<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WATERLINK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
3589
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
34-1788678
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
4100 HOLIDAY STREET, N.W.
SUITE 201
CANTON, OHIO 44718-2532
(330) 649-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHET S. ROSS
WATERLINK, INC.
4100 HOLIDAY STREET, N.W.
SUITE 201
CANTON, OHIO 44718-2532
(330) 649-4000
FACSIMILE: (330) 649-4008
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE AND FACSIMILE NUMBERS,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
IRA C. KAPLAN
BENESCH, FRIEDLANDER, COPLAN & ARONOFF LLP
2300 BP AMERICA BUILDING
200 PUBLIC SQUARE
CLEVELAND, OHIO 44114-2378
(216) 363-4500
FACSIMILE: (216) 363-4588
STEPHEN P. FARRELL
MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE
NEW YORK, NY 10178-0060
(212) 309-6000
FACSIMILE: (212) 309-6273
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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, check the following box and
list the Securities Act registration statement number of the 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. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C>
TITLE OF EACH CLASS AMOUNT TO BE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1)(2)(3) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
Common Stock, $.001 par value....................... $57,500,000 $17,425
</TABLE>
================================================================================
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes $7,500,000 of Common Stock which the Underwriters have the option
to purchase to cover over-allotments, if any.
---------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
THE 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 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 APRIL 16, 1997
PROSPECTUS
SHARES
WATERLINK, INC.
COMMON STOCK
------------------
All of the shares of common stock, par value $.001 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by the Company.
Prior to the Offering, there has not been a public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for
information relating to the factors considered in determining the initial public
offering price. Application is being made to have the Common Stock listed on The
New York Stock Exchange under the symbol " ".
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN RISK FACTORS 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 SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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Per Share $ $ $
- ----------------------------------------------------------------------------------------------------
Total (3) $ $ $
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</TABLE>
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the several Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional shares of Common Stock solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the office of Smith Barney Inc., 333 West 34th Street, New
York, NY 10001.
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
, 1997
<PAGE> 3
[ARTWORK--TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Unless otherwise indicated by the context, reference herein to (i)
"Waterlink" means Waterlink, Inc., (ii) the "Company" means Waterlink and its
subsidiaries, including Bioclear Technology, Inc. ("Bioclear") and Lanco
Environmental Products, Inc. ("Lanco"), the acquisitions which the Company will
consummate upon the completion of the Offering (the "Pending Acquisitions") and
(iii) "fiscal 1995," "fiscal 1996" and "fiscal 1997" mean, respectively, the
period from December 7, 1994 (date of incorporation) to September 30, 1995, the
year ended September 30, 1996, and the year ending September 30, 1997, with
respect to Waterlink and certain of its subsidiaries.
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information and
share and per share data in this Prospectus (i) give effect to the Pending
Acquisitions, (ii) assume the Underwriters' over-allotment option is not
exercised, and (iii) give effect to the conversion of all outstanding shares of
the Company's preferred stock into shares of the Common Stock.
THE COMPANY
The Company is an international provider of integrated water purification
and wastewater treatment solutions, principally to industrial and municipal
customers. The Company believes its expertise is in the analysis of a customer's
water purification and wastewater treatment requirements and the customized
application of the Company's systems, equipment and services to provide cost
effective solutions. Since its formation in December 1994, the Company has grown
significantly by completing six acquisitions consisting of thirteen operating
companies. In addition, the Company will complete the Pending Acquisitions
concurrently with the closing of the Offering. As a result of its acquisition
program and internal development, the Company has increased its ability to
provide integrated water purification and wastewater treatment solutions and has
expanded its geographic presence.
The Company has developed a strategic plan to:
- Provide a full range of systems, equipment and
services, whether independently or as part of a
fully engineered water purification or wastewater
treatment solution
- Pursue growth through acquisitions that:
-- increase its geographic diversity
-- add complementary technologies, products and
services
-- broaden its customer base and industries served
-- provide strategic, synergistic and corporate
cultural fit
- Integrate its operations and marketing strategies
in order to maximize internal growth and increase
profitability
- Strengthen market share for its design/build
operations outside the United States
As a result of the implementation of its strategic plan, the Company's pro
forma net sales for fiscal 1996 totaled $72.7 million, primarily due to its
acquisition program. In addition, the Company has begun to realize significant
improvement in internal growth rates due to the opportunities to cross-sell
systems, equipment and services and as a result of the increased financial,
managerial and other resources provided by the Company to its acquired
businesses. Pro forma net sales of the businesses acquired by the Company prior
to fiscal 1997 grew 14.1% for the three months ended December 31, 1996 compared
to the comparable period in the prior year. The Company's backlog on a pro forma
basis, consisting of written purchase orders received by the Company, was $27.9
million at December 31, 1996 and $27.9 million at March 31, 1997.
Through its acquisition program and internal development, the Company has
established a broad distribution system both geographically and within various
markets. In fiscal 1996, 47% of the Company's pro forma net sales were derived
from customers located in the United States and Canada, 40% in Europe, 5% in
Latin America and 8% in other regions, including Asia-Pacific. Industrial
customers accounted for 60% of the
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<PAGE> 5
Company's pro forma net sales for fiscal 1996 while municipal customers
accounted for 40%. The Company's industrial customers include a broad range of
major corporations which require both purified water for their manufacturing
processes and treatment of their wastewater outflow. Industries served include
the pharmaceutical, electronic and microelectronic, pulp and paper, chemical,
petrochemical, food, beverage, automotive and other heavy manufacturing
industries. The Company serves hundreds of large and small municipal customers
worldwide which provide purified water to, and wastewater treatment for, their
communities.
The global water purification and wastewater treatment industry was
estimated at $300 billion in 1995. The industry is highly fragmented and
consists of companies that design, develop and manufacture equipment, provide
engineering services, run treatment facilities and provide a combination of such
services and capabilities. The industry is composed of two primary end-markets,
municipal and industrial. In the United States, Canada and western Europe,
municipalities have responded not only to environmental regulation but also to
their constituents' awareness of the potential dangers of contaminated sources
of water and the effects of untreated wastewater on the environment. In other
areas of the world where municipalities have historically provided fewer water
and wastewater services, factors such as economic expansion, infrastructure
development, population growth and public awareness have increasingly offered
incentives for municipalities to provide such services. Within the industrial
market, corporations increasingly require sources of pure water as their
production processes become more complex and product quality standards increase.
In addition, corporations have begun treating wastewater not only in response to
government regulation but also due to the economic benefits of water reuse and
wastewater minimization in their industrial processes. Additionally, industrial
companies have increasingly outsourced their water purification and wastewater
treatment functions, eliminating much of their internal engineering capability
and expertise in an effort to reduce costs. The factors influencing both the
municipal and industrial markets are expected to propel the growth of the global
water purification and wastewater treatment industry to $500 billion by the year
2000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......... shares
Common Stock to be outstanding upon
completion of the Offering (1)............ shares
Use of Proceeds............................. To pay the cash portion of the purchase prices
of the Pending Acquisitions, repay indebtedness
of the Company and for general working capital
purposes. See "Use of Proceeds".
Proposed NYSE Symbol........................
</TABLE>
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RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
------------------
- ------------------
(1) The number of shares to be outstanding upon completion of the Offering does
not include (i) shares subject to outstanding options granted
under the Company's 1995 Stock Option Plan, (ii) 175,000 shares subject to
other outstanding options to purchase Common Stock, (iii) 225,000 shares
issuable upon exercise of a warrant issued to the Company's principal senior
bank lender and (iv) 125,000 shares issuable upon exercise of warrants
issued in connection with commitments to purchase subordinated indebtedness
of the Company. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Liquidity and Capital Resources,"
"Management -- Benefit Plans" and "Description of Capital Stock."
4
<PAGE> 6
SUMMARY SELECTED AND PRO FORMA FINANCIAL DATA
The following table sets forth summary selected historical and unaudited
pro forma consolidated financial data of the Company since its incorporation on
December 7, 1994. The historical financial data presented for fiscal 1995 and
fiscal 1996 are derived from the audited consolidated financial statements of
the Company. The historical data presented for each of the three months ended
December 31, 1995 and 1996 are derived from unaudited financial statements
which, in the opinion of management, include all adjustments (which were of a
normal recurring nature) necessary for a fair presentation of the information
set forth therein. The historical financial data includes the operating results
of each acquired business from the date of acquisition in accordance with the
purchase method of accounting. The historical results of operations for the
three months ended December 31, 1996 are not necessarily indicative of future
results. The historical results of operations should be read in conjunction with
the financial information appearing elsewhere in this Prospectus. See
"Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The unaudited pro forma financial data have been adjusted for the
acquisitions completed in fiscal 1996, the acquisition of the Nordic Group (as
defined herein) in March 1997, the Pending Acquisitions, the conversion of all
outstanding shares of the Company's preferred stock into shares of Common Stock
and the closing of the Offering and the application of the net proceeds
therefrom. The pro forma Statements of Operations Data assume that the
acquisitions completed in fiscal 1996, the acquisition of the Nordic Group and
the Pending Acquisitions were closed on October 1, 1995. The pro forma Balance
Sheet Data assume that the acquisition of the Nordic Group and the Pending
Acquistions were closed on December 31, 1996. The pro forma financial
information is not necessarily indicative of results the Company would have
obtained had these events actually then occurred or of the Company's future
results and should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Prospectus. See "Selected and Pro
Forma Consolidated Financial Data" and "Unaudited Pro Forma Condensed
Consolidated Financial Data."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ()
------------------------------------- ---------------------------
THREE MONTHS THREE MONTHS
ENDED DECEMBER ENDED DECEMBER
31, 31,
FISCAL FISCAL ----------------- FISCAL -----------------
1995 1996 1995 1996 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales (1)................... $ 2,684 $19,801 $ 3,280 $ 9,869 $72,687 $18,307 $19,443
Gross profit (1)(2)............. 827 8,568 1,371 3,955 28,002 6,803 7,325
Selling, general and
administrative expenses
(2)(3)........................ 1,178 7,029 1,168 3,239 21,214 5,330 6,011
Amortization expense (4)........ 15 307 44 142 1,058 266 287
Operating income (loss)......... (366) 1,232 159 574 5,730 1,207 1,027
Net income (loss) (5)........... (512) 306 12 227 3,256 681 600
Net income per share (6)........
Number of shares used to compute
pro forma per share data
(6)...........................
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
AS ADJUSTED
PRO FORMA () (7)(8)
------------- ------------
(In thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $11,555 $19,776
Total assets...................................................... 77,987 82,886
Total debt........................................................ 39,985(9) --
Redeemable preferred stock........................................ 8,500 --
Shareholders' equity (3).......................................... 9,147(10) 62,796
</TABLE>
5
<PAGE> 7
(1) Pro forma net sales and gross profit have been adjusted to recognize
revenue on the percentage of completion method of accounting at an acquired
company which previously recognized revenue on the completed contract
method. This adjustment decreased net sales and gross profit by $2,715,000
and $646,000, respectively, for fiscal 1996, and increased net sales and
gross profit by $836,000 and $229,000, respectively, for the three months
ended December 31, 1995 and $2,949,000 and $633,000, respectively, for the
three months ended December 31, 1996.
(2) The pro forma Statements of Operations Data include the effect of certain
adjustments in salaries and benefits to the former owners of the companies
acquired in fiscal 1996 and the Pending Acquisitions to levels specified in
current employment agreements as follows: a decrease of $3,568,000 for
fiscal 1996, and a decrease of $84,000 and an increase of $25,000 for the
three months ended December 31, 1995 and 1996, respectively. The pro forma
Statements of Operations Data also include the effect of certain
adjustments in corporate office expenses to current levels as follows: an
increase of $652,000 for fiscal 1996 and $206,000 for the three months
ended December 31, 1995. In addition, the pro forma Statements of
Operations Data include the effect of certain reclassifications which
increased gross profit and selling, general and administrative expenses.
(3) The pro forma financial data exclude a special charge to operations of
$ ($ per share, after tax), assuming an initial public offering price
of $ per share, which will be incurred in the quarter in which the
Offering is completed. Such charge results from the issuance by the Company
of certain compensatory stock options to an officer of the Company pursuant
to the terms of his employment agreement. Of this amount, approximately
$ is non-cash, and approximately $ represents a cash payment for
the reimbursement of income taxes resulting from this stock issuance.
(4) The pro forma Statements of Operations Data have been adjusted to reflect
amortization of the goodwill to be recorded as a result of the acquisitions
completed in fiscal 1996, the acquisition of the Nordic Group and the
Pending Acquisitions over a 40 year period.
(5) The pro forma Statements of Operations Data have been adjusted to reflect
reduction of interest expense resulting from the application of estimated
net proceeds of the Offering to repay outstanding indebtedness, as
described in "Use of Proceeds."
(6) Pro forma net income per share is computed by dividing pro forma net income
by the number of shares used to compute pro forma per share data. These
shares include shares of Common Stock outstanding, shares of Common Stock
to be issued in connection with the Offering and the Pending Acquisitions,
shares of Common Stock to be issued upon the conversion of outstanding
preferred stock and the assumed exercise of outstanding stock options and
warrants (using the treasury stock method and an assumed initial public
offering price of $ per share).
(7) Reflects the closing of the Offering and the Company's application of the
estimated net proceeds therefrom as described in "Use of Proceeds," and the
conversion of all outstanding shares of the Company's preferred stock into
shares of Common Stock.
(8) The pro forma as adjusted Balance Sheet Data have been adjusted to reflect
an extraordinary non-cash charge of $351,000, net of tax benefit of
$265,000 ($ per share) which will be incurred by the Company in the
quarter in which the Offering is completed. Such charge relates to the
write-off of unamortized debt issuance costs and discounts associated with
certain indebtedness to be retired with net proceeds of the Offering.
(9) Excludes $2,000,000 relating to the conversion of convertible subordinated
notes issued to certain related parties, which were converted in January
1997 into shares of Common Stock and includes $16,862,000 of pro forma cash
consideration payable in connection with the Pending Acquisitions to be
paid from a portion of the net proceeds of the Offering.
(10) Includes $3,666,000 of pro forma consideration payable in connection with
the Pending Acquisitions to be paid through the issuance of shares
of Common Stock (using an assumed initial public offering price of $
per share).
6
<PAGE> 8
RISK FACTORS
Prior to making an investment decision, prospective purchasers of the
Common Stock offered hereby should consider carefully all of the information set
forth in this Prospectus and, particularly, should evaluate the following risk
factors.
LIMITED COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
Waterlink, incorporated in Delaware on December 7, 1994, has grown by
completing six acquisitions consisting of thirteen operating companies. See "The
Company." The success of the Company will depend, in part, on the Company's
ability to integrate the operations of these businesses and other companies it
acquires, including centralizing certain functions to achieve cost savings and
developing programs and processes that will promote cooperation and the sharing
of opportunities and resources among its businesses. A number of the businesses
offer different services, utilize different capabilities and technologies,
target different markets and customer segments and utilize different methods of
distribution and sales representatives. While the Company believes that there
are substantial opportunities in integrating the businesses, these differences
increase the difficulty in successfully completing such integration. In
addition, there can be no assurance that the operating results of the Company
will match or exceed the combined individual operating results achieved by the
businesses prior to their respective acquisition.
Waterlink's management group has been assembled only relatively recently.
There can be no assurance that the management group will be able to oversee the
combined entity and implement the Company's operating or growth strategies
effectively. Further, to the extent that the Company is able to implement its
acquisition strategy, the resulting growth of the Company will place significant
demands on management and on the Company's internal controls. There can be no
assurance that the management group will effectively be able to direct the
Company through a period of significant growth.
Further, there can be no assurance that the Company's strategy to become a
leading international provider of integrated water purification and wastewater
treatment solutions will be successful, or that the Company's targeted client
segments will accept the Company as a provider of such solutions. See "Business"
and "Management."
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company intends to grow primarily by acquiring existing businesses.
This acquisition strategy involves risks inherent in assessing the values,
strengths, weaknesses, risks and profitability of acquisition candidates,
including adverse short-term effects on the Company's reported operating
results, diversion of management's attention, dependence on retaining, hiring
and training key personnel, and risks associated with unanticipated problems or
latent liabilities. Although the Company generally has been successful in
acquiring companies it has pursued, there can be no assurance that acquisition
opportunities will continue to be available, that the Company will have access
to the capital required to finance potential acquisitions, that the Company will
continue to acquire businesses or that any business acquired by the Company will
be integrated successfully into the Company's operations and prove profitable.
In addition, to the extent that consolidation becomes more prevalent in the
industry, the prices for attractive acquisition candidates may be bid up to
higher levels and there can be no assurance that businesses acquired in the
future will achieve sales and profitability that justify the investment therein.
See "The Company" and "Business."
NEED FOR ADDITIONAL ACQUISITION FINANCING
The Company currently intends to use a combination of shares of its Common
Stock, cash, and debt obligations in making future acquisitions. The extent to
which the Company will be able or willing to use the Common Stock for this
purpose will depend on its market value from time to time and the willingness of
potential sellers of acquisition targets to accept it as full or partial
payment. To the extent the Company is unable to use the Common Stock to make
future acquisitions, its ability to grow may be limited by the extent to which
it is able to raise capital for this purpose, as well as to expand existing
operations, through debt or additional equity financing. The Company has $25
million in the aggregate available to it, subject to certain
7
<PAGE> 9
borrowing base requirements, under bank credit facilities (the "Credit
Facility") underwritten by certain financial institutions, with Bank of America
Illinois (the "Bank") as Agent and two of the Bank's foreign affiliates, to be
used for acquisitions, working capital and other corporate purposes. No
assurance can be given the Company will be able to obtain the capital it would
need to finance a successful acquisition program and its other cash needs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company has in the past experienced quarterly fluctuations in operating
results due to the contractual nature of its business and, to a lesser extent,
weather conditions. As part of its strategic plan and due to the Pending
Acquisitions, the Company expects that in the future it may receive contracts
that are significantly larger than those received by the Company historically.
In addition, certain of such contracts will be subject to the customer's ability
to finance, or fund from government sources, the actual costs of completing the
project as well as receiving any necessary permits. Therefore, the Company
expects that its future operating results could fluctuate significantly,
especially on a quarterly basis, due to the timing of the awarding of such
contracts, the ability to fund project costs, and the recognition by the Company
of revenues and profits therefrom. In addition, the Company has historically
operated with a moderate backlog. As a result, quarterly sales and operating
results depend in part on the volume and timing of contracts received and
performed within the quarter, which are difficult to forecast. Any significant
deferral or cancellation of a contract could have a material adverse effect on
the Company's operating results in any particular period. Accordingly, the
Company believes that period-to-period comparisons of its operating results may
not be necessarily indicative of future performance. As a result, the Company's
operating results and stock price could prove to be volatile, particularly on a
quarterly basis.
OPERATIONS OUTSIDE THE UNITED STATES
A substantial proportion of the Company's systems, equipment and services
are sold in western Europe, Latin America and other regions outside the United
States and a number of the Company's subsidiaries operate outside of the United
States. On an annualized pro forma basis (assuming the Pending Acquisitions are
completed), the Company's net sales outside the United States were approximately
61% of its pro forma fiscal 1996 net sales. Such sales pose certain risks
associated with doing business in foreign countries, resulting from certain
political, economic and other uncertainties, including, among others, risks of
war, expropriation or nationalization of assets, renegotiation or nullification
of existing contracts, changing political conditions, changing laws and policies
affecting trade and investment, overlap of different tax structures, and the
general hazards associated with the assertion of sovereignty over certain areas
in which operations are conducted. Additionally, various jurisdictions have laws
limiting the right and ability of subsidiaries and joint ventures to pay
dividends and remit earnings to affiliated companies, unless specified
conditions are satisfied.
Certain aspects of the Company's operations are subject to governmental
regulations in the countries in which the Company operates, including those
relating to currency conversion and repatriation, taxation of its earnings and
earnings of its personnel, and its use of local employees and suppliers. The
Company's operations are also subject to the risk of changes in laws and
policies in the various jurisdictions in which the Company operates which may
impose restrictions on the Company, including trade restrictions, that could
have a material adverse effect on the Company's business, financial condition
and results of operations. Other types of government regulation which could, if
enacted or implemented, materially and adversely affect the Company's operations
include expropriation or nationalization decrees, confiscatory tax systems,
primary or secondary boycotts directed at specific countries or companies,
embargoes and import restrictions or other trade barriers. The Company cannot
determine to what extent future operations and earnings of the Company may be
affected by new laws, new regulations, changes in or new interpretations of
existing laws or regulations or other consequences of doing business outside the
United States.
8
<PAGE> 10
FOREIGN CURRENCY RISKS
Because the Company's functional currency is the United States dollar, its
operations outside the United States sometime face the additional risks of
fluctuating currency values and exchange rates, hard currency shortages and
controls on currency exchange. The Company has operations outside the United
States and is hedged, to some extent, from foreign exchange risks because of its
ability to purchase, manufacture and sell in the local currency of those
jurisdictions. In addition, the Company does enter into foreign currency
contracts under certain circumstances to reduce the Company's exposure to
foreign exchange risks. There can be no assurance, however, that the attempted
matching of foreign currency receipts with disbursements or hedging activity
will adequately moderate the risk of currency or exchange rate fluctuations
which could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, to the extent the Company has
operations outside the United States, the Company is subject to the impact of
foreign currency fluctuations and exchange rate charges on the Company's
reporting in its financial statements of the results from such operations
outside the United States. Since such financial statements are prepared
utilizing United States dollars as the basis for presentation, results from any
operations outside the United States reported in the financial statements must
be restated into dollars utilizing the appropriate foreign currency exchange
rate, and thereby subjecting such results to the impact of currency and exchange
rate fluctuations. See "Business."
DEPENDENCE ON KEY PERSONNEL
The Company's operations depend on the continuing efforts of its executive
officers and its senior management, in particular Theodore F. Savastano,
Waterlink's Chairman; Chet S. Ross, Waterlink's President and Chief Executive
Officer; and the presidents of each of the operating subsidiaries. Should the
Company be unable to retain any of its executive officers or senior management,
the Company's prospects could be adversely affected. In addition, the Company
intends to grow through acquisitions and internal expansion. The Company likely
will depend on the senior management of any significant businesses it acquires
in the future and on its ability to attract qualified management to support its
internal expansion. The business or prospects of the Company could be affected
adversely if any of these senior management of acquired businesses does not
continue in his or her management role after joining the Company and if the
Company is unable to attract and retain qualified replacements and additional
members of management. See "Management."
COMPETITION
The water purification and wastewater treatment industry is fragmented and
highly competitive due to the large number of businesses within certain product
areas. The Company competes with many companies, several of which have greater
market penetration, depth of product line, resources and access to capital,
which could be competitive advantages in securing certain projects. While the
Company believes it is well positioned to deliver technology and services at a
fair price, some competitors have developed product and service integration
capabilities beyond the current scope of the Company. In addition, some
competitors may have greater financial resources than the Company to finance
acquisition and internal growth opportunities. Consequently, the Company may
encounter significant competition in its efforts to achieve its objectives. See
"Business -- Competition."
CYCLICALITY OF DEMAND FOR WATER PURIFICATION AND WASTEWATER EQUIPMENT
Much of the water purification and wastewater equipment sold by the Company
requires significant capital expenditures by its customers. As such, the timing
of customer purchases may be affected by various economic factors, including
interest rate and business cycle fluctuations, which are beyond the control of
the Company. While the Company sells equipment across a broad cross section of
industry segments and customers, the cyclical nature of capital equipment sales
could have an adverse effect on the its revenues and profitability in general,
and on the its revenues and profitability in any individual financial reporting
period.
9
<PAGE> 11
POTENTIAL ENVIRONMENTAL LIABILITIES
In the United States, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund"),
and comparable state laws, impose joint and several liability without fault for
the releases of hazardous substances into the environment. Potentially
responsible parties include (i) owners and operators of the site, (ii) parties
which create the hazardous substances released at the site, and (iii) parties
which arrange for the transportation or disposal of such hazardous substances.
The Company is also subject to applicable environmental laws in countries
outside the United States where it operates or in which its customers are
located. These requirements and their enforcement may vary by country but in
general prescribe standards for the protection of human health, safety and the
environment. The Company could face claims by governmental authorities, private
individuals and other persons alleging that hazardous substances were released
during the treatment process or from the use or disposal of end products and
by-products in violation of applicable law.
RELIANCE ON ENVIRONMENTAL REGULATION
Federal, state, local and foreign environmental laws and regulations impose
substantial standards for properly purifying water and treating wastewater, and
impose liabilities for noncompliance. Environmental laws and regulations are,
and will continue to be, a significant factor affecting the marketability of the
Company's solutions, systems and equipment. To the extent that demand for the
Company's solutions, systems and equipment is created by the need to comply with
such environmental laws and regulations, any modification of the standards
imposed by such laws and regulations may reduce demand, thereby adversely
affecting the Company's business and prospects. The relaxation or repeal of any
such laws or regulations or the strict enforcement thereof could adversely
affect the Company's business and prospects. See "Business -- Government
Regulation."
PROCESS AND PRODUCT WARRANTY AND PERFORMANCE GUARANTEES
In connection with providing certain services and products to its
customers, the Company sometimes is required to guarantee that the services and
products will attain specified levels of quality or performance. Should a
product fail to perform according to a performance guarantee, or should a
service fail to accomplish treatment levels which are guaranteed, and should the
Company be unable to remedy such failure within any applicable cure period, the
Company could incur financial penalties in the form of liquidated damages or
could
be required to remove and/or replace the equipment or repeat the service in
order to meet the specifications. While the Company historically has fulfilled
all of its guarantee obligations, there can be no assurance the Company will be
able to fulfill its future guarantee obligations or that fulfilling such
obligations may not involve material costs that could have a material adverse
effect on the Company. See "Business -- Process and Product Warranty and
Performance Guarantees."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company currently intends to retain earnings to provide funds for the
operation and expansion of its business and, accordingly, does not anticipate
paying cash dividends in the foreseeable future. The Company's Credit Facility
prohibits the payment of dividends without the consent of the Bank. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
On closing of the Offering, shares of Common Stock will be
outstanding. The shares sold in the Offering (other than shares that may
be purchased by affiliates of the Company) will be freely tradable. The
remaining shares outstanding may be resold publicly only following their
effective registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption (such as provided by
Rule 144 following a holding period for previously unregistered shares) from the
registration requirements of the Securities Act. Substantially all of the
holders of those remaining shares have certain
10
<PAGE> 12
rights to have their shares registered in the future under the Securities Act
(see "Shares Eligible for Future Sale"). The Company, its officers and
directors, and the holders of substantially all of the Common Stock have agreed
that, until the later of December 31, 1997 or 180 days following the date of
this Prospectus (the "Lockup Period"), they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock, or any securities convertible into, or
exercisable or exchangeable for, Common Stock, except that the Company may grant
warrants pursuant to the Note Purchase Agreement and grant options under the
Company's stock option and stock purchase plans, and may issue shares of Common
Stock (i) in connection with acquisitions, (ii) pursuant to the exercise of
options granted under the Company's stock option and stock purchase plans, (iii)
pursuant to the exercise of warrants outstanding as of the closing of the
Offering or which the Company is obligated to issue as part of the 1997
Warrants, (iv) pursuant to the conversion of the Company's preferred stock and
(v) pursuant to or in connection with the Company's Rights Plan. Sales made
pursuant to Rule 144 must comply with its applicable volume and manner of sale
limitations and other requirements. Absent additional offerings that are
registered under the Securities Act and any additional issuances of Common Stock
not referred to below, it is anticipated that as many as shares of Common
Stock may be eligible to be sold pursuant to Rule 144 within approximately one
year of the closing of the Offering, of which approximately shares of
Common Stock may be immediately eligible to be sold (subject to the Lockup
Period).
On closing of the Offering, the Company also will have outstanding options
to purchase up to a total of shares of Common Stock. The Company
intends to register all the shares subject to these options under the Securities
Act for public resale. See "Management -- Benefit Plans."
In addition, the Company will have outstanding warrants to purchase 350,000
shares of Common Stock. Pursuant to the applicable warrant agreements, the
holders of such warrants have certain rights to require the Company to register
the shares of Common Stock to be issued upon exercise of the warrants. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Capital Stock
- -- 1997 Warrants."
The Company intends to register additional shares of Common Stock
under the Securities Act during 1997 for its use in connection with future
acquisitions. These shares generally will be freely tradable after their
issuance by persons not affiliated with the Company, unless the Company is able
to contractually restrict their resale. Sales of these shares during the Lockup
Period would require the prior written consent of Smith Barney Inc.
Assuming no additional options or warrants to purchase shares of Common
Stock, and no additional shares of Common Stock (other than upon the exercise of
currently outstanding options or warrants) are issued, approximately
shares of Common Stock (in addition to the shares offered in the Offering) could
be traded within one year of the closing of the Offering, of which approximately
shares of Common Stock may be immediately eligible to be sold (subject to
the Lockup Period referred to above). The effect, if any, that the availability
for sale, or sale, of the shares of Common Stock eligible for future sale will
have on the market price of the Common Stock prevailing from time to time is
unpredictable, and no assurance can be given that the effect will not be
adverse.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, no public market for the Common Stock has existed,
and the initial public offering price, which has been determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the Offering.
See "Underwriting" for the factors considered in determining the initial public
offering price. The Company is applying for listing the Common Stock on The New
York Stock Exchange, but no assurance can be given that if so listed, an active
trading market for the Common Stock will develop or, if developed, that it will
continue after the Offering. The market price of the Common Stock after the
Offering may be subject to significant fluctuations from time to time in
response to numerous factors, including variations in the reported annual and
quarterly financial results of the Company, changes in financial projections or
failures by the Company to meet such projections and changing conditions in the
economy in general or in the Company's industry in particular.
11
<PAGE> 13
In addition, the stock markets experience significant price and volume
volatility from time to time which may affect the market price of the Common
Stock for reasons unrelated to the Company's performance at that time.
POTENTIAL ANTI-TAKEOVER EFFECTS
Upon the closing of the Offering, the Company will have adopted a
stockholder rights plan. The plan and provisions of the Company's Certificate of
Incorporation, as amended (the "Company Certificate"), the Company's Bylaws, as
amended (the "Company Bylaws"), and the Delaware General Corporation Law (the
"DGCL") may have the effect of delaying, discouraging, inhibiting, preventing or
rendering more difficult an attempt to obtain control of the Company by means of
a tender offer, business combination, proxy contest or otherwise. These
provisions include the charter authorization of "blank check" preferred stock,
classification of the Board of Directors, a restriction on the ability of
stockholders to take actions by written consent, a "fair price" provision and a
DGCL provision imposing restrictions on business combinations with certain
interested parties. See "Description of Capital Stock."
OWNERSHIP AND CONTROL BY CERTAIN SHAREHOLDERS
Upon the closing of the Offering, on a fully diluted basis and assuming the
vesting and exercise of all outstanding options and the conversion of all issued
and outstanding shares of preferred stock, the Company's directors and
management will own or control approximately % of the Company's outstanding
voting capital stock. Collectively, such shareholders may be able to effectively
control decisions of the Company, as the Company Certificate, and the Company
By-laws generally require a majority vote of holders of the outstanding shares
of the Company to authorize actions of the Company. This concentration of
ownership by directors and management may also have the effect of delaying or
preventing a change in control of the Company. See "Security Ownership" and
"Description of Capital Stock."
DILUTION
Purchasers of Common Stock in the Offering (i) will experience immediate
and substantial dilution in the net tangible book value of their stock of
$ per share (see "Dilution") and (ii) may experience further dilution in
that value from issuances of Common Stock in connection with future
acquisitions. In addition, dilution may occur upon exercise of outstanding stock
options or warrants, and/or the Company may reserve additional shares of Common
Stock in the future for issuance under stock option or other incentive employee
compensation plans. The Board of Directors of the Company has the legal power
and authority to determine the terms of an offering of shares of the Company's
capital stock (or securities convertible into or exchangeable for such shares),
to the extent of the Company's shares of authorized and unissued capital stock.
See "Dilution" and "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Prospectus may include forward-looking statements that involve risks and
uncertainties. While forward-looking statements are sometimes presented with
numerical specificity, they are based on variety of assumptions made by
management regarding future circumstances over which the Company has little or
no control. A number of important factors, including those identified in this
section as well as factors discussed elsewhere in this Prospectus, could cause
the Company's actual results to differ materially from those in forward-looking
statements or financial information. Actual results may differ from
forward-looking results for a number of reasons, including the following: (i)
changes in world economic conditions (including, but not limited to, the
potential instability of governments and legal systems in countries in which the
Company conducts business, and significant changes in currency valuations), (ii)
changes in customer demand as they affect sales and product mix (including, but
not limited to, the effect of strikes at customers' facilities, variations in
backlog and the impact of changes in industrial business cycles), (iii)
competitive factors (including, but not limited to, changes in market
penetration and the introduction of new products by existing and new
competitors), (iv) changes in operating costs (including, but not limited to,
the effect of changes in the Company's
12
<PAGE> 14
manufacturing processes; changes in costs associated with varying levels of
operations; changes resulting from different levels of customers demands; the
effects of unplanned work stoppages; changes in cost of labor and benefits; and
the cost and availability of raw materials and energy), (v) the success of the
Company's operating plan (including, but not limited to, its ability to achieve
the total planned benefits of its strategic plan, its ability to integrate
acquisitions into Company operations, and the ability of recently acquired
companies to meet satisfactory operating results), and (vi) unanticipated
litigation, claims or assessments (including, but not limited to, claims or
problems related to product warranty and environmental issues).
13
<PAGE> 15
THE COMPANY
Waterlink was incorporated in Delaware on December 7, 1994 in order to
participate in the consolidation of the highly fragmented water purification and
wastewater treatment industry. The Company has begun executing this strategy
through an acquisition program which targets businesses in four markets:
industrial process water, industrial wastewater, municipal drinking water and
municipal wastewater. In fiscal 1995, the Company acquired the assets of Sanborn
Inc. (doing business as Sanborn Technologies ("Sanborn Technologies")). Sanborn
Technologies is a designer and builder of industrial separation systems which
are used by customers for environmental compliance, resource conservation and
production processes. Later in fiscal 1995, the Company acquired Great Lakes
Environmental, Inc. ("Great Lakes"), which enabled the Company to enter the
industrial wastewater market. Great Lakes is a designer and builder of
industrial wastewater pretreatment systems and custom high quality oil/water
separation products.
In fiscal 1996, Waterlink completed three acquisitions, comprised of the
assets of Mass Transfer Systems, Inc. ("Mass Transfer"), the assets of Aero-Mod
Incorporated and its affiliates ("Aero-Mod") and the capital stock of Water
Equipment Technologies, Inc. (now known as Waterlink Technologies, Inc.
("Waterlink Technologies")). The acquisition of Mass Transfer provided access to
additional technologies used primarily in the industrial wastewater market and,
to a lesser extent, in the municipal wastewater market. Mass Transfer is one of
the leading designers of customized jet aeration and jet mixing systems used to
accelerate the biological digestion process through the introduction of oxygen
in the treatment of wastewater. The acquisition of Aero-Mod expanded the
Company's presence in the municipal wastewater market and presented cross-
selling opportunities with Mass Transfer. Additionally, Aero-Mod expanded the
Company's geographic presence and scope of operations through its customer base
outside of the United States, especially in Latin America, and its contract
operations business. Aero-Mod designs wastewater treatment plants, provides
clarifiers, slide rail diffusers, filters and dewatering equipment for the
biological treatment of wastewater and biosolids and provides contract operation
services. The acquisition of Waterlink Technologies enabled the Company to enter
the industrial process water and municipal drinking water markets and increased
the Company's presence in markets outside the United States. Waterlink
Technologies is a designer and builder of water treatment filters and membrane
separation systems, including reverse osmosis systems, and related treatment
equipment. Pro forma fiscal 1996 net sales relating to the companies acquired in
fiscal 1995 and fiscal 1996 totaled $33.1 million.
In fiscal 1997, Waterlink acquired the capital stock of the Nordic Water
Products Group subsidiaries (the "Nordic Group"). The Nordic Group provided the
Company with numerous benefits including a distribution channel for its existing
businesses into Europe; internationally recognized and accepted technologies and
equipment used in both the municipal and industrial markets; and the Company's
first substantial design/build operations, focused primarily in Europe. The
Nordic Group manufactures continuous recirculating sand filters, inclined plate
settlers and systems for nutrient removal, decanting centrifuges for dewatering
biosolids and hydraulic surface and bottom scrapers. The Nordic Group also
installs mechanical and electrical systems and designs and builds water
purification and wastewater treatment plants in Europe. Pro forma fiscal 1996
net sales relating to the Nordic Group totaled $29.4 million.
Concurrently with the closing of the Offering, Waterlink intends to acquire
the capital stock of Bioclear and Lanco. Bioclear provides the Company with
access to sequential batch reactor technology, which expands its ability to
treat industrial and municipal wastewater biologically. The Company believes
that this technology presents various cross-selling opportunities, particularly
with Aero-Mod, Mass Transfer, Waterlink Technologies and the Nordic Group.
Additionally, Bioclear enhances the Company's design/build capabilities. Lanco
expands the Company's product offerings in the industrial process water market
and is complementary with Great Lakes. Lanco fabricates small plate and frame
filter presses for dewatering biosolids and inclined plate clarifiers for heavy
metal removal. Pro forma fiscal 1996 net sales relating to the Pending
Acquisitions totaled $10.2 million.
Primarily due to its acquisition program, the Company's pro forma net sales
for fiscal 1996 totaled $72.7 million. In addition, the Company has begun to
realize significant improvement in internal growth rates due to the
opportunities to cross-sell systems, equipment and services and as a result of
the increased financial,
14
<PAGE> 16
managerial and other resources provided by the Company to its acquired
businesses. For example, subsidiaries selling wastewater treatment systems now
have the ability to offer both aeration and mixing systems and subsidiaries
selling water treatment systems can now offer wastewater treatment systems for
the same projects. Additionally, the Company's design/build capabilities allow
it to design systems that utilize a broad array of the Company's products and
provide opportunities for its contract operation services. The Company also
experiences cross-selling opportunities from a geographic and customer
standpoint. For example, the Company believes that it should benefit from the
recent acquisition of the Nordic Group both from the Nordic Group's ability to
introduce the Company's existing systems, equipment and services into the
European market and from the Company's ability to introduce the Nordic Group's
systems, equipment and services into the Company's existing markets. Pro forma
net sales of the businesses acquired by the Company prior to fiscal 1997 grew
14.1% for the three months ended December 31, 1996 compared to the comparable
period in the prior year.
Since December 7, 1994, the Company has developed the core competencies
required to provide integrated water purification and wastewater treatment
solutions to both industrial and municipal customers. The Company intends to
continue its acquisition program in order to provide the Company with additional
complementary systems, equipment and services, broaden its customer and
geographic base and enhance the Company's design/build capabilities.
The Company's executive offices are located at 4100 Holiday Street, N.W.,
Suite 201, Canton, Ohio 44718-7532 and its telephone number is (330) 649-4000.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (based upon an assumed public offering price of $ per
share), after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, are estimated to be approximately
$45.5 million (approximately $52.5 million if the Underwriters exercise their
over-allotment option in full). Of the net proceeds, approximately $16.9 million
will be used to pay the cash portion of the purchase prices for the Pending
Acquisitions, approximately $23.1 million will be used concurrently for the
repayment of outstanding indebtedness of the Company and the remainder will be
used for general working capital purposes. See "Certain Transactions."
The indebtedness to be repaid from the proceeds of the Offering bears
interest at rates ranging from 3.9% to 12.0% and was incurred to fund completed
acquisitions and for working capital requirements. Such indebtedness would
otherwise mature at various dates through April 2002.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Stock. It is the Company's current intention to retain earnings to finance the
expansion of its business. Any future dividends will be at the discretion of the
Board of Directors after taking into account various factors, including, among
others, the Company's financial condition, results of operations, cash flows
from operations, current and anticipated cash needs and expansion plans, the
income tax laws then in effect, the requirements of Delaware law, the
restrictions imposed under the Credit Facility and the 1997 Notes (as defined
below) and any restrictions that may be imposed by the Company's future credit
facilities and other indebtedness. The Company's Credit Facility prohibits its
payment of dividends without the consent of the Bank. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company at December 31, 1996, (ii) the pro forma capitalization, giving effect
to the acquisition of the Nordic Group (completed in March 1997), the Pending
Acquisitions (to be completed concurrently with the Offering) and the conversion
of convertible subordinated notes issued to certain related parties into shares
of Common Stock, and (iii) the pro forma capitalization, as adjusted to reflect
the Offering and the application of the net proceeds therefrom as described in
"Use of Proceeds" and the conversion of all outstanding shares of the Company's
preferred stock into shares of Common Stock. This table should be read in
conjunction with "Unaudited Pro Forma Condensed Consolidated Financial Data" and
the Consolidated Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Current maturities of long-term debt........................... $ 1,737 $ 2,441 $ --
Long-term debt, less current portion........................... 5,861 16,582 --
Notes payable-related parties.................................. 3,100 4,100 --
Convertible subordinated notes-related parties................. 2,000 -- --
Pro forma cash consideration payable in connection with the
Pending Acquisitions......................................... -- 16,862 --
-------- ------- -------
Total debt................................................ 12,698 39,985 --
Redeemable preferred stock, $.001 par value, 5,463,000 shares
authorized; 400,000 Series A, 1,700,000 Series B, 1,150,000
Series C shares issued and outstanding, historical and pro
forma; and none issued and outstanding, as adjusted.......... 8,500 8,500 --
Shareholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none issued and outstanding, as adjusted...... -- -- --
Common stock, $.001 par value, 9,537,000 shares authorized,
2,099,996 shares issued and outstanding, historical; and
shares issued and outstanding, pro forma; and
40,000,000 shares authorized, shares issued and
outstanding, as adjusted(1)............................... 2 2 8
Additional paid-in-capital................................... 3,045 9,124(2) 63,118
Retained earnings (deficit).................................. 21 21 (330)(3)
--------- ------- -------
Total shareholders' equity................................ 3,068 9,147 62,796
--------- ------- -------
Total capitalization.................................... $ 24,266 $57,632 $62,796
======== ======= =======
</TABLE>
- ---------------
(1) Excludes (i) shares subject to outstanding options granted under
the Company's 1995 Stock Option Plan, (ii) 175,000 shares subject to other
outstanding options to purchase Common Stock, (iii) 225,000 shares issuable
upon exercise of a warrant issued to the Bank, and (iv) 125,000 shares
issuable upon exercise of warrants issued in connection with commitments to
purchase subordinated indebtedness of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Management -- Benefit Plans" and
"Description of Capital Stock."
(2) Includes $3,666,000 of pro forma consideration payable in connection with
the Pending Acquisitions to be paid through the issuance of shares of
the Company's Common Stock (using an assumed initial public offering price
of $ per share).
(3) The pro forma as adjusted retained earnings (deficit) has been adjusted to
reflect an extraordinary non-cash charge of $351,000, net of tax benefit of
$265,000 ($ per share) which will be incurred by the Company in the
quarter in which the Offering is completed. Such charge relates to the
write-off of unamortized debt issuance costs and discounts associated with
certain indebtedness to be retired with net proceeds of the Offering.
16
<PAGE> 18
DILUTION
The deficit in pro forma net tangible book value of the Company as of
December 31, 1996 was approximately $21,003,000, or a loss of approximately $
per share, after giving effect to the acquisition of the Nordic Group in March
1997 and the Pending Acquisitions. The deficit in pro forma net tangible book
value per share represents the amount by which the Company's pro forma total
liabilities exceed the Company's pro forma net tangible assets as of December
31, 1996, divided by the number of shares of Common Stock to be outstanding
after giving effect to (i) the acquisition of the Nordic Group in March 1997 and
the Pending Acquisitions, (ii) the conversion of all outstanding shares of the
Company's preferred stock into shares of Common Stock and (iii) the conversion
of convertible subordinated notes issued to certain related parties into shares
of Common Stock. After giving effect to the sale of the shares offered
hereby (at an assumed public offering price of $ per share) and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value as of
December 31, 1996 would have been approximately $ , or approximately
$ per share. This represents an immediate increase in pro forma net
tangible book value of approximately $ per share to existing shareholders
and an immediate dilution of approximately $ per share to new investors
purchasing shares in the Offering at the assumed public offering price per
share. The following table illustrates this pro forma per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share... $
Pro forma deficit in net tangible book
value per share, as adjusted, before the
Offering................................ $
Increase in pro forma net tangible book
value per share attributable to new
investors...............................
---------
Pro forma net tangible book value per
share after the Offering................
---------
Dilution per share to new investors....... $
=========
</TABLE>
The following table sets forth, as of December 31, 1996, the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid to the Company by existing
shareholders and the new investors purchasing shares of Common Stock from the
Company in the Offering at an assumed public offering price of $ per share
(before deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ----------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. % $ % $
New investors..................... $
------ ----- ------ -----
Total........................ 100% $ 100%
====== ===== ====== =====
</TABLE>
17
<PAGE> 19
SELECTED AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical and unaudited pro forma
consolidated financial data of the Company since its incorporation on December
7, 1994. The historical financial data presented for and as of the end of fiscal
1995 and fiscal 1996 were derived from the audited consolidated financial
statements of the Company. The historical financial data presented for and as of
the end of each of the three months ended December 31, 1995 and 1996 were
derived from unaudited financial statements which, in the opinion of management,
include all adjustments (which were of a normal recurring nature) necessary for
a fair presentation of the information set forth therein. The historical
financial data includes the operating results of each acquired business from the
date of acquisition in accordance with the purchase method of accounting. The
dates of each acquisition included in the historical operating results are shown
below:
<TABLE>
<S> <C>
- Sanborn Technologies......................... March 31, 1995
- Great Lakes.................................. August 31, 1995
- Mass Transfer................................ January 31, 1996
- Aero-Mod..................................... April 26, 1996
- Waterlink Technologies....................... September 30, 1996
</TABLE>
The pro forma Statements of Operations Data for fiscal 1996 and for the
three months ended December 31, 1995 and 1996 were adjusted for the acquisitions
completed in 1996, the acquisition of the Nordic Group (completed in March 1997)
and the Pending Acquisitions (to be completed concurrently with the closing of
the Offering), as if these acquisitions had been completed as of October 1,
1995. The pro forma Balance Sheet Data assume that the acquisition of the Nordic
Group and the Pending Acquisitions were closed on December 31, 1996.
The historical results of operations for the three months ended December
31, 1996 and the pro forma results of operations are not necessarily indicative
of future results. The pro forma financial information is based on preliminary
estimates, available information and certain assumptions that management deems
appropriate and should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus.
The historical data presented below should be read in conjunction with the
financial information appearing elsewhere in this Prospectus. See "Consolidated
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The pro forma data presented below should
be read in conjunction with "Unaudited Pro Forma Condensed Consolidated
Financial Data" appearing elsewhere in this Prospectus.
18
<PAGE> 20
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------- ---------------------------
THREE MONTHS THREE MONTHS
ENDED DECEMBER ENDED DECEMBER
31, 31,
FISCAL FISCAL ----------------- FISCAL -----------------
1995 1996 1995 1996 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales(1).................... $ 2,684 $19,801 $ 3,280 $ 9,869 $72,687 $18,307 $19,443
Cost of sales(1)(2)............. 1,857 11,233 1,909 5,914 44,685 11,504 12,118
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 827 8,568 1,371 3,955 28,002 6,803 7,325
Selling, general and
administrative
expenses(2)(3)................ 1,178 7,029 1,168 3,239 21,214 5,330 6,011
Amortization(4)................. 15 307 44 142 1,058 266 287
------- ------- ------- ------- ------- ------- -------
Operating income (loss)......... (366) 1,232 159 574 5,730 1,207 1,027
Other income (expense):
Interest expense(5)........... (144) (877) (135) (260) -- -- --
Other-net..................... 33 (44) (11) (12) (17) (11) 25
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes......................... (477) 311 13 302 5,713 1,196 1,052
Income taxes.................... 35 5 1 75 2,457 515 452
------- ------- ------- ------- ------- ------- -------
Net income (loss)............... $ (512) $ 306 $ 12 $ 227 $ 3,256 $ 681 $ 600
======= ======= ======= ======= ======= ======= =======
Pro forma net income per
share(6)......................
======= ======= =======
Number of shares used to compute
pro forma per share data(6)...
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- DECEMBER 31, 1996(3)
DECEMBER 31, --------------------------
FISCAL FISCAL ----------------- AS ADJUSTED
1995 1996 1995 1996 PRO FORMA (7)(8)
------- ------- ------- ------- --------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 2,064 $ 3,438 $ 1,774 $ 4,723 $11,555 $19,776
Total assets.................... 10,819 28,991 11,226 31,569 77,987 82,886
Total debt...................... 6,039 12,145 5,760 12,698 39,985(9) --
Redeemable preferred stock...... 3,900 8,500 3,900 8,500 8,500 --
Shareholders' equity
(deficit)..................... (11) 2,407 1 3,068 9,147(10) 62,796
</TABLE>
- ---------------
(1) Pro forma net sales and gross profit have been adjusted to recognize
revenue on the percentage of completion method of accounting at an acquired
company which previously recognized revenue on the completed contract
method. This adjustment decreased net sales and gross profit by $2,715,000
and $646,000, respectively, for fiscal 1996, and increased net sales and
gross profit by $836,000 and $229,000, respectively, for the three months
ended December 31, 1995 and $2,949,000 and $633,000, respectively, for the
three months ended December 31, 1996.
(2) The pro forma Statements of Operations Data include the effect of certain
adjustments in salaries and benefits to the former owners of the companies
acquired in fiscal 1996 and the Pending Acquisitions to levels specified in
current employment agreements as follows: a decrease of $3,568,000 for
fiscal 1996, and a decrease of $84,000 and an increase of $25,000 for the
three months ended December 31, 1995 and 1996, respectively. The pro forma
Statements of Operations Data also include the effect of certain
adjustments in corporate office expenses to current levels as follows: an
increase of $652,000 for fiscal 1996 and $206,000 for the three months
ended December 31, 1995. In addition, the pro forma Statements of
Operations Data include the effect of certain reclassifications which
decreased cost of sales and increased selling, general and administrative
expenses.
19
<PAGE> 21
(3) The pro forma financial data exclude a special charge to operations of
$ ($ per share, after tax), assuming an initial public offering
price of $ per share, which will be incurred in the quarter in which
the Offering is completed. Such charge results from the issuance by the
Company of certain compensatory stock options to an officer of the Company
pursuant to the terms of an employment agreement. Of this amount,
approximately $ is non-cash, and approximately $ represents a
cash payment for the reimbursement of income taxes resulting from this
stock issuance.
(4) The pro forma Statements of Operations Data have been adjusted to reflect
amortization of the goodwill to be recorded as a result of the acquisitions
completed in fiscal 1996, the acquisition of the Nordic Group and the
Pending Acquisitions over a 40 year period.
(5) The pro forma Statements of Operations Data have been adjusted to reflect
reduction of interest expense resulting from the application of estimated
net proceeds of the Offering to repay outstanding indebtedness, as
described in "Use of Proceeds."
(6) Pro forma net income per share is computed by dividing pro forma net income
by the number of shares used to compute pro forma per share data. These
shares include shares of Common Stock outstanding, shares of Common Stock
to be issued in connection with the Offering and the Pending Acquisitions,
shares of Common Stock to be issued upon the conversion of outstanding
preferred stock and the assumed exercise of outstanding stock options and
warrants (using the treasury stock method and an assumed initial public
offering price of $ per share).
(7) Reflects the closing of the Offering and the Company's application of the
estimated net proceeds therefrom as described in "Use of Proceeds," and the
conversion of all outstanding shares of the Company's preferred stock into
shares of Common Stock.
(8) The pro forma as adjusted Balance Sheet Data have been adjusted to reflect
an extraordinary non-cash charge of $351,000, net of tax benefit of
$265,000 ($ per share) which will be incurred by the Company in the
quarter in which the Offering is completed. Such charge relates to the
write-off of unamortized debt issuance costs and discounts associated with
certain indebtedness to be retired with net proceeds of the Offering.
(9) Excludes $2,000,000 relating to the conversion of convertible subordinated
notes issued to certain related parties, which were converted in January
1997 into shares of Common Stock and includes $16,862,000 of pro forma cash
consideration payable in connection with the Pending Acquisitions to be
paid from a portion of the net proceeds of the Offering.
(10) Includes $3,666,000 of pro forma consideration payable in connection with
the Pending Acquisitions to be paid through the issuance of
shares of Common Stock (using an assumed initial public offering price of
$ per share).
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is an international provider of integrated water purification
and wastewater treatment solutions, principally to industrial and municipal
customers. Waterlink was incorporated in Delaware on December 7, 1994 and has
grown through numerous acquisitions. The Company's acquisitions have enabled it
to build its technical capabilities and geographical presence. Through December
31, 1996, the Company had completed the following five acquisitions at the
following effective dates:
<TABLE>
<S> <C>
- Sanborn Technologies......................... March 31, 1995
- Great Lakes.................................. August 31, 1995
- Mass Transfer................................ January 31, 1996
- Aero-Mod..................................... April 26, 1996
- Waterlink Technologies....................... September 30, 1996
</TABLE>
The Company acquired the Nordic Group on March 5, 1997 and intends to
complete the Pending Acquisitions concurrently with the Offering.
As part of its strategic plan, the Company intends to continue an
aggressive acquisition program. The Company's acquisition program has targeted
businesses which have provided the Company with complementary systems, equipment
and services and broadened its customer and geographic base. The Company has
sought companies which provide the potential for synergies with existing
businesses. With respect to the acquisitions completed prior to fiscal 1997, the
Company has begun to realize significant improvement in internal growth rates
due to the opportunities to cross-sell systems, equipment and services and as a
result of the increased financial, managerial and other resources provided by
the Company to its acquired businesses. The Company expects that it will
continue to benefit from such synergies as it more fully integrates the acquired
businesses into its operations.
The acquisitions were accounted for under the purchase method of accounting
and are included in the results of operations for the period subsequent to the
effective date of acquisition. Due to the timing and magnitude of these
acquisitions, results of operations for the periods presented below are not
necessarily comparable or indicative of operating results for current or future
periods.
The majority of the Company's systems and equipment are custom designed and
take a number of months to produce. Revenues from large contracts are recognized
using the percentage of completion method of accounting in the proportion that
costs bear to total estimated costs at completion. Revisions of estimated costs
or potential contract losses, if any, are recognized in the period in which they
are determined. Revenues from remaining systems and equipment sales are
recognized when shipped.
The Company has in the past experienced quarterly fluctuations in operating
results due to the contractual nature of its business and, to a lesser extent,
weather conditions. As part of its strategic plan and due to the Pending
Acquisitions, the Company expects that in the future it may receive contracts
that are significantly larger than those received by the Company historically.
In addition, certain of such contracts will be subject to the customer's ability
to finance, or fund from government sources, the actual costs of completing the
project as well as receiving any necessary permits to commence the project.
Therefore, the Company expects that its future operating results could fluctuate
significantly, especially on a quarterly basis, due to the timing of the
awarding of such contracts, the ability to fund project costs, and the
recognition by the Company of revenues and profits therefrom. In addition, the
Company has historically operated with a moderate backlog. However, as a result
of its strategic plan and the Pending Acquisitions, the Company anticipates that
both the dollar volume and number of contracts in its backlog will increase
significantly. As of March 31, 1997, the Company's backlog was $27.9 million.
Therefore, quarterly sales and operating results may be affected by the volume
and timing of contracts received and performed within the quarter, which are
difficult to forecast. Any significant deferral or cancellation of a contract
could have a material adverse effect on the Company's operating results in any
particular quarter. Because of these factors, the Company believes that
period-to-period comparisons of its operating results are not necessarily
indicative of future performances.
21
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain Selected
Consolidated Financial Data as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL DECEMBER 31,
--------------- -----------------
1995 1996 1995 1996
----- ----- ------ ------
<S> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0 % 100.0 %
Cost of sales........................................... 69.2 56.7 58.2 59.9
----- ----- ------ ------
Gross profit............................................ 30.8 43.3 41.8 40.1
Selling, general and administrative expenses............ 43.9 35.5 35.6 32.8
Amortization............................................ 0.5 1.6 1.4 1.5
----- ----- ------ ------
Operating income (loss)................................. (13.6) 6.2 4.8 5.8
Other income (expense):
Interest expense...................................... (5.4) (4.4) (4.1) (2.6)
Other-net............................................. 1.2 (0.2) (0.3) (0.1)
----- ----- ------ ------
Income (loss) before income taxes....................... (17.8) 1.6 0.4 3.1
Income taxes............................................ 1.3 0.1 0.0 0.8
----- ----- ------ ------
Net income (loss)....................................... (19.1)% 1.5% 0.4 % 2.3 %
===== ===== ====== ======
</TABLE>
Three Months Ended December 31, 1996 compared to Three Months Ended December 31,
1995
Net Sales
Net sales for the three months ended December 31, 1996 were $9,869,000, an
increase of $6,589,000 from the comparable prior period. The increase was
primarily attributable to the contribution from Mass Transfer, Aero-Mod and
Waterlink Technologies, which were acquired in fiscal 1996 after December 31,
1995. In addition, internal growth accounted for $771,000 of the increase, which
represented an internal growth rate of 23.5%, primarily due to greater financial
resources provided by the Company to businesses acquired in fiscal 1995.
Gross Profit
Gross profit for the three months ended December 31, 1996 was $3,955,000,
an increase of $2,584,000 from the comparable prior period. The increase was
primarily due to the aforementioned acquisitions. Gross margin was 40.1% for the
three months ended December 31, 1996 as compared to 41.8% for the comparable
prior period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
December 31, 1996 were $3,239,000, an increase of $2,071,000 from the comparable
prior period. The increase was primarily due to the aforementioned acquisitions.
Selling, general and administrative expenses as a percentage on net sales was
32.8% for the three months ended December 31, 1996 as compared to 35.6% for the
comparable prior period. This decrease primarily reflected the spreading of
corporate overhead expense over a larger sales base.
Amortization
Amortization expense for the three months ended December 31, 1996 was
$142,000, an increase of $98,000 from the comparable prior period. The increase
was primarily due to the goodwill resulting from the aforementioned
acquisitions.
Interest Expense
Interest expense for the three months ended December 31, 1996 was $260,000,
an increase of $125,000 from the comparable prior period. This increase was
primarily related to increased borrowings required to finance the aforementioned
acquisitions.
22
<PAGE> 24
Fiscal Year Ended September 30, 1996 compared to Fiscal Year Ended September 30,
1995
Net Sales
Net sales for fiscal 1996 were $19,801,000, an increase of $17,117,000 from
the comparable prior period. Substantially all of the increase was attributable
to the timing of the acquisitions of Great Lakes in fiscal 1995 and, Mass
Transfer and Aero-Mod in fiscal 1996.
Gross Profit
Gross profit for fiscal 1996 was $8,568,000, an increase of $7,741,000 from
the comparable prior period. The increase was primarily due to the timing of the
aforementioned acquisitions. Gross margin was 43.3% for fiscal 1996 as compared
to 30.8% in fiscal 1995. Sanborn Technologies, which comprised the majority of
fiscal 1995 net sales, has historically experienced a lower gross margin than
the Company's other operating subsidiaries.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 1996 were
$7,029,000, an increase of $5,851,000 from the comparable prior period. The
increase was primarily due to the timing of the aforementioned acquisitions.
Selling, general and administrative expenses as a percentage of net sales was
35.5% for fiscal 1996 as compared to 43.9% for the comparable prior period in
fiscal 1995. This decrease as a percentage of sales primarily reflected the
spreading of corporate overhead expense over a larger sales base.
Amortization
Amortization expense for fiscal 1996 was $307,000, an increase of $292,000
from the comparable prior period. The increase was primarily due to the goodwill
resulting from the aforementioned acquisitions.
Interest Expense
Interest expense for fiscal 1996 was $877,000, an increase of $733,000 from
the comparable prior period. This increase primarily related to increased
borrowings to consummate the aforementioned acquisitions and fund working
capital expansion.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company's primary sources of liquidity have been
(i) borrowings available under its Credit Facility (and prior credit
facilities), (ii) proceeds from the sale of the Company's preferred stock, and
(iii) issuance of Common Stock and seller financing incurred in connection with
the Company's completed acquisitions. Historically, the Company's primary uses
of capital have been the funding of its acquisition program and working capital
expansion. The Company does not currently anticipate making significant capital
investments in plant and equipment due to its focus on partnering with vendors
which manufacture most of the components used in the Company's systems and
equipment.
For fiscal 1996, net cash used by operating activities was $14,000,
purchases of equipment totaled $423,000 and purchases of businesses, net of cash
acquired, totaled $5,557,000. These outlays were primarily financed by the sale
of shares of the Company's preferred stock in the aggregate amount of
$4,576,000, long-term borrowings, and excess cash balances.
The net proceeds from the Offering will be used primarily to pay the cash
portion of the purchase prices for the Pending Acquisitions and for the
repayment of outstanding indebtedness. Such applications will enable the Company
to reduce its leverage and expand its product offerings which together are
anticipated to improve its financial flexibility and enhance the implementation
of its strategic plan.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company believes
that through the end of fiscal 1998, (i) future cash flow from operations, (ii)
borrowings under its New Credit Facility (as hereafter defined) and (iii)
issuances of Common Stock and seller financing
23
<PAGE> 25
incurred in connection with future acquisitions will be sufficient to fund its
working capital needs, additional acquisitions and additional contingent
consideration related to acquisitions.
Acquisitions
As part of its strategic plan, the Company has implemented an acquisition
program, which has significantly impacted liquidity and capital resources. Upon
consummation of the Offering, the Company will have made eight acquisitions
consisting of fifteen operating companies for an aggregate consideration of
$56,542,000, comprised of $40,662,000 of cash, $6,766,000 of Common Stock, and
$9,114,000 of seller financing, including convertible debt.
The Company may be required to make additional purchase consideration
payments of up to $4,465,000, contingent upon the achievement of certain
operating results through fiscal 2000. The payments that may be required in
fiscal 1997, 1998, 1999 and 2000 are $800,000, $2,200,000, $733,000 and
$732,000, respectively. The Company also may be required to make additional
purchase consideration payments in the form of cash and Common Stock, based upon
a fixed percentage of the excess of certain specified annual earnings targets
through fiscal 2000. Any such additional purchase consideration payments will be
treated as additional goodwill for accounting purposes.
Credit Availability
On February 19, 1997, the Company entered into the Credit Facility with
Bank of America Illinois. The Credit Facility provides the Company with a
revolving line of credit of up to $8,000,000 and a term loan of $11,000,000. The
revolving line of credit has a sublimit of $6,000,000 for letters of credit and
can be used for working capital and other general corporate purposes, including
the financing of acquisitions. The term loan was used to acquire the Nordic
Group and to refinance certain indebtedness in connection with the acquisition.
Loans under the revolving line of credit and the term loan bear interest at a
designated variable base rate plus spreads ranging from 0 to 50 basis points and
25 to 75 basis points, respectively, depending on the ratio of total
consolidated indebtedness to the Company's earnings before interest, taxes,
depreciation and amortization. At the Company's option, the loans under the
revolving line of credit and the term loan may bear interest based on a
designated London interbank offering rate plus spreads ranging from 175 to 225
basis points and 200 to 250 basis points, respectively, based on the same ratio.
The revolving line of credit terminates on February 18, 2000, and the term loan
matures on February 19, 2002. The term loan has mandatory quarterly repayments
commencing June 30, 1997 in amounts ranging from $400,000 to $750,000 per
repayment. The Credit Facility prohibits or restricts the Company from many
actions, including paying dividends and incurring or assuming other indebtedness
or liens.
The Company's obligations under the revolving line of credit and the term
loan are secured by liens on substantially all of the Company's assets,
including equipment, inventory, accounts receivable and general intangibles and
a pledge of most of the stock of the Company's subsidiaries. As additional
security, Brantley Venture Partners III, L.P., a principal shareholder of the
Company, has executed a guaranty of $2,000,000 of indebtedness under the
revolving line of credit and term loan.
As part of the Credit Facility, two of the foreign subsidiaries of the
Company have separate facilities of $2,200,000 and $3,800,000, respectively, for
borrowings in local currencies. Each separate facility is guaranteed by the
Company. Both of these facilities mature in February 2000, with outstanding
amounts bearing interest based on a designated London interbank offering rate
plus a spread of 250 basis points.
As of March 31, 1997, there was $4,110,000 outstanding under the revolving
line of credit, $11,000,000 outstanding under the term loan and $6,000,000
outstanding under the two separate foreign facilities.
As additional consideration for the Credit Facility, the Company has
granted the Bank, pursuant to a certain warrant agreement dated February 19,
1997 (the "Bank Warrant Agreement"), a warrant, expiring in 2002, to purchase
225,000 share of Common Stock at a purchase price of $4.50 per share.
Upon consummation of the Offering, the Company anticipates that it will
terminate its Credit Facility and enter into a new $50,000,000 three year,
multi-currency, secured, revolving credit facility with Bank of
24
<PAGE> 26
America Illinois (the "New Credit Facility") to fund operating activities of the
Company as well as future acquisitions. Loans under the New Credit Facility will
bear interest at a designated variable base rate plus spreads ranging from
to basis points and to basis points, respectively, depending on
the ratio of total consolidated indebtedness to the Company's earnings before
interest, taxes, depreciation and amortization. At the Company's option, the New
Credit Facility may bear interest on a designated London interbank offering rate
plus spreads ranging from to basis points and to basis
points, respectively, based on the same ratio.
In March 1997, the Company entered into a note purchase agreement (the
"Note Purchase Agreement") pursuant to which the Company may issue, and several
purchasers have committed to purchase, five year subordinated notes in the
principal amount of up to $10,000,000 (the "1997 Notes"). As of the date of this
Prospectus, none of the 1997 Notes are outstanding. Each 1997 Note would bear
interest at a rate of 12% per annum for the first twelve months after its
issuance date and at a rate of 14% per annum thereafter. In consideration of
entering into the Note Purchase Agreement, parties agreeing to be purchasers of
the 1997 Notes received 125,000 warrants to purchase shares of Common Stock. See
"Description of Capital Stock -- 1997 Warrants." The 1997 Notes, if any are then
outstanding, will become payable at the completion of the Offering. The Note
Purchase Agreement will terminate upon completion of the Offering.
Accounting Charges in Connection with the Offering
A special charge to operations of $ ($ per share, after
tax), assuming an initial public offering price of $ per share, will be
incurred in the quarter in which the Offering is completed. Such charge results
from the issuance upon completion of the Offering by the Company of a ten year
option to purchase 100,000 shares of Common Stock at a price of $.10 per share
to an officer of the Company pursuant to the terms of an employment agreement.
Of this amount, approximately $ is non-cash, and approximately
$ represents a cash payment for the reimbursement of income taxes
resulting from this stock issuance.
An extraordinary non-cash charge of $351,000, net of tax benefit of
$265,000 ($ per share) will be incurred by the Company in the quarter in
which the Offering is completed. Such charge relates to the write-off of
unamortized debt issuance costs and discounts associated with certain
indebtedness to be repaid with net proceeds of the Offering.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, which provides an alternative to APB Opinion No.
25, Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees. The Company intends to account for stock
options in accordance with APB Opinion No. 25. The disclosure requirements of
SFAS No. 123, which are required if an entity elects to continue to use the
accounting method in APB Opinion No. 25, will be adopted as required for the
Company's fiscal 1997 financial statements.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS
No. 128 replaces the presentation of primary earnings per share ("EPS") under
Accounting Principles Board Opinion No. 15 and related Interpretations, with the
presentation of basic EPS (which primarily gives effect only to common shares
actually outstanding) and requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures. The Company is required to adopt SFAS No. 128 during the first
quarter of fiscal 1998. The Company has not completed its evaluation of the
potential impact of this new standard on EPS in future periods.
25
<PAGE> 27
THE WATER PURIFICATION AND WASTEWATER TREATMENT INDUSTRY
GENERAL
Demand for water purification and wastewater treatment has continued to
grow world-wide due to economic expansion, scarcity of usable water, concern
about water quality and regulatory requirements. Industrial companies require
treated water for most manufactured products, whether as an ingredient in
finished products or as part of the manufacturing process. Municipalities,
responsible for providing potable water, employ water treatment technology to
purify the water supply. Additionally, industrial companies and municipalities
are required by law to treat outgoing wastewater, primarily in the United
States, Canada and western Europe and, to a lesser extent, in the rest of the
world.
The global water treatment market was estimated at $300 billion in 1995 and
was divided as follows: municipal wastewater treatment, 36%; drinking water,
30%; industrial process water, 20%; and industrial wastewater treatment, 14%. By
the year 2000, when expenditures for water purification and wastewater treatment
are expected to reach $500 billion, the municipal water market is forecasted to
total $300 billion, and the industrial water market to total $200 billion.
The water purification and wastewater treatment industry is highly
fragmented, with thousands of companies involved in various capacities. Diverse
customer needs have created a demand for companies that are able to provide a
broad range of technologies, products and cost effective solutions. Most water
treatment companies provide only a limited number of products or services and
are unable to provide integrated solutions to their customers. These limitations
have helped propel industry consolidation and have created acquisition and
expansion opportunities. The Company believes an accelerated acquisition and
consolidation phase is likely in the water purification and wastewater treatment
industry in foreseeable future.
INDUSTRIAL USERS
Most industries, including the pharmaceutical, electronic and
microelectronic, pulp and paper, chemical, petrochemical, food, beverage,
automotive and other heavy manufacturing industries, are dependent on purified
water for their manufacturing processes. The use of untreated water in
manufacturing processes can result in unusable products, inconsistent product
quality, and in equipment degradation, leading to costly maintenance or
replacement. Increasingly, industrial companies are outsourcing their pure water
needs. A number of elements have driven this shift, including a current trend
among companies to focus on core competencies, the desire to reduce operating
costs, and the growing use of off-balance sheet financing.
In the United States, Canada, and western Europe, industrial users are
often required to treat their wastewater as a result of government regulations
and public sensitivity to industrial pollution. Outside these regions, many
multinational corporations are applying throughout their global operations
standards similar to those in effect in the United States, Canada and western
Europe even though local regulations do not yet require adherence to those
standards. However, regulations are becoming more important in these regions.
For example, the North American Free Trade Agreement has resulted in a more
rigorous regulatory environment in Mexico and water purification and wastewater
treatment laws in Chile have become more stringent. Additionally, due to higher
water prices and wastewater discharge fees, industrial manufacturers have also
become aware of the cost-effectiveness of recycling their wastewater. Waste
minimization and water reuse are increasingly significant incentives for growth
in the wastewater treatment industry because the economic benefits outweigh the
associated treatment costs. Reuse can lower costs by reducing the need for
costly water and water purification, waste treatment, and waste disposal. As a
result of these factors, industrial companies increasingly require complex
systems and equipment to treat and recycle process water and wastewater. It is
estimated that from 1995 to 2000, water purification and wastewater treatment
expenditures by industrial users will increase at a compound annual growth rate
of approximately 14%.
MUNICIPAL USERS
In many countries throughout the world, particularly in the United States,
Canada and western Europe, governmental regulation and enforcement have required
strict standards for potable water and the discharge of
26
<PAGE> 28
pollutants in wastewater for many years. These municipalities have spent
billions of dollars building water purification and wastewater treatment
facilities, which historically they have managed. However, many of these
municipalities are facing increasing budgeting constraints and thus are seeking
alternatives to maintaining and upgrading their aging facilities. As a result,
many such potential customers are seeking improved technologies and equipment,
and various outsourcing opportunities such as contract operations and
privatization. Privatization involves the transfer of ownership and operation of
water purification and wastewater treatment facilities to companies capable of
providing such services on a long-term basis.
As a result of economic and infrastructure growth, as well as public
sensitivity to water quality, in other areas of the world, including Latin
America, eastern Europe and the Asia-Pacific region, the demand for water
purification and wastewater treatment is increasing. In these areas,
municipalities seek to utilize the most cost-effective and manageable
technologies and are often more receptive to new solutions than municipalities
in more regulated regions of the world. In addition, these municipalities often
seek to have a third party manage these new facilities.
27
<PAGE> 29
BUSINESS
GENERAL
The Company is an international provider of integrated water purification
and wastewater treatment solutions, principally to industrial and municipal
customers. The Company believes its expertise is in the analysis of a customer's
water purification and wastewater treatment requirements and the customized
application of the Company's systems, equipment and services to provide cost
effective solutions. Since its formation in December 1994, the Company has grown
significantly by completing six acquisitions consisting of thirteen operating
companies. In addition, the Company will complete the Pending Acquisitions
concurrently with the closing of the Offering. As a result of its acquisition
program and internal development, the Company has increased its ability to
provide integrated water purification and wastewater treatment solutions and has
expanded its geographic presence.
The Company has developed a strategic plan to:
- Provide a full range of systems, equipment and
services, whether independently or as part of a
fully engineered water purification or wastewater
treatment solution
- Pursue growth through acquisitions that:
-- increase its geographic diversity
-- add complementary technologies, products and
services
-- broaden its customer base and industries served
-- provide strategic, synergistic and corporate
cultural fit
- Integrate its operations and marketing strategies
in order to maximize internal growth and increase
profitability
- Strengthen market share for its design/build
operations outside the United States
As a result of the implementation of its strategic plan, the Company's pro
forma net sales for fiscal 1996 totaled $72.7 million, primarily due to its
acquisition program. In addition, the Company has begun to realize significant
improvement in internal growth rates due to the opportunities to cross-sell
systems, equipment and services and as a result of the increased financial,
managerial and other resources provided by the Company to its acquired
businesses. Pro forma net sales of the businesses acquired by the Company prior
to fiscal 1997 grew 14.1% for the three months ended December 31, 1996 compared
to the comparable period in the prior year. The Company's backlog on a pro forma
basis, consisting of written purchase orders received by the Company, was $27.9
million at December 31, 1996 and $27.9 million at March 31, 1997.
ACQUISITION STRATEGY
In order to achieve its objective of becoming a leading international
provider of integrated water purification and wastewater treatment solutions,
the Company has pursued an aggressive acquisition-based growth program. In
connection with this program, the Company targets acquisitions that will expand
the Company's market share, broaden its customer and geographic base, provide
the Company with new products, technologies and services (including those which
generate recurring revenues), and enhance the Company's design/build
capabilities. The Company seeks well-managed, established companies that provide
a strategic fit, synergies with existing businesses and the potential for
accelerated revenue and earnings growth. Assuming that a potential acquisition
is complementary to, and synergistic with, the operation of the Company's
existing subsidiaries, the candidate company is evaluated for cultural fit,
which the Company considers to be critically important. The Company believes
that its future success depends substantially upon collaboration and teamwork
among its operating companies and therefore upon common operating philosophies.
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<PAGE> 30
The Company believes that it is an attractive partner to potential
acquirees because the Company can facilitate their continued growth through
enhanced availability of working capital, surety credit, and borrowing capacity,
as well as through introduction to new customers and markets. The Company also
offers smaller acquisition candidates the ability to remain competitive by
becoming part of a larger, more diversified organization. As customers
frequently seek integrated water treatment solutions, companies with one or a
few product lines are increasingly excluded from projects because they do not
have the capability of meeting customers' requirements either from a product or
financial standpoint. The Company offers acquisition candidates access to a
developed international distribution system and significant management
experience. Additionally, the Company's operating subsidiaries have
cross-selling opportunities which enable them to be considerably more
competitive, thereby increasing sales potential significantly. Finally, and of
utmost importance to some candidates, it is the Company's philosophy generally
to maintain an acquired company's culture and retain its management through
appropriate incentives. The Company's decentralized operating strategy offers an
environment in which initiative and entrepreneurial spirit can thrive.
The Company believes that there is a substantial number of attractive
acquisition candidates in the United States and abroad due to the highly
fragmented nature of the overall industry. These candidates include water
purification equipment and wastewater equipment manufacturers, design/build
companies, point-of-use/point-of-entry equipment providers, contract operations
companies, and regional service companies.
As consideration for future acquisitions the Company intends to continue to
use various combinations of its Common Stock, cash and notes. The consideration
for each future acquisition will vary on a case-by-case basis depending on the
financial interests of the Company and the historic operating results and future
prospects of the business to be acquired. The Company will finance future
acquisitions from a portion of the proceeds of the Offering, through funds
provided by operations and by the New Credit Facility and from the proceeds of
future equity and debt financing. The Company intends to register
shares of Common Stock under the Securities Act during the fourth quarter of
fiscal 1997 for use in connection with future acquisitions.
SYSTEMS, EQUIPMENT AND SERVICES
The Company provides integrated water purification and wastewater treatment
solutions, principally to its industrial customers for treatment of process
water and wastewater and to its municipal customers for treatment of drinking
water and wastewater . To this end, the Company provides a broad range of
systems and equipment as well as design/build and operating capabilities.
Systems and Equipment. The Company designs and engineers solutions for the
water purification and wastewater treatment industry. The Company believes its
expertise is in the analysis of a customer's water purification and wastewater
treatment requirements and the application of the Company's systems, equipment
and services to provide cost effective solutions. The Company's equipment can be
provided to a customer either as a separate component or as part of a
customized, fully engineered water purification or wastewater treatment system
or subsystem. The Company generally does not make significant capital
investments in plant and equipment, focusing instead on partnering with vendors
which manufacture the components used in the Company's systems and equipment.
The Company completes the final assembly of its systems and tests its systems
prior to final delivery to the customer in order to maintain quality control.
The Company manufactures equipment when its manufacturing process is determined
to add a significant value to the final product.
Design/Build Services. The Company's design/build services include
prescribing water purification and wastewater treatment solutions, designing and
engineering necessary facilities, arranging for construction when required and
installing necessary equipment. The Company's strategy is to expand its presence
in the design/build segment of the water purification and wastewater treatment
industry, particularly in the small and medium sized municipal markets outside
the United States. During the past five years, the Company has completed more
than 50 design/build projects.
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<PAGE> 31
The Company anticipates that it will expand its activities in this area due
to the trend toward outsourcing in the industry. The Company uses many of its
own products in its design/build operations as well as products manufactured by
others where appropriate.
Contract Operations. The Company operates water purification and
wastewater treatment facilities for municipal customers under contract for
varying time periods. The Company currently operates three small municipal
wastewater treatment facilities in the United States and one in Chile. The
Company's strategy is to leverage its design/build services to offer its
contract operations capability as part of a total solution. The Company is
becoming more involved in the operation and remote monitoring of water
purification and wastewater treatment facilities for both its industrial and
municipal customers.
Replacement Parts, Repairs and Consumables. The Company manufactures and
sells replacement parts and consumables, such as membranes, ion exchange resin
and filter cartridges, manufactured both by the Company and other suppliers.
This equipment is required to support water treatment systems. In addition, the
Company performs maintenance and repair services on equipment manufactured by
both the Company and others.
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<PAGE> 32
The following table sets forth the Company's significant systems, equipment
and services, identifying both the customer base and the type of treatment
serviced. The Company is committed to expanding its range of systems, equipment
and services and increasing its sales throughout its available markets.
Management believes that companies with broad product and service offerings and
wide distribution capabilities will be able to capitalize on the major trends
that are affecting the water purification and wastewater treatment industry. For
a more detailed description of the Company's systems, equipment and services,
see "Systems, Equipment and Services Glossary."
<TABLE>
<CAPTION>
INDUSTRIAL MUNICIPAL
MARKET MARKET
------------------- -------------------
PROCESS WASTE DRINKING WASTE
SYSTEMS, EQUIPMENT AND SERVICES WATER WATER WATER WATER
- ----------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Aeration systems........................................... X X
Jet aeration
Submerged mechanical mixers
Clarifiers................................................. X X X X
ClarAtor(R)/Split ClarAtor(TM)
Inclined parallel plate
Contract operations........................................ X X X
Cutting fluid recovery systems............................. X
Design/build............................................... X X X X
Dewatering systems -- biosolids............................ X X X X
Decanting centrifuges
DRAIMAD(TM) dewatering-bag systems
MONOBELT(TM) filter presses
Plate and frame filter presses
Filters.................................................... X X X X
Cartridge-replacement filters
Continuous recirculating sand
Rotary vacuum pre-coat
Tertiary polishing
Ion exchange media......................................... X X
Media recharge
Systems
Membrane separation systems................................ X X X X
Desalination
Reverse osmosis
Nutrient removal systems................................... X X
Deni process
Oxy process
SEQUOX(TM) process
Oil/water separators....................................... X
Sequential batch reactors (SBRs)........................... X X
Sludge scrapers and skimmers............................... X X X X
</TABLE>
OPERATING STRATEGY
The Company has adopted a decentralized approach to the operational
management of its subsidiaries. While functions such as financial reporting,
treasury, communications and risk management are centralized in the Company's
corporate headquarters, local management is primarily responsible for the
day-to-day
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<PAGE> 33
operation of its business. The Company also provides its subsidiaries with
financial resources, management expertise, customer and market access which
would be unavailable to each subsidiary individually. With respect to
acquisitions already completed, the Company has begun to realize significant
improvement in internal growth rates due to the availability of capital and
bonding capacity, and the opportunities to "cross-sell" products. As customers
increasingly seek integrated solutions, the ability of each of the Company's
subsidiaries to offer complementary equipment and services of other subsidiaries
increases the competitiveness of each company. For example, subsidiaries selling
wastewater treatment systems now have the ability to offer both aeration and
mixing systems and subsidiaries selling water treatment systems can now offer
wastewater treatment systems for the same projects. Additionally, the Company's
design/build capabilities allow it to design systems that utilize a broad array
of the Company's products and provide opportunities for its contract operation
services. The Company also experiences cross-selling opportunities from a
geographic and customer standpoint. For example, the Company believes that it
should benefit from the recent acquisition of the Nordic Group both from the
Nordic Group's ability to introduce the Company's existing systems, equipment
and services into the European market and from the Company's ability to
introduce the Nordic Group's systems, equipment and services into the Company's
existing markets.
A representative from each subsidiary, along with the Company's executive
officers and other key employees, form the Company's operating committee, which
meets on a frequent basis to facilitate the interchange of information and
enhance cross-selling opportunities. As the Company's capabilities have grown,
acquired subsidiaries within the Company have enjoyed growth opportunities far
beyond those that exist for stand-alone companies specialized in only one
segment of the industry.
SALES AND DISTRIBUTION
The Company sells its systems, equipment and services primarily through
approximately 50 direct sales personnel and approximately 250 independent sales
organizations. To a lesser extent, the Company sells through water treatment
distributors which take title to equipment for resale to the end-user. The
Company seeks to have a single sales organization within a particular market in
order to foster a close relationship with its sales representatives and present
a cohesive image to the marketplace. The independent sales representatives
typically will identify sales opportunities, and then work together as a team
with the Company's direct sales force, which has greater technical and product
knowledge, to complete the sale and service the customer. The Company's direct
sales force generally plays a more primary role in sales of the Company's
design/build solutions. The Company also sells through licensees, principally in
the Asia-Pacific region as well as in Europe.
CUSTOMERS
The Company markets its products and services to two primary categories of
customers; industrial users which require water for their manufacturing
processes and treat their wastewater, and municipal customers which produce
drinking water and treat wastewater. The Company has a diverse customer base,
with no customer representing 10% or more of the Company's fiscal 1996 pro forma
net sales.
