount of Employee's Account
Balance.
(d) Valley shall make any Payment due Employee under
the Plan within thirty (30) days after the occurrence of an event
entitling Employee to Payment. Notwithstanding, in the event of
Employee's death Valley shall make the payment to which Employee
is entitled to Employee's personal representative for Employee's
estate.
7
<PAGE> 8
(e) Payment to Employee shall be in cash in an amount
equal to the value of the Account Balance; provided, however, in
the event of a Public Placement, Valley shall have the right and
option to make Payment to Employee in publicly traded shares of
Valley with an aggregate stock value as of the Payment date equal
to the value of the Account Balance.
5. Valley's Right to Terminate, Amend or Modify the
------------------------------------------------
Deferred Compensation Plan. At any time, Valley may
- --------------------------
unilaterally terminate, amend or modify the Plan. Unilateral,
amendment or modification of the Plan hereunder shall constitute
termination of the Plan.
6. Mutual Amendment or Modification.
--------------------------------
(a) During the term of this Agreement, the Agreement
and Plan may be amended, modified or revoked at any time, in
whole or in part, by the express mutual written agreement of
Valley and Employee.
(b) Valley and Employee acknowledge that in the event
of Public Placement, amendment and modification of the Plan under
this Agreement may be required; and in such event, Valley and
Employee agree to consent to all such amendments and
modifications necessary to convert the Plan to a stock plan in
accordance with requirements of the Public Placement; provided,
however, no amendment or modification shall cause Employee to be
deemed to be in constructive receipt of any income or property of
value or otherwise be subject immediately tax liability, no
amendment or modification shall cause Employee's vested interest
8
<PAGE> 9
in the Account Balance and the value of the Account Balance to be
reduced as a result thereof, and no amendment or modification
shall cause any stock plan to be substantially at variance to the
substantive terms and conditions of the Plan, and in any such
event, such amendment and modification shall constitute
termination of the Plan.
7. Plan to Be Unfunded and Unsecured. Valley's
---------------------------------
obligation with respect to the Plan under this Agreement shall be
an unfunded and unsecured promise to pay. Valley shall not be
obligated under any circumstances to fund its obligation under
this Agreement and all payments of deferred compensation by
Valley to Employee under the terms and conditions of this
Agreement will be made from the general assets of Valley.
8. No Employment Agreement. This Agreement shall not
-----------------------
be deemed to create a contract of employment between Valley and
Employee and shall create no right in the Employee to continue in
Valley's employ for any specific period of time, or to create any
other rights in Employee or obligations on the part of Valley,
except as are set forth in this Agreement. Nor shall this
Agreement restrict the unilateral right of Valley to terminate
employment of Employee, with or without cause, or restrict the
unilateral right of the Employee to terminate his employment with
Valley.
9. Independence of Benefits. The benefits payable
------------------------
under the Plan shall be independent of, and in addition to, any
other benefits or compensation, whether by salary, or bonus or
9
<PAGE> 10
otherwise, payable under any other employment agreements that now
exist or may hereafter exist from time to time between Valley and
Employee. This Agreement between Valley and Employee does not
involve a reduction in salary or foregoing of an increase in
future salary by Employee. Nor does this Agreement in any way
effect or reduce the existing and future compensation and other
benefits of the Employees.
10. Assignability. Except insofar as this provision
-------------
may be contrary to express applicable law, no sale, transfer,
alienation, assignment, pledge, collateralization, or attachment
of any benefits under this Agreement shall be valid or recognized
by Valley.
11. Arbitration. All disputes as to administration of
-----------
the Plan or as to rights of either Valley or Employee under this
Agreement which cannot be resolved, shall be submitted to binding
arbitration in accordance with the rules of the American
Arbitration Association. Expenses of arbitration shall be borne
by the non-prevailing party in the arbitration proceeding, unless
the selected arbitrator shall determine otherwise. The procedure
for arbitration shall be in accordance with the rules of the
American Arbitration Association, except that Employee and Valley
shall each select one arbitrator, and the two selected
arbitrators shall choose a third arbitrator. Should either
Valley or Employee fail to select an arbitrator within ten (10)
days after arbitration is sought, or if the two arbitrators shall
fail to select a third arbitrator within fifteen (15) days after
10
<PAGE> 11
arbitration is sought, the American Arbitration Association shall
select the arbitrator.
12. Law Governing. This Agreement shall be governed by
-------------
the laws of the State of West Virginia.
13. Binding Effect. This Agreement is solely between
--------------
Valley and Employee. Further, Employee, personal representative
or other persons claiming by or through Employee shall only have
recourse against Valley for enforcement of this Agreement.
However, this Agreement shall be binding upon not only Valley and
Employee, but as well Employee's beneficiaries, heirs, executors
and administrators of Employee and upon the successors and
assigns of Valley.
IN WITNESS WHEREOF, Gary E. West, Chairman of the
Board, with full authority thereof has executed and delivered
this Agreement for and on behalf of Valley National Gasses, Inc.,
and witness the signature, to be effective as of the date and
year first above written.
VALLEY NATIONAL GASES, INC., a West
Virginia corporation
By
--------------------------------------
Its Chairman of the Board
----------------------------------------
Lawrence E. Bandi
11
<PAGE> 12
Exhibit A
VALLEY NATIONAL GASES, INC.
DEFERRED COMPENSATION AGREEMENT
Following is an example to illustrate the application of the
adjustment required by Section 2(a)(ii) of the agreement.
The example assumes that G. West purchases land and a building
from the corporation on July 1, 1996 and immediately leases it
back to the corporation for a ten year period on a triple net
lease for an annual rent of $30,000.00. On the date of sale the
remaining book value of the land and building was $100,000.00 and
the sale price was $400,000.00.
The adjustments required to EBITDA are as follows:
<TABLE>
<CAPTION>
Increase
Fiscal year ending: (Decrease)
- ------------------ -------------
<S> <C>
First fiscal year adjustment:
June 30, 1997 deduct the one time gain on the sale $(300,000.00)
add back the annual rent 30,000.00
---------
Net fiscal year adjustment <F*> (270,000.00)
===========
Annual fiscal year adjustments thereafter:
June 30, 1998 add back to the annual rent <F*> $30,000.00
June 30, 1999 add back to the annual rent <F*> 30,000.00
June 30, 2000 add back to the annual rent <F*> 30,000.00
June 30, 2001 add back to the annual rent <F*> 30,000.00
June 30, 2002 add back to the annual rent <F*> 30,000.00
June 30, 2003 add back to the annual rent <F*> 30,000.00
June 30, 2004 add back to the annual rent <F*> 30,000.00
June 30, 2005 add back to the annual rent <F*> 30,000.00
June 30, 2006 add back to the annual rent <F*> 30,000.00
<FN>
<F*> Minus the annual interest income generated by proceeds from
the sale of the property to West Rentalao
</TABLE>
<PAGE> 1
DEFERRED COMPENSATION AGREEMENT
This Agreement is entered into as of the 3rd day of
April, 1995, by and between Valley National Gases, Inc., a West
Virginia corporation having its principal office at 67 - 43rd
Street, Wheeling, West Virginia 26003 ("VALLEY"), and John Bushwack
of 2920 Seminary Drive, Greensburg, Pennsylvania 15601
("EMPLOYEE").
W I T N E S S E T H:
Whereas, the Employee is employed by Valley in the
capacity of Executive Vice President;
Whereas, Valley is motivated to retain the valuable
services and business counsel of Employee and to induce Employee to
remain in his executive capacity with Valley;
Whereas, Valley wishes to retain Employee in order to
prevent the substantial financial loss which Valley would incur if
Employee were to leave and were to enter the employment of a
competitor;
Whereas, Employee is considered a highly compensated
Employee and member of a select senior management group of Valley;
Whereas, Employee is willing to continue in the
employment of Valley, provided Valley will agree to provide an
additional fringe benefit in the form of deferred compensation in
accordance with and upon the terms and conditions set forth in this
Agreement; and,
<PAGE> 2
Now, therefore, Employee and Valley agree as follows:
1. Deferred Compensation Plan.
--------------------------
(a) There is established by Valley for the benefit of
Employee in accordance with the terms and conditions of this
Agreement, a non-qualified Deferred Compensation Plan ("PLAN").
(b) Valley awards Employee a deferred compensation unit
("UNIT"). Employee's Unit has a value ("UNIT VALUE") which is
equivalent to one half of one percent (0.5%) of the Valley Value as
hereinafter defined in paragraph 2 [Valley Value multiplied by
0.005 equals the Unit Value].
(c) Employee shall have a deferred compensation account
("ACCOUNT"). The Account shall be credited with a per dollar
amount equal to the Unit Value, as adjusted and affixed annually,
pursuant to the Plan under this Agreement ("ACCOUNT BALANCE"). The
Account shall be credited with an initial Account Balance of One
Hundred Thirty-eight Thousand Eight Hundred Seventy-four Dollars
($138,874.00), being the initial Unit Value.
(d) As long as the Plan is in effect, annually as of the
close of Valley's fiscal year, Employee's Account Balance will be
adjusted to reflect the then current Unit Value. The Account
Balance will thereupon be affixed at the adjusted per dollar
equivalent of the Unit Value. Depending upon the Valley Value at
any annual Unit Value adjustment date, the Account Balance may
increase or decrease.
2
<PAGE> 3
2. Valley Value. Annually, as of Valley's fiscal year, the
------------
value of Valley ("VALLEY VALUE") for the purposes of agreement will
be determined and affixed as follows:
(a) In the absence of any contingent event set forth
hereinafter in subparagraphs (b), (c), or (d) of this paragraph 2,
the Valley Value for the purposes of this Agreement will be
adjusted and affixed as follows:
(i) The net income of Valley shall be adjusted to
reflect Valley's earnings before interest, income taxes,
depreciation and amortization ("EBITDA"). EBITDA shall be
determined by adding to Valley's net income as reported in Valley's
financial statements, all interest, income taxes, depreciation,
amortization and the excess, if any, by which the compensation (per
W-2 form) of Gary E. West, Valley's Shareholder and Chairman of the
Board ("WEST"), exceeds 130% of the compensation (per W-2) of the
next highest paid Employee of Valley, and making any adjustment
necessary to compensate for diminished revenue or higher cost
resulting from current or prior sale, distribution or transfer of
operating assets to shareholders (see Example set forth on Exhibit
"A" attached hereto and incorporated herein by reference); and,
(ii) EBITDA determined above will be multiplied by
a factor of six (6); and,
(iii) The total of the interest-bearing debt,
excluding debt incurred to finance transactions with Employees or
Shareholders, as reported in the financial statements of Valley
3
<PAGE> 4
shall be subtracted from the amount determined in subparagraph (ii)
above. The result shall be the Valley Value.
(b) If West, his successors or assigns, enters into an
agreement to sell the stock of Valley through a private placement
("PRIVATE PLACEMENT"), the Valley Value shall be determined by
multiplying the Private Placement selling price of one hundred
percent (100%) of the Valley stock shares, as set forth in the
agreement for sale of West's shares less sales expenses. If less
than one hundred percent (100%) of the shares are sold, the selling
price of the shares sold shall be applied pro rata to determine the
Private Placement selling price of one hundred percent (100%) of
the shares.
(c) If Valley, West, his successors or assigns, should
offer shares of stock to the public ("PUBLIC PLACEMENT"), the
Valley Value shall be determined based on the market price per
share at the time of the initial offering less the pro rata costs
of issuance. After Public Placement, the Valley Value adjusted
annually as of the close of the fiscal year shall be equal to the
closing stock price of one (1) share of Valley stock as of the end
of Valley's fiscal year multiplied by the total number of Valley
shares issued.
(d) If West, his successors or assigns, enters into an
agreement to sell substantially all of the assets of Valley
("SUBSTANTIAL ASSET SALE"), the Valley Value shall be determined by
adjusting the net worth of Valley's balance sheet as of the date of
the execution of such agreement by adding the excess, if any, of
4
<PAGE> 5
the sales price of the assets to be sold over the net book value of
those assets; subtracting all liabilities, including those incurred
or to be incurred in consummating the sale and/or liquidating
Valley including income taxes on gains, attorney, accounting and
other fees. The sales price for the purposes of this Substantial
Asset Sale provision shall also include all related sale
transaction consideration including, but not limited to, Non-
Competition Agreement payments, Consultation Agreement payments and
the like; provided, however, such sales price shall not include
reasonable salary or compensation to be paid West, his successors
or assigns, commensurate with future services required to be
performed under an Employment or Consultation Agreement. The
resulting proforma net worth shall be the Valley Value.
3. Vesting of Employee's Interest in Account.
-----------------------------------------
(a) Vesting of Employee's interest in the Account shall
occur based upon years of participation by Employee in the Plan.
The date of this Agreement shall be the beginning date for the
calculation of vesting. The vesting schedule shall be as follows:
Years of Participation Percentage of Vesting
---------------------- ---------------------
0-10 0%
11 20%
12 40%
13 60%
14 80%
15 100%
(b) Employee's vested interest in the Account balance
under the Plan shall be accelerated to one hundred percent (100%)
5
<PAGE> 6
vested interest, upon the occurrence of any of the following
events:
(i) Private Placement.
(ii) Public Placement.
(iii) Substantial Asset Sale.
(iv) Employee becomes permanently disabled.
(v) Employee dies.
(vi) Employee retires from Valley after reaching
normal retirement age as defined in Valley's qualified retirement
plan.
(vii) Termination of the Plan.
4. Payment of Deferred Compensation Account Balance.
------------------------------------------------
(a) Employee shall be entitled to payment of the
deferred compensation Account Balance of Employee's Account
("PAYMENT") only in accordance with Employee's vested interest and
only upon the occurrence of any of the following events:
(i) Termination of Plan.
(ii) Termination of Employee's employment with Valley.
(iii) Private Placement.
(iv) Substantial Asset Sale.
(b) In the event Employee's employment with Valley is
terminated, the amount of Payment to which Employee is entitled
under the terms of the Plan shall be reduced if:
(i) Employee's termination is initiated by
Employee. In this event, Employee's vested Account interest and
6
<PAGE> 7
right to Payment under the Plan shall be reduced by fifty percent
(50%), unless, however, the combination of the number of the
Employee's years of service with Valley as defined in Valley's
qualified retirement plans added to the numerical equivalent of
Employee's age at date of termination equals 80 or above.
(ii) Employee's employment is terminated by Valley
"for cause". In this event, any vested Account interest shall be
reduced to zero percent (0%), and Employee shall forfeit right to
Payment under the Plan. The term "for cause" as defined in this
Plan shall mean: gross negligence; dishonesty; conviction of plea
or nolo contendere in a felony case; defalcation; intoxication on
the job; and/or drug addiction.
(c) In the event of Employee's death, permanent
disability, retirement at normal retirement age as set forth in
Valley's qualified retirement plans, or termination of employment
based upon Valley's initiative for any reason other than "for
cause" as defined hereinabove, Employee shall be entitled to
Payment equal to the entire vested amount of Employee's Account
Balance.
(d) Valley shall make any Payment due Employee under the
Plan within thirty (30) days after the occurrence of an event
entitling Employee to Payment. Notwithstanding, in the event of
Employee's death Valley shall make the payment to which Employee is
entitled to Employee's personal representative for Employee's
estate.
7
<PAGE> 8
(e) Payment to Employee shall be in cash in an amount
equal to the value of the Account Balance; provided, however, in
the event of a Public Placement, Valley shall have the right and
option to make Payment to Employee in publicly traded shares of
Valley with an aggregate stock value as of the Payment date equal
to the value of the Account Balance.
5. Valley's Right to Terminate, Amend or Modify the Deferred
---------------------------------------------------------
Compensation Plan. At any time, Valley may unilaterally terminate,
- -----------------
amend or modify the Plan. Unilateral, amendment or modification of
the Plan hereunder shall constitute termination of the Plan.
6. Mutual Amendment or Modification.
--------------------------------
(a) During the term of this Agreement, the Agreement and
Plan may be amended, modified or revoked at any time, in whole or
in part, by the express mutual written agreement of Valley and
Employee.
(b) Valley and Employee acknowledge that in the event of
Public Placement, amendment and modification of the Plan under this
Agreement may be required; and in such event, Valley and Employee
agree to consent to all such amendments and modifications necessary
to convert the Plan to a stock plan in accordance with requirements
of the Public Placement; provided, however, no amendment or
modification shall cause Employee to be deemed to be in
constructive receipt of any income or property of value or
otherwise be subject immediately tax liability, no amendment or
modification shall cause Employee's vested interest in the Account
Balance and the value of the Account Balance to be reduced as a
8
<PAGE> 9
result thereof, and no amendment or modification shall cause any
stock plan to be substantially at variance to the substantive terms
and conditions of the Plan, and in any such event, such amendment
and modification shall constitute termination of the Plan.
7. Plan to Be Unfunded and Unsecured. Valley's obligation
---------------------------------
with respect to the Plan under this Agreement shall be an unfunded
and unsecured promise to pay. Valley shall not be obligated under
any circumstances to fund its obligation under this Agreement and
all payments of deferred compensation by Valley to Employee under
the terms and conditions of this Agreement will be made from the
general assets of Valley.
8. No Employment Agreement. This Agreement shall not be
-----------------------
deemed to create a contract of employment between Valley and
Employee and shall create no right in the Employee to continue in
Valley's employ for any specific period of time, or to create any
other rights in Employee or obligations on the part of Valley,
except as are set forth in this Agreement. Nor shall this
Agreement restrict the unilateral right of Valley to terminate
employment of Employee, with or without cause, or restrict the
unilateral right of the Employee to terminate his employment with
Valley.
9. Independence of Benefits. The benefits payable under the
------------------------
Plan shall be independent of, and in addition to, any other
benefits or compensation, whether by salary, or bonus or otherwise,
payable under any other employment agreements that now exist or may
hereafter exist from time to time between Valley and Employee.
9
<PAGE> 10
This Agreement between Valley and Employee does not involve a
reduction in salary or foregoing of an increase in future salary by
Employee. Nor does this Agreement in any way effect or reduce the
existing and future compensation and other benefits of the
Employees.
10. Assignability. Except insofar as this provision may be
-------------
contrary to express applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by
Valley.