The Company's industrial customers include many "Fortune 500" companies and
their counterparts outside of the United States. Industries served include the
pharmaceutical, electronic and microelectronic, pulp and paper, chemical,
petrochemical, food, beverage, automotive and other heavy manufacturing
industries. In fiscal 1996 approximately 60% of the Company's pro forma net
sales were derived from industrial sales.
The municipal market is highly competitive. Municipal markets in the United
States, Canada and western Europe are more regulatory driven than municipal
markets in other regions. The Company utilizes specialized distribution channels
to service the municipal market and is skilled at participating in the municipal
bidding process. The Company focuses its efforts on smaller municipal projects
which the Company believes its product lines are best suited to serve. The
Company believes that the municipal business is important to its overall success
by virtue of its large market size. In fiscal 1996 approximately 40% of the
Company's pro forma net sales were derived from municipal sales.
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<PAGE> 34
BACKLOG
The Company had a backlog, consisting of written purchase orders received
by the Company, on a pro forma basis, of $27.9 million as of December 31, 1996
(compared to $25.8 million as of December 31, 1995) and $27.9 million as of
March 31, 1997. The Company expects that nearly all of the backlog at the
beginning of a fiscal year will be filled during that year. Backlog may vary
from quarter to quarter as a result of large projects being booked during any
quarter and varying project delivery schedules. In addition, the orders have
varying delivery schedules and the Company's backlog as of any particular date
may not be representative of actual net sales for any succeeding period.
PROCESS AND PRODUCT WARRANTY AND PERFORMANCE GUARANTEES
Consistent with market practices, the Company generally offers a warranty
on finished products for one year or in some cases 18 months from sale and 12
months from installation. The costs associated with warranty expense have not
been material. In connection with providing certain products and design/build
services to its customers, the Company is sometimes required to guarantee that
the products or services will attain specified levels of quality or performance,
based on a defined set of parameters. Should a product fail to perform according
to a warranty, or should a project fail to attain the guaranteed level of
quality, and should the Company be unable to effect a satisfactory replacement
or cure within the prescribed period of time, the Company could incur financial
penalties in the form of liquidated damages or could be required to remove and
replace the equipment or repeat the service in order to meet the specifications.
RAW MATERIAL AND SUPPLIES
The raw materials and components used in the Company's products are
commonly available commodities such as stainless steel, carbon steel, plastic,
tubing, wiring, electrical components, pumps, valves, compressors, pressure
vessels, oleophilic media, reverse osmosis membranes and sand. The Company's
systems are fabricated from these materials and assembled together with products
bought from other companies to form an integrated system. The Company is not
dependent upon any single supplier, and if any supplier were to become unable to
perform, the Company believes a substitute source could readily be found. The
Company has generally been able to pass on price increases for raw materials and
components to its customers. The Company is not a party to any material
long-term fixed price supply contracts.
GOVERNMENT REGULATION
Federal, state, local and foreign environmental laws and regulations
necessitate substantial expenditures and compliance with water quality standards
by generators of wastewater and wastewater by-products and impose liabilities on
such entities for noncompliance. Environmental laws and regulations and their
enforcement are, and will continue to be, a significant factor affecting the
marketability of the solutions, systems and equipment provided by the Company.
In the United States, the Environmental Protection Agency has promulgated
regulations under the Clean Water Act that address the issues of treatment of
wastewater and the subsequent disposition of end products and by-products
generated in the treatment process. These regulations establish use and disposal
standards applicable to approximately 60,000 public and privately owned
wastewater treatment plants in the United States, including approximately 26,000
public owned treatment works. These regulations also establish specific effluent
limitations for the discharge of pollutants in wastewater.
The treatment of drinking water in the United States is also governed by
the Safe Drinking Water Act (the "SDWA"). The 1996 drinking water amendments to
the SDWA emphasize risk-based standards for contaminants in drinking water,
afford small water supply systems operational flexibility and provide assistance
to water system infrastructures through a multi-billion-dollar Drinking Water
State Revolving Fund (the "DWSRF"). The DWSRF program assists public water
systems with the financing of the costs of drinking water infrastructure that is
necessary to achieve or maintain compliance with the SDWA requirements and to
protect public health. The DWSRF, patterned after the State Revolving Fund
contained in the Clean Water Act, provides funding to the states to establish a
renewable source of financing for drinking water
33
<PAGE> 35
infrastructure projects. The DWSRF program is designed to ensure that the
drinking water supplies in the United States remain safe and affordable, and
that systems that receive funding will be properly operated and maintained.
Regulations under the SDWA also establish maximum contaminant levels (MCLs) for
a wide variety of chemicals that may be present in drinking water and require
treatment to meet applicable standards.
Many of the countries in which the Company operates or in which its
customers are located, including Canada and countries in western Europe, Latin
America, and the Asia-Pacific region, have adopted requirements that govern
water quality, wastewater treatment, and wastewater by-products and the
solutions, systems and equipment provided by the Company. These requirements and
their enforcement vary by country, but in general establish water quality use
and disposal standards, set wastewater effluent discharge limits, and prescribe
standards for the protection of human health and safety and the environment. In
each such country, the Company monitors the status and impact of local
environmental regulation and enforcement as it relates to the marketability of
the solutions, systems and equipment provided by the Company.
Any changes in applicable environmental requirements or their enforcement
may affect the operations of the Company by imposing additional regulatory
compliance costs on the Company's customers, requiring the modification of
and/or affecting the market for the Company's solutions, systems and equipment.
To the extent that demand for the Company's solutions, systems and equipment is
created by the need to comply with such enhanced standards or their enforcement,
any modification of the standards or their enforcement may reduce demand,
thereby adversely affecting the Company's business prospects. Conversely,
changes in applicable environmental requirements imposing additional regulatory
compliance requirements or causing stricter enforcement of these laws or
regulations could increase the demand for the Company's systems, equipment and
services.
The water purification and wastewater treatment facilities at which the
Company's solutions, systems and equipment may be used are required to have
permits, registrations and approvals from governmental authorities in the United
States as well as foreign countries. Any of the permits, registrations or
approvals noted above, or applications therefor, may be subject to denial,
revocation or modification under various circumstances. In addition, if new
environmental laws or regulations are enacted or existing laws or regulations
are amended or are enforced differently, the Company's customers may be required
to obtain additional operating permits, registrations or approvals. The process
of obtaining a required permit, registration or approval can be lengthy and
expensive and the issuance of such permit or the obtaining of such approval may
be subject to public opposition. There can be no assurances that the Company
and/or its customers will be able to meet applicable regulatory requirements or
will be successful in obtaining required permits and approvals.
COMPETITION
Despite an accelerating trend toward consolidation, the water purification
and wastewater treatment industry remains fragmented and highly competitive due
to the large number of competitors within each product area. The Company has a
significant number of competitors, including a number of integrated suppliers
and equipment manufacturers, some of which are larger and have greater resources
than the Company. The Company believes that success in this market is based on
the ability to offer appropriate technology, influence specifications, have
strong distribution, maintain respect within the consulting and engineering
community, finance and bond projects awarded, provide timely delivery, and
maintain a reputation for service and parts support after the sale.
Additionally, in the municipal arena, the ability to meet bid specifications and
pricing are often primary considerations. The Company believes that its
technologies and cost structures as well as its strong local presence in
international markets enable it to compete effectively against these companies.
The Company's primary competitors include United States Filter Corporation,
Parkson Corporation, Alpha Laval and Humbolt KHD. See "Risk Factors --
Competition."
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<PAGE> 36
PATENTS, TRADEMARKS AND LICENSES
The Company currently owns a number of United States and foreign patents,
and registrations for United States service marks and trademarks. While each is
of value, the Company does not consider any of them to be material to its
business.
EMPLOYEES
At March 31, 1997, the Company and its subsidiaries had approximately 300
employees at its various locations. None of the Company's employees in the
United States are covered under collective bargaining agreements. The Company's
hourly employees in Europe are covered by collective bargaining agreements.
Management believes that the Company's relationship with its employees is good.
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
or property damage incurred in connection with its operations. The Company is
not a party to any material litigation and does not know of any threatened claim
that may result in material litigation.
PROPERTIES
The Company leases its corporate offices, consisting of 4,975 square feet
located in Canton, Ohio pursuant to a lease agreement dated July 9, 1996. In
addition, its subsidiaries lease facilities for office space and manufacturing
in Medway, Massachusetts; Addison, Illinois; Manhattan, Kansas; West Palm Beach,
Florida; Sarasota, Florida; Clearwater, Florida; Nynashamn, Sweden; Kungsbacka,
Sweden; Neuss-Grimlinghausen, Germany; Holstebro, Denmark; and Grand Rapids,
Michigan, and own facilities for office space and manufacturing in Fall River,
Massachusetts; Winnipeg, Manitoba, Canada; and Fjaras, Sweden.
The Company believes that each of its facilities is in good condition and
will continue to remain suitable for its current purpose. The Company may add
improvements to the properties listed above. The Company anticipates using its
properties for purposes consistent with their present use. In the event any of
the facilities becomes unavailable upon termination of the existing lease, the
Company believes it would be able to find a suitable alternative facility
without resulting in any significant adverse impact to the Company or its
operations. In the opinion of management of the Company, the properties
described above are adequately covered by insurance.
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<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's current directors and executive officers are as follows (ages
are as of March 31, 1997):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -------------------------------------
<S> <C> <C>
Theodore F. Savastano.......................... 59 Director, Chairman of the Board
Chet S. Ross................................... 57 Director, President and Chief
Executive Officer
Robert P. Pinkas............................... 43 Director
Michael J. Vantusko............................ 40 Chief Financial Officer
L. Dean Hertert, Jr............................ 50 Vice President
Dr. Hans F. Larsson............................ 54 Vice President
Dr. Paul M. Sutton............................. 49 Director
Rollin S. Reiter............................... 69 Director
John R. Miller................................. 59 Director
</TABLE>
Theodore F. Savastano is the founder of the Company and has been Chairman
of the Board of Directors of the Company since its inception in December 1994.
He served as Chief Executive Officer of Hunter Environmental Services, Inc., a
multi-disciplined environmental company from August 1985 to January 1988 and as
Chief Executive Officer and founder of Summit Environmental Group, Inc., a
full-service environmental consulting engineering company built via ten
acquisitions over five years, from August 1988 to May 1994.
Chet S. Ross joined the Company in June 1995 as President and Chief
Executive Officer and was elected to the Board of Directors on August 1, 1995.
Mr. Ross has over 30 years of experience in the water industry. Mr. Ross and
others acquired the operations of Wallace and Tiernan Group, Inc., a water and
wastewater disinfection and chemical treatment company in May 1989, and he
served as Chairman, President and Chief Executive Officer of Wallace and Tiernan
until it was sold in 1991 to North West Water Group, PLC, a privatized water
utility company in the United Kingdom. He then was President and Chief Executive
Officer of North West Water's North American operations from 1991 to 1994 and
was a private consultant to North West Water from 1994 to 1995.
Robert P. Pinkas, a Director since the inception of the Company, is
Chairman of the Board, Chief Executive Officer, Treasurer and a director of
Brantley Capital Corporation, a business development corporation, and Chairman
of the Board, Chief Executive Officer, Treasurer and a manager of Brantley
Capital Management, L.L.C., an investment adviser. Mr. Pinkas also serves as
managing general partner of Brantley Venture Partners, a venture capital firm
that makes investments through its various partnership funds. Mr. Pinkas founded
and has been affiliated with the Brantley entities for more than the past five
years. Additionally, Mr. Pinkas is a director of Quad Systems Corporation;
Gliatech, Inc.; Pediatric Services of America, Inc.; and Medirisk, Inc.
Michael J. Vantusko, a certified public accountant, joined the Company on
January 1, 1997 as Chief Financial Officer. From October 1995 to December 1996,
he served as Chief Financial Officer of Waxman Industries, Inc., a packager and
distributor of plumbing, electrical and hardware products. From February 1994 to
September 1995, Mr. Vantusko served as President, Chief Operating Officer, and
Chief Financial Officer of Overdrive Systems, Inc., an emerging software
developer of electronic books. From 1979 to 1994, he was employed by The
Fairchild Corporation (formerly Banner Industries, Inc.) where he held several
positions, including Chief Financial Officer of Fairchild's largest wholly-owned
operating division from 1990 to 1994 and Vice President of Fairchild from 1986
to 1990.
L. Dean Hertert, Jr. joined the Company as a Vice President in August 1996
and currently directs the Company's operations in the United States, Canada and
Latin America. Mr. Hertert joined the Company from Capital Controls, Inc. where
he was Vice President and General Manager from December 1988 to July 1996.
Capital Controls Co., Inc. is a manufacturer of equipment and instruments for
municipal water,
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<PAGE> 38
industrial process water and wastewater treatment. Mr. Hertert has 20 years of
business and multinational experience in the areas of marketing, sales and
general management.
Dr. Hans F. Larsson joined the Company as a Vice President upon completion
of the Nordic Group acquisition in March 1997. Dr. Larsson directs the Company's
operations in Europe and serves as the Managing Director of Nordic Water
Products AB, a wholly-owned subsidiary of the Company. Dr. Larsson has served as
the Managing Director of the Nordic Group since 1987.
Dr. Paul M. Sutton was elected to the Company's Board of Directors on
January 2, 1997. Since 1987, Dr. Sutton has served as President of P.M. Sutton &
Associates, Inc., an environmental process engineering company providing
services to private industry and government organizations.
Rollin S. Reiter was elected to the Company's Board of Directors on March
13, 1997. Mr. Reiter was Vice President of Sales and Marketing, Dairy, for Dean
Foods Co., a grocery and food service company in Franklin Park, Illinois from
1990 through 1993, when he retired. Prior to that, Mr. Reiter was President of
the Reiter Dairy Company in Akron, Ohio from 1968 through 1990.
John R. Miller was elected to the Company's Board of Directors on March 13,
1997. Since 1988, Mr. Miller has been President and Chief Executive Officer of
TBN Holdings Inc., a resource recovery and recycling company. Mr. Miller has
previously served as a director and Chairman of the Board of the Federal Reserve
Bank of Cleveland and as President, Chief Operating Officer and a director of
The Standard Oil Company. Mr. Miller serves on the Board of Directors of Eaton
Corporation, a global manufacturer of highly engineered products which serve
industrial, vehicle, construction, commercial and aerospace markets.
Pursuant to the Company Certificate and the Company By-laws, the Board of
the Company is divided into three classes with each director serving a
three-year term (after the initial term). The directors of Class I (Messrs.
Savastano and Miller) hold office until the first scheduled annual meeting of
stockholders, the directors of Class II (Messrs. Ross and Reiter) hold office
until the second scheduled annual meeting of stockholders and the directors of
Class III (Messrs. Pinkas and Sutton) hold office until the third scheduled
annual meeting of stockholders. Stockholders will elect the directors of each
Class for three-year terms at the appropriate succeeding annual meetings of
stockholders.
The Board has established an Audit Committee consisting of Messrs. Sutton,
Reiter and Miller, a Compensation Committee consisting of Messrs. Pinkas,
Sutton, Reiter and Miller and a Nominating Committee consisting of Messrs.
Pinkas, Sutton and Miller.
EMPLOYMENT AGREEMENTS
The terms of the employment arrangements between the Company and its
executive officers are described below.
Mr. Savastano's employment agreement with the Company, which became
effective as of , 1997, provides for him to serve as Chairman of the
Board of the Company for an initial term of three years, subject to automatic
one year extensions upon each anniversary of the date of the employment
agreement. The employment agreement provides for an initial annual base salary
of $ . Mr. Savastano will be entitled to participate in the Annual Bonus
Plan (as defined below). In addition, Mr. Savastano will continue to be provided
with certain benefits currently provided to him. In the event that Mr.
Savastano's employment is terminated without cause (as defined in the employment
agreement) or in the event he terminates his employment for good reason (as
defined in the employment agreement and which includes certain changes of
control of the Company), he will be entitled to receive, in one lump sum, an
amount equal to the present value of the product of (i) the sum of (x) the base
salary (as such base salary would have been adjusted for the remainder of the
term) and (y) the highest of the bonus compensation paid to Mr. Savastano with
respect to the three years preceding the termination of the employment agreement
and (ii) ; provided, however, that if any portion of such compensation
would constitute an "excess parachute payment" under Section 280G of the
Internal Revenue Code of 1983, as amended (the "Code"), the Company will pay to
Mr. Savastano an additional amount to offset any taxes payable with respect to
the excess parachute payment and the additional payment. The employment
agreement also contains provisions which restrict Mr. Savastano from competing
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<PAGE> 39
with the Company during the term of the agreement and for 18 months following
termination thereof. In addition, pursuant to his 1994 employment agreement,
upon the consummation of the Offering, Mr. Savastano will receive options
exercisable to purchase 100,000 shares of Common Stock, at an exercise price of
$.10 per share. Such options will be fully exercisable for a ten year period
commencing upon the date of grant. The Company shall hold Mr. Savastano harmless
from, and shall pay to Mr. Savastano, any taxes payable by Mr. Savastano as a
result of the grant of the options. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Mr. Ross's employment agreement with the Company, which became effective as
of , 1997, provides for Mr. Ross to serve as President and Chief
Executive Officer of the Company for an initial term of three years, subject to
automatic one year extensions upon each anniversary of the date of the
employment agreement. The employment agreement provides for an initial annual
base salary of $ . Mr. Ross will be entitled to participate in the Annual
Bonus Plan. In addition, Mr. Ross will continue to be provided with certain
benefits and perquisites currently provided to him. In the event that Mr. Ross'
employment is terminated without cause (as defined in the employment agreement)
or in the event he terminates his employment for good reason (as defined in the
employment agreement and which includes certain changes of control of the
Company), he will be entitled to receive, in one lump sum, an amount equal to
the present value of the product of (i) the sum of (x) the base salary (as such
base salary would have been adjusted for the remainder of the term) and (y) the
highest of the bonus compensation paid to Mr. Ross with respect to the three
years preceding the termination of the employment agreement and (ii) ;
provided, however, that if any portion of such compensation would constitute an
"excess parachute payment" under Section 280G of the Code, the Company will pay
to Mr. Ross an additional amount to offset any taxes payable with respect to the
excess parachute payment and the additional payment. The employment agreement
also contains provisions which restrict Mr. Ross from competing with the Company
during the term of the agreement and for 18 months following termination
thereof.
Mr. Vantusko's employment agreement with the Company, which became
effective as of , 1997, provides for Mr. Vantusko to serve as Chief
Financial Officer of the Company for an initial term of three years, subject to
automatic one year extensions upon each annual anniversary of the date of the
employment agreement, unless either party notifies the other of his or its
intent not to extend the agreement not less than one year prior to the then
scheduled expiration date. The employment agreement provides for an initial
annual base salary of $ . Mr. Vantusko will be entitled to participate in
the Annual Bonus Plan. In addition, pursuant to the terms of the employment
agreement, Mr. Vantusko will continue to be provided with certain benefits and
perquisites currently provided to him. In the event that Mr. Vantusko's
employment is terminated without cause (as defined in the employment agreement)
or in the event he terminates his employment for good reason (as defined in the
employment agreement and which includes certain changes of control of the
Company), he will be entitled to receive, in one lump sum, an amount equal to
the present value of the product of (i) the sum of (x) the base salary (as such
base salary would have been adjusted for the remainder of the term) and (y) the
highest of the bonus compensation paid to Mr. Vantusko with respect to the three
years preceding the termination of the employment agreement and (ii) . The
employment agreement also contains provisions which restrict Mr. Vantusko from
competing with the Company during the term of the agreement and for 12 months
following termination thereof. Additionally, upon the consummation of the
Offering, under the terms of the Stock Option Plan or such other plan as may be
then in effect, a non-qualified option exercisable to purchase shares
of Common Stock at $ per share. This option shall be exercisable in four equal
annual installments, commencing upon the first anniversary of the date of grant,
subject to acceleration in certain circumstances.
Mr. Hertert's employment agreement with the Company, which became effective
as of , 1997, provides for Mr. Hertert to serve as the Vice President
of Operations of the Company for an initial term of three years, subject to
automatic one year extensions upon each annual anniversary of the date of the
employment agreement, unless either party notifies the other of his or its
intent not to extend the agreement at least one year prior to the then scheduled
expiration date. The employment agreement provides for an initial annual base
salary of $ . Mr. Hertert will be entitled to participate in the Annual
Bonus Plan. In addition, pursuant to the term of the employment agreement, Mr.
Hertert will continue to be provided with certain
38
<PAGE> 40
benefits and perquisites currently provided to him. In the event that Mr.
Hertert's employment is terminated without cause (as defined in the employment
agreement) or in the event he terminates his employment for good reason (as
defined in the employment agreement and which includes certain changes of
control of the Company), he will be entitled to receive, in one lump sum, an
amount equal to the present value of the product of (i) the sum of (x) the base
salary (as such base salary would have been adjusted for the remainder of the
term) and (y) the highest of the bonus compensation paid to Mr. Hertert with
respect to the three years preceding the termination of the employment agreement
and (ii) . The employment agreement also contains provisions which restrict
Mr. Hertert from competing with the Company during the term of the agreement and
for 12 months following termination thereof.
The Company has also entered into employment agreements with key employees
of each of the subsidiaries. In addition to other standard provisions, each such
employment agreement imposes confidentiality restrictions on the employee, and
most contain a covenant not to compete with the Company.
COMPENSATION OF DIRECTORS
Members of the Board who are employees of the Company do not receive any
additional compensation for service on the Board or any committees of the Board.
Each member of the Board who is not an employee of the Company receives, for
each year of service on the Board, a non-qualified stock option granted under
the Stock Option Plan (as defined below) to purchase 3,000 shares of Common
Stock, at a price equal to the fair market value of the Common Stock on the date
of grant. Each option vests according to a schedule determined by the Board of
Directors, with the initial option vesting in two equal annual installments. The
options become fully vested and immediately exercisable in the event of an
underwritten public offering of Common Stock (as will occur by completion of the
Offering). In addition, each member of the Board who is not an employee of the
Company is granted at the time he becomes a member of the Board the right to
acquire at any time prior to an underwritten public offering up to 25,000 shares
of Common Stock, at a price equal to the then current fair market value.
Members of the Board who are not employees of the Company will receive an
annual retainer of $10,000, payable in equal quarterly installments. All
directors will be reimbursed for out of pocket expenses incurred in attending
meetings of the Board or committees and for other expenses incurred in their
capacity as directors.
In June 1996, Robert P. Pinkas, a director of the Company, was granted
options to purchase 100,000 shares of Common Stock at an exercise price of $4.00
per share pursuant to the Stock Option Plan.
EXECUTIVE COMPENSATION
The following table sets forth, for each of the years indicated, the
compensation paid by the Company to the Company's Chief Executive Officer and
the only other executive officer of the Company as of September 30, 1996 who
received compensation from or on behalf of the Company in excess of $100,000
during said fiscal years (together, the "Named Executive Officers"). During
these years, the Named Executive Officers were compensated in accordance with
the plans and policies of the Company.
39
<PAGE> 41
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ -------------------------------
NAME AND OTHER ANNUAL RESTRICTED STOCK SECURITIES
PRINCIPAL COMPENSATION AWARDS UNDERLYING ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) ($) (1) ($) (2) OPTIONS (#) COMPENSATION ($)
- ---------------- ---- ---------- --------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore F. 1996 $ 225,800 -- $4,977 -- -- --
Savastano.......
Chairman of 1995 $ 126,989 -- -- -- -- --
the Board
of Directors
Chet S. Ross...... 1996 $ 225,800 -- $ 262 -- -- --
Chief Executive 1995 $ 95,267 -- -- -- -- --
Officer and
President
</TABLE>
(1) Certain incidental personal benefits to executive officers of the Company
may result from expenses incurred by the Company in the interest of
attracting and retaining qualified personnel. These incidental personal
benefits made available to the Named Executive Officers during 1996 are not
described herein because the incremental cost to the Company of such
benefits is below the SEC disclosure threshold.
(2) No grants of restricted stock have been made.
STOCK OPTION GRANTS
The following table sets forth information regarding options to purchase
Common Stock granted to the Named Executive Officers during 1996.
OPTION/SAR(1) GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT
SECURITIES OPTIONS EXERCISE ASSUMED ANNUAL
UNDERLYING GRANTED TO OR RATES OF STOCKS
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRICE APPRECIATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE FOR OPTION TERM (2)
- ------------------------------- ---------- ------------ ---------- ---------- --------------------
5%($) 10%($)
-------- ---------
<S> <C> <C> <C> <C> <C> <C>
Theodore F. Savastano.......... 100,000 19.9% $ 4.40 6/15/2006 $211,558 $ 597,497
Chet S. Ross................... 220,000 43.9% $ 4.00 6/15/2006 $553,427 $1,402,493
</TABLE>
(1) There have been no stock appreciation rights ("SARs") granted by the Company
to date.
(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1996 dollars. The dollar amounts included
in these columns are the result of calculations at assumed rates set by the
Securities Exchange Commission (the "SEC") for illustration purposes. These
rates are not intended to be a forecast of the Common Stock price and are
not necessarily indicative of the values that may be realized by the Named
Executive Officers. The potential realizable values are based on
arbitrarily assumed annualized rates of stock price appreciation of 5% and
10% over the full ten-year term of the options. For example, in order for
the individuals named above who received options with an exercise price of
$4.00 and $4.40 per share, respectively, for Common Stock to realize the
potential values set forth in the 5% and 10% columns in the table above,
the price per share of Common Stock would have to be approximately $6.52
and $10.37, respectively.
40
<PAGE> 42
STOCK OPTION AND SAR EXERCISES
The following table sets forth certain information concerning exercises of
stock options during 1996 by each of the Named Executive Officers and their
stock options outstanding as of September 30, 1996. The Company has not granted
SARs to date.
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR-END ($) (2)
SHARES ----------------- -----------------
ACQUIRED ON VALUE EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
- -------------------------------- ------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Theodore F. Savastano........... -0- -0- -0-(E) -0-(E)
100,000(U) $ 440,000(U)
Chet S. Ross.................... 45,000 $175,500 -0-(E) -0-(E)
355,000(U) $ 704,000(U)
</TABLE>
(1) There have been no SARs granted by the Company to date.
(2) Value is based on the latest negotiated price relating to shares of Common
Stock of $4.50 per share, which was negotiated in connection with the 1997
Warrants.
BENEFIT PLANS
The Company's 1997 Annual Executive Bonus Plan
The Board of Directors recently adopted the Company's 1997 Annual Executive
Bonus Plan (the "Annual Bonus Plan") which is intended to provide incentive
compensation to the executive officers of the Company selected by the
Compensation Committee. Prior to the commencement of each fiscal year, the
Compensation Committee will establish specific performance goals which will
permit each such executive officer to earn, upon achievement of such goals, up
to % of such executive officer's base salary.
The Company's Omnibus Incentive Plan
General Information. The Company's Omnibus Incentive Plan (the "Omnibus
Plan") provides for compensatory awards (each an "Award") representing or
corresponding to up to the greater of (x) % of the number of shares of
Common Stock outstanding, from time to time, (calculated on a fully diluted
basis (including the maximum number of shares that may be issued, or subject to
awards, under the Omnibus Plan, the Stock Option Plan and the Stock Purchase
Plan (each as defined below) (collectively, the "Employee Stock Plans"))), less
the number of shares that are issued under the Employee Stock Plans after the
effective date of the Omnibus Plan or are subject to outstanding awards under
the Employee Stock Plans and (y) shares of Common Stock. The foregoing
amount is referred to herein as the "Employee Stock Plan Share Amount." Awards
may be granted for no consideration and consist of stock options, stock awards,
SARs, dividend equivalents, other stock based awards (such as phantom stock) and
performance awards consisting of any combination of the foregoing. The Omnibus
Plan is designed to provide an incentive to the officers and certain other key
employees of the Company by making available to them an opportunity to acquire a
proprietary interest or to increase their proprietary interest in the Company.
Any Award issued under the Omnibus Plan which is forfeited, expires or
terminates prior to vesting or exercise will again be available for Award under
the Omnibus Plan. No participant may receive stock or stock-based awards to
acquire more than shares in any one year.
The Compensation Committee administers the Omnibus Plan and has the full
power and authority, subject to the provisions of the Omnibus Plan, to designate
participants, grant Awards and determine the
41
<PAGE> 43
terms of all Awards. Members of the Compensation Committee are not eligible to
receive Awards under the Omnibus Plan.
Stock Awards. The Compensation Committee has the right to grant Awards of
shares of Common Stock which are subject to such restrictions (including
restrictions on transferability and limitations on the right to vote or receive
dividends with respect to the restricted shares) and such terms regarding the
lapse of restrictions as the Compensation Committee deems appropriate.
Generally, upon termination of employment for any reason during the restriction
period, restricted shares will be forfeited to the Company.
SARs. An Award may consist of SARs. Upon exercising an SAR, the holder
will be paid by the Company the difference between the fair market value of the
Common Stock on the date of exercise and the fair market value of the Common
Stock on the date of the grant of the SAR, less applicable withholding of
Federal and State taxes. The Company may, at its election, pay such difference
in cash or in shares of Common Stock valued at the fair market value of the
Common Stock on the day preceding the date of payment. In no event may (i) an
aggregate payment by the Company during any fiscal year upon the exercise of
SARs exceed $100,000, or (ii) a holder of an SAR, who is also an employee of the
Company or its subsidiaries, exercise an SAR if the aggregate amount to be
received as a result of his or her exercise of SARs in the preceding 12 month
period exceeds such employee's current base salary, in each case except as may
otherwise be permitted by the Compensation Committee.
Options Issued Under the Omnibus Plan. The terms of specific options are
determined by the Compensation Committee. Generally, options will be granted at
an exercise price equal to at least 100% of fair market value of the Common
Stock on the date of grant. Each option will be exercisable after the period or
periods specified in the option agreement, which will generally not exceed 10
years from the date of grant. Options may be issued in tandem with SARs ("Tandem
Options") as a performance award.
Upon the exercise of an option, the option holder will pay to the Company
the exercise price plus the amount of the required Federal and State withholding
taxes, if any. The unexercised portion of any option granted under the Omnibus
Plan will generally be terminated (a) 30 days after the date on which the
optionee's employment is terminated for any reason other than (i) cause (as
defined in the Omnibus Plan), (ii) mental or physical disability, or (iii)
death; (b) immediately upon the termination of the optionee's employment for
Cause; (c) three months after the date on which the optionee's employment is
terminated by reason of mental or physical disability; or (d) 12 months after
the date on which the optionee's employment is terminated by reason of the death
of the employee.
Performance Awards Consisting of Options and SARs Issued in Tandem Under
the Omnibus Plan. Upon exercise of a Tandem Option, the optionee will be
entitled to a credit toward the exercise price equal to the value of the SARs
issued in tandem with the option exercised, but not to exceed the amount of the
Federal income tax deduction allowed to the Company in respect of such SAR and
not in an amount which would reduce the amount of payment by the optionee below
the par value of the shares being purchased. Upon exercise of a Tandem Option,
the related SAR will terminate, the value being limited to the credit which can
be applied only toward the purchase price of Common Stock. In all cases, full
payment of the net purchase price of the shares must be made in cash or its
equivalent at the time the Tandem Option is exercised, together with the amount
of the required Federal and State withholding taxes, if any. When a SAR issued
as part of a Tandem Option is exercised, the option to which it relates will
cease to be exercisable to the extent of the number of shares with respect to
which the SAR was exercised.
Other Performance Awards Issued Under the Omnibus Plan. The Omnibus Plan
authorizes the Compensation Committee to grant, to the extent permitted under
Rule 16b-3 promulgated by the SEC under the Exchange Act, and applicable law,
other Awards that are denominated or payable in, valued by reference to, or
otherwise based on or related to shares of Common Stock. Furthermore, the amount
or terms of an Award may be related to the performance of the Company or to such
other criteria or measure of performance as the Compensation Committee may
determine.
42
<PAGE> 44
The Company's 1995 Stock Option Plan
The Company's 1995 Stock Option Plan (the "Stock Option Plan") is intended
to encourage ownership of Common Stock by officers and other key employees and
advisors of the Company, to encourage their continued employment with the
Company and to provide them with additional incentives to promote the success of
the Company.
The Stock Option Plan authorizes the grant to officers, key employees, and
directors of awards ("Awards") consisting of "incentive stock options," as that
term is defined under the provisions of Section 422 of the Code, and
non-qualified stock options. There were originally 1,300,000 shares of Common
Stock available for granting Awards under the Stock Option Plan. The
Compensation Committee of the Board (the "Committee") administers the Stock
Option Plan and has sole discretion to determine those employees to whom Awards
will be granted, the number of Awards granted, the provisions applicable to each
Award and the time periods during which Awards may be exercisable.
The Committee may grant incentive stock options, non-qualified stock
options, or a combination of the two. The exercise price of each incentive stock
option may not be less than the fair market value of the Common Stock at the
date of grant. Under the Stock Option Plan, fair market value is generally
determined in accordance with procedures established by the Committee. The
option price per share of any non-qualified stock option is determined by the
Committee on the date the option is granted. The exercise price of each
incentive stock option granted to any stockholder possessing more than 10% of
the combined voting power of all classes of capital stock of the Company, or, if
applicable, a parent or subsidiary of the Company, on the date of grant must not
be less than 110% of the fair market value on that date, and no such option may
be exercisable more than five years after the date of grant.
Options granted are exercisable for a term of not more than ten years from
the date of grant. In addition, no employee may be granted an incentive stock
option to the extent the aggregate fair market value, as of the date of grant,
of the stock with respect to which incentive stock options are first exercisable
by such employee during any calendar year exceeds $100,000.
Awards granted under the Stock Option Plan are subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend, or other similar event affecting the Common
Stock. An Award is not transferable, other than by will or the laws of descent
and distribution or, in certain circumstances, pursuant to a qualified domestic
relations order, and an Award may be exercised, during the lifetime of the
holder of the Award, only by the holder, or the holder's personal representative
in the event of disability.
The Stock Option Plan terminates on February 1, 2005, and Awards will not
be granted under the Stock Option Plan after that date, although the terms of
any Award may be amended in accordance with the Stock Option Plan at any date
prior to the end of the term of such Award. Any Awards outstanding at the time
of termination of the Stock Option Plan continue in full force and effect
according to the terms and conditions of the Award and the Stock Option Plan.
The Stock Option Plan may be amended by the Committee, subject to approval
of the Board, but no amendment may impair any rights of any holder of an Award
previously granted under the Stock Option Plan without the holder's consent. As
of March 31, 1997, options for 740,000 shares were outstanding, options for
77,500 shares had been granted and exercised, and options for 482,500 shares
were unissued.
The Company's Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") is
intended to encourage ownership of Common Stock by eligible employees of the
Company, to encourage their continued employment with the Company and to provide
them with additional incentives to promote the success of the Company. Except as
discussed below, eligible employees are employees who have been employed by the
Company or any of its subsidiaries for at least six months and who customarily
work more than 20 hours per week and five months per calendar year.
43
<PAGE> 45
The Stock Purchase Plan authorizes the Compensation Committee to grant
options to purchase shares of Common Stock to eligible employees pursuant to one
or more offerings to be made under the Stock Purchase Plan. The Compensation
Committee administers the Stock Purchase Plan and has sole discretion to
determine when offerings will be made under the Stock Purchase Plan, the number
of shares of Common Stock to be made available in any such offering, the length
of the period pursuant to which employees can elect to participate in any
offering (the "Subscription Period") and the period pursuant to which
installment obligations of the option price must be paid (the "Purchase
Period"). The Subscription Period and Purchase Period of any offering made under
the Stock Purchase Plan may not together exceed 27 months.
The Compensation Committee may exclude the employees of any specific
subsidiary from any offering made under the Stock Purchase Plan and may
determine not to include certain highly compensated employees. In addition, no
option may be granted to an employee who, immediately after the option is
granted, owns 5% or more of the value or voting power of all classes of stock of
the Company or its parent, if any, or subsidiary corporations, after taking into
account certain attribution rules. Subject to these provisions, all eligible
employees must be given the right to participate in any offering made under the
Stock Purchase Plan. The Compensation Committee shall have the right to
designate how many shares included in the Employee Stock Plan Share Amount shall
be allocable to the Stock Purchase Plan.
Prior to any offering made under the Stock Purchase Plan, the Company will
grant to each employee eligible to participate in the offering the right to
subscribe for an option to purchase on the last business day of the Purchase
Period applicable to such offering at a price determined by the Compensation
Committee, the number of full shares of Common Stock which such employee's
accumulated payroll deductions will purchase as of the last business day of the
Purchase Period. Unless the Compensation Committee determines otherwise, the
option price will equal % of the fair market value of the Common Stock on the
first day of the Purchase Period. Employees may elect to subscribe for options
to purchase shares of Common Stock for an aggregate purchase price up to a
specified percentage of their annual compensation as determined by the
Compensation Committee for a particular offering.
On the first day of the Purchase Period, eligible employees who elect to
participate in an offering will receive, subject to certain limitations set
forth in the Stock Purchase Plan, an option to purchase the number of shares for
which such employee has subscribed. These options will be automatically
exercised as of the last business day of the Purchase Period.
Subject to certain limitations set forth in the Stock Purchase Plan, an
employee is permitted, at any time prior to the end of the Purchase Period
applicable to such offering, to terminate or reduce his or her payroll
deductions, to reduce his or her options to purchase or to withdraw all or part
of the amount in his or her account, without interest. Upon the termination of
the employee's employment with the Company prior to the last day of the Purchase
Period for any reason other than death or retirement, the employee's only right
will be to receive the amount of cash then in such employee's account, without
interest.
Options granted under the Stock Purchase Plan will be subject to adjustment
upon a recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend or other similar event affecting the Common
Stock. Options will not be transferable, other than by will or the laws of
descent and the distribution, or if permitted pursuant to the Code, and the
Regulations thereunder without affecting the option's qualification under
Section 423 of the Code, pursuant to a qualified domestic relations order, and
an option may be exercised, during the lifetime of the holder of the option,
only by such option holder, or his or her personal representative in the event
of disability.
In the case of an unusual corporate event such as liquidation, merger,
reorganization (other than a reorganization as defined by Section 368(a)(1)(F)
of the Code), or other business combination, acquisition or change in control of
the Company through a tender offer or otherwise, the Board may, in its sole
discretion, determine to terminate the Purchase Period of any offering made
under the Stock Purchase Plan as of the last day of the month during which such
unusual corporate event occurs, but in the event of any such termination, an
option holder will have the right, commencing at least five days prior to the
unusual corporate event, to either make a lump sum payment equal to the
remaining portion of the purchase price payable under his or her option or to
cancel his or her election to purchase shares pursuant to such option.
44
<PAGE> 46
The Stock Purchase Plan will terminate ten years from the date of adoption,
and an option shall not be granted under the plan after such date. Any options
outstanding at the time of termination of the Stock Purchase Plan will continue
in full force and effect according to the terms and conditions of the Stock
Purchase Plan.
Each of the above plans may be amended at any time and from time to time by
the Board of Directors, but no amendment without the approval of the
shareholders of the Company shall be made if shareholder approval would be
required under applicable law.
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 31, 1997, and after giving effect to the closing of the
Offering, by each of the executive officers referred to in the compensation
section appearing above, each of the directors of the Company and all executive
officers, directors and director nominees of the Company as a group, as well as
by each person known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF SHARES
COMMON STOCK OUTSTANDING PERCENT OF SHARES
NAME AND ADDRESS BENEFICIALLY PRIOR TO OUTSTANDING
OF BENEFICIAL OWNER OWNED(1) OFFERING(2) AFTER OFFERING(3)
- ----------------------------------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C>
Brantley Venture Partners III, L.P. ........... 2,025,000(4) 33.26% %
20600 Chagrin Blvd.
Suite 1150
Cleveland, Ohio 44122
Environmental Opportunities Management Co.,
LLC.......................................... 650,000(5) 10.67% %
126 East 56th Street
24th Floor
New York, NY 10022
River Cities Capital Fund Limited
Partnership.................................... 637,500(6) 10.49% %
221 East 4th Street
Suite 2250
Cincinnati, Ohio 45202
IPP95, L.P. ................................... 400,000(7) 6.57% %
c/o William E. Simon & Sons, L.L.C.
310 South Street
P.O. Box 1913
Morristown, NJ 07964
Lawrence and Theresa H. Stenger................ 382,023(8) 6.30% %
832 Pike Road
West Palm Beach, Florida 33411
Mark E. Neville................................ 352,000(9) 5.80% %
146 Darrington Drive
Taunton, MA 02767
Theodore F. Savastano.......................... 1,000,000(10) 15.96% %
Chet S. Ross................................... 400,000(11) 6.23% %
Robert P. Pinkas............................... 2,125,000(12) 34.33% %
Paul M. Sutton................................. 28,000(13) * *
Rollin S. Reiter............................... 28,000(13) * *
John R. Miller................................. 28,000(13) * *
All directors, nominees and executive officers
as a group (9 persons)......................... 3,849,000(14) 61.80% %
</TABLE>
- ---------------
*Less than 1%
45
<PAGE> 47
(1) Beneficial ownership includes shares of Common Stock subject to options,
warrants, rights, conversion privileges or similar obligations exercisable
within 60 days for purposes of computing the percentage of the person or
group holding such options or warrants. Except as noted, each stockholder
has sole voting power and sole investment power with respect to all shares
beneficially owned by such stockholder.
(2) Based upon 6,064,284 shares outstanding prior to the Offering.
(3) Based upon shares outstanding after the Offering. Does not
reflect shares, if any, purchased by any such person in the Offering.
(4) Includes 1,600,000 shares which will be issued upon the conversion of the
Series A Shares, Series B Shares, and Series C Shares held by the
beneficial owner and 25,000 warrants to purchase shares of Common Stock
held by Brantley Capital Corporation, an affiliate of Brantley Venture
Partners III, L.P. Robert P. Pinkas, a director of the Company, is managing
general partner of Brantley Venture Partners III, L.P.
(5) Includes 556,062 shares which will be issued upon conversion of the Series
C Shares held by Environmental Opportunities Fund, L.P. and 68,938 shares
which will be issued upon conversion of the Series C Shares held by
Environmental Opportunities Fund (Cayman), L.P., and an aggregate of 25,000
warrants issued to such entities to purchase shares of Common Stock, as to
which entities Environmental Opportunities Management Co., LLC is the
general partner. See "Underwriting."
(6) Includes 625,000 shares which will be issued upon the conversion of the
Series B Shares and Series C Shares held by the beneficial owner and 12,500
warrants to purchase shares of Common Stock.
(7) Includes 375,000 shares which will be issued upon the conversion of the
Series B Shares held by the beneficial owner and 25,000 warrants to
purchase shares of Common Stock.
(8) Includes 119,036 shares owned by Lawrence Stenger, 69,207 shares owned by
Theresa H. Stenger and 193,780 shares owned by Lawrence and Theresa
Stenger, jointly.
(9) Includes 2,000 options to purchase shares of Common Stock which become
fully vested upon completion of the Offering.
(10) Includes 200,000 options to purchase shares of Common Stock which become
fully vested upon completion of the Offering.
(11) Includes 355,000 options to purchase shares of Common Stock which become
fully vested upon completion of the Offering.
(12) Includes shares, including securities referred to in footnote 4 above,
which are held by Brantley Venture Partners III, L.P., of which Mr. Pinkas
is managing general partner, and 100,000 options to purchase shares of
Common Stock which become fully vested upon completion of the Offering.
(13) Includes 25,000 options to purchase shares of Common Stock currently vested
and 3,000 options to purchase shares of Common Stock which become fully
vested upon completion of the Offering.
(14) Also includes 190,000 options to purchase shares of Common Stock which
become fully vested upon completion of the Offering.
46
<PAGE> 48
CERTAIN TRANSACTIONS
The following summarizes certain material agreements between the Company
and its officers, directors and certain of its existing shareholders. The
summary is not a complete description of such agreements and therefore this
discussion is qualified in its entirety by reference to the agreements, copies
of which will be made available for inspection upon written request to the
Company. It is the Company's intention that in the future, transactions with
directors, officers, employees or affiliates of the Company will be minimal and
will be approved in advance by a majority of the disinterested members of the
Company's Board of Directors.
REGISTRATION RIGHTS AGREEMENTS
Several of the officers, directors and holders of more than 5% of the
Common Stock have entered into registration rights agreements relating to shares
of Preferred Stock or Common Stock. See "Description of Capital Stock --
Registration Rights Agreements."
1997 NOTES, 1997 WARRANTS AND STOCKHOLDER GUARANTEE
In March 1997, the Company entered into the Note Purchase Agreement with
respect to the 1997 Notes and entered into the 1997 Warrant Agreement with
respect to the 1997 Warrants. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Capital Stock -- 1997 Warrants." The parties to
the Note Purchase Agreement and the holders of the 1997 Warrants include several
of the Company's significant stockholders or their affiliates. The following
significant shareholders, or their affiliates, agreed to acquire the indicated
percent of any 1997 Note that may be issued by the Company: Brantley Capital
Corporation -- 21%; IPP95, L.P. -- 20%; River Cities Capital Fund Limited
Partnership -- 9%; and Environmental Opportunities Management Co., LLC -- 20%.
These stockholders and the other parties to the Note Purchase Agreement (other
than the Company) have received, and will be entitled to receive, 1997 Warrants
as and when issued in accordance with the 1997 Warrant Agreement, pro rata in
proportion to the principal amount of 1997 Notes to be issued to such purchaser.
In the event (i) the Offering is completed at a price of $9.00 per share or
greater and (ii) either the Offering is completed within 180 days of the date of
sale of the 1997 Notes or there have been no 1997 Notes sold, then the Company
will have issued a minimum of 125,000 Warrants (if no 1997 Notes are sold) and a
maximum of 425,000 Warrants (if all $10,000,000 of 1997 Notes are sold). In the
event the Offering referred to in the preceding sentence is completed at a price
of less than $9.00 per share, then the Company will have also issued an
additional number of 1997 Warrants equal to 25% of the then outstanding 1997
Warrants. As of the date of this Prospectus, none of the 1997 Notes are
outstanding, but 125,000 of the 1997 Warrants are issued and outstanding. The
Company intends to repay all outstanding 1997 Notes, if any, in full upon
completion of the Offering. The Note Purchase Agreement will terminate upon the
closing of the Offering.
Brantley Venture Partners III, L.P., a holder of 33.26% of the Common
Stock, has guaranteed up to $2,000,000 of the Company's indebtedness under the
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." The
Company paid no consideration to Brantley Venture Partners III, L.P. for this
guarantee. To the extent that Brantley Venture Partners III, L.P. makes a
payment under its guarantee of the Company's indebtedness under the Credit
Facility, the amount of such payments will be deemed to be an advance under the
1997 Notes from the date of such payment. Robert P. Pinkas, a director of the
Company, is an affiliate of Brantley Capital Corporation and Brantley Venture
Partners III, L.P. See "Management -- Directors and Executive Officers."
STOCKHOLDER NOTE
In connection with the Company's acquisition of Mass Transfer, the Company
is the obligor under a $400,000 promissory note to Mark E. Neville, a former
stockholder and current president of Mass Transfer. The promissory note accrues
interest at 10% per annum and is due and payable on August 1, 1997. The
promissory note is subordinated to the Company's obligations to the Bank.
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ADDITIONAL OPTIONS
In June 1996, Robert P. Pinkas, a director of the Company, was granted an
option to purchase 100,000 shares of Common Stock at an exercise price of $4.00
per share pursuant to the Stock Option Plan.
LEASE TRANSACTIONS
Waterlink Technologies is the tenant under two industrial building leases
in West Palm Beach, Florida (the "West Palm Building") and in Clearwater,
Florida (the "Clearwater Building"). Lawrence and Theresa H. Stenger, the
beneficial owners of more than 5% of the Common Stock and former owners of
Waterlink Technologies, are the direct or indirect landlords of the two
buildings. Both leases are dated as of September 30, 1996 and have a term of
five years. The leases may be renewed for two additional terms of two years
each. The annual base rent for the West Palm Building is $222,220. The annual
base rent for the Clearwater Building is $17,728. The annual base rent for the
third, fourth and fifth years of each lease increases to reflect the change in
the consumer price index, as defined in the lease.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering and assuming (i) no exercise of
outstanding options or warrants and (ii) conversion of all outstanding shares of
the Company's preferred stock, shares of Common Stock will be
outstanding. Of such shares, the shares sold in the Offering, and any
of the shares which may be sold upon exercise of the Underwriters'
over-allotment option, will be freely tradable by persons other than
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining shares of Common Stock are "restricted
securities" within the meaning of Rule 144 (collectively, the "Restricted
Shares"). The Restricted Shares may not be sold unless they are registered under
the Securities Act or sold pursuant to an applicable exemption from
registration, including an exemption pursuant to Rule 144 under the Securities
Act. Holders of approximately Restricted Shares have certain
registration rights pursuant to certain registration rights agreements. See
"Description of Capital Stock -- Registration Rights Agreements."
The Company intends to register the shares of Common Stock reserved or to
be available for issuance pursuant to the Stock Option Plan. Following the
closing of the Offering, shares of Common Stock issued pursuant to the Stock
Option Plan generally will be available for sale in the open market by holders
who are not affiliates of the Company and, subject to the volume and other
limitations of Rule 144, by holders who are affiliates of the Company. In
addition, each director who is not an employee of the Company has been granted
an option to purchase shares of Common Stock. See "Management -- Compensation of
Directors."
In connection with entering into the Credit Facility and commitments to
purchase subordinated indebtedness, the Company issued warrants to purchase
350,000 shares of Common Stock. Pursuant to the applicable warrant agreements,
the holders of such warrants have certain rights to require the Company to
register the shares of Common Stock to be issued upon exercise of the warrants.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, including persons who may be deemed to be "affiliates" of the
Company, as that term is defined under Rule 144, may sell within any three-month
period a number of Restricted Shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (estimated to be
shares after completion of this Offering, or shares if the
Underwriters' over-allotment option is exercised in full) or the average weekly
trading volume of the Common Stock on the open market during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner-of-sale limitations, notice requirements, and the availability of current
public information about the Company. Pursuant to Rule 144(k), a person (or
persons whose shares are aggregated) who is deemed not to have been an
"affiliate" of the Company during the three months preceding a sale, and who has
beneficially owned Restricted shares for at least two years, would be entitled
to sell such shares under Rule 144 without regard to the volume limitations,
manner-of-sale provisions or notice requirements. Restricted Shares properly
sold in reliance upon Rule 144 are thereafter freely tradable without
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restrictions or registration under the Securities Act, unless thereafter held by
an "affiliate" of the Company. The foregoing summary of Rule 144 is not intended
to be a complete description thereof. Absent additional offerings that are
registered under the Securities Act and any additional issuances of Common Stock
not referred to above, it is anticipated that as much as shares of
Common Stock may be eligible to be sold pursuant to Rule 144 within
approximately one year of the closing of the Offering, of which approximately
shares of Common Stock may be immediately eligible to be sold (subject
to the Lockup Period referred to below).
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provision of Rule 701 under the Securities Act, which permits affiliates and
non-affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, commencing 90 days after the effectiveness of
the Offering. In addition, non-affiliates may sell Rule 701 shares without
complying with the public information, volume and notice provisions of Rule 144.
Approximately shares of Common Stock currently outstanding may be sold
pursuant to Rule 701.
The Company, its officers and directors, and the holders of substantially
all of the Common Stock have agreed that, until the later of December 31, 1997
or 180 days following the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or any securities convertible
into, or exercisable or exchangeable for, Common Stock, except that the Company
may grant warrants pursuant to the Note Purchase Agreement and grant options
under the Company's stock option and purchase plans, and may issue shares of
Common Stock (i) in connection with acquisitions, (ii) pursuant to the exercise
of options granted under the Company's stock option and purchase plans, (iii)
pursuant to the exercise of warrants outstanding as of the closing of the
Offering or which the Company is obligated to issue as part of the 1997
Warrants, (iv) pursuant to the conversion of the Company's preferred stock and
(v) pursuant to or in connection with the Company's Rights Plan.
The Company intends to register shares of Common Stock under the
Securities Act during 1997 for its use in connection with future acquisitions.
These shares generally will be freely tradable after their issuance by persons
not affiliated with the Company; however, sales of these shares during the
Lockup Period would require the prior written consent of Smith Barney Inc.
Prior to the Offering there has been no market for the Common Stock, and no
prediction can be made as to the effect, if any, that sales of Restricted
Shares, or the availability of Restricted Shares for sale, by existing
shareholders in reliance upon Rule 144, pursuant to registration or otherwise
will have on the market price of Common Stock. The sale by the Company or the
shareholders referred to above of a substantial number of shares of Common Stock
after the Offering could adversely affect the market price for the Common Stock.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of the Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, par value $.001 per
share, and 10,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"), of which shares of Common Stock will be issued and
outstanding and no shares of Preferred Stock will be issued and outstanding.
Prior to the completion of this Offering, the authorized capital stock of the
Company included 440,000 shares of Series A Preferred Stock, par value $.001 per
share, of which 400,000 shares were issued and outstanding, 1,836,1000 shares of
Series B Preferred Stock, par value $.001 per share, of which 1,700,000 shares
were issued and outstanding, and 1,647,000 shares of Series C Preferred Stock,
par value $.001 per share, of which 1,150,000 shares were issued and
outstanding. Prior to the completion of the Offering, all outstanding shares of
the Company's preferred stock will be converted into Common Stock in accordance
with the terms of such preferred stock, and such preferred stock will no longer
be authorized or outstanding. An aggregate of 3,250,000 shares of Common Stock
will be issued upon the conversion of all outstanding shares of the Company's
preferred stock, which shares of Common Stock are included in the number of
shares of Common Stock to be outstanding upon the completion of the Offering, as
set forth above.
The following summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company Certificate and the Company Bylaws to be in effect
upon the closing of the Offering, the form of each of which is included as an
exhibit to the Registration Statement of which this Prospectus is a part, and by
the provisions of applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record by them upon all matters to be voted on by the holders of Common Stock.
The holders of Common Stock are entitled to participate equally in all dividends
payable with respect to the Common Stock subject to any preferences or rights of
any outstanding preferred stock. In the event of liquidation, dissolution or
winding up of the affairs of the Company, the holders of Common Stock are
entitled to share ratably in all assets of the Company remaining available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, including any preferred stock, that has preference
over the Common Stock. Holders of shares of Common Stock, as such, have no
conversion rights, and there are no redemption or sinking fund provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are fully paid and nonassessable.
PREFERRED STOCK
Effective upon the closing of the Offering, the Board of Directors will
have the authority, without any further vote or action by the stockholders, to
provide for the issuance of up to 10,000,000 shares of Preferred Stock from time
to time in one or more series and to fix such designations, rights, preferences
and limitations as the Board of Directors may determine, including the
consideration received therefor, the number of shares comprising each series,
dividend rates, redemption provisions, liquidation preferences, sinking fund
provisions, conversion rights and voting rights, including Series 1 Preferred
Stock (the "Series 1 Preferred Stock") authorized in connection with the
Stockholders Rights Plan described below. Although it is not possible to state
the effect that any issuance of Preferred Stock might have on the rights of
holders of Common Stock, the issuance of Preferred Stock may have one or more of
the following effects: (i) restrict Common Stock dividends if Preferred Stock
dividends have not been paid; (ii) dilute the voting power and equity interests
of holders of Common Stock to the extent that any Preferred Stock series has
voting rights or is convertible into Common Stock; or (iii) prevent current
holders of Common Stock from participating in the Company's assets upon
liquidation until any liquidation preferences granted to holders of Preferred
Stock are satisfied. In addition, the issuance of Preferred Stock may, under
certain circumstances, have the effect of discouraging a change in control of
the Company by, for example, granting voting rights to holders of Preferred
Stock that require approval by the separate vote of the holders of Preferred
Stock for any amendment to the Company
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Certificate or any reorganization, consolidation or merger (or other similar
transaction involving the Company). As a result, the issuance of such Preferred
Stock may discourage bids for the Company's Common Stock at a premium over the
market price therefor and could have a material adverse effect on the market
value of the Common Stock. The Board of Directors does not presently intend to
issue any shares of Preferred Stock, other than in connection with the
stockholders rights plan, referred to below.
REGISTRATION RIGHTS AGREEMENTS
In connection with the issuance by the Company of all of the outstanding
shares of the Company's preferred stock (with the exception of 25,000 shares of
Series C Preferred Stock issued to one particular shareholder), the Common Stock
issued prior to the Offering (other than upon exercise of stock options) and any
securities of the Company convertible into or exchangeable for shares of Common
Stock (other than a stock option), including the 1997 Warrants, the Company
granted to holders thereof certain rights relating to registering the Common
Stock under the Securities Act.
In general, the "Investors" as defined in the Amended and Restated
Registration Rights Agreement dated March 6, 1997 (the "Registration Rights
Agreement") (generally defined as substantially all holders of Series A
Preferred Stock, Series B Preferred and Series C Preferred Stock and 1997
Warrants) and Mr. Savastano may demand registration under the Securities Act of
the Common Stock issued upon the conversion of outstanding shares of the
Company's preferred stock and the exercise of the 1997 Warrants upon the request
of the Investors (treated as a single class and calculated on an "as converted
basis"). The Company will pay all registration expenses relating to such
registration. Each of the registration rights agreements otherwise contain such
terms and conditions ordinarily and customarily found in registration rights
agreements, including, without limitation, piggyback registration rights,
indemnification provisions, and holdback agreements.
STOCKHOLDER RIGHTS PLAN
Effective upon the consummation of the Offering, the Board has adopted a
stockholder rights plan, pursuant to which one Right will be distributed for
each share of Common Stock. Each Right entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series 1 Preferred
Stock at a price of $ per one one-hundredth of a share of Series 1 Preferred
Stock (the "Purchase Price"), subject to adjustment. The following summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement (the "Rights Agreement"),
between the Company and , as Rights Agent (the "Rights Agent"), the
form of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part and is incorporated herein by reference. See "Description
of Capital Stock -- Preferred Stock."
Until the earliest to occur of (i) the first date of public announcement
that a person (other than the Company, any subsidiary of the Company, an
employee benefit plan of the Company or a subsidiary of the Company, or an
Exempt Person (defined below)) or group of affiliated or associated persons has
acquired, or obtain the right to acquire, beneficial ownership of 10% or more of
the outstanding shares of Common Stock (an "Acquiring Person") and (ii) the
tenth day (or such later date as may be specified by the Board prior to such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person) after the date any person commences or announces its intention
to commence a tender offer or exchange offer, the consummation of which would
result in such person, together with its affiliates or associates becoming an
Acquiring Person (the earlier of such dates being hereinafter called the
"Distribution Date"), the Rights are evidenced by the certificates for shares of
Common Stock. "Exempt Persons" include any person who prior to this Offering was
the beneficial owner of 10% or more of the outstanding shares of Common Stock
for so long as (a) such person, together with all affiliates and associates
thereof, does not increase its percentage beneficial ownership by 1% or more of
the outstanding shares of Common Stock (b) there is no change of control of such
person, (c) such person, together with its affiliates or associates does not
commence a tender offer or exchange offer for Common Stock and (d) the Company
does not consolidate or merge with or into such person, or any of its affiliates
or associates, or sell, mortgage or otherwise transfer to such person, or any
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of its affiliates or associates, assets or earning power representing 50% or
more of the assets or earning power of the Company.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with shares of Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights),
certificates for shares of Common Stock issued after the date of the Rights
Agreement will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for shares of Common
Stock in respect of which Rights have been issued will also constitute the
transfer of the Rights associated with the shares of Common Stock represented by
such certificates. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights (the "Right Certificates") will be
mailed to holders of record of the shares of Common Stock as of the close of
business on the Distribution Date and such separate Right Certificates alone
will evidence the Rights.
No Right will be exercisable at any time prior to the Distribution Date.
The Rights will expire on the tenth anniversary of the date of the Rights
Agreement (the "Final Expiration Date"), unless earlier redeemed or exchanged by
the Company as described below. Until a Right is exercised, the holder thereof,
as such, will have no rights as a stockholder of the Company, including without
limitation the right to vote or to receive dividends.
The Purchase Price payable, and the number of shares of Series 1 Preferred
Stock or other securities issuable, upon exercise of the Rights will be subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series 1
Preferred Stock, (ii) upon the grant to holders of shares of Series 1 Preferred
Stock of certain rights or warrants to subscribe for or purchase shares of
Series 1 Preferred Stock at a price, or securities convertible into shares of
Series 1 Preferred Stock with a conversion price, less than the then current
market price of the shares of Series 1 Preferred Stock or (iii) upon the
distribution to holders of the shares of Series 1 Preferred Stock of evidences
of indebtedness or cash (excluding regular periodic cash dividends), assets,
stock (excluding dividends payable in shares of Series 1 Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredth of a
share of Series 1 Preferred Stock issuable upon the exercise of each Right also
will be subject to adjustment in the event of a stock dividend on the Common
Stock payable in shares of Common Stock or subdivision, combination or
reclassification of the Common Stock occurring, in any such case, prior to the
Distribution Date.
Shares of Series 1 Preferred Stock issuable upon exercise of the Rights
will not be redeemable. Each share of Series 1 Preferred Stock will be entitled
to a minimum preferential quarterly dividend payment equal to the greater of (i)
$1.00 per share and (ii) an amount equal to 100 times the aggregate dividends
declared per share of Common Stock during the related quarter. In the event of
liquidation, the holders of the shares of Series 1 Preferred Stock will be
entitled to a preferential liquidation payment equal to accrued and unpaid
dividends thereon, plus the greater of (a) $100 per share and (b) an amount
equal to 100 times the liquidation payment made per share of Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
shares of Common Stock are exchanged, each share of Series 1 Preferred Stock
will be entitled to receive 100 times the amount received per share of Common
Stock. These rights are protected by customary antidilution provisions. Each
share of Series 1 Preferred Stock will have 100 votes, voting together with the
shares of Common Stock. In addition, in the event that the amount of accrued and
unpaid dividends on the Series 1 Preferred Stock is equivalent to six full
quarters dividends or more, the holders thereof shall have the right, voting as
a class, to elect two directors in addition to the directors elected by the
holders of the Common Stock.
In the event that any person or group or affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights that are or were owned beneficially by the
Acquiring Person (which, from and after the later of the Distribution Date and
the date of the earliest of any such events, will be void), will thereafter have
the right to receive, upon exercise thereof at the then current exercise price
of the Right, that number of shares of Common Stock (or, under certain
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circumstances, an economically equivalent security or securities of the Company)
having a market value of two times the exercise price of the Right.
To illustrate the operation of such an adjustment, at a Purchase Price of
$40.00, assuming the current market price (as determined pursuant to the
provisions of the Rights Agreement) per share of Common Stock were $4.00, each
Right not owned beneficially by an Acquiring Person at or after the time of such
an occurrence would entitle its holder to purchase (after the Distribution Date)
from the Company 20 shares of Common Stock (having an aggregate market value of
$80.00) for $40.00.
In the event that, at any time after a person or group of affiliated or
associated persons has become an Acquiring Person, (i) the Company merges with
or into any person and the Company is not the surviving corporation, (ii) any
person merges with or into the Company and the Company is the surviving
corporation, but the shares of Common Stock are changed or exchanged, or (iii)
50% or more of the Company's assets or earning power are sold, proper provision
shall be made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock (or, under certain circumstances,
an economically equivalent security or securities) of such other person which at
the time of such transaction would have a market value of two times the exercise
price of the Right.
At any time after the first date of public announcement that an Acquiring
Person has become such and prior to the acquisition by any person or group of
affiliated or associated persons of 50% or more of the outstanding shares of
Common Stock, the Board may exchange the Rights (other than any Rights which
have become void) for shares of Common Stock, in whole or in part, at an
exchange ratio of one share of Common Stock per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment in the Purchase
Price of at least 1%. The Company is not required to issue fractional shares of
Series 1 Preferred Stock (other than fractions which are integral multiples of
one one-hundredth of a share of Series 1 Preferred Stock, which may, at the
option of the Company, be evidenced by depositary receipts) or fractional shares
of Common Stock or other securities issuable upon the exercise of Rights. In
lieu of issuing such securities, the Company may make a cash payment, as
provided in the Rights Agreement.
The Company may redeem all, but not less than all, the Rights at a price of
$.01 per Right (the "Redemption Price"), payable in cash or Common Stock, at any
time prior to such time as a person or group of affiliated or associated persons
becomes an Acquiring Person. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
Prior to the Distribution Date, the Rights Agreement may be amended by the
Company without the approval of any holders of Rights. From and after the
Distribution Date, the Rights Agreement may be amended by the Company without
the approval of any holders of Rights in any manner which does not, in the good
faith determination of the Board, adversely affect the holders of the Rights
(other than an Acquiring Person), including amendments which add other events
requiring adjustment to the purchase price payable and the number of shares of
Series 1 Preferred Stock or other securities issuable upon the exercise of the
Rights or which modify procedures relating to the redemption of the Rights.
Under no circumstances may the Rights Agreement be amended to decrease the
stated Redemption Price or the period of time remaining until the Final
Expiration Date or to modify a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board, except pursuant to an offer conditioned on a
substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Board since
(subject to the limitations described above) the Rights may be redeemed by the
Company at the Redemption Price prior to the time that a person or group has
become an Acquiring Person.
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1997 WARRANTS
In March 1997, in connection with its entering into the Note Purchase
Agreement relating to the 1997 Notes, the Company entered into a warrant
agreement (the "1997 Warrant Agreement") pursuant to which it agreed to issue
warrants (the "1997 Warrants") to persons agreeing to be purchasers of the 1997
Notes. Each 1997 Warrant entitles the holder to purchase one share of Common
Stock at an initial purchase price per share of $4.50 ("Exercise Price"). In the
event (i) the Offering is completed at a price of $9.00 per share or greater and
(ii) either the Offering is completed within 180 days of the date of sale of the
1997 Notes or there have been no 1997 Notes sold, then the Company will have
issued a minimum of 125,000 Warrants (if no 1997 Notes are sold) and a maximum
of 425,000 Warrants (if all $10,000,000 of 1997 Notes are sold). In the event
the Offering referred to in the preceding sentence is completed at a price of
less than $9.00 per share, then the Company will have also issued an additional
number of 1997 Warrants equal to 25% of the then outstanding 1997 Warrants. As
of the date of this Prospectus, none of the 1997 Notes are outstanding but
125,000 Warrants have been issued and are outstanding. The Company intends to
repay any 1997 Notes in full upon completion of the Offering, in which event no
additional 1997 Notes or 1997 Warrants will be issued. The Exercise Price of the
1997 Warrants is subject to adjustment upon the occurrence of certain events
such as the issuance of securities at prices less than the Exercise Price then
in effect, or upon stock splits, stock dividends, reorganizations, mergers or
consolidations. The Note Purchase Agreement will terminate upon the closing of
the Offering.
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
The Company Certificate and the Company Bylaws, each of which will become
effective upon completion of the Offering, contain certain provisions which
operate only with respect to an extraordinary corporate transaction involving
the Company (or any of its subsidiaries) and which are designed to encourage any
person who desires to take control of and/or acquire the Company to enter into
negotiations with the Board, thereby making more difficult the acquisition of
the Company by means of a tender offer, a proxy contest or other non-negotiated
means. In general, these provisions (i) provide for a classified Board from
which directors may only be removed for cause, by the affirmative vote of 80% of
all of the stockholders (ii) provide that only a majority of the Board shall
have the authority to fill vacancies on the Board, (iii) limit the right of
stockholders to amend the Company Certificate and the Company Bylaws, (iv)
eliminate the right of stockholders to call special meetings and to take action
without a meeting, (v) establish an advance notice procedure regarding the
nomination of directors by stockholders and stockholder proposals to be brought
before an annual meeting, and (vi) require that certain business combinations
either meet certain minimum price and procedural requirements, be approved by
the members of the Board who are unaffiliated with the persons seeking to effect
such business combinations or be approved by a supermajority stockholder vote.
In addition to encouraging any person intending to attempt a takeover of the
Company to negotiate with the Board, these provisions also curtail such person's
use of a dominant equity interest to control any negotiations with the Board.
Under such circumstances, the Board may be better able to make and implement
reasoned business decisions and protect the interests of all of the Company's
stockholders. A copy of the Company Certificate and the Company Bylaws are filed
as exhibits to the Registration Statement of which this Prospectus is a part.
Classified Board of Directors
The Company Certificate provides for the Board to be divided into three
classes serving staggered terms so that directors' initial terms will expire at
the first, second or third scheduled annual meeting of stockholders. Starting
with the first scheduled annual meeting of the Company's stockholders, one class
of directors will be elected each year for a three-year term. See "Management --
Directors and Executive Officers." The classes will be as nearly equal in number
as possible. The classification of directors makes it more difficult for a
significant stockholder to change the composition of the Board in a relatively
short period of time and, accordingly, provides the Board and stockholders time
to review any proposal that a significant stockholder may make and to pursue
alternative courses of action which are fair to all the stockholders of the
Company.
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Removal of and Filling Vacancies on the Board of Directors of the Company
The Company Certificate provides that, subject to any rights of the holders
of Preferred Stock of the Company, only a majority of the Board then in office
or the sole remaining director shall have the authority to fill any vacancies on
the Board, including vacancies created by an increase in the number of
directors. Moreover, because the Company Certificate provides for a classified
board, Delaware law provides that the stockholders may remove a member of the
Board only for cause. The Company Certificate provides that the affirmative vote
of the holders of at least 80% of the voting power of stock entitled to vote
generally in the election of directors is required to remove a director for
cause. These provisions relating to removal and filling of vacancies on the
Board preclude stockholders from enlarging the Board or removing incumbent
directors and filling the vacancies with their own nominees.
Amendment of the Company Certificate and the Company Bylaws
The Company Certificate contains provisions requiring the affirmative vote
of the holders of at least 80% of the voting power of the stock entitled to vote
generally in the election of directors to amend certain provisions of the
Company Certificate and the Company Bylaws (including certain of the provisions
discussed above). These provisions make it more difficult for stockholders to
make changes in the Company Certificate or the Company Bylaws, including changes
designed to facilitate the exercise of control over the Company.
Limitations on Stockholder Action by Written Consent; Special Meetings
Meetings. The Company Certificate provides that stockholder action can be
taken only at an annual or special meeting of stockholders and prohibits
stockholder action by written consent in lieu of a meeting. The Company
Certificate and the Company Bylaws provide that, subject to the rights of
holders of any series of Preferred Stock, special meetings of stockholders can
be called only by a majority of the entire Board or by the President or Chairman
of the Board. Stockholders are not permitted to call a special meeting or to
require that the Board call a special meeting of stockholders. Moreover, the
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting by or at the direction of the
Board. These provisions prohibit a significant stockholder from proposing a
stockholder vote on issues not approved by the Board or from authorizing
stockholder action without a meeting at which all stockholders would be entitled
to participate.
Nominations of Directors and Stockholder Proposals. The Company Bylaws
establish an advance notice procedure with regard to the nomination other than
by, or at the direction of, the Board of candidates for election as directors
(the "Nomination Procedure") and with regard to stockholder proposals to be
brought before an annual meeting of stockholders (the "Business Procedure"). The
Nomination Procedure provides that only persons who are nominated by, or at the
direction of, the Board, or by a stockholder who has given timely written notice
to the Secretary of the Company prior to the meeting at which directors are to
be elected, are eligible for election as directors of the Company. The Business
Procedure provides that to be properly brought before an annual meeting,
business must be specified in the notice of the annual meeting given by or at
the direction of the Board (or any duly authorized committee thereof) or brought
before the meeting by, or at the direction of, the Board (or any duly authorized
committee thereof) or by a stockholder who has given timely written notice to
the Secretary of the Company of such stockholder's intention to bring such
business before such meeting. The notice from the stockholder must also meet
certain information requirements, as further set forth in the Company Bylaws.
If the officer of the Company presiding at the meeting determines that a
person was not nominated in accordance with the Nomination Procedure, or that
other business was not brought before the meeting in accordance with the
Business Procedure, such person is not eligible for election as a director, or
such business is not to be conducted at such meeting, as the case may be.
The purpose of the Nomination Procedure is, by requiring advance notice of
nomination by stockholders, to afford the Board a meaningful opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board, to inform stockholders about such
qualifications. The purpose of the Business Procedure is, by requiring advance
notice of stockholder proposals, to provide a more
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orderly procedure for conducting annual meetings of stockholders and, to the
extent deemed necessary or desirable by the Board, to provide the Board with a
meaningful opportunity to inform stockholders, prior to such meetings, of any
proposal to be introduced at such meetings, together with any recommendation as
to the Board's position or belief as to action to be taken with respect to such
proposal, so as to enable stockholders better to determine whether they desire
to attend such meeting or grant a proxy to the Board as to the disposition of
any such proposal. Although the Company Bylaws do not give the Board any power
to approve or disapprove stockholder nominations for the election of directors
or of any other proposal submitted by stockholders, the Company Bylaws may have
the effect of precluding a nomination for the election of directors or
precluding the conducting of business at a particular stockholder meeting if the
proper procedures are not followed, and may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of the Company, even if the conduct of
such solicitation or such attempt might be beneficial to the Company and its
stockholders.
Fair Price Provision
Article Sixth of the Company Certificate (the "Fair Price Provision")
requires the approval by the holders of 80% of the voting power of the
outstanding capital stock of the Company entitled to vote on all matters
submitted to the stockholders, generally (the "Voting Stock") as a condition for
mergers and certain other business combinations ("Business Combinations")
involving the Company and any holder of more than ten percent (10%) of such
voting power (an "Interested Stockholder"), excluding Voting Stock beneficially
owned by the Interested Stockholder, unless the transaction is either (i)
approved by a majority of the members of the Board who are not affiliated with
the Interested Stockholder and who were directors before the Interested
Stockholder became an Interested Stockholder (the "Continuing Directors") or
(ii) certain minimum price and procedural requirements are met. These
requirements include that the aggregate amount of cash and the fair market value
(as defined), as of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of capital
stock in such Business Combination shall be at least equal to the highest of (i)
the highest per share price paid by or on behalf of the Interested Stockholder
for any share of such capital stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of shares of such capital stock
(x) within the two-year period immediately prior to the first public
announcement of the proposed Business Combination (the "Announcement Date") or
(y) in the transaction in which it became an Interested Stockholder, or (ii) the
fair market value per share of such capital stock on the Announcement Date or on
the date on which the Interested Stockholder became an Interested Stockholder
(the "Determination Date"); or (iii) as to capital stock other than Common
Stock, the highest preferential amount per share to which the holders of shares
of such class or series of capital stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company regardless of whether the Business Combination to be consummated
constitutes such an event. Also, the consideration to be received by holders of
a particular class or series of outstanding capital stock must be in cash or in
the same form as previously paid by or on behalf of the Interested Stockholder
in connection with its direct or indirect acquisition of beneficial ownership of
shares of such class or series of capital stock. If the consideration so paid
for shares of any class or series of capital stock varied as to form, the form
of consideration for such class or series of capital stock must be either cash
or the form used to acquire beneficial ownership of the largest number of shares
of such class or series of capital stock previously acquired by the Interested
Stockholder. In addition, there cannot be any of several specified changes in
the payment of regular dividends or in the holdings of capital stock by such
Interested Stockholders after the Determination Date, nor can the Interested
Stockholders make any major change in the Company's business or equity capital
structure.
The Fair Price Provision is designed to prevent a third party from
utilizing two-tier pricing and similar inequitable tactics in a takeover
attempt. The Fair Price Provision is not designed to prevent or discourage
tender offers for the Company. However, the separate provisions contained in the
Company Certificate and the Company Bylaws relating to "Classified Board of
Directors" and "Limitations on Stockholder Action by Written Consent; Special
Meetings" discussed above will, as therein indicated, curtail an Interested
Stockholder's ability to exercise control in several respects, including such
stockholder's ability to change incumbent directors who may oppose a Business
Combination or to implement a Business Combination by
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written consent without a stockholder meeting. In addition, the Fair Price
Provision would discourage some takeover attempts by persons intending to
acquire the Company in two steps and to eliminate remaining stockholder
interests by means of a Business Combination involving less consideration per
share than the acquiring person would propose to pay for its initial interest in
the Company.
In addition, the Company is subject to certain anti-takeover provisions of
the DGCL which prohibit the Company from engaging in any Business Combination
with any Interested Stockholder unless certain conditions are satisfied.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below has severally agreed to purchase from the Company,
and the Company has agreed to sell to such Underwriter, the respective number of
shares of Common Stock set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc. .................................
Oppenheimer & Co., Inc. ...........................
Sanders Morris Mundy Inc. .........................
-------
Total..............................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Oppenheimer & Co., Inc. and
Sanders Morris Mundy Inc. are acting as representatives (the "Representatives"),
propose to offer part of the shares of Common Stock directly to the public at
the offering price set forth on the cover page of this Prospectus and part of
the shares to certain dealers at a price which represents a concession not in
excess of $ per share under the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. The Representatives of the Underwriters have
advised the Company that the Underwriters do not intend to confirm any shares to
any accounts over which they exercise discretionary authority. After the initial
public offering, the offering price and other selling terms may be changed by
the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional
shares of Common Stock at the price to the public set forth on the cover page of
this Prospectus, minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.
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The Company, its officers and directors, and the holders of substantially
all of the Common Stock have agreed that, until the later of December 31, 1997
or 180 days following the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or any securities convertible
into, or exercisable or exchangeable for, Common Stock, except that the Company
may grant warrants pursuant to the Note Purchase Agreement and grant options
under the Company's stock option and purchase plans, and may issue shares of
Common Stock (i) in connection with acquisitions, (ii) pursuant to the exercise
of options granted under the Company's stock option and purchase plans, (iii)
pursuant to the exercise of warrants outstanding as of the closing of the
Offering or which the Company is obligated to issue as part of the 1997
Warrants, (iv) pursuant to the conversion of the Company's preferred stock and
(v) pursuant to or in connection with the Company's Rights Plan.
Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price are the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for the
growth of the Company's revenues and earnings, the current state of the economy
in the United States and the current level of economic activity in the industry
in which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities in the securities markets,
including current market valuations of publicly traded companies that are
comparable to the Company.
On June 27, 1996, in a private placement of 1,150,000 shares of Series C
Preferred Stock by the Company for $4.00 per share, a Managing Director of Smith
Barney Inc., one of the Representatives, purchased 25,000 shares and two private
investment funds purchased an aggregate of 625,000 shares. The general partner
of the two private investment funds is Environmental Opportunities Management
Co., LLC, in which Sanders Morris Mundy, one of the Representatives, owns a 75%
interest. Shares of Series C Preferred Stock will convert on a one-for-one basis
into Common Stock on or prior to the closing of the Offering.
In March 1997, the Company entered into the Note Purchase Agreement to
issue the 1997 Notes and entered into the 1997 Warrant Agreement to issue the
1997 Warrants. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Capital Stock -- 1997 Warrants." The two investment funds affiliated with
Sanders Morris Mundy, one of the Representatives, are parties to the Note
Purchase Agreement and are holders of 1997 Warrants.
The Company has agreed to indemnify the Underwriters and certain related
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on The New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
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LEGAL MATTERS
The validity, authorization and issuance of the shares of Common Stock
offered hereby will be passed upon for the Company by Benesch, Friedlander,
Coplan & Aronoff LLP of Cleveland, Ohio. Certain legal matters will be passed on
for the Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements of Waterlink, Inc. and subsidiaries;
the financial statements of Mass Transfer Systems, Inc. and the consolidated
financial statements of Water Equipment Technologies, Inc. appearing in this
Prospectus and Registration Statement (as defined below) have been audited by
Ernst & Young LLP, independent auditors, to the extent indicated in their
reports thereon also appearing elsewhere herein and in the Registration
Statement. Such financial statements have been included herein in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Nordic Water Products Group
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young AB, independent auditors, to the extent indicated in their report
thereon also appearing elsewhere herein and in the Registration Statement. Such
financial statements have been included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Bioclear Technology, Inc.
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young, independent auditors, to the extent indicated in their report
thereon also appearing elsewhere herein and in the Registration Statement. Such
financial statements have been included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Great Lakes Environmental, Inc. appearing in
this Prospectus and Registration Statement have been audited by Dennis D. Tysl &
Company, Ltd., independent auditors, to the extent indicated in their report
thereon appearing also appearing elsewhere herein and in the Registration
Statement. Such financial statements have been included herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of Aero-Mod, Inc. and affiliates
appearing in this Prospectus and Registration Statement have been audited by
Sink, Gillmore & Gordon LLP, independent auditors, to the extent indicated in
their report thereon also appearing elsewhere herein and in the Registration
Statement. Such financial statements have been included herein in reliance upon
such report given upon authority of such firm as experts in accounting and
auditing.
The financial statements of Lanco Environmental Products, Inc. appearing in
this Prospectus and Registration Statement have been audited by Plante & Moran,
LLP, independent auditors, to the extent indicated in their report thereon also
appearing elsewhere herein and in the Registration Statement. Such financial
statements have been included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with the SEC with respect to this Offering. This Prospectus,
filed as a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, or the exhibits and
schedules thereto, in accordance with the rules and regulations of the SEC, and
reference is hereby made to such omitted information. The statements made in
this Prospectus concerning documents filed as exhibits to the Registration
Statement accurately describe the material provisions of such documents and are
qualified in their entirety by reference to such exhibits for complete
statements of their provisions. The Registration Statement and the exhibits and
schedules thereto may be inspected, without
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charge, at the public reference facilities of the SEC at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and
its regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and at 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of all or any portion of the Registration Statement can be
obtained at prescribed rates from the Public Reference Section of the SEC at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. The SEC maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The address of that site is
http://www.sec.gov.
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SYSTEMS, EQUIPMENT AND SERVICES GLOSSARY
AERATION SYSTEMS: The Company is a leader in the field of design,
manufacture and installation of JET AERATION and jet mixing systems for
industrial and municipal customers. It also offers a line of lower-cost
SUBMERGED MECHANICAL MIXERS for less demanding applications. Jet systems are
used to accomplish aeration, primarily for biological effluent treatment
processes but also for mixing, by creating high-velocity jets of air and process
water, or process water without air. Jet aeration accomplishes highly efficient
oxygen transfer and mixing to the process water or mixing alone if air
compressors are not operated. The high oxygen transfer rate of jet aeration can
increase the throughput capacity of a wastewater plant by 2-3 times compared to
fine bubble or coarse bubble aeration systems. In addition to higher aeration
efficiency, jet systems offer land use savings when applied to deep tank
applications, lower energy use, reduced aerosols, low installation costs,
convenient maintenance, and reduced clogging compared to conventional systems.
Industries in which jet aeration are well established include
chemical-petrochemical processing, food processing, pulp and paper plants,
refineries, and pharmaceutical plants, and municipal waste treatment.
Applications include conventional biological reactors, sequential batch reactors
(SBRs), autothermic thermophilic aerobic digesters (ATADs), complete mix
activated sludge, flow and organic equalization, as well as others. The
Company's jet aeration systems are provided by its Mass Transfer subsidiary and
are incorporated into the plant designs of Aero-Mod and Bioclear.