11. Arbitration. All disputes as to administration of the
-----------
Plan or as to rights of either Valley or Employee under this
Agreement which cannot be resolved, shall be submitted to binding
arbitration in accordance with the rules of the American
Arbitration Association. Expenses of arbitration shall be borne by
the non-prevailing party in the arbitration proceeding, unless the
selected arbitrator shall determine otherwise. The procedure for
arbitration shall be in accordance with the rules of the American
Arbitration Association, except that Employee and Valley shall each
select one arbitrator, and the two selected arbitrators shall
choose a third arbitrator. Should either Valley or Employee fail
to select an arbitrator within ten (10) days after arbitration is
sought, or if the two arbitrators shall fail to select a third
arbitrator within fifteen (15) days after arbitration is sought,
the American Arbitration Association shall select the arbitrator.
10
<PAGE> 11
12. Law Governing. This Agreement shall be governed by the
-------------
laws of the State of West Virginia.
13. Binding Effect. This Agreement is solely between Valley
--------------
and Employee. Further, Employee, personal representative or other
persons claiming by or through Employee shall only have recourse
against Valley for enforcement of this Agreement. However, this
Agreement shall be binding upon not only Valley and Employee, but
as well Employee's beneficiaries, heirs, executors and
administrators of Employee and upon the successors and assigns of
Valley.
IN WITNESS WHEREOF, Gary E. West, Chairman of the Board,
with full authority thereof has executed and delivered this
Agreement for and on behalf of Valley National Gases, Inc., and
witness the signature, to be effective as of the date and year
first above written.
VALLEY NATIONAL GASES, INC., a West
Virginia corporation
By
--------------------------------------
Its Chairman of the Board
----------------------------------------
John Bushwack
11
<PAGE> 12
Exhibit A
VALLEY NATIONAL GASES, INC.
DEFERRED COMPENSATION AGREEMENT
Following is an example to illustrate the application of the
adjustment required by Section 2(a)(ii) of the agreement.
The example assumes that G. West purchases land and a building from
the corporation on July 1, 1996 and immediately leases it back to
the corporation for a ten year period on a triple net lease for an
annual rent of $30,000.00. On the date of sale the remaining book
value of the land and building was $100,000.00 and the sale price
was $400,000.00.
The adjustments required to EBITDA are as follows:
Increase
Fiscal year ending: (Decrease)
- ------------------ ----------
First fiscal year adjustment:
June 30, 1997 deduct the one time gain on the sale $(300,000.00)
add back the annual rent 30,000.00
-----------
Net fiscal year adjustment <F*> (270,000.00)
============
Annual fiscal year adjustments thereafter:
June 30, 1998 add back to the annual rent <F*> $30,000.00
June 30, 1999 add back to the annual rent <F*> 30,000.00
June 30, 2000 add back to the annual rent <F*> 30,000.00
June 30, 2001 add back to the annual rent <F*> 30,000.00
June 30, 2002 add back to the annual rent <F*> 30,000.00
June 30, 2003 add back to the annual rent <F*> 30,000.00
June 30, 2004 add back to the annual rent <F*> 30,000.00
June 30, 2005 add back to the annual rent <F*> 30,000.00
June 30, 2006 add back to the annual rent <F*> 30,000.00
<F*> Minus the annual interest income generated by proceeds from
the sale of the property to West Rental
12
<PAGE> 1
THIS AGREEMENT is entered into this 5th day of October,
1992, by and between VALLEY WELDING SUPPLY COMPANY, a corporation
having its principal office at 67 43rd St., Wheeling, West
Virginia 26003, hereinafter called the "Corporation, and
LAWRENCE E. BANDI, a resident of 2 Halstead Avenue, Wheeling,
West Virginia 26003, hereinafter called the "Employee".
WITNESS:
-------
WHEREAS, the Employee has been employed by the
Corporation for a number of years, and is currently employed by
the Corporation;
WHEREAS, the Corporation is motivated to retain the
valuable services and business counsel of the Employee and to
induce the Employee to remain in his employment capacity with the
Corporation;
WHEREAS, the Corporation wishes to retain the Employee
in order to prevent a financial loss which the Corporation would
incur if the Employee were to leave;
WHEREAS, the Employee is willing to continue in the
employment of the Corporation;
WHEREAS, the Employee is considered a highly
compensated employee or member of a select management group of
the Corporation.
NOW, THEREFORE, the parties agree as follows:
1. CONDITIONS.
----------
1
<PAGE> 2
a. The payment of benefits to the Employee or
his designated recipient(s) under this Agreement is conditioned
upon the continuous employment of the Employee with the
Corporation (including periods of disability and authorized
leaves of absence as described in this Agreement) until his
retirement or his death, whichever is the sooner, and upon the
Employee's compliance with the terms of this Agreement.
b. Payment of benefits is further conditioned
upon the Employee not acting in any similar employment capacity
for any business enterprise which competes to a substantial
degree with the Corporation, nor engaging in any activity
involving substantial competition with the Corporation, during
his employment with the Corporation, after his retirement from
the Corporation or after his prior disability while he is
receiving benefits, without the prior written consent of the
Corporation.
2. PRERETIREMENT DEATH BENEFIT.
---------------------------
a. If the Employee dies during the period of his
active employment, or during a disability as defined under
Section 3 of this Agreement, payments shall be made as provided
in the attached "Schedule A", made a part hereof.
b. Such payments shall be made by the
Corporation to such person(s) as the Employee shall designate in
writing prior to his death. The Employee shall have the right to
change the designated recipient(s) of these payments by
presenting a written amendment to the Corporation prior to his
death in a form as provided in "Schedule B", attached hereto and
made a part hereof.
2
<PAGE> 3
c. If the Employee's spouse is the designated
beneficiary of these payments, and the spouse shall begin
receiving payment but dies prior to receiving all payments, the
balance of the payments shall be paid to the spouse's estate. In
the event the Employee shall fail to designate a recipient prior
to his death, the payments shall be made to the Employee's
surviving spouse as provided above, if alive; otherwise to the
Personal Representative of the Employee's estate.
d. However, this benefit shall not be payable if
the Employee's death results from suicide, whether sane or
insane, within two years after the execution of this Agreement.
3. DISABILITY BENEFIT. If prior to the
------------------
retirement of the employee, such Employee becomes totally and
permanently disabled as the result of an injury or a sickness,
and such total disability prevents the Employee from performing
all of the substantial and material duties of his regular
occupation, the Corporation agrees to pay the Employee payments
in the sum of $2,000 per year for a maximum period of five
(5) years, as long as the said disability exists, payable in
equal monthly installments. If, after this five year period of
disability, the Employee is unable to perform all of the
substantial and material duties of any occupation for which he is
reasonably fitted by education, training or experience and such
disability is the result of injury or sickness, the Corporation
will continue the said $2,000 annual payments, payable in equal
monthly installments for the duration of his/her disability or
until age 65, whichever occurs first.
3
<PAGE> 4
4. SALARY CONTINUATION AND POSTRETIREMENT DEATH
--------------------------------------------
BENEFIT. If the Employee is still in the employ of the
- -------
Corporation at retirement under this Agreement, whether or not
disabled, the Corporation shall, within thirty (30) days after
the Employee's retirement, commence monthly payments as provided
in the attached "Schedule C", made a part hereof. The
Corporation shall withhold federal and state income taxes from
these payments to the extent required by the law in effect at the
time these payments are made. In the event the Employee should
die after these payments have begun, but before the end of the
eighty-four monthly payments, the unpaid balance of the payments
due shall be continued to be paid by the Corporation to the
recipient as designated in Section 2 herein.
5. NAMED FIDUCIARY AND CLAIMS PROCEDURE.
------------------------------------
A. The Named Fiduciary of the plan for purposes of
the claims procedure under this Agreement is the Secretary of the
Corporation; currently Lawrence E. Bandi.
1. The business address and telephone number of
the Named Fiduciary under this Agreement is: Address: 67
43rd St., Wheeling, West Virginia 26003; telephone: (304) 232-
1541.
2. The Corporation shall have the right to
change the Named Fiduciary of the plan created under this
Agreement. The Corporation shall also have the right to change
the address and telephone number of the Named Fiduciary. The
Corporation shall give the Employee written notice of any change
of the Named Fiduciary, or any change in the address and
telephone number of the Named Fiduciary.
4
<PAGE> 5
B. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee, or a designated
recipient, or any other person claiming through the Employee
(hereinafter collectively referred to as the "Claimant") shall
make a written request for the benefits provided under this
Agreement. This written claim shall be mailed or delivered to
the Named Fiduciary.
C. If the claim is denied, either wholly or
partially, notice of the decision shall be mailed to the claimant
within a reasonable time period. This time period shall not
exceed more than 90 days after the receipt of the claim by the
Named Fiduciary.
D. The Named Fiduciary shall provide a written notice
to every Claimant who is denied a claim for benefits under this
Agreement. The notice shall set forth the following information:
1. the specific reasons for the denial;
2. the specific reference to pertinent plan
provisions on which the denial is based;
3. 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
4. appropriate information and explanation of
the claims procedure under this Agreement so to permit the
Claimant to submit his claim for review.
All of this information shall be set forth in
the notice in a manner calculated to be
understood by the Claimant.
5
<PAGE> 6
E. The Claims procedure under this Agreement shall
allow the Claimant a reasonable opportunity to appeal a denied
claim and to get a full and fair review of that decision from the
Named Fiduciary.
1. The Claimant shall exercise his right of
appeal by submitting a written request for a review of the denied
claim to the Named Fiduciary. This written request for review
must be submitted to the Named Fiduciary within sixty (60) days
after receipt by the Claimant of the written notice of denial.
2. The Claimant shall have the following rights
under this appeal procedure:
a. to request a review upon written
application to the Named Fiduciary;
b. to review pertinent documents with
regard to the employee benefit plan created under this Agreement;
c. the right to submit issues and comment
in writing;
d. to request an extension of time to make
a written submission of issues and comments; and
e. to request that a hearing be held to
consider Claimant's appeal.
F. The decision on the review of the denied claim
shall promptly be made by the Named Fiduciary:
1. within sixty (60) days after the receipt of
the request for review if no hearing is held; or
6
<PAGE> 7
2. within one hundred twenty (120) days after
the receipt of the request for review, if an extension of time is
necessary in order to hold a hearing.
a. If an extension of time is necessary in
order to hold a hearing, the Named Fiduciary shall give the
Claimant written notice of the extension of time and of the
hearing. This notice shall be given prior to any extension.
b. The written notice of extension shall
indicate that an extension of time will occur in order to hold a
hearing on Claimant's appeal. The notice shall also specify the
place, date, and time of that hearing and the Claimant's
opportunity to participate in the hearing. It may also include
any other information the Named Fiduciary believes may be
important or useful to the Claimant in connection with the
appeal.
G. The decision to hold a hearing to consider the
Claimant's appeal of the denied claim shall be within the sole
discretion of the Named Fiduciary, whether or not the Claimant
requests such a hearing.
H. The Named Fiduciary's decision on review shall be
made in writing and provided to the Claimant within the specified
time periods in Paragraph F. This written decision on review
shall contain the following information:
1. the decision(s);
2. the reasons for the decision(s); and
3. specific references to the plan provisions of
the Agreement on which the decision(s) is/are based.
7
<PAGE> 8
All of this information shall be written
in a manner calculated to be understood
by the Claimant.
6. NATURE OF EMPLOYER'S OBLIGATION. The
-------------------------------
Corporation's obligations under this Agreement shall be an
unfunded and unsecured promise to pay. The Corporation shall not
be obligated under any circumstances to fund its financial
obligations under this Agreement. Any assets which the
Corporation may acquire to help cover its financial liabilities
are and remain general assets of the Corporation subject to the
claims of its creditors. Neither the Corporation nor the plan
created by this Agreement gives the Employee any beneficial
ownership interest in any asset of the Corporation. All rights
of ownership in any such assets are and remain in the
Corporation.
7. EMPLOYMENT RIGHTS.
-----------------
a. This Agreement shall not be deemed to create
a contract of employment between the Corporation and the Employee
and shall create no right in the Employee to continue in the
Corporation's employ for any specific period of time, or to
create any other rights in the Employee or obligations on the
part of the Corporation, except as are set forth in this
Agreement. Nor shall this Agreement restrict the right of the
Corporation to terminate the Employee for cause, or restrict the
right of the Employee to terminate his employment.
b. "Cause" as defined in this Agreement shall
mean:
8
<PAGE> 9
1. incompetence
2. insubordination or disloyalty
3. conviction or a plea of nolo
----
contendre in a felony case
- ---------
4. intoxication
5. drug addiction
8. EMPLOYEE RIGHT TO ASSETS.
------------------------
a. The rights of the Employee, any designated
recipient of the Employee, or any other person claiming through
the Employee under this Agreement, shall be solely those of an
unsecured general creditor of the Corporation. The Employee, the
designated recipient of the Employee, or any other person
claiming through the Employee, shall have the right to receive
those payments specified under this Agreement only from the
Corporation, and has no right to look to any specific or special
property separate from the Corporation to satisfy a claim for
benefit payments.
b. The Employee agrees that he, his designated
recipient, or any other person claiming through him shall have
not rights or beneficial ownership interest whatsoever in any
general asset that the Corporation may acquire or use to help
support its financial obligations under this Agreement. Any such
general asset used or acquired by the Corporation in connection
with the liabilities it has assumed under this Agreement, shall
not be deemed to be held under any trust for the benefit of the
Employee or his designated recipients. Nor shall any such
general asset be
9
<PAGE> 10
considered security for the performance of the obligations of the
Corporation. Any such asset shall remain a general, unpledged, and
unrestricted asset of the Corporation.
c. The Employee also understands and agrees that
his participation in the acquisition of any such general asset
for the Corporation shall not constitute a representation to the
Employee, his designated recipient, or any person claiming
through the Employee that any of them has a special or beneficial
interest in such general asset.
9. INDEPENDENCE OF BENEFITS. The benefits
------------------------
payable under this Agreement shall be independent of, and in
addition to, any other benefits or compensation, whether by
salary, or bonus or otherwise, payable under any other employment
agreements that now exist or may hereafter exist from time to
time between the Corporation and the Employee. This Agreement
between the Corporation and the Employee does not involve a
reduction in salary or foregoing of an increase in future salary
by the Employee. Nor does the Agreement in any way affect or
reduce the existing and future compensation and other benefits of
the Employee except possibly as to the unqualified salary
continuation plan hereby amended.
10. ACCELERATION OF PAYMENTS. The Corporation
------------------------
reserves the right to accelerate the payment of any benefits
payable under this Agreement without the consent of the Employee,
his estate, his designated recipients, or any other person
claiming through the Employee.
10
<PAGE> 11
11. LEAVE OF ABSENCE. The Corporation may, in its
----------------
sole discretion, permit the Employee to take a leave of absence
for a period not to exceed one year. During such leave, the
Employee will still be considered to be in the continuous
employment of the Corporation for purposes of this Agreement.
12. ASSIGNABILITY. Except insofar as this
-------------
provision may be contrary to applicable law, no sale, transfer,
alienation, assignment, pledge, collateralization, or attachment
of any benefits under this Agreement shall be valid or recognized
by the Corporation.
13. AMENDMENT. During the lifetime of the
---------
employee, this Agreement may be amended or revoked at any time,
in whole or in part, by the mutual written agreement of the
parties. Employee and Corporation further agree that this
Agreement may be amended as needed from time to time to comply
with the requirements or mandates of the Internal Revenue Code,
ERISA and/or any other law or regulation directly impacting upon
Employee and Corporation and their relationship arising out of
the terms and conditions of this Agreement.
14. LAW GOVERNING. This Agreement shall be
-------------
governed by the laws of the state of West Virginia. This
Agreement is solely between the Corporation and the Employee.
Further, the Employee, his designated recipients or other persons
claiming through the Employee shall only have recourse against
the Corporation for enforcement of the Agreement. However, it
shall be binding upon the designated recipients, beneficiaries,
hairs, executors and
11
<PAGE> 12
administrators of the Employee and upon the successors and assigns
of the Corporation.
VALLEY WELDING SUPPLY COMPANY,
a corporation
(CORPORATE SEAL) By
---------------------------------------
Its President and CEO
-----------------------------------------
Lawrence E. Bandi
12
<PAGE> 13
SCHEDULE A
----------
It is agreed this 5th day of October, 1992, that the
Corporation shall make payment at death to the designated
recipient(s) as follows: $2,000 per month, beginning within
thirty days of death, continuously for a period of eighty-four
(84) months.
VALLEY WELDING SUPPLY COMPANY,
a corporation
By
---------------------------------------
Its President and CEO
-----------------------------------------
Lawrence E. Bandi
13
<PAGE> 14
SCHEDULE B
----------
DESIGNATION OF SALARY CONTINUATION AND DEATH BENEFIT RECIPIENT
--------------------------------------------------------------
I, LAWRENCE E. BANDI, request the Corporation (mark/
change) its records to reflect MARY DEE BANDI as the designated
recipient(s) of the Salary Continuation Benefit payable under
Provision 4, and the Death Benefit payable under Provision 2 of the
salary continuation Agreement dated the 5th day of October, 1992, and
to make payment of the Salary Continuation Benefit and the Death
Benefit to the above designated recipient(s) as provided under the
terms of the Agreement. You are instructed to retain the above
designation until such time as you receive a new "Designation of
Salary Continuation and Death Benefit Recipient" from me which makes a
change.
10/5/92
- ------------------------------------- ----------------------------------
(Date) Lawrence E. Bandi
14
<PAGE> 15
SCHEDULE C
----------
It is agreed this 5th day of October, 1992, that upon
retirement the Corporation shall make monthly payments of $2,000
to the Employee for a period of eighty-four (84) months.
Employee shall retire as of the first day of the month
next preceding his sixty-fifth (65th) birthday or coincident
therewith. However, Corporation and Employee, by mutual
agreement, shall have the right to elect to extend Employee's
retirement date from year to year thereafter. Such election must
be made in writing by Corporation and Employee no later than the
20th day of December of the calendar year next preceding said
retirement date and each succeeding applicable anniversary date
thereof during any such yearly extension periods.
VALLEY WELDING SUPPLY COMPANY,
a corporation
By
---------------------------------------
Its President and CEO
-----------------------------------------
Lawrence E. Bandi
15
<PAGE> 1
THIS AGREEMENT is entered into this 5th day of October,
1992, by and between VALLEY WELDING SUPPLY COMPANY, a corporation
having its principal office at 67 43rd St., Wheeling, West
Virginia 26003, hereinafter called the "Corporation, and JOHN
BUSHWACK, a resident of 2920 Seminary Road, Greensburg,
Pennsylvania 15601, hereinafter called the "Employee".