CLARIFIERS: The Company, designs, builds and installs clarifiers for its
industrial and municipal customers. These devices remove, through gravity
settling, particulates from process water, producing a water which is clearer
than the influent and making it suitable for use in many industrial and
municipal applications. Particulates which are separated from the water are
settled to and removed from the bottom of the clarifier or raised to and removed
from the surface, most often in the form of a sludge. Although there are a
number of clarifier designs available in the marketplace, the Company utilizes a
patented technology in its all stainless steel CLARATOR(R)/SPLIT CLARATOR(TM)
clarifiers. The Company also manufactures INCLINED PARALLEL PLATE clarifiers,
which utilize a series of parallel plates mounted at an angle such that, as the
influent flows at a controlled rate up and over the plates, solids settle out
onto the plates, from which they slide downward to a sludge collection and
removal system. The advantage of an inclined plate clarifier is that the area
required for clarification is much smaller than that for a conventional
clarifier of equal removal capacity, saving up to 90% of space compared with a
conventional clarifier. The Company's Nordic Group, Great Lakes and Lanco
subsidiaries offer various application-specific clarifier configurations.
CONTRACT OPERATIONS: The Company operates water purification and wastewater
treatment facilities for municipal customers under contract for varying time
periods. The Company currently operates small municipal wastewater treatment
facilities in the United States and Chile through its Aero-Mod subsidiary. In
addition, through its Bioclear subsidiary, the Company undertakes remote
monitoring of sequential batch reactor wastewater treatment systems for
industrial and municipal customers in the United States and Canada.
CUTTING FLUID RECOVERY SYSTEMS: The Company's Sanborn Technologies
subsidiary manufactures separation systems for waste minimization and cutting
fluid recovery for machine tools and for treating similar industrial process
streams. Some of these systems incorporate membrane technology while others
incorporate centrifugal technology in the separation process. In both cases, the
Company's systems permit the removal and concentration of waste products from
the working fluid, leading to savings in both cutting fluid expense and disposal
costs.
DESIGN/BUILD: The Company designs and constructs water purification and
wastewater treatment plants for a wide variety of applications. The Company's
design/build operations incorporate the Company's systems, equipment and
services, such as membrane systems, continuous recirculating sand filters,
sequential batch reactors, inclined plate clarifiers, sludge scrapers, and
aeration or mixing systems. The Company designs and constructs water
purification and wastewater treatment plants at its Axel-Johnson Engineering
GmbH, Bioclear, Aero-Mod and Waterlink Technologies subsidiaries.
DEWATERING SYSTEMS: The Company offers many systems for dewatering sludge
from municipal and industrial treatment facilities. The Company manufactures
DECANTING CENTRIFUGES for the separation of solids
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from sanitary sludge and industrial slurries. Decanters are utilized to achieve
a high level of dry solids in order to minimize waste volume and weight. The
Company's decanting centrifuges are capable of delivering up to 35% dry solids
because of very low differential speeds between the drum and shaft, providing
the Company a competitive advantage in cases where landfill disposal costs are
high. Decanting centrifuges, in addition to reducing disposal costs, are an
attractive alternative to other dewatering systems because they simplify plant
housekeeping, provide an improved working environment for operating personnel,
are highly reliable, are more compact and therefore require less floor space.
The Company's decanting centrifuges are manufactured by its Noxon subsidiaries.
They are marketed in Europe by Noxon and by the company's Sanborn Technologies
subsidiary in the Americas.
The Company is the exclusive sales agent in North and South America for the
DRAIMAD(TM) DEWATERING-BAG SYSTEMS and the MONOBELT(TM) FILTER PRESSES
manufactured by Teknofanghi SA of Italy pursuant to a five-year agreement
expiring June 1, 2001. The MONOBELT(TM) is an all-stainless steel belt filter
press. In the MONOBELT(TM) system, the pressed sludge is scraped off the belt
and into a trough for disposal. The Company's belt filter presses are made or
distributed by its Aero-Mod subsidiary. The Company also manufactures
specialized manual and automatic PLATE AND FRAME FILTER PRESSES designed for
processing metal hydroxide sludges from metal finishing operations. Ancillary
products include steam and electric sludge dryers for eliminating even more
moisture prior to disposal. These presses are manufactured by Lanco. The
DRAIMAD(TM) dewatering-bag system is an all stainless steel, self-contained
system which delivers sludge under a slight pressure into porous bags from which
water is drained and returned to the treatment plant, whereas the
sludge-containing bags can be disposed of in a landfill. DRAIMAD(TM) systems are
marketed by Aero-Mod.
FILTERS: The Company offers a wide range of filters. With over 10,000
installations, the Company believes its CONTINUOUS RECIRCULATING SAND filter is
one of the best-known and respected filters in the world. Its unique design,
with no moving parts, produces a uniform, high quality filtrate. This filter is
used for the final filtration of biological wastewater plants, and can
accomplish phosphorous precipitation and nitrogen removal. Industrial
applications include effluent treatment for chemical, food processing, and
cellulose plants, metal hydroxide removal, mill scale recovery, and many others.
The continuous recirculating sand filter is normally supplied in multiple units
and can be fabricated from stainless steel, carbon steel, or can be designed for
concrete tanks. The Company's continuous recirculating sand filters are
manufactured by its Nordic Group subsidiary. They are marketed in Europe by the
Nordic Group and Axel Johnson Engineering GmbH. In the Americas they are
marketed by Waterlink Technologies. Multi-cell, multimedia automatic backwashing
TERTIARY POLISHING filters suitable for use on dissolved air flotation effluents
and inclined plate settler effluents are available from the Company's Great
Lakes subsidiary.
The Company's Great Lakes subsidiary also manufactures a specialty ROTARY
VACUUM PRECOAT filter that is precoated with diatomaceous earth. The filter then
revolves through a reservoir which contains difficult waste streams which may be
very high in solids or which may be oily sludges. The precoated rotating drum
collects the waste material on the surface of the diatomaceous earth which is
slowly carved away by a knife edge. The dry waste material is subsequently
processed for disposal. The Company's rotary precoat filters are completely
automatic, highly reliable, and can be coupled with chemical pretreatment
systems to optimize efficiency.
The Company's Waterlink Technologies subsidiary sells CARTRIDGE-REPLACEMENT
FILTERS and small water treatment systems to regional water treatment companies
that in turn sell to and service local commercial and residential customers.
ION EXCHANGE MEDIA: The Company designs and builds ion exchange MEDIA
RECHARGE products and services and demineralizing SYSTEMS. It also operates two
facilities in Florida that provide an exchange service for customers who use ion
exchange media for demineralizing water. These facilities reprocess the media to
restore its demineralizing capacity. The Company's Waterlink Technologies
subsidiary markets the ion exchange products and services.
MEMBRANE SEPARATION SYSTEMS: The Company's Waterlink Technologies
subsidiary designs and builds REVERSE OSMOSIS (RO) systems for DESALINATION,
drinking water treatment, wastewater reclamation, and process water production
for a wide variety of requirements including, for example, boiler feedwater, the
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beverage industry, and high purity applications for the pharmaceutical and
electronics industries. Desalination is the removal of inorganic solids (salts)
from a solution such as water to produce a liquid free of dissolved salts.
Desalination is typically accomplished by distillation, reverse osmosis, or
electrodialysis. The Company also produces ion exchange demineralizing systems,
microfiltration systems, and nanofiltration systems. In addition to large scale
industrial and municipal systems, the Company produces membrane systems for use
by commercial and residential customers which are normally sold through
distributors specializing in selling to and servicing a local customer base.
NUTRIENT REMOVAL PROCESS: The Company's patented SEQUOX(TM) process for
biological nutrient removal accomplishes nitrification and denitrification to
meet United States tertiary wastewater regulations. The process features several
benefits including good control of filamentous organisms, reduced energy
consumption, carbon removal, nitrogen removal, and phosphorous removal. The
aeration system normally recommended for SEQUOX(TM) installations is jet
aeration from Mass Transfer, but SEQUOX(TM) installations may utilize
fine-bubble or coarse-bubble diffusers if the customer prefers. This process is
provided by the Company's Aero-Mod subsidiary. The Company also markets a DENI
PROCESS version for denitrification and an OXY PROCESS version for nitrification
marketed by Waterlink Technologies.
OIL/WATER SEPARATORS: The Company has a complete range of oil water
separators that are suitable for applications from the petroleum industry to the
food industry. The Company offers large scale systems for flows up to 5000
gallons per minute and small systems for the 0-35 gallons per minute range.
These systems are capable of removing oil down to 10 parts per million and are
certified to the DIN 1999 International Standard. Tanks are available in
fiberglass, carbon steel, and stainless steel for corrosion compatibility.
Emulsion breaking systems are available, as are chemical pretreatment systems.
The Company provides these separators through its Great Lakes and Zickert
Products subsidiaries.
SEQUENTIAL BATCH REACTORS (SBRS): The Company manufactures sequential
batch reactors for sanitary waste treatment plants that are subject to cold
weather, low flows, and facilities with high flow variation such as those found
in resort and seasonal sites. Sequential batch reactors are gaining favor with
regulatory officials in the United States because they are relatively simple to
operate and have an acceptable performance track record. A sequential batch
reactor system processes waste in batches instead of continuously, and consumes
less space than do conventional treatment plants. These batch reactor systems
have remote monitoring capabilities, enabling customers to benefit from weekly
process audits and remotely initiated corrections without the need for site
visits. These facilities are managed under annual monitoring contracts. These
sequential batch reactor systems are manufactured by Bioclear and can utilize
Mass Transfer's jet aeration systems, as well as Noxon and Aero-Mod's dewatering
products.
SLUDGE SCRAPERS AND SKIMMERS: The Company manufactures hydraulically and
electrically operated stainless steel surface and air flotation units. These are
employed in water treatment plants to remove sludge resulting from clarifiers,
either conventional or inclined plate settlers, from the surface of dissolved
air flotation tanks, and from rectangular wastewater plant clarifiers. The
market for scrapers is very competitive, and management believes that the
Company's offerings are at the high end with respect to quality, reliability,
and cost. These scrapers are typically sold on industrial systems or as
retrofits in the municipal market. These products are offered through the
Company's Zickert Products subsidiary in Europe and Asia Pacific and Waterlink
Technologies in the Americas.
64
<PAGE> 66
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Basis of Presentation............................................................... F-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet at December 31, 1996....... F-4
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1996................................................................ F-5
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended
December 31, 1995................................................................. F-6
Unaudited Pro Forma Consolidated Statement of Operations for the three months ended
December 31, 1996................................................................. F-7
Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.................. F-8
HISTORICAL FINANCIAL STATEMENTS
WATERLINK, INC. AND SUBSIDIARIES
Report of Independent Auditors...................................................... F-11
Consolidated Balance Sheets at September 30, 1995 and 1996 and December 31, 1996
(Unaudited)....................................................................... F-12
Consolidated Statements of Operations for the period from December 7, 1994 (date of
incorporation) to September 30, 1995, the year ended September 30, 1996, and the
three months ended December 31, 1995 and 1996 (Unaudited)......................... F-14
Consolidated Statements of Shareholders' Equity for the period from December 7, 1994
(date of incorporation) to September 30, 1995, the year ended September 30, 1996
and the three months ended December 31, 1996 (Unaudited).......................... F-15
Consolidated Statements of Cash Flows for the period from December 7, 1994 (date of
incorporation) to September 30, 1995, the year ended September 30, 1996, and the
three months ended December 31, 1995 and 1996 (Unaudited)......................... F-16
Notes to Consolidated Financial Statements.......................................... F-17
GREAT LAKES ENVIRONMENTAL, INC.
Report of Independent Auditors...................................................... F-29
Balance Sheets at December 31, 1994 and August 31, 1995............................. F-30
Statements of Income for the year ended December 31, 1994 and the eight months ended
August 31, 1995................................................................... F-31
Statements of Shareholders' Equity for the year ended December 31, 1994 and the
eight months ended August 31, 1995................................................ F-32
Statements of Cash Flows for the year ended December 31, 1994 and the eight months
ended August 31, 1995............................................................. F-33
Notes to Financial Statements....................................................... F-34
MASS TRANSFER SYSTEMS, INC.
Report of Independent Auditors...................................................... F-37
Balance Sheets at December 31, 1994, December 31, 1995 and January 31, 1996......... F-38
Statements of Operations for the year ended February 28, 1994, the ten months ended
December 31, 1994, the year ended December 31, 1995 and the month ended January
31, 1996.......................................................................... F-39
Statements of Shareholders' Equity for the year ended February 28, 1994, the ten
months ended December 31, 1994, the year ended December 31, 1995 and the month
ended January 31, 1996............................................................ F-40
Statements of Cash Flows for the year ended February 28, 1994, the ten months ended
December 31, 1994, the year ended December 31, 1995 and the month ended January
31, 1996.......................................................................... F-41
Notes to Financial Statements....................................................... F-42
</TABLE>
F-1
<PAGE> 67
<TABLE>
<CAPTION>
PAGE
<S> <C>
AERO-MOD, INC. AND AFFILIATES
Independent Auditor's Report........................................................ F-46
Combined Balance Sheets at October 31, 1994 and 1995, and April 26, 1996............ F-47
Combined Statements of Income and Retained Earnings for the years ended October 31,
1994 and 1995 and for the period ended April 26, 1996............................... F-49
Combined Statements of Cash Flows for the years ended October 31, 1994 and 1995 and
for the period ended April 26, 1996................................................. F-50
Notes to Financial Statements....................................................... F-51
WATER EQUIPMENT TECHNOLOGIES, INC. AND SUBSIDIARY
Report of Independent Auditors...................................................... F-58
Consolidated Balance Sheets at September 30, 1995 and 1996.......................... F-59
Consolidated Statements of Operations for each of the three years in the period
ended September 30, 1996............................................................ F-60
Consolidated Statements of Shareholders' Equity for each of the three years in the
period ended September 30, 1996..................................................... F-61
Consolidated Statements of Cash Flows for each of the three years in the period
ended September 30, 1996............................................................ F-62
Notes to Consolidated Financial Statements.......................................... F-63
NORDIC WATER PRODUCTS GROUP
Report of Independent Auditors...................................................... F-68
Combined Balance Sheets at March 31, 1995 and 1996, and December 31, 1996
(Unaudited)......................................................................... F-69
Statements of Combined Operations for each of the three years in the period ended
March 31, 1996 and the nine months ended December 31, 1995 and 1996 (Unaudited)..... F-70
Combined Statements of Shareholders' Equity for each of the three years in the
period ended March 31, 1996 and the nine months ended December 31, 1996
(Unaudited)......................................................................... F-71
Combined Statements of Cash Flows for each of the three years in the period ended
March 31, 1996 and the nine months ended December 31, 1995 and 1996 (Unaudited)..... F-72
Notes to Combined Financial Statements.............................................. F-73
LANCO ENVIRONMENTAL PRODUCTS, INC.
Independent Auditors' Report........................................................ F-81
Balance Sheets at December 31, 1995 and 1996........................................ F-82
Statements of Income for the six months ended June 30 and December 31, 1995 and the
year ended December 31, 1996........................................................ F-83
Statements of Changes in Stockholder's Equity for the six months ended December 31,
1995 and the year ended December 31, 1996........................................... F-84
Statements of Cash Flows for the six months ended June 30 and December 31, 1995 and
the year ended December 31, 1996.................................................... F-85
Notes to Financial Statements....................................................... F-86
BIOCLEAR TECHNOLOGY, INC.
Auditors' Report.................................................................... F-89
Consolidated Balance Sheets at August 31, 1995 and 1996, and December 31, 1996
(Unaudited)......................................................................... F-90
Consolidated Statements of Income and Retained Earnings for each of the three years
in the period ended August 31, 1996 and the four months ended December 31, 1995 and
1996 (Unaudited).................................................................... F-91
Consolidated Statements of Cash Flows for each of the three years in the period
ended August 31, 1996 and the four months ended December 31, 1995 and 1996
(Unaudited)......................................................................... F-92
Notes to Consolidated Financial Statements.......................................... F-93
</TABLE>
F-2
<PAGE> 68
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
BASIS OF PRESENTATION
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of December 31, 1996 adjusts the Company's historical balance sheet to give
effect to the following as if they occurred as of December 31, 1996 (i) the
Nordic Group acquisition, (ii) the Pending Acquisitions, (iii) the conversion of
all outstanding preferred stock, (iv) the conversion of the convertible
subordinated notes-related parties into shares of Common Stock, and (v) the sale
of the shares of Common Stock by the Company in the Offering and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." The following Unaudited Pro Forma Consolidated Statements of
Operations for fiscal 1996 and the three months ended December 31, 1995 and 1996
adjust the Company's historical statements of operations to give effect to the
events discussed in (i), (ii), (iii), (iv) and (v) above and the acquisitions
completed in fiscal 1996 as if they had occurred as of October 1, 1995.
The pro forma financial statements have been derived in part from the
historical financial statements included elsewhere in this Prospectus. In
preparing the pro forma financial statements, the historical financial
statements of the Completed Acquisitions and Pending Acquisitions were converted
to a September 30 fiscal year end, except for Bioclear Technologies, Inc. which
has an August 31 fiscal year end.
The pro forma financial statements have been prepared by the Company based
in part on historical financial information provided by (i) the former owners of
the Nordic Group for periods prior to its acquisition with respect to the
historical results of operations and financial position of the Nordic Group, and
(ii) the management of the Pending Acquisitions for periods prior to the
consummation of these acquisitions with respect to the historical results of
operations and financial position of Bioclear and Lanco. The related pro forma
adjustments have been prepared by the Company's management based on its
assumptions and using the best available information provided by the former
owners of the Nordic Group and management of the Pending Acquisitions.
The Unaudited Pro Forma Condensed Consolidated Financial Data has been
prepared by the Company's management. This pro forma data does not purport to
represent the Company's financial position or results of operations had the
aforementioned transactions been completed as of the beginning of the periods
indicated, or to project the Company's results of operations at any future date
or for any future period. The Unaudited Pro Forma Condensed Consolidated
Financial Data should be read in conjunction with the Consolidated Financial
Statements and the notes thereto of the Company, the Completed Acquisitions and
the Pending Acquisitions, contained elsewhere in this Prospectus.
F-3
<PAGE> 69
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------- ADJUSTMENTS
NORDIC(1) PENDING(1) PRO FORMA FROM PRO FORMA
COMPANY GROUP ACQUISITIONS ADJUSTMENTS PRO FORMA OFFERING AS ADJUSTED
------- --------- ------------ ----------- --------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents......... $ 496 $ 2,618 $ 132 $ (480)(2) $ 2,766 $ 5,515(5) $ 8,281
Accounts receivable... 7,036 4,757 711 -- 12,504 -- 12,504
Inventories........... 3,779 8,744 478 -- 13,001 -- 13,001
Other current
assets.............. 2,227 2,197 91 -- 4,515 -- 4,515
------- ------- ------- -------
Total current assets.... 13,538 18,316 1,412 (480) 32,786 5,515 38,301
Property, plant and
equipment, net........ 1,941 1,019 1,608 -- 4,568 -- 4,568
Other assets:
Goodwill and other
intangibles, net.... 15,608 497 -- 22,545(2) 38,650 -- 38,650
Other assets.......... 482 885 -- 616(3) 1,983 (616) (6) 1,367
------- ------- ------- -------
16,090 1,382 -- 23,161 40,633 (616) 40,017
------- ------- ------- -------
Total assets............ $31,569 $20,717 $ 3,020 $22,681 $77,987 $ 4,899 $82,886
======= ======= ======= =======
Liabilities and
shareholders' equity
Current liabilities:
Accounts payable...... $3,705 $ 4,717 $ 1,206 $(2,634)(2)(3) $ 6,994 $ -- $ 6,994
Accrued expenses...... 2,040 4,311 29 -- 6,380 -- 6,380
Other current
liabilities......... 1,333 3,871 212 -- 5,416 (265)(6) 5,151
Current portion of
long-term debt...... 1,737 -- 704 -- 2,441 (2,441)(5) --
------- ------- ------- -------
Total current
liabilities........... 8,815 12,899 2,151 (2,634) 21,231 (2,706) 18,525
Long-term obligations:
Long-term debt........ 5,861 -- -- 10,721(2) 16,582 (16,582)(5) --
Notes payable-related
parties............. 3,100 4,089 -- (3,089)(2) 4,100 (4,100)(5) --
Convertible
subordinated
notes-related
parties............. 2,000 -- -- (2,000)(4) -- -- --
Pro forma cash
consideration due to
former owners of
Pending
Acquisitions........ -- -- -- 16,862(2) 16,862 (16,862)(5) --
Other long-term
liabilities......... 225 1,340 -- -- 1,565 -- 1,565
------- ------- ------- -------
11,186 5,429 -- 22,494 39,109 (37,544) 1,565
Redeemable preferred
stock................. 8,500 -- -- -- 8,500 (8,500)(7) --
Shareholders' equity.... 3,068 2,389 869 2,821 (2)(3)(4 9,147 53,649 (5)(6)(7 62,796
------- ------- ------- -------
Total liabilities and
shareholders'
equity................ $31,569 $20,717 $ 3,020 $22,681 $77,987 $ 4,899 $82,886
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 70
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------- ADJUSTMENTS PRO
FISCAL 1996 NORDIC PENDING PRO FORMA PRO FROM FORMA AS
COMPANY ACQUISITIONS GROUP ACQUISITIONS ADJUSTMENTS FORMA OFFERING ADJUSTED
------- ------------ ------- ------------ ----------- -------- ----------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $19,801 $ 13,264 $32,098 $ 10,239 $(2,715)(8) $72,687 $72,687
Cost of sales........ 11,233 8,226 22,465 4,936 (2,175)(8)(11) 44,685 44,685
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 8,568 5,038 9,633 5,303 (540) 28,002 -- 28,002
Selling, general and
administrative
expenses(17)....... 7,029 4,498 7,665 4,872 (2,850)(9)(10)(11) 21,214 -- 21,214
Amortization......... 307 13 54 -- 684(12) 1,058 -- 1,058
------- ------- ------- ------- ------- ------- ------- -------
Operating income..... 1,232 527 1,914 431 1,626 5,730 -- 5,730
Other income
(expense):
Interest expense... (877) (86) (77) -- (2,794)(11)(13) (3,834) 3,834 -- (15)
Other -- net....... (44) (28) 14 41 -- (17) (17)
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.............. 311 413 1,851 472 (1,168) 1,879 3,834 5,713
Income taxes......... 5 11 -- 226 566(14) 808 1,649 2,457 (14)
------- ------- ------- ------- ------- ------- ------- -------
Net income........... $ 306 $ 402 $ 1,851 $ 246 $(1,734) $ 1,071 $ 2,185 $ 3,256
======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
per share.......... (16) (16)
======= =======
Number of shares used
to compute pro
forma per share
data............... (16) (16)
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 71
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------- ADJUSTMENTS PRO
FISCAL 1996 NORDIC PENDING PRO FORMA PRO FROM FORMA AS
COMPANY ACQUISITIONS GROUP ACQUISITIONS ADJUSTMENTS FORMA OFFERING ADJUSTED
------- ------------ ------- ------------ ----------- -------- ----------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $3,280 $ 5,365 $ 8,017 $ 809 $ 836(8) $18,307 $18,307
Cost of sales........ 1,909 3,214 5,291 534 556(8)(11) 11,504 11,504
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 1,371 2,151 2,726 275 280 6,803 -- 6,803
Selling, general and
administrative
expenses........... 1,168 1,628 1,791 586 157(9)(10)(11) 5,330 5,330
Amortization......... 44 9 14 -- 199(12) 266 266
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)............. 159 514 921 (311) (76) 1,207 -- 1,207
Other income
(expense):
Interest expense... (135) (45) (27) -- (797)(11)(13) (1,004) 1,004 -- (15)
Other -- net....... (11) (24) -- 24 -- (11) (11)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes....... 13 445 894 (287) (873) 192 1,004 1,196
Income taxes......... 1 28 -- 23 31(14) 83 432 515 (14)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ 12 $ 417 $ 894 $ (310) $ (904) $ 109 $ 572 $ 681
======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
per share.......... (16) (16)
======= =======
Number of shares used
to compute pro
forma per share
data............... (16) (16)
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 72
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------- ADJUSTMENTS PRO
NORDIC PENDING PRO FORMA PRO FROM FORMA AS
COMPANY GROUP ACQUISITIONS ADJUSTMENTS FORMA OFFERING ADJUSTED
------- ------- ------------ ----------- -------- ----------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $9,869 $ 5,669 $ 956 $ 2,949(8) $19,443 $19,443
Cost of sales.......................... 5,914 3,289 599 2,316(8) 12,118 12,118
------- ------- ------- ------- ------- ------- -------
Gross profit........................... 3,955 2,380 357 633 7,325 7,325
Selling, general and administrative
expenses............................. 3,239 2,268 479 25(9) 6,011 6,011
Amortization........................... 142 14 -- 131(12) 287 287
------- ------- ------- ------- ------- ------- -------
Operating income (loss)................ 574 98 (122) 477 1,027 -- 1,027
Other income (expense):
Interest expense..................... (260) (57) (1) (591)(13) (909) 909 -- (15)
Other -- net......................... (12) (29) 66 -- 25 -- 25
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes...... 302 12 (57) (114) 143 909 1,052
Income taxes........................... 75 -- 63 (77)(14) 61 391 452 (14)
------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $ 227 $ 12 $ (120) $ (37) $ 82 $ 518 $ 600
======= ======= ======= ======= ======= ======= =======
Pro forma net income per common
share................................ (16) (16)
======= =======
Number of shares used to compute pro
forma per share data................. (16) (16)
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 73
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The Unaudited Pro Forma Condensed Consolidated Balance Sheet has been adjusted
to reflect the above as follows:
(1) To record the historical assets acquired and liabilities assumed in
connection with the acquisitions of the Nordic Group, Bioclear and
Lanco.
(2) To reflect adjustments to assets acquired and liabilities assumed in
connection with the acquisitions of the Nordic Group and the Pending
Acquisitions based on their estimated fair values under the purchase
method of accounting. The estimated combined purchase price relating
to these acquisitions is $32,729,000, including acquisition related
expenses of approximately $480,000. The allocation of the purchase
price is preliminary and assumes the historical book value of tangible
assets approximates fair value. The actual allocation will be based on
management's final evaluation of such assets and liabilities. Some
portion of the excess of the purchase price over the historical cost
of net assets acquired may ultimately be allocated to specific
tangible and intangible assets and liabilities. The final allocation
of the purchase price and the resulting effect on net income may
differ significantly from the pro forma amounts included herein. These
pro forma adjustments are reflected as follows (in thousands of
dollars):
<TABLE>
<S> <C>
Decrease cash for payment of acquisition related expenses...... $ (480)
Increase goodwill for the excess of the purchase price over the
net assets acquired.......................................... 22,545
Decrease accounts payable for the Nordic Group payables
forgiven by the seller as part of the purchase agreement..... (2,837)
Increase long-term debt for acquisition of the Nordic Group.... 10,721
Decrease notes payable-related parties for the Nordic Group
debt forgiven by the seller as part of the purchase
agreement.................................................... (3,089)
Reflect pro forma cash consideration due to former owners of
Pending Acquisitions......................................... 16,862
Increase shareholders' equity for common stock to be issued in
connection with the Pending Acquisitions..................... 3,666
Decrease shareholders' equity to eliminate historical equity of
the Nordic Group and Pending Acquisitions.................... (3,258)
</TABLE>
(3) To reflect deferred financing costs associated with the Company's
Credit Agreement and Subordinated Notes agreement entered into
concurrent with the Nordic Group acquisition as follows (in thousands
of dollars):
<TABLE>
<S> <C>
Increase other assets for deferred financing costs............. $ 616
Increase accounts payable for those costs payable in cash...... 203
Increase shareholders' equity for the fair value of 350,000
detachable warrants issued as part of the agreements......... 413
</TABLE>
(4) To record the conversion of convertible subordinated notes-related
parties which were converted in January 1997 into 500,000 shares of
Common Stock.
(5) To record the issuance of shares of Common Stock in connection
with the Offering and application of estimated proceeds therefrom of
$45.5 million as described under "Use of Proceeds."
F-8
<PAGE> 74
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA (CONTINUED)
(6) To reflect the write-off of unamortized debt issuance costs and
discounts associated with the Company's Credit Agreement and
Subordinated Notes agreement to be repaid with net proceeds from the
Offering (in thousands of dollars):
<TABLE>
<S> <C>
Decrease other assets for write-off of deferred financing
costs........................................................ $ (616)
Decrease other current liabilities for tax effect of the
write-off.................................................... (265)
Decrease shareholders' equity for extraordinary, non-cash
charge for the write-off of deferred financing costs to be
recorded in the quarter in which the Offering becomes
effective.................................................... (351)
</TABLE>
(7) To record the conversion of all outstanding shares of Preferred Stock
into 3,250,000 shares of Common Stock concurrently with the closing of
this Offering.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
The historical results for the Company include the operations of the Completed
Acquisitions for the periods subsequent to the respective dates of acquisition
in accordance with the purchase method of accounting. The dates of acquisition
of the Completed Acquisitions are as follows:
<TABLE>
<CAPTION>
<S> <C>
Sanborn Technologies March 31, 1995
Great Lakes August 31, 1995
Mass Transfer January 31, 1996
Aero-Mod April 26, 1996
Waterlink Technologies September 30, 1996
Nordic Group March 5, 1997
</TABLE>
The historical operating results of the fiscal 1996 acquisitions as presented
reflect the operations of the acquired companies prior to the respective dates
of acquisition. Historical operating results for the Nordic Group and the
Pending Acquisitions reflect their operations for the periods presented.
The Unaudited Pro Forma Consolidated Statements of Operations give effect to the
following adjustments:
(8) To recognize revenue on the percentage of completion method of
accounting at the Nordic Group which was previously recognized on the
completed contract method as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL DECEMBER 31,
1996 1995 1996
------- ------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Increase (decrease) net sales.............. $(2,715) $ 836 $ 2,949
Increase (decrease) cost of sales.......... (2,069) 607 2,316
------- ------ -----------
Increase (decrease) gross profit........... $ (646) $ 229 $ 633
======= ====== =========
</TABLE>
(9) To adjust selling, general and administrative expenses for certain
adjustments in salaries and benefits to the former owners of the
acquisitions completed in fiscal 1996 and the Pending Acquisitions to
levels specified in current employment agreements as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL DECEMBER 31,
1996 1995 1996
------- ------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Increase (decrease) selling, general and
administrative expenses.................. $(3,568) $ (84) $ 25
</TABLE>
F-9
<PAGE> 75
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA (CONTINUED)
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
(CONTINUED)
(10) To adjust corporate offices expenses to current levels as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL DECEMBER 31,
1996 1995 1996
------ ------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Increase selling, general and administrative
expenses................................... $ 652 $ 206 $ --
</TABLE>
(11) To reclassify amounts for certain acquired companies to conform to the
classifications of the registrant:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL DECEMBER 31,
1996 1995 1996
------ ------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Decrease cost of sales....................... $ (106) $ (51) $ --
Increase selling, general and administrative
expenses................................... 66 35 --
Increase interest expense.................... 40 16 --
</TABLE>
(12) To record incremental amortization of the goodwill to be recorded as a
result of the acquisitions completed in fiscal 1996, the acquisition of
the Nordic Group and the Pending Acquisitions over a 40 year period.
(13) To record interest expense of $2,754,000 in fiscal 1996, and $781,000
and $591,000 for the three months ended December 31, 1995 and 1996,
respectively, relating to debt assumed to be issued in connection with
the Completed Acquisitions and Pending Acquisitions.
(14) To adjust income taxes to an effective rate of 43%.
(15) To reduce interest expense resulting from the application of the
estimated net proceeds of the Offering, as described under "Use of
Proceeds."
(16) Pro forma net income per share is computed by dividing net income by the
number of shares used to compute pro forma per share data. These shares
include shares of Common Stock outstanding, shares of Common Stock to be
issued in connection with the Offering and Pending Acquisitions, shares
of Common Stock to be issued upon the conversion of all outstanding
Preferred Stock and the assumed exercise of outstanding stock options
and warrants (using the treasury stock method and an assumed initial
public offering price of $ per share).
(17) The pro forma Statements of Operations exclude a special charge to
operations of $ ($ per share), assuming an initial public
offering price of $ per share, which will be incurred in the quarter
in which the Offering is completed. Such charge results from the
issuance by the Company of certain compensatory stock options to an
officer of the Company pursuant to the terms of an employment agreement.
Of this amount, approximately $ is non-cash, and approximately
$ represents a cash payment for the reimbursement of income taxes
resulting from this stock issuance.
F-10
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
WATERLINK, INC.
We have audited the accompanying consolidated balance sheets of Waterlink,
Inc. and subsidiaries as of September 30, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the period from December 7, 1994 (date of incorporation) to September 30, 1995
and for the year ended September 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Waterlink, Inc. and subsidiaries at September 30, 1995 and 1996, and the
consolidated results of their operations and their cash flows for the period
from December 7, 1994 to September 30, 1995 and for the year ended September 30,
1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Canton, Ohio
November 27, 1996, except for
Notes 2 and 5, as to which
the date is March 5, 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon determination
of the estimated range of the per share offering price and for the related share
and per share amounts in the consolidated financial statements.
ERNST & YOUNG LLP
Canton, Ohio
April 11, 1997
F-11
<PAGE> 77
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- -------------
(Unaudited)
(Thousands of dollars)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 995 $ 119 $ 496
Accounts receivable:
Trade, less allowance of $10 at September 30, 1995,
$101 at September 30, 1996 and $113 at December
31, 1996.......................................... 1,130 5,699 6,886
Other............................................... 128 378 150
Inventories............................................ 1,175 3,231 3,779
Costs in excess of billings............................ -- 1,447 1,950
Prepaid expenses....................................... 98 172 277
------ ------ ------
Total current assets..................................... 3,526 11,046 13,538
Property, plant and equipment, at cost:
Land, building and improvements........................ -- 750 760
Machinery and equipment................................ 80 383 427
Office equipment....................................... 89 747 914
------ ------ ------
169 1,880 2,101
Less accumulated depreciation.......................... 8 103 160
------ ------ ------
161 1,777 1,941
Other assets:
Goodwill, net of amortization of $15 at September 30,
1995, $287 at September 30, 1996 and $365 at
December 31, 1996................................... 7,007 15,029 14,883
Patents, net of amortization of $18 at September 30,
1996 and $43 at December 31, 1996................... -- 749 725
Demonstration units.................................... 110 155 130
Other assets........................................... 15 235 352
------ ------ ------
7,132 16,168 16,090
------ ------ ------
Total assets............................................. $10,819 $28,991 $31,569
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 78
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------
SEPTEMBER 30, PRO FORMA(1)
------------------- SHAREHOLDERS'
1995 1996 HISTORICAL EQUITY
------- ------- ------------- -------------
(Unaudited)
(Thousands of dollars)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade.................. $ 229 $ 2,076 $ 3,705
Accrued expenses......................... 295 1,931 2,040
Additional purchase consideration
payable............................... -- 1,013 800
Billings in excess of cost............... 341 559 438
Accrued income taxes..................... 26 60 95
Current portion of long-term
obligations........................... 571 1,969 1,737
------ ------ ------
Total current liabilities.................. 1,462 7,608 8,815
Long-term obligations:
Long-term debt........................... 3,968 4,676 5,861
Notes payable -- related parties......... 1,500 3,100 3,100
Convertible subordinated notes -- related
parties............................... -- 2,400 2,000
Other -- related party................... -- 300 225
------ ------ ------
5,468 10,476 11,186
Redeemable Preferred Stock................. 3,900 8,500 8,500 $ --
Shareholders' equity:
Preferred Stock, $.001 par value,
10,000,000 shares authorized,
none issued and outstanding........... --
Common Stock, voting, $.001 par value
Authorized -- 9,537,000 shares
Issued outstanding -- 1,450,000 shares
at September 30, 1995; 1,999,996
shares at September 30, 1996; and
2,099,996 shares at December 31,
1996 (unaudited);
Pro forma -- 5,349,996 shares....... 1 2 2 5
Additional paid-in capital............... 500 2,611 3,045 11,542
Retained earnings (deficit).............. (512) (206) 21 21
------ ------ ------ ------
Total shareholders' equity (deficit)....... (11) 2,407 3,068 $11,568
======
------ ------ ------
Total liabilities and shareholders'
equity................................... $10,819 $28,991 $31,569
====== ====== ======
</TABLE>
(1) The unaudited pro forma consolidated balance sheet above gives effect to the
conversion of all outstanding shares of redeemable preferred stock into
3,250,000 shares of Common Stock.
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 79
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7, THREE MONTHS
1994 TO YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1995 1996 1995 1996
------------- ------------- ------ ------
(Unaudited)
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Net sales.......................................... $ 2,684 $19,801 $3,280 $9,869
Cost of sales...................................... 1,857 11,233 1,909 5,914
------- ------- ------- -------
Gross profit....................................... 827 8,568 1,371 3,955
Selling, general and administrative expenses....... 1,178 7,029 1,168 3,239
Amortization....................................... 15 307 44 142
------- ------- ------- -------
Operating income (loss)............................ (366) 1,232 159 574
Other income (expense):
Interest expense................................. (144) (877) (135) (260)
Other--net....................................... 33 (44) (11) (12)
------- ------- ------- -------
Income (loss) before income taxes.................. (477) 311 13 302
Income taxes....................................... 35 5 1 75
------- ------- ------- -------
Net income (loss).................................. $ (512) $ 306 $ 12 $ 227
======= ======= ======= =======
Pro forma net income per share..................... $ $ $
======= ======= =======
Number of shares used to compute pro forma per
share data.......................................
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE> 80
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED SHAREHOLDERS'
COMMON PAID-IN EARNINGS EQUITY
STOCK CAPITAL (DEFICIT) (DEFICIT)
------ ---------- -------- -------------
(Thousands of dollars)
<S> <C> <C> <C> <C>
PERIOD FROM DECEMBER 7, 1994 TO SEPTEMBER 30, 1995
Sale of 1,200,000 shares of Common Stock (initial
capitalization)...................................... $ 1 $ 1
Issuance of 250,000 shares of Common Stock in
connection with acquisition of subsidiary............ $ 500 500
Net loss............................................... $ (512) (512)
------ ---------- -------- -------------
Balance at September 30, 1995.......................... 1 500 (512) (11)
YEAR ENDED SEPTEMBER 30, 1996
Exercise of stock options for 50,000 shares of Common
Stock................................................ 5 5
Issuance of 499,996 shares of Common Stock in
connection with acquisition of subsidiary............ 1 2,124 2,125
Net income............................................. 306 306
Other.................................................. (18) (18)
------ ---------- -------- -------------
Balance at September 30, 1996.......................... 2 2,611 (206) 2,407
THREE MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
Conversion of subordinated notes for 100,000 shares of
Common Stock......................................... 411 411
Net income............................................. 227 227
Other.................................................. 23 23
------ ---------- -------- -------------
Balance at December 31, 1996........................... $ 2 $3,045 $ 21 $ 3,068
====== ======= ====== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE> 81
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7, THREE MONTHS ENDED
1994 TO YEAR ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------
1995 1996 1995 1996
------------- ------------- -------- -------
<S> <C> <C> <C> <C>
(Unaudited)
<CAPTION>
(Thousands of dollars)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................. $ (512) $ 306 $ 12 $ 227
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization................... 30 442 56 223
Changes in working capital:
Accounts receivable.......................... (1,258) (700) (1,185) (959)
Inventories.................................. 290 432 (107) (548)
Cost in excess of billings................... -- (1,390) -- (503)
Prepaids and other assets.................... (112) (80) (44) (246)
Accounts payable............................. 229 390 339 1,629
Accrued expenses............................. 295 896 252 182
Billings in excess of cost................... 168 (276) 83 (121)
Accrued income taxes......................... 26 (34) 1 16
------------- ------------- -------- -------
Net cash used by operating activities............. (844) (14) (593) (100)
INVESTING ACTIVITIES
Purchases of equipment............................ (93) (423) (51) (199)
Purchases of subsidiaries, net of cash acquired... (6,508) (5,557) -- (213)
------------- ------------- -------- -------
Net cash used in investing activities............. (6,601) (5,980) (51) (412)
FINANCING ACTIVITIES
Proceeds from long-term borrowings................ 4,539 1,841 -- 1,587
Payments on long-term borrowings.................. -- (1,304) (299) (698)
Proceeds from sale of Common Stock................ 1 5 -- --
Proceeds from sale of Preferred Stock............. 3,900 4,576 -- --
------------- ------------- -------- -------
Net cash provided (used) by financing
activities...................................... 8,440 5,118 (299) 889
------------- ------------- -------- -------
Increase (decrease) in cash and cash
equivalents..................................... 995 (876) (943) 377
Cash and cash equivalents at beginning of year.... -- 995 995 119
------------- ------------- -------- -------
Cash and cash equivalents at end of year.......... $ 995 $ 119 $ 52 $ 496
========== ========== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE> 82
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Waterlink, Inc. (the "Company") operates in a single business segment, providing
integrated water and wastewater treatment solutions to industry and
municipalities worldwide, with sales primarily in the United States, Europe and
Latin America. Export sales represented more than one-third of sales in fiscal
1996. The Company has a strategy of acquisition and internal growth to provide
integrated products, technologies and services to water users globally.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries: SanTech Equipment, Inc.; Great Lakes
Environmental, Inc.; Mass Transfer Systems, Inc.; Aero-Mod, Inc. and Affiliates;
Water Equipment Technologies, Inc.; and Waterlink (UK), Limited. All significant
intercompany accounts and transactions have been eliminated upon consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
The majority of the Company's systems and equipment are custom designed and take
a number of months to produce. Revenues from large contracts are recognized
using the percentage of completion method of accounting in the proportion that
costs bear to total estimated costs at completion. Revisions of estimated costs
or potential contract losses, if any, are recognized in the period in which they
are determined. Revenues from the remaining equipment and product sales are
recognized when shipped.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and trade receivables. The
Company places its cash equivalents with high quality financial institutions.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers and their dispersion across many
different regions and industries. The Company grants credit to customers based
on an evaluation of their financial condition and collateral is generally not
required. Losses from credit sales are provided for in the financial statements
and have been within management's expectations.
FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, accounts receivable and accounts
payable are a reasonable estimate of their fair value due to the short-term
nature of these instruments. The Company's long-term debt, except for the notes
payable -- related parties, has a variable rate and cost approximates fair value
at September 30, 1996. The notes payable -- related parties do not have a ready
market and cost is assumed to approximate fair value. The carrying amount of
these notes is $3,100,000 at September 30, 1996, with interest rates ranging
from 5.61% to 10% and various maturity dates through April 2002.
F-17
<PAGE> 83
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
1. ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost. Expenditures for repairs and
maintenance are charged to operations as incurred, while expenditures for
additions and improvements are capitalized. Depreciation is computed principally
using the straight-line method over the estimated useful lives of assets. The
useful lives range from 30 to 40 years for building and improvements; 5 to 10
years for machinery and equipment and 3 to 7 years for office equipment.
GOODWILL
Goodwill represents costs in excess of net assets of acquired businesses which
are amortized using the straight-line method over a period of 40 years. The
Company evaluates the realizability of goodwill based on the undiscounted cash
flows of the applicable businesses acquired over the remaining amortization
period. Should the review indicate that goodwill is not recoverable, the
Company's carrying value of goodwill would be reduced by the estimated shortfall
of the cash flows. No reduction of goodwill for impairment was necessary in 1995
or 1996.
DEMONSTRATION UNITS
Demonstration units are valued at cost and are amortized using the straight-line
method over a period of five years. Accumulated amortization on demonstration
units was $7,000 at September 30, 1995, $41,000 at September 30, 1996 and
$43,000 at December 31, 1996.
EMPLOYEE BENEFIT PLAN
Effective February 1, 1996, the Company implemented a defined contribution plan
which covers substantially all employees. No Company contributions were made to
the plan during the year ended September 30, 1996 or the three months ended
December 31, 1996.
STOCK COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
the exercise price approximating fair value. The Company accounts for stock
option grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, recognizes no
compensation expense for the stock option grants.
F-18
<PAGE> 84
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
1. ACCOUNTING POLICIES (CONTINUED)
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.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is computed by dividing net income by the pro
forma weighted-average number of shares of Common Stock outstanding. These
shares include common shares outstanding, common shares to be issued in
connection with the Offering and Pending Acquisitions, common shares to be
issued upon the conversion of outstanding Series A, Series B and Series C
Preferred Stock and the assumed exercise of outstanding stock options and
warrants (using the treasury stock method and an estimated initial public
offering price of $ per share). Historical per share amounts are not
presented because such data is not meaningful.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees. The Company accounts for stock options in
accordance with APB Opinion No. 25. The disclosure requirements of SFAS No. 123
will be adopted as required for the Company's fiscal 1997 financial statements.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS No. 128
replaces the presentation of primary earnings per share (EPS) under Accounting
Principles Board Opinion No. 15 and related Interpretations, with the
presentation of basic EPS (which primarily gives effect only to common shares
actually outstanding) and requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures. The Company is required to adopt SFAS No. 128 during the first
quarter of fiscal 1998. The Company has not completed its evaluation of the
potential impact of this new standard on EPS in future periods.
INTERIM FINANCIAL INFORMATION
The accompanying consolidated balance sheet as of December 31, 1996, the related
consolidated statements of operations and cash flows for the three months ended
December 31, 1995 and 1996, and the consolidated statement of shareholders'
equity for the three months ended December 31, 1996 ("interim financial
statements") have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and with
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The interim financial statements include all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of the results of interim periods. Operating
results for the three-month period ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended September 30,
1997.
F-19
<PAGE> 85
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
2. ACQUISITIONS
During fiscal 1996, the Company completed the acquisition of four companies that
design and produce water and wastewater treatment systems: Mass Transfer
Systems, Inc. effective January 31, 1996; Aero-Mod, Inc. and Affiliates
effective April 26, 1996; and Water Equipment Technologies, Inc. effective
September 30, 1996. The combined purchase price of the net assets acquired
totaled approximately $14,374,000, including acquisition related costs of
$235,000. During 1995, the Company acquired SanTech Equipment, Inc. and Great
Lakes Environmental, Inc. The combined purchase price of the net assets acquired
totaled approximately $9,255,000, including acquisition related expenses of
$51,000.
The purchase price allocation of Water Equipment Technologies, Inc. at September
30, 1996 is preliminary, based on management's estimate and is expected to be
finalized in the second quarter of fiscal 1997.
Under the terms of the Mass Transfer Systems, Inc. and Aero-Mod, Inc. and
Affiliates purchase agreements, the Company may be required to make additional
payments of up to $800,000 contingent upon the achievement of certain operating
results through September 30, 1997. In addition, the Water Equipment
Technologies agreement provides for payment of contingent consideration at
September 30, 1997 and 1998 if certain specified targets are achieved. Any such
increases to the purchase price of the acquired companies will be recorded as
additional goodwill.
These acquisitions were accounted for as purchases. The consolidated statement
of operations of the Company includes the results of operations of the acquired
businesses for the period subsequent to the effective date of these
acquisitions.
The following pro forma information presents the consolidated results of
operations of the Company assuming the 1995 and 1996 acquisitions were completed
on December 7, 1994:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7, THREE MONTHS
1994, TO YEAR ENDED ENDED DECEMBER
SEPTEMBER 30, SEPTEMBER 30, 31,
1995 1996 1995 1996
------------- ------------- ------ ------
(Thousands of dollars)
<S> <C> <C> <C> <C>
Net sales.......................................... $32,119 $33,065 $8,645 $9,869
Operating profit................................... 975 1,985 414 574
Income (loss) before taxes......................... (723) 444 (29) 302
Net income (loss).................................. (434) 266 (17) 181
</TABLE>
The pro forma results of operations are not indicative of the actual results of
operations that would have occurred had the acquisitions been made on the date
indicated, or the results that may be obtained in the future.
On March 5, 1997, the Company acquired the Nordic Water Products Group. Further,
in conjunction with its planned initial public offering expected to be completed
during the third quarter of fiscal 1997, the Company anticipates acquiring two
additional businesses, Bioclear Technology, Inc. and Lanco Environmental
Products, Inc. The combined purchase price of the three acquisitions is expected
to total approximately $32,729,000, including estimated acquisition related
costs of $480,000. Each of these acquisitions will be accounted for as a
purchase.
F-20
<PAGE> 86
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(Thousands of dollars)
<S> <C> <C> <C>
Raw materials and supplies................................... $1,099 $1,864 $2,010
Work in process and finished goods........................... 76 1,367 1,769
------ ------ ------------
$1,175 $3,231 $3,779
====== ====== ==========
</TABLE>
4. CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process is
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(Thousands of dollars)
<S> <C> <C> <C>
Contract costs incurred to date.............................. $ -- $1,957 $2,954
Estimated profits............................................ -- 1,864 2,207
------ ------ ------------
Contract revenue earned to date.............................. -- 3,821 5,161
Less billings to date........................................ 341 2,933 3,649
------ ------ ------------
Cost and estimated earnings in excess of billings, net....... $ (341) $ 888 $1,512
====== ====== ==========
</TABLE>
The above amounts are included in the accompanying consolidated balance sheet
as:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(Thousands of dollars)
<S> <C> <C> <C>
Costs in excess of billings.................................. $ -- $1,447 $1,950
Billings in excess of costs.................................. 341 559 438
------ ------ ------------
$ (341) $ 888 $1,512
====== ====== ==========
</TABLE>
Amounts receivable include retainage which has been billed, but is not due
pursuant to retainage provisions in construction contracts until completion of
performance and acceptance by the customer. This retainage aggregated $158,000
at September 30, 1995, $528,000 at September 30, 1996 and $570,000 at December
31, 1996, respectively. Substantially all retained balances are collectible
within one year.
F-21
<PAGE> 87
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1996 1996
------ ------- ------------
(Thousands of dollars)
<S> <C> <C> <C>
LONG-TERM DEBT
Term note payable to a bank in monthly installments of
$59,524, plus interest at prime plus 1.5% (9.75% at
September 30, 1996), with the balance due March 31,
1997................................................... $4,000 $ 4,643 $ 4,464
Revolving credit agreement due March 31, 1997 with
interest due monthly at prime plus 1% (9.25% at
September 30, 1996).................................... 539 672 2,259
Note payable to bank due March 31, 1997 with interest due
monthly at prime plus 1.5% (9.75% at September 30,
1996).................................................. -- 450 450
Other notes payable to various parties with interest
ranging from 3.9% to 10.6%............................. -- 80 25
NOTES PAYABLE -- RELATED PARTIES
Subordinated note payable to former shareholders of Great
Lakes Environmental, Inc., due in equal annual
installments of $500,000 plus interest at 7% beginning
on September 1, 1998................................... 1,500 1,500 1,500
Subordinated note payable to former shareholders of Mass
Transfer Systems, Inc., due February 1, 2001, with
interest payable annually at 5.61%..................... -- 1,300 1,300
Subordinated note payable to former shareholders of Mass
Transfer Systems, Inc. with interest at 7%, due
December 31, 1996...................................... -- 400 --
Note payable to former shareholder of Mass Transfer
Systems, Inc. with interest at 10%, due August 1,
1997................................................... 400 400
Subordinated note payable to former shareholders of
Aero-Mod, Inc., due April 26, 2001, with interest
payable annually at 7%................................. -- 300 300
CONVERTIBLE SUBORDINATED NOTES -- RELATED PARTIES
Note payable to former shareholders of Mass Transfer
System, Inc., due February 1, 2003. Interest accrues at
5.61% per annum with payments commencing February 1,
1999................................................... -- 2,000 2,000
Note payable to former shareholders of Aero-Mod, Inc., due
April 26, 2003. Interest accrues at 5.45% per annum
with payments commencing April 26, 1999................ -- 400 --
------ ------- ------------
6,039 12,145 12,698
Less current maturities..................................... 571 1,969 1,737
------ ------- ------------
$5,468 $10,176 $ 10,961
====== ======= ==========
</TABLE>
F-22
<PAGE> 88
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
5. LONG-TERM OBLIGATIONS (CONTINUED)
On February 19, 1997, the Company entered into a long-term credit facility with
a bank to refinance the obligations due to its existing senior bank leaders
which were due to mature on March 31, 1997. As such, $4,667,000 at September 30,
1996 and $5,675,000 at December 31, 1996 were classified as long-term debt. The
obligations refinanced were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
(Thousands of dollars)
<S> <C> <C>
Term note payable.................................................... $ 4,643 $4,464
Revolving credit agreement........................................... 672 2,259
Note payable......................................................... 450 450
------------- ------------
$ 5,765 $7,173
========== ==========
</TABLE>
The new credit facility ("Credit Facility") provides the Company with a
revolving line-of-credit of up to $8,000,000 and a term loan of $11,000,000. The
revolving line-of-credit has a sublimit of $6,000,000 for letters of credit and
can be used for working capital and other general corporate purposes. Loans
under the Credit Facility bear interest at a designated variable base rate plus
spreads ranging from zero to 50 basis points and 25 to 75 basis points,
respectively, depending on the ratio of total consolidated indebtedness to its
earnings before interest, taxes, depreciation and amortization. At the Company's
option, the loans under the Credit Facility may bear interest based on a
designated London interbank offering rate plus spreads ranging from 175 to 225
basis points and 200 to 250 basis points, respectively, based on the same ratio.
The revolving line-of-credit terminates in February 2000, and the term loan
matures in February 2002. The term loan has mandatory quarterly repayments
commencing June 30, 1997 in amounts ranging from $400,000 to $750,000 per
repayment. The Credit Facility prohibits or restricts the Company from many
actions, including paying dividends and incurring or assuming other indebtedness
or liens.
Obligations under the Credit Facility are secured by substantially all of the
Company's assets, including equipment, inventory, accounts receivable and
general intangibles and a pledge of most of the stock of the Company's
subsidiaries.
As part of the Credit Facility, two of the foreign subsidiaries of the Company
have separate facilities of $2,000,000 and $3,800,000, respectively, for
borrowings in local currencies. Each separate facility is guaranteed by the
Company. Both of these facilities mature in February 2000, with outstanding
amounts bearing interest based on a designated London interbank offering rate
plus a spread of 250 basis points.
As additional consideration for the Credit Facility, the Company entered into a
warrant agreement dated February 19, 1997, (the "Bank Warrant Agreement")
pursuant to which the Bank has been granted a warrant, expiring in 2002, to
purchase 225,000 shares of Common Stock at a purchase price of $4.50 per share.
Additionally, in March 1997, the Company entered into a note purchase agreement
(the "Note Purchase Agreement") pursuant to which the Company may issue, and
several purchasers have committed to purchase, five year subordinated notes in
the principal amount of up to $10,000,000 (the "1997 Notes"). The 1997 Notes
will be issued in $1,000,000 increments at the discretion of the Company. The
obligation of purchasers to purchase the 1997 Notes expires on December 31, 1997
(or earlier in the event of a prepayment event). As of March 5, 1997, no amounts
are outstanding under the 1997 Notes. In addition, purchasers of the 1997
F-23
<PAGE> 89
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
5. LONG-TERM OBLIGATIONS (CONTINUED)
Notes have been granted warrants to purchase 125,000 shares of the Company's
Common Stock at a purchase price of $4.50 per share. Under the Note Purchase
Agreement, 30,000 additional warrants will be granted for each $1,000,000 Note
issued.
Future maturities of long-term obligations, giving effect to this refinancing,
for the five years subsequent to September 30, 1996 are as follows:
1997 -- $1,969,000; 1998 -- $2,108,000; 1999 -- $2,851,000; 2000 -- $1,217,000
and 2001 -- $1,600,000.
The $400,000 of convertible notes were converted into 100,000 shares of common
stock in October 1996 and the $2,000,000 of convertible notes were converted
into 500,000 shares of common stock in January 1997.
6. LEASES
The Company leases certain facilities and equipment under operating leases, some
of which are with an entity controlled by related parties. The Company believes
that the rents due under the related party leases are comparable to those which
would be charged by an unrelated party. Rent expense totaled $64,000 in 1995 and
$241,000 in 1996. With regard to 1996, $116,000 of rent expense was with related
parties. Aggregate future minimum lease payments under noncancelable operating
leases at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
LEASES LEASES TOTAL
------- ------ ------
(Thousands of dollars)
<S> <C> <C> <C>
1997.................................... $ 458 $152 $ 610
1998.................................... 462 152 614
1999.................................... 466 159 625
2000.................................... 471 160 631
2001.................................... 338 160 498
Thereafter.............................. -- 21 21
------- ------ ------
$ 2,195 $804 $2,999
====== ===== ======
</TABLE>
7. REDEEMABLE PREFERRED STOCK
Preferred stock consists of 400,000 shares of Series A Preferred Stock (issued
in fiscal 1995), 1,700,000 shares of Series B Preferred Stock (issued in fiscal
1995) and 1,150,000 shares of Series C Preferred Stock (issued in fiscal 1996).
These shares have a par value of $.001 per share and a base liquidation price of
$1.25 per share for Series A Preferred Shares, $2.00 per share for Series B
Preferred Shares, and $4.00 per share for Series C Preferred Shares.
Holders of Preferred Stock may, at their option, convert their shares into
Common Stock on a one-for-one basis. Such conversion is required if the Company
consummates an underwritten public offering of Common Stock at a price of at
least $6 a share and gross proceeds to the Company exceed $10 million. The
holders of Preferred Shares are entitled to the number of votes equal to the
number of Common Shares into which the Preferred Shares could be converted.
F-24
<PAGE> 90
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
7. REDEEMABLE PREFERRED STOCK (CONTINUED)
Dividends begin to accrue on the third anniversary of original issuance, which
is December 9, 1997 for Series A Preferred Stock, September 15, 1998 for Series
B Preferred Stock and June 27, 1999 for Series C Preferred Stock. Dividends
accrue at a rate of 8% per annum, payable in either additional Preferred Shares
or cash, at the option of the individual holder. All accrued and unpaid
dividends shall become payable upon conversion into Common Stock; repurchase or
redemption of the Preferred Shares by the Company or the liquidation or winding
up of affairs of the Company.
The majority of the holders of all series of Preferred Stock, treated as a
single class, may require the Company to redeem the outstanding Preferred Shares
in the case of a consolidation or merger in which the Company is not the
surviving corporation. The Company may redeem the Preferred Shares at anytime
with the consent of shareholders owning at least 60% of the outstanding
Preferred Shares.
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1994 TO YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
(Thousands of dollars)
<S> <C> <C>
Current:
Federal.............................................. $-- $ --
State................................................ 35 5
--- ------
35 5
Deferred............................................... -- 99
Reduction in valuation allowance....................... -- (99)
--- ------
$35 $ 5
========== ==========
</TABLE>
F-25
<PAGE> 91
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
8. INCOME TAXES (CONTINUED)
Following is the reconciliation between the provision (credit) for income taxes
and the amount computed by applying the statutory U.S. federal income tax rate
of 34% to income before income taxes:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1994 TO YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
(Thousands of dollars)
<S> <C> <C>
Provision (credit) for income taxes at the statutory
federal rate......................................... $(162) $ 106
Adjustments:
State and local income taxes......................... 35 5
Change in valuation allowance........................ 163 (99)
Other................................................ (1) (7)
------------- -------------
Provision for income taxes............................. $ 35 $ 5
========== ==========
Effective income tax rate.............................. (7%) 2%
========== ==========
</TABLE>
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax effects of the net
operating loss carryforward and temporary differences are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1996
----- -----
(Thousands of
dollars)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward............................... $ 85 $ 152
Other......................................................... 78 133
Valuation allowance........................................... (163) (64)
----- -----
-- 221
Deferred tax liabilities:
Amortization of goodwill...................................... -- (164)
Other......................................................... -- (57)
----- -----
-- (221)
----- -----
Net deferred tax liability...................................... $ -- $ --
===== =====
</TABLE>
As of September 30, 1996, the Company has deferred tax assets attributable to
operating loss carryforwards and other temporary differences. Realization of
these carryforwards and other temporary differences is considered uncertain and
a valuation allowance has been recorded. The Company has a net operating loss
carryforward of $447,000 for income tax purposes which expires in the year 2011.
F-26
<PAGE> 92
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
9. STOCK COMPENSATION PLANS
During 1995, the Board of Directors approved the Waterlink, Inc. 1995 Stock
Option Plan which provides for the granting of stock options to key employees
for the purchase of shares of the Company's Common Stock. The maximum aggregate
number of shares to which options may be granted under the Plan was increased
from 800,000 shares to 1,300,000 shares in December 1996. The number of stock
options granted and the purchase price thereof is determined by the Compensation
Committee of the Board of Directors.
The following table summarizes activity under this plan:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1994 TO YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
--------------------- ----------------------
NUMBER OPTION NUMBER OPTION
OF PRICE PER OF PRICE PER
SHARES SHARE SHARES SHARE
------- --------- ------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................ -- -- 215,000 $ .10
Granted......................................... 215,000 $ .10 501,500 $.10-$4.40
Exercised....................................... -- -- (50,000) $ .10
Canceled........................................ -- -- -- --
------- ------- -------
Outstanding at end of year...................... 215,000 $ .10 666,500 $.10-$4.40
======= ======= =======
Exercisable at end of year...................... -- -- 3,750 $ .10
======= ======= =======
Reserved for future options..................... 185,000 -- 83,500 --
======= ======= =======
</TABLE>
The Company has reserved 5,273,000 shares of Common Stock for possible
conversion of the convertible subordinated notes described in Note 5, the
possible conversion of the Preferred Shares described in Note 7 and the exercise
of outstanding stock options.
Under the terms of an employment agreement with an officer of the Company, the
officer will be granted a ten year stock option to purchase 100,000 shares of
the Company's Common Stock at a price of $0.10 per share upon completion of an
initial public offering. During the quarter and year in which it becomes
probable that the initial public offering will occur, the Company will incur an
approximate $ special management compensation charge (based on the initial
public offering price of $ per share) relating to these compensatory options.
Of this amount, approximately $ is non-cash, with a cash payment of
$ for additional income taxes resulting from the stock issuance.
F-27
<PAGE> 93
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(Information as of December 31, 1996 and for the three
months ended December 31, 1995 and 1996 is unaudited)
10. SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth noncash investing and financing activities and
other cash flow information:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 7,
1994 TO YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
(Thousands of dollars)
<S> <C> <C>
Common Stock issued in connection with acquisitions............. $ 500 $ 2,125
Subordinated debt issued in connection with acquisitions........ 1,500 2,400
Subordinated convertible notes issued in connection with
acquisitions.................................................. -- 2,400
Fair value of tangible assets acquired and liabilities assumed
in connection with acquisitions:
Assets........................................................ 2,406 9,432
Liabilities................................................... 173 3,352
Income taxes paid............................................... 9 40
Interest paid................................................... -- 631
</TABLE>
F-28
<PAGE> 94
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
GREAT LAKES ENVIRONMENTAL, INC.
We have audited the accompanying balance sheets of GREAT LAKES
ENVIRONMENTAL, INC. as of December 31, 1994 and August 31, 1995 and the related
statements of income, shareholders' equity and cash flows for the year ended
December 31, 1994 and the eight months ended August 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GREAT LAKES ENVIRONMENTAL,
INC. at December 31, 1994 and August 31, 1995 and the results of its operations
and its cash flows for the year ended December 31, 1994 and the eight months
ended August 31, 1995, in conformity with generally accepted accounting
principles.
Dennis D. Tysl & Company, Ltd.
Palatine, Illinois
February 23, 1997
F-29
<PAGE> 95
GREAT LAKES ENVIRONMENTAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1994 1995
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $1,084,188 $ 786,716
Trade receivables, less allowance of $60,000................... 1,707,092 1,739,149
Inventories.................................................... 724,130 677,984
Deposits and prepaid expenses.................................. 31,300 43,794
Note receivables--shareholders................................. 18,664 19,484
---------- ----------
Total current assets............................................. 3,565,374 3,267,127
Equipment........................................................ 224,628 276,136
Less accumulated depreciation.................................... (187,202) (214,936)
---------- ----------
37,426 61,200
---------- ----------
Total assets..................................................... $3,602,800 $3,328,327
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 543,149 $ 766,674
Commissions payable............................................ 212,443 220,408
Customer deposits.............................................. 71,652 28,602
Accrued profit-sharing......................................... 61,513 29,832
Accrued expenses............................................... 109,899 35,339
Accrued state income taxes..................................... 22,691 16,809
---------- ----------
Total current liabilities........................................ 1,021,347 1,097,664
Shareholders' equity:
Common stock, no par value:
Authorized, issued and outstanding, 645 shares.............. 1,000 1,000
Paid-in capital................................................ 380,000 380,000
Retained earnings.............................................. 2,200,453 1,849,663
---------- ----------
Total shareholders' equity....................................... 2,581,453 2,230,663
---------- ----------
Total liabilities and shareholders' equity....................... $3,602,800 $3,328,327
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE> 96
GREAT LAKES ENVIRONMENTAL, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1994 1995
------------ ------------
<S> <C> <C>
Net sales........................................................ $8,566,316 $5,724,860
Cost of sales.................................................... 5,754,175 3,829,553
---------- ----------
Gross profit..................................................... 2,812,141 1,895,307
Selling, general and administrative expenses..................... 1,393,224 864,105
---------- ----------
Income before taxes.............................................. 1,418,917 1,031,202
State and local income taxes..................................... 21,000 16,500
---------- ----------
Net income....................................................... $1,397,917 $1,014,702
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE> 97
GREAT LAKES ENVIRONMENTAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ -------- ---------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Balance at January 1, 1994.............. $1,000 $380,000 $1,755,629 $ 2,136,629
Dividends paid.......................... (953,093) (953,093)
Net income.............................. 1,397,917 1,397,917
----- -------- ----------- -----------
Balance at December 31, 1994............ 1,000 380,000 2,200,453 2,581,453
EIGHT MONTHS ENDED AUGUST 31, 1995
Dividends paid.......................... (1,365,492) (1,365,492)
Net income.............................. 1,014,702 1,014,702
----- -------- ----------- -----------
Balance at August 31, 1995.............. $1,000 $380,000 $1,849,663 $ 2,230,663
===== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE> 98
GREAT LAKES ENVIRONMENTAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
DECEMBER 31, AUGUST 31,
1994 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $1,397,917 $ 1,014,702
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................. 37,430 27,734
Changes in working capital:
Accounts receivable........................................ (465,439) (32,057)
Inventories................................................ (222,938) 46,146
Other current assets....................................... 7,385 (13,314)
Accounts payable and accrued expenses...................... 308,384 148,965
Other current liabilities.................................. (175,649) (72,648)
---------- ----------
Net cash provided by operating activities....................... 887,090 1,119,528
INVESTING ACTIVITIES
Purchase of equipment........................................... (28,218) (51,508)
FINANCING ACTIVITIES
Payment of dividends............................................ (953,093) (1,365,492)
---------- ----------
Net decrease in cash and cash equivalents....................... (94,221) (297,472)
Cash and cash equivalents at beginning of year.................. 1,178,409 1,084,188
---------- ----------
Cash and cash equivalents at end of year........................ $1,084,188 $ 786,716
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE> 99
GREAT LAKES ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
Great Lakes Environmental, Inc. (the "Company"), located in Addison, Illinois,
operates in a single business segment designing oil/water separation equipment
and systems. The Company's products are used by industrial customers primarily
in the manufacturing, food processing and refinery/petrochemical sectors.
Effective January 1, 1989, the Company elected, by unanimous consent of its
shareholders, to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Under these provisions, the Company does not pay federal corporate
income taxes on its income. Instead, the shareholders are liable for individual
federal income taxes on their respective shares of the Company's income. This
election was terminated as a result of the business combination with Waterlink,
Inc. described below.
On August 31, 1995, Waterlink, Inc. purchased certain assets and assumed certain
liabilities of Great Lakes Environmental, Inc.
2. ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
Sales are recognized when products are shipped.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
EQUIPMENT
Property and equipment is recorded at cost. Expenditures for repairs and
maintenance are charged to operations as incurred, while expenditures for
additions and improvements are capitalized. Depreciation is computed principally
using the accelerated methods based on the estimated useful lives of the assets,
which range from 3 to 7 years.
EMPLOYEE RETIREMENT PLAN
The Company sponsors a profit-sharing plan which covers substantially all
employees with more than one full year of service. The Company's contributions
to the plan are at the discretion of the Board of Directors. The amount charged
to operations relating to the plan was $100,000 for the year ended December 31,
1994 and $60,000 for the eight months ended August 31, 1995.
FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, accounts receivable and accounts
payable are a reasonable estimate of their fair value due to the short-term
nature of these instruments.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and trade receivables. The
Company maintains its cash in bank deposit
F-34
<PAGE> 100
GREAT LAKES ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1995
2. ACCOUNTING POLICIES (CONTINUED)
accounts which, at times, exceed federally insured limits. The Company has not
experienced any losses in such accounts. Management believes it is not exposed
to any significant credit risk on cash and cash equivalents.
Concentrations of credit risk with respect to trade receivables are limited by
the Company collecting customer deposits in conjunction with larger contracts.
The Company grants credit to customers based on an evaluation of their financial
condition and collateral is generally not required. Losses from credit sales are
provided for in the financial statements and have been within management's
expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain items in the 1994 financial statements have been reclassified to agree
with the 1995 classifications.
3. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1994 1995
------------ ----------
<S> <C> <C>
Raw materials...................................................... $242,294 $ 463,616
Work in process.................................................... 481,836 214,368
------------ ----------
$724,130 $ 677,984
========== ========
</TABLE>
4. NOTES RECEIVABLE--SHAREHOLDERS
The notes receivable--shareholders represents demand notes due from two
shareholders in connection with the purchase and retirement of shares of the
Company's common stock. The notes bear interest, which is paid monthly, at a
variable rate (5.88% at August 31, 1995).
5. LEASES
As part of the business combination with Waterlink, Inc., the Company entered
into a five year lease agreement with the former majority shareholder for its
principal office, warehouse and production facility in Addison, Illinois. Prior
to this time, the Company leased these facilities from the shareholder on a
month-to-month basis. The Company believes that the rents due under the related
party lease agreement are comparable to those which would be charged by an
unrelated party. Rent expense totaled $44,400 for the year ended December 31,
1994 and $29,600 for the eight months ended August 31, 1995.
F-35
<PAGE> 101
GREAT LAKES ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1995
5. LEASES (CONTINUED)
Aggregate future minimum lease payments under noncancelable related party
operating leases at August 31, 1995 are as follows:
<TABLE>
<S> <C>
Remainder of 1995............................................ $ 43,600
1996......................................................... 130,800
1997......................................................... 134,700
1998......................................................... 138,800
1999......................................................... 142,900
2000......................................................... 147,200
--------
$738,000
========
</TABLE>
F-36
<PAGE> 102
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Mass Transfer Systems, Inc.
We have audited the accompanying balance sheets of Mass Transfer Systems,
Inc. as of December 31, 1994, December 31, 1995 and January 31, 1996 and the
related statements of operations, shareholders' equity and cash flows for the
year ended February 28, 1994, ten month period ended December 31, 1994, year
ended December 31, 1995 and the month ended January 31, 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 Mass Transfer Systems, Inc.
at December 31, 1994, December 31, 1995 and January 31, 1996 and the results of
its operations and its cash flows for the year ended February 28, 1994, ten
month period ended December 31, 1994, year ended December 31, 1995 and the month
ended January 31, 1996 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Canton, Ohio
February 28, 1997
F-37
<PAGE> 103
MASS TRANSFER SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY
----------------------- 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $1,327,835 $1,691,883 $ 842,922
Accounts receivable, less allowance of $13,000..... 1,935,299 1,426,585 1,760,541
Notes receivable--shareholder...................... 125,043 -- --
Inventories........................................ 334,786 294,747 423,141
Prepaid expenses................................... 35,739 32,406 24,637
--------- --------- ---------
Total current assets................................. 3,758,702 3,445,621 3,051,241
Property, plant and equipment:
Cost............................................... 1,108,021 1,074,722 1,080,290
Less accumulated depreciation...................... 323,767 321,988 327,536
--------- --------- ---------
784,254 752,734 752,754
Other assets:
Intangible assets, less accumulated amortization of
$67,000 in 1994, $134,000 in 1995 and $139,600
in 1996......................................... 134,000 67,000 61,417
Deposits........................................... -- 17,532 17,532
--------- --------- ---------
134,000 84,532 78,949
--------- --------- ---------
Total assets......................................... $4,676,956 $4,282,887 $3,882,944
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade............................ $ 438,454 $ 456,083 $ 557,661
Accrued expenses................................... 348,781 512,503 452,235
Customer deposits.................................. 853,082 457,494 366,592
Current portion of long-term obligations........... 106,437 112,042 112,405
--------- --------- ---------
Total current liabilities............................ 1,746,754 1,538,122 1,488,893
Long-term obligations:
Long-term debt..................................... 150,668 104,504 100,566
Note payable--shareholder.......................... 900,000 1,200,000 1,200,000
Other.............................................. 67,000 -- --
--------- --------- ---------
1,117,668 1,304,504 1,300,566
Shareholders' equity:
Capital stock, no par common:
Authorized shares--12,500
Issued and outstanding--100 shares.............. 10,000 10,000 10,000
Retained earnings.................................. 1,802,534 1,430,261 1,083,485
--------- --------- ---------
Total shareholders' equity........................... 1,812,534 1,440,261 1,093,485
--------- --------- ---------
Total liabilities and shareholders' equity........... $4,676,956 $4,282,887 $3,882,944
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE> 104
MASS TRANSFER SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED MONTH ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31, JANUARY 31,
1994 1994 1995 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 5,788,295 $6,171,344 $8,796,689 $ 620,140
Cost of goods sold........................... 2,982,743 3,068,971 4,719,545 406,814
------------ ------------ ------------ -----------
Gross profit................................. 2,805,552 3,102,373 4,077,144 213,326
Selling, general and administrative
expenses................................... 1,942,848 2,131,136 2,687,952 279,565
------------ ------------ ------------ -----------
Operating income (loss)...................... 862,704 971,237 1,389,192 (66,239)
Other income (expense):
Interest expense........................... (18,253) (102,262) (134,664) (11,760)
Interest income............................ 24,787 21,613 25,846 4,017
Other-net.................................. (10,994) (15,140) 38,669 (19,794)
------------ ------------ ------------ -----------
Income (loss) before income taxes............ 858,244 875,448 1,319,043 (93,776)
State and local income taxes................. 1,080 35,904 38,170 --
------------ ------------ ------------ -----------
Net income (loss)............................ $ 857,164 $ 839,544 $1,280,873 $ (93,776)
========= ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE> 105
MASS TRANSFER SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------- ---------- -------------
<S> <C> <C> <C>
YEAR ENDED FEBRUARY 28, 1994
Balance at March 1, 1993........................... $10,000 $2,336,175 $ 2,346,175
Net income......................................... 857,164 857,164
Distributions to shareholders...................... (1,932,284) (1,932,284)
-------- ----------- -----------
Balance at February 28, 1994....................... 10,000 1,261,055 1,271,055
TEN MONTHS ENDED DECEMBER 31, 1994
Net income......................................... 839,544 839,544
Distributions to shareholders...................... (298,065) (298,065)
-------- ----------- -----------
Balance at December 31, 1994....................... 10,000 1,802,534 1,812,534
YEAR ENDED DECEMBER 31, 1995
Net income......................................... 1,280,873 1,280,873
Distributions to shareholders...................... (1,653,146) (1,653,146)
-------- ----------- -----------
Balance at December 31, 1995....................... 10,000 1,430,261 1,440,261
MONTH ENDED JANUARY 31, 1996
Net loss........................................... (93,776) (93,776)
Distributions to shareholders...................... (253,000) (253,000)
-------- ----------- -----------
Balance at January 31, 1996........................ $10,000 $1,083,485 $ 1,093,485
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE> 106
MASS TRANSFER SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED MONTH ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31, JANUARY 31,
1994 1994 1995 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................... $ 857,164 $ 839,544 $ 1,280,873 $ (93,776)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation........................ 67,552 56,294 69,192 5,548
Amortization........................ 11,170 55,830 67,000 5,583
Loss on sale of property............ 15,616 -- 11,151 --
Changes in working capital:
Accounts receivable.............. (514,638) (658,222) 508,714 (333,956)
Notes receivable--shareholder.... -- (125,043) 125,043 --
Inventories...................... (165,535) (80,331) 40,039 (128,394)
Other current assets............. 4,083 (6,141) 3,333 7,769
Accounts payable................. 333,703 6,778 17,629 101,578
Other current liabilities........ 28,149 870,542 (231,865) (151,170)
Other assets..................... (139,083) 251,672 (17,532) --
--------- --------- ---------- ---------
Net cash (used) provided by operating
activities.......................... 498,181 1,210,923 1,873,577 (586,818)
INVESTING ACTIVITIES
Purchase of property, plant and
equipment--net...................... (64,293) (40,306) (48,824) (5,568)
FINANCING ACTIVITIES
Payments of long-term debt............ (38,419) (99,052) (107,559) (3,575)
Proceeds from issuance of long-term
debt................................ 201,000 -- -- --
Note payable--shareholder............. -- (266,510) -- --
Distributions to shareholders......... (765,617) (298,065) (1,353,146) (253,000)
--------- --------- ---------- ---------
Net cash used in financing
activities.......................... (603,036) (663,627) (1,460,705) (256,575)
--------- --------- ---------- ---------
(Decrease) increase in cash and cash
equivalents......................... (169,148) 506,990 364,048 (848,961)
Cash and cash equivalents at beginning
of year............................. 989,993 820,845 1,327,835 1,691,883
--------- --------- ---------- ---------
Cash and cash equivalents at end of
year................................ $ 820,845 $1,327,835 $ 1,691,883 $ 842,922
========= ========= ========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash financing activities:
Issuance of notes
payable--officer................. $ 1,166,667 -- $ 300,000 --
Distributions to shareholders....... (1,166,667) -- (300,000) --
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE> 107
MASS TRANSFER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
Mass Transfer Systems, Inc. (the "Company"), located in Fall River,
Massachusetts, operates in a single business segment, designing customized jet
aeration systems to introduce oxygen into a wastewater stream in order to
accelerate the biological digestion process. The Company's products are used by
industrial and municipal customers worldwide to increase the efficiency of
processing waste water, with sales primarily in the United States, the United
Kingdom and Canada. Export sales represented approximately two-thirds of total
sales for all periods presented.
Effective March 1, 1987, the Company elected, by unanimous consent of its
shareholders, to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Under these provisions, the Company does not pay federal corporate
income taxes on its income. Instead, the shareholders are liable for individual
federal income taxes on their respective shares of the Company's income. This
election was terminated as a result of the business combination with Waterlink,
Inc. described below.
At the close of business on January 31, 1996, Waterlink, Inc. purchased
substantially all of the assets and assumed certain liabilities of the Company.
2. ACCOUNTING POLICIES
PERIODS INCLUDED IN FINANCIAL STATEMENTS
The Company changed its year end in 1994 from February 28 to December 31. In
addition, the accompanying financial statements include the one month period in
1996 prior to the business combination with Waterlink, Inc. Reference to these
various periods in the notes to the financial statements are: 1996--the one
month ended January 31, 1996; 1995--the year ended December 31, 1995; 1994--the
ten months ended December 31, 1994; and 1993--the year ended February 28, 1994.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
Sales are recognized when products are shipped.
ACCOUNTS RECEIVABLE
Accounts receivable include retainage which has been billed, but is not due
pursuant to retainage provisions in construction contracts until completion of
performance and acceptance by the customer. This retainage aggregated $360,000,
$360,000 and $349,000 at December 31, 1994, December 31, 1995 and January 31,
1996, respectively. Substantially all retained balances are collected within one
year.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
F-42
<PAGE> 108
MASS TRANSFER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
2. ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Expenditures for repairs and
maintenance are charged to operations as incurred, while expenditures for
additions and improvements are capitalized. Depreciation is computed principally
using the straight-line method over the estimated useful lives of the assets.
The useful lives range from 15 to 31 years for buildings and improvements; 5 to
10 years for machinery and equipment and 3 to 10 years for furniture and
fixtures.
INTANGIBLE ASSET
The intangible asset is a covenant-not-to-compete contract with a former
shareholder and is carried at cost. Amortization is recorded using the
straight-line method over the life of the contract of three years.
FOREIGN CURRENCY TRANSLATION
Some transactions of the Company are made in currencies different from its own.
Gains and losses from these transactions are included in income as they occur.
Net foreign currency transaction gains and (losses) included in income before
taxes totaled ($18,000) in 1993, ($15,000) in 1994, $54,000 in 1995 and
($20,000) in 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY
----------------------- 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Raw materials........................................ $ 141,191 $ 268,422 $ 407,165
Work in process...................................... 193,595 26,325 15,976
--------- --------- ---------
$ 334,786 $ 294,747 $ 423,141
========= ========= =========
</TABLE>
F-43
<PAGE> 109
MASS TRANSFER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY
----------------------- 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Land................................................. $ 80,435 $ 80,435 $ 80,435
Building and improvements............................ 618,538 620,735 626,303
Machinery and equipment.............................. 111,640 116,980 116,980
Furniture and fixtures............................... 297,408 256,572 256,572
--------- --------- ---------
1,108,021 1,074,722 1,080,290
Less accumulated depreciation........................ 323,767 321,988 327,536
--------- --------- ---------
$ 784,254 $ 752,734 $ 752,754
========= ========= =========
</TABLE>
5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY
----------------------- 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Mortgage payable to a bank in monthly installments of
$4,723, plus interest at prime plus 1/2% (9.0% at
January 31, 1996), secured by land and building.... $ 190,105 $ 149,546 $ 145,971
Note payable-shareholder, due February 1, 2001 with
interest at 10%.................................... 900,000 1,200,000 1,200,000
Non-compete agreement, expires December 31, 1996..... 134,000 67,000 67,000
--------- --------- ---------
1,224,105 1,416,546 1,412,971
Less current portion................................. 106,437 112,042 112,405
--------- --------- ---------
$1,117,668 $1,304,504 $1,300,566
========= ========= =========
</TABLE>
The note payable-shareholder represents a promissory note due to the majority
shareholder for unpaid distributions. Through January 31, 1996, the note was
unsecured and due on demand. The terms of the note were revised to provide a due
date of February 1, 2001 in connection with the business combination with
Waterlink, Inc. Accordingly, the note was reclassified to long-term obligations
for all periods presented. Interest expense on the note payable-shareholder was
as follows: 1994--$90,900; 1995--$103,600 and 1996--$10,000.
The non-compete agreement between the Company and a previous minority
shareholder provides for semi-annual installments on June 30 and December 31 of
each year over a three year period.
Approximate future maturities of long-term debt obligations for the five years
subsequent to January 31, 1996 are as follows: 1997--$112,000; 1998--$50,000;
1999--$51,000; 2000--$-0-and 2001--$1,200,000.
Interest expense approximates interest paid for all periods presented.
F-44
<PAGE> 110
MASS TRANSFER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
6. FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, accounts receivable and accounts
payable are a reasonable estimate of their fair value due to the short-term
nature of these instruments. The Company's long-term debt, except for notes
payable to related parties, has a variable rate and cost approximates fair value
at January 31, 1996. The notes payable to related parties do not have a ready
market and cost is assumed to approximate fair value.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and trade receivables. The
Company maintains its cash in bank deposit accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses in such
accounts. Management believes it is not exposed to any significant credit risk
on cash and cash equivalents.
Concentrations of credit risk with respect to trade receivables are limited by
the Company collecting customer deposits in conjunction with larger contracts.
The Company grants credit to customers based on an evaluation of their financial
condition and collateral is generally not required. Losses from credit sales are
provided for in the financial statements and have been within management's
expectations.
The Company issues letters of credit as guarantees for various performance
obligations. Under the terms of these letters of credit, approximately $143,000
and $140,000 of cash was restricted at December 31, 1995 and January 31, 1996,
respectively. The letters of credit outstanding at January 31, 1996 are
scheduled to expire at various times through June of 1997.
The Company periodically enters into foreign exchange contracts to hedge certain
operational exposures against changes in foreign currency exchange rates.
Because the impact of movements in currency exchange rates on foreign exchange
contracts offsets the related impact on the underlying items being hedged, these
instruments do not subject the Company to risk that would not otherwise result
from changes in currency exchange rates. At December 31, 1995 and January 31,
1996, the Company had a foreign exchange contract outstanding which exchanged
U.S. dollars for Canadian dollars. The contract, which matured in February 1996,
had a notional amount of approximately $150,000 and an unrealized gain of $3,000
at January 31, 1996.
7. CONTINGENCIES
The Company is involved in certain legal actions arising in the ordinary course
of business. In the opinion of management, such litigation and claims will be
resolved without a material effect on the Company's financial position, cash
flows or results of operations.
F-45
<PAGE> 111
INDEPENDENT AUDITOR'S REPORT
April 3, 1997
To the Board of Directors
Aero-Mod, Inc, and Affiliates
I have audited the accompanying combined balance sheets of Aero-Mod, Inc.
and Affiliates as of October 31, 1994, October 31, 1995, and April 26, 1996 and
the related combined statements of income, retained earnings, and cash flows for
the years ended October 31, 1994 and 1995; and the period beginning November 1,
1995 and ended April 26, 1996. These financial statements are the responsibility
of the companies' management. My responsibility is to express an opinion on
these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Aero-Mod,
Inc. and Affiliates at October 31, 1994, October 31, 1995, and April 26, 1996,
and the results of operations and cash flows on a combined basis for the periods
then ended in conformity with generally accepted accounting principles.
Sink, Gillmore & Gordon LLP
James L. Gordon, C.P.A.
Manhattan, Kansas
F-46
<PAGE> 112
AERO-MOD, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER OCTOBER
31, 31, APRIL 26,
1994 1995 1996
---------- ---------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................ $ 111,275 $ 355,759 $ 233,249
Accounts receivable--trade...................... 485,587 832,830 506,597
Bid bonding..................................... 3,404 3,405 --
Inventory....................................... 467,556 704,710 570,721
Costs and estimated profits in excess of
billings on uncompleted projects.............. 467,242 195,617 496,138
---------- ---------- ---------
Total Current Assets....................... 1,535,064 2,092,321 1,806,705
FIXED ASSETS
Property, plant & equipment........................ 525,621 542,760 592,680
Accumulated depreciation--property, plant &
equipment....................................... (291,119) (344,654) (357,623)
---------- ---------- ---------
Net Book Value of Fixed Assets............. 234,502 198,106 235,057
OTHER ASSETS
Life insurance--cash value...................... 30,123 36,038 35,036
Other deposits.................................. -- 33,132 18,912
Notes receivable--stockholder................... 75,838 79,707 79,707
Notes receivable--other......................... -- -- 2,817
Intangibles..................................... 71,961 75,131 82,736
Accumulated amortization--intangibles........... (8,793) (11,716) (12,561)
---------- ---------- ---------
Total Other Assets......................... 169,129 212,292 206,647
---------- ---------- ---------
TOTAL ASSETS....................................... $1,938,695 $2,502,719 $2,248,409
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE> 113
AERO-MOD, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER OCTOBER
31, 31, APRIL 26,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable--trade......................... $ 325,739 $ 271,170 $ 178,887
Accrued expenses................................ 163,303 225,085 88,929
Billings in excess of costs and estimated
earnings on uncompleted contracts............. -- 22,769 --
Accrued income taxes............................ 35,662 16,842 32,976
Other payables.................................. 295 19,483 965
Deferred income taxes........................... 85,023 118,697 127,697
Current portion of long-term liabilities........ 533,580 702,042 717,606
--------- --------- ---------
Total Current Liabilities.................. 1,143,602 1,376,088 1,147,060
LONG-TERM LIABILITIES
Long-term notes payable......................... 7,758 -- 3,003
Deferred income taxes........................... 11,484 13,231 12,001
--------- --------- ---------
Total Long-Term Liabilities................ 19,242 13,231 15,004
--------- --------- ---------
Total Liabilities.......................... 1,162,844 1,389,319 1,162,064
STOCKHOLDER'S EQUITY
Capital stock................................... 43,960 43,960 43,960
Additional paid-in capital...................... 33,201 33,201 33,201
Retained earnings............................... 698,690 1,036,239 1,009,184
--------- --------- ---------
Total Stockholder's Equity................. 775,851 1,113,400 1,086,345
--------- --------- ---------
Total Liabilities and Stockholder's Equity........... $1,938,695 $2,502,719 $2,248,409
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE> 114
AERO-MOD, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------- FOR THE
OCTOBER 31, OCTOBER 31, PERIOD ENDED
1994 1995 APRIL 26, 1996
----------- ----------- --------------
<S> <C> <C> <C>
Sales................................................. $ 4,594,381 $ 3,122,102 $1,881,903
Cost of Sales......................................... 3,549,150 1,861,304 1,285,170
---------- ---------- ----------
Gross Profit.......................................... 1,045,231 1,260,798 596,733
Selling, General & Administrative Expenses............ 799,837 908,058 436,771
---------- ---------- ----------
NET INCOME (LOSS) FROM OPERATIONS..................... 245,394 352,740 159,962
OTHER INCOME AND EXPENSE:
Interest income..................................... 3,311 3,999 1,391
Municipal lease income.............................. 9,625 12,500 4,375
Consulting income................................... -- 17,306 876
Other (net)......................................... 25,821 4,107 844
---------- ---------- ----------
TOTAL OTHER INCOME AND EXPENSE................... 38,757 37,912 7,486
INCOME (LOSS) BEFORE INCOME TAXES..................... 284,151 390,652 167,448
INCOME TAX:
Income tax expense.................................. 123,982 17,682 37,401
Deferred income tax expense (benefit)............... (18,478) 35,421 7,770
---------- ---------- ----------
TOTAL INCOME TAX................................. 105,504 53,103 45,171
---------- ---------- ----------
NET INCOME............................................ 178,647 337,549 122,277
RETAINED EARNINGS -- BEGINNING OF PERIOD.............. 520,043 698,690 1,036,239
Dividend Distributions Paid........................... -- -- (149,332)
---------- ---------- ----------
RETAINED EARNINGS -- END OF PERIOD.................... $ 698,690 $ 1,036,239 $1,009,184
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE> 115
AERO-MOD, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED PERIOD ENDED
------------------------------- APR. 26,
OCT. 31, 1994 OCT. 31, 1995 1996
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................ $ 178,647 $ 337,549 $ 122,277
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation................................... 53,746 53,535 12,969
Amortization................................... 2,866 3,176 845
Deferred income taxes.......................... (18,478) 35,421 7,770
Change in other prepaids....................... (904) (33,133) 14,808
Change in accounts receivable.................. (30,526) (347,243) 326,234
Change in costs and estimated earnings in
excess of billings........................... 232,084 271,625 (300,521)
Change in inventory............................ (78,596) (237,154) 133,989
Change in accounts payable..................... 102,707 (54,568) (92,284)
Change in billings in excess of costs and
estimated earnings........................... (40,000) 22,769 (22,769)
Change in accrued expenses..................... 7,062 61,781 (136,155)
Change in accrued income taxes................. (52,128) (18,820) 16,134
Change in accrued other payable................ 11 19,189 (18,518)
--------- --------- ---------
Net Cash Flows from Operating Activities..... 356,491 114,127 64,779
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets and intangibles (net)... (101,908) (20,564) (57,525)
Change in cash surrender value of life
insurance...................................... (8,795) (5,915) 1,002
Change in notes receivable-stockholder............ (9,432) (3,868) --
--------- --------- ---------
Net Cash Flows from Investing Activities..... (120,135) (30,347) (56,523)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.......................... 490,600 667,950 697,055
Principle payments on notes payable............... (651,128) (507,246) (678,489)
S corporation distributions....................... -- -- (149,332)
--------- --------- ---------
Net Cash Flows from Financing Activities..... (160,528) 160,704 (130,766)
--------- --------- ---------
Increase (Decrease) in Cash......................... 75,828 244,484 (122,510)
Cash at Beginning of Period......................... 35,447 111,275 355,759
--------- --------- ---------
Cash at End of Period............................... $ 111,275 $ 355,759 $ 233,249
========= ========= =========
Supplementary Information
Interest paid..................................... $ 64,736 $ 60,837 $ 64,736
========= ========= =========
Income taxes paid................................. $ 176,110 $ 36,502 $ 176,110
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE> 116
AERO-MOD, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
APRIL 26, 1996
NOTE A--NATURE OF OPERATIONS
Aero-Mod, Inc. and Affiliates refers to the combined activities of Aero-Mod,
Inc., Resi-Tech, Inc., and Blue Water Services, Inc.
Aero-Mod, Inc. is a Kansas corporation incorporated December 19, 1980 with its
principal office in Manhattan, Kansas. The company constructs wastewater
treatment systems.
Resi-Tech, Inc. is a Kansas corporation incorporated July 17, 1991 with its
principal office in Manhattan, Kansas. The company distributes sludge dewatering
systems.
Blue Water Services, Inc. is a Kansas corporation incorporated July 17, 1991
with its principal office in Manhattan, Kansas. The company conducts operations
for water and wastewater utilities.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the companies' financial statements. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in preparation of the financial statements.
1. OPERATING CYCLE
Assets and liabilities related to contracts are included as current assets and
current liabilities on the accompanying balance sheets, as they will normally be
completed within the following fiscal year.
2. FINANCIAL STATEMENT PERIODS
The periods reported on these financial statements are the years ended October
31, 1994, and October 31, 1995 and the period beginning November 1, 1995 and
ended April 26, 1996 (referred to as "the period ended April 26, 1996"
throughout).
3. REVENUE AND COST RECOGNITION
Revenues from construction contracts are recognized on the
percentage-of-completion method, measured by contract costs incurred to date by
phase in relation to total estimated contract costs when contracts have
progressed sufficiently to allow for estimation.
Contract costs include all direct material, labor, subcontracts and those
indirect costs related to contract performance, such as gas, oil supplies,
travel, equipment rent and allocations of indirect construction costs.
Estimated losses on contracts in progress are recorded in the period such losses
are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlement may result in revisions to costs and
income and are recognized when determined.
The asset "Costs and estimated earnings in excess of billings on uncompleted
contracts", represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts", represents billings in excess of revenues received.
F-51
<PAGE> 117
AERO-MOD, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 26, 1996
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
4. INVENTORY
Inventory is generally stated at the lower of cost (first-in, first-out method)
or market. Capitalized Section 263A costs are as follows:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
- -------- -------- --------
<S> <C> <C>
$ 2,136 $ 14,153 $ 3,389
====== =======
</TABLE>
5. FIXED ASSETS
Fixed assets are stated at cost. Major improvements and betterments to existing
fixed assets have been capitalized. Expenditures for maintenance and repairs
which do not extend the life of the applicable assets have been charged to
expense as incurred.
Depreciation is provided principally by the straight-line and accelerated
methods over the estimated useful lives of the assets, which are generally five
to ten years (10 to 40 years for leasehold improvements).
6. AMORTIZATION OF INTANGIBLES
The cost of patents acquired are being amortized on the straight-line method
over 17 years.
7. INCOME TAX EXPENSE (BENEFIT)
Resi-Tech, Inc. (except for FYE October 31, 1994) and Blue Water Services, Inc.
are subchapter S corporations, and, therefore, do not pay income tax at the
corporate level. The companies' corporate income tax expense (benefit) is as
follows:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current income tax expense (benefit)..................... $123,982 $ 17,682 $ 37,401
Deferred income tax expense (benefit):
Contract related....................................... (27,869) 33,674 9,000
Property and equipment related......................... 9,391 1,747 (1,230)
-------- -------- --------
Income Tax Expense (Benefit)............................. $105,504 $ 53,103 $ 45,171
======== ======== ========
</TABLE>
The components of the balance of accrued income taxes payable were:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Currently payable........................................ $123,982 $ 17,682 $ 37,401
Less estimated tax payments.............................. (88,320) (840) (4,425)
-------- -------- --------
Total accrued income taxes............................... $ 35,662 $ 16,842 $ 32,976
======== ======== ========
</TABLE>
F-52
<PAGE> 118
AERO-MOD, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 26, 1996
NOTE B--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The components of the balance of deferred income taxes were:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Contract related......................................... $ 85,023 $118,697 $127,697
Property and equipment related........................... 11,484 13,231 12,001
-------- -------- --------
Total deferred income taxes.............................. $ 96,507 $131,928 $139,698
======== ======== ========
</TABLE>
Contracts in progress are reported for financial statement purposes using the
percentage-of-completion method whereas for tax reporting purposes, the
completed contract method of accounting is utilized.
On April 26, 1996, the companies had state income tax credits in the amount of
$11,990 to carryforward.
8. CASH SURRENDER VALUE OF LIFE INSURANCE
The companies and stockholder's spouse are beneficiaries of insurance policies
on the life of the 100% stockholder.
9. USE OF ESTIMATES
The preparation of financial statements under generally accepted accounting
principles requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
10. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The companies have elected to use the direct write-off method to account for bad
debts. This is not in conformity with generally accepted accounting principles;
however, the difference is not considered material.
NOTE C--CONTRACT RECEIVABLES
Contract receivables included in "Accounts receivable-trade" are as follows:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Contract receivables--
Billed:
Completed contracts.............................. $ 48,370 $ 469,665 $ 278,012
Contracts in progress............................ 186,750 -- --
Unbilled: -- -- --
--------- --------- ---------
Total Contract Receivables............................ $ 235,120 $ 469,665 $ 278,012
========= ========= =========
</TABLE>
F-53
<PAGE> 119
AERO-MOD, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 26, 1996
NOTE D--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts............... $ 434,959 $ 319,074 $ 330,091
Estimated earnings.................................... 218,853 296,572 328,685
--------- --------- ---------
Subtotal............................................ 653,812 615,646 658,776
Less billings to date................................. (186,570) (442,798) (162,638)
--------- --------- ---------
Total............................................... $ 467,242 $ 172,848 $ 496,138
========= ========= =========
</TABLE>
Included in accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $ 467,242 $ 195,617 $ 496,138
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... -- (22,769) --
-------- -------- --------
Total................................................. $ 467,242 $ 172,848 $ 496,138
======== ======== ========
</TABLE>
NOTE E--RELATED PARTY TRANSACTIONS
The companies lease facilities from the sole stockholder. The lease is an
operating lease, which is renewed monthly, requiring monthly payments of $5,500
as of April 26, 1996.
The note receivable from stockholder carries no repayment schedule or assigned
rate of interest.
The companies paid the stockholder $34,250, $68,700, and $33,300 for the years
ended October 31, 1994, and October 31, 1995, and the period ended April 26,
1996, respectively.
The companies paid the stockholder $45,000 in royalties for the years ended
October 31, 1994 and October 31, 1995.
F-54
<PAGE> 120
AERO-MOD, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 26, 1996
NOTE F--NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
1. Contract advance on purchase of corporate assets
from Waterlink, Inc. See subsequent events (NOTE
M) for further explanation....................... $ -- $ -- $ 689,059
2. 7.715% note to Security Mutual Life Insurance
Company, due November 1, subsequent to the
balance sheet date, secured by cash value of
officer life insurance........................... 20,615 20,615 20,615
3. Various notes on vehicle and equipment purchases,
secured by vehicles and equipment................ $ 14,606 $ 5,718 $ 10,935
4. Non-interest bearing note payable through October
31, 1996 in annual installments of $7,759 to
Robert K. Holdeman in settlement of claim,
secured by company stock. This note was settled
in full prior to April 26, 1996.................. 15,517 7,759 --
5. 10.00% note revolving line of credit payable to
First National Bank of Wamego, due on demand or
March 8, 1996, and March 8, 1995, line of credit
limit $160,000, secured by accounts receivable,
inventory and equipment.......................... 160,000 160,000 --
6. 9.30% note, revolving line of credit payable to
First National Bank of Wamego, due on demand or
March 8, 1995, line of credit limit $278,000,
secured by contracts receivable, inventory,
equipment and other assets....................... 278,000 -- --
7. 9.00% note, revolving line of credit payable to
First National Bank of Wamego, due on demand or
March 8, 1996, and March 9, 1995, line of credit
limit $520,000 and $159,375, secured by contracts
receivable, inventory, equipment and other
assets........................................... 52,600 507,950 --
------- ------- -------
Subtotal......................................... 541,338 702,042 720,609
Less: Current portion............................ (533,580) (702,042) (717,606)
------- ------- -------
Total Long-Term Notes Payable.................... $ 7,758 $ -- $ 3,003
======= ======= =======
</TABLE>
Maturities of notes payable are as follows:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Year One.......................................... $ 533,580 $ 702,042 $ 717,606
Year Two.......................................... 7,758 -- 3,003
---------- ---------- ----------
Total........................................... $ 541,338 $ 702,042 $ 720,609
========== ========== ==========
</TABLE>
F-55
<PAGE> 121
AERO-MOD, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 26, 1996
NOTE G--BACKLOG
Following is a reconciliation of backlog of signed contracts:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance--Beginning of Period...................... $ 806,321 $ 90,388 $ 929,084
Add: New contracts and change orders during
period.......................................... 2,479,046 2,469,007 1,922,635
Less: Contract revenues earned during period...... (3,194,979) (1,630,311) (1,477,645)
---------- ---------- ----------
Balance--End of Period............................ $ 90,388 $ 929,084 $1,374,074
========== ========== ==========
</TABLE>
NOTE H--STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON PREFERRED PREFERRED
-------- --------- ---------
<S> <C> <C> <C>
a. AERO-MOD, INC.
Number of authorized shares........................... 150,000 30,000 20,000
Par value per share................................... $ 10 $ 10 $ 10
Number of shares issued and outstanding............... 3,846 -- --
Additional paid-in capital............................ $ 33,201
b. RESI-TECH, INC.
Number of authorized shares........................... 20,000
Par value per share................................... $ 5
Number of shares issued and outstanding............... 100
c. BLUE WATER SERVICES, INC.
Number of authorized shares........................... 10,000
Par value per share................................... $ 1
Number of shares issued and outstanding............... 5,000
</TABLE>
NOTE I--SIMPLIFIED EMPLOYEE PENSION PLAN
The companies sponsor a simplified employee pension plan for qualifying
employees in which discretionary contributions are made to eligible
participant's individual IRA account. Contributions are based on a percentage of
each covered employee's salary. For the years ended October 31, 1994 and October
31, 1995, a 5.0% contribution had been made. For the period beginning November
1, 1995 and ended April 26, 1996, no decision had been made relating to pension
contributions.
NOTE J--MAJOR CUSTOMERS AND RISK CONCENTRATIONS
The companies currently grant credit to its customers. Management believes that
its contract acceptance, billing, and collection policies are adequate to
minimize potential credit risk. The companies conduct a large portion of their
business with large corporations and various municipalities. The stability of
these entities should also minimize potential credit risk.
F-56
<PAGE> 122
AERO-MOD, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 26, 1996
NOTE K--CONCENTRATIONS OF CREDIT RISK
The companies maintain their cash balances in one financial institution located
in Manhattan, Kansas. These balances are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. The companies' uninsured cash
balances are as follows:
<TABLE>
<CAPTION>
OCT. 31, OCT. 31, APR. 26,
1994 1995 1996
- --------- -------- --------
<S> <C> <C>
$18,355 $337,440 $139,362
======= ========
</TABLE>
NOTE L--CONTINGENCY/FOREIGN CURRENCY CONTRACTS
Aero-Mod, Inc. was engaged in one foreign contract stated in terms of foreign
currency. The fluctuation of the exchange rates between the foreign currency and
the U.S. dollar resulted in a foreign currency transaction loss in the amount of
$49,867, which is reflected in gross sales for the period ended April 26, 1996.
Since the amount of gain or loss relating to this contract could not be
reasonably estimated as of October 31, 1995, no adjustment was made to the
books. The contract price, however, was adjusted to reflect the October 31, 1995
exchange rate when calculating percentage-of-completion amounts for
work-in-progress.
NOTE M--SUBSEQUENT EVENTS
Substantially all of the assets and liabilities of Aero-Mod, Inc. and Affiliates
were acquired by Waterlink, Inc. (a Delaware corporation), A-M Acquisitions
Corp., (a Delaware corporation and wholly-owned subsidiary of Waterlink, Inc.),
and B-W Acquisition Corp. (a Delaware corporation and wholly-owned subsidiary of
Waterlink, Inc.), on April 26, 1996, subsequent to the amounts reported in these
financial statements.
The items listed above, along with other assets owned personally by Lawrence A.
Schmid, the sole stockholder of the companies, were involved in the transaction.
Lawrence A. Schmid, the sole stockholder of the companies, is currently bound by
employment and non-compete contracts with A-M Acquisitions Corp.
Lawrence A. Schmid currently receives monthly rent in the amount of $5,500 from
A-M Acquisitions Corp. for the use of buildings and real estate which he
continues to own personally.
F-57
<PAGE> 123
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Water Equipment Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Water
Equipment Technologies, Inc. and subsidiary as of September 30, 1995 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended September 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Water Equipment Technologies, Inc. and subsidiary at September 30, 1995 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Canton, Ohio
March 7, 1997
F-58
<PAGE> 124
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 169,541 $ 64,360
Accounts receivable, less allowance of $50,000.................. 1,208,262 1,518,002
Accounts receivable -- related parties.......................... 3,063 288,660
Inventories..................................................... 985,089 1,016,225
Costs in excess of billings..................................... 19,268 57,416
Refundable income taxes......................................... 31,685 --
Deferred income taxes........................................... 45,297 118,884
Prepaid expenses and other assets............................... -- 15,878
--------- ---------
Total current assets.............................................. 2,462,205 3,079,425
Property, plant and equipment, net................................ 322,389 242,532
Deferred income taxes............................................. 3,300 7,628
Other assets...................................................... 15,019 12,082
--------- ---------
Total assets...................................................... $2,802,913 $3,341,667
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 578,393 $ 551,042
Note payable to bank............................................ 150,000 --
Note payable -- related party................................... 402,833 --
Accrued expenses................................................ 71,572 535,189
Income taxes payable............................................ -- 32,840
Billings in excess of cost...................................... 118,786 104,841
Current portion of long-term debt............................... 11,670 8,664
--------- ---------
Total current liabilities......................................... 1,333,254 1,232,576
Long-term debt.................................................... 280,193 --
Shareholders' equity:
Common stock, $.001 par value
Authorized shares -- 2,000,000
Issued and outstanding shares -- 1,000,000 in 1995 and
1,105,000 in 1996........................................... 200 221
Additional paid-in capital...................................... 13,776 1,025,568
Retained earnings............................................... 1,175,490 1,083,302
--------- ---------
Total shareholders' equity........................................ 1,189,466 2,109,091
--------- ---------
Total liabilities and shareholders' equity........................ $2,802,913 $3,341,667
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE> 125
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................ $6,692,973 $8,425,934 $8,441,293
Cost of sales........................................ 4,311,571 5,788,548 5,496,649
--------- --------- ---------
Gross profit......................................... 2,381,402 2,637,386 2,944,644
Selling, general and administrative expenses......... 2,327,591 2,475,054 2,024,763
Stock compensation................................... -- -- 1,011,813
--------- --------- ---------
Operating income (loss).............................. 53,811 162,332 (91,932)
Other income (expense):
Interest expense................................... (30,561) (71,405) (46,790)
Other -- net....................................... 71,756 3,519 7,658
--------- --------- ---------
Income (loss) before income taxes.................... 95,006 94,446 (131,064)
Provision (credit) for income taxes.................. 37,638 37,745 (38,876)
--------- --------- ---------
Net income (loss).................................... $ 57,368 $ 56,701 $ (92,188)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE> 126
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- --------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994
Balance at October 1, 1993........................ $200 $ 13,776 $1,061,421 $1,075,397
Net income........................................ -- -- 57,368 57,368
------ ---------- --------- -------------
Balance at September 30, 1994..................... 200 13,776 1,118,789 1,132,765
YEAR ENDED SEPTEMBER 30, 1995
Net income........................................ -- -- 56,701 56,701
------ ---------- --------- -------------
Balance at September 30, 1995..................... 200 13,776 1,175,490 1,189,466
YEAR ENDED SEPTEMBER 30, 1996
Issuance of 105,000 shares of
common stock as compensation.................... 21 1,011,792 -- 1,011,813
Net loss.......................................... -- -- (92,188) (92,188)
------ ---------- --------- -------------
Balance at September 30, 1996..................... $221 $1,025,568 $1,083,302 $2,109,091
====== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-61
<PAGE> 127
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................... $ 57,368 $ 56,701 $ (92,188)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization.................... 92,740 120,864 107,735
Deferred taxes................................... 469 31,829 (77,915)
Stock compensation............................... -- -- 1,011,813
Changes in working capital:
Accounts receivable............................ (697,715) 54,071 (309,740)
Accounts receivable -- related parties......... 150 (2,388) (285,597)
Inventories.................................... (37,079) 51,661 (31,136)
Cost in excess of billings..................... 92,930 (19,268) (38,148)
Prepaids and other assets...................... (5,630) (19,980) 18,744
Accounts payable............................... 48,212 (313,806) (27,351)
Other accrued expenses......................... (25,479) (28,231) 496,457
Billings in excess of cost..................... 16,007 (59,697) (13,945)
--------- --------- ---------
Net cash provided (used) by operating activities...... (458,027) (128,244) 758,729
INVESTING ACTIVITIES
Purchases of equipment -- net......................... (181,897) (114,436) (27,878)
FINANCING ACTIVITIES
Payments on long-term borrowings...................... (13,651) (8,799) (283,199)
Proceeds from long-term debt.......................... 26,318
Notes payable to banks -- net......................... -- 150,000 (150,000)
Payments on notes payable -- related parties.......... -- (509,775) (402,833)
Proceeds from notes payable -- related parties........ -- 700,000 --
--------- --------- ---------
Net cash (used) provided by financing activities...... 12,667 331,426 (836,032)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents...... (627,257) 88,746 (105,181)
Cash and cash equivalents at beginning of year........ 708,052 80,795 169,541
--------- --------- ---------
Cash and cash equivalents at end of year.............. $ 80,795 $ 169,541 $ 64,360
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-62
<PAGE> 128
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Water Equipment Technologies, Inc. (the "Company"), located in West Palm Beach,
Florida, operates in a single business segment designing and building water
treatment filters and reverse osmosis systems and related equipment. The
Company's products are used worldwide by industrial, municipal and residential
customers, with sales primarily in the United States, United Kingdom, Middle
East and Pacific Rim. Export sales represented approximately one-third of total
sales for all periods presented.
At the close of business on September 30, 1996, the Company merged with
Waterlink, Inc. in a transaction in which the Company exchanged all of its
common stock for a combination of cash and shares of common stock in Waterlink,
Inc. Immediately prior to the merger transaction, the Company's wholly-owned
subsidiary, Ultra Pure Water, was spun-off in the form of a dividend to the
shareholders' of the Company. The accompanying financial statements include only
the accounts and operations of Water Equipment Technologies, Inc. and its
wholly-owned subsidiary, Water Equipment Technologies (Europe) Limited, which
were acquired by Waterlink, Inc. on September 30, 1996 as described above. Water
Equipment Technologies (Europe) Limited become inactive on December 31, 1994.
All significant intercompany balances and transactions have been eliminated.
2. ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
The principal business of the Company is to design and produce water and
wastewater treatment systems, the majority of which are custom designed and take
a number of months to complete. Revenue for significant contracts is recognized
using the percentage-of-completion method of accounting in the proportion that
costs bear to total estimated costs at completion. Revisions of estimates to
complete and losses, if any, are recognized in the period in which they are
determined. Sales of membrane filters in the residential market are recognized
when shipped.
FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, accounts receivable and accounts
payable are a reasonable estimate of their fair value due to the short-term
nature of these instruments.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's credit policy which generally requires deposits at signing of
the contract and letters of credit for all customers outside the United States.
The Company grants credit to domestic customers based on an evaluation of their
financial condition and collateral is generally not required. Losses from credit
sales are provided for in the financial statements and have historically been
within management's expectations.
F-63
<PAGE> 129
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
2. ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost. Expenditures for repairs and
maintenance are charged to operations as incurred, while expenditures for
additions and improvements are capitalized. Depreciation is computed principally
using the declining-balance and straight-line methods over the estimated useful
lives of assets. The useful lives are 5 years for leasehold improvements; 5 to 7
years for machinery and equipment and 7 years for furniture and fixtures.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Raw materials..................................................... $ 505,744 $ 515,539
Work in progress.................................................. 59,877 11,726
Finished goods.................................................... 419,468 488,960
---------- ----------
$ 985,089 $1,016,225
========== ==========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Leasehold improvements............................................ $ 99,328 $ 86,515
Machinery and equipment........................................... 600,735 580,297
Furniture and fixtures............................................ 265,048 286,287
---------- ----------
965,111 953,099
Less accumulated depreciation..................................... 642,722 710,567
---------- ----------
$ 322,389 $ 242,532
========== ==========
</TABLE>
F-64
<PAGE> 130
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
5. FINANCING ARRANGEMENTS
Long-term debt was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1996
-------- ------
<S> <C> <C>
10% convertible debentures, repaid in September 1996................... $275,000 $ --
Note payable in monthly installments of $822, including principal and
interest at 7.5% through August 1997, collateralized by a vehicle.... 16,863 8,664
-------- ------
291,863 8,664
Less current portion of long-term debt................................. 11,670 8,664
-------- ------
$280,193 $ --
======== ======
</TABLE>
Note payable -- related party at September 30, 1995 represents a 10% demand note
payable to the majority shareholder. The note was repaid in September 1996 in
anticipation of the merger with Waterlink, Inc.
Interest expense approximates interest paid for each of three years in the
period ended September 30, 1996. Interest paid to related parties amounted to
$21,700 in 1994, $30,700 in 1995 and $20,100 in 1996.
6. LEASES
In connection with the merger with Waterlink, Inc., the Company entered into a
five year lease agreement with the former majority shareholder for its principal
office, warehouse and production facility in Florida. Prior to this time, the
Company leased certain of these facilities from the shareholder on a
month-to-month basis. The Company believes that the rents due under the related
party lease agreement are comparable to those which would be charged by an
unrelated party. Rent expense totaled $142,500 in 1994, $162,300 in 1995 and
$124,400 in 1996.
Aggregate future minimum lease payments under noncancelable related party
operating leases at September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................... $ 254,521
1998................................................... 254,521
1999................................................... 254,521
2000................................................... 254,521
2001................................................... 254,521
---------
$1,272,605
=========
</TABLE>
F-65
<PAGE> 131
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
7. CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1996
-------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts............................ $ 38,265 $ 495,626
Estimated earnings................................................. 18,743 480,785
-------- ----------
57,008 976,411
Less billings to date.............................................. 156,526 1,023,836
-------- ----------
$(99,518) $ (47,425)
======== =========
</TABLE>
These amounts are included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Costs in excess of billings...................................... $ 19,268 $ 57,416
Billings in excess of costs...................................... (118,786) (104,841)
---------- ----------
$ (99,518) $ (47,425)
========== ==========
</TABLE>
8. STOCK COMPENSATION
On September 25, 1996, in contemplation of the merger with Waterlink, the Board
of Directors approved issuance of 105,000 shares of the Company's common stock
to certain key employees as compensation for prior services rendered. In
addition, the majority shareholder of the Company provided 110,000 of his shares
to two employees as consideration for prior services. Based on the fair value of
the Company's stock at September 25, 1996 as determined by the final purchase
price by Waterlink, stock compensation expense of approximately $1,012,000 was
recorded by the Company, with a corresponding increase to common stock and
additional paid-in capital.
9. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................................ $ 30,667 $ 4,472 $ 33,840
State.................................................. 6,502 1,444 5,199
-------- -------- --------
37,169 5,916 39,039
Deferred................................................. 469 31,829 (77,915)
-------- -------- --------
Provision (credit) for income taxes...................... $ 37,638 $ 37,745 $(38,876)
======== ======== ========
</TABLE>
Income taxes paid were $49,400 in 1994, $25,400 in 1995 and $4,700 in 1996.
F-66
<PAGE> 132
WATER EQUIPMENT TECHNOLOGIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax effects of the temporary
differences are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Non-deductible accruals............................................ $ 29,350 $ 37,035
Stock compensation................................................. -- 62,588
Other.............................................................. 19,247 26,889
-------- --------
Net deferred tax asset............................................... $ 48,597 $126,512
======== ========
</TABLE>
Following is the reconciliation between the provision (credit) for income taxes
and the amount computed by applying the statutory U.S. federal income tax rate
of 34% to income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Provision (credit) for income taxes at the statutory
federal rate........................................... $ 32,302 $ 32,112 $(44,562)
Adjustments:
State and local income taxes, net of federal tax
benefit............................................. 4,291 953 3,432
Non-deductible expenses................................ 1,045 4,680 2,254
-------- -------- --------
Provision (credit) for income taxes...................... $ 37,638 $ 37,745 $(38,876)
======== ======== ========
Effective income tax rate................................ 40% 40% (30%)
======== ======== ========
</TABLE>
Management has determined, based on the Company's history of prior earnings,
that operating results of the Company will more likely than not be sufficient to
recognize fully the net deferred tax asset. Accordingly, no valuation allowance
for deferred tax assets is required.
10. CONTINGENCIES
The Company is involved in certain legal actions arising in the ordinary course
of business. In the opinion of management, such litigation and claims will be
resolved without a material effect on the Company's financial position, cash
flows or results of operations.
F-67
<PAGE> 133
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Nordic Water Products Group
We have audited the accompanying combined balance sheets of the Nordic
Water Products Group as of March 31, 1995 and 1996, and the related combined
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 1996. These financial statements,
which are expressed in Swedish Kronor, 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 in Sweden which, in all material respects, conform to generally
accepted auditing standards in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Nordic Water
Products Group at March 31, 1995 and 1996, and the combined results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles in
Sweden.
Generally accepted accounting principles in Sweden vary in certain respects
from generally accepted accounting principles in the United States. Application
of generally accepted accounting principles in the United States would have
affected net income for each of the years in the three year period ended March
31, 1996 and shareholders' equity as of March 31, 1995 and 1996, to the extent
summarized in Note 13 to the combined financial statements.
ERNST & YOUNG AB
Torbjorn Hanson
Stockholm, Sweden
April 4, 1997
F-68
<PAGE> 134
NORDIC WATER PRODUCTS GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- 1996
1995 1996 (Unaudited)
------- ------- ------------
KSEK KSEK KSEK
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ 4,440 5,545 18,013
Accounts receivable, net................................. 26,862 33,143 29,940
Accounts receivable -- related party..................... 24,021 5,895 2,794
Inventories.............................................. 55,492 41,497 60,169
Prepaid expenses......................................... 9,776 16,739 9,490
Other current assets..................................... 2,380 3,222 5,637
------- ------- -------
Total current assets....................................... 122,971 106,041 126,043
Property, plant and equipment, less accumulated
depreciation............................................. 10,134 8,271 7,010
Intangible assets, net..................................... 3,290 2,728 3,418
Investment in affiliated company........................... 8,153 6,909 --
Other assets............................................... 6,554 6,186 6,093
------- ------- -------
Total assets............................................... 151,102 130,135 142,564
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade................................ 17,104 16,671 12,932
Accounts payable -- related party........................ 21,488 13,949 19,526
Accrued expenses......................................... 21,900 24,348 29,668
Customer deposits........................................ 42,926 24,619 26,637
Accrued income taxes..................................... 88 335 --
------- ------- -------
Total current liabilities.................................. 103,506 79,922 88,763
Notes payable -- related party............................. 22,278 22,546 28,138
Deferred income taxes...................................... 642 486 501
Pensions................................................... 7,440 7,750 7,828
Other non-current obligations.............................. 1,210 100 892
------- ------- -------
Total non-current liabilities.............................. 31,570 30,882 37,359
Shareholders' equity:
Common stock............................................. 4,000 4,000 4,000
Restricted reserves...................................... 5,178 5,428 5,432
Retained earnings........................................ 6,848 9,903 7,010
------- ------- -------
Total shareholders' equity................................. 16,026 19,331 16,442
------- ------- -------
Total liabilities and shareholders' equity................. 151,102 130,135 142,564
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-69
<PAGE> 135
NORDIC WATER PRODUCTS GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------- -------------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
KSEK KSEK KSEK KSEK KSEK
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales.............................. 194,337 170,265 207,416 110,193 125,651
Cost of sales.......................... 132,542 118,432 145,547 71,918 83,987
------- ------- ------- ------- -------
Gross profit........................... 61,795 51,833 61,869 38,275 41,664
Selling, general and administrative
expenses............................. 54,289 57,436 54,413 41,897 45,315
------- ------- ------- ------- -------
Operating income (loss)................ 7,506 (5,603) 7,456 (3,622) (3,651)
Other income (expense):
Interest expense -- related party.... (1,354) (1,620) (1,813) (1,270) (1,049)
Interest income...................... 1,264 849 588 495 463
Other income (expense)............... (19) (109) 133 -- --
------- ------- ------- ------- -------
Income (loss) before income taxes...... 7,397 (6,483) 6,364 (4,397) (4,237)
Provision for income taxes............. 3,144 463 1,512 288 165
------- ------- ------- ------- -------
Net income (loss)...................... 4,253 (6,946) 4,852 (4,685) (4,402)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE> 136
NORDIC WATER PRODUCTS GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
NUMBER COMMON RESTRICTED RETAINED SHAREHOLDERS'
OF SHARES STOCK RESERVES EARNINGS EQUITY
--------- ------ ---------- -------- -------------
KSEK KSEK KSEK KSEK
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1994
Balance at April 1, 1993....................... 40,000 4,000 6,157 12,669 22,826
Net income..................................... 4,253 4,253
Transfer....................................... (1,304) 1,304 --
Contributed capital............................ 2,742 2,742
Distribution to shareholder.................... (8,901) (8,901)
Translation adjustment......................... (42) (42)
------ ----- ------ ------ ------
Balance at March 31, 1994...................... 40,000 4,000 4,853 12,025 20,878
YEAR ENDED MARCH 31, 1995
Net loss....................................... (6,946) (6,946)
Transfer....................................... 325 (325) --
Contributed capital............................ 3,193 3,193
Distribution to shareholder.................... (436) (436)
Translation adjustment......................... (663) (663)
------ ----- ------ ------ ------
Balance at March 31, 1995...................... 40,000 4,000 5,178 6,848 16,026
YEAR ENDED MARCH 31, 1996
Net income..................................... 4,852 4,852
Transfer....................................... 250 (250) --
Contributed capital............................ 928 928
Distribution to shareholder.................... (2,914) (2,914)
Translation adjustment......................... 439 439
------ ----- ------ ------ ------
Balance at March 31, 1996...................... 40,000 4,000 5,428 9,903 19,331
NINE MONTHS ENDED
DECEMBER 31, 1996 (UNAUDITED)
Net loss....................................... (4,402) (4,402)
Transfer....................................... 4 (4) --
Contributed capital............................ 1,437 1,437
Translation adjustment......................... 76 76
------ ----- ------ ------ ------
Balance at December 31, 1996................... 40,000 4,000 5,432 7,010 16,442
====== ===== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE> 137
NORDIC WATER PRODUCTS GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------- -----------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
KSEK KSEK KSEK KSEK KSEK
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)................................ 4,253 (6,946) 4,852 (4,685) (4,402)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization.................... 4,112 4,388 4,232 3,311 2,788
Deferred income taxes............................ 2,670 123 977 -- 15
Changes in assets and liabilities:
Accounts receivable............................ (6,954) (652) (6,281) (6,270) 3,203
Accounts receivable -- related party........... (2,281) (8,272) 18,126 17,613 3,101
Inventories.................................... (19,748) (1,255) 13,995 11,765 (18,672)
Prepaid and other assets....................... (3,727) 600 (6,963) 4,832 7,249
Other assets................................... 6,308 (950) (842) (5,606) (2,415)
Accounts payable............................... 2,065 631 (7,539) 2,360 (3,739)
Accounts payable-related party................. (3,169) 9,054 (433) (4,978) 5,577
Accrued expenses and other..................... 1,393 (3,730) 2,448 950 6,321
Customer deposits.............................. 14,180 (1,088) (18,307) (22,903) 2,018
Accrued income taxes........................... (251) 88 247 (88) (335)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities..................................... (1,149) (8,009) 4,512 (3,699) 709
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment........................... (5,345) (3,307) (2,172) (1,000) (1,079)
Investment in affiliated company................. -- (3,068) -- -- 6,737
Proceeds from sales of equipment................. 62 357 127 -- --
------- ------- ------- ------- -------
Net cash provided by (used in) investing
activities..................................... (5,283) (6,018) (2,045) (1,000) 5,658
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable--related party....... 380 391 368 (312) 92
Payments on notes payable--related party......... 7,592 (106) (532) 5,870 6,462
Distribution to shareholder...................... (12,363) (606) (4,047) -- --
Capital contributions received................... 2,742 3,193 928 2,394 1,437
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities..................................... (1,649) 2,872 (3,283) 7,952 7,991
Effect of exchange rate changes on cash.......... 301 (633) 1,921 1,488 (1,890)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................... (7,780) (11,788) 1,105 4,741 12,468
Cash and cash equivalents at beginning of year... 24,008 16,228 4,440 4,440 5,545
------- ------- ------- ------- -------
Cash and cash equivalents at end of year......... 16,228 4,440 5,545 9,181 18,013
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-72
<PAGE> 138
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
The Nordic Water Products Group of companies (the "Group") operates in a single
business segment, designing and producing water and waste water treatment
equipment used by industrial and municipal customers. The Group's sales are made
predominately in Europe, with a concentration in the Scandinavian countries and
Germany.
The combined financial statements include the financial statements of the
companies purchased by Waterlink, Inc. in a transaction which was consummated on
March 5, 1997. During the periods included in these financial statements there
was no single holding company for the Group, with the companies all ultimately
owned by Anglian Water International ("Anglian"). The companies which comprise
the Nordic Water Products Group are as follows:
<TABLE>
<CAPTION>
OPERATING COMPANY COUNTRY
----------------------------------------------------- --------
<S> <C>
Nordic Water Products AB............................. Sweden
Axel Johnson Engineering GmbH........................ Germany
Noxon AB............................................. Sweden
Zickert Products AB.................................. Sweden
Zickert Milijo AS.................................... Denmark
Nordic Water Products SL............................. Spain
</TABLE>
2. BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared in accordance
with Swedish generally accepted accounting principles for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission located in the United States of America. A reconciliation of net
income and shareholders' equity between Swedish GAAP and U.S. GAAP is performed
in Note 13.
The figures presented in these financial statements have been prepared by
combining the historical results of the entities listed in Note 1, except for
the provision of income taxes discussed below. All inter-group transactions and
balances have been eliminated on combination.
Certain management services, such as treasury, were provided by Anglian to the
Nordic Water Products Group. Therefore, the accompanying financial statements do
not purport to present the complete financial position or results of operations
and cash flows of the Group as if it had been operated as a separate,
unaffiliated entity, but rather as a part of Anglian's overall business during
the periods presented.
3. ACCOUNTING POLICIES
REVENUE RECOGNITION
Sales are primarily recorded when products are shipped. Revenues for contracts
are recognized using the completed-contract method of accounting.
FISCAL YEAR END
The Group's fiscal year ends on March 31. References in the footnotes to the
years 1996, 1995 and 1994 refer to the fiscal years ended March 31, 1996, 1995
and 1994, respectively.
F-73
<PAGE> 139
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
3. ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Group considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Group to concentrations of
credit risk consist principally of cash equivalents and trade receivables. The
Group places its cash equivalents with high quality financial institutions.
Concentrations of credit risk with respect to trade receivables are limited due
to the Group's large number of customers and their dispersion across many
different regions and industries. The Group grants credit to customers based on
an evaluation of their financial condition and collateral is generally not
required. Losses from credit sales are provided for in the financial statements
and have been within management's expectations.
FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, accounts receivable and accounts
payable are a reasonable estimate of their fair value due to the short-term
nature of these instruments. The notes payable -- related party do not have a
ready market and cost is assumed to approximate fair value.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the average cost method.
AMORTIZATION OF INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill which is amortized on a
straight-line basis over ten years.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is valued at cost. Expenditures for repairs and
maintenance are charged to operations as incurred, while expenditures for
additions and improvements are capitalized. Depreciation is computed principally
using the straight-line method over the estimated useful lives of assets. The
useful lives range from 16 to 50 years for building and improvements; 5 to 10
years for machinery, equipment and furniture.
INCOME TAXES
On a historical basis, the taxable income of certain of the companies in the
Group was included in the tax return of the Anglian tax paying group of which it
was a part. The provision for income taxes in these financial statements was
calculated on a standalone basis for all companies using the appropriate enacted
tax rate for each country. The deferred tax provision was provided for temporary
differences between the financial reporting basis and the statutory tax basis of
the Group's assets and liabilities.
F-74
<PAGE> 140
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
3. ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred and amounted
to KSEK 5,634 in 1994, KSEK 6,293 in 1995 and KSEK 5,152 in 1996.
FOREIGN CURRENCY TRANSLATION
Local currencies of the countries indicated in Note 1 above are considered the
functional currencies of the companies included in the combined financial
statements. Assets and liabilities are translated at the rate of exchange in
effect on the balance sheet dates, while income and expense items are translated
at average rates of exchange prevailing during the applicable period. The
related translation adjustments are reflected in shareholder's equity. Foreign
currency exchange gains or (losses) recorded in the statement of operations were
KSEK 5 in 1994, KSEK (94) in 1995 and KSEK 701 in 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The accompanying combined balance sheet as of December 31, 1996, the related
combined statements of operations and cash flows for the nine months ended
December 31, 1995 and 1996, and the combined statement of shareholders' equity
for the nine months ended December 31, 1996 ("interim financial statements")
have been prepared by the Group in accordance with Swedish generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The interim financial
statements include all adjustments, consisting of only normal recurring
adjustments, considered necessary for a fair presentation of the results of
interim periods. Operating results for the nine-month period ended December 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended March 31, 1997.
4. ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of KSEK
602 at March 31, 1995, KSEK 762 at March 31, 1996 and KSEK 507 at December 31,
1996.
F-75
<PAGE> 141
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<S> <C> <C> <C>
KSEK KSEK KSEK
Raw material and supplies................................ 7,239 8,991 8,942
Work in progress......................................... 27,506 14,327 32,075
Finished goods........................................... 20,747 18,179 19,152
------- ------- -------
55,492 41,497 60,169
======= ======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
KSEK KSEK KSEK
<S> <C> <C> <C>
Buildings and improvements............................... 2,662 3,015 3,015
Machinery, furniture and equipment....................... 21,205 19,687 20,863
------- ------- ------------
23,867 22,702 23,878
Less accumulated depreciation............................ (13,733) (14,431) (16,868)
------- ------- ------------
10,134 8,271 7,010
======= ======= ==========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
KSEK KSEK KSEK
<S> <C> <C> <C>
Goodwill................................................. 5,259 5,259 4,304
Other intangible assets.................................. 5 5 2,151
------- ------- ------------
5,264 5,264 6,455
Less accumulated depreciation............................ (1,974) (2,536) (3,037)
------- ------- ------------
3,290 2,728 3,418
======= ======= ==========
</TABLE>
8. NOTES PAYABLE -- RELATED PARTY
Notes payable -- related party represent amounts due to entities in the Anglian
Group not included in these financial statements. Terms of these notes are
subject to a formal agreement with each related entity at interest rates ranging
from 0% to 7%. The notes have no stated maturity date and repayment is not
expected within the next year. Accordingly, the entire amount of the notes are
classified as long-term.
F-76
<PAGE> 142
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
8. NOTES PAYABLE -- RELATED PARTY (CONTINUED)
Interest expense approximates interest paid for all periods presented.
9. LEASES
The Group leases certain facilities and equipment under operating leases. Rent
expense totaled KSEK 4,736 in 1994, KSEK 4,914 in 1995 and KSEK 5,046 in 1996.
Aggregate future minimum lease payments under noncancelable operating leases at
March 31, 1996 are as follows: 1997 -- KSEK 4,383; 1998 -- KSEK 3,457;
1999 -- KSEK 1,896; 2000 -- KSEK 1,198; 2001 -- KSEK 1,176 and thereafter KSEK
1,176.
10. PENSION OBLIGATIONS
Substantially all employees of Nordic Water Products AB and Zickert AB in Sweden
participate in defined benefit pension plans. These plans provide benefits based
on employee's compensation and are not required to be funded.
The following information is provided in accordance with the U.S. GAAP
disclosure requirements of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions." Assumptions used to calculate costs and
actuarial present value include an assumed discount rate of 7.5% in 1995 and in
1996. The assumed rate of increase in future compensation was 4.5% in 1995 and
in 1996.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH
31,
------------------
1994 1995 1996
---- ---- ----
KSEK KSEK KSEK
<S> <C> <C> <C>
Service cost of benefits earned during the year.......................... 136 131 208
Interest cost on projected benefit obligation............................ 407 437 430
Net amortization and deferral............................................ (119) (113) (129)
---- ---- ----
Net periodic pension cost................................................ 424 455 509
===== ===== =====
</TABLE>
The following table sets forth the accrued pension costs recognized in the
combined balance sheets:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1995 1996
----- -----
KSEK KSEK
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation................... 5,455 5,818
===== =====
Projected benefit obligation for service rendered
to date.......................................... 5,581 5,978
Unrecognized net gain.............................. 68 100
Unrecognized net asset at transition............... 1,791 1,672
----- -----
Accrued pension cost............................... 7,440 7,750
===== =====
</TABLE>
F-77
<PAGE> 143
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1994 1995 1996
----- ---- -----
KSEK KSEK KSEK
<S> <C> <C> <C>
Current taxes:
Sweden.......................................................... 16 30 120
Non-Sweden...................................................... 458 310 396
----- ---- -----
474 340 516
Deferred taxes:
Sweden.......................................................... 2,670 123 996
----- ---- -----
Provision for income taxes........................................ 3,144 463 1,512
===== ===== =====
</TABLE>
The effective tax rate differs from the federal statutory rate as set forth in
the following reconciliation:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1994 1995 1996
---- ----- -----
<S> <C> <C> <C>
Swedish statutory income tax rate.................................. 28.0% 28.0% 28.0%
Non-deductible expenses............................................ 0.4 0.5 0.4
Non-utilized operating loss........................................ 17.2 (33.3) 4.9
Utilized operating loss............................................ (1.6) 0.4 (12.5)
Other.............................................................. (1.5) (2.7) 3.0
---- ----- -----
Effective income tax rates......................................... 42.5% (7.1%) 23.8%
==== ===== =====
</TABLE>
The effect of temporary differences giving rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1995 1996
------- -------
KSEK KSEK
<S> <C> <C>
Deferred tax assets:
Foreign operating loss carryforwards................................. 9,170 8,205
Other temporary differences.......................................... 4,655 3,999
------- -------
13,825 12,204
Valuation allowance.................................................... (13,825) (12,204)
------- -------
-- --
Deferred tax liabilities:
Other temporary differences.......................................... 642 486
------- -------
Net deferred tax liability (asset)..................................... 642 486
======= =======
</TABLE>
F-78
<PAGE> 144
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
11. INCOME TAXES (CONTINUED)
As of March 31, 1996, the Group has deferred tax assets attributable to
operating loss carryforwards and other temporary differences in Germany.
Realization of these carryforwards and other temporary differences is considered
uncertain and a valuation allowance has been recorded. For statutory tax
purposes, the foreign operating loss carryforwards amounted to KSEK 15,169 at
March 31, 1996 and have an indefinite expiration period.
12. CONTINGENCIES
The Group is involved in certain legal actions arising in the ordinary course of
business. In the opinion of management, such litigation and claims will be
resolved without a material effect on the Group's financial position, cash flows
or results of operations.
13. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
Application of U.S. GAAP would have the following approximate effect on the
combined net income and stockholders' equity.
Reconciliation of Net Income
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------------- -----------------
1994 1995 1996 1995 1996
----- ------ ----- ------ ------
KSEK KSEK KSEK KSEK KSEK
<S> <C> <C> <C> <C> <C>
Net income (loss) as reported................. 4,253 (6,946) 4,852 (4,685) (4,402)
Accounting for contracts...................... 2,238 (1,960) 1,417 1,659 (2,336)
----- ------- ----- ------- -------
Approximate net income (loss) as per U.S.
GAAP........................................ 6,491 (8,906) 6,269 (3,026) (6,738)
===== ======= ===== ======= =======
</TABLE>
Reconciliation of Shareholders' Equity
<TABLE>
<CAPTION>
MARCH 31,
----------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
KSEK KSEK KSEK
<S> <C> <C> <C>
Shareholders' equity as reported........................... 16,026 19,331 16,442
Accounting for contracts................................... (2,654) (3,559) (1,136)
------- ------- -------
Approximate shareholders' equity as per U.S. GAAP.......... 13,372 15,772 15,306
======= ======= =======
</TABLE>
The application of U.S. GAAP would not have significantly affected the other
reported balance sheet items in the combined balance sheet.
Accounting for Contracts
Under U.S. GAAP, income from significant contracts is permitted to be recognized
using the percentage-of-completion method of accounting in the proportion that
costs bear to total estimated costs at completion. Under Swedish GAAP, income is
generally recorded using the completed contract method. This adjustment was made
to conform to Waterlink's policy of using the percentage-of-completion method.
F-79
<PAGE> 145
NORDIC WATER PRODUCTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(Information as of December 31, 1996 and for the nine
months ended December 31, 1995 and 1996 is unaudited)
13. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (CONTINUED)
Restricted Reserves and Retained Earnings
Under Swedish law, restricted reserves are not available for distribution but
are required to be held to meet statutory requirements. Translation gain or loss
on conversion of foreign financial statements is included in restricted reserves
and retained earnings, as applicable.
Exchange Rate Data
The following table sets forth at the end of and for the periods indicated,
certain information concerning the closing, average, high and low exchange rates
for United States Dollars ("US$") as a ratio of Swedish Kronor ("SEK"). The
rates used are those quoted by Bank of America and are middle rates between
buying and selling rates as quoted between banks. On March 31, 1997, the closing
ratio of United States Dollars per Swedish Kronor was .133.
<TABLE>
<CAPTION>
AT AND FOR THE
NINE
AT AND FOR THE YEAR MONTHS ENDING
ENDING MARCH 31, DECEMBER 31,
---------------------- ---------------
1994 1995 1996 1995 1996
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of US$ per SEK
Exchange rate at end of period.................... .127 .136 .149 .150 .145
Average exchange rate during period............... .127 .132 .144 .143 .149
Highest exchange rate during period............... .138 .140 .153 .153 .152
Lowest exchange rate during period................ .119 .126 .137 .137 .146
</TABLE>
F-80
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Lanco Environmental Products, Inc.
We have audited the accompanying balance sheet of Lanco Environmental
Products, Inc., as of December 31, 1995 and 1996, and the related statements of
income, changes in stockholder's equity and cash flows for the six-month periods
ended June 30, 1995 and December 31, 1995, and the year ended December 31, 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 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 Lanco Environmental
Products, Inc., as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the six-month periods ended June 30, 1995 and
December 31, 1995, and the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
Plante & Moran, LLP
March 18, 1997
Grand Rapids, Michigan
F-81
<PAGE> 147
LANCO ENVIRONMENTAL PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ 367,166 $ 25,948
Trade accounts receivable -- Net of allowance for doubtful
accounts of $10,000 and $25,000 in 1995 and 1996,
respectively................................................. 426,084 512,440
Inventories (Note 2)............................................ 252,591 477,959
Other........................................................... -- 6,335
--------- ---------
Total current assets......................................... 1,045,841 1,022,682
LEASEHOLD IMPROVEMENTS AND EQUIPMENT (Note 3)..................... 126,863 145,720
--------- ---------
Total assets................................................. $1,172,704 $1,168,402
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable.......................................... $ 214,527 $ 301,068
Accounts payable -- Related parties (Note 6).................... 606,820 222,009
Customer deposits............................................... 4,556 41,323
Federal income taxes payable (Note 5)........................... 9,900 --
Deferred taxes (Note 5)......................................... 88,000 159,200
Accrued expenses................................................ 15,703 29,377
--------- ---------
Total current liabilities.................................... 939,506 752,977
STOCKHOLDER'S EQUITY
Common stock -- $1 par value:
Authorized -- 60,000 shares
Issued and outstanding -- 1,000 shares....................... 1,000 1,000
Additional paid-in capital...................................... 166,838 166,838
Retained earnings............................................... 65,360 247,587
--------- ---------
Total stockholder's equity................................... 233,198 415,425
--------- ---------
Total liabilities and stockholder's equity................... $1,172,704 $1,168,402
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-82
<PAGE> 148
LANCO ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
SIX MONTHS ------------ ------------
ENDED
JUNE 30,
1995
----------
(NOTE 1)
<S> <C> <C> <C>
NET SALES.............................................. $800,070 $1,402,401 $2,673,486
COST OF SALES.......................................... 574,899 1,007,733 1,763,231
---------- ------------ ------------
GROSS PROFIT........................................... 225,171 394,668 910,255
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES........... 215,735 314,498 710,412
---------- ------------ ------------
OPERATING INCOME....................................... 9,436 80,170 199,843
OTHER INCOME -- Net.................................... -- 11,790 75,484
---------- ------------ ------------
INCOME -- Before taxes on income....................... 9,436 91,960 275,327
FEDERAL INCOME TAXES (Note 5).......................... 1,300 26,600 93,100
---------- ------------ ------------
NET INCOME............................................. $ 8,136 $ 65,360 $ 182,227
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-83
<PAGE> 149
LANCO ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NUMBER ADDITIONAL
OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE -- July 1, 1995 (Inception)........ 1,000 $1,000 $ 166,838 $ -- $167,838
Net income for the six months
ended December 31, 1995.................. -- -- -- 65,360 65,360
------- ------ ---------- --------- --------
BALANCE -- December 31, 1995............... 1,000 1,000 166,838 65,360 233,198
Net Income................................. -- -- -- 182,227 182,227
------- ------ ---------- --------- --------
BALANCE -- December 31, 1996............... 1,000 $1,000 $ 166,838 $ 247,587 $415,425
======= ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-84
<PAGE> 150
LANCO ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
SIX MONTHS ------------ ------------
ENDED
JUNE 30,
1995
----------
(NOTE 1)
<S> <C> <C> <C>
Net income................................................ $ 8,136 $ 65,360 $ 182,227
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for bad debts................................. -- 10,000 16,282
Depreciation and amortization........................... 8,747 10,011 22,603
Deferred taxes.......................................... 28,000 (10,000) 71,200
(Increase) decrease in assets:
Accounts receivable.................................. 159,088 (285,142) (102,638)
Inventories.......................................... (90,067) 20,346 (225,368)
Other current assets................................. -- -- (6,335)
Increase (decrease) in liabilities:
Trade accounts payable and accrued expenses.......... (35,293) 65,406 100,215
Federal income taxes payable......................... (29,287) 30,900 (9,900)
Customer deposits.................................... -- 4,556 36,767
---------- ------------ ------------
Net cash provided by (used in) operating
activities...................................... 49,324 (88,563) 85,053
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment................................... (2,000) (16,345) (41,460)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related company........................... 187,695 62,900 110,365
Payments on advances from related company............... (91,218) (265,664) (495,176)
---------- ------------ ------------
Net cash provided by (used in) financing
activities......................................... 96,477 (202,764) (384,811)
---------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 143,801 (307,672) (341,218)
CASH AND CASH EQUIVALENTS -- Beginning of period.......... 531,037 674,838 367,166
---------- ------------ ------------
CASH AND CASH EQUIVALENTS -- End of period................ $ 674,838 $ 367,166 $ 25,948
========= ========== ==========
CASH PAID FOR INTEREST AND INCOME TAXES
Interest................................................ $ -- $ -- $ --
========= ========== ==========
Income taxes............................................ $ 8,287 $ -- $ 37,160
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-85
<PAGE> 151
LANCO ENVIRONMENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Lanco Environmental Products, Inc., is engaged in manufacturing wastewater
treatment equipment and components. The Company grants credit to customers, the
majority of whom are United States manufacturers.
Basis of Presentation -- Lanco Environmental Products, Inc., was formed July 1,
1995, when the sole stockholder of Lanco Corporation transferred the assets and
liabilities of Lanco Corporation's Environmental Products Division into a
separate corporation owned by the stockholder. All assets and liabilities were
transferred at their historical carrying amount. These financial statements
present the operations of Lanco Environmental Products, Inc., for the six-month
period from July 1, 1995 to December 31, 1995 and 1996. Also presented, for
comparative purposes, are statements of income and cash flows for the
Environmental Products Division of Lanco Corporation for the six-month period
January 1, 1995, to June 30, 1995.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Revenue and Cost Recognition -- Revenue from the sale of wastewater treatment
equipment contracts is generally recognized upon shipment. Contract costs
include all direct material and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, repairs and depreciation
costs. Selling and administrative costs are charged to expense as incurred.
Financial Instruments -- The carrying values of cash, cash equivalents, accounts
receivable and accounts payable are reasonable estimates of their fair market
values due to the short-term nature of these instruments.
Inventories -- Inventories of component parts and finished goods are stated at
the lower of cost, determined by the first-in, first-out method, or market.
Leasehold Improvements and Equipment -- Leasehold improvements and equipment are
recorded at cost. Depreciation is computed principally on the straight-line
method over the estimated useful lives of the assets. Costs of maintenance and
repairs are charged to expense when incurred.
Income Taxes -- The Company accounts for income taxes following the liability
method. A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the year. Deferred tax liabilities or
assets are recognized for the estimated future tax effects of temporary
differences between book and tax accounting.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Component parts...................................................... $ 80,517 $191,087
Finished goods....................................................... 172,074 286,872
-------- --------
Total inventories.................................................... $252,591 $477,959
======== ========
</TABLE>
F-86
<PAGE> 152
LANCO ENVIRONMENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
NOTE 3 -- PROPERTY, PLANT EQUIPMENT
Cost of property, plant and equipment and depreciable lives are summarized as
follows:
<TABLE>
<CAPTION>
DEPRECIABLE
1995 1996 LIFE-YEARS
-------- -------- -----------
<S> <C> <C> <C>
Leasehold improvements................................... $105,863 $105,863 25
Automotive equipment..................................... 30,500 65,651 5
Shop equipment........................................... 67,040 68,737 10
Furniture and fixtures................................... 12,382 16,994 5-10
--------
Total cost............................................... 215,785 257,245
Accumulated depreciation................................. 88,922 111,525
--------
Net carrying amount...................................... $126,863 $145,720
========
</TABLE>
NOTE 4 -- LINE OF CREDIT
The Company has a $100,000 line of credit with a bank. It is collateralized by
the personal guarantee of the sole stockholder and is due on demand. Interest on
borrowings is at bank's prime rate, an effective rate of 8.25 percent at
December 31, 1996. There were no amounts outstanding under this arrangement
during 1995 or 1996.
NOTE 5 -- FEDERAL INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED, YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1995 1996
-------- ------------ ------------
<S> <C> <C> <C>
Current tax expense (benefit).............................. $(26,700) $ 36,600 $ 21,900
Deferred tax expense (benefit)............................. 28,000 (10,000) 71,200
-------- -------- --------
Total tax expense.......................................... $ 1,300 $ 26,600 $ 93,100
======== ======== ========
</TABLE>
A reconciliation of the provision for income taxes from continuing operations to
income taxes computed by applying the statutory federal tax rate to income
before taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1995 1996
-------- ------------ ------------
<S> <C> <C> <C>
Tax computed at 34% of pretax income....................... $ 3,200 $ 31,300 $ 93,600
Effect of nondeductible expenses........................... 400 3,800 5,700
Effect of graduated rates and other........................ (2,300) (8,500) (6,200)
-------- -------- --------
Total tax provision........................................ $ 1,300 $ 26,600 $ 93,100
======== ======== ========
</TABLE>
F-87
<PAGE> 153
LANCO ENVIRONMENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
NOTE 5 -- FEDERAL INCOME TAXES (CONTINUED)
The details of the net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1995 1996
-------- ------------ ------------
<S> <C> <C> <C>
Allowance for doubtful accounts............................ $ -- $ (3,400) $ (8,500)
Inventory costs capitalized................................ 92,900 85,400 161,700
Depreciation............................................... 5,100 6,000 6,000
-------- -------- --------
Net deferred tax liabilities............................... $ 98,000 $ 88,000 $159,200
======== ======== ========
</TABLE>
NOTE 6 -- LEASES AND RELATED-PARTY TRANSACTIONS
The accounts payable to related party represent unsecured noninterest-bearing
advances from companies related by common ownership.
The Company pays an annual management fee to a related company of $100,000 for
administrative services. The two companies have the same stockholder.
The Company leases its operating facilities from the sole stockholder under an
operating lease arrangement that requires monthly rents of $5,000. The lease,
which terminates May 31, 1997, contains annual automatic renewal options. The
Company is required to pay all insurance, taxes and maintenance costs associated
with the property.
The Company also entered into noncancellable operating leases for vehicles and
machinery with a company that is wholly owned by the sole stockholder that
require monthly payments of $2,250. The leases terminate May 31, 1997.
Total rent expense was $27,057 and $22,400 for the six months ended June 30,
1995 and December 31, 1995, respectively, and $87,055 in 1996. All rent payments
were made to related parties.
NOTE 7 -- SUBSEQUENT EVENT
The sole stockholder signed a letter of intent on February 17, 1997, to sell the
Company. The closing of the transaction is subject to satisfactory completion of
due diligence performed by the acquiring company.
F-88
<PAGE> 154
AUDITORS' REPORT
To the Directors of
Bioclear Technology Inc.
We have audited the consolidated balance sheet of Bioclear Technology Inc.
as at August 31, 1996 and 1995, and the consolidated statements of income and
retained earnings and cash flows for each of the years in the three-year period
ended August 31, 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at August 31,
1996 and 1995, and the results of its operations and the changes in its
financial position for each of the years in the three-year period ended August
31, 1996 in accordance with accounting principles generally accepted in Canada.
ERNST & YOUNG
Chartered Accountants
Winnipeg, Canada,
October 25, 1996, except for note 9 [b],
which is as of April 15, 1997.
F-89
<PAGE> 155
BIOCLEAR TECHNOLOGY INC.
Incorporated under the Canada Business Corporations Act
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT AUGUST 31,
----------------------- DECEMBER 31,
1995 1996 1996
C $ C $ C $
--------- --------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents............................. 1,715,677 2,350,094 143,976
Accounts receivable................................... 126,457 2,415,050 272,329
Income taxes recoverable.............................. -- 21,221 2,045
Inventory (at lower of specific cost and net
realizable value).................................. 50,745 -- --
Prepaid expenses...................................... 80,514 69,926 113,483
--------- --------- ---------
Total current assets............................... 1,973,393 4,856,291 531,833
Fixed assets (Note 4)................................. 991,107 1,094,320 1,994,009
--------- --------- ---------
2,964,500 5,950,611 2,525,842
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness (Note 3)............................ -- 331,000 960,000
Accounts payable and accrued charges (Note 6)......... 2,020,390 4,270,991 931,461
Deferred revenue...................................... -- 156,000 --
Income taxes payable.................................. 80,559 -- --
Deferred income taxes................................. 108,500 282,000 16,000
--------- --------- ---------
Total current liabilities.......................... 2,209,449 5,039,991 1,907,461
--------- --------- ---------
SHAREHOLDERS' EQUITY
Share capital (Note 5)................................ 90,157 85,151 85,151
Retained earnings..................................... 664,894 825,469 533,230
--------- --------- ---------
Total shareholders' equity......................... 755,051 910,620 618,381
--------- --------- ---------
2,964,500 5,950,611 2,525,842
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-90
<PAGE> 156
BIOCLEAR TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
---------------------------------- -------------------
1994 1995 1996 1995 1996
C $ C $ C $ C $ C $
--------- --------- ---------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
SALES..................................... 2,906,831 7,448,964 10,507,190 346,017 326,321
COST OF SALES (Note 6).................... 1,762,875 3,332,146 4,368,223 199,486 285,306
--------- --------- ---------- -------- --------
GROSS PROFIT.............................. 1,143,956 4,116,818 6,138,967 146,531 41,015
--------- --------- ---------- -------- --------
Expenses
Depreciation............................ 67,592 107,544 145,813 38,371 43,278
Interest................................ 40,077 15,240 16,816 260 2,546
Administrative.......................... 901,038 4,228,081 5,323,641 458,492 500,141
--------- --------- ---------- -------- --------
1,008,707 4,350,865 5,486,270 497,123 545,965
--------- --------- ---------- -------- --------
Income (loss) from operations............. 135,249 (234,047) 652,697 (350,592) (504,950)
--------- --------- ---------- -------- --------
Other income (loss)
Interest................................ 14,116 111,967 71,953 19,205 12,591
Gain (loss) on foreign exchange......... -- 74,290 (16,029) 26,140 (23,380)
Loss on sale of fixed assets............ (3,361) -- -- -- --
--------- --------- ---------- -------- --------
10,755 186,257 55,924 45,345 (10,789)
--------- --------- ---------- -------- --------
Income (loss) before income taxes......... 146,004 (47,790) 708,621 (305,247) (515,739)
--------- --------- ---------- -------- --------
Income tax expense (recovery)
Current................................. 45,000 87,000 72,555 (51,400) 42,500
Deferred................................ (5,000) (131,500) 173,500 (50,000) (266,000)
--------- --------- ---------- -------- --------
40,000 (44,500) 246,055 (101,400) (223,500)
--------- --------- ---------- -------- --------
NET INCOME (LOSS) FOR THE YEAR............ 106,004 (3,290) 462,566 (203,847) (292,239)
Retained earnings, beginning of year...... 597,180 703,184 664,894 664,894 825,469
Excess of redemption price over stated
capital (Note 5)........................ -- -- (282,991) -- --
Refundable taxes paid (Note 7)............ -- (35,000) (19,000) -- --
--------- --------- ---------- -------- --------
RETAINED EARNINGS, END OF YEAR............ 703,184 664,894 825,469 461,047 533,230
========= ========= ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-91
<PAGE> 157
BIOCLEAR TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
-------------------------------- -----------------------
1994 1995 1996 1995 1996
C $ C $ C $ C $ C $
-------- --------- --------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the year........ 106,004 (3,290) 462,566 (203,847) (292,239)
Add charges (deduct credits) to
operations not requiring a current
cash payment
Depreciation and amortization.... 67,592 107,544 145,813 38,371 43,278
Deferred income tax (recovery)... (5,000) (131,500) 173,500 (50,000) (266,000)
Loss on sale of fixed assets..... 3,361 -- -- -- --
--------- --------- ---------- -------- --------
171,957 (27,246) 781,879 (215,476) (514,961)
Net change in non-cash working capital
balances related to operations (Note
8).................................... 250,794 2,319,947 77,561 (1,007,511) (1,377,190)
--------- --------- ---------- -------- --------
CASH PROVIDED BY OPERATING ACTIVITIES... 422,751 2,292,701 859,440 (1,222,987) (1,892,151)
--------- --------- ---------- -------- --------
INVESTING ACTIVITIES
Purchase of fixed assets.............. (103,695) (339,595) (249,023) -- (942,967)
Proceeds on sale of fixed assets...... 4,979 -- -- -- --
--------- --------- ---------- -------- --------
CASH USED IN INVESTING ACTIVITIES....... (98,716) (339,595) (249,023) -- (942,967)
--------- --------- ---------- -------- --------
FINANCING ACTIVITIES
Refundable taxes paid (Note 7)........ -- (35,000) (19,000) -- --
Repayment of long-term debt........... (82,422) (477,957) -- -- --
Issuance of shares.................... 15,036 -- -- -- --
Redemption of shares (Note 5)......... -- -- (288,000) -- --
Decrease in due to shareholders....... (3,517) (1,429) -- -- --
--------- --------- ---------- -------- --------
CASH USED IN FINANCING ACTIVITIES....... (70,903) (514,386) (307,000) -- --
--------- --------- ---------- -------- --------
NET INCREASE (DECREASE) IN CASH DURING
THE YEAR.............................. 253,132 1,438,720 303,417 (1,222,987) (2,835,118)
Cash position, beginning of year........ 23,825 276,957 1,715,677 1,715,677 2,019,094
--------- --------- ---------- -------- --------
CASH POSITION, END OF YEAR.............. 276,957 1,715,677 2,019,094 492,690 (816,024)
========= ========= ========== ======== ========
</TABLE>
- ---------------
Cash position is comprised of cash and cash equivalents, net of bank
indebtedness.
The accompanying notes are an integral part of these statements.
F-92
<PAGE> 158
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
AUGUST 31, 1996
(Information as of December 31, 1996 and for the four months
ended December 31, 1995 and 1996 is unaudited.)
1. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management on the historical
cost basis in accordance with accounting principles generally accepted in
Canada. These accounting principles are, in all material respects, in accordance
with those generally accepted in the United States except as described in note
11, "Summary of Significant Differences Between Canadian and U.S. Generally
Accepted Accounting Principles."
(a) Principles of consolidation
These consolidated financial statements, expressed in Canadian dollars, include
the accounts of the company and its wholly-owned subsidiaries, Bioclear Tech
Sales Inc. and Bioclear Technology U.S.A., Inc.
(b) Revenue recognition
The company recognizes contract revenue using the "percentage of completion"
method of accounting in the proportion that costs bear to total estimated costs
at completion. Revisions of estimates to complete and losses, if any, are
recognized in the period in which they are determined.
(c) Fixed assets
Fixed assets are stated at historical cost. Normal maintenance and repairs are
expensed as incurred. Investment tax credits received towards the acquisition of
fixed assets are deducted from fixed assets with depreciation calculated on the
net amount.
Depreciation is provided over the estimated life of the asset at the following
annual rates and bases:
<TABLE>
<S> <C> <C>
Building 4% Declining balance
Furniture and fixtures 20% Declining balance
Office equipment 20% Declining balance
Pilot plant 20% Declining balance
Shop equipment 20% Declining balance
Bridge crane 20% Declining balance
Small tools 50% Straight line
Trucks 30% Declining balance
</TABLE>
When fixed assets are sold or scrapped, the cost of the asset and the related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
(d) Income taxes
The company follows the tax allocation method of providing for income taxes.
Under this method, the provision for income taxes is based upon the income
reported on the income statement.
(e) Translation of foreign currencies
The financial statements of the U.S. subsidiary, which is considered to be an
integrated foreign operation, and foreign currency denominated balances of the
company have been translated to Canadian dollars using the
F-93
<PAGE> 159
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(Information as of December 31, 1996 and for the four months
ended December 31, 1995 and 1996 is unaudited.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
temporal method. Under this method, monetary assets and liabilities, both
current and long-term, are translated at year end rates of exchange. Other
assets and liabilities are translated at historical rates of exchange in effect
at the dates of transactions.
Revenue and costs are translated at the average rates of exchange for the year
except for property, plant and equipment, depreciation and opening inventory
which are translated at historical rates.
Gains and losses on translation are included in income.
2. AMALGAMATION
The company was formed on August 31, 1996, through the amalgamation of 3212904
Canada Ltd. and Bioclear Technology Inc. Also, Bioclear Technology Inc. was
formed on August 31, 1994 through the amalgamation of 3034321 Canada Ltd.,
Bioclear Technology Inc. and Bioclear Holdings Inc. The financial statements of
the company recognize the continuity of interest of the shareholders in the
assets, liabilities, and operations of the amalgamating companies and are
prepared on the following basis:
(a) In the balance sheet, the assets, liabilities, share capital and retained
earnings of the amalgamating companies have been combined at their
respective carrying values.
(b) The statements of income and retained earnings and cash flows represent the
combined results of operations and combined cash flows of the amalgamating
companies during the years.
3. BANK INDEBTEDNESS
As collateral security for the bank indebtedness, the company has provided a
general security agreement providing a charge over all assets owned by the
company registered in Canada.
4. FIXED ASSETS
<TABLE>
<CAPTION>
1995 1996
------------------------------------ -------------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
C $ C $ C $ C $ C $ C $
--------- ----------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Land........................ 52,066 -- 52,066 52,066 -- 52,066
Building.................... 668,464 156,889 511,575 711,550 178,213 533,337
Furniture and fixtures...... 56,825 23,554 33,271 68,144 31,251 36,893
Office equipment............ 160,690 36,555 124,135 140,620 61,706 78,914
Pilot plant................. 94,394 69,431 24,963 94,394 74,423 19,971
Shop equipment.............. 96,058 15,469 80,589 191,854 41,677 150,177
Bridge crane................ 105,474 38,574 66,900 130,651 54,472 76,179
Small tools................. 7,853 7,814 39 10,864 9,358 1,506
Trucks...................... 114,786 17,217 97,569 205,412 60,135 145,277
--------- ------- ------- --------- ------- ---------
1,356,610 365,503 991,107 1,605,555 511,235 1,094,320
========= ======= ======= ========= ======= =========
</TABLE>
F-94
<PAGE> 160
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(Information as of December 31, 1996 and for the four months
ended December 31, 1995 and 1996 is unaudited.)
5. SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995 1996
C $ C $ C $
------ ------ ------
<S> <C> <C> <C>
AUTHORIZED
Unlimited number of Class A voting common shares
Unlimited number of Class B common shares carrying two votes per
share
Unlimited number of preference shares, voting, convertible to
Class B common shares, non-cumulative dividends not to exceed C
$.10 per share redeemable at the option of the company or
shareholder at C $1 per share
ISSUED
944,486 Class A common shares (1995 and 1994 -- 1,000,008)....... 36 36 37
4,896,000 preference shares (1995 and 1994 -- 5,184,000)......... 90,121 90,121 85,114
------ ------ ------
90,157 90,157 85,151
====== ====== ======
</TABLE>
During 1996, 55,556 Class A common shares and 288,000 preference shares were
purchased for cancellation for consideration of C $288,000. Also, 34 Class A
common shares were issued for consideration of C $3.
During 1994, one Class A common share was issued for cash consideration of C
$15,000. On February 18, 1994 all Class A common shares were purchased for
cancellation and 5,184,000 preference shares were issued as consideration for
the purchase. New common shares were issued for C $36. On August 31, 1994, at
the time of the amalgamation described in note 2, the 36 issued Class A common
shares were split 27,778 for each share and resulted in 1,000,008 Class A common
shares being issued.
6. RELATED PARTY TRANSACTIONS
During the year, the company had the following transactions with companies owned
by shareholder of Bioclear Technology Inc.:
<TABLE>
<CAPTION>
1994 1995 1996
C $ C $ C $
------- ------- ---------
<S> <C> <C> <C>
Cost of sales
Roman Equipment Services (1973) Ltd........................ 650,630 557,326 1,018,704
Jenkyns Electric Ltd....................................... -- 120,811 35,592
</TABLE>
Charges for these services were at estimated fair market value.
At year end, C $186,248 [1995 -- C $10,077; 1994 -- C $167,770] remains payable
to Roman Equipment Services (1973) Ltd. and is included in accounts payable.
7. REFUNDABLE INCOME TAXES
The Company is classified as a private corporation under the Income Tax Act and,
therefore, certain taxes paid relative to investment income are potentially
refundable and are not deducted in computing net income for the year. Such taxes
will normally be refunded at the rate of C $1 for each C $3 of taxable dividends
paid.
F-95
<PAGE> 161
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(Information as of December 31, 1996 and for the four months
ended December 31, 1995 and 1996 is unaudited.)
7. REFUNDABLE INCOME TAXES (CONTINUED)
When some part of these taxes becomes definitely refundable because of dividend
payments, the appropriate amount is transferred to income taxes recoverable. At
year end, the balance in the Company's refundable tax account was approximately
C $54,000 (1995 -- C $35,000; 1994 -- C $Nil).
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 1996 1996
C $ C $ C $ C $
------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Net decrease (increase) in current assets
Accounts receivable........................ 356,686 661,806 (2,288,593) 2,142,721
Income taxes recoverable................... (13,191) 13,191 (21,221) 19,176
Inventory.................................. -- (50,745) 50,745 --
Prepaid expenses........................... (23,956) (38,744) 10,588 (43,557)
Net increase (decrease) in current
liabilities Accounts payable and accrued
charges.................................... (60,734) 1,653,880 2,250,601 (3,339,530)
Deferred revenue........................... -- -- 156,000 (156,000)
Income taxes payable....................... (8,011) 80,559 (80,559) --
------ ------ ------
250,794 2,319,947 77,561 (1,377,190)
====== ====== ======
</TABLE>
9. SUBSEQUENT EVENTS
(a) Subsequent to year end, the company entered into contracts totalling
approximately C $1,200,000 for the expansion of the company's manufacturing
facility.
(b) On April 15, 1997, the shareholders of the Company signed a purchase and
sale agreement whereby they agreed to sell all the shares of the Company to
Waterlink, Inc.
10. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation of the current year.
11. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which, in the case of Bioclear
Technology Inc., conform in all material respects with those in the United
States except that:
(a) Short-term bank borrowings have been presented in the consolidated statement
of cash flows as a component of cash and cash equivalents rather than as a
financing activity. If U.S. generally accepted
F-96
<PAGE> 162
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(Information as of December 31, 1996 and for the four months
ended December 31, 1995 and 1996 is unaudited.)
11. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
accounting principles had been followed, the amounts on the consolidated
statement of cash flows would be adjusted as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995 1996 1995 1996
C $ C $ C $ C $ C $
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash provided by financing
activities........................ -- -- 331,000 -- 629,000
Net increase in cash during the
year.............................. -- -- 331,000 -- 629,000
Cash position, end of year.......... -- -- 331,000 960,000
</TABLE>
(b) The interest expense for each period approximates the interest paid for each
period. The amount of income taxes paid in each period was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995 1996 1995 1996
C $ C $ C $ C $ C $
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income taxes paid................... 17,917 1,397 172,572 20,893 23,324
</TABLE>
(c) Under SEC regulations, the redeemable preferred shares included in share
capital would be presented separately outside shareholders' equity as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996 1996
C $ C $ C $
------ ------ ------------
<S> <C> <C> <C>
Redeemable preferred shares............................. 90,121 85,114 85,114
Common share capital.................................... 36 37 37
</TABLE>
(d) The accompanying consolidated balance sheet at December 31, 1996, the
related consolidated statements of income and retained earnings and cash
flows for the four months ended December 31, 1995 and 1996 ("interim
financial statements") have been prepared by the Company in accordance with
Canadian generally accepted accounting principles for interim financial
information and are unaudited. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The interim financial
statements include all adjustments, consisting of only normal recurring
adjustments considered necessary for a fair presentation of the results of
interim periods. Operating results for the four months ended December 31,
1996 are not necessarily indicative of the results that may be expected for
the year ended August 31, 1997.