WITNESS:
-------
WHEREAS, the Employee has been employed by the
Corporation for a number of years, and is currently employed by
the Corporation;
WHEREAS, the Corporation is motivated to retain the
valuable services and business counsel of the Employee and to
induce the Employee to remain in his employment capacity with the
Corporation;
WHEREAS, the Corporation wishes to retain the Employee
in order to prevent a financial loss which the Corporation would
incur if the Employee were to leave;
WHEREAS, the Employee is willing to continue in the
employment of the Corporation;
WHEREAS, the Employee is considered a highly
compensated employee or member of a select management group of
the Corporation.
NOW, THEREFORE, the parties agree as follows:
1. CONDITIONS.
----------
a. The payment of benefits to the Employee or
his designated recipient(s) under this Agreement is conditioned
upon the continuous employment of the Employee with the
Corporation
<PAGE> 2
(including periods of disability and authorized leaves of absence as
described in this Agreement) until his retirement or his death,
whichever is the sooner, and upon the Employee's compliance with the
terms of this Agreement.
b. Payment of benefits is further conditioned
upon the Employee not acting in any similar employment capacity
for any business enterprise which competes to a substantial
degree with the Corporation, nor engaging in any activity
involving substantial competition with the Corporation, during
his employment with the Corporation, after his retirement from
the Corporation or after his prior disability while he is
receiving benefits, without the prior written consent of the
Corporation.
2. PRERETIREMENT DEATH BENEFIT.
---------------------------
a. If the Employee dies during the period of his
active employment, or during a disability as defined under
Section 3 of this Agreement, payments shall be made as provided
in the attached "Schedule A", made a part hereof.
b. Such payments shall be made by the
Corporation to such person(s) as the Employee shall designate in
writing prior to his death. The Employee shall have the right to
change the designated recipient(s) of these payments by
presenting a written amendment to the Corporation prior to his
death in a form as provided in "Schedule B", attached hereto and
made a part hereof.
c. If the Employee's spouse is the designated
beneficiary of these payments, and the spouse shall begin
receiving payment but dies prior to receiving all payments, the
balance of the payments shall be paid to the spouse's estate. In
the event the Employee shall fail to designate a recipient prior
to his
<PAGE> 3
death, the payments shall be made to the Employee's surviving
spouse as provided above, if alive; otherwise to the Personal
Representative of the Employee's estate.
d. However, this benefit shall not be payable if
the Employee's death results from suicide, whether sane or
insane, within two years after the execution of this Agreement.
3. DISABILITY BENEFIT. If prior to the retirement of
------------------
the employee, such Employee becomes totally and permanently
disabled as the result of an injury or a sickness, and such total
disability prevents the Employee from performing all of the
substantial and material duties of his regular occupation, the
Corporation agrees to pay the Employee payments in the sum of
$1,000 per year for a maximum period of five (5) years, as long
as the said disability exists, payable in equal monthly
installments. If, after this five year period of disability, the
Employee is unable to perform all of the substantial and material
duties of any occupation for which he is reasonably fitted by
education, training or experience and such disability is the
result of injury or sickness, the Corporation will continue the
said $1,000 annual payments, payable in equal monthly
installments for the duration of his/her disability or until age
65, whichever occurs first.
4. SALARY CONTINUATION AND POSTRETIREMENT DEATH
--------------------------------------------
BENEFIT. If the Employee is still in the employ of the
- -------
Corporation at retirement under this Agreement, whether or not
disabled, the Corporation shall, within thirty (30) days after
the Employee's retirement, commence monthly payments as provided
in the attached "Schedule C", made a part hereof. The
Corporation shall withhold federal and state income taxes from
these payments to the extent
<PAGE> 4
required by the law in effect at the time these payments are
made. In the event the Employee should die after these payments
have begun, but before the end of the eighty-four monthly
payments, the unpaid balance of the payments due shall be
continued to be paid by the Corporation to the recipient as
designated in Section 2 herein.
5. NAMED FIDUCIARY AND CLAIMS PROCEDURE.
------------------------------------
A. The Named Fiduciary of the plan for purposes of
the claims procedure under this Agreement is the Secretary of the
Corporation; currently Lawrence E. Bandi.
1. The business address and telephone number of
the Named Fiduciary under this Agreement is: Address: 67
43rd St., Wheeling, West Virginia 26003; telephone: (304) 232-
1541.
2. The Corporation shall have the right to
change the Named Fiduciary of the plan created under this
Agreement. The Corporation shall also have the right to change
the address and telephone number of the Named Fiduciary. The
Corporation shall give the Employee written notice of any change
of the Named Fiduciary, or any change in the address and
telephone number of the Named Fiduciary.
B. Benefits shall be paid in accordance with the
provisions of this Agreement. The Employee, or a designated
recipient, or any other person claiming through the Employee
(hereinafter collectively referred to as the "Claimant") shall
make a written request for the benefits provided under this
Agreement. This written claim shall be mailed or delivered to
the Named Fiduciary.
C. If the claim is denied, either wholly or
partially, notice of the decision shall be mailed to the claimant
within a
<PAGE> 5
reasonable time period. This time period shall not exceed more
than 90 days after the receipt of the claim by the Named
Fiduciary.
D. The Named Fiduciary shall provide a written notice
to every Claimant who is denied a claim for benefits under this
Agreement. The notice shall set forth the following information:
1. the specific reasons for the denial;
2. the specific reference to pertinent plan
provisions on which the denial is based;
3. 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
4. appropriate information and explanation of
the claims procedure under this Agreement so to permit the
Claimant to submit his claim for review.
All of this information shall be set forth in
the notice in a manner calculated to be
understood by the Claimant.
E. The Claims procedure under this Agreement shall
allow the Claimant a reasonable opportunity to appeal a denied
claim and to get a full and fair review of that decision from the
Named Fiduciary.
1. The Claimant shall exercise his right of
appeal by submitting a written request for a review of the denied
claim to the Named Fiduciary. This written request for review
must be submitted to the Named Fiduciary within sixty (60) days
after receipt by the Claimant of the written notice of denial.
2. The Claimant shall have the following rights
under this appeal procedure:
<PAGE> 6
a. to request a review upon written
application to the Named Fiduciary;
b. to review pertinent documents with
regard to the employee benefit plan created under this Agreement;
c. the right to submit issues and comment
in writing;
d. to request an extension of time to make
a written submission of issues and comments; and
e. to request that a hearing be held to
consider Claimant's appeal.
F. The decision on the review of the denied claim
shall promptly be made by the Named Fiduciary:
1. within sixty (60) days after the receipt of
the request for review if no hearing is held; or
2. within one hundred twenty (120) days after
the receipt of the request for review, if an extension of time is
necessary in order to hold a hearing.
a. If an extension of time is necessary in
order to hold a hearing, the Named Fiduciary shall give the
Claimant written notice of the extension of time and of the
hearing. This notice shall be given prior to any extension.
b. The written notice of extension shall
indicate that an extension of time will occur in order to hold a
hearing on Claimant's appeal. The notice shall also specify the
place, date, and time of that hearing and the Claimant's
opportunity to participate in the hearing. It may also include
any other information the Named Fiduciary believes may be
important or useful to the Claimant in connection with the
appeal.
<PAGE> 7
G. The decision to hold a hearing to consider the
Claimant's appeal of the denied claim shall be within the sole
discretion of the Named Fiduciary, whether or not the Claimant
requests such a hearing.
H. The Named Fiduciary's decision on review shall be
made in writing and provided to the Claimant within the specified
time periods in Paragraph F. This written decision on review
shall contain the following information:
1. the decision(s);
2. the reasons for the decision(s); and
3. specific references to the plan provisions of
the Agreement on which the decision(s) is/are based.
All of this information shall be written
in a manner calculated to be understood
by the Claimant.
6. NATURE OF EMPLOYER'S OBLIGATION. The
-------------------------------
Corporation's obligations under this Agreement shall be an
unfunded and unsecured promise to pay. The Corporation shall not
be obligated under any circumstances to fund its financial
obligations under this Agreement. Any assets which the
Corporation may acquire to help cover its financial liabilities
are and remain general assets of the Corporation subject to the
claims of its creditors. Neither the Corporation nor the plan
created by this Agreement gives the Employee any beneficial
ownership interest in any asset of the Corporation. All rights
of ownership in any such assets are and remain in the
Corporation.
7. EMPLOYMENT RIGHTS.
-----------------
<PAGE> 8
a. This Agreement shall not be deemed to create
a contract of employment between the Corporation and the Employee
and shall create no right in the Employee to continue in the
Corporation's employ for any specific period of time, or to
create any other rights in the Employee or obligations on the
part of the Corporation, except as are set forth in this
Agreement. Nor shall this Agreement restrict the right of the
Corporation to terminate the Employee for cause, or restrict the
right of the Employee to terminate his employment.
b. "Cause" as defined in this Agreement shall
mean:
1. incompetence
2. insubordination or disloyalty
3. conviction or a plea of nolo contendre
--------------
in a felony case
4. intoxication
5. drug addiction
8. EMPLOYEE RIGHT TO ASSETS.
------------------------
a. The rights of the Employee, any designated
recipient of the Employee, or any other person claiming through
the Employee under this Agreement, shall be solely those of an
unsecured general creditor of the Corporation. The Employee, the
designated recipient of the Employee, or any other person
claiming through the Employee, shall have the right to receive
those payments specified under this Agreement only from the
Corporation, and has no right to look to any specific or special
property separate from the Corporation to satisfy a claim for
benefit payments.
<PAGE> 9
b. The Employee agrees that he, his designated
recipient, or any other person claiming through him shall have
not rights or beneficial ownership interest whatsoever in any
general asset that the Corporation may acquire or use to help
support its financial obligations under this Agreement. Any such
general asset used or acquired by the Corporation in connection
with the liabilities it has assumed under this Agreement, shall
not be deemed to be held under any trust for the benefit of the
Employee or his designated recipients. Nor shall any such
general asset be considered security for the performance of the
obligations of the Corporation. Any such asset shall remain a
general, unpledged, and unrestricted asset of the Corporation.
c. The Employee also understands and agrees that
his participation in the acquisition of any such general asset
for the Corporation shall not constitute a representation to the
Employee, his designated recipient, or any person claiming
through the Employee that any of them has a special or beneficial
interest in such general asset.
9. INDEPENDENCE OF BENEFITS. The benefits payable
------------------------
under this Agreement shall be independent of, and in addition to,
any other benefits or compensation, whether by salary, or bonus
or otherwise, payable under any other employment agreements that
now exist or may hereafter exist from time to time between the
Corporation and the Employee. This Agreement between the
Corporation and the Employee does not involve a reduction in
salary or foregoing of an increase in future salary by the
Employee. Nor does the Agreement in any way affect or reduce the
existing and future compensation and other benefits of the
Employee except
<PAGE> 10
possibly as to the unqualified salary continuation plan hereby
amended.
10. ACCELERATION OF PAYMENTS. The Corporation
------------------------
reserves the right to accelerate the payment of any benefits
payable under this Agreement without the consent of the Employee,
his estate, his designated recipients, or any other person
claiming through the Employee.
11. LEAVE OF ABSENCE. The Corporation may, in its
----------------
sole discretion, permit the Employee to take a leave of absence
for a period not to exceed one year. During such leave, the
Employee will still be considered to be in the continuous
employment of the Corporation for purposes of this Agreement.
12. ASSIGNABILITY. Except insofar as this provision
-------------
may be contrary to applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by the
Corporation.
13. AMENDMENT. During the lifetime of the employee,
---------
this Agreement may be amended or revoked at any time, in whole or
in part, by the mutual written agreement of the parties.
Employee and Corporation further agree that this Agreement may be
amended as needed from time to time to comply with the
requirements or mandates of the Internal Revenue Code, ERISA
and/or any other law or regulation directly impacting upon
Employee and Corporation and their relationship arising out of
the terms and conditions of this Agreement.
14. LAW GOVERNING. This Agreement shall be governed
-------------
by the laws of the state of West Virginia. This Agreement is solely
<PAGE> 11
between the Corporation and the Employee. Further, the
Employee, his designated recipients or other persons claiming
through the Employee shall only have recourse against the
Corporation for enforcement of the Agreement. However, it shall
be binding upon the designated recipients, beneficiaries, hairs,
executors and administrators of the Employee and upon the
successors and assigns of the Corporation.
VALLEY WELDING SUPPLY COMPANY,
a corporation
(CORPORATE SEAL) By
---------------------------------
Its President and CEO
-----------------------------------
John Bushwack
<PAGE> 12
SCHEDULE A
----------
It is agreed this 5th day of October, 1992, that the
Corporation shall make payment at death to the designated
recipient(s) as follows: $1,000 per month, beginning within
thirty days of death, continuously for a period of eighty-four
(84) months.
VALLEY WELDING SUPPLY COMPANY,
a corporation
By
---------------------------------
Its President and CEO
-----------------------------------
John Bushwack
<PAGE> 13
SCHEDULE B
----------
DESIGNATION OF SALARY CONTINUATION AND DEATH BENEFIT RECIPIENT
--------------------------------------------------------------
I, JOHN BUSHWACK, request the Corporation (mark/change)
its records to reflect CAROLINE B. BUSHWACK as the designated
recipient(s) of the Salary Continuation Benefit payable under
Provision 4, and the Death Benefit payable under Provision 2 of
the salary continuation Agreement dated the 5th day of October,
1992, and to make payment of the Salary Continuation Benefit and
the Death Benefit to the above designated recipient(s) as
provided under the terms of the Agreement. You are instructed to
retain the above designation until such time as you receive a new
"Designation of Salary Continuation and Death Benefit Recipient"
from me which makes a change.
10/5/92
- ------------------------------ ------------------------------
(Date) Caroline B. Bushwack
<PAGE> 14
SCHEDULE C
----------
It is agreed this 5th day of October, 1992, that upon
retirement the Corporation shall make monthly payments of $1,000
to the Employee for a period of eighty-four (84) months.
Employee shall retire as of the first day of the month
next preceding his sixty-fifth (65th) birthday or coincident
therewith. However, Corporation and Employee, by mutual
agreement, shall have the right to elect to extend Employee's
retirement date from year to year thereafter. Such election must
be made in writing by Corporation and Employee no later than the
20th day of December of the calendar year next preceding said
retirement date and each succeeding applicable anniversary date
thereof during any such yearly extension periods.
VALLEY WELDING SUPPLY COMPANY,
a corporation
By
---------------------------------
Its President and CEO
-----------------------------------
Lawrence E. Bandi
<PAGE> 1
AGREEMENT
---------
THIS AGREEMENT, made as of the 16th day of March, 1994
between Valley Welding Supply Co, Inc., a Corporation ("VALLEY")
and William A. Indelicato ("INDELICATO").
WHEREAS, Indelicato, individually and by and through
his consulting corporation ADE Vantage, Inc. ("CORPORATION") have
entered into an arrangement with Valley Welding Supply Co. for
the development of an acquisition program as well as promulgation
and execution of a Strategic Business Plan, 1994-1998
----------------------------------
("PLAN") for the expansion of Valley's industrial gas and welding
supply business, through acquisition and expansion of industrial
gas and welding supply distributors ("ACQUISITION PROGRAM"); a
copy of the Plan is attached hereto and incorporation herein by
reference as Exhibit A; and
WHEREAS, Valley and Indelicato desire to enter into
this Agreement setting forth Indelicato's relationship with
Valley in the execution of the Acquisition Program and Plan
including compensation therefore.
WITNESSETH in consideration of the mutual promises
----------
hereinafter contained Valley and Indelicato agree as follows:
1. Duties. Indelicato will identify, investigate and
develop industrial gas and welding supply business distributors
as prospective acquisition candidates. Indelicato together with
Valley will qualify all potential distributors for acquisition
and jointly target distributors for acquisition solicitation
("TARGET DISTRIBUTORS"). Indelicato will assist Valley in the
solicitation, preparation of offering memoranda, contract
negotiation, due diligence and/or any
1
<PAGE> 2
other matters necessary to assist Valley to consummate Target
Target Distributor acquisitions in accordance with the Plan.
2. Term. The term of this Agreement shall be give
(5) years from the execution and delivery of this Agreement
unless sooner terminated pursuant to Paragraph 14 hereinafter.
3. Independent Contractor Status. It is understood
that Indelicato is an independent contractor, representing Valley
pursuant to this Agreement, and he shall not otherwise hold
himself out to the public as employee, agent, or partner of
Valley. As such Indelicato is responsible, where necessary, to
secure at his sole cost, worker's compensation, insurance,
disability, benefits and any other insurance as may be required
by law. Valley will not provide, nor will it be responsible to
pay for benefits for Indelicato. Any benefits, if provided by
Indelicato for himself and/or his staff, including but not
limited to, health insurance, paid vacation, paid holidays, sick
leave or disability insurance coverage of whatever nature, shall
be secured and paid for by Indelicato.
4. Tax Duties and Responsibilities. Indelicato is
responsible for the payment of all required payroll taxes,
whether federal, state or local in nature, including, but not
limited to, income taxes, social security taxes, federal
unemployment compensation taxes, and any other fees, charges,
licenses or other payments required by law.
5. Employee's of Independent Contractor. Indelicato
may employ as many employees as he requires, such matter resting
entirely with his own discretion. Valley need not be advised to
the employment of such individuals. Such persons are employees
of Indelicato, and he shall be deemed employer of such persons.
As such, Indelicato shall be responsible for compensation as well
as all necessary insurance and payroll deductions for such persons,
2
<PAGE> 3
including but not limited to, federal, state and local income taxes,
social security taxes, unemployment compensation taxes, workers
compensation coverage, etc.
6. ADE Vantage, Inc. Indelicato may at his sole cost
and expense (except for reimbursable support service costs as
provided in Paragraph 11 hereinafter), in his execution of the
Plan, engage Corporation, ADE Vantage, Inc., his consulting firm,
as his agent and contractor to provide support services and any
other services executed pursuant to the Plan or otherwise
required of Indelicato hereunder. At all times, Corporation
shall solely be the contractual agent of Indelicato and not
Valley.