(e) The following table sets forth at the end of and for the periods indicated,
certain information concerning the closing, average, high and low exchange
rates for United States Dollars ("US$") as a ratio of Canadian Dollars
(C$"). The rates used are those quoted by Bank of America and are middle
rates between buying and selling rates as quoted between banks. On March 31,
1997, the closing ratio of United States Dollar per Canadian Dollar was
.722.
F-97
<PAGE> 163
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(Information as of December 31, 1996 and for the four months
ended December 31, 1995 and 1996 is unaudited.)
11. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
<TABLE>
<CAPTION>
AT AND FOR THE
FOUR
AT AND FOR THE YEAR MONTHS ENDING
ENDING AUGUST 31, DECEMBER 31,
---------------------- ---------------
1994 1995 1996 1995 1996
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of US$ per C$
Exchange rate at end of period............... .741 .742 .731 .733 .733
Average exchange rate during period.......... .741 .727 .733 .737 .736
Highest exchange rate during period.......... .772 .744 .742 .742 .743
Lowest exchange rate during period........... .722 .707 .726 .731 .731
</TABLE>
F-98
<PAGE> 164
------------------------------------------------------
------------------------------------------------------
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 CONTAINED
HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF
THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THOSE TO WHICH IT RELATES IN
ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN
SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
The Company............................. 14
Use of Proceeds......................... 15
Dividend Policy......................... 15
Capitalization.......................... 16
Dilution................................ 17
Selected and Pro Forma Consolidated
Financial Data........................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 21
The Water Purification and Wastewater
Treatment Industry.................... 26
Business................................ 28
Management.............................. 36
Security Ownership...................... 45
Certain Transactions.................... 47
Shares Eligible For Future Sale......... 48
Description of Capital Stock............ 50
Underwriting............................ 58
Legal Matters........................... 60
Experts................................. 60
Additional Information.................. 60
Systems, Equipment and Services
Glossary.............................. 62
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
UNTIL , 1997 (25 DAYS
AFTER THE COMMENCEMENT OF THE
OFFERING), 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
ON SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
SHARES
WATERLINK, INC.
COMMON STOCK
--------------------
PROSPECTUS
, 1997
--------------------
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
------------------------------------------------------
------------------------------------------------------
<PAGE> 165
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses in connection with the issuance of
the Common Stock being registered. All of the amounts shown are estimates,
except the registration fee:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee....................................... $17,425
Listing expenses........................................... *
Accounting fees and expenses............................... *
Legal fees and expenses.................................... *
Blue Sky fees and expenses................................. *
Printing expenses.......................................... *
Miscellaneous expenses..................................... *
-------
Total...................................................... *
=======
</TABLE>
--------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL permits the indemnification of the directors and
officers of the Company. The Company Bylaws provide that it will indemnify the
officers, directors, employees and agents of the Company to the extent permitted
by the DGCL.
The Company Certificate provides for the indemnification of directors and
officers of the Company, and persons who serve or served at the request of the
Company as a director, officer, employee or agent of another corporation,
including service with respect to employee benefit plans, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties in amounts paid or to be paid in settlement) reasonably
incurred with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, provided, however, the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the Company's Board. In the event a claim for indemnification by any person has
not been paid in full by the Company after written request has been received by
the Company, the claimant may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim and, if successful in whole or
in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. The right to indemnification conferred in the Company
Certificate is a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of its
final disposition. The Company maintains insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company against any
such expense, liability or loss, whether or not the Company would have the power
to indemnify such person against such expense, liability or loss under state
law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years the Company issued and sold shares of its
capital stock without registration under the Securities Act of 1933, as amended
(the "Act"), in reliance on the exemption provided therefrom by Section 4(2) of
the Act, in the transactions described below. In each transaction, the Company
did not engage any underwriter, broker or placement agent.
On December 9, 1994, the Company issued and sold 1,200,000 shares of the
Common Stock and 400,000 shares of the Series A Preferred Stock in a private
placement to two accredited investors: (i) Brantley Venture Partners III, L.P.
(400,000 shares of the Common Stock and 400,000 shares of the Series A Preferred
Stock), and (ii) Theodore F. Savastano (800,000 shares of Common Stock). The
total offering price was $501,200.
On August 30 and September 15, 1995, the Company issued and sold 1,700,000
shares of the Series B Preferred Stock in a private placement to three
accredited investors: (i) Brantley Venture Partners III, L.P.
II-1
<PAGE> 166
(950,000 shares), (ii) River Cities Capital Fund Limited Partnership (375,000
shares), and (iii) IPP95, L.P. (375,000 shares). The total offering price was
$3,400,000.
On August 31, 1995, the Company issued 250,000 shares of the Common Stock
in connection with its acquisition of substantially all of the assets and
properties of Great Lakes Environmental, Inc. ("GLE"). The portion of the
purchase price attributable to the shares received by GLE as $500,000.
On June 27, 1996, the Company issued and sold 1,150,000 shares of the
Series C Preferred Stock in a private placement to five accredited investors:
(i) Brantley Venture Partners, III L.P. (250,000 shares), (ii) River Cities
Capital Fund Limited Partnership (250,000 shares), (iii) Environmental
Opportunities Fund, L.P. (556,062 shares), (iv) Environmental Opportunities Fund
(Cayman) L.P. (68,938 shares) and (v) Bruce Cummings (25,000 shares). The total
offering price was $4,600,000.
On September 30, 1996, the Company issued 499,996 shares of the Common
Stock in connection with its acquisition of all of the issued and outstanding
capital stock of Water Equipment Technologies, Inc. ("WET"). The shares of the
Common Stock were issued to 11 shareholders of WET upon the merger of WET with
and into a wholly-owned subsidiary of the Company (the "Merger"). The total
dollar value of the 499,996 shares of the Common Stock issued to the
shareholders of WET in the Merger was $2,124,983. On February 28, 1997, the
Company issued 111,788 additional shares of the Common Stock to the shareholders
of WET in payment of an adjustment to the purchase price paid by the Company for
the issued and outstanding shares of WET. The total dollar value of the 111,788
shares of Common Stock issued to the shareholders of WET as purchase price
adjustment was $475,099.
On October 15, 1996, the Company issued 100,000 shares of the Common Stock
to Lawrence M. Schmid ("Schmid") on Schmid's conversion of a convertible
subordinated promissory note in the principal amount of $400,000 (the "Schmid
Note"). The Schmid Note was issued to Schmid as part of the purchase price for
the Company's acquisition of certain patents and related know-how owned by
Schmid and acquired by the Company as part of its acquisition of all of the
business, assets and goodwill of Aero-Mod Incorporated and Resi-Tech Inc.
On January 6, 1997, the Company issued 500,000 shares of the Common Stock
to Mark E. Neville (350,000 shares) and Frederick J. Siino (150,000 shares) on
their conversion of a convertible subordinated promissory note in the principal
amount of $2,000,000 (the "Mass Transfer Note"). The Mass Transfer Note was
issued to Mass Transfer Systems, Inc. ("Mass Transfer") as part of the purchase
price for the Company's acquisition of all of the business assets and goodwill
of Mass Transfer. The Mass Transfer Note was distributed to Messrs. Neville and
Siino, the sole shareholders of Mass Transfer, following completion of the
acquisition.
On February 19, 1997, the Company issued 25,000 shares of the Common Stock
to Wheat First Securities, Inc., a Custodian for L. Dean Hertert, IRA. Mr.
Hertert is a Vice President of the Company. Mr. Hertert paid $106,250 for these
shares.
On February 19, 1997, the Company granted Bank of America a warrant to
purchase 225,000 shares of the Common Stock at a purchase price of $4.50 per
share (the "Bank Warrant"). The Bank Warrant was issued as additional
consideration for the provision of the Company's credit facility with Bank of
America. The Bank Warrant expires on February 19, 2002.
On March 12, 1997, in connection with its issuance of subordinated notes in
the principal amount of up to $10,000,000 (the "1997 Notes"), the Company agreed
to issue to purchasers of the 1997 Notes warrants to purchase up to 1,025,000
shares of the Common Stock (the "Base Warrant") and warrants to purchase up to
512,500 shares of the Common Stock (the "Additional Warrants" and together with
the Base Warrants, the "1997 Warrants"). Each 1997 Warrant entitles the holder
to purchase one share of Common Stock at an initial purchase price per share of
$4.50 ("Exercise Price"), as adjusted on the occurrence of certain events.
On March 14, 1997, the Company issued 50,000 shares of the Common Stock to
Michael J. Vantusko, Mr. Vantusko is Chief Financial Officer of the Company. Mr.
Vantusko paid $212,500 for these shares.
II-2
<PAGE> 167
As of the date of this Registration Statement, the Company has granted
options to acquire an aggregate 817,500 shares of the Common Stock pursuant to
its 1995 Stock Option Plan. In addition, the Company issued 77,500 shares of the
Common Stock to three employees of the Company upon the exercise of stock
options granted to them under the 1995 Stock Option Plan: (i) on March 1, 1996,
Nancy A. Hamerly, the former chief financial officer of the Company, purchased
5,000 shares of the Common Stock for an aggregate purchase price of $500, (ii)
on June 1, 1996 Chet S. Ross purchased 45,000 shares of the Common Stock for an
aggregate purchase price of $4,500, (iii) on January 3, 1997, Nancy A. Hamerly
purchased 15,000 shares of the Common Stock for an aggregate purchase price of
$1,500, (iv) on March 10, 1997 Donald A. Weidig purchased 2,500 shares of Common
Stock for an aggregate purchase price of $250, and (v) on March 31, 1997, Nancy
A. Hamerly purchased 10,000 shares of the Common Stock for an aggregate purchase
price of $40,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
1.1 Form of Underwriting Agreement.
3.1 Form of Fifth Amended and Restated Certificate of Incorporation of
the Company.
3.2 Form of Amended and Restated By-Laws of the Company.
4.1 Form of Rights Agreement, dated as of , 1997, between
the Company and .
4.2 Amended and Restated Registration Rights Agreement, dated as of
March 6, 1997, by and among the Company, Brantley Venture Partners
III, L.P., Theodore F. Savastano, River Cities Capital Fund Limited
Partnership, IPP95, L.P., Environmental Opportunities Fund, L.P.,
Environmental Opportunities Fund (Cayman), L.P., Brantley Capital
Corporation and National City Capital Corporation.
4.3 Registration Rights Agreement, dated as of January 31, 1996, between
the Company and Mass Transfer Systems, Inc.
4.4 Registration Rights Agreement, dated as of April 26, 1996, between
the Company and Lawrence A. Schmid.
4.5 Registration Rights Agreement dated as of September 30, 1996,
between the Company, Lawrence Stenger, Theresa Stenger, Ronald
Jaworski, Christine Jaworski, John Stenger, Dawn P. Stenger, Scott
Stenger, Kristie D. Stenger, Jorg Menningman, Michael Mudrick,
Robert Young and Gary Prae.
*5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff LLP.
*10.1 Employment Agreement, dated , 1997, between the
Company and Chet S. Ross.
*10.2 Employment Agreement, dated , 1997, between the
Company and Theodore F. Savastano.
*10.3 Employment Agreement, dated , 1997, between the
Company and Michael J. Vantusko.
*10.4 Employment Agreement, dated , 1997, between the
Company and L. Dean Hertert, Jr.
*10.5 Employment Agreement, dated , 199 , between the
and Dr. Hans F. Larsson.
10.6 Credit Agreement, dated as of February 19, 1997 among the Company,
Bank of America Illinois, as agent, and the other financial
institutions party thereto.
10.7 Brantley Guaranty, dated as of February 19, 1997, by Brantley
Venture Partners, III, L.P. in favor of Bank of America Illinois,
as agent, on behalf of the other financial institutions party to
the Credit Agreement, dated as of February 19, 1997.
II-3
<PAGE> 168
10.8 Credit Agreement, dated as of March 4, 1997, among Gigantissimo 2061
AB (to be known as Waterlink (Sweden) AB), the Company, as guarantor,
and Bank of America National Trust & Savings Association, London
Branch.
10.9 Credit Agreement, dated as of March 4, 1997, among Provista
Einhundertsechsundfunfzigste Verwaltungsgesellschaft mbH (to be known
as Waterlink (Germany) GmbH), Waterlink, Inc., as guarantor, and Bank
of America National Trust & Savings Association, Frankfurt Branch.
10.10 Common Stock Warrant Agreement, dated as of February 19, 1997,
between the Company and Bank of America Illinois.
10.11 The Company's 1995 Stock Option Plan.
10.12 Subordinated Note Purchase Agreement and Credit Facility, dated as of
March 6, 1997, among the Company, Brantley Venture Partners III, L.P.
and the purchasers named therein, along with Form of Subordinated
Note due 2002 attached thereto as Exhibit A.
10.13 Warrant Agreement, dated as of March 6, 1997, among the Company and
each of the purchasers named therein, along with Form of Warrant to
Purchase Common Stock, attached thereto as Exhibit A.
*10.14 The Company's Omnibus Incentive Plan
10.15 Asset Purchase Agreement, dated January 31, 1996, among the Company,
Waterlink Acquisition Corporation, Mass Transfer Systems, Inc., Mark
E. Neville and Frederick J. Siino.
10.16 Asset Purchase Agreement, dated April 26, 1996, among the Company,
A-M Acquisitions Corp., Aero-Mod Incorporated, Resi-Tech, Inc. and
Lawrence A. Schmid.
10.17 Asset Purchase Agreement, dated April 26, 1996, among the Company,
B-W Acquisition Corp., Blue Water Services, Inc. and Lawrence A.
Schmid.
10.18 Agreement and Plan of Merger, dated September 27, 1996, by and among
the Company, Wet Acquisition Corp. and Water Equipment Technologies,
Inc. and the shareholders of Water Equipment Technologies, Inc.
10.19 Share Purchase Agreement, dated March 4, 1997, among Waterlink
(Sweden) AB, Waterlink (Germany) GmbH, Awpe Svenska AB and Anglian
Water Holding GmbH.
10.20 Purchase and Sale Agreement, dated March 14, 1995, among Santech,
Inc. (as assignee from the Company pursuant to an Assignment of
Purchase and Sale Agreement dated March 28, 1995) and Sanborn, Inc.
10.21 Asset Purchase Agreement, dated August 28, 1995, among Great Lakes
Environmental, Inc., a Delaware corporation (as assignee from the
Company pursuant to an Assignment dated August 31, 1995), Great Lakes
Environmental, Inc., an Illinois corporation, Lawrence Field and
David Field.
*10.22 Stock Purchase Agreement, dated as of April 15, 1997, between
Waterlink, Inc. (the "Company") and Bioclear, Inc.
*10.23 Stock Purchase Agreement, dated as of April 14, 1997, between the
Company and Lanco Environmental Products, Inc.
*10.24 The Company's Employee Stock Purchase Plan.
*10.25 The Company's 1997 Annual Executive Bonus Plan.
*11.1 Computation of per share earnings.
*21.1 List of Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young.
23.3 Consent of Ernst & Young AB.
23.4 Consent of Dennis D. Tysl & Company, Ltd.
23.5 Consent of Sink, Gillmore & Gordon LLP.
II-4
<PAGE> 169
23.6 Consent of Plante & Moran, LLP.
*23.7 Consent of Benesch, Friedlander, Coplan & Aronoff LLP (contained in
its Opinion filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney for the Company (set forth on page II-6).
27.1 Financial Data Schedule as of and for the year ended September 30,
1996.
27.2 Financial Data Schedule as of and for the three months ended
December 31, 1996.
- ---------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
All schedules specified under Regulation S-X for the Company are omitted
because they are either not applicable or required under the instructions, or
because the information required is already set forth in the consolidated
financial statements or related notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrants
have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities 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 registrants 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 their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-5
<PAGE> 170
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 CANTON, STATE OF OHIO,
APRIL 16, 1997.
WATERLINK, INC.
/s/ CHET S. ROSS
By: Chet S. Ross
Its: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENCE, that each person whose signature appears
below constitutes and appoints Chet S. Ross and Michael J. Vantusko, or either
of them, his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any registration
statement for the same offering filed pursuant to Rule 462 under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes and he or she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact, agent or their 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 BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ------------------------------------ -------------------
<C> <S> <C>
/s/ THEODORE F. SAVASTANO Chairman of the Board April 16, 1997
- -------------------------------------
Theodore F. Savastano
/s/ CHET S. ROSS President, Chief Executive April 16, 1997
- ------------------------------------- Officer and Director
Chet S. Ross (Principal Executive Officer)
/s/ MICHAEL J. VANTUSKO Chief Financial Officer April 16, 1997
- ------------------------------------- (Principal Financial and
Michael J. Vantusko Accounting Officer)
</TABLE>
II-6
<PAGE> 171
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- ------------------------------------ -------------------
<C> <S> <C>
/s/ ROBERT P. PINKAS Director April 16, 1997
- -------------------------------------
Robert P. Pinkas
/s/ JOHN R. MILLER Director April 16, 1997
- -------------------------------------
John R. Miller
/s/ ROLLIN S. REITER Director April 16, 1997
- -------------------------------------
Rollin S. Reiter
/s/ PAUL M. SUTTON Director April 16, 1997
- -------------------------------------
Paul M. Sutton
</TABLE>
II-7
<PAGE> 1
Exhibit 1.1
_________ Shares
WATERLINK, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1997
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Waterlink, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell an aggregate of _________ shares ("Firm Shares") of its common
stock, $0.001 par value per share (the "Common Stock"), to the several
Underwriters named in Schedule I hereto (the "Underwriters"). The Company also
proposes to sell to the Underwriters, upon the terms and conditions set forth in
Section 2 hereof, up to an additional shares (the "Additional Shares") of Common
Stock. The Firm Shares and, to the extent such Additional Shares are issued, the
Additional Shares are hereinafter collectively referred to as the "Shares".
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act, including a
prospectus subject to completion relating to the Shares. The term "Registration
Statement" as used in this Agreement means such registration statement
(including all financial schedules and exhibits), as
1
<PAGE> 2
amended at the time it becomes effective, or, if such registration statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this Agreement. The term "Prospectus" as used
in this Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b) under
the Act, the term "Prospectus" as used in this Agreement means the prospectus in
the form included in the Registration Statement as supplemented by the addition
of the Rule 430A information contained in the prospectus filed with the
Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in
this Agreement means the prospectus subject to completion in the form included
in the registration statement at the time of the initial filing of the
registration statement with the Commission, and as such prospectus shall have
been amended from time to time prior to the date of the Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. Subject to such adjustments as you
may determine in order to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $_____ per Share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 P.M., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of _________
Additional Shares from the Company. Additional Shares may be purchased only for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. Upon any exercise of the over-allotment option, each
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Shares (subject to such adjustments as you may determine in
order to avoid fractional shares) which bears the same proportion to the
aggregate number of Additional Shares to be purchased by the Underwriters as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Firm Shares increased as set forth in
Section 10 hereof) bears to the aggregate number of Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
2
<PAGE> 3
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Subject to Section 8
hereof, delivery to the Underwriters of and payment by the Underwriters for the
Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich
Street, New York, NY 10013, at 10:00 A.M., New York City time, on _________,
1997 (the "Closing Date"). The place of closing for the Firm Shares and the
Closing Date may be varied by agreement between you and the Company.
Subject to Section 8 hereof, delivery to the Underwriters of and
payment for any Additional Shares to be purchased by the Underwriters shall be
made at the aforementioned office of Smith Barney Inc. at such time on such date
(the "Option Closing Date"), which may be the same as the Closing Date but shall
in no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the Underwriters to
the Company of the Underwriters' determination to purchase a number, specified
in such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Company will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing, when
the Registration Statement or such post-effective amendment has become
effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or
3
<PAGE> 4
other), business, prospects, properties, net worth or results of operations, or
of the happening of any event or any new information, which makes any statement
of a material fact made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue or which requires the making of any additions to
or changes in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act to be stated
therein or necessary in order to make the statements therein not misleading, or
of the necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, three
signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits thereto, and will also furnish to you, without charge, such number of
conformed copies of the registration statement as originally filed and of each
amendment thereto, but without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised in writing or to which you
shall object after being so advised or (ii) so long as, in the opinion of
counsel for the Underwriters, a Prospectus is required to be delivered in
connection with sales by any Underwriter or dealer, file any information,
documents or reports pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act") without delivering a copy of such information, documents or
reports to you, as Representatives of the Underwriters, prior to or concurrently
with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales
4
<PAGE> 5
by any Underwriter or dealer. If during such period of time any event shall
occur that in the judgment of the Company or in the opinion of counsel for the
Underwriters is required to be set forth in the Prospectus (as then amended or
supplemented) or should be set forth therein in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary to supplement or amend the Prospectus to
comply with the Act or any other law, the Company will forthwith promptly
prepare and, subject to the provisions of paragraph (d) above, file with the
Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of the
several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for
the Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such domestic and foreign jurisdictions as
you may designate and will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process in suits, other
than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section ll(a) of the Act.
(i) During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission, and (ii) from time
to time such other information concerning the Company as you may request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 10 hereof or by notice given by you terminating
this Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
5
<PAGE> 6
(k) The Company will apply the net proceeds from the sale of
the Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise
you of the time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not
sell, contract to sell or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
grant any options or warrants to purchase Common Stock, for a period equal to
the longer of (x) 180 days after the date of the Prospectus or (y) December 31,
1997 (the "Lock-up Period"), without the prior written consent of Smith Barney
Inc., except that the Company may (i) issue on the Closing Date the shares of
Common Stock to be issued in connection with the acquisitions to be consummated
on the Closing Date, as described in the Registration Statement, so long as the
purchasers of such shares agree to be bound by a lock-up letter in form and
substance satisfactory to you pursuant to which such purchasers agree with the
Company not to sell, offer to sell, solicit an offer to buy, contract to sell,
grant any option to purchase, or otherwise transfer or dispose of, any such
shares at any time before the expiration of the Lock-up Period and the
certificates evidencing such shares bear a legend to such effect, (ii) issue up
to ____________ shares of Common Stock ("Acquisition Shares") during the Lock-up
Period in connection with additional acquisitions so long as the purchaser of
such Acquisition Shares agrees to be bound by a lock-up letter in form and
substance satisfactory to you pursuant to which such purchaser agrees with the
Company not to sell, offer to sell, solicit an offer to buy, contract to sell,
grant any option to purchase, or otherwise transfer or dispose of, any such
Acquisition Shares at any time before the expiration of the Lock-up Period and
the certificates evidencing such Acquisition Shares bear a legend to such
effect, (iii) issue shares of Common Stock during the Lock-up Period pursuant to
the (x) conversion of shares of the Company's Preferred Stock, par value $.001
per share (the "Preferred Stock"), and (y) exercise of warrants issued by the
Company (A) to the Company's senior bank lender, Bank of America Illinois (the
"Bank"), prior to the date hereof, and (B) in connection with the issuance by
the Company of its Subordinated Notes in the aggregate principal amount of
$10,000,000 (the "1997 Notes"), as described in the Registration Statement, so
long as the holders of the Preferred Stock who elect to convert shares of
Preferred Stock held by them into shares of Common Stock and the Bank and the
holders of the 1997 Notes who elect to exercise such warrants agree to be bound
by a lock-up letter in form and substance satisfactory to you pursuant to which
such holders agree with the Company not to sell, offer to sell, solicit an offer
to buy, contract to sell, grant any option to purchase or otherwise transfer or
dispose of, any shares acquired pursuant to the conversion of such shares of
Preferred Stock or the exercise of such warrants at any time before the
expiration of the Lock-up Period and the certificates evidencing such shares
bear a legend to such effect, (iv) issue warrants in connection with the
issuance of 1997 Notes by the Company after the date hereof, as described in the
Registration Statement, and (v) grant awards and permit the exercise of awards
granted pursuant to the Company's 1995 Stock Option Plan and the Company's 1997
Stock Option Plan during the
6
<PAGE> 7
Lock-up Period. The Company further agrees for the express benefit of the
Underwriters that, during the Lock-Up Period, it will not, without the prior
written consent of Smith Barney Inc., waive any provision of any registration
rights agreement, stockholders agreement or any reorganization agreement in each
case relating to any restriction imposed on the subsequent transfer or other
disposition of shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock and will take reasonable steps to
cause its transfer agent to enforce any such provision so as to limit the
transfer or other disposition of shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock during the
Lock-Up Period.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you
who holds 10,000 or more shares of Common Stock.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The Registration Statement in the form in which it became
or becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 424(b) under the
Act complied or will comply in all material respects with the provisions of the
Act and did not or will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the Registration Statement or the Prospectus or any amendment or supplement
thereto made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) As of the date of this Agreement, the Company has
authorized capital stock consisting of ________ shares of Common Stock and
__________ shares of Preferred Stock, $0.01 par value per share ("Preferred
Stock"), of which _______ shares of Common Stock
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<PAGE> 8
and _______ shares of Preferred Stock are issued and outstanding. As of the
Closing Date, the Company will have authorized capital stock consisting of ___
shares of Common Stock and ___ shares of Preferred Stock, of which ___ shares of
Common Stock and ___ shares of Preferred Stock will be issued and outstanding.
All the outstanding shares of capital stock of the Company as of the date of
this Agreement and as of the Closing Date have been or will be, as applicable,
duly authorized and validly issued, fully paid and nonassessable and free of and
not issued in violation of any preemptive or similar rights; the Shares to be
issued and sold by the Company have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and free of
and will not have been issued in violation of any preemptive or similar rights.
Except as described in the Prospectus, (a) there are no outstanding options,
warrants or other rights calling for the issuance of, and there are no
commitments to issue any shares of, capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital stock of the
Company, and (b) there is no holder of any securities of the company or any
other person who has the right, contractual or otherwise, to cause the Company
to sell or otherwise issue to him or her, or permit him or her to underwrite the
sale of, any of the Shares. The capital stock of the Company conforms to the
description thereof in the Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
(e) All the Company's subsidiaries (collectively, the
"Subsidiaries") are identified in an exhibit to the Registration Statement. Each
Subsidiary and each of Bioclear, Inc. ("Bioclear") and Lanco Environmental
Products, Inc. ("Lanco" and, together with Bioclear, the "Acquired Companies")
is a corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a Material Adverse Effect; all the outstanding
shares of capital stock of each of the Subsidiaries and the Acquired Companies
have been duly authorized and validly issued, are fully paid and nonassessable,
and are owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance. Other than with respect to the Subsidiaries and the
Acquired Companies, the Company does not have, directly or indirectly, any
ownership interest or
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<PAGE> 9
agreement or agreement in principal to acquire any ownership interest which is
material to the Company in consideration of its consolidated assets, in any
corporation, partnership, joint venture, association or other business
organization.
(f) There are no legal or governmental proceedings pending or,
to the best knowledge of the Company, threatened, against the Company, any of
the Subsidiaries or the Acquired Companies, or to which the Company, any of the
Subsidiaries or the Acquired Companies, or to which any of their respective
properties, is subject that are required to be described in the Registration
Statement or the Prospectus but are not described as required, and there are no
agreements, contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that are not described or filed as
required by the Act.
(g) Neither the Company, any of the Subsidiaries, nor the
Acquired Companies is in violation of its certificate or articles of
incorporation or by-laws, or other organizational documents, or of any statute,
law, ordinance, administrative or governmental rule or regulation applicable to
the Company, any of the Subsidiaries or either of the Acquired Companies or of
any judgment, injunction, order or decree of any court or governmental agency or
body having jurisdiction over the Company, any of the Subsidiaries or either of
the Acquired Companies, or in default in any material respect in the performance
of any obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any material agreement, indenture,
lease or other instrument to which the Company, any of the Subsidiaries or
either of the Acquired Companies is a party or by which any of them or any of
their respective properties may be bound.
(h) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (A) requires
any consent, approval, authorization or other order of or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except such as may be required for the registration of
the Shares under the Act and the Exchange Act and compliance with the securities
or Blue Sky laws of various jurisdictions, all of which have been or will be
effected in accordance with this Agreement) or conflicts or will conflict with
or constitutes or will constitute as of the date hereof and on the Closing Date
and any Option Closing Date a breach of, a default under, the certificate or
articles of incorporation or bylaws, or other organizational documents, of the
Company, any of the Subsidiaries or either of the Acquired Companies or (B)
conflicts or will conflict with or constitutes or will constitute as of the date
hereof and on the Closing Date and any Option Closing Date a breach of, or a
default under, any agreement, indenture, lease or other instrument to which the
Company, any of the Subsidiaries, or either of the Acquired Companies is a party
or by which any of them or any of their respective properties may be bound, or
violates or will violate as of the date hereof and on the Closing Date and any
Option Closing Date any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company, any of the Subsidiaries
or, to the knowledge of the Company, either of the Acquired Companies or
9
<PAGE> 10
any of their respective properties, or as of the date hereof and on the Closing
Date and any Option Closing Date will result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company, any
of the Subsidiaries or either of the Acquired Companies pursuant to the terms of
any agreement or instrument to which any of them is a party or by which any of
them may be bound or to which any of the property or assets of any of them is
subject.
(i) The accountants, Ernst & Young LLP, Ernst & Young AB,
Ernst & Young, Dennis D. Tysl & Company, Ltd., Sink, Gillmore & Gordon LLP and
Plant & Moran, LLP who have certified or shall certify the financial statements
included in the Registration Statement and the Prospectus (or any amendment or
supplement thereto) are independent public accountants as required by the Act.
(j) The historical financial statements, together with the
related schedules and notes, included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly in all
material respects (i) the consolidated financial position, results of
operations, shareholders' equity (and deficit) and cash flows of the Company and
its Subsidiaries, and (ii) the separate financial position, results of
operations, shareholders equity (and deficit) and cash flows of the Nordic Water
Products Group, Bioclear and Lanco, in each case on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such financial statements and related schedules and notes have
been prepared in accordance with generally accepted accounting principles as
applicable, (A) in the Kingdom of Sweden (in the case of the Nordic Water
Products Group), (B) in Canada (in the case of Bioclear), and (C) in the United
States (in all other cases) consistently applied throughout the periods
involved, except as disclosed therein; and the summary financial and statistical
information and data included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) present fairly the information shown
therein and such data have been compiled on a basis consistent with the
financial statements presented therein and the books and records of the Company,
its Subsidiaries the Nordic Water Products Group, Bioclear and Lanco. The pro
forma combined financial statements of the Company and its Subsidiaries
(including Bioclear and Lanco), together with the related schedules and notes,
as set forth in the Registration Statement and the Prospectus (and any amendment
or supplement thereto), present fairly the information shown therein, have been
prepared in accordance with the applicable provisions of Article 11 of
Regulation S-X promulgated by the Commission with respect to pro forma financial
statements and have been properly compiled on the pro forma bases described
therein and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein, and the other financial and statistical information and data included
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company and the
Subsidiaries.
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<PAGE> 11
(k) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except that enforceability may be subject to the effect (i) any applicable
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or
other laws affecting the creditors' rights generally, (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law), and (iii) except as rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws. The execution and
delivery of, and the performance by the Company of its obligations under, each
of [title of Lanco acquisition agreement] and [title of Bioclear acquisition
agreement] (collectively, the "Acquisition Agreements") have been duly and
validly authorized by the Company and each Acquisition Agreement has been duly
authorized, executed and delivered by the Company, and constitutes the legal,
valid and binding agreement of the respective parties thereto, except as that
enforceability may be subject to the effect of (i) any applicable bankruptcy,
fraudulent conveyance, insolvency, reorganizations, moratorium or other laws
affecting creditors' rights generally, (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity of at law) and (iii) any implied covenant of good faith or fair dealing.
(l) Except as disclosed in or contemplated by the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
subsequent to the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), neither the Company nor any of the Subsidiaries (including the
Acquired Companies) has incurred any liability or obligation, direct or
contingent, or entered into any transaction, not in the ordinary course of
business, that is material to the Company and the Subsidiaries (including the
Acquired Companies) taken as a whole, and there has not been any change in the
capital stock, or material increase in the short-term debt or long-term debt, of
the Company or any of the Subsidiaries (including the Acquired Companies), or
any material adverse change, or any development involving or which may
reasonably be expected to involve, a prospective Material Adverse Effect.
(m) Each of the Company and the Subsidiaries (including the
Acquired Companies) has good and marketable title to all property (real and
personal) described in the Registration Statement and the Prospectus or in a
document filed as an exhibit to the Registration Statement as being owned by it,
free and clear of all liens, claims, security interests or other encumbrances,
except such as are described in the Registration Statement and the Prospectus or
in a document filed as an exhibit to the Registration Statement or which are not
material to the Company and/or the applicable Subsidiary, and all the property
described in the Prospectus as being held under lease by the Company or any
Subsidiary (including the Acquired Companies) is held by the Company or such
Subsidiary (including the Acquired Companies) under valid, subsisting and
enforceable leases.
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<PAGE> 12
(n) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(o) The Company and each of the Subsidiaries (including the
Acquired Companies) has such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits") as are necessary to own its
respective properties and to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the Prospectus
and except where the failure to have such permits would not have a Material
Adverse Effect; the Company and each of the Subsidiaries and, to the knowledge
of the Company, each of the Acquired Companies has fulfilled and performed all
its material obligations with respect to such permits, licenses, franchises and
authorizations and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results, or after
notice or lapse of time would result, in any other material impairment of the
rights of the holder of any such permit, license, franchise or authorization,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such permits,
licenses, franchises or authorizations contains any restriction that is
materially burdensome to the Company or any of the Subsidiaries (including the
Acquired Companies).
(p) The Company and, to the knowledge of the Company, each of
the Acquired Companies maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(q) Neither the Company nor any of its Subsidiaries nor, to
the knowledge of the Company, the Acquired Companies nor any employee or agent
of the Company or any Subsidiary has made any payment of funds of the Company or
any Subsidiary (or the Acquired Companies) or received or retained any funds in
violation of any statute, law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the Prospectus.
(r) The Company and each of the Subsidiaries (including the
Acquired Companies) have filed in a timely manner all tax returns required to be
filed with any taxing authority, which returns are complete and correct and, to
the best knowledge of the Company, are not the subject of any audit proceedings,
and neither the Company nor any Subsidiary (including
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<PAGE> 13
the Acquired Companies) is in default in the payment of any taxes which were
payable pursuant to said returns or any assessments with respect thereto. The
merger pursuant to which the Company acquired Water Equipment Technologies, Inc.
constituted a tax free merger under the applicable requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). None of the indebtedness of the
Company incurred in connection with the acquisition of any of the Subsidiaries
(including the Acquired Companies) constitutes or will constitute "corporate
acquisition indebtedness" as such term is defined in section 279 of the Code.
(s) The Company and each of the Subsidiaries (including the
Acquired Companies) have conducted their respective businesses in compliance
with all applicable Federal, state, provincial, foreign and local laws and
regulations including, without limitation, those promulgated under the
Occupational Safety and Health Act (the "OSHA Laws") and those applicable to
emissions into the environment, waste management and waste disposal (the
"Environmental Laws") and, to the Company's best knowledge, under current law
there are no existing circumstances that would prevent, interfere with, or
materially increase the cost of the Company's compliance with such OSHA Laws or
Environmental Laws in the future, except for any lack of compliance or the
existence of any such circumstance as would not have, individually or in the
aggregate, a Material Adverse Effect.
(t) Except as set forth in the Registration Statement and the
Prospectus, there is no material claim under any OSHA Law or Environmental Law,
including common law, pending or threatened against the Company or any of the
Subsidiaries (including the Acquired Companies) (an "OSHA Claim" or an
"Environmental Claim", as applicable) and, to the Company's best knowledge,
there are no past or present actions, activities, circumstances, events or
incidents, including, without limitation, releases of any material into the
environment, that would reasonably be expected to form the basis of any material
claim against the Company or any of the Subsidiaries.
(u) Each holder of a security of the Company that has any
right (a "registration right") to require registration of shares of Common Stock
or any other security of the Company because of the filing of the Registration
Statement or consummation of the transactions contemplated by this Agreement has
been notified, in accordance with the notice requirements set forth in the
agreement or instrument providing for such registration rights, of the Company's
intent to file the Registration Statement with the Commission and has agreed in
writing to waive such holder's registration rights with respect to the public
offering contemplated hereby.
(v) The Company and the Subsidiaries (including the Acquired
Companies) own or possess valid and enforceable rights to use all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of them or material to
the conduct of their respective businesses, and the Company is not aware of any
claim to the contrary or any challenge by any other person or entity to the
rights of the
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<PAGE> 14
Company and the Subsidiaries (including the Acquired Companies) with respect to
the foregoing or of any infringement by any other person or entity with respect
to the foregoing.
(w) The Company is not now, and after sale of the Shares to be
sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(x) The Shares have been approved for listing, upon notice of
issuance, on the New York Stock Exchange.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including, without limitation,
reasonable costs of investigation and reasonable attorneys fees and expenses)
arising out of, based upon or relating to any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or in any
Prepricing Prospectus or the Prospectus or in any amendment or supplement
thereto, or arising out of, based upon or relating to any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission of a material fact or alleged untrue statement
or omission of a material fact which has been made therein or omitted therefrom
in reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Company has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing indemnity agreement shall be
in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel which shall be
of nationally recognized standing and satisfactory to Smith Barney Inc. (which
may include, among others, Benesch, Friedlander, Coplan & Aronoff) and payment
of all fees and
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<PAGE> 15
expenses. The Company shall not agree to settle any such action, suit or
proceeding without the written consent of Smith Barney Inc., which consent shall
not be unreasonably withheld. Such Underwriter or any such controlling person
shall have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Company agreed in writing to pay such fees and expenses,
(ii) the Company failed promptly to assume the defense and employ counsel, or
(iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
the Company and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company by the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons having
actual or potential differing interests, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed promptly as they are incurred. The Company shall not be liable for
any settlement of any such action, suit or proceeding effected without its
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Company agrees to indemnify and hold harmless any Underwriter, to the extent
provided in the preceding paragraph, and any such controlling person from and
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing by
or on behalf of such Underwriter expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, or any such controlling
person based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph (c),
such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
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<PAGE> 16
Company, its directors, any such officer, and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which any
Underwriter may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company 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; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company, or the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company , and the underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Company, and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were determined
by a pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such
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<PAGE> 17
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. 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 to indemnify or
contribute, as applicable, pursuant to this Section 7 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule I hereto (or such numbers of Firm Shares increased as set forth in
Section 10 hereof) in relation to the aggregate number of Firm Shares and not
joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened 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 your satisfaction.
17
<PAGE> 18
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or the
Subsidiaries (including the Acquired Companies) not contemplated by the
Prospectus, which in your opinion, as Representatives of the several
Underwriters, would adversely affect the market for the Shares, or (ii) any
event or development relating to or involving the Company or any Subsidiary
(including the Acquired Companies) or any officer or director of the Company or
any Subsidiary (including the Acquired Companies) which makes any statement made
in the Prospectus an untrue statement of a material fact or which, in the
opinion of the Company and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in order to
state a material fact required by the Act or any other law to be stated therein
or necessary in order to make the statements therein not misleading, if amending
or supplementing the Prospectus to reflect such event or development would, in
your opinion, as Representatives of the several Underwriters, adversely affect
the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Benesch, Friedlander, Coplan & Aronoff LLP, counsel for the Company, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated
and validly existing in good standing under the laws of the State of Delaware
with full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
qualification, except where the failure so to qualify does not have a Material
Adverse Effect;
(ii) Each of the Subsidiaries (including the Acquired
Companies) is a corporation duly incorporated and validly existing in good
standing under the laws of the jurisdiction of its organization, with full
corporate power and authority to own, lease, and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) and is duly qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
qualification, except where the failure so to qualify does not have a Material
Adverse Effect; and all the outstanding shares of capital stock of each of the
Subsidiaries (including the Acquired Companies) have been duly authorized and
validly issued, are fully paid and nonassessable, and are owned by the Company
directly, or indirectly through one of the other Subsidiaries, free and clear of
any security interest, lien, adverse claim, equity or, to the knowledge of such
counsel after reasonable inquiry, other encumbrance;
(iii) The authorized and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in the
Prospectus; and the authorized capital stock of
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<PAGE> 19
the Company conforms in all material respects as to legal matters to the
description thereof contained in the Prospectus under the caption "Description
of Capital Stock";
(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be issued and sold by the
Company hereunder, have been duly authorized and validly issued, and are fully
paid and nonassessable;
(v) The Shares to be issued and sold to the
Underwriters by the Company hereunder have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable and will
not have been issued in violation of the preemptive or, to the knowledge of such
counsel after reasonable inquiry, other similar rights that entitle or will
entitle any person to acquire any shares upon issuance thereof by the Company;
(vi) The form of certificates for the Shares conforms
to the requirements of the Delaware General Corporation Law;
(vii) Based on telephonic confirmation from the
Commission on ________, 1997, the Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the knowledge of
such counsel after reasonable inquiry, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(viii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver the Shares
to be sold by it to the Underwriters as provided herein. This Agreement has been
duly authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that enforceability may be subject to the effect (i) any
applicable bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other laws affecting the creditors' rights generally, (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law), and except as enforcement of rights to
indemnity and contribution hereunder may be limited by Federal or state
securities laws or principles of public policy;
(ix) Neither the Company nor any of the Subsidiaries
(including the Acquired Companies) is in violation of its respective certificate
or articles of incorporation or bylaws, or other organizational documents or, to
the knowledge of such counsel after reasonable inquiry, is in default in the
performance or observance of any material obligation,
19
<PAGE> 20
agreement or condition contained in any bond, debenture, note or other evidence
of indebtedness, or other material agreement, lease or instrument, except as may
be disclosed in the Prospectus;
(x) Neither the issuance, offer, sale or delivery of
the Shares, the execution, delivery or performance of this Agreement, compliance
by the Company with the provisions hereof, nor consummation by the Company of
the transactions contemplated hereby conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the certificate
or articles of incorporation or bylaws, or other organizational documents, of
the Company or any of the Subsidiaries (including the Acquired Companies) or any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries (including the Acquired Companies) is a party or by which any
of them or any of their respective properties is bound which has been described
in or filed as an exhibit to the Registration Statement, or that is material and
that is known to such counsel after reasonable inquiry, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries (including the Acquired
Companies), nor (assuming compliance with all applicable state or foreign
securities and Blue Sky laws) will any such action result in any violation of
any existing statute, law, rule, regulation, ruling, judgment, injunction, order
or decree applicable to the Company, the Subsidiaries (including the Acquired
Companies) or any of their respective properties and which, in such counsel's
experience, are known to be applicable to transactions of the type contemplated
by this Agreement;
(xi) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the Act
and the Exchange Act or such as may be required under state or foreign
securities or Blue Sky laws governing the purchase and distribution of the
Shares) for the valid issuance and sale of the Shares to the Underwriters as
contemplated by this Agreement;
(xii) (A) Other than as described in the Prospectus
(or any amendment or supplement thereto), there are no legal or governmental
proceedings pending or, to the best knowledge of such counsel after reasonable
inquiry, threatened against the Company or any of the Subsidiaries (including
the Acquired Companies), or to which the Company or any of the Subsidiaries
(including the Acquired Companies), or any of their property, is subject which
are required to be described in the Registration Statement or Prospectus (or any
amendment or supplement thereto), (B) there are no agreements, contracts,
indentures, leases or other instruments that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) or to be filed as an exhibit to the Registration Statement, as the case
may be, that are not described or filed as required and (C) other than as
described in the Prospectus (or any amendment or supplement thereto), there are
no outstanding options, warrants or other rights calling for the issuance of,
and such counsel knows of no commitment, plan or arrangement to issue any share
of capital stock of the Company or any security convertible into or exercisable
or exchangeable for capital stock of the Company or of any Subsidiary or
Acquired Company;
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<PAGE> 21
(xiii) The statements in the Registration Statement
and Prospectus, insofar as they are descriptions of contracts, agreements,
instruments or other legal documents, or refer to statements of law or legal
conclusions, are accurate in all material respects and present fairly the
information required to be shown;
(xiv) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act;
(xv) Upon delivery of the Shares pursuant to this
Agreement and payment therefor as contemplated herein the Underwriters will
acquire good and marketable title to the Shares free and clear of any lien,
claim, security interest, or other encumbrance, restriction on transfer or other
defect in title; and
(xvi) The Shares, subject to official notice of
issuance, have been approved for listing on the New York Stock Exchange;
In addition, such counsel shall state that although such counsel has
not undertaken to determine independently, and does not assume any
responsibility for, the accuracy or completeness of the statements in the
Registration Statement, such counsel has participated in conferences with
officers and other representatives of the Company and its Subsidiaries,
representatives of the independent public accountants of the Company and
representatives of the Underwriters at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and participated
in the preparation of the Registration Statement and the Prospectus and nothing
has come to the attention of such counsel that has caused him to believe that
the Registration Statement at the time the Registration Statement became
effective, or the Prospectus, as of its date and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading or that any amendment or supplement
to the Prospectus, as of its respective date, and as of the Closing Date or the
Option Closing Date, as the case may be, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
21
<PAGE> 22
which they were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and the notes
thereto and the schedules and other financial and statistical data included in
the Registration Statement or the Prospectus).
In rendering his opinion as aforesaid, counsel may rely upon an opinion
or opinions, each dated the Closing Date, of other counsel retained by him or
the Company as to laws of any jurisdiction other than the United States or the
States of Ohio and Delaware, provided that (1) each such local counsel is
acceptable to the Representatives, (2) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is addressed and
delivered to the Representatives and is, in form and substance satisfactory to
them and their counsel, and (3) counsel shall state in his opinion that he
believes that he and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of
Morgan, Lewis & Bockius LLP, counsel for the Underwriters, dated the Closing
Date and addressed to you, as Representatives of the several Underwriters, with
respect to the matters referred to in clauses (v), (vii), the first sentence of
(viii) and the final paragraph of (xii) of the foregoing paragraph (c) and such
other related matters as you may request.
(e) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Ernst & Young LLP, Ernst & Young AB, Ernst & Young, Dennis D.
Tysl & Company, Ltd., Sink Gillmore & Gordon LLP and Plant & Moran, LLP,
independent certified public accountants, substantially in the forms heretofore
approved by you.
(f) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission at or prior to the Closing
Date; (ii) there shall not have been any change in the capital stock of the
Company nor any material increase in the short-term or long-term debt of the
Company (other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), except as may otherwise be
stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), any Material Adverse Effect; (iv) the Company and the
Subsidiaries shall not have any liabilities or obligations, direct or contingent
(whether or not in the ordinary course of business), that are material to the
Company and the Subsidiaries, taken as a whole, other than those reflected in
the Registration Statement or the Prospectus (or any amendment or supplement
thereto); and (v) all the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as
22
<PAGE> 23
are acceptable to you), to the effect set forth in this Section 8(f) and in
Section 8(g), 8(h) and 8(j) hereof.
(g) The acquisitions of Lanco and BioClear shall have been
consummated as of the Closing Date on the terms set forth in the Registration
Statement and the Acquisition Agreements, without waiver or modifications of any
material term or provision of the Acquisition Agreements, except as may be
approved by you.
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(i) The Shares shall have been listed or approved for listing
upon notice of issuance on the New York Stock Exchange.
(j) The Company shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (h) and (j) shall be dated the
Option Closing Date in question and the opinions and letter called for by
paragraphs (c), (d) and (e) shall be revised to reflect the sale of Additional
Shares.
9. EXPENSES. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight or similar charges
and charges for counting and packaging) of such copies of the Registration
Statement, each Prepricing Prospectus, the Prospectus, and all amendments or
supplements to any of them as may be reasonably requested for use in connection
with the offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in
23
<PAGE> 24
connection with the original issuance and sale of the Shares; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Shares; (v)
the registration of the Common Stock under the Exchange Act and the listing of
the Shares on the New York Stock Exchange; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the fees and expenses of counsel for
the Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (viii) the transportation and
other expenses incurred by or on behalf of Company representatives in connection
with presentations to prospective purchasers of the Shares; and (ix) the fees
and expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Shares which it or they are obligated to purchase on the Closing
Date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not
24
<PAGE> 25
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I hereto who, with
your approval and the approval of the Company, purchases Shares which a
defaulting Underwriter is obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York or Ohio shall have been
declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given to
the Company by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first paragraph, the third paragraph, the
second sentence of the seventh paragraph and the tenth paragraph under the
caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 7 hereof.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10 and
11 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 4100 Holiday Street, N.W., Suite 201, Canton, Ohio 44718-2532,
Attention: Chief Executive Officer; or (ii) if to you, as Representatives of the
several Underwriters, in care of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Manager, Investment Banking Division.
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<PAGE> 26
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
26
<PAGE> 27
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters with respect to the matters
addressed herein.
Very truly yours,
WATERLINK, INC.
By: _____________________________
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
OPPENHEIMER & CO., INC.
SANDERS MORRIS MUNDY
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By: _____________________________
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
<PAGE> 28
SCHEDULE I
WATERLINK, INC.
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
Smith Barney Inc..........................................
Oppenheimer & Co., Inc....................................
Sanders Morris Mun.y......................................
-----------
Total...................................
-----------
</TABLE>
28
<PAGE> 1
Exhibit 3.1
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WATERLINK, INC.
The original Certificate of Incorporation was filed on December 7, 1994.
This Fifth Amended and Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") was duly adopted in accordance with Sections 242
and 245 of the General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation is WATERLINK, INC.
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in multi-material
recycling and any other lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Fifty Million (50,000,000), divided
into classes as follows:
Ten Million (10,000,000) shares of Preferred Stock, $.001 par value
(the "Preferred Shares").
Forty Million (40,000,000) shares shall be shares of Common Stock,
$.001 par value (the "Common Shares"); and
The following is a statement of the powers, preferences, rights and
the qualifications, limitations or restrictions of the Preferred Shares, and
the Common Shares.
SECTION I.
Preferred Shares.
Subject to the provisions of this Article FOURTH and the express
provisions of each series of Preferred Shares, the Board is hereby empowered to
cause the Preferred Shares to be issued from time to time for such
consideration as it may from time to time fix, and to cause such Preferred
Shares to be issued in one or more series, with such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issues of such stock adopted by the
<PAGE> 2
Board. Each series of Preferred Shares shall be distinctly designated. Except
in respect of the particulars fixed by the Board for each series as permitted
hereby, all Preferred Shares shall be of equal rank and shall be identical. All
shares of any one series of Preferred Shares so designated by the Board shall
be alike in every particular, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall
be cumulative. The voting rights, if any, of each such series and the
preferences and relative, participating, optional and other special rights of
each such series and the qualifications, limitations and restrictions thereof,
if any, may differ from those of any and all other series at any time
outstanding; and the Board is hereby expressly granted authority to fix, by
resolutions duly adopted prior to the issuance of any shares of a particular
series of Preferred Shares so designated by the Board, the voting powers of
stock of such series, if any, and the designations, preferences and relative,
participating, optional and other special rights and the qualifications,
limitations and restrictions thereof, if any, for such series, including,
without limitation, the following:
(a) The distinctive designation of and the number of Preferred Shares which
shall constitute such series; provided, that such number may be increased
(but not above the total number of authorized Preferred Shares) or
decreased (but not below the number of shares thereof then outstanding)
from time to time by like action of the Board;
(b) The rate and time at which, and the terms and conditions upon which,
dividends, if any, on Preferred Shares of such series shall be paid, the
extent of the preference or relation, if any, of such dividends to the
dividends payable on any other series of Preferred Shares or any other
class of stock of the Corporation and whether such dividends shall be
cumulative or non-cumulative.
(c) The right, if any, of the holders of Preferred Shares of such series to
convert the same into, or exchange the same for, shares of any other class
of stock or any series of any class of stock of the Corporation and the
terms and conditions of such conversion or exchange;
(d) Whether or not Preferred Shares of such series shall be subject to
redemption, and the redemption price or prices and the time or times at
which, and the terms and conditions upon which, Preferred Shares of such
series may be redeemed;
(e) The rights, if any, of the holders of Preferred Shares of such series upon
the dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, which rights may be prior or after in right to,
or pari passu with, any other series of Preferred Shares;
(f) The terms of the sinking fund or redemption or purchase amount, if any, to
be provided for the Preferred Shares of such series; and
(g) The voting powers, if any, of the holders of such series of Preferred
Shares which may, without limiting the generality of the foregoing,
include the right, voting as a series by itself or together with any other
series of the Preferred Shares as a class, (i) to vote more
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or less than one vote per share on any or all matters voted by the
stockholders, and (ii) to elect one or more directors of the Corporation
if there has been a default in the payment of dividends on any one or more
series of the Preferred Shares or under such other circumstances and upon
such other condition as the Board may fix.
The Board may, in establishing any series of Preferred Shares, provide
limitations on the payment of dividends on the Common Shares while any
dividends on Preferred Shares are accrued and unpaid.
SECTION II.
Common Shares.
Each Common Share shall have one vote upon all matters to be voted on by
the holders of Common Shares. Each Common Share shall be entitled to
participate equally in all dividends payable with respect to the Common Shares
and to share ratably, subject to the rights and preferences of any series of
Preferred Shares, in all assets of the Corporation in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, or upon any distribution of the assets of the Corporation.
SECTION III.
General.
(a) Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by a consent in writing by any such
holders.
(b) Except as otherwise specifically provided in this Restated Certificate of
Incorporation or in any Certificate of Designation setting forth the
preferences and rights of any series of Preferred Shares, special meetings
of stockholders of the Corporation may be called only by the Chairman of
the Board or the President, and shall be called by the President or the
Secretary at the request in writing of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the
proposed meeting and the business transacted at any special meeting shall
be limited to the purpose or purposes stated in the notice. No stockholder
or group of stockholders shall have any authority to call a special
meeting of stockholders.
FIFTH: A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than six
nor more than twelve directors, with the exact number of directors constituting
the entire Board of Directors to be determined from time to time by resolution
adopted by the affirmative vote of a majority of the entire Board of Directors.
Until otherwise determined by the Board of Directors, the number of directors
constituting the entire Board of Directors shall be six. For purposes of this
Restated Certificate
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of Incorporation, "the entire Board of Directors" shall mean the number of
directors that would be in office if there were no vacancies nor any unfilled
newly created directorships.
The Board of Directors shall be divided into three classes, Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of Directors.
Upon the adoption of this Restated Certificate of Incorporation, the
stockholders shall elect two directors to serve as Class I directors, two
directors to serve as Class II directors and two directors to serve as Class III
directors. The Class I directors' term shall expire at the first annual meeting
of stockholders after the effective date of the Restated Certificate of
Incorporation, the Class II directors' term shall expire at the second annual
meeting of stockholders after the effective date of the Restated Certificate of
Incorporation, and the Class III directors' term shall expire at the third
annual meeting of stockholders after the effective date of the Restated
Certificate of Incorporation. At the first annual meeting of the stockholders
after the effective date of the Restated Certificate of Incorporation and each
annual meeting of stockholders thereafter, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a newly created directorship resulting from an increase in such
class shall hold office for a term that shall coincide with the remaining term
of that class, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any vacancy on
the Board of Directors that results from an increase in the number of directors
may be filled by a majority of the Board of Directors then in office, provided
that a quorum is present, and any other vacancy occurring in the Board of
Directors may be filled by a majority of the directors then in office, even if
less than a quorum, or by a sole remaining director. Directors chosen to fill
any such vacancy shall hold office for a term expiring at the annual meeting of
stockholders 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.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Shares shall have the right, voting separately as a class
or series, to elect directors, the election, removal, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation, applicable thereto,
including any Certificate of Designation filed with respect to such series of
Preferred Shares, such directors so elected shall not be divided into classes
pursuant to this Article FIFTH and such directors shall not be counted in
determining the maximum number of directors permitted under this Article FIFTH,
unless, in each case, expressly provided by such terms.
Any director elected by the stockholders or by the Board of Directors to
fill a vacancy may be removed only for cause by the affirmative vote of the
holders of at least eighty percent (80%) of all the shares of stock of the
Corporation outstanding and entitled to vote for the election of directors,
given at a duly called annual or special meeting of the stockholders.
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B. The Board of Directors shall be authorized to adopt, make, amend,
alter, change, add to or repeal the By-Laws of the Corporation, subject to the
power of the stockholders to amend, alter, change, add to or repeal the By-Laws
made by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
SIXTH: A. In addition to any affirmative vote required by law or this Restated
Certificate of Incorporation or the By-Laws of the Corporation, and except as
otherwise expressly provided in Section B of this Article SIXTH, a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of, any
Interested Stockholder (as hereinafter defined) or any Affiliate or Associate
(as hereinafter defined) of any Interested Stockholder or any person who
thereafter would be an Affiliate or Associate of such Interested Stockholder
shall, except as otherwise prohibited by applicable law, require the affirmative
vote of not less than eighty percent (80%) of the votes entitled to be cast by
the holders of all the then outstanding shares of Voting Stock (as hereinafter
defined), voting together as a single class, excluding Voting Stock beneficially
owned by any Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by law or in any agreement
with any national securities exchange or otherwise.
B. The provisions of Section A of this Article SIXTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required by
law or by any other provision of this Restated Certificate of Incorporation or
the By-Laws of the Corporation, or any agreement with any national securities
exchange, if all of the conditions specified in either of the following
Paragraphs 1 or 2 are met or, in the case of a Business Combination not
involving the payment of consideration to the holders of the corporation's
outstanding Capital Stock (as hereinafter defined), if the condition specified
in the following Paragraph 1 is met:
1. The Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of
the intention to acquire, beneficial ownership of the Voting Stock that
caused the Interested Stockholder to become an Interested Stockholder) of
the Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. the aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of Common Shares in such Business Combination shall be at least
equal to the highest amount determined under clauses (i) and (ii) below:
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(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested Stockholder for any Common
Share in connection with the acquisition by the Interested
Stockholder of beneficial ownership of Common Shares (x) within the
two-year period immediately prior to the first public announcement of
the proposed Business Combination (the "Announcement Date") or (y) in
the transaction in which it became an Interested Stockholder,
whichever is higher, in either case as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with
respect to Common Shares; and
(ii) the Fair Market Value per Common Share on the Announcement
Date or on the date on which the Interested Stockholder became an
Interested Stockholder (the "Determination Date"), whichever is
higher, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to Common Shares.
b. The aggregate amount of cash and the Fair Market Value, as of the
date of the consummation of the Business Combination, of consideration
other than cash to be received per share by holders of shares of any
class or series of outstanding Capital Stock, other than Common Shares,
shall be at least equal to the highest amount determined under clauses
(i), (ii), (iii) and (iv) below:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested Stockholder for any share of
such class or series of Capital Stock in connection with the
acquisition by the Interested Stockholder of beneficial ownership of
shares of such class or series of Capital Stock (x) within the
two-year period immediately prior to the Announcement Date, or (y)
in the transaction in which it became an Interested Stockholder,
whichever is higher, in either case as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock;
(ii) the Fair Market Value per share of such class or series of
Capital Stock on the Announcement Date or on the Determination Date,
whichever is higher, as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect to such
class or series of Capital Stock;
(iii) (if applicable) the price per share equal to the Fair
Market Value per share of such class or series of Capital Stock
determined pursuant to the immediately preceding clause (ii),
multiplied by the ratio of (x) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of such class or series of Capital Stock in connection with the
acquisition by the Interested Stockholder of beneficial ownership of
shares of such class or series of Capital Stock within the two-year
period immediately prior to the Announcement Date, as ad-
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justed for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock to (y) the Fair Market Value per share of such class or series
of Capital Stock on the first day in such two-year period on which
the Interested Stockholder acquired beneficial ownership of any
share of such class or series of Capital Stock, as adjusted for any
subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock; and
(iv) (if applicable) the highest preferential amount per share
to which the holders of shares of such class or series of Capital
Stock would be entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
corporation regardless of whether the Business Combination to be
consummated constitutes such an event.
The provisions of this Paragraph 2 shall be required to be met with
respect to every class or series of outstanding Capital Stock, whether or
not the Interested Stockholder has previously acquired beneficial
ownership of any shares of a particular class or series of Capital Stock.
c. The consideration to be received by holders of a particular class
or series of outstanding Capital Stock shall be in cash or in the same
form as previously has been paid by or on behalf of the Interested
Stockholder in connection with its direct or indirect acquisition of
beneficial ownership of shares of such class or series of Capital Stock.
If the consideration so paid for shares of any class or series of Capital
Stock varied as to form, the form of consideration for such class or
series of Capital Stock shall be either cash or the form used to acquire
beneficial ownership of the largest number of shares of such class or
series of Capital Stock previously acquired by the Interested Stockholder.
d. After the Determination Date and prior to the consummation of such
Business Combination: (i) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay
at the regular date therefor any full quarterly dividends (whether or not
cumulative) payable in accordance with the terms of any outstanding
Capital Stock; (ii) there shall have been no reduction in the annual rate
of dividends paid on the Common Shares (except as necessary to reflect
any stock split, stock dividend or subdivision of the Common Shares),
except as approved by a majority of the Continuing Directors; (iii) there
shall have been an increase in the annual rate of dividends paid on the
Common Shares as necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or any similar
transaction that has the effect of reducing the number of outstanding
Common Shares, unless the failure so to increase such annual rate is
approved by a majority of the Continuing Directors; and (iv) such
Interested Stockholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the transaction that
results in such Interested Stockholder becoming an Interested Stockholder
and except in a transaction that, after giving effect thereto, would not
result in any increase in the Interested Stockholder's percentage
beneficial ownership of any class or series of Capital Stock.
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e. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the "Act")
(or any subsequent provisions replacing such Act, rules or regulations)
shall be mailed to all stockholders of the corporation at least 30 days
prior to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed pursuant to
such Act or subsequent provisions). The proxy or information statement
shall contain on the first page thereof, in a prominent place, any
statement as to the advisability (or inadvisability) of the Business
Combination that the Continuing Directors, or any of them, may choose to
make and, if deemed advisable by a majority of the Continuing Directors,
the opinion of an investment banking firm selected by a majority of the
Continuing Directors as to the fairness (or not) of the terms of the
Business Combination from a financial point of view to the holders of the
outstanding shares of Capital Stock other than the Interested Stockholder
and its Affiliates or Associates (as hereinafter defined), such investment
banking firm to be paid a reasonable fee for its services by the
corporation.
f. Such Interested Stockholder shall not have made any major change
in the Corporation's business or equity capital structure without the
approval of a majority of the Continuing Directors.
C. The following definitions shall apply with respect to this Article
SIXTH:
1. The term "Business Combination" shall mean:
a. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (i) any Interested Stockholder or (ii) any
other company (whether or not itself an Interested Stockholder) which is
or after such merger or consolidation would be an Affiliate or Associate
of an Interested Stockholder; or
b. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition or security arrangement, investment, loan, advance,
guarantee, agreement to purchase, agreement to pay, extension of credit,
joint venture participation or other arrangement (in one transaction or a
series of transactions) with or for the benefit of any Interested Stock
holder or any Affiliate or Associate of any Interested Stockholder
involving any assets, securities or commitments of the corporation, any
Subsidiary or any Interested Stockholder or any Affiliate or Associate of
any Interested Stockholder which (except for any arrangement, whether as
employee, consultant or otherwise, other than as a director, pursuant to
which any Interested Stockholder or any Affiliate or Associate thereof
shall, directly or indirectly, have any control over or responsibility
for the management of any aspect of the business or affairs of the
Corporation, with respect to which arrangements the value tests set forth
below shall not apply), together with all other such arrangements
(including all contemplated future events), has an aggregate Fair Market
Value and/or involves aggregate commitments of $25,000,000 or more or
constitutes more than five percent of the book value of the total assets
(in the case of transactions involving assets or
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commitments other than capital stock) or five percent of the stockholders'
equity (in the case of transactions in capital stock) of the entity in
question (the "Substantial Part"), as reflected in the most recent fiscal
year-end consolidated balance sheet of such entity existing at the time
the stockholders of the corporation would be required to approve or
authorize the Business Combination involving the assets, securities and/or
commitments constituting any Substantial Part; or
c. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or for any amendment to the Corporation's
By-Laws; or
d. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving an Interested
Stockholder) that has the effect, directly or indirectly, of increasing
the proportionate share of any class or series of Capital Stock, or any
securities convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder, or
e. any agreement, contract or other arrangement providing for any one
or more of the actions specified in the foregoing clauses (a) to (d).
2. The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article FOURTH
of this Restated Certificate of Incorporation, and the term "Voting
Stock" shall mean all Capital Stock which by its terms may be voted on all
matters submitted to stockholders of the Corporation generally.
3. The term "person" shall mean any individual, firm, company or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
4. The term "Interested Stockholder" shall mean any person (other
than the Corporation or any Subsidiary, any profit-sharing, employee
stock ownership or other employee benefit plan of the corporation or any
Subsidiary or any trustee or fiduciary with respect to any such plan or
holding Voting Stock for the purpose of funding any such plan or funding
other employee benefits for employees of the Corporation or any
Subsidiary when acting in such capacity) who (a) is or has announced or
publicly disclosed a plan or intention to become the beneficial owner of
Voting Stock representing ten percent or more of the votes entitled to be
cast by the holders of all then outstanding shares of Voting Stock; or (b)
is an Affiliate or Associate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner of Voting Stock representing ten percent or more of the
votes entitled to be cast by the holders of all then outstanding shares
of Voting Stock.
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5. A person shall be a "beneficial owner" of any Capital Stock (a)
which such person or any of its Affiliates or Associates beneficially
owns, directly or indirectly; (b) which such person or any of its
Affiliates or Associates has, directly or indirectly, (i) the right to
acquire (whether such right is exercisable immediately or subject only to
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; or (c) which are beneficially
owned, directly or indirectly, by any other person with which such person
or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing
of any shares of Capital Stock. For the purposes of determining whether a
person is an Interested Stockholder pursuant to Paragraph 4 of this
Section C, the number of shares of Capital Stock deemed to be outstanding
shall include shares deemed beneficially owned by such person through
application of this Paragraph 5 of Section C, but shall not include any
other shares of Capital Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise. Notwithstanding the foregoing,
for purposes of this Article SIXTH, a person shall not be deemed a
"beneficial owner" of any Capital Stock which such person has the right to
acquire upon exercise of the Rights issued pursuant to the Rights
Agreement, dated as of________________ ___, 1997, between the Corporation
and (including any successor rights plan thereto, the "Rights Agreement"),
if such person would not be deemed the beneficial owner of such Capital
Stock under the terms of such Rights Agreement.
6. The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in effect
on the date of this Restated Certificate of Incorporation (the term
"registrant" in said Rule 12b-2 meaning in this case the Corporation).
7. The term "Subsidiary" means any company of which a majority of any
class of equity securities are beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall mean only a company of which a majority of each class
of equity security is beneficially owned by the Corporation.
8. The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stock holder, and any
successor of a Continuing Director while such successor is a member of the
Board of Directors, who is not an Affiliate or Associate or representative
of the Interested Stockholder and is recommended or elected to succeed
the Continuing Director by a majority of Continuing Directors.
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9. The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Act on which such stock is listed, or, if such stock
is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the
date in question on The NASDAQ Stock Market or any similar system then in
use, or if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by a majority of
the Continuing Directors in good faith; and (c) in the case of property
other than cash or stock, the fair market value of such property on the
date in question as determined in good faith by a majority of the
Continuing Directors.
10. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in Paragraphs 2.a and 2.b of Section B of this Article SIXTH shall
include the Common Shares and/or the shares of any other class or series
of Capital Stock retained by the holders of such shares.
D. A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Article SIXTH, on the basis of information
known to them after reasonable inquiry, all questions arising under this
Article SIXTH, including, without limitation, (a) whether a person is an
Interested Stockholder, (b) the number of shares of Capital Stock or other
securities beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether a Proposed Action is with, or
proposed by, or on behalf of an Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder, (e) whether the assets that are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination has, an aggregate Fair Market Value of $25,000,000
or more, and (f) whether the assets or securities that are the subject of any
Business Combination constitute a Substantial Part. Any such determination made
in good faith shall be binding and conclusive on all parties.
E. Nothing contained in this Article SIXTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. The fact that any Business Combination complies with the provisions of
Section B of this Article SIXTH shall not be construed to impose any fiduciary
duty, obligation or responsibility on the Board of Directors, or any member
thereof, to approve such Business Combination or recommend its adoption or
approval to the stockholders of the corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
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G. For the purposes of this Article SIXTH, a Business Combination or any
proposal to amend or repeal, or to adopt any provision of this Restated
Certificate of Incorporation inconsistent with, this Article SIXTH
(collectively, "Proposed Action"), is presumed to have been proposed by or on
behalf of an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder or a person who thereafter would become such if (1)
after the Interested Stockholder became such, the Proposed Action is proposed
following the election of any director of the Corporation who with respect to
such Interested Stockholder would not qualify to serve as a Continuing Director
or (2) such Interested Stockholder, Affiliate, Associate or person votes for or
consents to the adoption of any such Proposed Action, unless as to such
Interested Stockholder, Affiliate, Associate or person a majority of the
Continuing Directors makes a good faith determination that such Proposed Action
is not proposed by or on behalf of such Interested Stockholder, Affiliate,
Associate or person, based on information known to them after reasonable
inquiry.
SEVENTH: The Board of Directors of the Corporation, when evaluating any
offer of any party to (a) make a tender or exchange offer for any equity
security of the Corporation, (b) merge or consolidate the Corporation with
another entity, or (c) purchase or otherwise acquire all or substantially all
of the properties and assets of the Corporation, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to (i) all relevant
factors, including without limitation the financial and managerial resources
and future prospects of the other entity; the social, legal, environmental and
economic effects of the employees, customers, suppliers and other affected
persons, firms, and corporations and on the communities and geographical areas
in which the Corporation and its subsidiaries operate or are located and on any
of the businesses and properties of the Corporation or any of its subsidiaries,
as well as such other factors as the directors deem relevant; and (ii) not only
the consideration being offered in relation to the then current market price
for the Corporation's outstanding shares of capital stock, but also in relation
to the then current value of the Corporation in a freely negotiated transaction
and in relation to the Board of Directors' estimate of the future value of the
Corporation (including the unrealized value of its properties and assets) as an
independent going concern.
In evaluating any such offer, the Board of Directors shall be deemed to be
performing their duly authorized duties and acting in good faith and in the
best interests of the Corporation within the meaning of Section 145 of the
General Corporation Law of Delaware, as it may be amended from time to time.
EIGHTH: A director of the corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended.
Any amendment, modification or repeal of the foregoing sentence shall not
adversely affect any right or protection of a director of the Corporation
hereunder in respect of any act or omission occurring prior to the time of such
amendment, modification or repeal.
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NINTH: The Board of Directors of the Corporation shall have the power and
authority to make, alter, amend or repeal any or all of the By-laws of the
Corporation. In addition, the Bylaws may be adopted, repealed, altered, amended
or rescinded by the affirmative vote of the holders of not less than eighty
percent (80%) of the votes entitled to be cast by the holders of all
outstanding shares of Voting Stock (as defined in Article Sixth hereof), voting
together as a single class.
TENTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the Corporation reserves the right at any
time and from time to time to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, and any other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed herein or
by applicable law, and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomsoever
by and pursuant to this Restated Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article TENTH. Notwithstanding the foregoing and any other provisions of this
Restated Certificate of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may be
specified by law, this Restated Certificate of Incorporation or the By-Laws of
the Corporation), any proposal to amend or repeal, or to adopt any provision of
this Restated Certificate of Incorporation inconsistent with, Article FOURTH,
Section III; Article FIFTH; Article SIXTH, Article SEVENTH and this Article
TENTH, shall require the affirmative vote of the holders of not less than
eighty percent (80%) of the votes entitled to be cast by the holders of all the
then outstanding shares of Voting Stock (as defined in Article SIXTH hereof),
voting together as a single class, excluding Voting Stock beneficially owned by
any Interested Stockholder (as defined in Article SIXTH hereof), provided,
however, that this sentence shall not apply to, and such eighty (80%) vote
shall not be required for, any amendment or repeal of, or the adoption of any
provision recommended by two-thirds (2/3) of the Continuing Directors (as
defined in Article SIXTH hereof).
IN WITNESS WHEREOF, Waterlink, Inc. has caused this Restated Certificate
of Incorporation to be executed by _________________________ its
________________________, this ________ day of ______________, 1997.
WATERLINK, INC.
By:__________________________________
Name:
Office:
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Exhibit 3.2
BY-LAWS
OF
WATERLINK, INC.
AMENDED AND RESTATED AS OF _____ __, 1997
ARTICLE I
STOCKHOLDER MEETINGS
Section 1. Place of Meetings. All meetings of the stockholders of the
Corporation shall be held at such place or places, within or without the State
of Delaware, as may from time to time be fixed by the Board of Directors of the
Corporation (the "Board"), or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Section 2. Annual Meetings. The Annual Meeting of Stockholders shall
be held on such date and at such time as may be fixed by the Board and stated
in the notice thereof, for the purpose of electing directors and for the
transaction of only such other business as is properly brought before the
meeting in accordance with these By-Laws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting
by or at the direction of the Board, or (c) otherwise properly brought before
the meeting by a stockholder. In addition to any other applicable requirements,
for business to be properly brought before the Annual Meeting by a stockholder,
the stockholder must have been given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 50 days nor more than 75 days prior to the meeting;
provided, however, that in the event that less than 65 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the Annual Meeting was mailed or such public disclosure was made,
whichever first occurs. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the Annual Meeting
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of the Corporation which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder in
such business.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be transacted at the Annual Meeting except in accordance with the
procedures set forth in this Section, provided, however, that nothing in this
Section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the Annual Meeting.
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The Chairman of the Annual Meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 3. Special Meeting. Subject to the rights of the holders of
any series of preferred stock of the Corporation (the "Preferred Stock") to
elect additional directors under specified circumstances, special meetings of
the stockholders may be called by the Chairman of the Board or the President,
and shall be called by the President or the Secretary at the request in writing
of a majority of the Board. The business transacted at a special meeting shall
be confined to the purposes specified in the notice thereof. Special meetings
shall be held at such date and at such time as the Board may designate.
Section 4. Notice of Meeting. Written notice of each meeting of
stockholders, stating the place, date and hour of the meeting, and the purpose
or purposes thereof, shall be mailed not less than ten nor more than sixty days
before the date of such meeting to each stockholder entitled to vote thereat.
Section 5. Quorum. Unless otherwise provided by statute, the holders
of shares of stock entitled to cast a majority of votes at a meeting, present
either in person or by proxy, shall constitute a quorum at such meeting. The
Secretary of the Corporation or in his absence as Assistant Secretary or an
appointee of the presiding officer of the meeting, shall act as the Secretary
of the meeting.
Section 6. Voting. Except as otherwise provided by law or the Restated
Certificate of Incorporation, each stockholder entitled to vote at any meeting
shall be entitled to one vote, in person or by written proxy, for each share
held of record on the record date fixed as provided in Section 4 of Article V
of these By-Laws for determining the stockholders entitled to vote at such
meeting. Except as otherwise provided by law, the Restated Certificate of
Incorporation or these By-Laws, the vote of a majority of any quorum shall be
sufficient to elect directors and to pass any resolution within the power of
the holders of all the outstanding shares.
Elections of directors need not be by written ballot; provided,
however, that by resolution duly adopted, a vote by written ballot may be
required.
Section 7. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him 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 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 stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument revoking the proxy or
by delivering a proxy in accordance with applicable law bearing a later date to
the Secretary of the Corporation. In order to be exercised at a meeting of
stockholders,
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proxies shall be delivered to the Secretary of the Corporation or his
representative at or before the time of such meeting.
Section 8. Inspectors. At each meeting of the stockholders the polls
shall be opened and closed; the proxies and ballots shall be received and be
taken in charge, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided
by one or more Inspectors, the majority of whom, if more than one be so
appointed, shall have power to make a decision. Such Inspector(s) shall be
appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting. If any of the Inspector(s) previously
appointed shall fail to attend or refuse or be unable to serve, substitutes
shall be appointed by the presiding officer.
Section 9. Conduct of Meetings. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the chairman of the meeting.
The Board may adopt by resolution such rules and regulations for the conduct of
the meeting of stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the Corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The business and affairs of the
Corporation shall be managed under the direction of the Board. The number of
directors which shall constitute the entire Board shall not be less than six
nor more than twelve and shall be determined from time to time by resolution
adopted by a majority of the entire Board. Each director shall hold office
until the annual meeting for the year in which his term expires, determined in
accordance with the provisions of Article Fifth of the Restated Certificate of
Incorporation and until his successor is elected and qualified, or until his
earlier resignation, removal from office or death.
Section 2. Election and Qualification. Each director shall be elected
in accordance with the provisions of Article Fifth of the Restated Certificate
of Incorporation and the provisions of this Section 2. Nominations of persons
for election to the Board of the Corporation at the
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Annual Meeting of Stockholders may be made at a meeting of stockholders by or
at the direction of the Board of Directors by any nominating committee or
person appointed by the Board or by any stockholder of the Corporation entitled
to vote for the election of directors at the meeting who complies with the
notice procedures set forth in this Article II. Such nominations, other than
those made by or at the direction of the Board, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 50 days nor more
than 75 days prior to the meeting; provided, however, that in the event that
less than 65 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the 15th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made, whichever first occurs. Such stockholder's notice
to the Secretary shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, (i) the name,
age, business address and residence of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the person and
(iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14A under the Securities Exchange Act of 1934 as amended; and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation
may require any proposed 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 director of the Corporation.
No person shall be eligible for election as a director of the
Corporation at the Annual Meeting of Stockholders unless nominated in
accordance with the procedures set forth herein. 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 foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 3. Resignation and Removal. Any director may resign his office
at any time by delivering his resignation in writing to the Corporation, and
the acceptance of such resignation unless required by the terms thereof shall
not be necessary to make such resignation effective. A director may be removed
from office only in accordance with the provisions of Article Fifth of the
Restated Certificate of Incorporation.
Section 4. Meetings. The Board may hold its meetings and have an
office in such place or places within or without the State of Delaware as the
Board by resolution from time to time may determine. The Board may in its
discretion provide for regular or stated meetings of the Board. Notice of
regular or stated meetings need not be given. Special meetings of the Board
shall be held whenever called by direction of the Chairman of the Board, the
President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other
electronic communication or transmission. If
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mailed, such notice shall be deemed adequately delivered when deposited in the
United States mails so addressed, with postage thereon prepaid, at least three
days before such meeting. If by telegram, such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph
Corporation at least twenty-four hours before such meeting. If by facsimile,
telephone or other electronic communication or transmission, such notice shall
be transmitted at least twenty-four hours before such meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Except as otherwise provided by applicable law, at any meeting at
which every director shall be present, even though without notice, any business
may be transacted. No notice of any adjourned meeting need be given.
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
Section 5. Quorum. Except as otherwise expressly required by these
By-Laws or by statute, a majority of the directors then in office (but not less
than one-third of the total number of directors constituting the entire Board)
shall be present at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and the vote of a majority of
the directors present at any such meeting at which quorum is present shall be
necessary for the passage of any resolution or for an act to be the act of the
Board. In the absence of a quorum, a majority of the directors present may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
Section 6. Compensation. Each director (other than a director who is a
salaried officer of the Corporation or of any subsidiary of the Corporation),
in consideration of his serving as such, shall be entitled to receive from the
Corporation such amount per annum and such fees for attendance at meetings of
the Board or of any committee of the Board (a "Committee"), or both, as the
Board shall from time to time determine. The Board may likewise provide that
the Corporation shall reimburse each director or member of a Committee for any
expenses incurred by him on account of his attendance at any such meeting.
Nothing contained in this Section shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Committees. The Board shall elect from the directors an
Executive Committee, an Audit Committee, a Compensation Committee, a Nominating
Committee and any other Committee which the Board may by resolution prescribe.
Any such other Committee shall be comprised of such persons and shall possess
such authority as shall be set forth in such resolution.
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Section 2. Procedure. Each Committee shall fix its own rules of
procedure and shall meet where and as provided by such rules. Unless otherwise
stated in these By-Laws, a majority of a Committee shall constitute a quorum.
In the absence or disqualification of a member of any Committee, the members of
such Committee present at any meeting, and not disqualified from voting,
whether or not they constitute a quorum, may unanimously appoint another member
of the Board to act at the meeting in the place of any such absent or
disqualified member.
Section 3. Reports to the Board. All completed actions by the
Executive, Audit and Compensation Committees shall be reported to the Board at
the next succeeding Board meeting and shall be subject to revision or
alteration by the Board, provided, that no acts or rights of third parties
shall be affected by any such revision or alteration.
Section 4. Executive Committee. The Board shall elect an Executive
Committee comprised of the President and not less than two additional members
of the Board. During the interval between the meetings of the Board, the
Executive Committee shall possess and may exercise all the powers of the Board
in the management and direction of all the business and affairs of the
Corporation (except the matters hereinafter assigned to the Compensation
Committee) including, without limitation, the power and authority to declare
dividends and to authorize the issuance of stock, in such manner as the
Executive Committee shall deem best for the interests of the Corporation in all
cases in which specific directions shall not have been given by the Board.
Section 5. Compensation Committee. The Board shall elect a
Compensation Committee consisting of at least four members of the Board, none
of whom shall be officers or employees of the Corporation or of any subsidiary
Corporation. The Board shall appoint a chairman of such Committee who shall be
one of its members. The Compensation Committee shall have such authority and
duties as the Board by resolution shall prescribe.
Section 6. Audit Committee. The Board shall elect from among its
members an Audit Committee consisting of at least three members. The Board
shall appoint a chairman of said Committee who shall be one of its members. The
Audit Committee shall have such authority and duties as the Board by resolution
shall prescribe. In no event shall a director who is also an officer or
employee of the Corporation or any of its subsidiary companies serve as a
member of such Committee. The President shall have the right to attend (but not
vote at) each meeting of such Committee.
Section 7. Nominating Committee. The Board shall elect from among its
members a Nominating Committee consisting of at least three members. The Board
shall appoint a chairman of said Committee who shall be one of its members. The
Nominating Committee shall have such authority and duties as the Board by
resolution shall prescribe. In no event shall a director who is also an officer
or employee of the Corporation or any of its subsidiary companies serve as a
member of such Committee. The President shall have the right to attend (but not
vote at) each meeting of such Committee.
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ARTICLE IV
OFFICERS
Section 1. General. The corporate officers of the Corporation shall
consist of the following: a Chairman, whom shall be chosen from the Board, a
President, a Treasurer, a Secretary and such other officers as the Board may
from time to time designate. The same person may hold two or more offices, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. All officers chosen by the Board shall each have such powers and
duties as generally pertain to their respective offices, subject to the
specific provisions of this Article IV.
Section 2. Term of Office. The officers of the Corporation shall be
elected by the Board. Each such officer shall hold office until his successor
is elected or appointed and qualified or until his earlier death, resignation
or removal. Any officer may be removed, with or without cause, at any time by
the Board. A vacancy in any office may be filled for the unexpired portion of
the term in the same manner as provided in these By-Laws for election or
appointment to such office.
Section 3. Chairman of the Board. The chairman of the board shall
preside at all meetings of the Board and meetings of the stockholders and shall
have such other powers and duties as may be prescribed by the Board.
Section 4. President. The president shall be the chief executive
officer of the Corporation and shall exercise supervision over the business of
the Corporation and over its several officers, subject, however, to the control
of the Board. In the absence of the chairman of the board, the president shall
preside at meetings of stockholders. The president shall have authority to sign
all certificates for shares and all deeds, mortgages, bonds, agreements, notes,
and other instruments requiring his signature; and shall have all the powers
and duties prescribed by the General Corporation Law of the State of Delaware
and such others as the Board may from time to time assign to him.
Section 5. Vice Presidents. The vice presidents, if any shall be
elected, shall have such powers and duties as may from time to time be assigned
to them by the Board, the chairman of the board or the president. At the
request of the president, or in the case of his absence or disability, a vice
president designated by the president (or in the absence of such designation,
the vice president designated by the Board) shall perform all the duties of the
president and, when so acting, shall have all the powers of the president. The
authority of vice presidents to sign in the name of the Corporation
certificates for shares and deeds, mortgages, bonds, agreements, notes and
other instruments shall be coordinate with like authority of the president.
Section 6. Secretary. The secretary shall keep minutes of all the
proceedings of the stockholders and the Board and shall make proper record of
the same, which shall be attested by him; shall have authority to execute and
deliver certificates as to any of such proceedings and any other records of the
Corporation; shall have authority to sign all certificates for shares and all
deeds, mortgages, bonds, agreements, notes and other instruments to be executed
by the Corpora-
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tion which require his signature; shall give notice of meetings of stockholders
and directors; shall produce on request at each meeting of stockholders a
certified list of stockholders arranged in alphabetical order; shall keep such
books and records as may be required by law or by the Board; and, in general,
shall perform all duties incident to the office of secretary and such other
duties as may from time to time be assigned to him by the Board, the chairman
of the board or the president.
Section 7. Treasurer. The treasurer shall be the chief financial
officer of the Corporation and shall have general supervision of all finances;
he shall have in charge all money, bills, notes, deeds, leases, mortgages and
similar property belonging to the Corporation, and shall do with the same as
may from time to time be required by the board of directors. He shall cause to
be kept adequate and correct accounts of the business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, together with such
other accounts as may be required; and he shall have such other powers and
duties as may from time to time be assigned to him by the Board, the chairman
of the board or the president.
Section 8. Assistant and Subordinate Officers. Each other officer
shall perform such duties as the Board, the chairman of the board or the
president may prescribe. The Board may, from time to time, authorize any
officer to appoint and remove subordinate officers, to prescribe their
authority and duties, and to fix their compensation.
Section 9. Duties of Officers May Be Delegated. In the absence of any
officer of the Corporation, or for any other reason the Board may deem
sufficient, the Board may delegate, for the time being, the powers or duties,
or any of them, of such officers to any other officer or to any director.
Section 10. Compensation. The salaries of corporate officers shall be
fixed by the Compensation Committee provided for in Section 5 of Article III
hereof, except that the fixing of salaries below certain levels, determinable
from time to time by the Compensation Committee, may in the discretion of the
Committee be delegated to the Chief Executive Officer, subject to the approval
of the Board.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Indemnification. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person (an "Indemnitee") who was or is
made or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including appeals (a "proceeding"), by reason of the fact that
he, or a person for whom he is the legal representative, is or was a director
or officer of the Corporation or, while a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, employee or agent of another Corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against
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all liability and loss suffered and expenses (including, but not limited to,
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlements) reasonably paid or incurred by such Indemnitee.
Notwithstanding the preceding sentence, except as otherwise provided in Section
3, the Corporation shall be required to indemnify an Indemnitee in connection
with a proceeding (or part thereof) commenced by such Indemnitee only if the
commencement of such proceeding (or part thereof) by the Indemnitee was
authorized by the Board. The Corporation's obligation, if any, to indemnify or
to advance expenses to any Indemnitee who was or is serving at its request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or nonprofit entity shall be reduced by any amount
such Indemnitee may collect as indemnification or advancement of expenses from
such other corporation, partnership, joint venture, trust, enterprise or
nonprofit enterprise.
Section 2. Advance Payment. The Corporation shall pay the expenses
(including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article V or otherwise.
Section 3. Enforcement. If a claim for indemnification or payment of
expenses under this Article V is not paid in full within thirty days after a
written claim therefor by the Indemnitee has been received by the Corporation,
the Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or payment of expenses under applicable law.
Section 4. Non-exclusivity. The rights conferred on any Indemnitee by
this Article V shall not be exclusive of any other rights which such Indemnitee
may have or hereafter acquire under any statute, provision of the Restated
Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise. This Article V shall not limit the right
of the Corporation, to the extent and in the manner permitted by law, to
indemnify and to advance expenses to persons other than Indemnitees when and as
authorized by appropriate corporate action.
Section 5. Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article V shall not adversely affect any right or
protection hereunder of any Indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
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ARTICLE VI
CAPITAL STOCK
Section 1. Form and Execution. Certificates for shares, certifying the
number of full-paid shares owned, shall be issued to each stockholder in such
form as shall be approved by the board of directors. Such certificates shall be
signed by the chairman of the board of directors or the president or a vice
president and by the secretary or an assistant secretary or the treasurer or an
assistant treasurer; provided, however, that the signatures of any of such
officers and the seal of the Corporation upon such certificates may be
facsimiles, engraved, stamped or printed. If any officer or officers who shall
have signed, or whose facsimile signature shall have been used, printed or
stamped on any certificate or certificates for shares, shall cease to be such
officer or officers, because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates shall nevertheless be as effective in all respects
as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. Transfer of Shares. Transfers of shares shall be made only
upon the books of the Corporation by the holder, in person, or by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
the surrender of the certificate or certificates of such shares, properly
assigned. The Corporation may, if and whenever the Board shall so determine,
maintain one or more offices or agencies, each in charge of an agent designated
by the Board, where the shares of the capital stock of the Corporation shall be
transferred and/or registered. The Board may also make such additional rules
and regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
Corporation.
Section 3. Lost, Stolen or Destroyed Certificates. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (i) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrongfully taken of an affidavit of that fact, specifying whether or not, at
the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (ii) the furnishing to the Corporation of indemnity and other
assurances, if any, satisfactory to the Corporation and to all transfer agents
and registrars of the class of shares represented by the certificate against
any and all losses, damages, costs, expenses or liabilities to which they or
any of them may be subjected by reason of the issue and delivery of such new
certificate or certificates or in respect of the original certificate.
Section 4. Registered Stockholders. A person in whose name shares are
of record on the books of the Corporation shall conclusively be deemed the
unqualified owner and holder thereof for all purposes and to have capacity to
exercise all rights of ownership. Neither the Corporation nor any transfer
agent of the Corporation shall be bound to recognize any equitable interest in
or
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claim to such shares on the part of any other person, whether disclosed upon
such certificate or otherwise, nor shall they be obliged to see to the
execution of any trust or obligation.
ARTICLE VII
MISCELLANEOUS
Section 1. Dividends and Reserves. Dividends upon the capital stock of
the Corporation may be declared as permitted by law by the Board or the
Executive Committee at any regular or special meeting. Before payment of any
dividend or making any distribution of profits, there may be set aside out of
the surplus or net profits of the Corporation such sum or sums as the Board or
the Executive Committee, from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for such other purposes as
the Board or Executive Committee shall think conducive to the interests of the
Corporation, and any reserve so established may be abolished and restored to
the surplus account by like action of the Board or the Executive Committee.
Section 2. Seal. The seal of the Corporation shall bear the corporate
name of the Corporation, the year of its Incorporation and the words "Corporate
Seal, Delaware".
Section 3. Waiver. Whenever any notice whatever is required to be
given by statute or under the provisions of the Restated Certificate of
Incorporation or these By-Laws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board, as the case may be, need be specified in any waiver
of notice of such meeting.
Section 4. Fiscal Year. The fiscal year of the Corporation shall begin
with October first and end with September thirtieth.
Section 5. Contracts. Except as otherwise required by law, the
Restated Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board, the Chairman of the Board, the
President or any Vice President of the Corporation may delegate contractual
powers to others under his jurisdiction, it being understood, however, that any
such delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
Section 6. Proxies. Unless otherwise provided by resolution adopted by
the Board, the Chairman of the Board, the President or any Vice President may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holder of
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<PAGE> 12
stock or other securities in any other corporation or other entity, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation or other
entity, or to consent in writing, in the name of the Corporation as such
holder, to any action by such other corporation or other entity, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal or
otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
Section 7. Amendments. These By-Laws may be made, altered, amended or
repealed, in whole or in part, only in accordance with the provisions of
Article Ninth of the Restated Certificate of Incorporation.
CERTIFICATION
The undersigned hereby certifies that she is the duly elected and
acting _______________ Secretary of Waterlink, Inc., a Delaware corporation,
and the keeper of its corporate records and minutes. The undersigned further
hereby certifies that the above and foregoing is a true and correct copy of the
By-Laws of said Corporation, as in force at the date hereof.
WITNESS the hand of the undersigned and the seal of said Corporation,
this _____ day of ______________________, 1997.
WATERLINK, INC.
-------------------------------
Secretary
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<PAGE> 1
Exhibit 4.1
PRIVILEGED AND CONFIDENTIAL
Waterlink, Inc.
and
[Rights Agent ,]
Rights Agent
Rights Agreement
DATED AS of , 1997
TABLE OF CONTENTS
Section 1. Certain Definitions
Section 2. Appointment of Rights Agent
Section 3. Issue of Right Certificates
Section 4. Form of Right Certificate
Section 5. Countersignature and Registration
Section 6. Transfer, Split-Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificate
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights
Section 8. Cancellation and Destruction of Right Certificates
Section 9. Reservation and Availability of Preferred Shares
Section 10. Preferred Shares Record Date
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number
of Rights
Section 12. Certificate of Adjusted Purchase Price or Number of Shares
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power
Section 14. Fractional Rights and Fractional Shares
Section 15. Rights of Action
Section 16. Right Certificate Holder Not Deemed a Stockholder
Section 17. Concerning the Rights Agent
Section 18. Merger or Consolidation or Change of Name of Rights Agent
Section 19. Duties of Rights Agent
Section 20. Change of Rights Agent
Section 21. Issuance of New Right Certificates
Section 22. Redemption and Termination
Section 23. Exchange
Section 24. Notice of Certain Events
Section 25. Notices
Section 26. Supplements and Amendments
Section 27. Determination and Actions by the Board of Directors, etc.
Section 28. Successors
Section 29. Benefits of this Agreement
Section 30. Severability
Section 31. Governing Law
Section 32. Counterparts
<PAGE> 2
Section 33. Descriptive Headings
Signatures
Exhibit A--Certificate of Designation, Preferences and Rights
Exhibit B--Form of Rights Certificate
Exhibit C--Summary of Rights to Purchase Preferred Shares
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<PAGE> 3
RIGHTS AGREEMENT
THIS AGREEMENT, dated as of _______________, 1997 (the "Agreement"),
between Waterlink, Inc., a Delaware corporation (the "Corporation"), and
[Rights Agent] (the "Rights Agent").
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Corporation has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Corporation outstanding at the
close of business on , ________, 1997 (the "Record Date"), each Right
representing the right to purchase one one-hundredth of a Preferred Share (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each Common Share that shall become outstanding between the Record
Date and the earliest of the Distribution Date, the Redemption Date or the
Final Expiration Date (as such terms are hereinafter defined); provided,
however, that Rights may be issued with respect to Common Shares that shall
become outstanding after the Distribution Date and prior to the earlier of the
Redemption Date and the Final Expiration Date in accordance with the provisions
of Section 22 of this Agreement.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of 10% or more of the then outstanding Common Shares (other than as a
result of a Permitted Offer) or was such a Beneficial Owner at any time after
the date hereof, whether or not such person continues to be the Beneficial
Owner of 10% or more of the then outstanding Common Shares. Notwithstanding the
foregoing, (A) the term "Acquiring Person" shall not include (i) the
Corporation, (ii) any Subsidiary of the Corporation, (iii) any employee benefit
plan of the Corporation or of any Subsidiary of the Corporation, (iv) any
Person or entity organized, appointed or established by the Corporation for or
pursuant to the terms of any such plan, (v) any Person, who or which together
with all Affiliates and Associates of such Person becomes the Beneficial Owner
of 10% or more of the then outstanding Common Shares as a result of the
acquisition of Common Shares directly from the Corporation, or (vi) an Exempt
Person, and (B) no Person shall be deemed to be an "Acquiring Person" either
(X) as a result of the acquisition of Common Shares by the Corporation which,
by reducing the number of Common Shares outstanding, increases the proportional
number of shares beneficially owned by such Person together with all Affiliates
and Associates of such Person; except that if (i) a Person would become an
Acquiring Person (but for the operation of this subclause X) as a result of the
acquisition
<PAGE> 4
of Common Shares by the Corporation, and (ii) after such share acquisition by
the Corporation, such Person, or an Affiliate or Associate of such Person,
becomes the Beneficial Owner of any additional Common Shares, then such Person
shall be deemed an Acquiring Person, or (Y) if (i) within 8 days after such
Person would otherwise have become an Acquiring Person (but for the operation
of this subclause Y), such Person notifies the Board of Directors that such
Person did so inadvertently and (ii) within 2 days after such notification,
such Person is the Beneficial Owner of less than 10% of the outstanding Common
Shares.
The phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Corporation, shall mean the number of
such securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
(b) "Act" shall mean the Securities Act of 1933, as amended and as in
effect on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing), or upon the exercise
of conversion rights, exchange rights, rights (other than the Rights), warrants
or options, or otherwise; provided, however, that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding (whether or not in writing); provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if the agreement, arrangement or understanding
to vote such security (I) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
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<PAGE> 5
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing) (other than customary agreements with
and between underwriters and selling group members with respect to a bona fide
public offering of securities) relating to the acquisition, holding, voting
(except to the extent contemplated by the proviso to Section l(d)(ii)(B)) or
disposing of any securities of the Corporation.
(e) "Business Day" shall mean any day other than a Saturday, Sunday or
U.S. federal holiday.
(f) "Close of Business" on any given date shall mean 5:00 P.M., New
York time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., New York time, on the next succeeding Business
Day.
(g) "Common Shares" when used with reference to the Corporation shall
mean the shares of Common Stock, par value $.001 per share, of the Corporation
or, in the event of a subdivision, combination or consolidation with respect to
such shares of Common Stock, the shares of Common Stock resulting from such
subdivision, combination or consolidation. "Common Shares" when used with
reference to any Person other than the Corporation shall mean the capital stock
(or equity interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons
which. ultimately control such first-mentioned Person.
(h) "Disinterested Director" shall mean any member of the
Corporation's Board of Directors who is not an Acquiring Person or an
Affiliate, Associate, nominee, or representative of an Acquiring Person and who
was a member of the Corporation's Board of Directors prior to the time that the
Acquiring Person became an Acquiring Person or is recommended to succeed a
Disinterested Director by a majority of Disinterested Directors.
(i) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Exempt Person" shall mean any Person who is the Beneficial Owner
of 10% or more of the outstanding Common Shares on the date of this Rights
Agreement, provided, that, if (i) the Exempt Person, together with its
Affiliates and Associates, increases its Beneficial Ownership of the then
outstanding Common Shares by 1% or more of the then outstanding Common Shares;
(ii) there is any change in the Beneficial Ownership or management control of
such Exempt Person, other than a change of Beneficial Ownership of 40% or less
of interests in the Exempt Person, which interests have no management control
or voting rights with respect to the Exempt Person; (iii) such Exempt Person,
or any of the Affiliates or Associates of such Exempt Person, commence or
publicly announce the intention to commence a tender or exchange offer
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<PAGE> 6
the consummation of which would increase the number of outstanding Common
Shares Beneficially Oned by such Exempt Person's, or any of its Affiliates or
Associates; or (iv) the Corporation shall enter into an event which would
constitute a Section 13 Event, but for the fact that the Exempt Person is not
considered to be an Acquiring Person, then in any such case the Exempt Person
shall immediately cease to be an Exempt Person and shall be considered to be an
Acquiring Person for all purposes of this Agreement.
(l) "Final Expiration Date" shall mean ______________,2007.
(m) "Interested Stockholder" shall mean any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or any other Person in which any
such Acquiring Person, Affiliate or Associate has an interest, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.
(n) "Permitted Offer" shall mean a tender or exchange offer which is
for all outstanding Common Shares at a price and on terms determined, prior to
the purchase of shares under such tender or exchange offer, by at least a
majority of the Disinterested Directors, to be adequate (taking into account
all factors that such Directors deem relevant including, without limitation,
prices that could reasonably be achieved if the Corporation or its assets were
sold on an orderly basis designed to realize maximum value) and otherwise in
the best interests of the Corporation and its stockholders (other than the
Person or any Affiliate or Associate thereof on whose basis the offer is being
made) taking into account all factors that such directors may deem relevant.
(o) "Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other entity, and shall
include any successor (by merger or otherwise) of such entity.
(p) "Preferred Shares" shall mean shares of Series 1 Preferred Stock,
with a par value of $.001 per share of the Corporation.
(q) "Redemption Date" shall mean the time at which the Rights are
redeemed as provided in Section 22 hereof.
(r) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
(s) "Section 13 Event" shall mean any event described in clause (x) or
(y) of Section 13(a) hereof.
(t) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Corporation or
an Acquiring Person that an Acquiring Person has become such; provided, that,
if such Person is determined not to
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<PAGE> 7
have become an Acquiring Person pursuant to Section l(a)(Y) hereof, then no
Shares Acquisition Date shall be deemed to have occurred.
(u) "Subsidiary" of any Person shall mean any corporation or other
Person of which a majority of the voting power or equity interest is owned,
directly or indirectly, by such Person, or which is otherwise controlled by
such Person.
(v) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Corporation hereby
appoints the Rights Agent to act as agent for the Corporation and the holders
of the Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of Common Shares) in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable.
Section 3. Issuance of Right Certificates. (a) Until the earlier of
(i) the Shares Acquisition Date or (ii) the Close of Business on the tenth day
(or such later date as may be determined by action of the Disinterested
Directors) after the date any Person (other than the Corporation, any
Subsidiary of the Corporation, any employee benefit plan of the Corporation or
of any Subsidiary of the Corporation or any Person or entity organized,
appointed or established by the Corporation for or pursuant to the terms of any
such plan) commences, or first publicly announces its intention to commence
(which intention to commence remains in effect for five Business Days after
such announcement), a tender or exchange offer the consummation of which would
result in any Person becoming an Acquiring Person (including, in the case of
both (i) and (ii), any such date which is after the date of this Agreement and
prior to the issuance of the Rights), the earlier of such dates being herein
referred to as the "Distribution Date," (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Right Certificates) and not by separate
Right Certificates, and (y) the Rights will be transferable only in connection
with the transfer of the underlying Common Shares (including a transfer to the
Corporation); provided, however, that if a tender offer is abandoned prior to
the occurrence of a Distribution Date, then no Distribution Date shall occur as
a result of such tender offer. As soon as practicable after the Distribution
Date, the Corporation will prepare and execute, the Rights Agent will
countersign, and the Corporation will send or cause to be sent by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Corporation, a Right Certificate, substantially in the form of
Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
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<PAGE> 8
(b) As promptly as practicable following the Record Date, the
Corporation will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Record Date, at the address of such holder shown
on the records of the Corporation. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by the certificates for Common Shares with or without a
copy of the Summary of Rights attached thereto. Until the Distribution Date (or
the earlier of the Redemption Date or the Final Expiration Date), the surrender
for transfer of any certificate for Common Shares outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto, shall
also constitute the transfer of the Rights associated with such Common Shares.
(c) Certificates for Common Shares issued after the Record Date
(including, without limitation, reacquired Common Shares referred to in the
last sentence of this paragraph (c)) but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date, shall be
deemed also to be certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Waterlink,
Inc. and [Rights Agent], dated as of ____________, 1997 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of Waterlink, Inc. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
Waterlink, Inc. will mail to the holder of this certificate a copy of
the Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is, was or
becomes an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and certain related persons, whether
currently held by or on behalf of such Person or by any subsequent
holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Corporation purchases or acquires any Common Shares after
the Record Date but prior to the Distribution Date, any Rights associated with
such Common Shares shall be deemed cancelled and retired so that the
Corporation shall not be entitled to exercise any Rights associated with the
Common Shares which are no longer outstanding.
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<PAGE> 9
Section 4. Form of Right Certificate. (a) The Right Certificates (and
the forms of election to purchase and of assignment to be printed on the reverse
thereof) shall be substantially in the form set forth in Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Corporation may deem appropriate and as
are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed, or to conform to usage. Subject to
the provisions of Section 11 and Section 22 hereof, the Right Certificates shall
entitle the holders thereof to purchase such number of one-hundredths of a
Preferred Share as shall be set forth therein at the price per one one-hundredth
of a Preferred Share set forth therein (the "Purchase Price"), but the amount
and type of securities purchasable upon the exercise of each Right and the
Purchase Price thereof shall be subject to adjustment as provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights which are null and void pursuant to Section
7(e) of this Agreement and any Right Certificate issued pursuant to Section 6
or Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Right Certificate
and the Rights represented hereby are null and void.
Provisions of Section 7(e) of this Rights Agreement shall be operative whether
or not the foregoing legend is contained on any such Right Certificate.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Corporation by its Chairman of the Board,
its Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Corporation's seal or a facsimile thereof, and shall be attested by
the Secretary or an Assistant Secretary of the Corporation, either manually or
by facsimile signature. The Right Certificates shall be countersigned by the
Rights Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Corporation who shall have signed any of the Right
Certificates shall cease to be such officer of the Corporation before
countersignature by the Rights Agent and issuance and delivery by the
Corporation, such Right Certificates may nevertheless be countersigned by the
Rights Agent and issued and delivered by the Corporation with the same force
and effect as though the person who signed such Right Certificates had not
ceased to be such officer of the Corporation.
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Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office or offices designated as the appropriate
place for surrender of such Right Certificate or transfer, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the certificate number and the date of each of the Right
Certificates.
Subject to Section 6 and Section 7(c) hereof, the Corporation and the
Rights Agent may deem and treat the person in whose name the Right Certificate
(or, prior to the Distribution Date, the associated Common Shares certificate)
is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right Certificate
or the associated Common Shares certificate made by anyone other than the
Corporation or the Rights Agent) for all purposes whatsoever, and neither the
Corporation nor the Rights Agent, subject to the last sentence of Section 7(e)
hereof, shall be affected by any notice to the contrary.
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificate.. Subject
to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any
time after the Close of Business on the Distribution Date, and at or prior to
the Close of Business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number
of one one-hundredth of a Preferred Share (or, following a Triggering Event,
other securities, as the case may be) as the Right Certificate or Right
Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the principal office of the Rights Agent designated
for such purpose. Neither the Rights Agent nor the Corporation shall be
obligated to take any action whatsoever with respect to the transfer of any
such surrendered Right Certificate until the registered holder shall have
completed and signed the certificate contained in the form of assignment on the
reverse side of such Right Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Corporation shall reasonably
request. Thereupon the Rights Agent shall, subject to Section 4(b), Section
7(e) and Section 14 hereof, countersign and deliver to the Person entitled
thereto a Right Certificate or Right Certificates, as the case may be, as so
requested. The Corporation may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
Upon receipt by the Corporation and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Right Certificate, and,
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in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Corporation's request, reimbursement to the
Corporation and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Corporation will execute and deliver a new Right
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered holder in lieu of the Right Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price for the total number of
one one-hundredth of a Preferred Share (or other securities, as the case may
be) as to which such surrendered Rights are exercised, at or prior to the
earliest of (i) the close of business on the Final Expiration Date, or (ii) the
Redemption Date.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be $________, shall be
subject to adjustment from time to time as provided in the next sentence and in
Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph
(c) below. Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Corporation shall (i) declare or pay any dividend on the
Common Shares payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then in any such case, each Common Share
outstanding following such subdivision, combination or consolidation shall
continue to have a Right associated therewith and the Purchase Price following
any such event shall be proportionately adjusted to equal the result obtained
by multiplying the Purchase Price immediately prior to such event by a fraction
the numerator of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of Common Shares outstanding immediately following
the occurrence of such event. The adjustment provided for in the preceding
sentence shall be made successively whenever such a dividend is declared or
paid or such a subdivision, combination or consolidation is effected.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment of the Purchase Price for the Preferred Shares
(or other securities, as the case may be) to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 6 hereof by certified check, cashier's
check or money order payable to the order of the Corporation, the Rights
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Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Corporation hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) if the Corporation, in its sole
discretion, shall have elected to deposit the Preferred Shares issuable upon
exercise of the Rights hereunder into a depositary, requisition from the
depositary agent depositary receipts representing such number of Preferred
Shares as are to be purchased (in which case certificates for the Preferred
Shares represented by such receipts shall be deposited by the transfer agent
with the depositary agent) and the Corporation will direct the depositary agent
to comply with such requests, (ii) when appropriate, requisition from the
Corporation the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder, and (iv) when
appropriate, after receipt thereof, deliver such cash to or upon the order of
the registered holder of such Right Certificate. In the event that the
Corporation is obligated to issue other securities (including Common Shares) of
the Corporation pursuant to Section 11(a) hereof, the Corporation will make all
arrangements necessary so that such other securities are available for
distribution by the Rights Agent, if and when appropriate. Neither the Rights
Agent nor the Corporation shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise of
the Rights unless such registered holder shall have provided such evidence of
the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Corporation shall reasonably request.
In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11(a)(ii), the Rights Agent shall return such Right
Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by Section 11(a)(ii) of the
Rights Agreement and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to include
the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Right Certificate
or to his duly authorized assigns, subject to the provisions of Section 14
hereof, or the Rights Agent shall place an appropriate notation on the Right
Certificate with respect to those Rights exercised.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any
Affiliate or Associate thereof) who becomes a transferee
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after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring
Person (or of any Affiliate or Associate thereof) who becomes a transferee
prior to or concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom the Acquiring Person has a
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Disinterested Directors have determined is
part of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Corporation shall use all reasonable efforts to
insure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Corporation or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Corporation
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Right Certificate purchased
or acquired by the Corporation otherwise than upon the exercise thereof. The
Rights Agent shall deliver all cancelled Right Certificates to the Corporation,
or shall, at the written request of the Corporation, destroy such cancelled
Right Certificates, and in such case shall deliver a certificate of destruction
thereof to the Corporation.
Section 9. Reservation and Availability of Preferred Shares. The
Corporation covenants and agrees that at all times prior to the occurrence of a
Section 11(a)(ii) Event it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares, or any authorized and issued
Preferred Shares held in its treasury, the number of Preferred Shares that will
be sufficient to permit the exercise in full of all outstanding Rights and,
after the occurrence of a Section 11(a)(ii) Event, shall, to the extent
reasonably practicable, so reserve and keep available a sufficient number of
Common Shares (and/or other securities) which may be required to permit the
exercise in full of the Rights.
So long as the Preferred Shares (and, after the occurrence of a
Section 11(a)(ii) Event, Common Shares or any other securities) issuable upon
the exercise of the Rights may be listed on any national securities exchange,
the Corporation shall use its best efforts to cause, from and after such time
as the Rights become exercisable, all shares reserved for such issuance to be
listed on such exchange upon official notice of issuance upon such exercise.
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The Corporation covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares (or Common Shares
and/or other securities, as the case may be) delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares or other
securities (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and non-assessable shares or securities.
The Corporation further covenants and agrees that it will pay when due
and payable any and all U.S. federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares (or Common Shares and/or other securities, as the
case may be) upon the exercise of Rights. The Corporation shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depository receipts for the Preferred
Shares (or Common Shares and/or other securities, as the case may be) in a name
other than that of, the registered holder of the Right Certificate evidencing
Rights surrendered for exercise, or to issue or to deliver any certificates or
depositary receipts for Preferred Shares (or Common Shares and/or other
securities, as the case may be) upon the exercise of any Rights, until any such
tax shall have been paid (any such tax being payable by the holder of such
Right Certificate at the time of surrender) or until it has been established to
the Corporation's reasonable satisfaction that no such tax is due.
The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date, a registration statement
under the Act, with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act and the rules and regulations thereunder)
until the date of the expiration of the rights provided by Section 11(a)(ii).
The Corporation will also take such action as may be appropriate under the blue
sky laws of the various states.
Section 10. Preferred Shares Record Date. Each person in whose name
any certificate for Preferred Shares (or Common Shares and/or other securities,
as the case may be) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the Preferred Shares
(or Common Shares and/or other securities, as the case may be) represented
thereby on, and such certificate shall be dated, the date upon which the Right
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided, however,
that, if the date of such surrender and payment is a date upon which the
Preferred Shares (or Common Shares and/or other securities, as the case may be)
transfer books of the Corporation are closed, such person shall be deemed to
have become the record holder of such shares on, and such certificate shall be
dated, the next
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succeeding Business Day on which the Preferred Shares (or Common Shares and/or
other securities, as the case may be) transfer books of the Corporation are
open.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a) and Section
7(e) hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable
on such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which if such Right had been exercised
immediately prior to such date and at a time when the Preferred Shares transfer
books of the Corporation were open, such holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Corporation issuable
upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be
made prior to, any adjustment required pursuant to Section 11(a)(ii).
(ii) In the event any Person, alone or together with its Affiliates
and Associates, shall become an Acquiring Person, then proper provision shall
be made so that each holder of a Right (except as provided below and in Section
7(e) hereof) shall, for a period of 60 days after the later of the occurrence
of any such event or the effective date of an appropriate registration
statement under the Act pursuant to Section 9 hereof, have a right to receive,
upon exercise thereof at a price equal to the then current Purchase Price, in
accordance with the terms of this Agreement, such number of Common Shares (or,
in the discretion of the Disinterested Directors, one one-hundredth of a
Preferred Share) as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the then number of one one-hundredths of a Preferred
Share for which a Right was exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event, and dividing that product by (y) 50%
of the then current per share market price of the Corporation's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of such first
occurrence (such number of shares being referred to as the "Adjustment
Shares"); provided, however, that if the transaction that would otherwise give
rise to the foregoing
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<PAGE> 16
adjustment is also subject to the provisions of Section 13 hereof, then only
the provisions of Section 13 hereof shall apply and no adjustment shall be made
pursuant to this Section 11(a)(ii). The exercise of Rights under this Section
11(a)(ii) shall only result in the loss of rights under Section 11(a)(ii) to
the extent so exercised and shall not otherwise affect the rights represented
by the Rights under this Rights Agreement, including the rights represented by
Section 13.
(iii) In the event that there shall not be sufficient treasury shares
or authorized but unissued (and unreserved) Common Shares to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii) and the Rights become so exercisable, notwithstanding any other provision
of this Agreement, to the extent necessary and permitted by applicable law,
each Right shall thereafter represent the right to receive, upon exercise
thereof at the then current Purchase Price, (x) a number of (or fractions of)
Common Shares (up to the maximum number of Common Shares which may permissibly
be issued) and (y) one one-hundredth of a Preferred Share or a number of, or
fractions of other equity securities of the Corporation (or, in the discretion
of the Disinterested Directors, debt) which the Disinterested Directors have
determined to have the same aggregate current market value (determined pursuant
to Section-11(d)(i) and (ii) hereof, to the extent applicable,) as one Common
Share (such number of, or fractions of, Preferred Shares, debt, or other equity
securities or debt of the Corporation being referred to as a "capital stock
equivalent"), equal in the aggregate to the number of Adjustment Shares;
provided, however, if sufficient Common Shares and/or capital stock equivalents
are unavailable, then the Corporation shall, to the extent permitted by
applicable law, take all such action as may be necessary to authorize
additional Common Shares or capital stock equivalents for issuance upon
exercise of the Rights, including the calling of a meeting of stockholders; and
provided, further, that if the Corporation is unable to cause sufficient Common
Shares and/or capital stock equivalents to be available for issuance upon
exercise in full of the Rights, then each Right shall thereafter represent the
right to receive the Adjusted Number of Shares upon exercise at the Adjusted
Purchase Price (as such terms are hereinafter defined). As used herein, the
term "Adjusted Number of Shares" shall be equal to that number of (or fractions
of) Common Shares (and/or capital stock equivalents) equal to the product of
(x) the number of Adjustment Shares and (y) a fraction, the numerator of which
is the number of Common Shares (and/or capital stock equivalents) available for
issuance upon exercise of the Rights and the denominator of which is the
aggregate number of Adjustment Shares otherwise issuable upon exercise in full
of all Rights (assuming there were a sufficient number of Common Shares
available) (such fraction being referred to as the "Proration Factor"). The
"Adjusted Purchase Price" shall mean the product of the Purchase Price and the
Proration Factor. The Disinterested Directors may, but shall not be required
to, establish procedures to allocate the right to receive Common Shares and
capital stock equivalents upon exercise of the Rights among holders of Rights.
(b) If the Corporation shall fix a record date for the issuance of
rights (other than the Rights), options or warrants to all holders of Preferred
Shares entitling them (for a period expiring within 45 calendar days after such
record date) to subscribe for or
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<PAGE> 17
purchase Preferred Shares (or shares having the same rights, privileges and
preferences as the Preferred Shares ("equivalent preferred shares") or
securities convertible into Preferred Shares or equivalent preferred shares at
a price per Preferred Share or equivalent preferred share (or having a
conversion price per share, if a security convertible into Preferred Shares or
equivalent preferred shares) less than the then current per share market price
of the Preferred Shares (as determined pursuant to Section 11(d) hereof) on
such record date, the Purchase Price shall be adjusted by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Preferred Shares outstanding on
such record date plus the number of Preferred Shares which the aggregate
offering price of the total number of Preferred Shares and/or equivalent
preferred shares so to be offered (and/or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
current per share market price, and the denominator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares and/or equivalent preferred shares to be offered
for subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be determined in good faith by the
Disinterested Directors, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent. Preferred
Shares owned by or held for the account of the Corporation shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) If the Corporation shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price shall
be adjusted by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the then
current per share market price (as determined pursuant to Section 11(d) hereof)
of the Preferred Shares on such record date, less the fair market value (as
determined in good faith by the Disinterested Directors, whose determination
shall be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to the Preferred Shares and the denominator of which shall be such
current per share market price of the Preferred Shares. Such adjustments shall
be made successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
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(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of thirty (30) Trading Days after the ex-dividend date
for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Disinterested Directors. If on any such date no
such market maker is making market in the Security, the fair value of the
Security on such date as determined in good faith by the Disinterested Directors
shall be used and shall be binding on the Rights Agent. The term "Trading Day"
shall mean a day on which the principal national securities exchange on which
the Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) If the Preferred Shares are not publicly traded, the "current per
share market price" of a Preferred Share shall be conclusively deemed to be the
current per share market price of the Common Shares as determined pursuant to
Section 11(d)(i) multiplied by one hundred.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-hundredth of a Preferred
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Share or one ten-thousandth of any other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three (3) years from the date of the transaction which mandates such adjustment
or (ii) the Final Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Corporation other
than Preferred Shares, thereafter the number of other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Shares contained in Section 11(a) through (c),
inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 with respect to
the Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) The Corporation may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of Preferred Shares purchasable upon the exercise of a Right. Each
of the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-hundredths of a Preferred Share for which
a Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment shall become that number of Rights (calculated
to the nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the Purchase
Price in effect immediately after adjustment of the Purchase Price. The
Corporation shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment, and, if known
at the time, the amount of the adjustment to be made. This record date may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least ten (10) days later
than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(h), the Corporation shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Corporation, shall cause to be distributed to such holders of
record in substitution and replacement for the Right Certificates held by such
holders prior to the date of adjustment, and upon surrender thereof, if required
by the Corporation, new Right Certificates evidencing all the Rights to which
such holders shall be entitled after such adjustment. Right Certificates so to
be distributed shall be issued, executed and countersigned in the manner
provided for herein and shall be registered in the names of
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the holders of record of Right Certificates on the record date specified in the
public announcement.
(i) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-hundredths of a Preferred Share which were expressed in the initial Right
Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment reducing
the Purchase Price below the par value, if any, of the number of one
one-hundredths of a Preferred Share, Common Shares or other securities issuable
upon exercise of the Rights, the Corporation shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue such number of fully paid and
non-assessable one one-hundredths of a Preferred Share, Common Shares or other
securities at such adjusted Purchase Price.
(k) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such record
date the Preferred Shares, Common Shares or other securities of the
Corporation, if any, issuable upon such exercise over and above the Preferred
Shares, Common Shares or other securities of the Corporation, if any, issuable
upon exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Corporation shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that (i) any consolidation or subdivision of the Preferred Shares, (ii)
issuance wholly for cash of Preferred Shares at less than the current market
price, (iii) issuance wholly for cash of Preferred Shares or securities which
by their terms are convertible into or exchangeable for Preferred Shares, (iv)
stock dividends or (v) issuance of rights, options or warrants referred to in
this Section 11, hereafter made by the Corporation to holders of its Preferred
Shares shall not be taxable to such stockholders.
(m) The Corporation shall not, at any time after the Distribution
Date, (x) (i) consolidate with, (ii) merge with or into, or (iii) sell,
mortgage or transfer (or permit any Subsidiary to sell, mortgage or transfer),
in one or more transaction, assets or earning power aggregating more than 50%
of the assets or earning power of the Corporation and its Subsidiaries (taken
as a whole) (y) to any other Person or Persons (other than in each case, the
Corporation and/or any of its Subsidiaries in one or more transactions each of
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which does not violate Section 11(n) hereof), if (x) at the time of or
immediately after such consolidation, merger, sale or transfer there are any
charter or by-law provisions or any rights, warrants or other instruments or
securities outstanding or agreements in effect or other actions taken, which
would materially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the stockholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates. The Corporation shall not
consummate any such consolidation, merger, sale or transfer unless prior
thereto the Corporation and such other Person shall have executed and delivered
to the Rights Agent a supplemental agreement evidencing compliance with this
Section 11(m).
(n) The Corporation shall not at any time after the Distribution Date,
except as permitted by Section 22 or Section 26 hereof, take (or permit any
Subsidiary to take) any action the purpose or effect of which is to materially
diminish or otherwise eliminate the benefits intended to be afforded by the
Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 or 13
hereof, the Corporation shall promptly (a) prepare a certificate setting forth
such adjustment, and a brief statement of the facts resulting in such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
Common Shares and the Preferred Shares a copy of such certificate and (c) mail
a brief summary thereof to each holder of a Right Certificate in accordance
with Section 26 hereof. The Rights Agent shall be fully protected in relying on
any such certificate and on any adjustment therein contained and shall not be
deemed to have knowledge of such adjustment unless and until it shall have
received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. (a) In the event that, on or following the Shares Acquisition
Date, directly or indirectly, (x) the Corporation shall consolidate with, or
merge with and into, any Interested Stockholder, or if in such merger or
consolidation all holders of Common Shares are not treated alike, any other
Person (whether or not the Corporation shall be the continuing or surviving
corporation of such consolidation or merger) (other than a merger or
consolidation which would result in all of the securities generally entitled to
vote in the election of directors ("voting securities") of the Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into securities of the surviving
entity) all of the voting securities of the Corporation or such surviving
entity outstanding immediately after such merger or consolidation and the
holders of such securities not having changed as a result of such merger or
consolidation), or (y) the Corporation shall sell, mortgage or otherwise
transfer (or one or more of its Subsidiaries shall sell, mortgage or otherwise
transfer), in one or more transactions other than in the ordinary course of
business, assets or earning power aggregating more than 50% of the assets or
earning power of the Corporation and its Subsidiaries (taken as a whole) to any
Interested Stockholder(s) or, if in such transaction
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all holders of Common Shares are not treated alike, any other Person (other
than the Corporation or any Subsidiary of the Corporation in one or more
transactions each of which does not violate Section 11(n) hereof), then, and in
each such case (except as provided in Section 13(d) hereof), proper provision
shall be made so that (i) each holder of a Right, except as provided in Section
7(e) hereof, shall thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price, and in lieu of Preferred Shares,
such number of freely tradable Common Shares of the Principal Party (as
hereinafter defined), not subject to any liens, encumbrances, rights of first
refusal or other adverse claims, as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable (without taking into
account any adjustment previously made pursuant to Section 11(a)(ii)) and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such Principal Party (determined pursuant to Section 11(d)
hereof) on the date of consummation of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Corporation
pursuant to this Agreement; (iii) the term "Corporation" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that
the provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares) in connection with the consummation
of any such transaction as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably may be, in
relation to the Common Shares thereafter deliverable upon the exercise of the
Rights.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Corporation are converted in such
merger or consolidation, and if no securities are so issued, the Person that is
the other party to such merger or consolidation (including, if applicable, the
Corporation if it is the surviving corporation); and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions;
provided, however, that in either case described in subclause (i) or (ii)
above, (1) if the Common Shares of such Person are not at such time and have
not been continuously over the preceding twelve (12) month period registered
under Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common
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Shares having the greatest aggregate market value; and (3) in case such Person
is owned, directly or indirectly, by a joint venture formed by two or more
Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal Parties
in each such chain shall bear the obligations set forth in this Section 13 in
the same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(c) The Corporation shall not consummate any Section 13 Event unless
the Principal Party shall have a sufficient number of its authorized Common
Shares which have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and unless
prior thereto the Corporation and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable after the date of any Section 13 Event the
Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Act with
respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after
such filing and (B) remain effective (with a prospectus at all times meeting
the requirements of the Act) until the Final Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial statements
for the Principal Party which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. The rights under this
Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11(a)(ii) and shall survive any exercise thereof.
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if: (i) such transaction is consummated with a
Person or Persons who acquired Common Shares pursuant to a Permitted Offer (or
a wholly owned Subsidiary of any such Person or Persons); (ii) the price per
Common Share offered in such transaction is not less than the price per Common
Share paid to all holders of Common Shares whose shares were purchased pursuant
to such Permitted Offer; and (iii) the form of consideration offered in such
transaction is the same as the form of consideration paid pursuant to such
Permitted
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Offer. Upon consummation of any such transaction contemplated by this Section
13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares. (a) The
Corporation shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a
whole Right. For the purposes of this Section 14(a), the current market value
of a whole Right shall be the closing price of the Rights (as determined
pursuant to the provisions set forth in Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable.
(b) The Corporation shall not be required to issue fractions of
Preferred Shares (other than fractions which are one one-hundredth or integral
multiples of one one-hundredth of a Preferred Share) upon exercise of the
Rights or to distribute certificates which evidence fractional Preferred Shares
(other than fractions which are one one-hundredth or integral multiples of one
one-hundredth of a Preferred Share). Fractions of Preferred Shares in integral
multiples of one one-hundredth of a Preferred Share may, at the election of the
Corporation, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Corporation and a depositary selected by it; provided
that such agreement shall provide that the holders of such depositary receipts
shall have the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not one one-hundredth
or integral multiples of one one-hundredth of a Preferred Share, the
Corporation shall pay to the registered holders of Right Certificates at the
time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share,
determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of a Section 11(a)(ii) Event, the
Corporation shall not be required to issue fractions of shares or units of such
Common Shares, capital stock equivalents or other securities upon exercise of
the Rights or to distribute certificates which evidence fractions of such
Common Shares, capital stock equivalents or other securities. In lieu of
fractional shares or units of such Common Shares, capital stock equivalents or
other securities, the Corporation may pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of a share or
unit of such Common Shares, capital stock equivalents or other securities. For
purposes of this Section 14(c), the current market value shall be determined in
the manner set forth in Section 1l(d) hereof for the Trading Day immediately
prior to the date of such exercise and, if such capital stock equivalent is not
traded, each such capital stock equivalent shall have the value of one
one-hundredth of a Preferred Share.
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(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional share upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Corporation to enforce, or otherwise act in respect of,
his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it
is specifically acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Agreement and will be entitled to
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of the obligations of any Person subject to,
this Agreement.
Notwithstanding anything in this Agreement to the contrary, neither
the Corporation nor the Rights Agent shall have any liability to any holder of
a Right or a beneficial interest in a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by reason of
any preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation; provided,
however, the Corporation must use its best efforts to have any such order.
decree or ruling lifted or otherwise overturned as soon as possible.
Section 16. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or
any other securities of the Corporation which may at any time be issuable on
the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of
any Right Certificate, as such, any of the rights of a stockholder of the
Corporation or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 24 hereof), or to
receive dividends or other distributions or to exercise any preemptive or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
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Section 17. Concerning the Rights Agent. The Corporation agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Corporation also agrees to indemnify the Rights
Agent for, and to hold it harmless against, any loss, liability, or expense,
incurred without negligence, bad faith or willful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability arising therefrom. The
indemnity provided for herein shall survive the expiration of the Rights and
the termination of this Agreement.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of, any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for Common Shares or for other securities of the
Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
Section 18. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may
be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or all or substantially all of the corporate trust business of the
Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 20 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of a predecessor Rights
Agent and deliver such Right Certificates so countersigned: and in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in
the Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates
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either in its prior name or in its changed name; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
Section 19. Duties of Rights Agent. The Rights Agent undertakes only
those duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any Security) be proved or
established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Treasurer
or the Secretary of the Corporation and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Corporation of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall
it be responsible for any change in the exercisability of the Rights (including
the Rights becoming void pursuant to Section 7(e) hereof) or any adjustment
required under the provisions of Section 11 or Section 13 hereof or responsible
for the manner, method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after receipt
of the certificate described in Section
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12 hereof); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares or Common Shares to be issued pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares or Common Shares
will, when issued, be validly authorized and issued, fully paid and
non-assessable.
(f) The Corporation agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Corporation, and to
apply to such officers for advice or instructions in connection with its
duties, and shall not be liable for any action taken or suffered by it in good
faith or lack of action in accordance with instructions of any such officer or
for any delay in acting while waiting for those instructions. Any application
by the Rights Agent for written instructions from the Corporation may, at the
option of the Rights Agent, set forth in writing any action proposed to be
taken or omitted by the Rights Agent under this Rights Agreement and the date
on or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any
such application on or after the date specified in such application (which date
shall not be less than five Business Days after the date any officer of the
Corporation actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instruction in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or
lend money to the Corporation or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Corporation or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Corporation resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
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(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the
Corporation.
Section 20. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Corporation and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Corporation may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares or Preferred Shares by registered or certified mail, and to
holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Corporation shall appoint a successor to the Rights Agent. If the Corporation
shall fail to make such appointment within a period of sixty (60) days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Corporation), then the registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Corporation or by such a court, shall be a
corporation organized and doing business under the laws of the United States
(or of any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of Ohio), in
good standing, having an office in the State of Ohio, which is authorized under
such laws to exercise corporate trust or stock transfer powers and is subject
to supervision or examination by federal or state authority and which has at
the time of its appointment as Rights Agent a combined capital and surplus of
at least $100,000,000. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Corporation shall
file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Shares or Preferred Shares, and mail a notice
thereof in writing to the registered holders of the Right Certificates. Failure
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to give any notice provided for in this Section 20, however, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
Section 21. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Shares following the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date, the Corporation (a) shall with respect to Common Shares so
issued or sold pursuant to the exercise of stock options or under any employee
plan or arrangement, or upon the exercise, conversion or exchange of
securities, notes or debentures issued by the Corporation, and (b) may, in any
other case, if deemed necessary or appropriate by the Board of Directors of the
Corporation, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i)
the Corporation shall not be obligated to issue any such Right Certificates if,
and to the extent that, the Corporation shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences
to the Corporation or the Person to whom such Right Certificate would be
issued, and (ii) no Right Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in lieu of the
issuance thereof.
Section 22. Redemption and Termination.
(a) (i) The Disinterested Directors may, at their option, redeem all
but not less than all the then outstanding Rights at a redemption price of $.01
per Right, as such amount may be appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption
Price"), at any time prior to the earlier of (x) the occurrence of a Section
11(a)(ii) Event, or (y) the Final Expiration Date. The Corporation may, at its
option, pay the Redemption Price either in Common Shares (based on the "current
per share market price," as defined in Section 11(d) hereof, of the Common
Share at the time of redemption) or cash; provided that if the Corporation
elects to pay the Redemption Price in Common Shares, the Corporation shall not
be required to issue any fractional Common Shares and the number of Common
Shares issuable to each holder of Rights shall be rounded down to the next
whole share.
(ii) In addition, the Disinterested Directors may, at their option, at
any time following the occurrence of a Section 11(a)(ii) Event and the
expiration of any period during which the holder of Rights may exercise the
rights under Section 11(a)(ii) but prior to any Section 13 Event, redeem all
but not less than all of the then outstanding Rights at the Redemption Price
(x) in connection with any merger, consolidation or sale
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or other transfer (in one transaction or in a series of related transactions)
of assets or earning power aggregating 50% or more of the earning power of the
Corporation and its subsidiaries (taken as a whole) in which all holders of
Common Shares are treated alike and not involving (other than as a holder of
Common Shares being treated like all other such holders) an Interested
Stockholder or (y) if and for so long as the Acquiring Person is not thereafter
the Beneficial Owner of 10% of the Common Shares, and at the time of redemption
no other Persons are Acquiring Persons.
(b) In the case of a redemption permitted under Section 22(a)(i),
immediately upon the date for redemption set forth (or determined in the manner
specified in) in a resolution of the Disinterested Directors ordering the
redemption of the Rights, evidence of which shall have been filed with the
Rights Agent, and without any further action and without any notice, the right
to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price for each Right so
held. In the case of a redemption permitted only under Section 22(a)(ii),
evidence of which shall have been filed with the Rights Agent, the right to
exercise the Rights will terminate and represent only the right to receive the
Redemption Price upon the later of ten Business Days following the giving of
such notice or the expiration of any period during which the rights may be
exercised under Section 11(a)(ii). The Corporation shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such
redemption. Within ten (l0) days after such date for redemption set forth in a
resolution of the Disinterested Directors ordering the redemption of the
Rights, the Corporation shall mail a notice of redemption to all the holders of
the then outstanding Rights at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Corporation nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 22 and other than in connection with the
purchase of Common Shares prior to the Distribution Date.
(c) The Corporation may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release
announcing the manner of redemption of the Rights in accordance with this
Agreement and (ii) mailing payment of the Redemption Price to the registered
holders of the Rights at their last addresses as they appear on the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the Transfer Agent of the Common Shares, and upon such action, all
outstanding Rights and Right Certificates shall be null and void without any
further action by the Corporation.
Section 23. Exchange. (a) The Disinterested Directors may, at their
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then
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outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 7(e) hereof) for Common
Shares of the Corporation at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Disinterested Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Corporation, any
Subsidiary of the Corporation, any employee benefit plan of the Corporation, or
any such Subsidiary, any entity holding Common Shares for or pursuant to the
terms of any such a plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to subsection (a) of
this Section 23 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter of
a holder of such Rights shall be to receive that number of Common Shares equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Corporation shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice
shall not affect the validity of such exchange. The Corporation shall promptly
mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights
Agent. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number
of Rights which will be exchanged. Any partial exchange shall be effected pro
rata based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 7(e) hereof ) held by each holder of
Rights.
(c) In any exchange pursuant to this Section 23, the Corporation may
substitute Preferred Shares (or equivalent preferred shares, as such term is
defined in Section 11 (b) hereof ) for some or all of the Common Shares
exchangeable for Rights, at the initial rate of one one-hundredth of a
Preferred Share (or equivalent preferred share) for each Common Share, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Shares pursuant to the terms thereof, so that the fraction of a
Preferred Share delivered in lieu of each Common Share shall have the same
voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this Section
23, the Corporation shall take all such action as may be necessary to authorize
additional Common Shares or Preferred Shares for issuance upon exchange of the
Rights.
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<PAGE> 33
Section 24. Notice of Certain Events. (a) In case the Corporation
shall propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other distribution to the
holders of its Preferred Shares (other than a regularly quarterly cash
dividend), (ii) to offer to the holders of its Preferred Shares rights or
warrants to subscribe for or to purchase any additional Preferred Shares or
shares of stock of any class or any other securities, rights or options, (iii)
to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale, mortgage or other transfer (or to permit one or more of its
Subsidiaries to effect any sale, mortgage or other transfer) in one or more
transactions, of 50% or more of the assets or earning power of the Corporation
and its Subsidiaries (taken as a whole) to any other Person or Persons (other
than, in each case, the Corporation and/or any of its Subsidiaries in one or
more transactions each of which does not violate Section 11(m) hereof), or (v)
to effect the liquidation, dissolution or winding up of the Corporation, then,
in each such case, the Corporation shall give to each holder of a Right
Certificate, in accordance with Section 25 hereof, a notice of such proposed
action and file a certificate with the Rights Agent to that effect, which
notice and certificate shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Preferred Shares, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the Preferred Shares for purposes of such action, and in
the case of any such other action, at least twenty (20) days prior to the date
of the taking of such proposed action or the date of participation therein by
the holders of the Preferred Shares, whichever shall be the earlier.
(b) In case of a Section 11(a)(ii) Event, then (i) the Corporation
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 25 hereof, a notice of the occurrence
of such event, which notice shall describe such event and the consequences of
such event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph (a) to Preferred Shares shall be deemed
thereafter to refer also to Common Shares and/or. if appropriate, other
securities of the Corporation.
Section 25. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Corporation shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Rights Agent) as follows:
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<PAGE> 34
Waterlink, Inc.
4100 Holiday Street, N.W. - Suite 201
Canton, OH 44718
Attention: ______________________
Subject to the provisions of Section 20 hereof, any notice or demand authorized
by this Agreement to be given or made by the Corporation or by the holder of
any Right Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Corporation) as follows:
[Rights Agent]
-------------------------------
-------------------------------
Attention:__________
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Shares shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as
shown on the registry books of the Corporation.
Section 26. Supplements and Amendments. Prior to the Distribution
Date, the Corporation and the Rights Agent shall, if the Corporation so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing Common Shares. From and
after the Distribution Date, the Corporation and the Rights Agent shall, if the
Corporation so directs, supplement or amend this Agreement without the approval
of any holders of Right Certificates in order (i) to cure any ambiguity, (ii)
to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, (iii) to shorten or lengthen
any time period hereunder or (iv) to change or supplement the provisions
hereunder in any manner which the Corporation may deem necessary or desirable
and which shall not adversely affect the interests of the holders of Right
Certificates (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); provided, however, that this Agreement may not be
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
(A) a time period relating to when the Rights may be redeemed at such time as
the Rights are not then redeemable, or (B) any other time period unless such
lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of
a certificate from an appropriate officer of the Corporation which states that
the proposed supplement or amendment is in compliance with the terms of this
Section 26, the Rights Agent shall execute such supplement or amendment,
provided that such supplement or amendment does not adversely affect the rights
or obligations of the Rights Agent under Section 17 or Section 19 of this
Agreement. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Shares.
32
<PAGE> 35
Section 27. Determination and Actions by the Board of Directors, etc.
The Disinterested Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Corporation, or as may be necessary or advisable
in the administration of this Agreement, including, without limitation, the
right and power to (i) interpret the provisions of this Agreement, and (ii)
make all determinations deemed necessary or advisable for the administration of
this Agreement (including, without limitation, a determination to redeem or not
redeem the Rights or to amend the Agreement and whether any proposed amendment
adversely affects the interests of the holders of Right Certificates). For all
purposes of this Agreement, any calculation of the number of Common Shares or
other securities outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares or any
other securities of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act as in effect on the date of this
Agreement. All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Disinterested Directors in good faith,
shall (x) be final, conclusive and binding on the Corporation, the Rights
Agent, the holders of the Right Certificates and all other parties, and (y) not
subject the Board or the Disinterested Directors to any liability to the
holders of the Right Certificates.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Corporation or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Corporation, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Corporation, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance
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<PAGE> 36
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the date and year first above written.
WATERLINK, INC.
Attest:
By________________________________ By________________________________
Name: Name:
Title: Title:
Attest: [Rights Agent]
By________________________________ By________________________________
Name: Name:
Title: Title:
34
<PAGE> 37
PREFERRED
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES 1 PREFERRED STOCK
of
WATERLINK, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Waterlink, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Fourth Amended and Restated Certificate of Incorporation of the said
Corporation, the said Board of Directors on __________, 1997, adopted the
following resolution creating a series of Preferred Stock designated as Series
1 Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Fourth Amended and
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation is hereby created and that the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series 1 Preferred Stock" (the "Series 1 Preferred Stock"), and
the number of shares constituting such series shall be 134,600; provided,
however, that, if more than a total of 134,600 shares of Series 1 Preferred
Stock shall be issuable upon the exercise of Rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of ___________, 1997, between the
Corporation and [Rights Agent], as Rights Agent (as amended from time to time)
(the "Rights Agreement"), the Board of Directors of the Corporation, pursuant
to Section 151 of the General Corporation Law of the State of Delaware, shall
direct by resolution or resolutions that a certificate be properly executed,
acknowledged and filed providing for the total number of shares of Series 1
Preferred Stock authorized to be issued to be increased (to the extent that the
Certificate of Incorporation then permits) to the largest number of whole
shares (rounded up to the nearest whole number) issuable upon exercise of the
Rights.
<PAGE> 38
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series 1 Preferred Stock with respect to dividends, the holders of shares of
Series 1 Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of assets legally available for the purpose,
quarterly dividends payable in cash on the fifteenth business day of January,
April, July and October in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series 1 Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock") or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series 1 Preferred Stock.
(B) The Corporation shall declare a dividend or distribution on the Series
1 Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Series 1 Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series 1 Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series 1 Preferred Stock,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the date
of issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series 1 Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series 1
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series 1 Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than _ days
prior to the date fixed for the payment thereof.
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<PAGE> 39
Section 3. Voting Rights The holders of shares of Series 1 Preferred Stock
shall have the following voting rights:
(A) Except as provided in paragraph C of this Section 3 and subject to the
provision for adjustment hereinafter set forth, each share of Series 1
Preferred Stock shall entitle the holder thereof to 100 votes on all matters
submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series 1 Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of stockholders
of the Corporation.
(C) (i) If, on the date used to determine stockholders of record for any
meeting of stockholders for the election of directors, a default in preference
dividends (as defined in subparagraph (v) below) on the Series 1 Preferred
Stock shall exist, the holders of the Series 1 Preferred Stock shall have the
right, voting as a class as described in subparagraph (ii) below, to elect two
directors (in addition to the directors elected by holders of Common Stock or
any other class or series of Preferred Stock of the Corporation). Such right
may be exercised until there is no longer a default in preference dividends (a)
at any meeting of stockholders for the election of directors or (b) at a
meeting of the holders of shares of the Series 1 Preferred Stock, called for
such purpose. Upon the occurrence of a default in preference dividends on the
Series 1 Preferred Shares, the Chief Executive Officer or the Secretary shall
call a special meeting of the holders of the Series 1 Preferred Shares for the
purpose of the exercise of the voting rights described in this Section 3(C),
unless the next annual meeting of stockholders for the election of directors is
scheduled to be held within sixty (60) days of the date on which the default in
preference dividends occurred.
(ii) The right of the holders of Series 1 Preferred Stock to elect two
directors, as described above, shall be exercised as a class independently of
any rights of holders of any other series of Preferred Stock upon which voting
rights to elect such directors have been conferred and are then exercisable.
(iii) Each director elected by the holders of shares of Series 1 Preferred
Stock shall be referred to herein as a "Series 1 Preferred Director." A Series
1 Preferred Director so elected shall continue to serve as such director for a
term of one year, except that upon any termination of the right of all of such
holders to vote as a class for Series 1 Preferred Directors, the term of office
of such directors shall terminate. Any Series 1 Preferred Director may be
removed by, and shall not be removed except by, the vote of the holders of
record of a majority of the outstanding shares of Series 1 Preferred Stock then
entitled to vote for the election of directors, present (in person or by proxy)
and voting together as a single class (a) at a meeting of the stockholders, or
(b) at a meeting of the holders of shares of such Series 1 Preferred Stock,
called for the purpose in accordance with the By-laws of the Corporation, or
(c) by written consent signed by the holders of a majority of the then
outstanding shares of Series 1 Preferred Stock then entitled to vote for the
election of directors, taken together as a single class.
(iv) So long as a default in any preference dividends on the Series 1
Preferred Stock shall exist or the holders of any other series of Series 1
Preferred Stock shall be entitled to elect Series
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<PAGE> 40
1 Preferred Directors, (a) any vacancy in the office of a Series 1 Preferred
Director may be filled (except as provided in the following clause (b)) by an
instrument in writing signed by the remaining Series 1 Preferred Director and
filed with the Corporation and (b) in the case of the removal of any Series 1
Preferred Director, the vacancy may be filled by the vote or written consent of
the holders of a majority of the outstanding shares of Series 1 Preferred Stock
then entitled to vote for the election of directors, present (in person or by
proxy) and voting together as a single class, at such time as the removal shall
be effected. Each director appointed as aforesaid by the remaining Series 1
Preferred Director shall be deemed, for all purposes hereof, to be a Series 1
Preferred Director. Whenever no default in preference dividends on the Series _
Preferred Stock shall exist, then the number of directors constituting the
Board of Directors of the Corporation shall be reduced by two.
(v) For purposes hereof, a "default in preference dividends" on the Series
1 Preferred Stock shall be deemed to have occurred whenever the amount of
cumulative and unpaid dividends on the Series 1 Preferred Stock shall be
equivalent to six full quarterly dividends or more (whether or not
consecutive), and, having so occurred, such default shall be deemed to exist
thereafter until, but only until, all cumulative dividends on all shares of the
Series 1 Preferred Stock then outstanding shall have been paid through the last
Quarterly Dividend Payment Date or until, but only until, non-cumulative
dividends have been paid regularly for at least one year.
(E) Except as set forth herein (or as otherwise required by applicable
law), holders of Series 1 Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with the holders of the Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series 1 Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series 1 Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series 1 Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series 1 Preferred Stock,
except dividends paid ratably on the Series 1 Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration (except as
provided in (iv) below) shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series 1
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for shares of
4
<PAGE> 41
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series 1 Preferred Stock;
(iv) redeem or purchase or otherwise acquire for consideration any shares
of Series 1 Preferred Stock, or any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the Series
1 Preferred Stock, except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series 1 Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, in any other Certificate of Amendment creating a
series of Preferred Stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Subject to the prior and superior rights of holders of any shares of
any series of Preferred Stock ranking prior and superior to the shares of
Series 1 Preferred Stock with respect to rights upon liquidation, dissolution
or winding up (voluntary or otherwise), no distribution shall be made (x) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series 1 Preferred Stock unless,
prior thereto, the holders of shares of Series 1 Preferred Stock shall have
received an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (1) $100 per share, or (2) an aggregate amount per
share equal to 100 times the aggregate amount to be distributed per share to
the holders of Common Stock, or (y) to the holders of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
the Series 1 Preferred Stock, except distributions made ratably on the Series 1
Preferred Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up (the "Series 1 Liquidation Preference").
Following the payment of the full amount of the Series 1 Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Series 1 Preferred Stock.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series 1 Liquidation Preference and the
liquidation preferences of all other series of
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<PAGE> 42
preferred stock, if any, which rank on a parity with the Series 1 Preferred
Stock, then such remaining assets shall be distributed ratably to the holders
of Series 1 Preferred Stock and the holders of such parity shares in proportion
to their respective liquidation preferences. In the event, however, that there
are not sufficient assets available to permit payment in full of the Capital
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series 1 Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock.
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
Section 8. No Redemption. The shares of Series 1 Preferred Stock shall not
be redeemable.
Section 9. Ranking. The Series 1 Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series 1 Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares of Series 1 Preferred
Stock, voting separately as a class.
IN WITNESS WHEREOF, this Certificate is executed on behalf of the
Corporation by its Chairman of the Board and attested by its Secretary this _
day of ______________, 1997.
WATERLINK, INC.
-----------------------------------
Attest:
- -----------------------------------
Kathleen S. Donatini, Secretary
6
<PAGE> 43
EXHIBIT B
FORM OF RIGHT CERTIFICATE
CERTIFICATE
NO. R- _____ RIGHTS
NOT EXERCISABLE AFTER _________, ___________ OR EARLIER IF REDEEMED BY THE
CORPORATION. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. THE RIGHTS REPRESENTED BY THIS
CERTIFICATE WERE ISSUED TO A PERSON WHO WAS OR BECOMES AN ACQUIRING PERSON,
THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID UNDER
CERTAIN CIRCUMSTANCES AS SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
WATERLINK, INC.
This certifies that ________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of __________, _______ (the "Rights Agreement "), between
Waterlink, Inc., a Delaware corporation (the "Corporation"), and [Rights Agent]
(the "Rights Agent"), to purchase from the Corporation at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior
to 5:00 P.M., New York time, on _______, 2007, unless the Rights evidenced
hereby shall have been previously redeemed by the Corporation, at the principal
office or offices of the Rights Agent designated for such purpose, or at the
office of its successor as Rights Agent, one one-hundredth of a fully paid
non-assessable share of Series 1 Preferred Stock, without par value (the
"Preferred Shares"), of the Corporation, at a purchase price of $[______] per
one one-hundredth of Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed. The number of Rights evidenced by this Right Certificate (and
the number of one one-hundredths of a Preferred Share which may be purchased
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of ___________, 1997, based on the
Preferred Shares as constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or Affiliate who
becomes a transferee after the Acquiring Person becomes such, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of any
such Acquiring Person, Associate or Affiliate who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such, such Rights shall
become null and void and no holder hereof shall have any right with respect to
such Rights from and after the occurrence of such Section 11(a)(ii) Event.
<PAGE> 44
As provided in the Rights Agreement, the Purchase Price and the number of
one one-hundredth of a Preferred Share or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain
events, including Triggering Events (as such term is defined in the Rights
Agreement).
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Corporation and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices
of the Corporation and the principal office or offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares or other securities as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder
to purchase. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate or
Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Corporation at a redemption price of
$.01 per Right (subject to adjustment as provided in the Rights Agreement)
payable in cash.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are one
one-hundredth or integral multiples of one one-hundredth of a Preferred Share,
which may, at the election of the Corporation, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in the
Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Corporation which may at any time be issuable on
the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Corporation or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or other
distributions or to exercise any preemptive or subscription rights, or
otherwise, until the
2
<PAGE> 45
Right or Rights evidenced by this Right Certificate shall have been exercised
as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Corporation
and its corporate seal. Dated as of __________, 1997.
[SEAL
ATTEST:] WATERLINK, INC.
___________________________________ By:________________________________
Name: Name:
Title: Title:
Countersigned:
[Right Agent]
By:________________________________
Authorized Signatory
Name:
Title:
3
<PAGE> 46
---------------------
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ______________ hereby sells, assigns and transfers
unto___________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________ Attorney, to
transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Dated: ___________,_______
----------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf
of a Person who is or was an Acquiring Person or an Affiliate or Associate
thereof (as such terms are defined in the Right Agreement) and (2) after due
inquiry and to the best knowledge of the undersigned, the undersigned did not
acquire the Rights evidenced by this Right Certificate from any Person who is
or was an Acquiring Person or an Affiliate or Associate thereof (as such terms
are defined in the Rights Agreement).
----------------------------------
Signature
4
<PAGE> 47
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder
if such holder desires to exercise Rights
represented by the Right Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise ____ Rights
represented by this Right Certificate to purchase the Preferred Shares, Common
Shares or other securities issuable upon the exercise of such Rights and
requests that certificates for such Preferred Shares, Common Shares or other
securities be issued in the name of: Please insert social security or other
identifying number _________________________________________________
_____________________________________________________________________________
(Please print name and address)
_____________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social ecurity
or other identifying number_________________________________________________
____________________________________________________________________________
(Please print name and address)
____________________________________________________________________________
Dated: __________,________
----------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being exercised by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement) and (2) after due inquiry and to the best
knowledge of the undersigned, the undersigned did not acquire the
5
<PAGE> 48
Rights evidenced by this Rights Certificate from any Person who is or was an
Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement).
---------------------------------
Signature
- -------------------------------------------------------------------------------
NOTICE
The signature on the foregoing Forms of Assignment and Election and
certificates must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the certification set forth above in the Form of Assignment
or the Form of Election to Purchase, as the case may be, is not completed, the
Corporation and the Rights Agent will deem the Beneficial Owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate
or Associate thereof (as such terms are defined in the Rights Agreement) and
such Assignment or Election to Purchase will not be honored.
6
<PAGE> 49
PREFERRED
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On [__________], 1997, the Board of Directors of Waterlink, Inc. (the
"Corporation") declared a dividend distribution of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock, par value $.001
per share (the "Common Shares"), of the Corporation. The dividend is payable to
the stockholders of record on ___________, 1997 (the "Record Date"), and with
respect to Common Shares issued thereafter until the Distribution Date (as
defined below) and, in certain circumstances, with respect to Common Shares
issued after the Distribution Date. Except as set forth below, each Right, when
it becomes exercisable, entitles the registered holder to purchase from the
Corporation one one-hundredth of a share of Series 1 Preferred Stock, without
par value (the "Preferred Shares"), of the Corporation at a price of $_________
per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Corporation and ________, as
Rights Agent (the "Rights Agent"), dated as of _________, 1997.
Initially, the Rights will attach to all certificates representing Common
Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (i) a person or group of affiliated or associated persons
(excluding certain Exempt Persons, as defined in the Rights Agreement) having
acquired beneficial ownership of 10% or more of the outstanding Common Shares
(except pursuant to a Permitted Offer, as hereinafter defined); or (ii) 10 days
(or such later date as the Board may determine) following the commencement of,
or announcement of an intention to make a tender offer or exchange offer the
consummation of which would result in a person or group becoming an Acquiring
Person (as hereinafter defined) (the earliest of such dates being called the
"Distribution Date"). A person or group whose acquisition of Common Shares
causes a Distribution Date pursuant to clause (i) above is an "Acquiring
Person." The date that a person or group becomes an Acquiring Person is the
"Shares Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new
Common Share certificates issued after the Record Date upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or
a copy of this Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Shares represented by
such certificate. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Shares as of the close of business on
the Distribution Date (and to each initial record holder of certain Common
Shares issued after the Distribution Date), and such separate Right
Certificates alone will evidence the Rights.
<PAGE> 50
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on _____, 2007, unless earlier redeemed by the
Corporation as described below.
In the event that any person becomes an Acquiring Person (except pursuant
to a tender or exchange offer which is for all outstanding Common Shares at a
price and on terms which a majority of certain members of the Board of
Directors determines to be adequate and in the best interests of the
Corporation, its stockholders and other relevant constituencies, other than
such Acquiring Person, its affiliates and associates (a "Permitted Offer")),
each holder of a Right will thereafter have the right (the "Flip-In Right") to
receive upon exercise the number of Common Shares or of one one-hundredths of a
Preferred Share (or, in certain circumstances, other securities of the
Corporation) having a value (immediately prior to such triggering event) equal
to two times the exercise price of the Right. Notwithstanding the foregoing,
following the occurrence of the event described above, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date, (i)
the Corporation is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding Common Shares
immediately prior to the consummation of the transaction are not the holders of
all of the surviving corporation's voting power, or (ii) more than 50% of the
Corporation's assets or earning power is sold or transferred, in either case
with or to an Acquiring Person or any affiliate or associate or any other
person in which such Acquiring Person, affiliate or associate has an interest
or any person acting on behalf of or in concert with such Acquiring Person,
affiliate or associate, or, if in such transaction all holders of Common Shares
are not treated alike, any other person, then each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right (the "Flip-Over Right") to receive, upon exercise, common
shares of the acquiring company having a value equal to two times the exercise
price of the Right. The holder of a Right will continue to have the Flip-Over
Right whether or not such holder exercises or surrenders the Flip-In Right.
The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
2
<PAGE> 51
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 100 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of an amount
equal to accrued and unpaid dividends thereon, plus an amount equal to the
greater of (1) $100 per share, or (2) 100 times all amounts distributed per
share to the holders of the Common Shares. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received per
Common Share. These rights are protected by customary antidilution provisions.
In the event that the amount of accrued and unpaid dividends on the Preferred
Shares is equivalent to six full quarterly dividends or more, the holders of
the Preferred Shares shall have the right, voting as a class, to elect two
directors in addition to the directors elected by the holders of the Common
Shares until all cumulative dividends on the Preferred Shares have been paid
through the last quarterly dividend payment date or until non-cumulative
dividends have been paid regularly for at least one year.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are one one-hundredth or integral multiples of one
one-hundredth of a Preferred Share, which may, at the election of the
Corporation, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred
Shares on the last trading day prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances, the Corporation may redeem the Rights in whole, but not in part,
at a price of $.01 per Right (the "Redemption Price") which redemption shall be
effective upon the action of the Board of Directors. Additionally, following
the Shares Acquisition Date, the Corporation may redeem the then outstanding
Rights in whole, but not in part, at the Redemption Price, provided that such
redemption is in connection with a merger or other business combination
transaction or series of transactions involving the Corporation in which all
holders of Common Shares are treated alike but not involving an Acquiring
Person or its affiliates or associates.
All of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Corporation prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Corporation, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Corporation, stockholders
3
<PAGE> 52
may, depending upon the circumstances, recognize taxable income should the
Rights become exercisable or upon the occurrence of certain events thereafter.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form S-1 dated
_______, 1997. A copy of the Rights Agreement is available free of charge from
the Corporation. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
4
<PAGE> 1
Exhibit 4.2
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made as of March 6, 1997, by and among WATERLINK, INC., a
Delaware corporation (the "Company"), BRANTLEY VENTURE PARTNERS III, L.P., a
Delaware limited partnership ("Brantley Venture"), THEODORE F. SAVASTANO, an
individual ("Savastano"), RIVER CITIES CAPITAL FUND LIMITED PARTNERSHIP, a
Delaware limited partnership ("River Cities"), IPP95, L.P., a Delaware limited
partnership, ("IPP95"), ENVIRONMENTAL OPPORTUNITIES FUND, L.P., a Delaware
limited partnership ("Fund"), ENVIRONMENTAL OPPORTUNITIES FUND (Cayman), L.P., a
Cayman Island exempted limited partnership ("Cayman Fund"), BRANTLEY CAPITAL
CORPORATION ("Brantley Capital") and NATIONAL CITY CAPITAL CORPORATION ("NCC";
Brantley Venture, River Cities, IPP95, Fund, Cayman Fund, Brantley Capital and
NCC are hereinafter collectively referred to as the "Investors").
PRELIMINARY STATEMENTS:
WHEREAS, the Company, Brantley Venture, River Cities, IPP95, Savastano,
Fund, and Cayman Fund are parties to a Registration Rights Agreement dated
August 30, 1995 as amended by an Addendum to Registration Rights Agreement dated
September 15, 1995 as further amended by the First Amendment to Registration
Rights Agreement dated June 27, 1996 (collectively, the "Registration
Agreement");
WHEREAS, Brantley Capital, NCC, River Cities, Fund, Cayman Fund and
IPP95 (the "Purchasers") desire to purchase warrants to purchase Common Shares
of the Company (the "Warrants") pursuant to a Warrant Agreement, dated as of
March 6, 1997, among the Company and the Purchasers (the "Warrant Agreement");
WHEREAS, it is a condition precedent to the Purchasers' obligations to
consummate the purchase under the Warrant Agreement that the parties hereto
execute and deliver this Agreement;
WHEREAS, the parties hereto wish to amend the terms of the Registration
Agreement in connection with the issuance by the Company of the Warrants and to
make Brantley Capital and NCC additional parties to the Registration Agreement;
NOW, THEREFORE, in consideration of the premises and mutual promises of
the parties and as a condition of the issuance of the Warrants by the Company,
the parties hereto agree as follows:
<PAGE> 2
1. Demand Registrations.
--------------------
(a) REQUESTS FOR REGISTRATION. Subject to the terms
and conditions hereof, (i) the holders of at least 30%
(treated as a single class) of the Preferred Securities (as
defined below) and Warrant Shares (as defined below) may
request registration under the Securities Act of 1933, as
amended (the "Securities Act"), of all or part of their
Preferred Securities or Warrant Shares, as the case may be, on
Form S-1 or any similar long-form registration ("Long-Form
Registrations"), and (ii) the holders of at least 30 (treated
as a single class) of the Preferred Securities or Warrant
Shares may request registration under the Securities Act of
all or part of their Preferred Securities or Warrant Shares,
as the case may be, on Form S-2 or S-3 or any similar
short-form registration ("Short-Form Registrations"), if
available, which requests shall specify the approximate number
of Preferred Securities or Warrant Shares requested to be
registered and the anticipated per share price range for such
offering. In the case of any such request, the Company will
give written notice of such requested registration within ten
days of receiving the request therefor to all holders of
Preferred Securities, Warrant Shares, Other Investor Shares
(as defined below) and Savastano Shares (as defined below) and
will include in such registration all Preferred Securities,
Warrant Shares, Other Investor Shares and shares of Common
Stock, $.001 par value, of the Company purchased by Savastano
pursuant to that certain Stock Purchase Agreement dated
December 9, 1994 among Brantley Venture, Savastano and the
Company ("Savastano Shares") with respect to which the Company
has received written requests for inclusion therein within 15
days after the receipt of the Company's notice. All
registrations requested pursuant to this paragraph l(a) are
referred to herein as "Demand Registrations." Notwithstanding
the foregoing provisions of this Section 1, the timing of the
exercise by the holders of Preferred Securities or Warrant
Shares of their right to request any Demand Registration shall
be subject to the approval of the holders of a majority of the
Savastano Shares, which approval shall not be unreasonably
withheld or delayed. For purposes of calculating the 30%
required to request any Demand Registration pursuant to this
Section 1, a holder or group of holders must hold the
equivalent of at least 30% of common stock, $.001 par value,
of the Company, which have been issued or are issuable upon
conversion of all Preferred Securities, upon exercise of
"Conversion Rights" as defined in the Company's Fourth Amended
and Restated Certificate of Incorporation or upon exercise of
the Warrants as set forth in the Warrant Agreement.
(b) CERTAIN EXPENSES OF REGISTRATIONS. (i) The
holders of Preferred Securities and Warrant Shares, as a
group, will be entitled to request three Demand Registrations
which are Long-Form Registrations, and (ii) the holders of
Preferred Securities and Warrant Shares, as a group, will be
entitled to request an unlimited number of Demand
Registrations which are Short-Form Registrations in which,
except as otherwise required by state securities or blue sky
laws, the Company will pay all Registration Expenses
(collectively, "Company-paid Demand Registrations"). In
addition, the holders of Preferred Securities and Warrant
Shares, as a group, will be entitled to request an
2
<PAGE> 3
unlimited number of Demand Registrations which are Long-Form
Registrations in which the holders of the shares to be
registered will pay their shares of the Registration Expenses
as set forth in paragraph 5 hereof; provided, that the
[combined] aggregate offering value of the Preferred
Securities and Warrant Shares requested to be registered in
any Demand Registration must equal at least $3,000,000. A
Demand Registration which is a Long-Form Registration will not
count as one of the permitted Company-paid Demand
Registrations until it has become effective, and neither the
second nor any subsequent Demand Registration which is an
Long-Form Registration will count as one of the permitted
Company-paid Demand Registrations unless the holders of
Preferred Securities and Warrant Shares are able to register
and sell at least 85% of the Preferred Securities and Warrant
Shares requested to be included in such registration;
provided, that in any event the Company will pay all
Registration Expenses in connection with any registration
initiated as a Company-paid Demand Registration whether or not
it has become effective. Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to
use any applicable short form. After the Company has become
subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Company
will use its best efforts to make Short-Form Registrations
available for the sale of Preferred Securities and Warrant
Shares.
(c) PRIORITY ON DEMAND REGISTRATIONS. The Company
will not include in any Demand Registration any securities
which are not Preferred Securities, Warrant Shares, Other
Investor Shares or Savastano Shares, without the prior written
consent of the holders of a combined majority (treated as a
single class) of the Preferred Securities and Warrant Shares
initially requesting such registration. If a Demand
Registration requested by holders of Preferred Securities or
Warrant Shares is an underwritten offering and the managing
underwriters advise the Company in writing that in their
opinion the number of Preferred Securities, Warrant Shares,
Other Investor Shares, Savastano Shares and, if permitted
hereunder, other securities requested to be included in such
offering, exceeds the number of securities which can be sold
in an orderly manner in such offering within a price range
acceptable to the holders of a combined majority of the
Preferred Securities (treated as a single class) and Warrant
Shares, the Company will include in such registration (i)
first, the Preferred Securities and Warrant Shares requested
to be included in such registration, pro rata among the
respective holders thereof on the basis of the amount of
Preferred Securities and Warrant Shares owned by each such
holder, (ii) second, the Other Investor Shares and Savastano
Shares requested to be included by the holders thereof in such
registration, pro rata among the respective holders thereof on
the basis of the amount of shares owned by each such holder
(on a fully diluted basis) and (iii) third, other securities
requested to be included in such registration. Any Persons
other than holders of Preferred Securities, Warrant Shares,
Other Investor Shares and Savastano Shares who participate in
Demand Registrations which are not at the Company's expense
must pay their respective shares of the Registration Expenses
as provided in paragraph 5 hereof.
3
<PAGE> 4
(d) RESTRICTIONS ON REGISTRATIONS. The Company will
not be obligated to effect any Demand Registration within six
months after the effective date of a previous Demand
Registration. The Company may postpone for up to two months
the filing or the effectiveness of a registration statement
for a Demand Registration if the Company and the holders of a
combined majority of the Preferred Securities (treated as a
single class) and the Warrant Shares agree that such Demand
Registration would be substantially disadvantageous to the
Company; provided, that in such event, the holders of
Preferred Securities and Warrant Shares initially requesting
such Demand Registration will be entitled to withdraw such
request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand
Registrations hereunder, and the Company will pay all
Registration Expenses in connection with such withdrawn
registration; provided further, that the Company may exercise
its right to postpone filings only once within any 18-month
period.
(e) SELECTION OF UNDERWRITERS. The Board of Directors
of the Company shall, by majority vote, have the right to
select the investment banker(s) and manager(s) to administer
any Demand Registration, subject to the approval of the
holders of a majority of the Savastano Shares, which approval
shall not be unreasonably withheld or delayed.