7. Indemnification. Indelicato shall not be liable
for the acts, negligence or defaults of any employee, agent or
representative of Valley, nor shall he be liable for anything
done or not done in good faith, including errors of judgment,
acts done or committed on the advice of counsel, or mistakes of
fact or law. Indelicato shall, without prejudice to any other
rights which he may have, be indemnified by Valley against all
liability and expense reasonably incurred by him in connection
with any claim, action, suit or proceeding of whatever nature in
which he may be involved as a party or otherwise by reason of
having entered into this Agreement and the execution of the
duties assumed hereunder relative to his execution of the
Acquisition Program and Plan. Indemnification hereunder, shall
not, however, extend to any liability, loss, damage claim or
expense to the extent occasioned by or arising out of
Indelicato's default hereunder or any willful misconduct or
grossly negligent act by Indelicato, his agents and employees in
his capacity as an Independent Contractor in the execution of his
duties hereunder. Further, Valley agrees that ADE Vantage, Inc.
shall not be liable and shall be held harmless for any damage or
injury caused by its negligent mistakes, errors and omissions in
and about providing financial services under this Agreement.
3
<PAGE> 4
8. Business of Independent Contractor. During the
term of this Agreement, Indelicato may engage in any other
business which does not conflict with his duties hereunder,
conflict with Valley's business, or otherwise impair the
successful execution and implementation of the Acquisition
Program and Plan. Notwithstanding, Valley and Indelicato agree
that approximately thirty percent (30%) of Indelicato's time will
be spent on the Acquisition Program and Plan.
9. Supervision. Indelicato shall not be subject to
the provisions of any personnel handbook or the rules and
regulations of applicable employees to Valley since Indelicato
shall fulfill his responsibilities independent of and without
supervision or control by Valley.
10. Compensation. Indelicato's compensation hereunder
shall be set forth as follows:
a. Prior to Acquisition Program and Plan.
Indelicato shall be compensated for his efforts in
structuring of the Acquisition Program, aid and effort in
the solicitation and procurement of acquisition financing
and as well the preparation and promulgation of the Plan
based upon a redeemable credit arrangement as set forth in
subparagraph (c) hereinafter at the base credit rate of One
Hundred Fifteen Dollars ($115.00) per hour ("APPLICABLE BASE
CREDIT RATE") for all hours reasonably incurred for such
services, and which shall have been invoiced by Indelicato
to Valley monthly during the development phase of the
Acquisition Program and Plan, which shall terminate as of
the execution and delivery of this Agreement. Also, during
this period Valley shall reimburse Indelicato by cash
payment for out of pocket expenses reasonably
4
<PAGE> 5
incurred in and about his efforts in structuring the Acquisition
Program, aid in the solicitation and procurement acquisition
financing and preparing the plan.
b. After Commencement of Acquisition Program and
Plan. Indelicato's compensation during the term of this
Agreement shall also be based upon a redeemable credit
arrangement. For all compensable hours pursuant to
compensation provisions in subparagraphs d, (ii) through
(iv) hereinafter, Indelicato shall accrue credits for
services performed at applicable base credit rates of either
One Hundred Fifteen Dollars ($115.00) per hour or Fifty
Dollars ($50.00) per hour (both also "APPLICABLE BASE CREDIT
RATE") as specified and adjusted hereinafter.
c. Redeemable Credit Arrangement.
Notwithstanding, the term of this Agreement such credits are
redeemable by Indelicato within a seven (7) year period from
the date of accrual ("REDEMPTION PERIOD"). The value of
said credits during the seven (7) year redemption period
shall increase proportionately with the increase in Valley's
net worth as compared to the present Valley net worth on an
annual basis. After each fiscal year (July 1 through
June 30 "FISCAL YEAR") during the term of this Agreement,
Valley shall provide Indelicato with a financial statement
reflecting the net worth of Valley as of the end of the
previous fiscal year. During the redemption period,
Indelicato shall be entitled to his original accrued credits
plus an increase in value based on the net worth of Valley
at the date of each year end fiscal net worth as indicated
in the example hereinafter.
In the event Valley is unsuccessful in its
operations and its net worth declines or becomes negative,
the earned Applicable Base Credit Rates shall not be
decreased and shall constitute the minimum credit redemption
value rates.
5
<PAGE> 6
Alternatively, in the event Valley offers its
corporate stock for public ownership and such shares of
stock become publicly traded, Indelicato may in his
discretion elect that the value of his credits be converted
into shares earned, based upon Valley's net worth share
value at the end of the year in which the credits were
earned. For such stock value calculation, Indelicato's
credits shall be converted into shares determined as of and
with reference to the net worth value at the Fiscal Year end
in years that shares accrue.
For Example:
- -----------
<TABLE>
<CAPTION> $50 x 500 hrs
Starting Starting $115 x 200 hrs
Number of Year Net Ending Year Accumulated Shares Accumulated
Valley Shares Worth Net Worth Credits Earned Total Shares
<C> <C> <C> <C> <C> <C>
10,000,000 $10,000,000<F*> $12,000,000 $50,000 41,666 41,666
10,000,000 $12,000,000 $14,000,000 $50,000 35,710 77,376
10,000,000 $14,000,000 $17,000,000 $50,000 29,412 106,788
10,000,000 $17,000,000 $20,000,000<F**> $50,000 25,000 131,788
- -----------------------------------------------------------------------------------------------------
<FN>
<F**>Net Worth Share Value $2.00 x 131,788 = 263,576
<F*>I.P.O. 131,780 shares x $12.00 = $1,581.456 Stock Value
<F*>In our example, we have assumed a base value per share of $1.00
and a hypothetical initial public offering price of $12.00 per
share.
</TABLE>
d. Compensation During Term of Plan. Valley
shall compensate Indelicato for services hereunder during
the term of this Agreement as follows:
i. Indelicato shall receive no compensation
when a Target Distributor is solicited but no
acquisition offer is made.
ii. Indelicato shall be entitled to credit
at the rate of $50.00 per hour (with credit earned
during the fiscal year the time was actually spent) for
all time spent soliciting and preparing offering
memoranda for solicitation of a
6
<PAGE> 7
Target Distributor, when an acquisition is made but,
for whatever reason, the acquisition in unsuccessful.
iii. Indelicato shall be entitled to a credit
of $115.00 per hour (with credit earned during the
fiscal year the time was actually spent) for all time
spent soliciting, preparing offering memoranda,
negotiating purchase contract, due diligence and/or
other services required of Indelicato by Valley in the
solicitation of a Target Distributor when an
acquisition offer is made, and the Target Distributor
acquisition is successful culminating in closing.
iv. Indelicato will be paid a management
service fee of $1,000.00 per month by cash payment, and
not be credit. The management service fee shall be
reviewed from year to year to evaluate whether
adjustment might be made to adjust the fee for actual
management services provided.
v. Valley shall reimburse Indelicato by
cash payment for all out of pocket expenses reasonably
incurred by him, while rendering services under
subparagraphs d(i), d(ii), d(iii) and d(iv) next above.
e. Redemption. Indelicato shall give Valley at
least fifteen (15) days prior written notice of his intent
to redeem any or all of his accrued credits. Indelicato, as
available may elect such redemption either (1) on the
adjusted net worth percentage increase basis, or (2) in the
event public stock offering on the stock base redemption
basis, specifying the redemption date and number of credits
to be redeemed. Any and all credits not redeemed prior to
the seven (7) year redemption period shall be automatically
redeemed as of the expiration of the redemption period.
Valley shall have thirty (30) days after the redemption date
to make redemption payments to Indelicato.
7
<PAGE> 8
11. Reimbursable Support Service.
a. Financial. Indelicato shall be entitled to
reimbursement for financial support services for financial
projections, evaluations as well as other necessary and
required analyses prepared for Indelicato by Corporation or
by independent professional agents obtained for this
specific purpose, at the rate of Seventy-two Dollars
($72.00) per hour as such support service costs are incurred
during the term of this Agreement. Valley and Indelicato
agree that they intend to use ADE Vantage, Inc. for
financial services.
b. Legal. Indelicato shall be entitled to
reimbursement for legal support services for letters of
intent, offering memorandum, as well as other necessary and
required legal support services furnished for Indelicato by
Corporation by independent professional agents obtained for
such specific purposes at the rate of One Hundred Twenty-
eight Dollars ($128.00) per hour as such support service
costs are incurred during the term of this Agreement.
c. Approval of Valley. All such financial and
legal support services shall be incurred on a case by case
basis, only upon the notice to and agreement of Valley as to
the proposed nature and extent thereof.
12. Assignment. Indelicato shall not sell, assign or
transfer this Agreement, however, he shall have the limited right
to assign the Agreement to the Corporation.
13. Governing Law. This Agreement shall be subject to
and governed by the laws of the State of West Virginia.
14. Termination of Agreement. This Agreement may be
terminated at will by either party, at any time, by written
notice to the other party as provided hereinafter in
8
<PAGE> 9
Paragraph "15. Notices." The posting of such certified mail
notification shall be the effective termination date, unless
otherwise expressly set forth in the notice of termination. If
Valley Welding terminates the agreement other than for just
cause, the value of Indelicato's credits would be valued at the
increased net book value amount. If Indelicato terminates the
Agreement or if Valley terminates the Agreement for just cause,
then his credits will be valued at the $50.00 and $115.00
Applicable Base Credit Rates without benefit of the increase in
Valley's net book value. In the event Indelicato dies, then in
such event his estate would be entitled to the value of
Indelicato's credits valued at the increased net book value
amount, the same as if Valley Welding terminated the Agreement
other than for just cause. Termination of this Agreement will in
no event cause forfeiture of Indelicato's right to payment
hereunder, which shall survive any and all such termination.
15. Notices. All notices required to be given
hereunder shall be in writing and shall be sent by certified
mail, postage prepaid, to Valley and/or to Indelicato at the
addresses indicated below, unless written notice of change of
address is provided to other party at the address indicated.
To Valley: Valley Welding Supply Co., Inc., 67 -
---------
43rd Street, Wheeling, West Virginia 26003; Attention
Gary E. West.
To Indelicato: William A. Indelicato, 2001 W. Main
-------------
Street, Suite 140, Stanford, Connecticut 06902.
16. Waiver. The waiver by either party of a breach of
any provision in the Agreement shall not operate or be construed
to operate as a waiver of any subsequent breach.
17. Modification. No change, modification or waiver
of any term of this Agreement shall be valid unless it is in
writing and signed by both parties.
9
<PAGE> 10
18. Entire Agreement. This Agreement constitutes the
entire Agreement between the parties and supersedes all prior
Agreements or understandings between Valley and Indelicato.
19. Captions. The captions are inserted for
convenience only and shall not be considered when interpreting
any provision or terms hereof.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of this 15th day of January, 1994.
VALLEY WELDING SUPPLY COMPANY,
a West Virginia corporation
By
---------------------------------------
Its
-------------------------------
-----------------------------------------
William A. Indelicato
10
<PAGE> 11
January 23, 1995
Mr. Gary West, Chairman
Valley Welding Supply, Inc.
67 43rd Street
P.O. Box 6628
Wheeling, West Virginia 26003 - 7061
Dear Gary:
This letter will confirm the modifications to the consulting
agreement between Valley National Gases (Valley Welding Supply)
and William A. Indelicato, dated March 16, 1994, which we agreed
to make during our meeting of January 19, 1995. The
modifications involve a change in the hourly compensation rate
paid to me for completed acquisitions from a fixed rate of $115
per hour, as stipulated as d.(iii) on page 7 of the agreement, to
one which varies as a function of price paid relative to a range
of value.
The purpose of these modifications is: (1) to have my hourly
rate compensation more accurately reflect the potential value
each acquisition could create for Valley National Gases and (2)
to provide me the opportunity to be compensated for the zero
hourly rate consulting which I provide, primarily in meetings
with acquisition candidates, and attending NWSA zone meetings.
Definitions:
- ------------
A. Stand Alone Value - Determined by financial projections of
ten years and a terminal value, as a non-consolidated business
reflecting historical or low (1%-2% per year) growth rates and
historical profit margins, calculated on a basis that the
business being valued has no interest bearing debt. The
projections may be adjusted for all income or expense producing
assets held outside the business by related parties and may be
further adjusted for all non recurring costs or income items
which would not exist in a stand alone configuration under
management of a similar business. (See Nations Bank Loan
Agreement Section 4.06(a)(i)(A))
B. Strategic Value - Using the Stand Alone Case projections as a
starting point, this value is derived by assuming certain cost
savings and rationalizations recognized by Valley management to
be achieved over a reasonable period of time. (See Nations Bank
Loan Agreement Section 4.06(a)(i)(B))
C. Adjusted Net Worth - The book net worth of the acquisition
candidate adjusted upward to reflect cylinders, vessels, real
estate and other significant assets from book value to market
value. (See Nations Bank Loan Agreement Section 4.06(a)(i)(C))
<PAGE> 12
Concept: The acquisition hourly rate will be determined
- --------
uniquely for each acquisition, from a scale or range of value.
The scale will be devised with Strategic Value at the lower end,
and the lesser of either Stand Alone Value or Adjusted Net Worth
at the upper end. The Strategic Value at the lower end will be
assigned a rate of $100/hour and the lesser of either Stand Alone
Value or Adjusted Net Worth at the upper end will be assigned a
rate of $225/hour. (See Exhibit I)
On this scale is the price paid for each acquisition, on a net
present value basis. The price paid will include all components
of the purchase, such as the stock or the assets, covenants not
to compete, consulting agreements, brokers commissions, and
extraordinary capital expenditures.
Where the price paid for each acquisition is on this scale of
value will determine the hourly rate for each completed
acquisition, up to the first one hundred (100) hours, spent on
each completed acquisition. All hours in excess of 100 hours,
for each completed acquisition, will be credited at a flat rate
of $100/hour. In no case will the first 100 hours be at a rate
greater than $225 per hour or less than $100 per hour.
The revised hourly rate for the first 100 hours spent on each
completed acquisition is then calculated as follows:
A - PP
Hourly Rate = ------- X $125 + $100
A - B
A = Strategic Value for each acquisition
where B = Stand Alone Value or Adjusted Net Worth, whichever
is less for each acquisition
PP = Price Paid for each acquisition
Hourly rates so determined will be based upon information
available to us immediately after closing and A,B, and PP will be
recalculated to use all information known to us at that time.
An example will illustrate how the rate is determined. Berry
Welders Supply in Jonesboro, Arkansas will be the first
acquisition which would use this approach. Assuming we buy the
business for our offering price, the rate is determined as
follows:
A = Strategic Value = $6.152 million
B = Stand Alone Value = $5.202 million
or B = Adjusted Net Worth = $3.751 million
PP = Offered Price = $5.021 million
Page - 2
<PAGE> 13
We will use Adjusted Net Worth because it is the smaller number.
Putting these numbers into the above formula gives an hourly rate
of:
6.152 - 5.021
------------- X 125 + 100 = $158.88 / hr (See Exhibit I)
6.152 = 3.751
Effective Date of Change: This rate change will become
- -------------------------
effective as of the date of this memorandum. The change in rate
will not affect any acquisition for which an offer has already
been made. This includes Abbott, Quest, Service Welders, A-L
Compressed Gases/Westco, Evans, or Weber. It will commence with
our offer to Berry Welders Supply in Jonesboro, Arkansas.
All other provisions of the consulting agreement between Valley
and me will remain unchanged.
Please indicate your acceptance of these changes by signing both
copies of this letter and returning one copy to me.
Very truly yours,
/s/ William A. Indelicato
William A. Indelicato
AGREED TO and ACCEPTED by:
/s/ Gary W. West
- -----------------------------
Gary W. West, Chairman
3/16/95
- -----------------------------
date
Page - 3
<PAGE> 14
SCALE OF VALUE
EXHIBIT I
ADJ NET PRICE BASE CASE VALLEY
WORTH<F*> PAID VALUE<F*> STRAT VALUE
$3.571 $5.021 $5.202 $6.152
B PP A
225 158 hr rate 100
[FN]
<F*> In some acquisitions these may be reversed
Page - 4
<PAGE> 15
4.06 CONDITIONS AND METHODS OF DISBURSEMENT.
--------------------------------------
(A) INFORMATION. At least ninety (90) days prior to the
-----------
making of any AOF Loan or the issuance of any Letter of Credit
with respect to the Acquisition of any Related Business (or one
hundred twenty (120) days in the case of AOF Loan or Letter or
Credit equal to or in excess of $5,000,000.00), the Borrower
shall furnish to the Bank the following information and materials
(each of which shall be in form and substance reasonably
satisfactory to the Bank and shall be presented in a consistent
format all at the Borrower's expense):
(i) a three-step evaluation of the Related Business which
justifies the purchase price intended to be offered by the
Borrower to the seller of the Related Business. Each evaluation
method, described below, is to be thoroughly documented and
explained to the reasonable satisfaction of the Bank with
detailed supporting information, schedules and lists. The three-
step evaluation is as follows:
(A) BASE CASE - A base case evaluation based upon a
---------
financial projection for not less than five nor more than ten
years of the Related Business as a standalone (non-consolidated)
business based on the actual historical growth rates and profit
margins of the Related Business calculated on a basis that the
Related Business has no debt or to the extent that the Related
Business has debt, such debt is non-interest bearing. The base
case evaluation may be adjusted for all income or expense
producing assets held outside the Related Business by related
parties and may be further adjusted for all excessive or non-
recurring costs or income items which would not exist in a
standalone configuration under management of similar businesses.
Free cash flows as set forth in such projection shall be
discounted to arrive at the estimated net present value of the
Related Business using commercially feasible, market based
assumptions. The discount rate in such net present value
calculation is to be based on objective, supportable market
criteria including current rates of return on thirty year U.S.
Treasury obligations plus an equity risk premium component plus a
small company risk premium component. Terminal value is to be
determined using a capitalization rate of not less than the
discount rate less the real industry growth rate (adjusted
----
for inflation).
(B) MOST LIKELY CASES. Using the base case projections
-----------------
as a starting point, the Borrower shall then make a most likely
case evaluation by assuming certain cost savings and expense
rationalizations to be achieved over a reasonable period of time.
Each such saving or rationalization form the past actual costs of
the Related Business must be thoroughly documented, defensible,
explainable, line-by-line. Resulting net free cash flows shall
be projected and discounted as in the base case evaluation to
arrive at the most likely case evaluation.
Page - 6
<PAGE> 16
(C) NET ASSET BUILD-UP OR ADJUSTED NET WORTH. A net
-----------------------------------------
asset evaluation of the tangible assets of the Related Business
based upon the net book values of such assets less the
----
liabilities of the Related business. Such asset evaluation shall
be made (1) on a category-by-category basis for the major assets
of the Related Business as follows: net accounts receivable;
inventory; machinery and equipment; rental cylinders (excluding
cylinders under lifetime leases to customers) with appropriate
deep discounts on cylinders and under long-term leases; and bulk
storage tanks and (2) using supportable, documented advance rates
on the nest book values of such assets to estimate the reasonable
fair market value of such assets (or replacement cost in the case
of rental cylinders and tanks). Such values applied to rental
cylinders and bulk storage tanks shall be detailed by type.