2. Piggyback Registrations.
-----------------------
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes
to register any of its securities under the Securities Act
(other than pursuant to a Demand Registration) and the
registration form to be used may be used for the registration
of Preferred Securities, Warrant Shares, Other Investor Shares
or Savastano Shares (a "Piggyback Registration"), the Company
will give prompt written notice (in any event within five
business days after its receipt of notice of any exercise of
demand registration rights other than under this Agreement) to
all holders of Preferred Securities, Warrant Shares, Other
Investor Shares and Savastano Shares of its intention to
effect such a registration, and subject to subparagraphs 2(b)
and 2(c) hereof, will include in such registration all
Preferred Securities, Warrant Shares, Other Investor Shares
and Savastano Shares with respect to which the Company has
received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of
the holders of Preferred Securities, Warrant Shares, Other
Investor Shares and Savastano Shares will be paid by the
Company in all Piggyback Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf
of the Company, and the managing underwriters advise the
Company in writing that in their opinion the number of
securities requested to be included in such registration
exceeds the number which can
4
<PAGE> 5
be sold in an orderly manner in such offering within a price
range acceptable to the Company, the Company will include in
such registration (i) first, the securities the Company
proposes to sell, (ii) second, the Preferred Securities and
Warrant Shares requested to be included in such registration,
pro rata among the holders of such Preferred Securities and
Warrant Shares on the basis of the number of shares owned by
each such holder at the time of the filing of the registration
statement, (iii) third, the Other Investor Shares, the
Savastano Shares and the Holders of Registrable Securities (as
defined in that certain Registration Rights Agreement dated
January 31, 1996 between the Company and Mass Transfer
Systems, Inc.) requested to be included by the holders thereof
in such registration, pro rata among the respective holders
thereof on the basis of the amount of shares owned by each
such holder (on a fully diluted basis) at the time of filing
the registration statement and (iv) fourth, all Holders of
Registrable Shares (as defined in that certain Registration
Rights Agreement dated April 26, 1996 between the Company and
Lawrence A. Schmid and in that certain Registration Rights
Agreement dated September 30, 1996 between the Company and the
Shareholders of Water Equipment Technologies, Inc., a Florida
corporation, listed on Schedule I thereto) in proportion, as
nearly as practicable, to the respective amounts of
Registrable Shares held by such Holders at the time of filing
the registration statement and among holders of other
registration rights that may be granted by the Company in
connection with business acquisitions, mergers, combinations
and the like; and (v) fifth, other securities requested to be
included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a
Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities,
and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price
range acceptable to the holders initially requesting such
registration, the Company will include in such registration
(i) first, the securities requested to be included therein by
the holders requesting such registration and the Preferred
Securities and Warrant Shares requested to be included in such
registration, pro rata among the holders of such securities on
the basis of the number of securities owned by each such
holder, (ii) second, the Other Investor Shares and the
Savastano Shares requested to be included in such registration
by the holders thereof, pro rata among the respective holders
thereof on the basis of the amount of shares owned by each
such holder (on a fully diluted basis) and (iii) third, other
securities requested to be included in such registration.
(e) SELECTION OF UNDERWRITERS. If any Piggyback
Registration is an underwritten offering, the selection of
investment banker(s) and manager(s) for the offering shall be
approved by the majority of the Board of Directors of the
Company.
(f) OTHER REGISTRATIONS. If the Company has
previously filed a registration statement with respect to
Preferred Securities or Warrant Shares pursuant to paragraph 1
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<PAGE> 6
or pursuant to this paragraph 2, and if such previous
registration has not been withdrawn or abandoned, the Company
will not file or cause to be effected any other registration
of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities
under the Securities Act (except on Form S-8, Form S-4, or any
successor forms), whether on its own behalf or at the request
of any holder or holders of such securities, until a period of
at least six months has elapsed from the effective date of
such previous registration.
3. Holdback Agreements.
-------------------
(a) Each holder of Preferred Securities, Warrant
Shares, Other Investor Shares and Savastano Shares agrees not
to effect any public sale or distribution (including sales
pursuant to Rule 144 promulgated pursuant to the Securities
Act) of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such
securities, during the seven days prior to or during the
90-day period beginning on the effective date of any
underwritten Demand Registration or underwritten Piggyback
Registration in which Preferred Securities, Warrant Shares,
Other Investor Shares or Savastano Shares are included (except
for sales of such securities as part of such underwritten
registered offering and as otherwise permitted under Rule
144(k)), unless the underwriters managing the registered
public offering otherwise agree.
(b) The Company agrees (i) not to effect any public
sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration
or pursuant to registrations on Form S-8, Form S-4, or any
successor forms), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause
each holder of its equity securities, or any securities
convertible into or exchangeable or exercisable for its equity
securities, purchased from the Company at any time after the
date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise
agree.
4. REGISTRATION PROCEDURES. Whenever the holders of Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano Shares
have requested that any Preferred Securities, Warrant Shares, Other
Investor Shares or Savastano Shares, as the case may be, be registered
pursuant to this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Preferred Securities,
Warrant Shares, Other Investor Shares or Savastano Shares in accordance
with the intended method of disposition thereof (including the
registration of warrants held by a holder of Preferred Securities
requesting registration as to which the Company has received reasonable
assurances that only Preferred Securities will be distributed to the
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<PAGE> 7
public), and pursuant thereto the Company will as expeditiously as
possible:
(a) Prepare and file with the Securities and Exchange
Commission a registration statement with respect to such
Preferred Securities, Warrant Shares, Other Investor Shares
and Savastano Shares and use its best efforts to cause such
registration statement to become effective and remain
effective until the earlier of (i) the date when all Preferred
Securities, Warrant Shares, Other Investor Shares and
Savastano Shares covered by the registration statement have
been sold, or (ii) 180 days from the effective date of the
registration statement; provided, that before filing a
registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority (treated as a single
class) of the Preferred Securities, Warrant Shares, Other
Investor Shares or Savastano Shares covered by such
registration, as the case may be, copies of all such documents
proposed to be filed including documents that are to be
incorporated by reference into such registration statement,
amendment or supplement, which documents will be subject to
the review of such counsel, and which proposed registration
statement or amendment or supplement thereto shall not be
filed by the Company if any of such holders reasonably objects
to such filing;
(b) Prepare and file with the Securities and Exchange
commission such amendments and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration
statement effective for the period referred to in paragraph
4(a) and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with
the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) Furnish to each holder of Preferred Securities,
Warrant Shares, Other Investor Shares or Savastano Shares, as
the case may be, such number of copies of such registration
statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such
holder may reasonable request in order to facilitate the
disposition of the Preferred Securities, Warrant Shares, Other
Investor Shares or Savastano Shares;
(d) Use its best efforts to register or qualify such
Preferred Securities, Warrant Shares, Other Investor Shares or
Savastano Shares under such other securities or blue sky laws
of such jurisdictions as any holder thereof reasonably
requests and dc any and all other acts and things which may be
reasonably necessary or advisable to enable such holder to
consummate the disposition in such jurisdictions of the
Preferred Securities or Warrant Shares owned by such holder;
provided, however, that the Company shall not be required to
qualify to do business or file a general consent to service of
process in any such jurisdiction unless such qualification or
registration is required to qualify such
7
<PAGE> 8
securities therein;
(e) Notify each holder of such Preferred Securities,
Warrant Shares, Other Investor Shares or Savastano Shares, as
the case may be, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act,
of the happening of any event as a result of which the
prospectus included in such registration statement contains an
untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and,
at the request of any such holder, the Company will prepare a
supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares, as the case may be, such prospectus will not contain
an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) Promptly notify the holders of Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares, as the case may be, and the underwriters, if any, of
the following events and (if requested by any such person)
confirm such notification in writing: (i) the filing of the
prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment
thereto and, with respect to the registration statement or any
post-effective amendment thereto, the declaration of the
effectiveness of such documents, (ii) any requests by the
Securities and Exchange Commission for amendments or
supplements to the registration statement or the prospectus or
for additional information, (iii) the issuance or threat of
issuance by the Securities and Exchange Commission of spending
the effectiveness of the registration any stop order statement
or the initiation of any proceedings for that purpose, and
(iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the
Preferred Securities, Warrant Shares, Other Investor Shares or
Savastano Shares for sale in any jurisdiction or the
initiation or threat of initiation of any proceeding for such
purpose;
(g) Cause all such Preferred Securities, Warrant
Shares, Other Investor Shares and Savastano Shares to be
listed on each securities exchange on which similar securities
issued by the Company are then listed and, if not so listed,
to be listed on the NASD automated quotation system and, if
listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares covered by such registration statement as a NASDAQ
"national market system security" within the meaning of Rule
11Aa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares and, without limiting the generality of the foregoing,
to arrange for at least two market makers to register as such
with respect to such Preferred Securities, Warrant Shares,
Other Investor Shares and Savastano Shares with the NASD;
8
<PAGE> 9
9
<PAGE> 10
(h) Provide a transfer agent and registrar for all
such Preferred Securities, Warrant Shares, Other Investor
Shares or Savastano Shares not later than the effective date
of such registration statement;
(i) Enter into such customary agreements (including,
without limitation, underwriting agreements in customary form)
and take all such other actions as the holders of a majority
(treated as a single class) of the Preferred Securities,
Warrant Shares, Other Investor Shares or Savastano Shares
being sold or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such
Preferred Securities, Warrant Shares, Other Investor Shares or
Savastano Shares or Savastano Shares (including, without
limitation, effecting a stock split or a combination of
shares);
(j) Make available for inspection by any holder of
Preferred Securities, Warrant Shares, or Savastano, any
underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other
agent retained by any such holder or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all
information reasonably requested by any such holder,
underwriter, attorney, accountant or agent in connection with
such registration statement;
(k) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and
Exchange Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months
beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(l) Permit any holder of Preferred Securities,
Warrant Shares, Other Investor Shares or Savastano Shares to
participate in the preparation of such registration or
comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be
included, provided that such material shall be furnished under
such circumstances as shall cause it to be subject to the
indemnification provisions provided pursuant to paragraph 6(b)
hereof;
(m) Make every reasonable effort to prevent the entry
of any order suspending the effectiveness of the registration
statement and, in the event of the issuance of any such stop
order, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of any
security included in such registration statement for sale in
any jurisdiction, the Company will use its best efforts
promptly to obtain the withdrawal of such order;
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<PAGE> 11
(n) Use its best efforts to cause such Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares covered by such registration statement to be registered
with or approved by such other governmental agencies or
authorities as may be necessary to enable the holders thereof
to consummate the disposition of such Preferred Securities,
Warrant Shares, Other Investor Shares or Savastano Shares;
(o) Cooperate with the selling holders of Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares and the underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing
Preferred Securities, Warrant Shares, Other Investor Shares or
Savastano Shares to be sold and not bearing any restrictive
legends, and enable such Preferred Securities, Warrant Shares,
Other Investor Shares, or Savastano Shares to be in such lots
and registered in such names as the underwriters may request
at least two business days prior to any delivery of Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares to the underwriters;
(p) Provide a CUSIP number for all Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares not later than the effective date of the registration
statement; and
(q) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each
closing of an underwritten offering, (i) make such
representations and warranties to the selling holders of such
Preferred Securities, Warrant Shares, Other Investor Shares or
Savastano Shares and the underwriters, if any, with respect to
the Preferred Securities, Warrant Shares, Other Investor
Shares or Savastano Shares and the registration statement as
are customarily made by issuers to underwriters in primary
underwritten offerings, (ii) obtain opinions of counsel to the
Company and updates thereof (which counsel and which opinions
shall be reasonably satisfactory to the underwriters, if any,
and to the holders of a majority of the Preferred Securities
(treated as a single class), Warrant Shares, Other Investor
Shares or Savastano Shares being sold) addressed to each
selling holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be
reasonably requested by such holders and underwriters or their
counsel, (iii) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public
accountants addressed to the selling holders of Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares and the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in
connection with primary underwritten offerings, and (iv)
deliver such documents and certificates as may be reasonably
requested by the holders of a majority of the Preferred
Securities (treated as a single class), Warrant Shares, Other
Investor Shares or Savastano Shares being sold and by the
underwriters, if any, to evidence compliance with clause (i)
above and with any
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<PAGE> 12
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company.
5. Registration Expenses.
---------------------
(a) All expenses incident to the Company's
performance of or compliance with this Agreement, including,
without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws,
printing expenses, messenger and delivery expenses, and fees
arid disbursements of counsel for the Company and all
independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons
retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne as provided in this
Agreement, except that the Company will, in any event, pay its
internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be
registered on each securities exchange on which similar
securities issued by the Company are then listed or on the
NASD automated quotation system.
(b) In connection with each Company-paid Demand
Registration and each Piggyback Registration, the Company will
reimburse the holders of Preferred Securities, Warrant Shares,
Other Investor Shares and Savastano Shares covered by such
registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority (treated as a
single class) of the Preferred Securities and Warrant Shares
initially requesting such registration and approved by the
company, which approval shall not be unreasonably withheld or
delayed.
(c) To the extent Registration Expenses are not
required to be paid by the Company, each holder of securities
included in any registration hereunder will pay those
Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses
not so allocable will be borne by all sellers of securities
included in such registration in proportion to the aggregate
selling price of the securities to be so registered.
6. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent
permitted by law, each holder of Preferred Securities, Warrant
Shares, Other Investor Shares and Savastano Shares and their
respective officers, directors, partners, successors and
assigns, as the case may be, and each Person who controls any
of the foregoing Persons (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement,
prospectus or preliminary prospectus or any amendment
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<PAGE> 13
thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Person
expressly for use therein or by such Person's failure to
deliver a copy of the registration statement or prospectus or
any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of
the same. In connection with an underwritten offering, the
Company will indemnify such underwriters, their officers,
directors and partners, as the case may be, and each Person
who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Preferred
Securities, Warrant Shares, Other Investor Shares and
Savastano Shares.
(b) In connection with any registration statement in
which a holder of Preferred Securities, Warrant Shares, Other
Investor Shares or Savastano Shares is participating, each
such holder will furnish to the Company in writing such
information and affidavits as the Company reasonably requests
for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify
the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement
of material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof
or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to
make the statements therein not misleading, but only to the
extent that such untrue statement or omission is contained in
any information or affidavit so furnished in writing by such
Person; provided that the obligation to indemnify will be
individual to each holder and will be limited to the net
amount of proceeds received by such holder from the sale of
securities by such holder pursuant to such registration
statement.
(c) Any Person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party
of any claim with respect to which it seeks indemnification
and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such
claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, indemnifying party will not
be subject to any liability for any settlement made by the
indemnified party without its consent (but such consent will
not be unreasonably withheld). An indemnifying party who is
not entitled to, or elects not to, assume the defense of a
claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any
other of such indemnified parties with
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<PAGE> 14
respect to such claim.
(d) The indemnification provided for under this
Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of the indemnified
party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
The Company also agrees to make such provisions, as are
reasonably requested by any indemnified party, for
contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless
such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements, and (b)
completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under
the terms of such underwriting arrangements; provided, that no holder
of Preferred Securities or Warrant Shares included in any underwritten
registration shall be required to make any representations or
warranties to the Company or the underwriters other than
representations and warranties regarding such holder and such holder's
intended method of distribution.
8. REPORTS UNDER THE SECURITIES LAWS. With a view to making
available to the holders of Preferred Securities, Warrant Shares, Other
Investor Shares and Savastano Shares the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation
of the Securities and Exchange Commission that may at any time permit
such holder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144, at all
times subsequent to 90 days after the effective date of any
registration statement covering an underwritten public
offering filed under the Securities Act by the Company;
(b) File with the Securities and Exchange Commission
in a timely manner all reports and other documents required of
the Company under the Securities Act and the 1934 Act at any
time after it is subject to such registration requirements and
(c) Furnish to any such holder so long as such holder
owns any of the Preferred Securities, Warrant Shares, Other
Investor Shares or Savastano Shares so long as forthwith upon
request a written statement by the Company that it has
complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of such
registration statement filed by the Company), and of the
Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and
such other reports and documents so filed by the Company as
may be reasonably requested by any such holder
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<PAGE> 15
in availing any such holder of any rule or regulation of the
Securities and Exchange Commission permitting the selling of
any such securities without registration.
9. CERTAIN LIMITATIONS IN CONNECTION WITH FUTURE GRANTS OF
REGISTRATION RIGHTS. From and after the date of this Agreement, the
Company shall not enter into any agreement with any holder or
prospective holder of any securities of the Company providing for the
granting to such holder of registration rights, without the consent of
the holders of at least sixty percent (60%) of the Preferred Securities
and Warrant Shares (treated as a single class) then outstanding;
provided, however, that the Company may grant registration rights
subordinate to the rights of the holders of the Preferred Securities
and Warrant Shares to effectuate any acquisition or merger approved by
the Company's Board of Directors.
10. TRANSFER OF CERTAIN REGISTRATION RIGHTS. Provided that the
Company is given written notice by the holder of Preferred Securities,
Warrant Shares, Other Investor Shares or Savastano Shares, as the case
may be, at the time of such transfer stating the name and address of
the transferee and identifying the securities with respect to which the
rights under this Agreement are being assigned, the rights of such
holders under this Agreement may be transferred in whole or in part at
any time, so long as such transfer of securities is in accordance with
all applicable state and federal securities laws and regulations.
11. DEFINITIONS. "Other Investor Shares" means any equity
securities of the Company purchased by an Investor pursuant to a
Purchase Agreement or held by an Investor, other than Preferred
Securities or Warrant Shares.
"Person" means an individual, a partnership a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Securities" means (i) all common stock, par value $.001 per
share, of the Company issued or issuable upon conversion of the shares of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock issued
to an Investor pursuant to a Purchase Agreement, and (ii) any equity securities
of the Company issued or issuable with respect to the securities referred to in
clause (i) by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Preferred Securities, such securities will
cease to be Preferred Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force). For purposes of
this Agreement, a Person will also be deemed to be a holder of Preferred
Securities whenever such Person has the right to acquire directly or indirectly
such Preferred Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
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"Warrant Shares" means (i) all common stock, par value $.001 per share,
of the Company issued or issuable upon exercise of the Warrants; and (ii) any
equity securities of the Company issued or issuable with respect to the
securities referred to in clause (i) by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Warrant Shares, such
shares will cease to be Warrant Shares when they have been distributed to the
public pursuant to an offering registered under the Securities Act or sold to
the public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force). For purposes of
this Agreement, a person will also be deemed to be a holder of Warrant Shares
whenever such person has the right to acquire directly or indirectly such
Warrant Shares (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
12. Miscellaneous.
-------------
(a) REGISTRATION AGREEMENT SUPERSEDED; NO
INCONSISTENT AGREEMENTS. This Agreement shall supersede and
replace the Registration Agreement. Upon the execution and
delivery of this Agreement by all of the parties hereto, the
Registration Agreement shall be canceled and rendered null and
void and of no further force or effect. The Company will not
hereafter enter into any agreement with respect to its
securities which is inconsistent with or violates the rights
granted to the holders of Preferred Securities or Warrant
Shares in this Agreement.
(b) ADJUSTMENTS AFFECTING PREFERRED SECURITIES. The
Company will not take any action, or permit any change to
occur, with respect to its securities which would materially
and adversely affect the ability of the holders of Preferred
Securities or Warrant Shares to include such Preferred
Securities or Warrant Shares, at the case may be, in a
registration undertaken pursuant to this Agreement or which
would materially and adversely affect the marketability of
such Preferred Securities or Warrant Shares in any such
registration (including, without limitation, effecting a stock
split or a combination of shares).
(c) REMEDIES. Any Person having rights under any
provision of this Agreement will be entitled to enforce such
rights specifically to recover damages caused by reason of any
breach of any provision of this Agreement and to exercise all
other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law
or equity of competent jurisdiction (without posting any bond
or other security) for specific performance and for other
injunctive relief in order to enforce or prevent violation of
the provisions of this Agreement.
(d) AMENDMENTS AND WAIVERS. Except as otherwise
provided herein, the
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provisions of this Agreement may be amended or waived only
upon the prior written consent of the Company and the holders
of a [combined] majority of the Preferred Securities (treated
as a single class, but excluding all Preferred Securities held
by the Company, or, to the extent purchased pursuant to
paragraph 3 of that certain Amended and Restated Shareholders
Agreement among the Company, the Investors and Bruce Cummings,
any Shareholders (as defined in the Amended and Restated
Shareholders Agreement)) and the Warrant Shares; provided,
however, that amendments or waivers of the provisions of this
Agreement which directly relate to the rights of Savastano
require, in addition to the foregoing consents, the prior
written consent of Savastano.
(e) SUCCESSORS AND ASSIGNS. All covenants and
agreements in this Agreement by or on behalf of any of the
parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any
express assignment has been made, the provisions of this
Agreement which are for the benefit of purchasers or holders
of Preferred Securities or Warrant Shares are also for the
benefit of, and enforceable by, any subsequent holder of
Preferred Securities or Warrant Shares, as the case may be.
(f) SEVERABILITY. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, any one of which
need not contain the signatures of more than one party, but
all such counterparts taken together shall constitute one and
the same Agreement.
(h) DESCRIPTIVE HEADINGS; INTERPRETATION. The
descriptive headings of this Agreement are inserted for
convenience only and do not constitute a paragraph of this
Agreement. The use of the word "including" in this Agreement
shall be by way of example rather than by limitation.
(i) GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Ohio.
(j) NOTICES. All notices, demands or other
communications to be given or delivered under or by reason of
the provisions of this Agreement shall be in writing and shall
be delivered personally to the recipient, sent by reputable
express courier service (charges prepaid) or sent by certified
or registered mail, return receipt requested and postage
prepaid and shall be deemed to have been given when so
delivered, sent or deposited in the U.S. Mail. Such notices,
demands and other communications shall be
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<PAGE> 18
sent to the parties hereto and subsequent holders of Preferred
Securities, Warrant Shares, Other Investor Shares or Savastano
Shares, at the addresses of such holders set forth in the
books and records of the Company, or to the attention of such
other person as the recipient party has specified by prior
written notice to the sending party.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first above written.
WATERLINK, INC.
By:
Its:
BRANTLEY VENTURE PARTNERS III, L.P.,
By: Brantley Venture Management III,
L.P., its general partner
By: Pinkas Family Partners, L.P.,
its general partner
By:
--------------------------------------
Robert Pinkas, its general partner
RIVER CITIES CAPITAL FUND LIMITED
PARTNERSHIP
By: River Cities Management Limited
Partnership, general partner
By: Mayson, Inc., general partner
By:
-------------------------------------
Edwin T. Robinson, President
THEODORE F. SAVASTANO, individually
18
<PAGE> 19
ENVIRONMENTAL OPPORTUNITIES
FUND, L.P.
By: Environmental Opportunities
Management Co., LLC
Its: General Partner
By:
Kenneth C. Leung
Its: Manager
ENVIRONMENTAL OPPORTUNITIES
FUND (CAYMAN), L.P.
By: Environmental Opportunities
Management Co., LLC
Its: General Partner
By:
-------------------------------------
Kenneth C. Leung
Its: Manager
BRANTLEY CAPITAL CORPORATION
By:
-------------------------------------
Robert P. Pinkas, Chairman, Chief
Executive Officer and Treasurer
NATIONAL CITY CAPITAL CORPORATION
By:
-------------------------------------
Todd S. McCuaig
IPP95, L.P.
By: WESINVEST, Inc., its general partner
By:
-------------------------------------
Christine Jenkins, Secretary
19
<PAGE> 1
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
This agreement is made as of January 31, 1996, by and between
Waterlink, Inc., a Delaware corporation (the "Company"), and Mass Transfer
Systems, Inc. a Massachusetts corporation (the "Investor").
BACKGROUND INFORMATION
A. Pursuant to the terms of an Asset Purchase Agreement of even date
herewith by and among the Company, Waterlink Acquisition Corp., a Delaware
corporation ("Waterlink), the Investor, and Mark E. Neville and Frederick J.
Siino, shareholders of the Investor (the "Purchase Agreement"), the Investor is
selling to the Company the "Subject Assets" (as defined in the Purchase
Agreement);
B. As part of the purchase price for the Subject Assets, Waterlink has
executed, each in favor of the Investor, a Convertible Subordinated Note in the
aggregate principal amount of Two Million Dollars ($2,000,000) (the "Convertible
Note"), a Subordinated Promissory Note in the aggregate principal amount of One
Million Three Hundred Thousand Dollars ($1,300,000) (the "First Subordinated
Note") and a Subordinated Promissory Note in the aggregate principal amount of
Eight Hundred Thousand Dollars ($800,000) (the "Second Subordinated Note", and,
together with the Convertible Note and the First Subordinated Note, the
"Notes");
C. The Notes are, or under certain circumstances may be, convertible
into shares of common stock, par value $.001 per share of the Company (the
"Common Stock"), as provided in each of the Notes;
D. As a condition of the Purchase Agreement, and in order to induce the
Investor to sell the Subject Assets in consideration, in part, for the Notes,
the Company desires to grant registration rights to the Investor for shares of
Company Common Stock which the Investor will have the right. to acquire upon
conversion of the Notes.
STATEMENT OF AGREEMENT
The parties acknowledge the accuracy of the foregoing Background
Information and hereby agree as follows:
Section 1 DEFINITIONS.
(a) As used herein the following defined terms shall have the
following meanings:
(i) The term "Commission" means the Securities and Exchange
Commission or any other federal agency at the time administering
the Securities Act.
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<PAGE> 2
(ii) The term "Holders" means any registered holder or
holders of shares of Common stock issued upon conversion of the
Notes or upon transfer of the shares after conversion of the Note
and to whom the rights hereunder are granted or may be assigned
pursuant to Section No. 9 of this agreement.
(iii) Unless the context otherwise requires, the terms
"register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act (as defined
below) and the declaration or ordering of the effectiveness of
such registration statement.
(iv) The term "Registrable Shares" means (i) all shares of
Common Stock of the Company that may be version of the Notes;
acquired by the Holders upon con and (ii) any Common stock of the
Company issued as a dividend or other distribution with respect
to, or in exchange or replacement of, such Shares.
(v) The term "Securities Act" means the Securities Act of
1933, as amended, or any similar federal statute, and the rules
and regulations of the Commission.
(vi) The term "Shares" means shares of Common Stock of the
Company.
(b) All other capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement.
Section 2. PIGGYBACK REGISTRATION.
(a) If at any time or from time to time, the Company shall
determine to register any of its securities for its own account in a
registration statement covering the sale of Common Stock to the
general public pursuant to an underwritten public offering (except
with respect to any registration filed on Form S-8, Form S-4 or any
successor forms thereto) the Company shall promptly: (i) give to the
Investor written notice thereof at least thirty (30) days before the
initial filing of such registration (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities
laws); PROVIDED, HOWEVER, in the case of a registration statement on
Form S-3, the Company shall give the Investor written notice of the
proposed filing thereof promptly after a decision to make such filing
has been made and in no event less than ten (10) business days prior
to filing; and (ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws) and
in any underwriting involved therein, all the Registrable Shares
specified in a written request or requests on the same terms and
conditions as the other Shares being offered thereby, made within ten
(10) days after receipt of such written notice from the Company, by
any Holder or Holders, except as set forth in Section No. 2(b) below.
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<PAGE> 3
(b) The right of any Holder to registration pursuant to this
Section No. 2 shall be conditioned upon such Holder's participation
in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting
shall (together with the Company) enter into an underwriting
agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any
other provision of this Section No. 2, if the underwriter determines
that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter may limit the number of
Registrable Shares to be included in the registration and
underwriting. The Company shall so advise all Holders, and the number
of shares that may be included in the registration and underwriting
shall be allocated (i) first, among the securities the Company
proposes to sell; (ii) second, among the Preferred Securities (as
defined in that certain Registration Rights Agreement dated August
30, 1995 by and among the Company, Brantley Venture Partners III,
L.P., Theodore F. Savastano, and River Cities Capital Fund Limited
Partnership and the Addendum to Registration Rights Agreement dated
September 15, 1995 by and among the Company, Brantley Venture
Partners III, L.P., Theodore F. Savastano, River Cities Capital Fund
Limited Partnership and IPP95, L.P. (such Registration Rights
Agreement and Addendum thereto are collectively referred to as the
"First Registration Rights Agreement")) in accordance with the terms
set forth in the First Registration Rights Agreement; (iii) third,
among the Other Investor Shares, the Savastano Shares (each as
defined in the First Registration Rights Agreement) and among all
Holders of Registrable Shares in proportion, as nearly as
practicable, to tile respective amounts of Registrable Shares held by
the Investors, Savastano and such Holders at the time of filing the
registration statement; and (iv) among other securities requested to
be included in such registration. The registration rights of the
Holders pursuant to this agreement are fully subordinated to the
rights of the holders under the First Registration Rights Agreement.
if any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the
Company and the underwriter. In the event of any such withdrawal, the
Company will include, on a proportionate basis (determined in
accordance with the preceding sentence), in any such registration in
lieu thereof any additional Registrable Shares which were requested
to be included by a Holder and which were excluded pursuant to the
above-described underwriter limitation up to the maximum set by such
underwriter.
Section 3. EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration or qualification pursuant to this agreement
including, without limitation, all registration filing and qualification fees,
fees and expenses associated with registration or qualification under state
securities or "Blue Sky" laws, printing expenses, fees and disbursements of
counsel for the Company and the Holders, and expenses and fees of any special
audits incidental to or required by such registration, shall be borne by the
Company; provided, however, that the Company in any event shall not be required
to pay the underwriters, discounts or commissions relating to Registrable Shares
(such underwriters, discounts or commissions are to be borne by the Holders, on
a pro rata basis, based on the number of Registrable Shares sold by each of
them).
3
<PAGE> 4
Section 4. REGISTRATION PROCEDURES.
(a) In the case of each registration effected by the Company
pursuant to this agreement, the Company, as promptly as possible, will
keep each Holder participating therein advised in writing as to the
initiation of such registration (and any state qualifications) and as
to the completion thereof.
(b) Also in the case of each registration effected by the Company
pursuant to this agreement, the Company will:
(i) keep such registration or qualification pursuant to
Section No. 2 effective for A period of 180 days or until all
the Holders have completed the distribution described in the
registration statement relating thereto, whichever occurs
first;
(ii) furnish such number of copies of such registration
statement, including all exhibits thereto, and each amendment and
supplement thereto including all exhibits thereto, the prospectus
included in such registration statement (including each
preliminary prospectus) and such other documents incident thereto
as a Holder from time to time may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by
such Holder, including, prior to filing, drafts thereof;
(iii) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws
of such jurisdictions as may be reasonably necessary and do any
and all other acts and things which may be reasonably necessary
or advisable to enable such Holder to consummate the disposition
in such jurisdictions of the Registrable Shares owned by such
Holder;
(iv) notify each Holder of Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered
under the Securities Act, of the occurrence of any event as a
result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or
omits any fact necessary to make the statements therein not
misleading, and, at the request of any such Holder, the Company
will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary
to make the statements therein not misleading;
(v) promptly notify the Holders of Registrable Shares and
the underwriters of the following events and (if requested by any
such person) confirm such notification in writing: (a) the filing
of the prospectus or any prospectus supplement and the
registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the
effectiveness of such documents, (b) any requests by the
Commission for amendments or supplements to
4
<PAGE> 5
the registration statement or the prospectus or for additional
information, (c) the issuance or threat of issuance by the
Exchange Commission or any state securities commission or agency
of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for
that purposes and use its Reasonable efforts to prevent the
issuance of any stop order or obtain the withdrawal of such stop
order, and (d) the receipt by the Company of any notification
with respect to the suspension of the qualification of the
Registrable Shares for sale in any jurisdiction or the initiation
or threat of initiation of any proceeding for such purpose;
(vi) cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by the
Company are then listed;
(vii) make available for inspection by any Holder of
Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such Holder
or underwriter, all financial and other records, pertinent
corporate documents anc properties of the Company, and cause the
Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any
such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to the Holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months
beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder.
Section 5. Each Holder of Registrable Shares agrees if requested by
the Company and the underwriter not to effect any public sale or distribution
(including sales pursuant to Rule 144 promulgated pursuant to the Securities
Act) of equity securities of the Company or any securities convertible into or
exchangeable or exercisable for such equity securities, during the seven days
prior to and during the ninety (90) day period beginning on the effective date
of the underwritten registration pursuant to Section 2 hereof in which
Registrable Shares are included (except for sales of such securities as part of
such underwritten registered offering), unless the underwriters managing the
registered public offering otherwise agree.
Section 6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder may
participate in any registration hereunder which is underwritten unless such
Holder completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting agreement referred to in Section 2 hereof; provided,
that no holder of Registrable Shares included in any underwritten registration
shall be required to make any representations or warranties to the Company or
the underwriters other than
5
<PAGE> 6
representations and warranties regarding such Holder and such Holder's intended
method of distribution.
Section 7. INDEMNIFICATION.
(a) The Company shall indemnify each Holder, each of the Holder's
officers, directors, partners and employees, and each person
controlling such Holder, with respect to such registration or
qualification effected pursuant to this agreement and in which Shares
are included, against all claims, losses, damages, and liabilities (or
actions in respect thereto) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any prospectus, registration statement or other document incident
to any such registration or qualification, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated pursuant to any Federal, state or common law rule or
regulation including, without limitation, the Securities Act,
applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification
or compliance and will reimburse each such Holder, each of such
Holder's officers, directors, heirs and employees, and each person
controlling such Holder, for any legal and any other expenses incurred
in connection with investigating or defending any such claim, loss,
damage, liability or action, including reasonable attorneys fees;
PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based
upon and in conformity with written information furnished to the
Company by such Holder, in a signed document stating that such
information is specifically for use in the registration statement.
Such indemnity shall be effective notwithstanding any investigation
made by or on behalf of any Holder, or any such officer, director,
partner, employee or controlling person, and shall survive any
transfer by the same of any of the Shares.
(b) Each Holder shall, if Registrable Shares held by or issuable
to such Holder are included in the securities as to which such
registration or qualification is being effected, severally indemnify
the Company, each of its directors, officers and employees, against
all claims, losses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such
registration statement, prospectus or other document, or any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such
directors, officers, partners, employees, persons or underwriters for
any legal or any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, including reasonable attorneys fees, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus or other document in reliance upon
and in conformity with written information furnished to the Company by
such Holder in a signed document
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<PAGE> 7
stating that such information is specifically for use therein.
Notwithstanding the foregoing, the liability of any such Holder shall
not exceed an amount equal to the net proceeds realized by each such
Holder of Registrable Shares sold as contemplated herein. Such
indemnity shall be effective notwithstanding any investigation made by
or on behalf of the Company, any such director, officer, partner,
employee, or controlling person and shall survive the transfer of such
securities by such seller.
(c) Each party entitled to indemnification under this section
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought. Unless in the reasonable judgment of the
Indemnified Party a conflict of interest may exist between the
Indemnifying Party and the Indemnified Party, the Indemnifying Party
shall be permitted to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that in any event
counsel for the Indemnifying Party or Indemnified Party who shall
conduct the defense of such claim or litigation as provided above
shall be approved by the other Party (whose approval shall not be
unreasonably withheld), and such other Party may participate in such
defense at such Party's expense; PROVIDED, FURTHER, that the failure
of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this section.
(d) The Indemnified Party shall make no settlement of any claim
or litigation which would give rise to liability on the part of the
Indemnifying Party under an indemnity contained in this section
without the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed, and no Indemnifying
Party shall make any settlement of any such claim or litigation
without the consent of the Indemnified Party. If a firm offer is made
to settle a claim or litigation defended by the Indemnified Party and
the Indemnified Party notifies the Indemnifying Party in writing that
the Indemnified Party desires to accept and agree to such offer, but
the Indemnifying Party elects not to accept or agree to such offer
within ten days after receipt of written notice from the Indemnified
Party of the terms of such offer, then, in such event, the Indemnified
Party shall continue to contest or defend such claim or litigation
and, if such claim or litigation is within the scope of the
Indemnifying Party's indemnity contained in this section, the
Indemnified Party shall be indemnified pursuant to the terms hereof.
If a firm offer is made to settle a claim or litigation defended by
the Indemnifying Party and the Indemnifying Party notifies the
Indemnified Party in writing that the Indemnifying Party desires to
accept and agree to such offer, but the Indemnified Party elects not
to accept or agree to such offer within ten days after receipt of
written notice from the Indemnifying Party of the terms of such offer,
then, in such event, the Indemnified Party may continue to contest or
defend such claim or litigation and, in such event, the total maximum
liability of the Indemnifying Party to indemnify or otherwise
reimburse the Indemnified Party in accordance with this agreement with
respect to such claim or litigation shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable
out-of-pocket costs and expenses (including reasonable fees and
disbursements of counsel) to the date of notice that the Indemnifying
Party desired to accept such settlement offer.
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<PAGE> 8
(e) The indemnification payments required pursuant to this
section for expenses of the investigation or defense of a claim or
lawsuit shall be made from time to time during the course of the
investigation or defense, as the case may be, upon submission of
reasonably sufficient documentation that any such expenses have been
incurred.
Section 8. REPORTS UNDER THE SECURITIES LAWS. With a view to making
available to the Holders of Registrable Shares the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the
Commission that may at any time permit such Holder to sell securities of the
Company to the public without registration, the Company agrees to use its best
efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to one
hundred eighty (180) days after the effective date of any registration
statement covering an underwritten public offering filed under the
Securities Act by the Company;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and
the 1934 Act at any time after it is subject to such registration
requirements; and
(c) Furnish to any Holder so long as such Holder owns any of the
Registrable Shares forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule
144 (at any time after one hundred eighty (180) days after the
effective date of such registration statement filed by the Company),
and of the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as may be reasonably
requested by any such Holder in availing any such Holder of any rule
or regulation of the Commission permitting the selling of any such
securities without registration.
Section 9. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Shares that are granted by the Company under
Section 2 may be assigned by a Holder to a Permitted Transferee (as defined in
that certain Stock Restriction Agreement dated as of January 31, 1996 between
the Company and the Shareholders signatory thereto) of any of its Registrable
Shares, provided that the Company is given written notice by the Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee and identifying the securities with respect to which
such registration rights are being assigned. Such rights may not be assigned
other than to a Permitted Transferee. Subject to the foregoing provision, this
agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and assigns.
Section 10. CONSENT; CHANGES. For purposes of this agreement, unless
otherwise specifically provided for in this agreement, all approvals and
consents of the Holders required or permitted
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<PAGE> 9
under this agreement shall be deemed granted by the affirmative vote of the
holders of a majority of the Registrable Shares outstanding determined on a
fully diluted basis with respect to the Holders of the Notes which have not
already been registered. The terms and provisions of this agreement may not be
modified or amended, except that they may be modified or amended with the
written consent of (a) the Company, and (b) all of the Holders of the Notes or
Shares outstanding. None of the terms and provisions of this agreement may be
waived except in writing by the person so waiving.
Section 11. GRANTING OF REGISTRATION RIGHTS. Notwithstanding anything
herein to the contrary, the Company may grant any rights to any persons to
register any shares of capital stock or other securities of the Company
notwithstanding the fact that such rights could reasonably be expected to
conflict with, or be on a parity with or greater than (in terms of priority),
the rights of the Holders provided hereunder. Provided, however, that in no
event shall such rights be on a parity with or be greater than (in terms of
priority) the rights of the Holders provided hereunder unless such rights are
also on a parity with or greater than the rights of holders of the Other
Investor Shares and the Savastano Shares.
Section 12. GOVERNING LAW. All questions concerning the validity or
meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance under this agreement shall be construed and
resolved under the, laws of Ohio.
Section 13. NOTICE. Any notice or other communication required or
desired to be given to any party under this agreement shall be in writing and
shall be deemed given: (a) when delivered personally to that party; (b) upon
receipt of a telephone facsimile transmission answer back, (c) three (3) days
after having been deposited in the United States mail, certified or registered,
return receipt requested, postage prepaid, or (d) one (1) business day after
having been dispatched by a nationally recognized overnight courier service,
addressed to the parties or their permitted assigns at the following addresses
(or at such other address or number as is given in writing by either party to
the other) as follows:
Investor:
Mass Transfer Systems, Inc.
100 Waldron Road
Fall River, Massachusetts 02720-4732
Facsimile No.: (508) 672-5779
Attn: Mark E. Neville
with copies to:
Hinkley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Facsimile No.: (401) 277-9600
Attn: Sandra Matrone Mack
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Company:
Waterlink, Inc.
115 Dewalt Avenue, N.W.
Canton, Ohio 44702
Facsimile No.: (216) 455-8134
Attn: Theodore F. Savastano, Chairman
with copies to:
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
` Attn: Ira C. Kaplan, Esq.
Section 14. TERMINATION. The registration right granted under this
agreement shall terminate with respect to any Holder one hundred eighty (180)
days after the effective date of a Registration Statement registering all of
such Holder's Registrable Shares under the Securities Act; provided, however,
that the indemnification provisions in Section 6 shall survive the termination
of such registration rights. Notwithstanding anything to the contrary in this
agreement, the Company shall not be required to register any Registerable Shares
pursuant to a request under Section 2 hereof, if within twenty-five (25) days
after its receipt of a request therefore, counsel for the Company delivers an
opinion to the requesting Holder, in form and substance satisfactory to counsel
to such Holder, that the proposed sale of Registerable Shares requested to be so
registered may be affected in its entirety within any ninety (90) day period
following Registration and without regard to any holding period or volume
limitation pursuant to Rule 144 of the Securities Act.
Section 15. COUNTERPARTS. This agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute a single agreement.
Section 16. CAPTIONS. The captions of the various sections of this
agreement are not part of the context of this agreement, but are only labels to
assist in locating those sections, and shall be ignored in construing this
agreement.
Section 17. SEVERABILITY. The intention of the parties to this
agreement is to comply fully with all laws and public policies, and this
agreement shall be construed consistently with all laws and public policies to
the extent possible. If and to the extent that any court of competent
jurisdiction determines it is impossible to construe any provision of this
agreement consistently with any law or public policy and consequently holds that
provision to be invalid, such holding shall in no way affect the validity of the
other provisions of this agreement, which shall remain in full force and effect.
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Section 18. JURISDICTION AND VENUE. All parties to this agreement
hereby designate the Court of Common Pleas of Cuyahoga County, Ohio, as a court
of proper jurisdiction and venue for any actions or proceedings relating to this
agreement; hereby irrevocably consent to such designation, jurisdiction and
venue; and hereby waive any objections or defenses relating to jurisdiction or
venue with respect to any action or proceeding initiated in the Court of Common
Pleas of Cuyahoga County, Ohio.
WATERLINK, INC.
By:/S/ Nancy Hamerly
-------------------------------------------
Its:Vice President and Chief Financial Officer
------------------------------------------
MASS TRANSFER SYSTEMS, INC.
By:/S/ Mark E. Neville
-------------------------------------------
Its:President
------------------------------------------
<PAGE> 1
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT
This agreement is made as of April 26, 1996, by and between Waterlink,
Inc., a Delaware corporation (the "Company"), and Lawrence A. Schmid (the
"Investor").
BACKGROUND INFORMATION
----------------------
A. Pursuant to the terms of an Asset Purchase Agreement of even date
herewith by and among the Company, A-M Acquisition Corp., a Delaware corporation
("Acquisition"), Aero-Mod Incorporated, a Kansas corporation ("Aero-Mod"),
Resi-Tech, Inc., a Kansas corporation ("Resi-Tech"), and the Investor (the
"Purchase Agreement"), Aero-Mod, Resi-Tech and the Investor are selling to the
Company and Acquisition the "Subject Assets" (as defined in the Purchase
Agreement);
B. As part of the purchase price for the Subject Assets, Acquisition
has executed, in favor of the Investor, a Convertible Subordinated Note in the
aggregate principal amount of Four Hundred Thousand Dollars ($400,000) (the
"Convertible Note");
C. The Note is, or under certain circumstances may be, convertible into
shares of common stock, par value $.001 per share of the Company (the "Common
Stock"), as provided in the Note;
D. As a condition of the Purchase Agreement, and in order to induce
Aero-Mod, Resi-Tech and the Investor to sell the Subject Assets in exchange, in
part, for the Note, the Company desires to grant registration rights to the
Investor for shares of Company Common Stock which the Investor will have the
right to acquire upon conversion of the Note.
STATEMENT OF AGREEMENT
----------------------
The parties acknowledge the accuracy of the foregoing Background
Information and hereby agree as follows:
Section 1. DEFINITIONS.
(a) As used herein the following defined terms shall have the
following meanings:
(i) The term "Holders" means any registere holder or holders
of shares of Common Stock issued upon conversion of the Note or
upon transfer of the shares after conversion of the Note and to
whom the rights hereunder are granted or may be assigned pursuant
to Section 9 of this agreement.
<PAGE> 2
(ii) Unless the context otherwise requires, the terms
"register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act (as defined
below) and the declaration or ordering of the effectiveness of
such registration statement.
(iii) The term "Registrable Shares" means all shares of
Common Stock of the Company that may be acquired by any Holder
upon conversion of the Note.
(iv) The term "Securities Act" means the Securities Act of
1933, as amended.
(v) The term "Shares" means shares of Common Stock of the
Company.
(b) All other capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement.
Section 2. Piggyback Registration.
(a) If at any time or from time to time, the Company shall
determine to register any of its securities for its own account in a
registration statement covering the sale of Common Stock to the
general public pursuant to an underwritten public offering (except
with respect to any registration filed on Form S-8, Form S-4 or any
successor forms thereto) the Company shall: (i) give to the Investor
written notice thereof at least thirty (30) days before the initial
filing of such registration (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities
laws); PROVIDED, HOWEVER, in the case of a registration statement on
Form S-3, the Company shall give the Investor written notice of the
proposed filing thereof promptly after a decision to make such filing
has been made and in no event less than ten (10) business days prior
to filing; and (ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws) and
in any underwriting involved therein, all the Registrable Shares
specified in a written request or requests, made within ten (10) days
after receipt of such written notice from the Company, by any Holder
or Holders, except as set forth in Section 2(b) below.
(b) The right of any Holder to registration pursuant to this
Section 2 shall be conditioned upon such Holder's participation in the
underwriting to the extent provided herein. Any Holder proposing to
distribute his or its securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of
this Section 2, if the underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Shares to be included
in the registration and underwriting. The Company shall so advise all
Holders, and the number of shares
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<PAGE> 3
that may be included in the registration and underwriting shall be
allocated (i) first, among the securities the Company proposes to
sell; (ii) second, among the Preferred Securities (as defined in that
certain Registration Rights Agreement dated August 30, 1995 by and
among the Company, Brantley Venture Partners III, L.P., Theodore F.
Savastano, and River Cities Capital Fund Limited Partnership and the
Addendum to the Registration Rights Agreement dated September 15, 1995
by and among the Company, Brantley Venture Partners III, L.P. Theodore
F. Savastano, River Cities Capital Fund Limited Partnership and IPP95,
L.P. (such Registration Rights Agreement and Addendum thereto are
collectively referred to as the "First Registration Rights
Agreement")) in accordance with the terms set forth in the First
Registration Rights Agreement, as that agreement may be amended from
time to time; (iii) third, among the Other Investor Shares, the
Savastano Shares (each as defined in the First Registration Rights
Agreement) and among the Holders of Registrable Shares (as defined in
that certain Registration Rights Agreement by and between the Company
and Mass Transfer Systems, Inc. dated January 31, 1996, hereinafter
referred to as the "Second Registration Rights Agreement") in
accordance with the terms set forth in the Second Registration Rights
Agreement, as that agreement may be amended from time to time; (iv)
fourth, among all Holders of Registrable Shares in proportion, as
nearly as practicable, to the respective amounts of Registrable Shares
held by such Holders at the time of filing the registration statement
and among holders of other registration rights that may be granted by
the Company in connection with business acquisitions, mergers,
combinations, and the like; and (v) fifth, among other securities
requested to be included in such registration. The registration rights
of the Holders pursuant to this agreement are fully subordinated to
the rights of the holders under the First Registration Rights
Agreement and Second Registration Rights Agreement. If any Holder
disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter. In the event of any such withdrawal, the Company will
include, on a proportionate basis (determined in accordance with the
preceding sentence), in any such registration in lieu thereof any
additional Registrable Shares which were requested to be included by a
Holder and which were excluded pursuant to the above-described
underwriter limitation up to the maximum set by such underwriter.
Section 3. EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration or qualification pursuant to this agreement
including, without limitation, all registration filing and qualification fees,
fees and expenses associated with registration or qualification under state
securities or "Blue Sky" laws, printing expenses, fees and disbursements of
counsel for the Company and the Holders, and expenses and fees of any special
audits incidental to or required by such registration, shall be borne by the
Company; provided, however, that the Company in any event shall not be required
to pay the underwriters' discounts or commissions relating to Registrable Shares
(such underwriters' discounts or commissions are to be borne by the Holders, on
a pro rata basis, based on the number of Registrable Shares sold by each of
them).
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<PAGE> 4
Section 4. REGISTRATION PROCEDURES.
(a) In the case of each registration effected by the Company
pursuant to this agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of such
registration (and any state qualifications) and as to the completion
thereof.
(b) Also in the case of each registration effected by the Company
pursuant to this agreement, the Company will:
(i) keep such registration or qualification pursuant to
Section 2 effective for a period of 180 days or until all the
Holders have completed the distribution described in the
registration statement relating thereto, whichever occurs first;
(ii) furnish such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each
preliminary prospectus) and such other documents incident thereto
as a Holder from time to time may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by
such Holder;
(iii) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws
of such jurisdictions as may be reasonably necessary and do any
and all other acts and things which may be reasonably necessary
or advisable to enable such Holder to consummate the disposition
in such jurisdictions of the Registrable Shares owned by such
Holder;
(iv) notify each Holder of Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered
under the Securities Act, of the occurrence of any event as a
result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or
omits any fact necessary to make the statements therein not
misleading, and, at the request of any such Holder, the Company
will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary
to make the statements therein not misleading;
(v) promptly notify the Holders of Registrable Shares and
the underwriters of the following events and (if requested by any
such person) confirm such notification in writing: (a) the filing
of the prospectus or any prospectus supplement and the
registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the
effectiveness of such documents, (b) any requests by the
Securities and Exchange Commission for amendments or supplements
to the registration statement or the prospectus or for
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<PAGE> 5
additional information, (c) the issuance or threat of issuance by
the Securities and Exchange Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose, and (d) the
receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Shares for
sale in any jurisdiction or the initiation or threat of
initiation of any proceeding for such purpose;
(vi) cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by the
Company are then listed;
(vii) make available for inspection by any Holder of
Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such Holder
or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any
such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission, and make available to the Holders, as soon as
reasonably practicable, an earnings statement covering the period
of at least twelve months beginning with the first day of the
Company's first full calendar quarter after the effective date of
the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder.
Section 5. HOLDBACK AGREEMENTS. Each Holder of Registrable Shares
agrees not to effect any public sale or distribution (including sales pursuant
to Rule 144 promulgated pursuant to the Securities Act) of equity securities of
the Company or any securities convertible into or exchangeable or exercisable
for such equity securities, during the seven (7) days prior to and during the
one hundred eighty (180) day period beginning on the effective date of the
underwritten registration pursuant to Section 2 hereof in which Registrable
Shares are included (except for sales of such securities as part of such
underwritten registered offering), unless the underwriters managing the
registered public offering otherwise agree.
Section 6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any registration hereunder which is underwritten unless such
Holder completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting agreement referred to in Section 2 hereof; provided,
that no holder of Registrable Shares included in any underwritten registration
shall be required to make any representations or warranties to the Company or
the underwriters other than representations and warranties regarding such Holder
and such Holder's intended method of distribution.
-5-
<PAGE> 6
Section 7. INDEMNIFICATION.
(a) The Company shall indemnify each Holder, each of the Holder's
officers, directors, partners and employees, and each person
controlling such Holder, with respect to such registration or
qualification effected pursuant to this agreement and in which Shares
are included, against all claims, losses, damages, and liabilities (or
actions in respect thereto) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any prospectus, registration statement or other document incident
to any such registration or qualification, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated pursuant to any Federal, state or common law rule or
regulation including, without limitation, the Securities Act,
applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification
or compliance and will reimburse each such Holder, each of such
Holder's officers, directors, heirs and employees, and each person
controlling such Holder, for any legal and any other expenses incurred
in connection with investigating or defending any such claim, loss,
damage, liability or action, including reasonable attorneys' fees;
PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based
upon and in conformity with written information furnished to the
Company by such Holder, in a signed document stating that such
information is specifically for use in the registration statement.
Such indemnity shall be effective notwithstanding any investigation
made by or on behalf of any Holder, or any such officer, director,
partner, employee or controlling person, and shall survive any
transfer by the same of any of the Shares.
(b) Each Holder shall, if Registrable Shares held by or issuable
to such Holder are included in the securities as to which such
registration or qualification is being effected, indemnify the
Company, each of its directors, officers and employees, against all
claims, losses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such
registration statement, prospectus or other document, or any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such
directors, officers, partners, employees, persons or underwriters for
any legal or any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, including reasonable attorneys' fees, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus or other document in reliance upon
and in conformity with written information furnished to the Company by
such Holder in a signed document stating that such information is
specifically for use therein. Notwithstanding the foregoing, the
liability of any such Holder shall not exceed an amount equal to the
net proceeds realized by each
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<PAGE> 7
such Holder of Registrable Shares sold as contemplated herein. Such
indemnity shall be effective notwithstanding any investigation made by
or on behalf of the Company, any such director, officer, partner,
employee, or controlling person and shall survive the transfer of such
securities by such seller.
(c) Each party entitled to indemnification under this section
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought. Unless in the reasonable judgment of the
Indemnified Party a conflict of interest may exist between the
Indemnifying Party and the Indemnified Party, the Indemnifying Party
shall be permitted to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that in any event
counsel for the Indemnifying Party or Indemnified Party who shall
conduct the defense of such claim or litigation as provided above
shall be approved by the other Party (whose approval shall not be
unreasonably withheld), and such other Party may participate in such
defense at such Party's expense; PROVIDED, FURTHER, that the failure
of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this section.
(d) The Indemnified Party shall make no settlement of any claim
or litigation which would give rise to liability on the part of the
Indemnifying Party under an indemnity contained in this section
without the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed, and no Indemnifying
Party shall make any settlement of any such claim or litigation
without the consent of the Indemnified Party. If a firm offer is made
to settle a claim or litigation defended by the Indemnified Party and
the Indemnified Party notifies the Indemnifying Party in writing that
the Indemnified Party desires to accept and agree to such offer, but
the Indemnifying Party elects not to accept or agree to such offer
within ten days after receipt of written notice from the Indemnified
Party of the terms of such offer, then, in such event, the Indemnified
Party shall continue to contest or defend such claim or litigation
and, if such claim or litigation is within the scope of the
Indemnifying Party's indemnity contained in this section, the
Indemnified Party shall be indemnified pursuant to the terms hereof.
If a firm offer is made to settle a claim or litigation defended by
the Indemnifying Party and the Indemnifying Party notifies the
Indemnified Party in writing that the Indemnifying Party desires to
accept and agree to such offer, but the Indemnified Party elects not
to accept or agree to such offer within ten days after receipt of
written notice from the Indemnifying Party of the terms of such offer,
then, in such event, the Indemnified Party may continue to contest or
defend such claim or litigation and, in such event, the total maximum
liability of the Indemnifying Party to indemnify or otherwise
reimburse the Indemnified Party in accordance with this agreement with
respect to such claim or litigation shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable
out-of-pocket costs and expenses (including reasonable fees and
disbursements of counsel) to the date of notice that the Indemnifying
Party desired to accept such settlement offer.
-7-
<PAGE> 8
(e) The indemnification payments required pursuant to this
section for expenses of the investigation or defense of a claim or
lawsuit shall be made from time to time during the course of the
investigation or defense, as the case may be, upon submission of
reasonably sufficient documentation that any such expenses have been
incurred.
Section 8. REPORTS UNDER THE SECURITIES LAWS. With a view to making
available to the Holders of Registrable Shares the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the
Securities and Exchange Commission that may at any time permit such Holder to
sell securities of the Company to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to one
hundred eighty (180) days after the effective date of any registration
statement covering an underwritten public offering filed under the
Securities Act by the Company;
(b) File with the Securities and Exchange Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the 1934 Act at any time after it is subject to
such registration requirements; and
(c) Furnish to any Holder so long as such Holder owns any of the
Registrable Shares forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule
144 (at any time after one hundred eighty (180) days after the
effective date of such registration statement filed by the Company),
and of the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as may be reasonably
requested by any such Holder in availing any such Holder of any rule
or regulation of the Securities and Exchange Commission permitting the
selling of any such securities without registration.
Section 9. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Shares that are granted by the Company under
Section 2 may be assigned by a Holder to a Permitted Transferee (as defined in
that certain Stock Restriction Agreement dated ____________________, 1996
between the Company and Investor) of any of its Registrable Shares, provided
that the Company is given written notice by the Holder at the time of or within
a reasonable time after said transfer, stating the name and address of said
transferee and identifying the securities with respect to which such
registration rights are being assigned. Such rights may not be assigned other
than to a Permitted Transferee. Subject to the foregoing provision, this
agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and assigns.
Section 10. CONSENT; CHANGES. For purposes of this agreement, unless
otherwise specifically provided for in this agreement, all approvals and
consents of the Holders required or permitted
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<PAGE> 9
under this agreement shall be deemed granted by the affirmative vote of the
holders of a majority of the Registrable Shares outstanding determined on a
fully diluted basis with respect to the Holder of the Note which have not
already been registered. The terms and provisions of this agreement may not be
modified or amended, except that they may be modified or amended with the
written consent of (a) the Company, and (b) all of the Holder(s) of the Note or
Shares outstanding. None of the terms and provisions of this agreement may be
waived except in writing by the person so waiving.
Section 11. GRANTING OF REGISTRATION RIGHTS. Notwithstanding anything
herein to the contrary, the Company may grant any rights to any persons to
register any shares of capital stock or other securities of the Company
notwithstanding the fact that such rights could reasonably be expected to
conflict with, or be on parity with or greater than, the rights of the Holders
provided hereunder.
Section 12. GOVERNING LAW. All questions concerning the validity or
meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance under this agreement shall be construed and
resolved under the laws of Ohio.
Section 13. NOTICE. Any notice or other communication required or
desired to be given to any party under this agreement shall be in writing and
shall be deemed given: (a) when delivered personally to that party; (b) upon
receipt of a telephone facsimile transmission answer back, (c) three (3) days
after having been deposited in the United States mail, certified or registered,
return receipt requested, postage prepaid, or (d) one (1) business day after
having been dispatched by a nationally recognized overnight courier service,
addressed to the parties or their permitted assigns at the following addresses
(or at such other address or number as is given in writing by either party to
the other) as follows:
Investor:
Lawrence A. Schmid
3107 Harahey Ridge
Manhattan, KS 66502
with copies to:
Arthur, Green, Arthur, Conderman,
Stutzman & Roberson
Commerce Bank Tower
Manhattan, KS 66502
Facsimile No.: (913) 537-7874
Attn: David Stutzman, Esq.
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<PAGE> 10
Company:
Waterlink, Inc.
115 Dewalt Avenue, N.W.
Canton, Ohio 44702
Facsimile No: (216) 455-8134
Attn: Theodore F. Savastano, Chairman
with copies to:
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attn: Ira C. Kaplan, Esq.
Section 14. TERMINATION. The registration right granted under this
agreement shall terminate with respect to any Holder one hundred eighty (180)
days after the effective date of a Registration Statement registering all of
such Holder's Registrable Shares under the Securities Act; provided, however,
that the indemnification provisions in Section 7 shall survive the termination
of such registration rights. Notwithstanding anything to the contrary in this
Agreement, the Company shall not be required to register any Registrable Shares
pursuant to a request under Section 2 hereof, if within twenty-five (25) days
after its receipt of a request therefor counsel for the Company delivers an
opinion to the requesting Holder, in form and substance satisfactory to counsel
to such Holder, that the proposed sale of Registerable Shares requested to be so
registered may be affected in its entirety within any ninety (90) day period
following registration and without regard to any holding period or volume
limitation pursuant to Rule 144 of the Securities Act.
Section 15. COUNTERPARTS. This agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute a single agreement.
Section 16. CAPTIONS. The captions of the various sections of this
agreement are not part of the context of this agreement, but are only labels to
assist in locating those sections, and shall be ignored in construing this
agreement.
Section 17. SEVERABILITY. The intention of the parties to this
agreement is to comply fully with all laws and public policies, and this
agreement shall be construed consistently with all laws and public policies to
the extent possible. If and to the extent that any court of competent
jurisdiction determines it is impossible to construe any provision of this
agreement consistently with any law or public policy and consequently holds that
provision to be invalid, such holding shall in no way affect the validity of the
other provisions of this agreement, which shall remain in full force and effect.
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<PAGE> 11
Section 18. JURISDICTION AND VENUE. All parties to this agreement
hereby designate the Court of Common Pleas of Cuyahoga County, Ohio, as a court
of proper jurisdiction and venue for any actions or proceedings relating to this
agreement; hereby irrevocably consent to such designation, jurisdiction and
venue; and hereby waive any objections or defenses relating to jurisdiction or
venue with respect to any action or proceeding initiated in the Court of Common
Pleas of Cuyahoga County, Ohio.
WATERLINK, INC.
By /S/ Nancy Hamerly
-------------------------------
Its: VP & CFO
-----------------------------
/S/ Lawrence A. Schmid
---------------------------------
LAWRENCE A. SCHMID
<PAGE> 1
Exhibit 4.5
REGISTRATION RIGHTS AGREEMENT
This agreement is made as of September 30, 1996, by and between
Waterlink, Inc., a Delaware corporation (the "Company"), and the shareholders of
Water Equipment Technologies, Inc., a Florida corporation ("WET") listed on
SCHEDULE I hereto (collectively, the "Shareholders" and each individually a
"Shareholder").
BACKGROUND INFORMATION
----------------------
A. Pursuant to the terms of an Agreement and Plan of Merger of even
date herewith by and among the Company, WET Acquisition Corp., a Delaware
corporation ("Acquisition"), WET, and the Shareholders (the "Merger Agreement"),
WET is merging with and into Acquisition, with Acquisition being the surviving
corporation pursuant to the terms of the Merger Agreement (the "Merger");
B. As part of the Merger consideration, each share of common stock of
WET ("WET Common Stock") issued and outstanding immediately prior to the
Effective Time (as defined in the Merger Agreement) of the Merger, will be
automatically converted into the right to receive cash and a number of shares of
common stock, par value $.001 per share of the Company (the "Common Stock"), in
the amounts as provided in the Merger Agreement;
C. As a condition to the consummation of the Merger, and in order to
induce WET and the Shareholders to consummate the Merger in exchange, in part,
for the shares of Common Stock, the Company desires to grant registration rights
to the Shareholders with respect to such shares of Common Stock which each
Shareholder will have the right to acquire pursuant to the terms of the Merger
Agreement.
STATEMENT OF AGREEMENT
----------------------
The parties acknowledge the accuracy of the foregoing Background
Information and hereby agree as follows:
Section 1. DEFINITIONS.
(a) As used herein the following defined terms shall have the
following meanings:
(i) The term "Holders" means any registered holder or
holders of shares of Common Stock issued in connection with the
Merger or upon transfer of such shares of Common Stock, to whom
the rights hereunder are granted or may be assigned pursuant to
Section 9 of this agreement.
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<PAGE> 2
(ii) Unless the context otherwise requires, the terms
"register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act (as defined
below) and the declaration or ordering of the effectiveness of
such registration statement.
(iii) The term "Registrable Shares" means all shares of
Common Stock of the Company that may be acquired by any Holder.
(iv) The term "Securities Act" means the Securities Act of
1933, as amended.
(v) The term "Shares" means shares of Common Stock of the
Company.
(b) All other capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
Section 2. Piggyback Registration.
(a) If at any time or from time to time, the Company shall
determine to register any of its securities for its own account in a
registration statement covering the sale of Common Stock to the
general public pursuant to an underwritten public offering (except
with respect to any registration filed on Form S-8, Form S-4 or any
successor forms thereto) the Company shall: (i) give to each
Shareholder written notice thereof at least thirty (30) days before
the initial filing of such registration (which shall include a list of
the jurisdictions in which the Company intends to attempt to qualify
such securities under the applicable blue sky or other state
securities laws); PROVIDED, HOWEVER, in the case of a registration
statement on Form S-3, the Company shall give each Shareholder written
notice of the proposed filing thereof promptly after a decision to
make such filing has been made and in no event less than ten (10)
business days prior to filing; and (ii) use its best efforts to
include in such registration (and any related qualification under blue
sky laws) and in any underwriting involved therein, all the
Registrable Shares specified in a written request or requests, made
within ten (10) days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in Section 2(b)
below.
(b) The right of any Holder to registration pursuant to this
Section 2 shall be conditioned upon such Holder's participation in the
underwriting to the extent provided herein. Any Holder proposing to
distribute his or its securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of
this Section 2, if the underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Shares to be included
in the registration and underwriting. The Company shall so advise all
Holders, and the number of shares that may be included in the
registration and underwriting shall be allocated (i) first, among the
securities the Company proposes to sell; (ii) second, among the
Preferred Securities (as defined in that certain
-2-
<PAGE> 3
Registration Rights Agreement dated August 30, 1995 by and among the
Company, Brantley Venture Partners III, L.P., Theodore F. Savastano,
and River Cities Capital Fund Limited Partnership and the Addendum to
the Registration Rights Agreement dated September 15, 1995 by and
among the Company, Brantley Venture Partners III, L.P. Theodore F.
Savastano, River Cities Capital Fund Limited Partnership and IPP95,
L.P. (such Registration Rights Agreement and Addendum thereto are
collectively referred to as the "First Registration Rights
Agreement")) in accordance with the terms set forth in the First
Registration Rights Agreement, as that agreement may be amended from
time to time; (iii) third, among the Other Investor Shares, the
Savastano Shares (each as defined in the First Registration Rights
Agreement) and among the Holders of Registrable Shares (as defined in
that certain Registration Rights Agreement by and between the Company
and Mass Transfer Systems, Inc. dated January 31, 1996, hereinafter
referred to as the "Second Registration Rights Agreement") in
accordance with the terms set forth in the Second Registration Rights
Agreement, as that agreement may be amended from time to time; (iv)
fourth, among the "Holders" of "Registrable Shares" (each as defined
in that certain Registration Rights Agreement by and between the
Company and Lawrence A. Schmid dated April 26, 1996 (the "Schmid
Holders"), and all Holders of Registrable Shares pursuant to this
Agreement in proportion, as nearly as practicable, to the respective
amounts of such Registrable Shares held by such Schmid Holders and
Holders under this agreement at the time of filing the registration
statement and among holders of other registration rights that may be
granted by the Company in connection with business acquisitions,
mergers, combinations, and the like; and (v) fifth, among other
securities requested to be included in such registration. The
registration rights of the Holders pursuant to this agreement are
fully subordinated to the rights of the holders under the First
Registration Rights Agreement and Second Registration Rights
Agreement. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter. In the event of any such
withdrawal, the Company will include, on a proportionate basis
(determined in accordance with the preceding sentence), in any such
registration in lieu thereof any additional Registrable Shares which
were requested to be included by a Holder and which were excluded
pursuant to the above-described underwriter limitation up to the
maximum set by such underwriter.
Section 3. EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration or qualification pursuant to this agreement
including, without limitation, all registration filings and qualification fees,
fees and expenses associated with registration or qualification under state
securities or "Blue Sky" laws, printing expenses, fees and disbursements of
counsel for the Company and the Holders, and expenses and fees of any special
audits incidental to or required by such registration, shall be borne by the
Company; provided, however, that the Company in any event shall not be required
to pay the underwriters' discounts or commissions relating to Registrable Shares
(such underwriters' discounts or commissions are to be borne by the Holders, on
a pro rata basis, based on the number of Registrable Shares sold by each of
them).
-3-
<PAGE> 4
Section 4. REGISTRATION PROCEDURES.
(a) In the case of each registration effected by the Company
pursuant to this agreement, the Company will keep each Holder
participating therein advised in writing as to the initiation of such
registration (and any state qualifications) and as to the completion
thereof.
(b) Also in the case of each registration effected by the Company
pursuant to this agreement, the Company will:
(i) keep such registration or qualification pursuant to
Section 2 effective for a period of 180 days or until all the
Holders have completed the distribution described in the
registration statement relating thereto, whichever occurs first;
(ii) furnish such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each
preliminary prospectus) and such other documents incident thereto
as a Holder from time to time may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by
such Holder;
(iii) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws
of such jurisdictions as may be reasonably necessary and do any
and all other acts and things which may be reasonably necessary
or advisable to enable such Holder to consummate the disposition
in such jurisdictions of the Registrable Shares owned by such
Holder;
(iv) notify each Holder of Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered
under the Securities Act, of the occurrence of any event as a
result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or
omits any fact necessary to make the statements therein not
misleading, and, at the request of any such Holder, the Company
will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary
to make the statements therein not misleading;
(v) promptly notify the Holders of Registrable Shares and
the underwriters of the following events and (if requested by any
such person) confirm such notification in writing: (a) the filing
of the prospectus or any prospectus supplement and the
registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration statement
or any post-effective amendment thereto, the declaration of the
effectiveness of such documents, (b) any requests by the
Securities and Exchange Commission for amendments or supplements
to the registration statement or the prospectus or for additional
information, (c) the issuance or threat of issuance by the
Securities and Exchange Commission of any stop
-4-
<PAGE> 5
order suspending the effectiveness of the registration statement
or the initiation of any proceedings for that purpose, and (d)
the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Shares for
sale in any jurisdiction or the initiation or threat of
initiation of any proceeding for such purpose;
(vi) cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by the
Company are then listed;
(vii) make available for inspection by any Holder of
Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such Holder
or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any
such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission, and make available to the Holders, as soon as
reasonably practicable, an earnings statement covering the period
of at least twelve months beginning with the first day of the
Company's first full calendar quarter after the effective date of
the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder.
Section 5. HOLDBACK AGREEMENTS. Each Holder of Registrable Shares
agrees not to effect any public sale or distribution (including sales pursuant
to Rule 144 promulgated pursuant to the Securities Act) of equity securities of
the Company or any securities convertible into or exchangeable or exercisable
for such equity securities, during the seven (7) days prior to and during the
one hundred eighty (180) day period beginning on the effective date of the
underwritten registration pursuant to Section 2 hereof in which Registrable
Shares are included (except for sales of such securities as part of such
underwritten registered offering), unless the underwriters managing the
registered public offering otherwise agree.
Section 6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any registration hereunder which is underwritten unless such
Holder completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting agreement referred to in Section 2 hereof;
provided, that no holder of Registrable Shares included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters other than representations and warranties regarding
such Holder and such Holder's intended method of distribution.
-5-
<PAGE> 6
Section 7. INDEMNIFICATION.
(a) The Company shall indemnify each Holder, each of the Holder's
officers, directors, partners and employees, and each person
controlling such Holder, with respect to such registration or
qualification effected pursuant to this agreement and in which Shares
are included, against all claims, losses, damages, and liabilities (or
actions in respect thereto) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any prospectus, registration statement or other document incident
to any such registration or qualification, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated pursuant to any Federal, state or common law rule or
regulation including, without limitation, the Securities Act,
applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification
or compliance and will reimburse each such Holder, each of such
Holder's officers, directors, heirs and employees, and each person
controlling such Holder, for any legal and any other expenses incurred
in connection with investigating or defending any such claim, loss,
damage, liability or action, including reasonable attorneys' fees;
PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based
upon and in conformity with written information furnished to the
Company by such Holder, in a signed document stating that such
information is specifically for use in the registration statement.
Such indemnity shall be effective notwithstanding any investigation
made by or on behalf of any Holder, or any such officer, director,
partner, employee or controlling person, and shall survive any
transfer by the same of any of the Shares.
(b) Each Holder shall, if Registrable Shares held by or issuable
to such Holder are included in the securities as to which such
registration or qualification is being effected, indemnify the
Company, each of its directors, officers and employees, against all
claims, losses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such
registration statement, prospectus or other document, or any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such
directors, officers, partners, employees, persons or underwriters for
any legal or any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, including reasonable attorneys' fees, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus or other document in reliance upon
and in conformity with written information furnished to the Company by
such Holder in a signed document stating that such information is
specifically for use therein. Notwithstanding the foregoing, the
liability of any such Holder shall not exceed an amount equal to the
net proceeds realized by each such Holder of Registrable Shares sold
as contemplated herein. Such indemnity shall be effective
notwithstanding any investigation
-6-
<PAGE> 7
made by or on behalf of the Company, any such director, officer,
partner, employee, or controlling person and shall survive the
transfer of such securities by such seller.
(c) Each party entitled to indemnification under this section
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought. Unless in the reasonable judgment of the
Indemnified Party a conflict of interest may exist between the
Indemnifying Party and the Indemnified Party, the Indemnifying Party
shall be permitted to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that in any event
counsel for the Indemnifying Party or Indemnified Party who shall
conduct the defense of such claim or litigation as provided above
shall be approved by the other Party (whose approval shall not be
unreasonably withheld), and such other Party may participate in such
defense at such Party's expense; PROVIDED, FURTHER, that the failure
of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this section.
(d) The Indemnified Party shall make no settlement of any claim
or litigation which would give rise to liability on the part of the
Indemnifying Party under an indemnity contained in this section
without the written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed, and no Indemnifying
Party shall make any settlement of any such claim or litigation
without the consent of the Indemnified Party. If a firm offer is made
to settle a claim or litigation defended by the Indemnified Party and
the Indemnified Party notifies the Indemnifying Party in writing that
the Indemnified Party desires to accept and agree to such offer, but
the Indemnifying Party elects not to accept or agree to such offer
within ten days after receipt of written notice from the Indemnified
Party of the terms of such offer, then, in such event, the Indemnified
Party shall continue to contest or defend such claim or litigation
and, if such claim or litigation is within the scope of the
Indemnifying Party's indemnity contained in this section, the
Indemnified Party shall be indemnified pursuant to the terms hereof.
If a firm offer is made to settle a claim or litigation defended by
the Indemnifying Party and the Indemnifying Party notifies the
Indemnified Party in writing that the Indemnifying Party desires to
accept and agree to such offer, but the Indemnified Party elects not
to accept or agree to such offer within ten days after receipt of
written notice from the Indemnifying Party of the terms of such offer,
then, in such event, the Indemnified Party may continue to contest or
defend such claim or litigation and, in such event, the total maximum
liability of the Indemnifying Party to indemnify or otherwise
reimburse the Indemnified Party in accordance with this agreement with
respect to such claim or litigation shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable
out-of-pocket costs and expenses (including reasonable fees and
disbursements of counsel) to the date of notice that the Indemnifying
Party desired to accept such settlement offer.
(e) The indemnification payments required pursuant to this
section for expenses of the investigation or defense of a claim or
lawsuit shall be made from time to time during the course of the
investigation or defense, as the case may be, upon submission of
reasonably sufficient documentation that any such expenses have been
incurred.
-7-
<PAGE> 8
Section 8. REPORTS UNDER THE SECURITIES LAWS. With a view to making
available to the Holders of Registrable Shares the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the
Securities and Exchange Commission that may at any time permit such Holder to
sell securities of the Company to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to one
hundred eighty (180) days after the effective date of any registration
statement covering an underwritten public offering filed under the
Securities Act by the Company;
(b) File with the Securities and Exchange Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the 1934 Act at any time after it is subject to
such registration requirements; and
(c) Furnish to any Holder so long as such Holder owns any of the
Registrable Shares forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Rule
144 (at any time after one hundred eighty (180) days after the
effective date of such registration statement filed by the Company),
and of the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as may be reasonably
requested by any such Holder in availing any such Holder of any rule
or regulation of the Securities and Exchange Commission permitting the
selling of any such securities without registration.
Section 9. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Shares that are granted by the Company under
Section 2 may be assigned by a Holder to a Permitted Transferee (as defined in
that certain Stock Restriction Agreement dated ____________________, 1996
between the Company and the Shareholders) of any of its Registrable Shares,
provided that the Company is given written notice by the Holder at the time of
or within a reasonable time after said transfer, stating the name and address of
said transferee and identifying the securities with respect to which such
registration rights are being assigned. Such rights may not be assigned other
than to a Permitted Transferee. Subject to the foregoing provision, this
agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and assigns.
Section 10. CONSENT; CHANGES. For purposes of this agreement, unless
otherwise specifically provided for in this agreement, all approvals and
consents of the Holders required or permitted under this agreement shall be
deemed granted by the affirmative vote of the holders of a majority of the
Registrable Shares outstanding determined on a fully diluted basis with respect
to the Holder of the Shares which have not already been registered. The terms
and provisions of this agreement may not be modified or amended, except that
they may be modified or amended with the written consent of (a) the Company, and
(b) all of the Holder(s) of the Registrable Shares outstanding. None of the
terms and provisions of this agreement may be waived except in writing by the
person so waiving.
-8-
<PAGE> 9
Section 11. GRANTING OF REGISTRATION RIGHTS. Notwithstanding anything
herein to the contrary, the Company may grant any rights to any persons to
register any shares of capital stock or other securities of the Company
notwithstanding the fact that such rights could reasonably be expected to
conflict with, or be on parity with or greater than, the rights of the Holders
provided hereunder.
Section 12. GOVERNING LAW. All questions concerning the validity or
meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance under this agreement shall be construed and
resolved under the laws of Ohio.
Section 13. NOTICE. Any notice or other communication required or
desired to be given to any party under this agreement shall be in writing and
shall be deemed given: (a) when delivered personally to that party; (b) upon
receipt of a telephone facsimile transmission answer back, (c) three (3) days
after having been deposited in the United States mail, certified or registered,
return receipt requested, postage prepaid, or (d) one (1) business day after
having been dispatched by a nationally recognized overnight courier service,
addressed to the parties or their permitted assigns at the following addresses
(or at such other address or number as is given in writing by either party to
the other) as follows:
If to the Shareholders
or any one of them: Larry Stenger, P & C
c/o Water Equipment Technologies, Inc.
832 Pike Road
West Palm Beach, Florida 33411
Facsimile No.: (561) 795-6597
with copies to: Arnstein & Lehr
515 N. Flagler Dr., Suite 600
W. Palm Beach, Florida 33401
Facsimile No.: (407) 655-5551
Attn: Wesley A. Lauer
If to the Company: Waterlink, Inc.
4100 Holiday Street, N.W.
Canton, Ohio 44718
Facsimile No: (330)649-4000
Attn: Theodore F. Savastano, Chairman
with copies to: Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Facsimile No.: (216) 363-4588
Attn: Ira C. Kaplan, Esq.
-9-
<PAGE> 10
Section 14. TERMINATION. The registration right granted under this
agreement shall terminate with respect to any Holder one hundred eighty (180)
days after the effective date of a Registration Statement registering all of
such Holder's Registrable Shares under the Securities Act; provided, however,
that the indemnification provisions in Section 7 shall survive the termination
of such registration rights. Notwithstanding anything to the contrary in this
Agreement, the Company shall not be required to register any Registrable Shares
pursuant to a request under Section 2 hereof, if within twenty-five (25) days
after its receipt of a request therefor counsel for the Company delivers an
opinion to the requesting Holder, in form and substance satisfactory to counsel
to such Holder, that the proposed sale of Registerable Shares requested to be so
registered may be effected in its entirety within any ninety (90) day period
following registration and without regard to any holding period or volume
limitation pursuant to Rule 144 of the Securities Act.
Section 15. COUNTERPARTS. This agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute a single agreement.
Section 16. CAPTIONS. The captions of the various sections of this
agreement are not part of the context of this agreement, but are only labels to
assist in locating those sections, and shall be ignored in construing this
agreement.
Section 17. SEVERABILITY. The intention of the parties to this
agreement is to comply fully with all laws and public policies, and this
agreement shall be construed consistently with all laws and public policies to
the extent possible. If and to the extent that any court of competent
jurisdiction determines it is impossible to construe any provision of this
agreement consistently with any law or public policy and consequently holds that
provision to be invalid, such holding shall in no way affect the validity of the
other provisions of this agreement, which shall remain in full force and effect.
Section 18. JURISDICTION AND VENUE. All parties to this agreement
hereby designate the Court of Common Pleas of Cuyahoga County, Ohio, as a court
of proper jurisdiction and venue for any actions or proceedings relating to this
agreement; hereby irrevocably consent to such designation, jurisdiction and
venue; and hereby waive any objections or defenses relating to jurisdiction or
venue with respect to any action or proceeding initiated in the Court of Common
Pleas of Cuyahoga County, Ohio.
WATERLINK, INC.