(ii) a written summary statement as to how the final purchase
price is determined based on a reconciliation of the foregoing
three methods of evaluation, including a discussion of how such
purchase price relates to (i) total revenues of Related Business
for its immediately past fiscal year and (ii) the operating
profit margins of the Related Business. Such summary shall also
include a comparative analysis, in reasonable detail, of how each
intended purchase price relates to other acquisitions recently
made or analyzed by Borrower and justification of why such
intended purchase price deviates materially from comparison if
such is the case.
(iii) supporting information for the evaluation and determination
set forth in subsections (ii) and (iii) above which shall consist
of the following:
(A) financial statements (including notes, schedules and all
other available information) of the Related Business for the
three completed fiscal years of the Related Business immediately
prior to the date of the proposed Acquisition,
Page - 7
<PAGE> 1
PURCHASE AND SALE AGREEMENT
---------------------------
THIS AGREEMENT, Made as of the 27th day of September, 1996,
by and between WELDCO, INC., an Ohio corporation ("SELLER"), and
R.H. KRAEMER ("RHK"), R. BRUCE KRAEMER ("RBK"), WILLIAM BOTT
("WB"), and LINDA BOTT ("LB") (RHK, RBK, WB and LB are jointly
and severally referred to hereinafter as the "SHAREHOLDERS"),
KRABO, LTD., an Ohio limited liability company the members of
which are certain of the Shareholders ("KRABO") and VALLEY
NATIONAL GASES, INC., a West Virginia corporation ("PURCHASER"),
and WEST RENTALS, INC., a West Virginia corporation ("WEST").
W I T N E S S E T H:
-------------------
WHEREAS, Seller is in the business of the sale and
distribution of welding products, industrial gas and liquid
propane ("BUSINESS"); and
WHEREAS, Seller conducts the Business operations primarily
from two (2) sale and distribution sites located at 1151 Findlay
Street, Cincinnati, Ohio ("CINCINNATI LOCATION"), as well located
at 3348 Needmore Road, Dayton, Ohio ("DAYTON LOCATION"); and
WHEREAS, Seller desires to terminate the Business; and
WHEREAS, Krabo is the owner of the real property upon which
the Cincinnati Location and the Dayton Location are situated, and
RBK, WB and LB are the owners of certain gas cylinders used by
Seller in the Business;
WHEREAS, Seller and the Shareholders desire to sell certain
of the Business assets of Seller and certain of the Shareholders
("PURCHASE ASSETS" as specifically set forth in Section 1
hereinafter) to Purchaser and Purchaser wishes to acquire such
Purchase Assets, all in accordance with the provisions hereunder;
and
WHEREAS, Shareholders are all of the shareholders of Seller
and as consideration and inducement for Purchaser to undertake
the agreements and obligations and to execute and deliver this
Agreement, Shareholders hereby execute and deliver this Agreement
to cause Seller's performance hereunder, to convey certain
assets, and also to enter into certain other agreements
individually and/or collectively with Purchaser, as set forth
hereinafter and otherwise part hereof; and
WHEREAS, West is a real estate holding corporation which
enters into and executes this Agreement to purchase from Krabo
the Cincinnati Location real estate and to lease from Krabo the
Dayton Location real estate as provided for hereinafter.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, the
parties hereto mutually covenant and agree as follows:
<PAGE> 2
SECTION 1. SALE OF PURCHASE ASSETS.
Seller, together with RBK, WB and LB with respect to certain
of the Cylinders and Tanks, shall, subject to the terms and
conditions hereof, convey, sell, grant, assign, transfer,
deliver, and set over unto Purchaser at the Purchase Asset
Closing, effective as of the commencement of Weldco's Business on
the Purchase Asset Closing date [See "Section 2 CLOSING"], all
operating assets of Seller's Business ("PURCHASE ASSETS"), except
for those assets expressly excluded by scheduling on Exhibit "A"
attached hereto and incorporated herein by reference ("EXCLUDED
ASSETS"), including, but not limited to, the following described
Purchase Assets:
(a) All high and low pressure gas cylinders and tanks as
well as all propane cylinders and tanks as well as bulk
tanks (collectively "CYLINDERS AND TANKS"), including
at least the number and types listed in Exhibit "B"
attached hereto and by reference made part hereof.
(b) The trucks, vehicles and automotive equipment
(collectively "VEHICLES"') described and identified in
Exhibit "C" attached hereto and by this reference made
a part hereof.
(c) All saleable hardgoods and equipment inventory, gas
resale inventory and resale cylinder inventory
(collectively "INVENTORY").
(d) All Business, office and warehouse equipment, furniture
and fixtures together with all other tangible property
and assets of Seller or the Business (collectively
"EQUIPMENT AND FIXTURES").
(e) All Seller's Business accounts receivable ("ACCOUNTS
RECEIVABLE").
(f) All of Seller's right, title and interest in the
agreements, leases, contracts, other commitments,
licenses and warranties relating to the Business, and
all Business files, records and customer lists as well
as all intangible rights, privileges, general and
special intangible property and goodwill of Seller
relating to the Business, including, but not limited
to, the name WELDCO, Inc. and the Business telephone
and/or telefax numbers ("CONTRACT RIGHTS AND
INTANGIBLES"), excluding, however, the leases for the
Cincinnati and Dayton Locations between Seller and
Krabo and Seller's corporate and stock records, tax
returns and supporting information, Business cash and
bank deposit accounts, all of which are not being
purchased by Purchaser hereunder.
SECTION 2. CLOSING.
The Closing of the sale and purchase of the Purchase Assets,
provided for herein shall take place at the offices of Thompson
Hine & Flory P.L.L., 312 Walnut Street, 14th Floor, Cincinnati,
Ohio 45202-4029, on October 11, 1996, at 10:00 A.M. local time or
at such other
2
<PAGE> 3
time and date as agreed upon in writing by the parties hereto (the "PURCHASE
ASSET CLOSING").
SECTION 3. PURCHASE PRICE.
(a) Purchaser shall pay to Seller, together with RBK, WB
and LB in respect to certain of the Cylinders and Tanks, as the
purchase price ("PURCHASE PRICE") for the Purchase Assets
described in Section 1, a sum estimated as of the date of this
Agreement to be Eleven Million Eight Hundred Five Thousand
Dollars ($11,805,000.00) as delineated by component price and
scheduled on Exhibit "D" attached hereto and made part hereof
subject, however, to the following Closing Adjustments and Post
Closing Adjustments, as applicable:
(i) Closing Adjustments. At Purchase Asset
-------------------
Closing, in the event Seller is unable to deliver any of the said
Vehicles at closing, free and clear of valid liens and
encumbrances, then the Purchase Price shall be reduced by the
corresponding unit value for such Vehicles as itemized on Exhibit "C".
(ii) Post Closing Adjustment. Within one hundred
-----------------------
twenty (120) days after the Purchase Asset Closing, the Purchase
Price shall be further adjusted, affixed and determined as
follows:
(A) Prior to Closing, Seller and Purchaser shall
jointly conduct a physical inventory of the
Inventory to determine the amount and value
of Saleable Inventory. The term "Saleable
Inventory" shall be defined for the purposes
of this provision as (1) non shopworn, non
obsolete, non defective inventory items, and
(2) listed for sale in the manufacturer's
current catalog which have been sold by
Seller in the ordinary course of business
within the twelve (12) month period prior to
Purchase Asset Closing date or which have
been sold by Purchaser in the ordinary course
of business within the twelve (12) month
period prior to Purchase Asset Closing date.
The value of all Saleable Inventory shall be
calculated at Seller's average cost, or in
the absence thereof at the manufacturer's
current catalog pricing. In the event, the
value of the Inventory, after the Saleable
Inventory is determined hereunder, is less
than Nine Hundred Ninety-three Thousand
Eighty-six Dollars ($993,086.00), the
Purchase Price shall be reduced as follows:
(I) The dollar amount of any such deficiency up to
Fifty Thousand Dollars ($50,000.00);
(II) The dollar amount of any such deficiency in excess
of Fifty Thousand Dollars ($50,000.00) shall be
offset dollar for dollar by the amount the
Accounts Receivable, at Purchase Asset Closing
date exceeds $1,462,970.00; and,
3
<PAGE> 4
(III) The dollar amount of any such deficiency to the
extent the dollar amount of such deficiency
exceeds the sum of Fifty Thousand Dollars
($50,000.00) plus any applicable dollar for dollar
offset with respect to the Accounts Receivable as
provided for next above in Section 3(a)(ii)(A)(II).
Purchaser, in its discretion, may elect to acquire
Inventory which is not Saleable Inventory as
defined hereunder if it has a use for such Inventory
within its systemwide sales and distribution
system; all Inventory that is determined not to be
Saleable Inventory shall be valued as agreed
between Seller and Purchaser; provided that all such
Inventory which is not determined to be Saleable
Inventory and not otherwise purchased hereunder
shall be kept by Seller as its sole property, and
thereafter Seller shall be freely able to
liquidate such non-purchased non-Saleable Inventory
at its discretion without restriction or
limitation.
(B) At Closing, Seller, together with RBK, WB and
LB, hereby agree to transfer to Purchaser at
least Twelve Thousand Seven Hundred Twenty-
five (12,725) Cylinders and Sixteen (16) Bulk
Tanks, with an agreed upon aggregate value of
One Million Eight Hundred Two Thousand Four
Hundred Thirty Dollars ($1,802,430.00).
Within one hundred twenty (120) days after
Purchase Asset Closing and after completion
of the Cylinders and Tanks audit and/or
inventory required by Section 6(b)
hereinafter, the Purchase Price shall be
subject to Post Closing Adjustment to reflect
any deficiency in the number of Cylinders and
Tanks transferred to Purchaser by Seller,
RBK, WB and LB at Purchase Asset Closing
date. In the event that the number of
Cylinders and Tanks is less than Twelve
Thousand Seven Hundred Twenty-five (12,725)
Cylinders and Sixteen (16) Bulk Tanks of the
number and types set forth on Exhibit "B",
then the Purchase Price shall be reduced by
the dollar amount that the value of Cylinders
and Tanks is less than One Million Eight
Hundred Two Thousand Four Hundred Thirty
Dollars ($1,802,430.00); calculated utilizing
the "Negotiated Adjustment Value" set forth
for each respective type of Cylinder and Tank
upon said Exhibit "B".
(C) Seller shall furnish Purchaser a Schedule of
Seller's Accounts Receivable as of Purchase
Asset Closing date, fully itemized as to
customer, amount and account aging history.
After Closing, Purchaser shall first apply
all payments received from each pre-closing
account debtor to the oldest outstanding and
unpaid account invoice for such pre-closing
account debtor. Purchaser shall exert
commercially reasonable efforts to collect
Seller's Accounts Receivable (not to include
the institution of litigation). As of one
hundred twenty (120) days after Purchase
Asset Closing date ("RECEIVABLE ADJUSTMENT
DATE"), Purchaser expects to
4
<PAGE> 5
have collected all of the Accounts Receivable purchased
at Closing. In the event that upon the
Receivable Adjustment Date Purchaser has not
collected Seller's accounts receivables in an
amount equal to the aggregate value of the
Closing Date Accounts Receivable, the
Purchase Price shall be reduced by the dollar
amount by which the Accounts Receivable
actually collected by Purchaser is less than
the aggregate value reflected upon Seller's
Schedule of Closing Date Accounts Receivable.
All such Accounts Receivable not collected by
Purchaser, shall, after repayment by Seller
to Purchaser, be assigned and transferred to
Seller; and all such Accounts Receivable
assigned to Seller shall then be and remain
Seller's sole property.
(D) In the event the aggregate amount of Seller's
liabilities assumed by Purchaser pursuant to
Section 11(a) and (b), as of Purchase Asset
Closing date, exceeds One Million Five
Hundred Twenty-one Thousand Dollars
($1,521,000.00), the Purchase Price shall be
reduced by the dollar amount of such excess,
up to a maximum reduction of Two Hundred
Ninety-five Thousand Nine Hundred Eighty-
three Dollars ($295,983.00).
(b) At the Purchase Asset Closing, Purchaser shall pay
Seller the Purchase Asset Purchase Price as follows:
(i) Note I. Purchaser shall deliver to Seller a
------
Promissory Note in the principal amount of Four Million Seven
Hundred Eighty-one Thousand Five Hundred Twenty one Dollars
($4,781,521.00), with principal payable in seven (7) annual
installments of Six Hundred Eighty-three Thousand Seventy-four
Dollars and Forty-three Cents ($683,074.43) each, and with
interest accruing on the outstanding principal balance at a fixed
per annum rate of six and six one hundredths percent (6.6%)
("INTEREST RATE"), payable in seven (7) annual installments, both
principal and interest payments to commence one (1) year after
Closing, and shall be thereafter payable on each subsequent
anniversary of the Purchase Asset Closing date for a total of
seven (7) consecutive annual payments ("NOTE I"). Note I shall
be in the form and upon all terms and conditions reflected upon
Exhibit "E" attached hereto and incorporated herein by reference.
Note I shall be secured by Purchaser's grant to Seller of
security interests in certain cryogenic storage vessels and
cylinders owned by Purchaser as part of and reflected in a
Security Agreement in the form attached hereto and incorporated
herein by reference as Exhibit "F"; and,
(ii) Note II. Purchaser shall deliver to Seller a
-------
Promissory Note in the principal amount of Three Million One
Hundred Five Thousand Two Hundred Dollars ($3,105,200.00), with
principal payable in seven (7) annual installments of Four
Hundred Fortythree Thousand Six Hundred Dollars ($443,600.00)
each, and with interest accruing on the outstanding principal
balance at the Interest Rate, payable in seven (7) annual
installments, both principal and interest payments to commence
one (1) year after Closing, and shall be thereafter
5
<PAGE> 6
payable on each subsequent anniversary of the Purchase Asset Closing date
for a total of seven (7) consecutive annual payments ("NOTE II").
Note II shall be in the form and upon all terms and conditions
reflected upon Exhibit "G" attached hereto and incorporated
herein by reference. Note II shall be secured by an irrevocable,
reducing balance Letter of Credit issued by Bank One, N.A.,
substantially in the form attached hereto and incorporated herein
by reference as Exhibit "H"; and,
(iii) Closing Cash Payment. Cash funds or cash
--------------------
equivalents in an amount equal to the Closing Date Purchase
Price, as adjusted and determined pursuant to Section 3(a) and
all subsections thereof, less Seven Million Eight Hundred Eighty-
six Thousand Seven Hundred Twenty-one Dollars ($7,886,721.00)
which is the aggregate combined Purchase Price value of Note I
and Note II to be delivered by Purchaser to Seller as provided
for in subsections (i) and (ii) of this Section 3(b).
(c) One Hundred Twenty (120) days after Purchase Asset
Closing date, Seller shall pay Purchaser by Seller's check an
amount equal to any applicable Post Closing Adjustment to the
Purchase Price pursuant to Section 3(a)(ii)(A), Section
3(a)(ii)(B), Section 3(a)(ii)C) and/or Section 3(a)(ii)(D);
provided that any disputes between Purchaser and Seller, if not
mutually resolved, shall be resolved pursuant to Section 13
hereof.
SECTION 4. EXPENSES AND TAXES. Each party hereto shall pay
its, his or her own expenses incident to this Agreement and the
transactions contemplated hereby. All applicable excise, sales,
transfer, documentary and similar taxes, if any, that may be
imposed upon or payable or collectible by Purchaser or Seller in
connection with the Purchase Assets described in Section 1(a) or
otherwise imposed upon, arising out of, or payable on account of
the sales, assignments, transfers, and deliveries of the Purchase
Assets to be made by Purchaser and/or Seller hereunder shall be
paid by Seller or Purchaser as customary in similar asset
purchase and sale transactions in the State of Ohio. Regardless
of the relevant lien date, real and personal property taxes for
the current tax year applicable to the Purchase Assets being
purchased hereunder shall be apportioned between Seller and the
Purchaser as of the Purchase Asset Closing date; Seller bearing
such portion as is allocable to that part of the current tax year
ending on the Purchase Asset Closing date and the Purchaser
bearing the remaining portion of such year. Purchaser and Seller
shall promptly reimburse the other party upon receipt of proof of
payment of personal property taxes by such other party for which
the reimbursing party was liable in accordance with the
immediately preceding sentence.
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<PAGE> 7
SECTION 5. INSTRUMENTS OF CONVEYANCE.
Pursuant to the terms and conditions hereof, Seller,
together with RBK, WB and LB in respect of certain of the
Cylinders and Tanks, shall at the Purchase Asset Closing convey,
sell, transfer, and assign to Purchaser by means of a Bill of
Sale and Assignment executed and delivered to Purchaser or its
designee, the Purchase Assets described in Section 1 and all
subsections thereof. Said Bill of Sale and Assignment, with
warranty of title, shall be in the form of Exhibit "I", attached
hereto and by this reference made a part hereof.
SECTION 6. INVENTORY OF PURCHASE ASSETS.
(a) As of the Purchase Asset Closing date, Seller and
Purchaser shall have jointly, conducted physical inventories of
(i) Vehicles and (ii) Inventory. The Vehicle inventory shall be
concluded and agreed upon by Seller and Purchaser prior to
Closing and utilized for any necessary adjustment to Purchase
Price pursuant to Section 3(a)(i) hereinabove. The Inventory
inventory shall be conducted prior to closing and within ninety
(90) days thereafter, agreed upon by Seller and Purchaser, and,
when agreed upon, shall be utilized for any necessary adjustment
to the Purchase price pursuant to Section 3(a)(ii)(A)
hereinabove.
(b) Within ninety (90) days after the Purchase Asset
Closing date, Seller and Purchaser shall have jointly conducted
(i) a book examination of the Cylinder and Tank records and/or
(ii) a physical inventory of the Cylinders and Tanks, as required
by Purchaser in its sole discretion, to determine that Seller has
at least the number and types of Cylinders and Tanks set forth in
Section 1(a)(i) and Section 3(a)(ii)(B) hereinabove; which
examination and/or inventory shall be agreed upon by Purchaser
and Seller and utilized for any necessary reduction and
adjustment to Purchase Price pursuant to Section 3(a)(ii)(A)
hereinabove.
SECTION 7. BULK SALES LAW, WAIVER AND INDEMNITY. Purchaser
hereby waives compliance by Seller with any Bulk Transfer
provisions of the Uniform Commercial Code of any applicable
state. Seller agrees to indemnify Purchaser against as well as
hold Purchaser harmless from any costs, expenses (including all
legal expenses and attorney's fees), losses, claims, damages, and
liabilities arising out of the failure of Seller to comply with
any such bulk sales law with respect to any of the Purchase
Assets.
SECTION 8. WARRANTIES AND REPRESENTATIONS OF SELLER AND
SHAREHOLDERS. Seller and Shareholders represent and warrant to
Purchaser as of the date hereof and as of the Purchase Asset
Closing date as follows:
(a) Organization, Standing and Qualification.
----------------------------------------
Seller is a duly organized, validly existing corporation which is
in good standing under the laws of the State of Ohio; is duly
licensed, qualified to do business, and in good standing in each
jurisdiction in which the ownership and operation of its business
requires such licensing or qualification except where the failure
to be so licensed or qualified would not have a material adverse
effect on Seller, the Purchase Assets or the Business; and has
full corporate power and authority, and, to its
7
<PAGE> 8
knowledge, has all permits, consents and authorizations, necessary to own and
lease its properties and to carry on its business as now conducted.
(b) No Breach. The execution and delivery of this
---------
Agreement by Seller and the consummation by Seller of the
transactions contemplated hereby will not (i) violate any
provision of, or result in the breach or termination of, or
accelerate or permit the acceleration of the performance required
by, the terms of: (A) the Articles of Incorporation or Bylaws of
Seller; (B) any agreement to which Seller is a party or by which
it is bound, other than as set forth on Exhibit "J" attached
hereto and incorporated herein by reference and the breach of
which shall not, in any event, materially affect the purchase and
sale transactions hereunder; or (C) any order, judgment, or
decree applicable to Seller; (ii) result in the creation of any
claim, lien, charge or encumbrance upon the Purchase Assets or
(iii) in any way affect or violate the terms or conditions of, or
result in the cancellation, modification, revocation, or
suspension of, any of the licenses, franchises, approvals,
certificates, permits, or authorizations held by Seller.
(c) Title to Assets. Seller has or as of the
---------------
Purchase Asset Closing date shall have good and marketable title
to the Purchase Assets, free and clear of restrictions on, or
conditions to, transfer or assignment, and of mortgages, liens,
pledges, charges, encumbrances, security interests, equities,
claims, limiting covenants or conditions.
(d) Financial Statements. True and correct copies
--------------------
of balance sheets as well as copies of operating and revenue
statements for Seller with all notes and supplementary
information as of December 31, 1993, December 31, 1994, and
December 31, 1995; and as well for the seven (7) month period
ended July 31, 1996 (provided, however, that the Financial
Statements for the seven (7) month period ended July 31, 1996
does not include notes and supplementary information otherwise
required hereunder) shall, individually and collectively,
constitute the "FINANCIAL STATEMENTS"; all of which Financial
Statements are attached hereto and incorporated herein by
reference as Exhibit "K". The Financial Statements including the
notes thereto: are and will be (1) prepared in accordance with
the books and records of Seller; and (2) are and will be in all
material respects correct and present fairly the financial
condition of Seller at the dates of such Financial Statements and
its results of operations for the respective period then ending;
and (3) all Financial Statements shall have been prepared in
accordance with Generally Accepted Accounting Principles
("GAAP"), consistently applied with prior period (provided,
however, that the Financial Statements for the seven (7) month
period ended July 31, 1996 indicates a negative cash balance of
Two Hundred Ninety-five Thousand Nine Hundred Eighty-three
Dollars ($295,983.00) and does not include notes and
supplementary information otherwise required hereunder).
(e) Taxes, Tax Returns, and Audits. Seller has
------------------------------
filed all returns with respect to all taxes arising out of or
related to Seller and the Business whether on income, sales, use,
goods and services, payroll, real or personal property or with
respect to any other taxes, Federal, State or local, which are
required by law to be filed on or before the Closing Date ("TAX
RETURNS") and all Tax Returns are correct and complete in all
material respects insofar as they relate to the operations of
Seller. Seller has paid all taxes and duties as shown in the Tax
Returns to the extent such taxes are payable or have become due
on or before the Closing Date,
8
<PAGE> 9
and has paid all assessments which it is obligated to pay. There are no
currently outstanding assessments or reassessments for any taxes, interest or
relating to the Tax Returns. Seller is not liable for any taxes,
levies, duties, assessments, charges, penalties, interest, fines
or other taxes of any nature due and unpaid at the date hereof in
respect of the Business or for the payment of any tax installment
due in respect of its current taxation year, except as reflected
in or reserved upon the July 31, 1996 Financial Statements.
Seller shall have full responsibility and liability with respect
to the payment of any claims against Seller for taxes payable
with respect to all periods prior to the Closing Date by Seller
and all interest penalties in respect thereof (whether or not now
asserted or determined). True and correct copies of all Seller's
federal and state tax returns for its 1993, 1994 and 1995 fiscal
and tax years shall have been furnished Purchaser prior to
Purchase Asset Closing date.
(f) No Third Party Rights or Options. As of
--------------------------------
Purchase Asset Closing date, there will be no outstanding rights
or options in any third party to acquire any of the Purchase
Assets or any interest therein.
(g) Litigation. There are no actions, suits,
----------
proceedings or investigations ("LITIGATION"), pending or, to
Seller's knowledge, threatened, in any court or before any
governmental agency or instrumentality against the Business or
any of the Purchase Assets, or which would prevent Seller and/or
Shareholders from carrying out the transactions contemplated
hereby or would declare the same unlawful or cause the recision
thereof.
(h) Absence of Adverse Changes or Other Events.
------------------------------------------
Except as expressly contemplated by and stated in this
Agreement, after the date of this Agreement and up to Purchase
Asset Closing date, Seller will operate the Business in the
ordinary course, except as provided for herein; specifically,
Seller will not without the prior consent of Purchaser:
(A) Create or incur any liability (absolute or
contingent), except for unsecured current
liabilities under oral or written contracts
entered into in the ordinary course of business;
(B) Loan any money or otherwise pledge the credit of
Seller or mortgage, pledge or subject its assets
to any tangible or intangible lien or encumbrance;
(C) Except as otherwise expressly contemplated by this
Agreement, sell or otherwise dispose of, or
contract to sell or dispose of, any of the
Purchase Assets; or cancel any debts owed it or
claims held by it against any third party, except,
in each case, in the ordinary course of business;
(D) Except in the ordinary course of its business make
or become a party to any contract or commitment,
or renew, extend, amend or modify any contract or
commitment, to be assumed or purchased by
Purchaser which in any one case involves an amount
in excess of One Thousand Dollars ($1,000.00) or a
term in excess of thirty (30) days;
9
<PAGE> 10
(E) Pay or agree to pay, conditionally or otherwise,
any bonus, extra compensation, or severance pay to
any director, officer, or employee, not required
under this Agreement or any existing agreement
disclosed to Purchaser prior to the date of this
Agreement, or increase the compensation, including
salaries, fees, commissions, bonuses, profit
sharing, incentive, pension, retirement, or other
similar payments paid to any of its directors,
officers, or employees;
(F) Become bound by or enter into any contract,
commitment, or transaction, other than in the
ordinary course of business or except as
contemplated by this Agreement;
(G) Make or become a party to any contract or
otherwise enter into any transaction with
Shareholders or any other related party other than
in the ordinary course of business except as
contemplated by this Agreement;
(H) Purchase any fixed asset or multiple fixed assets
from a single vendor or supplier with an aggregate
cost exceeding Five Thousand Dollars ($5,000.00);
or,
(I) Enter into any contract or agreement to do or
perform any of the foregoing actions.
(i) No Employees to Leave Employment with Seller.
--------------------------------------------
As of the date of this Agreement, no employee of Seller has
furnished written notice to Seller that he or she intends to
leave employment of Seller, and Seller has no knowledge or
information, directly or indirectly, that any such employee
intends to leave the employment of Seller. After the date of
this Agreement and prior to the Purchase Asset Closing date,
Seller shall promptly furnish Purchaser notice of any employee
who indicates to Seller that he or she intends to leave the
employment of Seller.
(j) No Union, Employee Collective Bargaining Unit or
------------------------------------------------
Organizing Activity. Seller is not signatory to any collective
- -------------------
agreement or member of any bargaining unit; and Seller is not, to
its knowledge, currently subject to any present labor collective
process or organizing efforts by any union or other collective
bargaining representative. Seller has no knowledge that any
union or collective bargaining unit is threatening to organize
Seller's employees to form a union or collective bargaining unit.
(k) Accuracy of Information. Copies of all
-----------------------
documents furnished by, or on behalf of, Seller to Purchaser
pursuant to the terms of this Agreement are complete and accurate
in all material respects. To Seller's knowledge and belief, no
statement or certificate furnished to Purchaser by Seller
pursuant to the terms of this Agreement contains or will contain
any untrue statement of a material fact.
10
<PAGE> 11
(l) No Brokerage Fees. No broker or finder has
-----------------
acted for Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker or finder is
entitled to any brokerage or finder's fee or other commission in
respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Seller.
SECTION 9. WARRANTIES AND REPRESENTATIONS OF PURCHASER AND
WEST. Purchaser and West represent and warrant to Seller as of
the date hereof and as of the Purchase Asset Closing date as
follows:
(a) Organization, Standing and Qualification.
----------------------------------------
Purchaser and West each is a duly organized, validly existing
corporation which is in good standing under the laws of the State
of West Virginia; is duly licensed, qualified to do business, and
in good standing in each jurisdiction in which the ownership and
operation of its business requires such licensing or
qualification, except where the failure to be so licensed or
qualified would not have a material adverse effect on the
property or assets, or the business of, Purchaser or West; and
has full corporate power and authority, and, to its knowledge,
has all permits, consents and authorizations, necessary to own
and lease its properties and to carry on its business as now
conducted.
(b) No Breach. The execution and delivery of this
---------
Agreement by Purchaser and West, and the consummation by
Purchaser and West of the transactions contemplated hereby will
not (i) violate any provisions of, or result in the breach or
termination of, or accelerate or permit the acceleration of the
performance required by, the terms of: (A) the Articles of
Incorporation, or By-Laws of Purchaser or West; (B) any agreement
to which Purchaser or West is a party or by which either is
bound; or (C) any order, judgment, or decree applicable to
Purchaser or West; (ii) result in the creation of any claim,
lien, charge or encumbrance upon any property or assets of
Purchaser or West; or (iii) in any way affect or violate the
terms or conditions of, or result in the cancellation,
modification, revocation, or suspension of, any of the licenses,
franchises, approvals, certificates, permits, or authorizations
held by Purchaser or West.
(c) Authority: Enforceability. Each of Purchaser
-------------------------
and West has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions
contemplated hereby. This Agreement and each other agreement
herein contemplated to be executed in connection herewith by
Purchaser or West have been duly executed and delivered by
Purchaser or West, as the case may be, and constitute legal,
valid and binding obligations of Purchaser or West, as the case
may be, enforceable against Purchaser or West, as the case may
be, in accordance with their respective terms.
(d) Litigation. There are no actions, suits,
----------
proceedings or investigations pending or, to Purchaser's
knowledge, threatened, in any court or before any governmental
agency or instrumentality against any of the property or assets
of Purchaser or West, or which would prevent Purchaser or West
from carrying out the transactions contemplated hereby or would
declare the same unlawful or cause the recision thereof.
11
<PAGE> 12
(e) Accuracy of Information. Copies of all
-----------------------
documents furnished by, or on behalf of, Purchaser or West to
Seller pursuant to the terms of this Agreement are complete and
accurate in all material respects. To Purchaser's knowledge and
belief, no statement or certificate furnished to Seller by
Purchaser or West pursuant to the terms of this Agreement
contains or will contain any untrue statement of a material fact.
(f) No Brokerage Fees. Except for ADE Vantage,
-----------------
Inc. and/or William A. Indelicito, consultant to Purchaser, no
broker or finder has acted for Purchaser or West in connection
with this Agreement or the transactions contemplated hereby, and
no broker or finder is entitled to any brokerage or finder's fee
or other commission in respect of such transactions based in any
way on agreements, arrangements or understandings made by or on
behalf of Purchaser or West. Purchaser shall pay all fees and
expenses of ADE Vantage, Inc. and Mr. Indelicito.
SECTION 10. INDEMNIFICATION.
(a) Indemnification by Seller and the Shareholders.
----------------------------------------------
Seller and the Shareholders, jointly and severally, agree to defend, indemnify
and hold Purchaser, its successors and assigns, harmless from and against any
claim, liability, expense, loss or other damage ("CLAIMS") (including,
without limitation, attorneys' fees md expenses) in respect of:
(i) Any and all Claims resulting from or arising out
of Seller's possession, control and/or utilization of the
Purchase Assets prior to Purchase Asset Closing date.
(ii) Any and all Claims resulting from any
misrepresentation or breach of warranty or violation of any
covenant made by Seller hereunder, or in any Schedule or other
instrument or document furnished or to be furnished by Seller
hereunder, including, without limitation, any documents furnished
at the Closing.
(iii) Any and all Claims in respect of any liabilities
of Seller as of the Purchase Asset Closing date (except those liabilities
provided for or otherwise disclosed in Seller's July 31, 1996 Financial
Statements or incurred by Seller in the ordinary course of the
Business from July 31, 1996 through the Purchase Asset Closing
date, all of which liabilities are affirmatively assumed by
Purchaser pursuant to Section 11).
(iv) Any and all Claims in respect of Seller's federal,
state or local taxes, incurred in the Business prior to Purchase
Asset Closing date, including but not limited to income taxes
based upon or measured by income or any gain or sales or transfer
taxes, or which may be asserted against Purchaser or the Purchase
Assets as a result of any operations of Seller or the Business
whether such taxes be trust fund or employment taxes or taxes
based on property, income, gain or otherwise.
(v) Any and all Claims with respect to any and all
plans, policies, labor contracts or arrangements relating to
commissions, bonuses, group insurance, severance pay, pensions,
profit sharing, any deferred compensation arrangements or health
and welfare or other benefit plans for employees of Seller or
otherwise arising out of or related to Seller's operation
12
<PAGE> 13
of the Business prior to the Purchase Asset Closing date, including, but
not limited to, any liability imposed under the provisions of the
Employee Retirement Income Security Act of l974, Multiemployer
Pension Plan Amendment Acts of 1980, the Consolidated Omnibus
Budget Reconciliation Act of 1985 or the Omnibus Budget
Reconciliation Act of 1987 as well as any other federal or state
law or regulation.
(vi) Any and all Claims arising out of a violation of
any federal or state law or regulation, including, but not
limited to, outstanding grievance, arbitration award, NLRB unfair
labor practice charge, OSHA citation, EEOC charge, Fair Labor
Standards Act charge, Americans with Disabilities Act charge,
Family and Medical Leave Act charge, Immigration Reform and
Control Act charge, or Civil Rights Restoration Act charge,
compliance review, consent decree, conciliation agreement,
benefit claim, wage and hour complaint, and any litigation
involving any personnel practices or policies of Seller with
respect to any employment relationship, attributable to Seller's
operations of the Business prior to the Purchase Asset Closing
date.
(vii) Any and all Claims which are asserted by any
governmental or regulatory authority for any penalties or other
obligations attributable to the Purchase Assets or the Business,
provided that the basis for such Claims existed prior to the
Closing. Said "other obligations" shall include, but are not
limited to, any violation by Seller prior to the Closing in
connection with the Business of any applicable federal, state or
local environmental or health and safety statute, regulation,
ordinance, or code or other governmental requirement, including,
but not limited to, regulations establishing environmental or
health and safety quality criteria or standards for air, water or
land.
(viii) Any and all Claims asserted by third parties,
including Claims arising from Purchaser's affirmative legal duty
to furnish notice to third parties, including governmental
entities, and/or of remediation, arising from or out of any
Hazardous Materials, as hereinafter defined, spilled, released,
discharged or disposed of by Seller, or arising out of Seller's
operation of the Business prior to the Closing, including without
limitation: (A) cost of investigation, removal, restoration or
any other remedial work done in connection with any Hazardous
Materials spilled, released, discharged or disposed of by Seller
or arising out of Seller's operation of the Business prior to the
Closing; (B) costs incurred to correct a violation of any
applicable Environmental Law as hereinafter defined, arising out
of or resulting from Seller's operation of the Business prior to
the Closing; and (C) costs incurred as a result of being named a
responsible party under the Comprehensive Environmental Response,
Compensations and Liability Act of 1980 ("CERCLA") as amended by
the Superfund Amendment and Reauthorization Act of 1986 ("SARA").
The term "Hazardous Materials" ("HAZARDOUS MATERIALS") shall mean
any hazardous or toxic material, waste or substances now
identified as hazardous or toxic by CERCLA, SARA, the Resource
Conservation and Recovery ACT ("RCRA"), the Toxic Substances
Control Act ("TSCA") or any other now existing Environmental Law
promulgated by the Federal government or any state, local, or
other governmental authority (collectively or individually
"ENVIRONMENTAL LAW") with jurisdiction over Seller's operation
of the Business.
13
<PAGE> 14
(ix) Any and all Claims for defective products or
unsatisfactory services furnished to Seller's customers in the
Business prior to the Purchase Asset Closing date.
(x) Any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses incident to any item to
which the foregoing indemnify relates.
(b) Indemnification by Purchaser. Purchaser
----------------------------
agrees to defend, indemnify and hold Seller and Shareholders and their
respective successors and assigns, harmless from and against
any claim, liability, expenses, loss or damage ("CLAIMS")
(including, without limitation, reasonable attorneys' fees and
expenses) in respect of:
(i) Any and all Claims resulting from or arising out
of Purchaser's possession, control and/or utilization of the
Purchase Assets after Purchase Asset Closing date.
(ii) Any and all Claims resulting from any misrepresentation or
breach of warranty or violation of any covenant made by Purchaser
hereunder, or in any document furnished or to be furnished by Purchaser
hereunder, including, without limitation, any documents or instruments
furnished at the Closing.
(iii) Any and all Claims in respect of any liabilities,
obligations, contracts, commitments and other undertakings of
Seller assumed by Purchaser pursuant to Section 11 hereof or
otherwise herein.
(iv) Any and all Claims resulting from or arising out
of: (A) costs to remediate contamination caused or exacerbated by
Purchaser's performance of Phase I, Phase II or any other
environmental investigations relating to the Dayton and
Cincinnati Locations; (B) costs to return the Cincinnati or
Dayton Locations to the conditions existing prior to the
investigations by Purchaser's performance of Phase 1, Phase II or
any other environmental investigations relating to the Dayton and
Cincinnati Locations; or (C) any property damage or personal
injury resulting from Purchaser's performance of Phase I, Phase
II or any other environmental investigations relating to the
Dayton and Cincinnati Locations.
(v) Any and all actions, suits, proceedings, claims,
demands, assessments judgments, costs and expenses incident to
any item to which the foregoing indemnity relates.
(c) Determination of Loss. Indemnification
----------------------
pursuant to this Section 10 shall be payable with respect to
Claims described herein as subject to indemnification upon the
happening of the earlier of the following:
(i) Resolution of Claims by mutual agreement between
Seller and Purchaser; or,
(ii) The issuance of a final award, order or other
ruling by an arbitrator, pursuant to Section 13 hereof.
14
<PAGE> 15
(d) Indemnification Payments. All amounts payable
------------------------
to one party to the other pursuant to the provisions of this
Section 10 shall be payable within ten (10) days after final
determination thereof in accordance with the provisions hereof.
(e) Limitations on Indemnification.
-------------------------------
(i) Any amounts which any party hereto may be
obligated to pay another party hereto pursuant to Section 10(d)
will be reduced by an amount equal to: (a) the tax benefit, if
any, realized as a result of such losses (for purposes of
determining the "tax benefit", if any, the reasonable joint
determination by Purchaser's and Seller's outside accountants
will be binding and conclusive as to all parties hereto); and (b)
any insurance recovery with respect to such losses received by
the indemnified party.
(ii) Neither Purchaser nor Seller and Shareholders
shall assert any Claims for indemnification pursuant to this
Section 10 unless and until the aggregate amount of all Claims
for indemnification asserted by such party exceeds Fifty Thousand
Dollars ($50,000.00) in the aggregate, and upon such event and at
such time the applicable indemnifying party or parties shall be
responsible for and obligated to pay one hundred percent (100%)
of all Claims in excess of Twenty-five Thousand Dollars
($25,000.00) in the aggregate.
(iii) Purchaser shall not assert Claims against Seller
or the Shareholders which aggregate more than the Purchase Price,
as specified and adjusted pursuant to Section 3(a) hereof.
(iv) Except for Claims pursuant to Section 10(a)(ii)
hereof for breach of Seller and Shareholder's Warranties and
Representations under Section 8(c) which shall not be limited as
to time, the right of indemnification afforded to Purchaser,
Seller and the Shareholders pursuant to this Section 10 shall be
available for the following periods of time:
(A) With respect to any Claim asserted under Section
10(a)(ii), (except for Section 8(c)
Representations and Warranties aforesaid),
and/or under Section 10(b)(ii), a period of
eighteen (18) months from and after the Asset
Purchase Closing date.
(B) With respect to any and all other Claims asserted
under Section 10(a) or Section 10(b), for a period
of three (3) years from and after the Purchase
Asset Closing date.
(C) Notwithstanding anything herein to the contrary,
any specific Claim or action of which specific
written notice is given to the party which has the
indemnification obligation prior to the date on
which such right of indemnification otherwise
terminates as provided in this Section 10(e)(iv)
may continue to be asserted and shall be
indemnified against pursuant to this Section 10.
15
<PAGE> 16
(f) Notification and Duty of Indemnifying Parties.
---------------------------------------------
Purchaser or Seller and the Shareholders, as the case may be,
will promptly notify the other of the existence or occurrence of
any facts or events which give rise to the assertion of any Claim
under the provisions of this Section 10. If such Claims are due
to the claims of third parties, the indemnifying parties shall
promptly and diligently take such actions as may be reasonably
required to defend or settle such claims and shall keep the indemnified
parties advised of the current status thereof. The indemnified parties shall,
at the indemnifying parties' expense, reasonably cooperate with the
indemnifying parties' defense and the indemnifying parties shall
reasonably consider the indemnified parties' advice.
SECTION 11. PURCHASER TO ASSUME AND SUCCEED TO CERTAIN OF
SELLER'S LIABILITIES. As of the Purchase Asset Closing date,
Purchaser shall assume or discharge at Purchaser's sole cost and
expense, and succeed to Seller's liabilities (a) as disclosed and
reflected upon Seller's July 31, 1996 Financial Statement
disclosed to Purchaser to be One Million Five Hundred Twenty-one
Thousand Dollars ($1,521,000.00) to the extent not discharged or
otherwise extinguished prior to the Purchase Asset Closing date,
(b) incurred in Seller's operation of the Business in its
ordinary course after July 31, 1996 up to the Purchase Asset
Closing date, and (c) as identified on Exhibit "L" attached
hereto and incorporated herein by reference ("ASSUMED
LIABILITIES").
SECTION 12. ADDITIONAL MATERIAL CONSIDERATION.
(a) R.H. Kraemer and Purchaser will execute and
deliver to the other the Consultation, Agreement in form and upon
all terms and conditions as set forth on Exhibit "M" attached
hereto and incorporated herein by reference ("R.H. CONSULTATION
AGREEMENT").
(b) R. Bruce Kraemer and Purchaser will execute and
deliver to the other the Consultation Agreement in form and upon
all terms and conditions as set forth on Exhibit "N" attached
hereto and incorporated herein by reference ("R.B. CONSULTATION
AGREEMENT").
(c) William Bott and Purchaser will execute and
deliver to the other the Consultation Agreement in form and upon
all terms and conditions as set forth on Exhibit "O" attached
hereto, and incorporated herein by reference ("W.B. CONSULTATION
AGREEMENT").
(d) At Purchase Asset Closing, West shall enter into a
lease with Krabo for the real estate and improvement comprising the Dayton
Location, in the form and upon all terms and conditions as set forth on
Exhibit "P" attached hereto and incorporated herein by reference.
(e) At the Purchase asset Closing, West shall lease
from Krabo the real estate and improvements comprising the
Cincinnati location ("REAL ESTATE") until October 31 upon all
terms and conditions which Weldco currently leases the Cincinnati
Location from Krabo. On the 31st day of October, 1996, or such later date in
the event the real estate closing and transfer is postponed as provided
hereinafter, Krabo shall sell to West and West shall purchase
16
<PAGE> 17
from Krabo the real estate and improvements comprising the
Cincinnati Location in accordance with all terms and conditions
set forth in the Real Estate Purchase Agreement ("REAL ESTATE
PURCHASE AGREEMENT") attached hereto and incorporated herein by
reference as Exhibit "Q"; provided, however, that such date of
transfer may be postponed for up to ninety (90) days; in the
event that Seller has not, as of October 31, 1996, completed any
action it has agreed to undertake in respect of remediation of an
Impairment (as hereinafter defined). Prior to Purchase Asset
Closing date, West shall have the right and privilege to conduct,
at its sole cost and expense, such environmental investigation,
as it deems necessary with respect to the Real Estate; and in the
event the findings, results and reports arising out of such
environmental investigations disclose environmental contamination
and/or impairment ("IMPAIRMENT"), Krabo and West shall have the
following rights and obligations as to the Real Estate:
(i) In the event the estimated cost to remediate such
Impairment, as determined by bonafide third party estimates and
bids, is Fifty Thousand Dollars ($50,000.00) or less, Krabo shall
remediate same, at its sole cost and expense.
(ii) In the event the estimated costs to remediate such
Impairment exceeds Fifty Thousand Dollars ($50,000.00) and West
decides not to purchase the Real Estate in accordance with all of
the terms and conditions set forth in the Real Estate Purchase
Agreement, Krabo may elect either (A) to terminate the Real Estate
purchase and sale transaction subject hereof and not proceed under
the Real Estate Purchase Agreement, or alternatively (B) to remedy
the Impairment at its sole cost and expense and conclude the Real
Estate purchase and sale transaction in accordance with the Real
Estate Purchase Agreement. In the event Krabo elects to
terminate the Real Estate purchase and sale transaction, Krabo
and West shall enter into a five (5) year Lease for fair market
rental value for the Real Estate and substantially upon the terms
and conditions as the Lease attached hereto is Exhibit "P", with
such modifications as are requested by Krabo based on the fact
that such Lease is for a facility occupied by multiple tenants
and the Real Estate will be occupied by a single tenant.
(f) (i) Seller and Purchaser acknowledge that
Purchaser intends, in the near future, to sell approximately
thirty-five percent (35%) to forty-five percent (45%) of its
common stock through an initial public offering ("IPO") as newly
issued shares ("NEW STOCK"); and in that regard Seller or the
Shareholders, as successors to the assets and interests of Seller
after Closing in the event of dissolution or liquidation of
Seller, shall for a period of three (3) years after Purchase
Asset Closing date have the right and option to acquire,
immediately prior to any such IPO occurring during the three (3)
year period, New Stock with an aggregate value of up to twenty
percent (20%) of the sum of (A) One Million Dollars
($1,000,000.00), plus (B) the final aggregate Purchase Price as
determined and affixed, after all required adjustments pursuant
to Section 3(a) hereinbefore, plus (C) the value of the Assumed
Liabilities as defined in Section 11(a) and (b). Purchaser shall
furnish Seller or the Shareholders as successors in interest to
Seller, as the case may be, written notice of the impending IPO
as soon as reasonably possible after the formalization of the
IPO; and Seller or the Shareholders, as applicable at that time,
shall furnish Purchaser written notice of the election to
exercise, the IPO/New Stock purchase option rights hereunder
within fourteen (14) days after receipt of such notice. Such
notice from Purchaser shall advise Seller or the Shareholders, as
applicable, how much of the New Stock
17
<PAGE> 18
shall be publicly tradeable upon receipt without restriction and/or how much
of the New Stock shall be restricted and limited as to free and unrestricted
marketability. Purchaser shall exert its best efforts with the
underwriter of the IPO to assure, to the maximum extent possible
within underwriter's discretion and control, that the New Stock
issued is publicly tradeable without restriction or limitation.
Purchaser and Seller agree that as soon as reasonably possible,
but no later than fourteen (14) days after the IPO becomes
effective in the public markets, that the number of shares of New
Stock issued to Seller or the Shareholders, as applicable
hereunder, shall be increased or decreased, as and if necessary,
so that New Stock issued and acquired hereunder equals the value
of the New Stock calculated at the IPO New Stock offering price.
Payment for New Stock acquired hereunder shall be made to
Purchaser at date of issuance of New Stock to Seller or the
Shareholders, as applicable as follows:
(A) By reduction (and extinguishment, if necessary) of
the outstanding principal balance and accrued interest due Seller from
Purchaser as of the New Stock acquisition date under Note II issued pursuant
to Section 3(b)(ii) hereinabove in an amount equal to the value of the New
Stock acquired; and, if necessary,
(B) By reduction of the outstanding principal balance
and accrued interest due Seller from Purchaser as of the New
Stock acquisition date under Note I issued pursuant to
Section 3(b)(i) hereinabove in an amount equal to the value of
the New Stock acquired less the value of the Note II principal
and accrued interest as of the New Stock acquisition date.
(ii) For and during a period of three (3) years
following the New Stock acquisition date, if Seller or the
Shareholders so desires, Purchaser will repurchase from Seller or
the Shareholders, all New Stock acquired hereunder, at a price
equal to the aggregate price paid for the New Stock acquired
hereunder, together with interest for the three (3) year period
at the Interest Rate; Purchaser's obligation hereunder shall be
secured by an irrevocable letter of credit issued by Bank One,
N.A., as addressed in the form of a Letter of Assurance in the
form attached hereto and incorporated herein by reference as
Exhibit "R". Purchaser shall cause the Letter of Assurance to be
delivered by Bank One, N.A. to Seller prior to Purchase Asset
Closing. For the purposes of this Section 12(f) and the option
rights granted hereunder, the term "Shareholders" shall be deemed
to include not only RHK, RBK, WB and LB, but also their spouses,
lineal decedents and any trust with respect to which the
beneficial interest is solely held by or inures to the benefit of
RHK, RBK, WB and LB and/or their spouses or lineal decedents.
(iii) Upon the issuance, of New Stock and reduction (and
extinguishment, if necessary) of Note II as provided for
hereinabove, the original Letter of Credit, Exhibit "H" to this
Agreement, the parties shall cause the Letter of Credit to be
amended or surrendered as necessary to reflect such reduction or
extinguishment thereof so that the security provided therefore is
reduced by a dollar amount equal to such reduction or
extinguishment.
(iv) During the period in which Seller or the
Shareholders shall continue to have the right and option to
acquire New Stock, Seller shall maintain availability under its
Letter of Credit Facility with Bank One, Indianapolis, National
Association, in an amount not less than Seller's maximum
repurchase obligation specified in Section 12(f)(ii) of this
Agreement.
18
<PAGE> 19
(v) In the event that Seller or the Shareholders
exercise its or their option to acquire New Stock and thereafter Purchaser's
IPO is terminated or otherwise abandoned, Purchaser shall repurchase all of
the New Stock owned by Seller or the Shareholders and shall pay for such
stock by reissuing Note II according to its original terms and
reinstating the Letter of Credit which originally represented the
security therefor.
(g) Seller and the Shareholders covenant, warrant and
agree that Purchaser shall have the right of setoff against any
and all sums owing Seller and the Shareholders, or any of them,
under the terms of the Consultation Agreements to satisfy amounts
due and owing Purchaser for payment of post-closing Purchase
Price adjustments due and not timely paid under Section
hereinabove, and/or for any and all Claims of Purchaser pursuant
to Section 10 hereof as long as each such Claim has been
determined pursuant to Section 10(c) and not timely paid to
Purchaser pursuant to Section 10(d) hereof.
(h) At Purchase Asset Closing, Seller shall make its
best, good faith effort to assure that all current Business
customers, customer accounts and other customer commitments and
arrangements shall be transferred to Purchaser without
termination or modification by customers.
(i) West, by its execution and delivery of this
Agreement, agrees to be fully bound by all terms, covenants, and
agreements imposed upon it as lessee of the Demised Premises and
purchaser of the Purchase Real Estate pursuant to Section 12(d)
and Section 12(e) hereinabove.
(j) Between the date of this Agreement and prior to
the Purchase Asset Closing date, Seller shall promptly furnish
Purchaser notice of any current customer or customers which
individually or in the aggregate comprise a material volume of
Seller's business which terminate transacting business with
Seller or indicate to Seller the intention to terminate
transacting business with Seller. For the purposes of this
Agreement, a material volume of Seller's business shall be
defined as more than two percent (2%), in the aggregate, of
Seller's annualized sales of volume.
(k) From and after the Purchase Asset Closing date,
each employee who was formerly an employee of Seller and who
becomes an employee of Purchaser shall become eligible to
participate in Purchaser's employee benefit plans, including its
health, pension and profit sharing plans.
SECTION 13. ARBITRATION.
(a) Any controversy, dispute or claim arising out of,
in connection with, or in relation to the interpretation,
performance or breach of this Agreement, including, without
limitation, any claim based on contract, tort or statute and any
claim pursuant to the provisions of Sections 3 and 10 hereof,
shall be settled by arbitration. Any arbitration pursuant to
this Agreement shall be conducted in Cincinnati, Ohio before and
in accordance with the then existing Rules for Commercial
Arbitration of the American Arbitration Association, provided
that only one
19
<PAGE> 20
arbitrator as selected by the American Arbitration Association shall conduct
any arbitration proceeding. Any arbitration shall be final and binding. Any
judgment upon any interim or final award or order rendered by the arbitrator
entered by any federal or state court having jurisdiction thereof.
(b) The parties intend that any agreement pursuant
hereto to arbitrate be valid, enforceable and irrevocable. Each
party in any arbitration proceeding commenced hereunder shall
bear such party's own costs and expenses (including
expert,witness and attorneys' fees) of investigating, preparing
and pursuing such arbitration claim. The parties to any
arbitration shall have the right to discover the relevant books
and records of the other side that are not confidential or
privileged.
SECTION 14. CONTINUOUS OPERATION AND RISK OF LOSS. Seller
shall be operated in the ordinary course up to and including the
Purchase Asset Closing date. Further, Seller shall keep the Purchase Assets
fully insured and shall bear all risk of loss to the Purchase Assets prior to
the Closing. In the event of such loss, Purchaser shall not be
required to purchase damaged or destroyed Purchase Assets; and
the applicable purchase price shall be reduced correspondingly.
In the event of total loss of or damage to the Purchase Assets,
Purchaser shall have the sole and unilateral right to terminate
this Agreement without obligation or liability to Seller.
SECTION 15. CONDITIONS PRECEDENT. The obligations of Seller
and Purchaser pursuant to this Agreement are subject to the
following express conditions being fulfilled on or prior to the
Purchase Asset Closing date:
(a) Purchaser, West, Seller and the Shareholders shall
have performed and complied with all terms and conditions
required by this Agreement to be performed and complied with.
(b) The execution, delivery and performance of this
Agreement and the transactions contemplated hereby shall have been duly
authorized and approved by any and all requisite corporate or limited
liability company action of Purchaser, West, Seller and Krabo, and they
shall deliver to the others at or before Closing a proper corporate or limited
liability company certificate to this effect.
(c) Seller shall have procured all necessary consents
of third parties, in proper form, to effectuate assignment,
transfer or conveyance of any assets subject of Section 1,
subsections (a) through (f), inclusive, together with any and all
other rights, agreements, contracts, leases, releases,
instruments or other commitment incidental to such assets or as
otherwise required by this Agreement.
(d) Seller shall be able to assign, transfer, grant
and/or convey good and marketable title to the Purchase Assets subject of
Section 1, subsections (a) through (f), inclusive, free and clear of all
claims, liens and encumbrances or any interest of my party, as required by
this Agreement.
20
<PAGE> 21
(d) All necessary parties thereto shall have executed
and delivered the R.H. Consultation Agreement, the R.B.
Consultation Agreement, the W.B. Consultation Agreement, the
Lease and the Real Estate Purchase Agreement.
(e) In the event that prior to Purchase Asset Closing
date, Seller has received notice of termination or actual
termination of a material volume of the Business as defined in
Section 12(j), Purchaser shall have the unilateral right, in its
sole discretion, to terminate this Agreement and all transactions
contemplated hereunder without liability to any party.
SECTION 16. MISCELLANEOUS.
(a) This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and permitted assigns.
(b) Any notice, request, instruction, consent,
approval or other communication provided for herein shall be
sufficiently given in writing and delivered personally or sent by
first class mail, certified, return receipt requested, postage
prepaid as follows: If to Purchaser or West, addressed to VALLEY
NATIONAL GASES, INC., Attention of Lawrence E. Bandi, 67 - 43rd
Street, Wheeling, West Virginia, 26003, with a copy to James T.
McClure, Esquire, GOMPERS, MCCARTHY, HILL & MCCLURE, 302 Board of
Trade Building, Wheeling, West Virginia, 26003; if to Seller or
the Shareholders, addressed to WELDCO, INC., 1151 Findlay Street,
Cincinnati, Ohio 45214-2051, Attention: R. Bruce Kraemer,
President, with a copy to William H. Cordes, Esquire, THOMPSON
HINE & FLORY, P.L.L., 312 Walnut Street, 14th Floor, Cincinnati,
Ohio 45202-4029.
(c) This Agreement shall constitute the entire agreement
between Seller, Purchaser, Guarantors and West with respect to
the transactions contemplated herein. There are no
representations, warranties, covenants or conditions except for
those specified in the Agreement. No waiver, change, amendment or discharge of
any term or condition hereof on the part of any party hereto shall be of any
force or effect unless made in writing and signed by the party to be bound
thereby.
(d) Seller, the Shareholders, Krabo, Purchaser or West
may, by written notice to the others waive any inaccuracies in the
representation or warranties of any of the other parties contained in this
Agreement or (ii) waive compliance with any of the covenants of any of the
other parties contained in this Agreement and waive performance of any
of the obligations of any other party.
(e) If any term or provision of this Agreement or any
application thereof shall be invalid or unenforceable, the
remainder of this Agreement and any other application of such
term or provision shall not be affected thereby.
(f) This Agreement shall not be assigned by any party
without the prior written consent of the other parties hereto.
21
<PAGE> 22
(g) This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.
(h) All representations, warranties and agreements
made by Seller, West, Shareholders or Purchaser in this Agreement
shall survive the Closing hereunder and the transfer of assets
described herein to the extent expressly stated herein.
SECTION 17. GOVERNING LAWS. This Agreement shall be
construed and enforced in accordance with the laws of the State
of Ohio.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto with full authority
therefore have duly caused this Agreement to be executed and
delivered as of the day and year first above written.
WELDCO, INC., AN OHIO CORPORATION
WITNESSES:
- -----------------------------
By /s/ R. Bruce Kraemer
- ----------------------------- ---------------------------------
Its President
- -----------------------------
/s/ Robert H. Kraemer
- ----------------------------- -----------------------------------
R.H. Kraemer
- -----------------------------
/s/ R. Bruce Kraemer
- ----------------------------- -----------------------------------
R. Bruce Kraemer
- -----------------------------
/s/ William Bott
- ----------------------------- -----------------------------------
William Bott
- -----------------------------
/s/ Linda Bott
- ----------------------------- -----------------------------------
Linda Bott
- -----------------------------
KRABO, LTD., an Ohio limited liability
company
- -----------------------------
By /s/ R. Bruce Kraemer
- ----------------------------- -----------------------------------
Its--------------------------------
VALLEY NATIONAL GASES, INC., a
West Virginia corporation
- -----------------------------
By /s/ Lawrence E. Bandi
- ----------------------------- -----------------------------------
Its President
WEST RENTALS, INC., a West Virginia
corporation
- -----------------------------
By /s/ Lawrence E. Bandi
- ----------------------------- -----------------------------------
Its Secretary
23
<PAGE> 1
THIS AGREEMENT, made November 1, 1995 by and between
Acetylene Products, a party of the first part as "LESSOR", said
party being of the City of Wheeling, Ohio County, West Virginia,
VALLEY WELDING SUPPLY COMPANY INCORPORATED, party of the second
part as "LESSEE", whereby the parties agree as follows:
LESSOR, in consideration of the rents to be paid and
covenants to be performed by LESSEE hereunder, hereby leases to
LESSEE for the term and subject to the covenants and conditions
hereinafter set forth, the following described premises: 4706
Jacob Street Rear-Upstairs
TO HAVE AND TO HOLD the above described real estate for
the term of One Year commencing on November 1, 1995 and end
October 31, 1996 accordingly.
LESSEE for and in consideration of the premises and
covenants aforesaid hereby obligates and binds itself to pay or
cause to be paid unto said LESSOR, its heirs, administrators,
executors and assigns, the just and full sum of $8,400.00,
payable in monthly installments, monthly in advance, $700.00
each, with the first said installments to be paid on the first
day of the month of occupancy hereinabove referred to and each of
the $700.00 installments to be paid on the first day of each and
every succeeding month thereafter.
LESSOR does further grant to LESSEE the option of
renewing this lease for an additional period of one years and
upon the same terms and conditions as are herein contained,
except that the rental shall be in an amount to be agreed upon
between the parties; provided, however that notice of such
intention to renew must be served in writing by LESSEE upon
LESSOR at least sixty (60) days before said expiration date.
In the event the said premises shall be damaged by fire,
flood, storm, civil commotion, or other unavoidable cause, to an
extent not repairable within ninety (90) days from the date of
such damage, this lease shall terminate as of the date of such
damage.
And it is further agreed that the said LESSOR, its heirs,
administrators, executors and assigns, may enter into and upon
the said leased premises at reasonable hours in the daytime, from
ten o'clock in the morning to five o'clock in the afternoon, to
examine the same and for three (3) months next preceding the
expiration of said term to permit the usual notices of "FOR RENT"
and "FOR SALE" to be placed on any outside wall of said premises
and remain thereon without hindrance or molestation.
The said LESSEE hereby agrees that it will not transfer
or assign this lease, or sublet or underlet the premises
aforesaid or any part thereof, without the written consent of the
said LESSOR, its heirs, administrators, executors and assigns,
which consent shall not be unreasonably or arbitrarily withheld.
<PAGE> 2
LESSEE shall be responsible to maintain and repair the
interior of the premises leased hereunder, and shall provide
preventive maintenance and care for any heating units during the
terms of the lease and any renewal thereof, at its expense.
LESSOR shall be responsible to maintain and repair the remaining
portions of the premises, including, but not limited to, the
structure, roof, windows, sidewalks, and replacing heating units,
if required.
LESSEE may, at its own expense, either at the
commencement of or during the terms of this lease, make such
alterations in and/or additions to the leased premises,
including, without prejudice to the generality of the foregoing,
alterations in the water, gas and electric wiring systems, as may
be necessary to fit the same for its business, upon first
obtaining the written approval of the LESSOR as to the materials
to be used and the manner of making such alterations and/or
additions. LESSOR covenant not to unreasonably withhold approval
of alterations and/or additions proposed to be made by LESSEE.
LESSEE may also, at its own expense, install such counters, rack,
shelving, fixtures, fittings, machinery and equipment upon or
within the leased premises as LESSEE may consider necessary to
the conduct of its business. At any time prior to the expiration
or earlier termination of this lease, LESSEE may remove any or
all such alterations, additions, or installations in such a
manner as will not substantially injure the leased premises. In
the event LESSEE shall elect to make any such removal, LESSEE
shall restore the premises, or the portion or portions affected
by such removal, to the same condition as existed prior to the
making of such alterations, addition or installation, ordinary
wear and tear, damage or destruction by fire, flood, storm, civil
commotion or other unavoidable cause excepted. All alterations,
additions or installations not so removed by LESSEE shall become
the property of LESSOR, without liability on LESSOR's part to pay
for the same. Any person or persons employed by said LESSEE in
the making of any alterations or improvements shall do so at his
own risk, said LESSEE has no authority to do anything in relation
to the premises leased which will give any person or persons the
right to a mechanics' or other lien on said premises, or any part
thereof.
And it is expressly agreed between the parties hereto
that any indulgence in not enforcing prompt payment of any
installment of rent when due, or any other indulgence or
deviation from the condition herein granted to the said LESSEE by
said LESSOR, shall not be construed as waiving any of the
conditions or stipulations herein, and the same shall continue
there-after in as full force and effect as though such indulgence
had not been granted.
And, if at any time during the continuance of said lease
the LESSEE shall fail to comply with any of the terms, covenants
and conditions herein contained, the said LESSOR, its heirs,
administrators, executors or assigns, shall have the right to re-
enter and possess the premises aforesaid, the same as though this
lease had not been made, provided, however, that LESSOR shall
2
<PAGE> 3
notify LESSEE promptly in writing of any default under this
lease, whereupon LESSEE shall be entitled to fifteen (15) days
from receipt of said notice in which to cure the default before
the provisions of this paragraph become operative.
It is expressly agreed between the parties hereto that at
the expiration of this lease, or any renewal thereof, should the
LESSEE hold over for any reason and the LESSOR accept the payment
of any rent covering any period of time beyond the term of this
lease, or any renewal thereof, then, in the absence of any
written agreement to the contrary, continuance by the LESSEE
hereunder we shall be on a month-to-month basis only.
The LESSEE hereby covenants that it will not make or
suffer any use or occupancy of the leased premises contrary to
the laws of the State of West Virginia, of the United States, or
nay ordinance of the City of Wheeling, now or hereafter, in
force.
LESSEE agrees to pay all utility bills and fees.
LESSOR agrees to make the following alterations on the
premises at its expense prior to LESSEE taking possession.
It is also agreed that if all or any part of the premises
is taken by or sold under threat of appropriations, this lease
will terminate as of date of such taking or sale. The entire
award or compensation paid for the property taken or acquired and
for damages to residue, if any, will belong entirely to LESSOR,
and no amount will be payable to LESSEE.
Any increase in the cost of insurance premiums to the
LESSOR on LESSOR's fire, extended and comprehensive damage
insurance above the base premium now being paid, which increase
is caused by acts or use of the demised premises by LESSEE, will
be paid by LESSEE upon submission of a copy of the premium
invoice by LESSOR.
LESSOR and LESSEE agree that all of the provisions hereof
are to be construed as covenants and agreements, as though the
word imparting such covenants and agreements were used in each
separate paragraph hereof, and should any term or provision of
this letter be held to be invalid or unenforceable, then the
remainder of this lease shall not be affected thereby, and each
term and provision shall be valid and enforceable to the fullest
extent permitted by law.
It is further understood and agreed that the LESSOR shall
not be liable for any damage, loss or injury which may be
sustained or suffered by the said LESSEE or by any third party or
parties to it or to their person or property while on said
premises, nor for any damage or loss to the property of the
LESSEE situate in said lease premises, except insofar as said
loss, damage or injury may be occasioned by the negligence of the
LESSOR, its servants, agents or representatives, while upon said
premises, and said LESSEE is to be responsible for and to
3
<PAGE> 4
indemnify and save harmless the LESSOR of and from any and all
loss, damage, injury, fines, suits, proceedings, claims, demands
and actions of any kind or nature, of anyone whomsoever arising
or growing out of or in any wise connected with the occupancy or
use of said premises, except as hereinabove expressly excepted.
This lease shall be binding upon the parties hereto,
their heirs, successors, administrators and assigns.
IN WITNESS WHEREOF, the parties hereto have set their
hands on the day and year first above written.
[FN]
<F*>SUBJECT TO A 10% INCREASE IN THE RATE FOR THE RENEWED PERIOD.
WITNESSETH:
/s/ Kelly Crawford /s/ Gary E. West
- ------------------------------- -----------------------------
LESSEE
/s/ Kelly Crawford /s/ Lawrence E. Bandi
- ------------------------------- -----------------------------
LESSOR
4
<PAGE> 1
WEST RENTAL INC
P O BOX 6628
WHEELING WV 26003
April 24, 1996
Valley National Gases, Inc.
P O Box 6628
Wheeling WV 26003
Attn: Larry Bandi, President
Subject: Properties to be Purchased
Dear Larry,
To provide Valley National Gases with necessary acquisition
funds, West Rental will pay Valley the following for real estate.
An asterisk indicates a lease back arrangement required.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
LOCATION FAIR MARKET VALUE
-------- -----------------
- -------------------------------------------------------------------------------
<C> <S> <C>
<F*> 61504 Southgate Rd
Cambridge, OH $85,000.00
- -------------------------------------------------------------------------------
<F*> Route 40 East
Oliver Road
Uniontown, PA $155,000.00
- -------------------------------------------------------------------------------
<F*> Route 2
Friendly, WV $5,000.00
- -------------------------------------------------------------------------------
<F*> 670 43rd Street
Wheeling WV $265,000.00
- -------------------------------------------------------------------------------
<F*> Wood Street
Wheeling WV $120,000.00
- -------------------------------------------------------------------------------
43rd and Jacob Street
Wheeling WV $110,000.00
- -------------------------------------------------------------------------------
4314-4324 Wood Street
Wheeling WV $35,000.00
- -------------------------------------------------------------------------------
<F*> McColloch & 43rd Street
Wheeling, WV
Fuel Dock $35,000.00
- -------------------------------------------------------------------------------
2804-1810 Wood Street
Wheeling WV $30,000.00
- -------------------------------------------------------------------------------
4320 Jacob Street
Wheeling, WV $10,000.00
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
Larry Bandi
4/24/96
Page 2
The leases to be signed by Valley would be triple net leases.
The closing is set for May 14th, 1996. If you agree with the
attached information, please sign below.
[FN]
<F*> Indicates lease back required
Regards,
Gary E. West
Chairman of the Board
GW/dsr
property
c: Kris Molnar
- ------------------------------------ -----------------------
Lawrence E. Bandi Date
President
<PAGE> 1
Lessor: West Rental, Inc
P.O. Box 6628
Wheeling, WV 26003
(For corporation, show
Lessee: Valley Welding Supply Co. location of principal place of
Address: 67-43rd Street business in State. For individual
City, County: Wheeling, Ohio show residence. For partnership,
State, Zip: WV 26003 show place of business and also
name and residence of each partner.
DESCRIPTION OF TRAILERS
- -------------------------------------------------------------------------------
QUANTITY TYPE OF TRAILER SERIAL NUMBER RENTAL
OF TRAILER PER TRAILER
- -------------------------------------------------------------------------------
One 1972 LOX VIN: 7086 $1,425.00
Trailer
Model #7086
- ------------------------------------------------------------------------------
2. TERMS OF LEASE WITH RESPECT TO TRAILER: 60 Months,
----------------
commencing on November 1, 1995.
---------------------
3. LOCATION OF TRAILER: When not in possession of customers
of Lessee, trailer will be located at:
9189 Marshall Road (Street)
- ---------------------------------------------------------------------
(County), Evans City (City), PA 16033 (State)
- ------------------- ------------------- -----------
4. ACKNOWLEDGE OF RECEIPT OF TRAILER: Lessee acknowledges
that the trailer above described has been delivered to
and received by it in good and serviceable
condition, are aa represented, and are acceptable and
satisfactory to it.
West Rentals, Inc. Lessor Valley Welding Supply Company
- ------------------------------ -------------------------------
Accepted as of the date hereof Lessee
By: By:
-------------------------- -----------------------------
Date: Date:
------------------------- ----------------------------
Witness: Witness:
---------------------- -------------------------
<PAGE> 1
Lessor: West Rental, Inc
P.O. Box 6628
Wheeling, WV 26003
(For corporation, show
Lessee: Valley Welding Supply Co. location of principal place of
Address: 67-43rd Street business in State. For individual
City, County: Wheeling, Ohio show residence. For partnership,
State, Zip: WV 26003 show place of business and also
name and residence of each partner.)
DESCRIPTION OF TRAILERS
- --------------------------------------------------------------------------------
QUANTITY TYPE OF TRAILER SERIAL NUMBER RENTAL
OF TRAILER PER TRAILER
- --------------------------------------------------------------------------------
One Superjumbo Tube
Trailer Model# J-397 VIN: 1LDK44206JB803015 $2,300.00
- --------------------------------------------------------------------------------
2. TERMS OF LEASE WITH RESPECT TO TRAILER: 60 Months,
-----------------
commencing on September 1, 1992.
-------------------------
3. LOCATION OF TRAILER: When not in possession of customers of
Lessee, trailer will be located at:
9189 Marshall Road (Street)
- ----------------------------------------------------------------
(County), Evans City (City), PA 16033 (State)
- -------------- ------------------- -------------
4. ACKNOWLEDGEMENT OF RECEIPT OF TRAILER: Lessee acknowledges that
the trailer above described has been delivered to and received by
it in good and serviceable condition, are as represented, and are
acceptable and satisfactory to it.
West Rentals, Inc. Lessor Valley Welding Supply Company
- ------------------------------ -------------------------------
Accepted as of the date hereof Lessee
By: By:
-------------------------- -----------------------------
Date: Date:
------------------------- ----------------------------
Witness: Witness:
---------------------- -------------------------
<PAGE> 1
Lessor: West Rental, Inc
P.O. Box 6628
Wheeling, WV 26003
(For corporation, show
Lessee: Valley Welding Supply Co. location of principal place of
Address: 67-43rd Street business in State. For individual
City, County: Wheeling, Ohio show residence. For partnership,
State, Zip: WV 26003 show place of business and also
name and residence of each partner.)
DESCRIPTION OF TRAILERS
- --------------------------------------------------------------------------------
QUANTITY TYPE OF TRAILER SERIAL NUMBER RENTAL
OF TRAILER PER TRAILER
- --------------------------------------------------------------------------------
2 1 ARGON SIZE 45 #2526-45 $600 PER MONTH PER TRAILER
1 OXYGEN SIZE 45 #1022-45
- --------------------------------------------------------------------------------
2. TERMS OF LEASE WITH RESPECT TO TRAILER: 84 Months,
------------
commencing on June 1, 1996.
----------------
3. LOCATION OF TRAILER: When not in possession of
customers of Lessee, trailer will be located at:
9189 Marshall Road (Street)
- ------------------------------------------------------------------------
(County), Evans City (City), PA (State)
- --------------- ----------------------- -------------------
4. ACKNOWLEDGE OF RECEIPT OF TRAILER: Lessee acknowledges
that the trailer above described has been delivered to
and received by it in good and serviceable condition, are
as represented, and are acceptable and satisfactory to
it.
West Rentals, Inc. Lessor Valley Welding Supply Company
- ------------------------------ -------------------------------
Accepted as of the date hereof Lessee
By: By:
-------------------------- -----------------------------
Date: Date:
------------------------- ----------------------------
Witness: Witness:
---------------------- -------------------------
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
January 16, 1997