By /s/ Nancy Hamerly
------------------------------
Its: VP & CFO
----------------------------
SHAREHOLDERS
/s/ Lawrence Stenger
--------------------------------
Lawrence Stenger
/s/ Theresa Stenger
--------------------------------
Theresa Stenger
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<PAGE> 11
/s/ Ronald Jaworski
--------------------------------
Ronald Jaworski
/s/ Christine Jaworski
--------------------------------
Christine Jaworski
/s/ John Stenger
--------------------------------
John Stenger
/s/ Dawn P. Stenger
--------------------------------
Dawn P. Stenger
/s/ Scott Stenger
--------------------------------
Scott Stenger
/s/ Kristie D. Stenger
--------------------------------
Kristie D. Stenger
/s/ Jorg Menningmann
--------------------------------
Jorg Menningmann
/s/ Michael Mudrick
--------------------------------
Michael Mudrick
/s/ Robert Young
--------------------------------
Robert Young
/s/ Gary Prae
--------------------------------
Gary Prae
-11-
<PAGE> 12
SCHEDULE I
"Shareholders"
Lawrence Stenger
Theresa Stenger
Ronald Jaworski
Christine Jaworski
John Stenger
Dawn P. Stenger
Scott Stenger
Kristie D. Stenger
Jorg Menningmann
Michael Mudrick
Robert Young
Gary Prae
-12-
<PAGE> 1
Exhibit 10.6
Execution Copy
================================================================================
$19,000,000
CREDIT AGREEMENT
DATED AS OF FEBRUARY 19, 1997
AMONG
WATERLINK, INC.,
BANK OF AMERICA ILLINOIS,
AS AGENT
AND
LETTER OF CREDIT ISSUING BANK,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
-------
ARTICLE I
<S> <C> <C>
DEFINITIONS..........................................................................1
1.01 Certain Defined Terms...................................................................1
1.02 Other Interpretive Provisions..........................................................22
1.03 Accounting Principles..................................................................22
ARTICLE II
THE CREDITS.........................................................................23
2.01 Amounts and Terms of Commitments.......................................................23
(a) The Term Credit...............................................................23
(b) The Revolving Credit..........................................................23
2.02 Loan Accounts..........................................................................23
2.03 Procedure for Borrowing................................................................24
2.04 Conversion and Continuation Elections..................................................25
2.05 Voluntary Termination or Reduction of Commitments......................................26
2.06 Optional Prepayments...................................................................26
2.07 Mandatory Prepayments of Loans; Mandatory Commitment
Reductions.........................................................................27
(c) Equity Issuance...............................................................27
(d) General.......................................................................27
2.08 Repayment..............................................................................28
(a) Term Loans....................................................................28
(b) The Revolving Credit..........................................................28
2.09 Interest...............................................................................28
2.10 Fees...................................................................................29
(a) Agency Fees....................................................................29
(b) Commitment Fees................................................................29
2.11 Computation of Fees and Interest.......................................................30
2.12 Payments by the Company................................................................30
2.13 Payments by the Banks to the Agent.....................................................31
2.14 Sharing of Payments, Etc...............................................................31
ARTICLE III
THE LETTERS OF CREDIT...............................................................32
3.01 The Letter of Credit Subfacility.......................................................32
3.02 Issuance, Amendment and Renewal of Letters of Credit...................................33
3.03 Risk Participations, Drawings and Reimbursements.......................................35
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
3.04 Repayment of Participations............................................................36
3.05 Role of the Issuing Bank...............................................................37
3.06 Obligations Absolute...................................................................38
3.07 Cash Collateral Pledge.................................................................39
3.08 Letter of Credit Fees..................................................................39
3.09 Uniform Customs and Practice...........................................................39
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY..............................................40
4.02 Illegality.............................................................................41
4.03 Increased Costs and Reduction of Return................................................41
4.04 Funding Losses.........................................................................42
4.05 Inability to Determine Rates...........................................................43
4.06 Reserves on Offshore Rate Loans........................................................43
4.07 Certificates of Banks..................................................................43
4.08 Survival...............................................................................43
ARTICLE V
CONDITIONS PRECEDENT................................................................43
5.01 Conditions of Initial Credit Extensions................................................43
(a) Credit Agreement and Notes....................................................44
(b) Resolutions; Incumbency.......................................................44
(c) Organization Documents; Good Standing.........................................44
(d) Legal Opinions................................................................44
(e) Payment of Fees...............................................................44
(f) Certificate...................................................................44
(g) Collateral Documents..........................................................45
(h) Solvency Certificate..........................................................46
(i) Subordinated Debt Documents...................................................46
(j) Other Documents...............................................................46
Brantley Documents............................................................47
5.03 Conditions to All Credit Extensions....................................................48
(b) Continuation of Representations and Warranties................................48
(c) No Existing Default...........................................................48
ARTICLE VI
REPRESENTATIONS AND WARRANTIES......................................................48
6.01 Corporate Existence and Power..........................................................48
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
6.02 Corporate Authorization; No Contravention..............................................49
6.03 Governmental Authorization.............................................................49
6.04 Binding Effect.........................................................................49
6.05 Litigation.............................................................................49
6.06 No Default.............................................................................50
6.07 ERISA Compliance.......................................................................50
6.08 Use of Proceeds; Margin Regulations....................................................50
6.09 Title to Properties....................................................................51
6.10 Taxes..................................................................................51
6.11 Financial Condition....................................................................51
6.12 Environmental Matters..................................................................51
6.13 Collateral Documents...................................................................52
6.14 Regulated Entities.....................................................................52
6.15 No Burdensome Restrictions.............................................................53
6.16 Solvency...............................................................................53
6.17 Labor Relations........................................................................53
6.18 Copyrights, Patents, Trademarks and Licenses, etc......................................53
6.19 Subsidiaries...........................................................................53
6.20 Broker's; Transaction Fees.............................................................53
6.21 Insurance..............................................................................53
6.22 Swap Obligations.......................................................................53
6.23 Full Disclosure........................................................................54
6.24 Subordination Provisions...............................................................54
ARTICLE VII
AFFIRMATIVE COVENANTS...............................................................54
7.01 Financial Statements...................................................................54
7.02 Certificates; Other Information........................................................55
7.03 Notices................................................................................55
7.04 Preservation of Corporate Existence, Etc...............................................56
7.05 Maintenance of Property................................................................57
7.06 Insurance..............................................................................57
7.07 Payment of Obligations.................................................................57
7.08 Compliance with Laws...................................................................57
7.09 Compliance with ERISA..................................................................58
7.10 Inspection of Property and Books and Records...........................................58
7.11 Environmental Laws.....................................................................58
7.12 Use of Proceeds........................................................................58
7.13 Solvency...............................................................................58
7.14 Further Assurances.....................................................................58
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
7.15 Foreign Subsidiaries Security..........................................................59
7.16 Cash Management Systems................................................................59
ARTICLE VIII
NEGATIVE COVENANTS..................................................................60
8.01 Limitation on Liens....................................................................60
8.02 Disposition of Assets..................................................................61
8.03 Consolidations and Mergers.............................................................62
8.04 Loans and Investments..................................................................62
8.05 Limitation on Indebtedness.............................................................63
8.06 Transactions with Affiliates...........................................................64
8.07 Use of Proceeds........................................................................64
8.08 Contingent Obligations.................................................................65
8.09 Joint Ventures.........................................................................65
8.10 Lease Obligations......................................................................65
8.11 Restricted Payments....................................................................65
8.12 ERISA..................................................................................66
8.13 Change in Business.....................................................................66
8.14 Accounting Changes.....................................................................66
8.15 Minimum Net Worth......................................................................66
8.16 Leverage Ratio.........................................................................66
8.17 Senior Leverage Ratio..................................................................67
8.18 Interest Coverage Ratio................................................................67
8.19 Current Ratio..........................................................................68
8.20 Operating Income.......................................................................68
ARTICLE IX
EVENTS OF DEFAULT...................................................................68
9.01 Event of Default.......................................................................68
(a) Non-Payment...................................................................68
(b) Representation or Warranty....................................................68
(c) Specific Defaults.............................................................68
(d) Other Defaults................................................................68
(e) Cross-Default.................................................................69
(f) Insolvency; Voluntary Proceedings.............................................69
(g) Involuntary Proceedings.......................................................69
(h) ERISA.........................................................................70
(i) Monetary Judgments............................................................70
(j) Non-Monetary Judgments........................................................70
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
(k) Collateral....................................................................70
(l) Change of Control.............................................................70
(m) Guarantor Defaults............................................................70
(n) Invalidity of Subordination Provisions........................................71
(o) Amendment.....................................................................71
9.02 Remedies..............................................................................71
9.03 Rights Not Exclusive..................................................................71
ARTICLE X
THE AGENT...........................................................................72
10.01 Appointment and Authorization; "Agent"................................................72
10.02 Delegation of Duties..................................................................72
10.03 Liability of Agent....................................................................72
10.04 Reliance by Agent.....................................................................73
10.05 Notice of Default.....................................................................73
10.06 Credit Decision.......................................................................73
10.07 Indemnification of Agent..............................................................74
10.08 Agent in Individual Capacity..........................................................74
10.09 Successor Agent.......................................................................75
10.10 Withholding Tax.......................................................................75
ARTICLE XI
MISCELLANEOUS.......................................................................76
11.01 Amendments and Waivers................................................................76
11.02 Notices...............................................................................77
11.03 No Waiver; Cumulative Remedies........................................................78
11.04 Costs and Expenses....................................................................78
11.05 Company Indemnification...............................................................78
11.06 Payments Set Aside....................................................................79
11.07 Successors and Assigns................................................................79
11.08 Assignments, Participations, etc......................................................79
11.09 Confidentiality.......................................................................81
11.10 Set-off...............................................................................81
11.11 Automatic Debits of Fees..............................................................82
11.12 Notification of Addresses, Lending Offices, Etc.......................................82
11.13 Counterparts..........................................................................82
11.14 Severability..........................................................................82
11.15 No Third Parties Benefited............................................................82
11.16 Governing Law and Jurisdiction........................................................82
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
11.17 Waiver of Jury Trial..................................................................83
11.18 Financial Covenants Adjustments.......................................................83
11.19 Entire Agreement......................................................................83
</TABLE>
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<PAGE> 8
SCHEDULES
Schedule 2.01 Commitments
Schedule 6.11 Permitted Liabilities
Schedule 6.19 Subsidiaries and Minority Interests
Schedule 8.01 Existing Liens
Schedule 8.04 Existing Investments
Schedule 8.05 Existing Indebtedness
Schedule 8.08 Contingent Obligations
Schedule 11.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Legal Opinion of Company's Counsel
Exhibit D-2 Form of Legal Opinion of Special Illinois Counsel to the Company
Exhibit E Form of Assignment and Acceptance
Exhibit F-1 Form of Promissory Note - Revolving Loan
Exhibit F-2 Form of Promissory Note - Term Loan
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<PAGE> 9
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT is entered into as of February 19, 1997, among
Waterlink, Inc., a Delaware corporation (the "COMPANY"), the several financial
institutions from time to time party to this Agreement (collectively, the
"BANKS"; individually, a "BANK"), and Bank of America Illinois, as letter of
credit issuing bank and as agent for the Banks.
WHEREAS, the Banks have agreed to make available to the Company a term
loan and a revolving credit facility with a letter of credit subfacility upon
the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.01 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"ACQUISITION" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly,
in (a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary, or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary) provided that the Company or the Subsidiary is the
surviving entity.
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the
ownership of voting securities, membership interests, by contract, or
otherwise.
"AGENT" means BAI in its capacity as agent for the Banks
hereunder, and any successor agent arising under Section 10.09.
"AGENT-RELATED PERSONS" means BAI and any successor agent
arising under Section 10.09 and any successor letter of credit issuing
bank hereunder, together with their respective Affiliates, and the
officers, directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
<PAGE> 10
"AGENT'S PAYMENT OFFICE" means the address for payments set
forth on Schedule 11.02 or such other address as the Agent may from
time to time specify.
"AGREEMENT" means this Credit Agreement.
"APPLICABLE MARGIN" shall mean on any date the applicable
percentage set forth below based upon the Level as shown in the
Compliance Certificate then most recently delivered to the Banks:
<TABLE>
<CAPTION>
Revolving Loans Term Loans Letters of Credit
--------------- ---------- -----------------
Offshore Base Offshore Base
Level Rate Rate Rate Rate Non-Financial Financial
----- ---------- ---- -------- ---- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
I 2.25% .50% 2.50% .75% 1.125% 2.250%
II 2.00% .25% 2.25% .50% 1.000% 2.000%
III 1.75% -0- 2.00% .25% .875% 1.750%
</TABLE>
PROVIDED, HOWEVER that for the period from the date hereof to March
31, 1997, the Applicable Margin shall be deemed to be Level I; PROVIDED
FURTHER that, if the Company shall have failed to deliver to the Banks
by the date required hereunder any Compliance Certificate pursuant to
Section 7.02(b), then from the date such Compliance Certificate was
required to be delivered until the date of such delivery the Applicable
Margin shall be deemed to be Level I. Each change in the Applicable
Margin shall take effect with respect to all outstanding Loans on the
third Business Day immediately succeeding the day on which such
Compliance Certificate is received by the Agent. Notwithstanding the
foregoing, no reduction in the Applicable Margin shall be effected if a
Default or an Event of Default shall have occurred and be continuing on
the date when such change would otherwise occur, it being understood
that on the third Business Day immediately succeeding the day on which
such Default or Event of Default is either waived or cured (assuming no
other Default or Event of Default shall be then pending), the
Applicable Margin shall be reduced (on a prospective basis) in
accordance with the then most recently delivered Compliance
Certificate.
"APPROVED ALTERNATE CURRENCY" means Sterling, Deutschmarks,
Krona or ECU's or any other currency (other than Dollars) approved by
the Agent and the Issuing Bank.
"ASSIGNEE" has the meaning specified in Section 11.08(a).
"ATTORNEY COSTS" means and includes all reasonable and
customary fees and disbursements of any law firm or other external
counsel, the allocated cost of internal legal services and all
disbursements of internal counsel.
"BAI" means Bank of America Illinois, an Illinois banking
association.
-2-
<PAGE> 11
"BANK" has the meaning specified in the introductory clause
hereto. References to the "Banks" shall include BAI, including in its
capacity as Issuing Bank; for purposes of clarification only, to the
extent that BAI may have any rights or obligations in addition to those
of the Banks due to its status as Issuing Bank, its status as such will
be specifically referenced.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss.101, ET SEQ.).
"BASE RATE" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BAI
in Chicago, Illinois as its "reference rate." The "reference rate" is a
rate set by BAI based upon various factors including BAI's costs and
desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be priced
at, above, or below such announced rate. Any change in the reference
rate announced by BAI shall take effect at the opening of business on
the day specified in the public announcement of such change.
"BASE RATE LOAN" means a Revolving Loan, or an L/C Advance,
that bears interest based on the Base Rate.
"BORROWING" means a borrowing hereunder consisting of Loans of
the same Type made to the Company on the same day by the Banks under
Article II, and, in the case of Offshore Rate Loans, having the same
Interest Period.
"BORROWING DATE" means any date on which a Borrowing occurs
under Section 2.03.
"BRANTLEY" means Brantley Venture Partners, III, a Delaware
limited partnership.
"BRANTLEY GUARANTY" means the Brantley Guaranty, dated as of
the date hereof, duly executed and delivered by Brantley in favor of
the Agent, on behalf of, INTER ALIA, the Banks, as the same may be
amended, supplemented or otherwise modified from time to time.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in Chicago or San Francisco are
authorized or required by law to close and, if the applicable Business
Day relates to any Offshore Rate Loan, means such a day on which
dealings are carried on in the applicable offshore interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"CAPITAL EXPENDITURES" means, for any period and with respect
to any Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or
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<PAGE> 12
leasing of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period)
which should be capitalized under GAAP on a consolidated balance sheet
of such Person and its Subsidiaries.
"CAPITAL LEASE" has the meaning specified in the definition of
"Capital Lease Obligations."
"CAPITAL LEASE OBLIGATIONS" means all monetary obligations of
the Company or any of its Subsidiaries under any leasing or similar
arrangement which, in accordance with GAAP, is classified as a capital
lease ("CAPITAL LEASE").
"CASH EQUIVALENTS" means:
(a) securities issued or fully guaranteed or insured
by the United States Government or any agency thereof and
backed by the full faith and credit of the United States
having maturities of not more than six months from the date of
acquisition;
(b) certificates of deposit, time deposits,
Eurodollar time deposits, repurchase agreements, reverse
repurchase agreements, or bankers' acceptances, having in each
case a tenor of not more than six months, issued by any Bank,
or by any U.S. commercial bank having combined capital and
surplus of not less than $100,000,000 whose short term
securities are rated at least A-1 by Standard & Poor's
Corporation and P-1 by Moody's Investors Service, Inc.;
(c) commercial paper of an issuer rated at least A-1
by Standard & Poor's Corporation or P-1 by Moody's Investors
Service Inc. and in either case having a tenor of not more
than three months.
"CASH COLLATERALIZE" means to pledge and deposit with or
deliver to the Agent, for the benefit of the Agent, the Issuing Bank
and the Banks, as additional collateral for the L/C Obligations, cash
or deposit account balances pursuant to documentation in form and
substance satisfactory to the Agent and the Issuing Bank (which
documents are hereby consented to by the Banks). Derivatives of such
term shall have corresponding meaning. The Company hereby grants the
Agent, for the benefit of the Agent, the Issuing Bank and the Banks, a
security interest in all such cash and deposit account balances. Cash
collateral shall be maintained in blocked deposit accounts at BAI. The
Agent shall invest any and all available funds deposited in such
deposit accounts, within 10 business days after the date the relevant
funds become available, in securities issued or fully guaranteed or
insured by the United States Government or any agency thereof backed by
the full faith and credit of the United States having maturities of
three months from the date of acquisition thereof (collectively,
"Government Obligations"). The Company hereby acknowledges and agrees
that the Agent shall not have any liability with respect to, and the
Company hereby indemnifies the Agent against, any loss resulting from
the acquisition of the Government Obligations and the Agent shall not
have any obligation to monitor the trading activity of
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<PAGE> 13
any such Governmental Obligations on and after the acquisition thereof
for the purpose of obtaining the highest possible return with respect
thereto, the Agent's responsibility being limited to acquiring such
Governmental Obligations.
"CHANGE OF CONTROL" means (i) other than as a result of an
initial public offering of the capital stock of the Company, the
failure of the Closing Date Stockholders and their Affiliates to
beneficially own and control at least a majority of the issued and
outstanding shares of the capital stock of the Company entitled
(without regard to the occurrence of any contingency) to vote for the
election of members of the Board of Directors of the Company, or
failure of the Closing Date Stockholders and their Affiliates to own
and control more than 51% of the capital stock of the Company
outstanding as of the Closing Date, (ii) Theodore F. Savastano at any
time in the opinion of the Majority Banks ceases to be actively engaged
in the day to day management of the Company or (iii) any Person or any
two or more Persons acting in concert (in any such case, excluding the
Closing Date Stockholders and their Affiliates) acquiring beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Exchange Act), directly or indirectly, of
capital stock of the Company (or other securities convertible into such
capital stock) representing 20% or more of the combined voting power of
all capital stock of the Company entitled to vote in the election of
directors, other than capital stock having such power only by reason of
the happening of a contingency.
"CLOSING DATE" means the date on which all conditions
precedent set forth in Section 5.01 are satisfied or waived by all
Banks.
"CLOSING DATE STOCKHOLDERS" means, collectively, Brantley
Venture Partners, III, Theodore F. Savastano, Environmental
Opportunities Fund, River Cities Capital Fund IPP95, L.P. and William
E. Simon & Sons, L.L.C.
"CODE" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
"COLLATERAL" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by the Company or any
Guarantor in or upon which a Lien now or hereafter exists in favor of
the Banks, or the Collateral Agent on behalf of the Banks, whether
under this Agreement or under any other documents executed by any such
Persons and delivered to the Collateral Agent.
"COLLATERAL AGENT" means the Agent acting in its capacity as
Collateral Agent pursuant to the Collateral Documents (other than the
Guaranty).
"COLLATERAL DOCUMENTS" means, collectively, (a) the Security
Agreements, the Guaranty, the Pledge Agreements, the Intellectual
Property Assignments and all other security agreements, patent and
trademark assignments, guarantees and other similar agreements between
the Company or its Subsidiaries and the Banks or the Collateral Agent
for the benefit of the Banks now or hereafter delivered to the Banks or
the
-5-
<PAGE> 14
Collateral Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable
documents now or hereafter filed in accordance with the UCC or
comparable law) against the Company or any Subsidiaries or any
Guarantor as debtor in favor of the Banks or the Collateral Agent for
the benefit of the Banks as secured party and (b) any amendments,
supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"COMMITMENT", as to each Bank, has the meaning specified in
Section 2.01(b).
"COMPANY" means Waterlink, Inc., a Delaware corporation.
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of EXHIBIT C.
"CONSOLIDATED CURRENT ASSETS" means, as of any date of
determination, all amounts which would, in accordance with GAAP, be
included under current assets on a consolidated balance sheet of the
Company and its Subsidiaries.
"CONSOLIDATED CURRENT LIABILITIES" means, as of any date of
determination, all amounts which would, in accordance with GAAP, be
included under current liabilities on a consolidated balance sheet of
the Company and its Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, gross
consolidated interest expense for the period (including all
commissions, discounts, fees and other charges in connection with
standby letters of credit and similar instruments) for the Company and
its Subsidiaries, PLUS the portion of the upfront costs and expenses
for Swap Contracts (to the extent not included in gross interest
expense) fairly allocated to such Swap Contracts as expenses for such
period, as determined in accordance with GAAP.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise
acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such
primary obligation, or to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency
or any balance sheet item, level of income or financial condition of
the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any such primary obligation against loss in respect
thereof (each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety
Instrument (other than any Letter of Credit) issued for the account of
that Person or as to which that Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another
Person if the relevant contract or other
-6-
<PAGE> 15
related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever
performed or tendered, or (d) in respect of any Swap Contract. The
amount of any Contingent Obligation shall, in the case of Guaranty
Obligations, be deemed equal to the stated or determinable amount of
the primary obligation in respect of which such Guaranty Obligation is
made or, if not stated or if indeterminable, the maximum reasonably
anticipated liability in respect thereof, and in the case of other
Contingent Obligations other than in respect of Swap Contracts, shall
be equal to the maximum reasonably anticipated liability in respect
thereof and, in the case of Contingent Obligations in respect of Swap
Contracts, shall be equal to the Swap Termination Value.
"CONTRACTUAL OBLIGATION" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or by
which it or any of its property is bound.
"CONVERSION/CONTINUATION DATE" means any date on which, under
Section 2.04, the Company (a) converts Loans of one Type to another
Type, or (b) continues as Loans of the same Type, but with a new
Interest Period, Loans having Interest Periods expiring on such date.
"CREDIT EXTENSION" means and includes (a) the making of any
Loans hereunder, and (b) the Issuance of any Letters of Credit
hereunder.
"DEFAULT" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.
"DISPOSITION" means (a) the sale, lease, conveyance or other
disposition of Property in excess of $100,000, other than sales or
other dispositions expressly permitted under Section 8.02, and (b) the
sale or transfer by the Company or any Subsidiary of the Company of any
equity securities issued by any Subsidiary of the Company and held by
such transferor Person.
"DEUTSCHMARKS" means the lawful currency of Germany.
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the
United States.
"ECU" means the European Currency Unit used in the European
Monetary System.
"DOMESTIC SUBSIDIARY" means each Subsidiary of the Company
that is organized under the laws of the United States or any state
thereof.
-7-
<PAGE> 16
"EBIT" means, for any period, for the Company and its
Subsidiaries on a consolidated basis, determined in accordance with
GAAP, the sum of (a) net income (or net loss) for such period PLUS (b)
all amounts treated as expenses for interest to the extent included in
the determination of such net income (or loss), PLUS (c) all accrued
taxes on or measured by income to the extent included in the
determination of such net income (or loss); PROVIDED, HOWEVER, that net
income (or loss) shall be computed for these purposes without giving
effect to extraordinary losses or extraordinary gains and; PROVIDED
FURTHER, that for the purpose of computations under (x) Sections 8.16,
8.17 and 8.18 for any business acquired during the period of
determination, EBIT for such period shall be determined on a pro forma
basis as if such acquisition had occurred as of the beginning of such
period, and (y) SECTION 5.02(D), EBIT with respect to German Sub and
Sweden Sub shall be determined on the basis of the Nordic Water
Products projections delivered to the Banks pursuant to SECTION
5.02(D).
"EBITDA" means, for any period, for the Company and its
Subsidiaries on a consolidated basis, determined in accordance with
GAAP, the sum of (a) the net income (or net loss) for such period PLUS
(b) all amounts treated as expenses for depreciation and interest and
the amortization of intangibles of any kind to the extent included in
the determination of such net income (or loss), PLUS (c) all accrued
taxes on or measured by income to the extent included in the
determination of such net income (or loss); PROVIDED, HOWEVER, that net
income (or loss) shall be computed for these purposes without giving
effect to extraordinary losses or extraordinary gains and; PROVIDED
FURTHER, that for the purpose of computations under (x) Sections 8.16,
8.17 and 8.18 for any business acquired during the period of
determination, EBITDA for such period shall be determined on a pro
forma basis as if such acquisition had occurred as of the beginning of
such period, and (y) SECTION 5.02(D), EBITDA with respect to German Sub
and Sweden Sub shall be determined on the basis of the Nordic Water
Products projections delivered to the Banks pursuant to SECTION 5.02(D)
.
"EFFECTIVE AMOUNT" means (a) with respect to any Revolving
Loans on any date, the aggregate outstanding principal amount thereof
after giving effect to any Borrowings and prepayments or repayments of
Revolving Loans occurring on such date; (b) with respect to any
outstanding L/C Obligations on any date, the amount of such L/C
Obligations on such date after giving effect to any Issuances of
Letters of Credit occurring on such date and any other changes in the
aggregate amount of the L/C Obligations as of such date, including as a
result of any reimbursements of outstanding unpaid drawings under any
Letters of Credit or any reductions in the maximum amount available for
drawing under Letters of Credit taking effect on such date; and (c)
with respect to any Term Loans on any date, the aggregate outstanding
principal amount thereof after giving effect to any Borrowing of Term
Loans occurring on such date. For purposes of Section 2.07, the
Effective Amount shall be determined without giving effect to any
mandatory prepayments to be made under said Section.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least
-8-
<PAGE> 17
$100,000,000; (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of
any such country, and having a combined capital and surplus of at least
$100,000,000, PROVIDED that such bank is acting through a branch or
agency located in the United States; and (c) a Person that is primarily
engaged in the business of commercial banking and that is (i) a
Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is
a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
or responsibility for violation of any Environmental Law, or for
release or injury to the environment.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters.
"ENVIRONMENTAL PERMITS" has the meaning specified in Section
6.12(b).
"ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of
the Code for purposes of provisions relating to Section 412 of the
Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year
in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a cessation of operations which is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by the Company or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or
4041A of ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan or Multiemployer Plan; or
(f) the imposition of any liability under Title IV of ERISA, other than
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon
the Company or any ERISA Affiliate.
"EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in
the definition of "Offshore Rate".
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<PAGE> 18
"EVENT OF DEFAULT" means any of the events or circumstances
specified in Section 9.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and
any Governmental Authority succeeding to any of its principal
functions.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate for such day will be the arithmetic
mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City
time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Agent.
"FEE LETTER" has the meaning specified in Section 2.10(a).
"FINANCIAL LETTERS OF CREDIT" means any Letter of Credit which
either the Agent or the Issuing Bank determines is required under
applicable law (including regulations and guidelines established by
banking regulators) relating to reserve requirements to be classified
as a financial letter of credit.
"FOREIGN SUBSIDIARY" means each Subsidiary of the Company that
is not a Domestic Subsidiary.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
"FURTHER TAXES" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or
similar charges (including, without limitation, net income taxes and
franchise taxes), and all liabilities with respect thereto, imposed by
any jurisdiction on account of amounts payable or paid pursuant to
Section 4.01.
"FX TRADING OFFICE" means the Foreign Exchange Trading Center
#5193, San Francisco, California, of the Bank of America National Trust
and Savings Association, or such other foreign exchange trading center
of the Bank of America National Trust and Savings Association as it may
designate from time to time.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American
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<PAGE> 19
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies
with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances
as of the date of determination; PROVIDED, HOWEVER, that for purposes
of all computations required to be made with respect to compliance by
the Company with SECTIONS 8.15, 8.16, 8.17, 8.18, 8.19 and 8.20, such
term shall mean generally accepted accounting principles as in effect
on the date of this Agreement, applied in a manner consistent with
those used in preparing the financial statements referred to in SECTION
6.11.
"GERMAN SUB" means Provista Einhundertsechsundfunfzigste
Verwaltungsgesellschaft mgH (to be known as Waterlink (Germany) GmbH),
a German corporation.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTOR" means each Domestic Subsidiary of the Company and,
to the extent requested pursuant to Section 7.15, each Foreign
Subsidiary of the Company.
.
"GUARANTY" means the Guaranty, dated as of the date hereof,
duly executed and delivered by Guarantors in favor of the Agent, on
behalf of the Banks, as the same may be amended, supplemented or
otherwise modified from time to time.
"GUARANTY OBLIGATION" has the meaning specified in the
definition of "Contingent Obligation."
"HAZARDOUS MATERIALS" means any toxic or hazardous waste,
substance or chemical or any pollutant, contaminant, chemical or other
substance defined or regulated pursuant to any Environmental Law,
including, without limitation, asbestos, petroleum, crude oil or any
fraction thereof.
"HONOR DATE" has the meaning specified in Section 3.03(b).
"INDEBTEDNESS" of any Person means, without duplication, (a)
all indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course
of business on ordinary terms); (c) all non-contingent reimbursement or
payment obligations with respect to Surety Instruments and all L/C
Obligations; (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses; (e)
all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case
with respect to property acquired by the Person (even though the
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<PAGE> 20
rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property);
(f) all obligations with respect to capital leases; (g) all
indebtedness referred to in clauses (a) through (f) above secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of
such Indebtedness; and (h) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in
clauses (a) through (g) above; it being understood and agreed that the
Company's obligation to fund $1,200,000 of Sweden Sub's employee
benefit plans in connection with the initial capitalization thereof
shall not be included within the definition of "Indebtedness".
"INDEMNIFIED LIABILITIES" has the meaning specified in Section
11.05.
"INDEMNIFIED PERSON" has the meaning specified in Section
11.05.
"INDEPENDENT AUDITOR" has the meaning specified in Section
7.01(a).
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshaling of assets for creditors,
or other, similar arrangement in respect of its creditors generally or
any substantial portion of its creditors; undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
"INTELLECTUAL PROPERTY ASSIGNMENTS" means, collectively, that
certain Patent Assignment, Trademark Assignment and Copyright
Assignment duly executed and delivered by each of the Company and each
Guarantor in favor of the Collateral Agent, for the benefit of itself
and the Banks, as the same may be amended, supplemented or otherwise
modified from time to time.
"INTEREST PAYMENT DATE" means, as to any Offshore Rate Loan,
the last day of each Interest Period applicable to such Offshore Rate
Loan and, as to any Base Rate Loan, the last Business Day of each
March, June, September and December and each date such Loan is
converted into another Type of Loan; PROVIDED, HOWEVER, that if any
Interest Period exceeds three months, the date that falls three months
after the beginning of such Interest Period and after each Interest
Payment Date thereafter is also an Interest Payment Date.
"INTEREST PERIOD" means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two,
three or six months thereafter as selected by the Company in its Notice
of Borrowing or Notice of Conversion/Continuation;
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<PAGE> 21
PROVIDED that:
(a) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
(b) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest
Period;
(c) no Interest Period for any Term Loan shall extend
beyond the Term Maturity Date and no Interest Period for any
Revolving Loan shall extend beyond the Revolving Termination
Date; and
(d) no Interest Period applicable to a Term Loan or
portion thereof shall extend beyond any date upon which is due
any scheduled principal payment in respect of the Term Loans
unless the aggregate principal amount of Term Loans
represented by Base Rate Loans or Offshore Rate Loans having
Interest Periods that will expire on or before such date,
equals or exceeds the amount of such principal payment.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"ISSUANCE DATE" has the meaning specified in Section 3.01(a).
"ISSUE" means, with respect to any Letter of Credit, to issue
or to extend the expiry of, or to renew or increase the amount of, such
Letter of Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" have
corresponding meanings.
"ISSUING BANK" means BAI in its capacity as issuer of one or
more Letters of Credit hereunder, together with any replacement letter
of credit issuer arising under Section 10.01(b) or Section 10.09.
"JOINT VENTURE" means a single-purpose corporation,
partnership, limited liability company, joint venture or other similar
legal arrangement (whether created by contract or conducted through a
separate legal entity) now or hereafter formed by the Company or any of
its Subsidiaries with another Person in order to conduct a common
venture or enterprise with such Person.
"KRONA" means the lawful currency of Sweden.
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<PAGE> 22
"L/C ADVANCE" means each Bank's participation in any L/C
Borrowing in accordance with its Pro Rata Share.
"L/C AMENDMENT APPLICATION" means an application form for
amendment of outstanding standby or commercial documentary letters of
credit as shall at any time be in use at the Issuing Bank, as the
Issuing Bank shall request.
"L/C APPLICATION" means an application form for issuances of
standby or commercial documentary letters of credit as shall at any
time be in use at the Issuing Bank, as the Issuing Bank shall request.
"L/C BORROWING" means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Borrowing of Revolving Loans
under Section 3.03(c).
"L/C COMMITMENT" means the commitment of the Issuing Bank to
Issue, and the commitment of the Banks severally to participate in,
Letters of Credit from time to time Issued or outstanding under Article
III, in an aggregate amount not to exceed on any date the amount of
$6,000,000, as the same shall be reduced as a result of a reduction in
the L/C Commitment pursuant to Section 2.06; PROVIDED that the L/C
Commitment is a part of the combined Commitments, rather than a
separate, independent commitment.
"L/C OBLIGATIONS" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding,
plus (b) the amount of all unreimbursed drawings under all Letters of
Credit, including all outstanding L/C Borrowings.
"L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Bank's
standard form documents for letter of credit issuances.
"LENDING OFFICE" means, as to any Bank, the office or offices
of such Bank specified as its "Lending Office" or "Domestic Lending
Office" or "Offshore Lending Office", as the case may be, on SCHEDULE
11.02, or such other office or offices as such Bank may from time to
time notify the Company and the Agent.
"LETTERS OF CREDIT" means any letters of credit (whether
Financial Letters of Credit or Non-Financial Letters of Credit) Issued
by the Issuing Bank pursuant to Article III.
"LEVEL" means, and includes, Level I, Level II or Level III,
whichever is in effect at the relevant time.
"LEVEL I" shall exist at any time the Leverage Ratio is equal
to or greater than 3.50:1.0.
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<PAGE> 23
"LEVEL II" shall exist at any time the Leverage Ratio is less
than 3.50:1.0 but equal to or greater than 2.50:1.0.
"LEVEL III shall exist at any time the Leverage Ratio is less
than 2.50:1.0.
"LEVERAGE RATIO" means, with respect to any period, the ratio
of total consolidated Indebtedness as of the end of that period to
EBITDA for that period.
"LIEN" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as
debtor, under the Uniform Commercial Code or any comparable law) and
any contingent or other agreement to provide any of the foregoing, but
not including the interest of a lessor under an operating lease.
"LOAN" means an extension of credit by a Bank to the Company
under Article II or Article III in the form of a Revolving Loan, Term
Loan or L/C Borrowing.
"LOAN DOCUMENTS" means this Agreement, any Notes, the Fee
Letters, the L/C-Related Documents, the Collateral Documents and all
other documents delivered to the Agent or any Bank in connection
herewith.
"MAJORITY BANKS" means (a) at any time two Banks are party to
this Agreement, both Banks and (b) at any other time, prior to the
termination of the Commitment, Banks in the aggregate at least 66-2/3%
of the then aggregate unpaid principal amount of Term Loans, PLUS the
aggregate Commitments or, if the Commitments have been terminated,
Banks holding at least 66-2/3% of the then unpaid principal amount of
Loans and L/C Obligations.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the
Company or the Company and its Subsidiaries taken as a whole or as to
any Subsidiary; (b) a material impairment of the ability of the Company
or any Subsidiary to perform under any Loan Document and to avoid any
Event of Default; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Company or any
Subsidiary of any Loan Document.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any
ERISA Affiliate makes, is making, or
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<PAGE> 24
is obligated to make contributions or, during the preceding three
calendar years, has made, or been obligated to make, contributions.
"NET INCOME" shall mean for any period, the net income (or
loss) of the Company and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in
conformity with GAAP, PROVIDED that there shall be excluded (i) the
income (or loss) of any entity accrued prior to the date it becomes a
Subsidiary of the Company or is merged into or consolidated with the
Company or any Subsidiary or on which its assets are acquired by the
Company or any Subsidiary of the Company and (ii) the income of any
Subsidiary of the Company to the extent that the declaration or payment
of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary.
"NET ISSUANCE PROCEEDS" means, in respect of any issuance of
debt or equity, cash proceeds and non-cash proceeds received or
receivable in connection therewith, net of reasonable out-of-pocket
costs and expenses paid or incurred in connection therewith in favor of
any Person not an Affiliate of the Company.
"NET PROCEEDS" means proceeds in cash, checks or other cash
equivalent financial instruments (including Cash Equivalents) as and
when received by the Person making a Disposition, net of: (a) the
direct costs relating to such Disposition (excluding amounts payable to
the Company or any Affiliate of the Company), (b) sale, use or other
transaction taxes paid or payable as a result thereof, (c) amounts
required to be applied to repay principal, interest and prepayment
premiums and penalties on Indebtedness secured by a Lien on the asset
which is the subject of such Disposition, and (d) amounts related to
the sale of any demonstration plant the proceeds of which are utilized
by the Company for new demonstration plants and/or marketing expenses.
"NET WORTH" means shareholders' equity as determined in
accordance with GAAP.
"NON-FINANCIAL LETTERS OF CREDIT" means Letters of Credit
which are not Financial Letters of Credit.
"NORDIC ACQUISITION" means the acquisition of substantially
all of the assets of the Nordic Water Products Group of Anglian Water
Plc by the Company, through German Sub and Sweden Sub, pursuant to the
Nordic Acquisition Documents.
"NORDIC ACQUISITION DATE" means that date upon which the
Nordic Acquisition is consummated in accordance with the terms and
conditions contained in the Nordic Acquisition Documents and the
conditions precedent contained in SECTION 5.02 shall have been
satisfied pursuant to the terms contained therein.
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<PAGE> 25
"NORDIC ACQUISITION DOCUMENTS" means the executed Purchase
Agreement between the Company and Anglian Water Plc, and all other
documents entered into or delivered in connection therewith.
"NOTE" means a promissory note executed by the Company in
favor of a Bank pursuant to Section 2.02(b), in substantially the form
of EXHIBIT F-1, with respect to Revolving Loans, and EXHIBIT F-2, with
respect to Term Loans.
"NOTICE OF BORROWING" means a notice in substantially the form
of EXHIBIT A.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in
substantially the form of EXHIBIT B.
"OBLIGATIONS" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by the Company to any Bank, the Agent, the Collateral Agent, or any
Indemnified Person, whether direct or indirect (including those
acquired by assignment), absolute or contingent, due or to become due,
now existing or hereafter arising.
"OFFSHORE RATE" means, for any Interest Period, with respect
to Offshore Rate Loans comprising part of the same Borrowing, the rate
of interest per annum (rounded upward to the next 1/16th of 1%)
determined by the Agent as follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect
on such day (whether or not applicable to any Bank) under
regulations issued from time to time by the FRB for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum determined by the
Agent to be the rate of interest per annum at which dollar
deposits in the approximate amount of the amount of the Loan
to be made or continued as, or converted into, an Offshore
Rate Loan by the Agent and having a maturity comparable to
such Interest Period would be offered to major banks in the
London interbank market at their request at approximately
11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.
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<PAGE> 26
The Offshore Rate shall be adjusted automatically as to all Offshore
Rate Loans then outstanding as of the effective date of any change in
the Eurodollar Reserve Percentage.
"OFFSHORE RATE LOAN" means a Loan that bears interest based on
the Offshore Rate.
"ORGANIZATION DOCUMENTS" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, and
all applicable resolutions of the board of directors (or any committee
thereof) of such corporation.
"OTHER TAXES" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Documents.
"PARTICIPANT" has the meaning specified in Section 11.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
"PENSION PLAN" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which the Company sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a multiple employer plan (as described
in Section 4064(a) of ERISA) has made contributions at any time during
the immediately preceding five (5) plan years.
"PERMITTED LIENS" has the meaning specified in Section 8.01.
"PERMITTED SWAP OBLIGATIONS" means all obligations (contingent
or otherwise) of the Company or any Subsidiary existing or arising
under Swap Contracts, provided that each of the following criteria is
satisfied: (a) such obligations are (or were) entered into by such
Person in the ordinary course of business for the purpose of directly
mitigating risks associated with liabilities, commitments or assets
held or reasonably anticipated by such Person, or changes in the value
of securities issued by such Person in conjunction with a securities
repurchase program not otherwise prohibited hereunder, and not for
purposes of speculation or taking a "market view;" (b) such Swap
Contracts do not contain (i) any provision ("walk-away" provision)
exonerating the non-defaulting party from its obligation to make
payments on outstanding transactions to the defaulting party, or (ii)
any provision creating or permitting the declaration of an event of
default, termination event or similar event upon the occurrence of an
Event of Default hereunder (other than an Event of Default under
Section 9.01(a)).
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<PAGE> 27
"PERSON" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"PLAN" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Company sponsors or maintains or to which the
Company makes, is making, or is obligated to make contributions and
includes any Pension Plan.
"PLEDGE AGREEMENTS" means, collectively, that certain Pledge
Agreement, duly executed and delivered by each of the Company and the
Guarantors pledging the stock of its Subsidiaries to the Collateral
Agent, for the benefit of itself and the Banks, as the same may be
amended, supplemented or otherwise modified from time to time.
"PLEDGED COLLATERAL" has the meaning specified in the relevant
Pledge Agreement.
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, and whether tangible or
intangible.
"PRO RATA SHARE" means, as to any Bank at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of such Bank's Commitment divided by the
combined Commitments of all Banks.
"REPORTABLE EVENT" means, any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"REQUIREMENT OF LAW" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon the Person or any of its property or to which the
Person or any of its property is subject.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of
the Company, or any other officer having substantially the same
authority and responsibility.
"REVOLVING LOAN" has the meaning specified in Section 2.01(b).
"REVOLVING TERMINATION DATE" means the earlier to occur of:
(a) February 18, 2000; and
(b) the date on which the Commitments terminate in
accordance with the provisions of this Agreement.
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<PAGE> 28
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SECURITY AGREEMENTS" means that certain Security Agreement,
duly executed and delivered by each of the Company and the Guarantors
in favor of the Collateral Agent, for the benefit of itself and the
Banks, as the same may be amended, supplemented or otherwise modified
from time to time.
"SENIOR LEVERAGE RATIO" means, with respect to any period, the
ratio of total consolidated Indebtedness (other than (a) Subordinated
Debt and (b) Indebtedness in an amount equal to the sum of Loans and
L/C Obligations which, on the date of determination, would be subject
to the Brantley Guaranty) as of the end of that period to EBITDA for
that period.
"SCHEDULED REPAYMENT" has the meaning specified in Section
2.08(a).
"SOLVENT" means, when used with respect to a Person, that (a)
the fair saleable value of the assets of such Person is in excess of
the total amount of the present value of its liabilities (including for
purposes of this definition all liabilities (including loss reserves as
determined by such Person), whether or not reflected on a balance sheet
prepared in accordance with GAAP and whether direct or indirect, fixed
or contingent, secured or unsecured, disputed or undisputed), (b) such
Person is able to pay its debts or obligations in the ordinary course
as they mature and (c) such Person does not have unreasonably small
capital to carry out its business as conducted and as proposed to be
conducted. "Solvency" shall have a correlative meaning.
"SPOT RATE" for a currency means the rate generally quoted by
the Bank of America National Trust and Savings Association as the spot
rate for the purchase by the Bank of America National Trust and Savings
Association of such currency with another currency through its FX
Trading Office on the date two Business Days prior to the date as of
which the foreign exchange computation is made.
"STERLING" means the lawful currency of the United Kingdom.
"SUBORDINATED DEBT" means the Indebtedness listed as items 2,
4, and 6 on Schedule 8.05 and Indebtedness permitted to be incurred by
the Company pursuant to SECTION 8.05(G).
"SUBSIDIARY" of a Person means any corporation , association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
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<PAGE> 29
"SURETY INSTRUMENTS" means all letters of credit (including
standby and documentary), banker's acceptances, bank guaranties,
shipside bonds, surety bonds and similar instruments.
"SWAP CONTRACT" means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or
equity index swap or option, bond, note or bill option, interest rate
option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any option
to enter into any of the foregoing) or any combination of the
foregoing, and, unless the context otherwise clearly requires, any
master agreement relating to or governing any or all of the foregoing.
"SWAP TERMINATION VALUE" means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for
any date on or after the date such Swap Contracts have been closed out
and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date referenced
in clause (a) the amount(s) determined as the mark-to-market value(s)
for such Swap Contracts, as determined by the Company based upon one or
more mid-market or other readily available quotations provided by any
recognized dealer in such Swap Contracts (which may include any Bank).
"SWEDEN SUB" means Gigantissimo 2061 AB (to be known as
Waterlink (Sweden) AB), a Swedish corporation.
"TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the
case of each Bank and the Agent, respectively, taxes imposed on or
measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or the Agent, as
the case may be, is organized or maintains a lending office.
"TERM COMMITMENT" means Eleven Million dollars ($11,000,000).
"TERM LOAN" has the meaning specified in Section 2.01(a).
"TERM MATURITY DATE" means February 19, 2002.
"TYPE" means, with respect to any Borrowing, its nature as a
Base Rate Loan or an Offshore Rate Loan.
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Plan's assets, determined in accordance with the
assumptions used for funding the Pension Plan pursuant to Section 412
of the Code for the applicable plan year.
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<PAGE> 30
"UNITED STATES" and "U.S." each means the United States of
America.
"WHOLLY-OWNED SUBSIDIARY" means any corporation, association,
partnership, limited liability company, joint venture or other business
entity in which (other than directors' qualifying shares required by
law) 100% of the equity interests of each class having ordinary voting
power, and 100% of the equity interests of every other class, in each
case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Company, or by one or more of
the other Wholly-Owned Subsidiaries, or both.
1.02 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Banks by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Agent, the
Company and the other parties, and are
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<PAGE> 31
the products of all parties. Accordingly, they shall not be construed against
the Banks or the Agent merely because of the Agent's or Banks' involvement in
their preparation.
1.03 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Company.
ARTICLE II
THE CREDITS
-----------
2.01 AMOUNTS AND TERMS OF COMMITMENTS.
(a) THE TERM CREDIT. Each Bank severally agrees, on the terms
and conditions set forth herein, to make, in an amount not to exceed such Bank's
Pro Rata Share of the Term Commitment, (i) on the Closing Date, a term loan to
the Company in an aggregate principal amount for all Banks of $5,500,000 and
(ii) on the Nordic Acquisition Date, a term loan to the Company in an aggregate
principal amount for all Banks of $5,500,000 (each such loan, a "TERM LOAN").
Amounts borrowed as Term Loans which are repaid or prepaid by the Company may
not be reborrowed.
(b) THE REVOLVING CREDIT. Each Bank severally agrees, on the
terms and conditions set forth herein, to make loans to the Company (each such
loan, a "REVOLVING LOAN") from time to time on any Business Day during the
period from the Closing Date to the Revolving Termination Date, in an aggregate
amount not to exceed at any time outstanding the amount set forth on SCHEDULE
2.01 (such amount, as the same may be reduced under Section 2.05 or as a result
of one or more assignments under Section 10.08, the Bank's "COMMITMENT");
PROVIDED, HOWEVER, that, after giving effect to any Borrowing of Revolving Loans
(exclusive of Revolving Loans which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of Revolving
Loans), the Effective Amount of all outstanding Revolving Loans and the
Effective Amount of all L/C Obligations, shall not at any time exceed the
combined Commitments; AND PROVIDED FURTHER, that the Effective Amount of the
Revolving Loans of any Bank plus the participation of such Bank in the Effective
Amount of all L/C Obligations shall not at any time exceed such Bank's
Commitment.; and PROVIDED FURTHER, that at any time prior to the Nordic
Acquisition Date, the Effective Amount of all outstanding Revolving Loans and
the Effective Amount of all L/C Obligations shall not exceed $5,000,000. Within
the limits of each Bank's Commitment, and subject to the other terms and
conditions hereof, the Company may borrow under this Section 2.01(b), prepay
under Section 2.06 and reborrow under this Section 2.01(b).
2.02 LOAN ACCOUNTS.
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<PAGE> 32
(a) The Loans made by each Bank and the Letters of Credit
Issued by the Issuing Bank shall be evidenced by one or more accounts or records
maintained by such Bank or Issuing Bank, as the case may be, in the ordinary
course of business. The accounts or records maintained by the Agent, the Issuing
Bank and each Bank shall be prima facie evidence of the amount of the Loans made
by the Banks to the Company and the Letters of Credit Issued for the account of
the Company, and the interest and payments thereon. Any failure so to record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Company hereunder to pay any amount owing with respect to the
Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent, the
Loans made by such Bank may be evidenced by one or more Notes, instead of or in
addition to loan accounts. Each such Bank shall record on the schedules annexed
to its Note(s) the date, amount and maturity of each Loan made by it and the
amount of each payment of principal made by the Company with respect thereto.
Each such Bank is irrevocably authorized by the Company to make such
recordations on its Note(s) and each Bank's record shall be deemed prima facie
correct; PROVIDED, HOWEVER, that the failure of a Bank to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the Company hereunder or under any such Note to such
Bank.
2.03 PROCEDURE FOR BORROWING.
(a) Each Borrowing (other than an L/C Borrowing) shall be made
upon the Company's irrevocable written notice delivered to the Agent in the form
of a Notice of Borrowing (which notice must be received by the Agent prior to
10:00 a.m. (Chicago time) (i) three Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans and (ii) on the date of the
requested Borrowing Date, in the case of Base Rate Loans, specifying:
(i) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $100,000, or any multiple of
$10,000 in excess thereof, in the case of Base Rate Loans, and
$500,000, or any multiple of $100,000 in excess thereof, in
the case of Offshore Rate Loans;
(ii) whether such Borrowing shall consist of
Revolving Loans and/or Term Loans;
(iii) the requested Borrowing Date, which shall be a
Business Day;
(iv) the Type of Loans comprising the Borrowing; and
(v) the duration of the Interest Period applicable to
such Loans included in such notice. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any
Borrowing comprised of Offshore Rate Loans, such Interest
Period shall be three months;
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<PAGE> 33
PROVIDED, HOWEVER, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
10:00 a.m. (Chicago time) on the Closing Date and such Borrowing will consist of
Base Rate Loans only; and PROVIDED FURTHER, all Borrowings during the first 90
days following the Closing Date (or such shorter period as determined by the
Agent) shall have the same Interest Period and shall be Base Rate Loans or
Offshore Rate Loans for Interest Periods no longer than one month.
(b) The Agent will promptly notify each Bank of its receipt of
any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of
each Borrowing available to the Agent for the account of the Company at the
Agent's Payment Office by 2:00 p.m. (Chicago time) on the Borrowing Date
requested by the Company in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to the Company by the
Agent at such office by crediting the account of the Company on the books of BAI
with the aggregate of the amounts made available to the Agent by the Banks and
in like funds as received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent
shall otherwise consent, there may not be more than five different Interest
Periods in effect.
2.04 CONVERSION AND CONTINUATION ELECTIONS.
(a) The Company may, upon irrevocable written notice to the
Agent in accordance with Section 2.04(b):
(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of Offshore Rate Loans, to convert any such Loans
(or any part thereof in an aggregate minimum amount of $100,000, or any
multiple of $10,000 in excess thereof, in the case of Base Rate Loans,
and $500,000, or any multiple of $100,000 in excess thereof, in the
case of Offshore Rate Loans) into Loans of any other Type; or
(ii) elect as of the last day of the applicable
Interest Period, to continue any Loans having Interest Periods expiring
on such day (or any part thereof in an amount not less than $500,000,
or that is in an integral multiple of $100,000 in excess thereof);
PROVIDED, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $500,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Company to continue such Loans as, and convert such Loans into, Offshore
Rate Loans shall terminate.
(b) The Company shall deliver a Notice of
Conversion/Continuation to be received by the Agent not later than 10:00 a.m.
(Chicago time) at least (i) three Business Days in
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<PAGE> 34
advance of the Conversion/ Continuation Date, if the Loans are to be converted
into or continued as Offshore Rate Loans and (ii) on the date of the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying:
(i) the proposed Conversion/Continuation Date;
(ii) the aggregate amount of Loans to be converted or
continued;
(iii) the Type of Loans resulting from the proposed
conversion or continuation; and
(iv) other than in the case of conversions into Base
Rate Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to Offshore Rate Loans, the Company has failed to select a new Interest Period
to be applicable to such Offshore Rate Loans by the time specified in Section
2.04(b), or if any Default or Event of Default then exists, the Company shall be
deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans
effective as of the expiration date of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of
a Notice of Conversion/Continuation, or, if no timely notice is provided by the
Company, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans, with
respect to which the notice was given, held by each Bank.
(e) Unless the Majority Banks otherwise consent, during the
existence of a Default or Event of Default, the Company may not elect to have a
Loan converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, unless the Agent shall otherwise consent, there may not be more than five
different Interest Periods in effect.
2.05 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The Company may,
upon not less than three Business Days' prior notice to the Agent, terminate the
Commitments or the available Term Commitment, or permanently reduce the
Commitments by an aggregate minimum amount of $500,000 or any multiple of
$500,000 in excess thereof; UNLESS, after giving effect thereto and to any
prepayments of Revolving Loans made on the effective date thereof, (a) the
Effective Amount of all Revolving Loans and L/C Obligations together would
exceed the amount of the combined Commitments then in effect, or (b) the
Effective Amount of all L/C Obligations then outstanding would exceed the L/C
Commitment. Once reduced in accordance with this Section, the Commitments or the
available Term Commitment, as the case may be, may not be increased. Any
reduction of the Commitments or the available Term Commitment, as the case may
be, shall be applied to each Bank according to its Pro Rata Share. If and to the
extent specified by the Company in the notice to the Agent, some or all of the
reduction in the combined Commitments shall be
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<PAGE> 35
applied to reduce the L/C Commitment. All accrued commitment and letter of
credit fees to, but not including, the effective date of any reduction or
termination of the Commitments or the available Term Commitment, as the case may
be, shall be paid on the effective date of such reduction or termination.
2.06 OPTIONAL PREPAYMENTS. Subject to Section 4.04, the Company may, at
any time or from time to time, upon irrevocable notice to the Agent, prepay
Loans ratably among the Banks in whole or in part, in minimum amounts of
$100,000, or any multiple of $10,000 in excess thereof, in the case of Base Rate
Loans, and $500,000, or any multiple of $100,000 in excess thereof, in the case
of Offshore Rate Loans. Such notice of prepayment shall specify the date and
amount of such prepayment and the Type(s) of Loans to be prepaid. The Agent will
promptly notify each Bank of its receipt of any such notice, and of such Bank's
Pro Rata Share of such prepayment. If such notice is given by the Company, the
Company shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein, together with
accrued interest to each such date on the amount prepaid and any amounts
required pursuant to Section 4.04. Optional prepayments of Term Loans shall be
applied, FIRST, with respect to voluntary prepayments made after the date of
this Agreement in an aggregate amount of up to $1,000,000, to the next Scheduled
Repayment, and SECOND, with respect to all other voluntary prepayments, ratably
among all Scheduled Repayments.
2.07 MANDATORY PREPAYMENTS OF LOANS; MANDATORY COMMITMENT REDUCTIONS.
(a) If on any date the Effective Amount of L/C Obligations
exceeds the L/C Commitment, the Company shall Cash Collateralize on such date
the outstanding Letters of Credit in an amount equal to the excess of the
maximum amount then available to be drawn under the Letters of Credit over the
Aggregate L/C Commitment. Subject to Section 4.04, if on any date after giving
effect to any Cash Collateralization made on such date pursuant to the preceding
sentence, the Effective Amount of all Revolving Loans then outstanding plus the
Effective Amount of all L/C Obligations exceeds the combined Commitments, the
Company shall immediately, and without notice or demand, prepay the outstanding
principal amount of the Revolving Loans and L/C Advances by an amount equal to
the applicable excess.
(b) ASSET DISPOSITIONS. If the Company or any of its
Subsidiaries shall at any time or from time to time make or agree to make a
Disposition then (i) the Company shall promptly notify the Agent of such
proposed Disposition (including the amount of the estimated Net Proceeds to be
received by the Company in respect thereof) and (ii) promptly upon receipt by
the Company or its Subsidiary of the Net Proceeds of such Disposition the
Company shall FIRST, prepay Term Loans in an aggregate amount equal to the
amount of such Net Proceeds, in inverse order of their stated maturity, and
SECOND, prepay Revolving Loans.
(c) EQUITY ISSUANCE. If the Company shall issue new common or
preferred equity after the date of this Agreement in excess of an aggregate
amount of $500,000, the Company shall promptly notify the Agent of the estimated
Net Issuance Proceeds of such issuance to be received by the Company in respect
thereof. Promptly upon receipt by the Company of the Net Issuance Proceeds of
such issuance, the Company, in the event that the
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<PAGE> 36
Leverage Ratio (calculated on the basis of total consolidated Indebtedness as of
the date of such issuance and EBITDA for the four fiscal quarters most recently
ended) is equal to or greater than 3.00:1.0 at such time, shall prepay to the
extent, and only to the extent, necessary for the Leverage Ratio to be equal to
3.00:1 after giving effect to such prepayment, FIRST, Term Loans in an aggregate
amount equal to 50% the amount of such Net Issuance Proceeds, in inverse order
of their stated maturity, and SECOND, prepay Revolving Loans (without any
reduction in the Commitments).
(d) GENERAL. Any prepayments pursuant to this Section 2.07 shall
be applied first to any Base Rate Loans then outstanding and then to Offshore
Rate Loans with the shortest Interest Periods remaining. The Company shall pay,
together with each prepayment under this Section 2.07, accrued interest on the
amount prepaid and any amounts required pursuant to Section 3.04.
2.08 REPAYMENT.
(a) TERM LOANS. On each date set forth below, the Borrower shall
be required to repay the principal amount (or such other amount after giving
effect to any prepayments permitted or required pursuant to this Agreement) of
the Term Loans as is set forth opposite such date (each, a "Scheduled
Repayment"):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
June 30, 1997 $400,000
September 30, 1997 400,000
December 31, 1997 400,000
March 31, 1998 400,000
June 30, 1998 400,000
September 30, 1998 400,000
December 31, 1998 400,000
March 31, 1999 650,000
June 30, 1999 650,000
September 30, 1999 650,000
December 31, 1999 650,000
March 31, 2000 650,000
June 30, 2000 650,000
September 30, 2000 650,000
December 31, 2000 650,000
March 31, 2001 750,000
June 30, 2001 750,000
September 30, 2001 750,000
Term Maturity Date 750,000
</TABLE>
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<PAGE> 37
(b) THE REVOLVING CREDIT. The Company shall repay to the Banks
on the Revolving Termination Date the aggregate principal amount of Revolving
Loans outstanding on such date.
2.09 INTEREST.
(a) Each Loan shall bear interest on the outstanding principal
amount thereof from the applicable Borrowing Date at a rate per annum equal to
the Offshore Rate or the Base Rate, as the case may be (and subject to the
Company's right to convert to other Types of Loans under Section 2.04), PLUS the
Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and
upon payment (including prepayment) in full thereof and, during the existence of
any Event of Default, interest shall be paid on demand of the Agent at the
request or with the consent of the Majority Banks.
(c) Notwithstanding Section 2.09(a), while any Event of
Default exists or after acceleration, the Company shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Obligations, at a rate per annum which is
determined by adding 2% per annum to the Applicable Margin then in effect for
such Loans; PROVIDED, HOWEVER, that, on and after the expiration of any Interest
Period applicable to any Offshore Rate Loan outstanding on the date of
occurrence of such Event of Default or acceleration, the principal amount of
such Loan shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base Rate plus the
Applicable Margin plus 2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Company to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Bank would be contrary to
the provisions of any law applicable to such Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such Bank,
and in such event the Company shall pay such Bank interest at the highest rate
permitted by applicable law.
2.10 FEES. In addition to certain fees described in Section 3.08:
(a) AGENCY FEES. The Company shall pay the fees to the Agent
for the Agent's own account, as required by the letter agreement ("FEE LETTER")
between the Company and the Agent, dated February 19, 1997.
(b) COMMITMENT FEES. The Company shall pay to the Agent for
the account of each Bank a commitment fee on the average daily unused portion of
such Bank's Commitment and its Pro Rata Share of the Term Commitment, computed
on a quarterly basis in arrears on the last Business Day of each calendar
quarter based upon the daily utilization for that quarter as calculated by the
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Agent, equal to .50% percent per annum. For purposes of calculating utilization
under this Section, (x) the Commitments shall be deemed used to the extent of
the Effective Amount of Revolving Loans then outstanding, plus the Effective
Amount of L/C Obligations then outstanding and (y) the Term Commitment shall be
deemed used to the extent of the Effective Amount of Term Loans. Such commitment
fee shall accrue from the Closing Date to the Revolving Termination Date and
shall be due and payable quarterly in arrears on the last Business Day of each
March, June, September and December through the Revolving Termination Date, with
the final payment to be made on the Revolving Termination Date; PROVIDED that,
(x) in connection with any reduction or termination of Commitments or the
available Term Commitment, as the case may be, under Section 2.05, the accrued
commitment fee calculated for the period ending on such date shall also be paid
on the date of such reduction or termination, with the following quarterly
payment being calculated on the basis of the period from such reduction or
termination date to such quarterly payment date and (y) accrued commitment fees
with respect to the available Term Commitment shall be due and payable on the
Nordic Acquisition Date. The commitment fees provided in this Section shall
accrue at all times after the above-mentioned commencement date, including at
any time during which one or more conditions in Article V are not met.
2.11 COMPUTATION OF FEES AND INTEREST.
(a) All computations of interest for Base Rate Loans when the
Base Rate is determined by BAI's "reference rate" shall be made on the basis of
a year of 365 or 366 days, as the case may be, and actual days elapsed. All
other computations of fees and interest shall be made on the basis of a 360-day
year and actual days elapsed (which results in more interest being paid than if
computed on the basis of a 365-day year). Interest and fees shall accrue during
each period during which interest or such fees are computed from the first day
thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall
be conclusive and binding on the Company and the Banks in the absence of
manifest error. The Agent will, at the request of the Company or any Bank,
deliver to the Company or the Bank, as the case may be, a statement showing the
quotations used by the Agent in determining any interest rate and the resulting
interest rate.
2.12 PAYMENTS BY THE COMPANY.
(a) All payments to be made by the Company shall be made
without set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by the Company shall be made to the Agent for the
account of the Banks at the Agent's Payment Office, and shall be made in dollars
and in immediately available funds, no later than 12:00 Noon (Chicago time) on
the date specified herein. The Agent will promptly distribute to each Bank its
Pro Rata Share (or other applicable share as expressly provided herein) of such
payment in like funds as received. Any payment received by the Agent later than
12:00 Noon (Chicago time) shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue for the
day actually received.
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(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Company prior to
the date on which any payment is due to the Banks that the Company will not make
such payment in full as and when required, the Agent may assume that the Company
has made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Company has not made such
payment in full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon at the Federal
Funds Rate for each day from the date such amount is distributed to such Bank
until the date repaid.
2.13 PAYMENTS BY THE BANKS TO THE AGENT.
(a) Unless the Agent receives notice from a Bank on or prior
to the Closing Date or, with respect to any Borrowing after the Closing Date, at
least one Business Day prior to the date of such Borrowing, that such Bank will
not make available as and when required hereunder to the Agent for the account
of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the
Agent may assume that each Bank has made such amount available to the Agent in
immediately available funds on the Borrowing Date and the Agent may (but shall
not be so required), in reliance upon such assumption, make available to the
Company on such date a corresponding amount. If and to the extent any Bank shall
not have made its full amount available to the Agent in immediately available
funds and the Agent in such circumstances has made available to the Company such
amount, that Bank shall on the Business Day following such Borrowing Date make
such amount available to the Agent, together with interest at the Federal Funds
Rate for each day during such period. A notice of the Agent submitted to any
Bank with respect to amounts owing under this clause (a) shall be conclusive,
absent manifest error. If such amount is so made available, such payment to the
Agent shall constitute such Bank's Loan on the date of Borrowing for all
purposes of this Agreement. If such amount is not made available to the Agent on
the Business Day following the Borrowing Date, the Agent will notify the Company
of such failure to fund and, upon demand by the Agent, the Company shall pay
such amount to the Agent for the Agent's account, together with interest thereon
for each day elapsed since the date of such Borrowing, at a rate per annum equal
to the interest rate applicable at the time to the Loans comprising such
Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing
Date shall not relieve any other Bank of any obligation hereunder to make a Loan
on such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.14 SHARING OF PAYMENTS, ETC. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
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<PAGE> 40
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; PROVIDED, HOWEVER, that if all or
any portion of such excess payment is thereafter recovered from the purchasing
Bank, such purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor, together with an
amount equal to such paying Bank's ratable share (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Company agrees that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 11.10) with respect to
such participation as fully as if such Bank were the direct creditor of the
Company in the amount of such participation. The Agent will keep records (which
shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section and will in each case notify the
Banks following any such purchases or repayments.
ARTICLE III
THE LETTERS OF CREDIT
---------------------
3.01 THE LETTER OF CREDIT SUBFACILITY.
(a) On the terms and conditions set forth herein (i) the
Issuing Bank agrees, (A) from time to time on any Business Day during the period
from the Closing Date to the Revolving Termination Date to issue Letters of
Credit for the account of the Company, and to amend or renew Letters of Credit
previously issued by it, in accordance with Sections 3.02(c) and (d), and (B) to
honor drafts under the Letters of Credit; and (ii) the Banks severally agree to
participate in Letters of Credit Issued for the account of the Company;
PROVIDED, that the Issuing Bank shall not be obligated to Issue, and no Bank
shall be obligated to participate in, any Letter of Credit if as of the date of
Issuance of such Letter of Credit (the "ISSUANCE DATE") (1) the Effective Amount
of all L/C Obligations plus the Effective Amount of all Revolving Loans exceeds
the combined Commitments, (2) the participation of any Bank in the Effective
Amount of all L/C Obligations plus the Effective Amount of the Revolving Loans
of such Bank exceeds such Bank's Commitment, (3) the Effective Amount of L/C
Obligations exceeds the L/C Commitment, or (4) at any time prior to the Nordic
Acquisition Date, the Effective Amount of all L/C Obligations plus the Effective
Amount of all Revolving Loans exceeds $5,000,000. Within the foregoing limits,
and subject to the other terms and conditions hereof, the Company's ability to
obtain Letters of Credit shall be fully revolving, and, accordingly, the Company
may, during the foregoing period, obtain Letters of Credit to replace Letters of
Credit which have expired or which have been drawn upon and reimbursed.
(b) The Issuing Bank is under no obligation to Issue any
Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or
restrain the Issuing Bank from Issuing such
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Letter of Credit, or any Requirement of Law applicable to the Issuing
Bank or any request or directive (whether or not having the force of
law) from any Governmental Authority with jurisdiction over the Issuing
Bank shall prohibit, or request that the Issuing Bank refrain from, the
Issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Bank with respect to such
Letter of Credit any restriction, reserve or capital requirement (for
which the Issuing Bank is not otherwise compensated hereunder) not in
effect on the Closing Date, or shall impose upon the Issuing Bank any
unreimbursed loss, cost or expense which was not applicable on the
Closing Date and which the Issuing Bank in good faith deems material to
it;
(ii) the Issuing Bank has received written notice
from any Bank, the Agent or the Company, on or prior to the Business
Day prior to the requested date of Issuance of such Letter of Credit,
that one or more of the applicable conditions contained in Article V is
not then satisfied;
(iii) the expiry date of any requested Letter of
Credit is after the Revolving Termination Date, unless the Company has
Cash Collateralized, in form and substance satisfactory to the Issuing
Bank, its L/C Obligations under such Letter of Credit on or prior to
the date of the Issuance of such Letter of Credit;
(iv) any requested Letter of Credit does not provide
for drafts, or is not otherwise in form and substance acceptable to the
Issuing Bank, or the Issuance of a Letter of Credit shall violate any
applicable policies of the Issuing Bank; or
(v) such Letter of Credit is in a face amount less
than $25,000, unless such lesser amount is approved by the Agent and
the Issuing Bank, or is to be denominated in a currency other than
Dollars or an Approved Alternate Currency.
(c) All determinations of the stated amount of Letters of
Credit and of the principal amount of L/C Obligations, in each case to the
extent denominated in an Approved Alternate Currency, shall be made by the Agent
by converting same into Dollars at the Spot Rate. Each such determination by the
Agent shall be conclusive and binding on the Company and each Bank in the
absence of manifest error. The Agent will, at the request of the Company or any
Bank, deliver to such Person a statement showing the quotations used by the
Agent in making such determination.
3.02 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT.
(a) Each Letter of Credit shall be issued upon the irrevocable
written request of the Company received by the Issuing Bank (with a copy sent by
the Company to the Agent) at least three days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior to
the proposed date of issuance. Each such request for issuance of a Letter of
Credit shall be by facsimile, confirmed immediately in an original writing, in
the form of an L/C Application, and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the proposed date of issuance of the
Letter of Credit (which shall be a Business Day); (ii) the face amount of the
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Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name
and address of the beneficiary thereof; (v) the documents to be presented by the
beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the
full text of any certificate to be presented by the beneficiary in case of any
drawing thereunder; and (vii) such other matters as the Issuing Bank may
require.
(b) Prior to the Issuance of any Letter of Credit, the Issuing
Bank will confirm with the Agent (by telephone or in writing) that the Agent has
received a copy of the L/C Application or L/C Amendment Application from the
Company and, if not, the Issuing Bank will provide the Agent with a copy
thereof. Unless the Issuing Bank has received notice on or before the Business
Day the Issuing Bank is to issue a requested Letter of Credit from the Agent (A)
directing the Issuing Bank not to issue such Letter of Credit because such
issuance is not then permitted under Section 3.01(a) as a result of the
limitations set forth in clauses (1) through (3) thereof or Section 3.01(b)(ii);
or (B) that one or more conditions specified in Article V are not then
satisfied; then, subject to the terms and conditions hereof, the Issuing Bank
shall, with the written approval of the Agent, on the requested date, issue a
Letter of Credit for the account of the Company in accordance with the Issuing
Bank's usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding
and prior to the Revolving Termination Date, the Issuing Bank will, upon the
written request of the Company received by the Issuing Bank (with a copy sent by
the Company to the Agent) at least three days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior to
the proposed date of amendment, amend any Letter of Credit issued by it. Each
such request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
Amendment Application and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of
amendment of the Letter of Credit (which shall be a Business Day); (iii) the
nature of the proposed amendment; and (iv) such other matters as the Issuing
Bank may require. The Issuing Bank shall be under no obligation to amend any
Letter of Credit if: (A) the Issuing Bank would have no obligation at such time
to issue such Letter of Credit in its amended form under the terms of this
Agreement; or (B) the beneficiary of any such letter of Credit does not accept
the proposed amendment to the Letter of Credit. The Agent will promptly notify
the Banks of the receipt by it of any L/C Application or L/C Amendment
Application.
(d) The Issuing Bank and the Banks agree that, while a Letter
of Credit is outstanding and prior to the Revolving Termination Date, at the
option of the Company and upon the written request of the Company received by
the Issuing Bank (with a copy sent by the Company to the Agent) at least five
days (or such shorter time as the Issuing Bank may agree in a particular
instance in its sole discretion) prior to the proposed date of notification of
renewal, the Issuing Bank shall be entitled to authorize the automatic renewal
of any Letter of Credit issued by it. Each such request for renewal of a Letter
of Credit shall be made by facsimile, confirmed immediately in an original
writing, in the form of an L/C Amendment Application, and shall specify in form
and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be
renewed; (ii) the proposed date of notification of renewal of the Letter of
Credit (which shall be a Business Day); (iii) the revised expiry date of the
Letter of Credit; and (iv) such other matters as the Issuing Bank may require.
The Issuing Bank shall be under no obligation so to renew any Letter of Credit
if: (A) the Issuing Bank
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would have no obligation at such time to issue or amend such Letter of Credit in
its renewed form under the terms of this Agreement; or (B) the beneficiary of
any such Letter of Credit does not accept the proposed renewal of the Letter of
Credit. If any outstanding Letter of Credit shall provide that it shall be
automatically renewed unless the beneficiary thereof receives notice from the
Issuing Bank that such Letter of Credit shall not be renewed, and if at the time
of renewal the Issuing Bank would be entitled to authorize the automatic renewal
of such Letter of Credit in accordance with this clause (d) upon the request of
the Company but the Issuing Bank shall not have received any L/C Amendment
Application from the Company with respect to such renewal or other written
direction by the Company with respect thereto, the Issuing Bank shall
nonetheless be permitted to allow such Letter of Credit to renew, and the
Company and the Banks hereby authorize such renewal, and, accordingly, the
Issuing Bank shall be deemed to have received an L/C Amendment Application from
the Company requesting such renewal.
(e) The Issuing Bank may, at its election (or as required by
the Agent at the direction of the Majority Banks), deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than the Revolving Termination Date.
(f) This Agreement shall control in the event of any conflict
with any L/C- Related Document (other than any Letter of Credit).
(g) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or amendment
to or renewal of a Letter of Credit.
3.03 RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS.
(a) Immediately upon the Issuance of each Letter of Credit,
each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees
to, purchase from the Issuing Bank a participation in such Letter of Credit and
each drawing thereunder in an amount equal to the product of (i) the Pro Rata
Share of such Bank, times (ii) the maximum amount available to be drawn under
such Letter of Credit and the amount of such drawing, respectively. For purposes
of Section 2.01(b), each Issuance of a Letter of Credit shall be deemed to
utilize the Commitment of each Bank by an amount equal to the amount of such
participation.
(b) In the event of any request for a drawing under a Letter
of Credit by the beneficiary or transferee thereof, the Issuing Bank will
promptly notify the Company. The Company shall reimburse the Issuing Bank (by an
L/C Borrowing or otherwise) prior to 12:00 Noon (Chicago time), on each date
that any amount is paid by the Issuing Bank under any Letter of Credit (each
such date, an "HONOR DATE"), in an amount equal to the amount so paid by the
Issuing Bank (such amount, in the case of a Letter of Credit denominated in an
Approved Alternate Currency, being deemed to be the Dollar equivalent of the
amount drawn, determined on the basis of the Spot Rate for such Approved
Alternate Currency as of the approximate time of such drawing). In the event
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the Company fails to reimburse the Issuing Bank for the full amount of any
drawing under any Letter of Credit by 12:00 Noon (Chicago time) on the Honor
Date, the Issuing Bank will promptly notify the Agent and the Agent will
promptly notify each Bank thereof, and the Company shall be deemed to have
requested that Base Rate Loans in an aggregate amount equal to the unreimbursed
drawing be made by the Banks to be disbursed on the Honor Date under such Letter
of Credit, subject to the amount of the unutilized portion of the Revolving
Commitment and subject to the conditions set forth in Section 5.02. Any notice
given by the Issuing Bank or the Agent pursuant to this clause (b) may be oral
if immediately confirmed in writing (including by facsimile); provided that the
lack of such an immediate confirmation shall not affect the conclusiveness or
binding effect of such notice.
(c) Each Bank shall upon any notice pursuant to Section
3.03(b) make available to the Agent for the account of the relevant Issuing Bank
an amount in Dollars and in immediately available funds equal to its Pro Rata
Share of the amount of the drawing, whereupon the participating Banks shall
(subject to Section 3.03(d)) each be deemed to have made a Revolving Loan
consisting of a Base Rate Loan to the Company in that amount. If any Bank so
notified fails to make available to the Agent for the account of the Issuing
Bank the amount of such Bank's Pro Rata Share of the amount of the drawing by no
later than 2:00 p.m. (Chicago time) on the Honor Date, then interest shall
accrue on such Bank's obligation to make such payment, from the Honor Date to
the date such Bank makes such payment, at a rate per annum equal to the Federal
Funds Rate in effect from time to time during such period. The Agent will
promptly give notice of the occurrence of the Honor Date, but failure of the
Agent to give any such notice on the Honor Date or in sufficient time to enable
any Bank to effect such payment on such date shall not relieve such Bank from
its obligations under this Section 3.03.
(d) With respect to any unreimbursed drawing that is not
converted into Revolving Loans consisting of Base Rate Loans to the Company in
whole or in part, because of the Company's failure to satisfy the conditions set
forth in Section 5.02 or for any other reason, the Company shall be deemed to
have incurred from the Issuing Bank an L/C Borrowing in the amount of such
drawing (such amount, in the case of a Letter of Credit denominated in an
Approved Alternate Currency, being deemed to be the Dollar equivalent of the
amount drawn, determined on the basis of the Spot Rate for such Approved
Alternate Currency as of the approximate time of such drawing), which L/C
Borrowing shall be due and payable on demand (together with interest) and shall
bear interest at a rate per annum equal to the Base Rate plus the Applicable
Margin plus 2% per annum, and each Bank's payment to the Issuing Bank pursuant
to Section 3.03(c) shall be deemed payment in respect of its participation in
such L/C Borrowing and shall constitute an L/C Advance from such Bank in
satisfaction of its participation obligation under this Section 3.03.
(e) Each Bank's obligation in accordance with this Agreement
to make the Revolving Loans or L/C Advances, as contemplated by this Section
3.03, as a result of a drawing under a Letter of Credit, shall be absolute and
unconditional and without recourse to the Issuing Bank and shall not be affected
by any circumstance, including (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank may have against the Issuing Bank, the
Company or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening
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or event whatsoever, whether or not similar to any of the foregoing; PROVIDED,
however, that each Bank's obligation to make Revolving Loans under this Section
3.03 is subject to the conditions set forth in Section 5.02.
3.04 REPAYMENT OF PARTICIPATIONS.
(a) Upon (and only upon) receipt by the Agent for the account
of the Issuing Bank of immediately available funds from the Company (i) in
reimbursement of any payment made by the Issuing Bank under the Letter of Credit
with respect to which any Bank has paid the Agent for the account of the Issuing
Bank for such Bank's participation in the Letter of Credit pursuant to Section
3.03 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in
the same funds as those received by the Agent for the account of the Issuing
Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing
Bank shall receive the amount of the Pro Rata Share of such funds of any Bank
that did not so pay the Agent for the account of the Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any time
to return to the Company, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the payments made by
the Company to the Agent for the account of the Issuing Bank pursuant to Section
3.04(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Bank shall, on demand of the Agent, forthwith
return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any
amounts so returned by the Agent or the Issuing Bank plus interest thereon from
the date such demand is made to the date such amounts are returned by such Bank
to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds
Rate in effect from time to time.
3.05 ROLE OF THE ISSUING BANK.
(a) Each Bank and the Company agree that, in paying any
drawing under a Letter of Credit, the Issuing Bank shall not have any
responsibility to obtain any document (other than any sight draft and
certificates expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank shall be liable to
any Bank for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Banks (including the Majority Banks, as
applicable); (ii) any action taken or omitted in the absence of gross negligence
or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C- Related Document.
(c) The Company hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; PROVIDED, however, that this assumption is not intended to, and shall
not, preclude the Company's pursuing such rights and remedies as it may have
against the beneficiary or transferee at law or under any other agreement. No
Agent-Related Person, nor any of the respective correspondents, participants or
assignees of the
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Issuing Bank, shall be liable or responsible for any of the matters described in
clauses (i) through (vii) of Section 3.06; PROVIDED, however, anything in such
clauses to the contrary notwithstanding, that the Company may have a claim
against the Issuing Bank, and the Issuing Bank may be liable to the Company, to
the extent, but only to the extent, of any direct, as opposed to consequential
or exemplary, damages suffered by the Company which the Company proves were
caused by the Issuing Bank's willful misconduct or gross negligence or the
Issuing Bank's willful failure to pay under any Letter of Credit after the
presentation to it by the beneficiary of a sight draft and certificate(s)
strictly complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing: (i) the Issuing Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing Bank shall not be responsible
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a 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.
3.06 OBLIGATIONS ABSOLUTE. The obligations of the Company under this
Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Revolving Loans, shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this
Agreement or any L/C-Related Document;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the obligations of
the Company in respect of any Letter of Credit or any other amendment
or waiver of or any consent to departure from all or any of the
L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or
other right that the Company may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any Person
for whom any such beneficiary or any such transferee may be acting),
the Issuing Bank or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by the L/C-Related
Documents or any unrelated transaction;
(iv) any draft, demand, certificate or 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; or any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any Letter of Credit;
(v) any payment by the Issuing Bank under any Letter
of Credit against presentation of a draft or certificate that does not
strictly comply with the terms of any Letter
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of Credit; or any payment made by the Issuing Bank under any Letter of
Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors,
liquidator, receiver or other representative of or successor to any
beneficiary or any transferee of any Letter of Credit, including any
arising in connection with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any other guarantee, for all or any of the obligations
of the Company in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, the Company or a guarantor.
3.07 CASH COLLATERAL PLEDGE. Upon (i) the request of the Agent or the
Majority Banks, (A) if the Issuing Bank has honored any full or partial drawing
request on any Letter of Credit and such drawing has resulted in an L/C
Borrowing hereunder, or (B) if, as of the Revolving Termination Date, any
Letters of Credit may for any reason remain outstanding and partially or wholly
undrawn, or (ii) the occurrence of the circumstances described in Section
2.07(a) requiring the Company to Cash Collateralize Letters of Credit, then, the
Company shall immediately Cash Collateralize the L/C Obligations in an amount
equal to such L/C Obligations.
3.08 LETTER OF CREDIT FEES.
(a) The Company shall pay to the Agent for the account of each
of the Banks a letter of credit fee with respect to the Letters of Credit equal
to the Applicable Margin per annum of the average daily maximum amount available
to be drawn of the outstanding Letters of Credit, computed on a quarterly basis
in arrears on the last Business Day of each March, June, September and December
based upon Letters of Credit outstanding for that quarter as calculated by the
Agent. Such letter of credit fees shall be due and payable quarterly in arrears
on the last Business Day of each calendar quarter during which Letters of Credit
are outstanding, commencing on the first such quarterly date to occur after the
Closing Date, through the Revolving Termination Date (or such later date upon
which the outstanding Letters of Credit shall expire), with the final payment to
be made on the Revolving Termination Date (or such later expiration date).
(b) The Company shall pay to the Issuing Bank a letter of
credit fronting fee for each Letter of Credit Issued by the Issuing Bank equal
to .125% per annum of the face amount (or increased face amount, as the case may
be) of such Letter of Credit. Such Letter of Credit fronting fee shall be due
and payable quarterly in arrears on the last Business Day of each calendar
quarter during which such Letter of Credit is outstanding, commencing on the
first such quarterly date to occur after such Letter of Credit is issued,
through the Revolving Termination Date (or such later date upon which such
Letter of Credit shall expire), with the final payment to be made on the
Revolving Termination Date (or such later expiration date).
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(c) The Company shall pay to the Issuing Bank from time to
time on demand the normal issuance, presentation, amendment and other processing
fees, and other standard costs and charges, of the Issuing Bank relating to
letters of credit as from time to time in effect.
3.09 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
4.01 TAXES.
(a) Any and all payments by the Company to each Bank or the
Agent under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for, any Taxes. In addition, the
Company shall pay all Other Taxes.
(b) If the Company shall be required by law to deduct or
withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary
so that, after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section), such Bank or the Agent, as the case may
be, receives and retains an amount equal to the sum it would have
received and retained had no such deductions or withholdings been made;
(ii) the Company shall make such deductions and
withholdings;
(iii) the Company shall pay the full amount deducted
or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Company shall also pay to each Bank or the
Agent for the account of such Bank, at the time interest is paid,
Further Taxes in the amount that the respective Bank specifies as
necessary to preserve the after-tax yield the Bank would have received
if such Taxes, Other Taxes or Further Taxes had not been imposed.
(c) The Company agrees to indemnify and hold harmless each
Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii)
Further Taxes in the amount that the respective Bank specifies as necessary to
preserve the after-tax yield the Bank would have received if such Taxes, Other
Taxes or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether
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or not such Taxes, Other Taxes or Further Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days after
the date the Bank or the Agent makes written demand therefor.
(d) Within 30 days after the date of any payment pursuant to
this Section by the Company of Taxes, Other Taxes or Further Taxes, the Company
shall furnish to each Bank or the Agent the original or a certified copy of a
receipt evidencing payment thereof, or other evidence of payment satisfactory to
such Bank or the Agent.
(e) If the Company is required to pay any amount to any Bank
or the Agent pursuant to clauses (b) or (c) of this Section, then such Bank
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Company which may thereafter accrue, if such change in
the sole judgment of such Bank is not otherwise disadvantageous to such Bank.
4.02 ILLEGALITY.
(a) If any Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Offshore Rate Loans, then, on notice thereof by the Bank to the Company through
the Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Agent and the Company that the
circumstances giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any
Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact
and demand from such Bank (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 4.04, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to maintain such Offshore Rate Loan. If the Company is
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Company may borrow from the affected Bank, in the amount of such
repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain Offshore
Rate Loans has been so terminated or suspended, the Company may elect, by giving
notice to the Bank through the Agent that all Loans which would otherwise be
made by the Bank as Offshore Rate Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Agent under this Section,
the affected Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
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4.03 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If any Bank determines that, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance by that Bank with any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to such Bank of agreeing
to make or making, funding or maintaining any Offshore Rate Loans or
participating in Letters of Credit, or, in the case of the Issuing Bank, any
increase in the cost to the Issuing Bank of agreeing to issue, issuing or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, then the Company
shall be liable for, and shall from time to time, upon demand (with a copy of
such demand to be sent to the Agent), pay to the Agent for the account of such
Bank, additional amounts as are sufficient to compensate such Bank for such
increased costs.
(b) If any Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Lending Office) or any corporation controlling
the Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration such Bank's or
such corporation's policies with respect to capital adequacy and such Bank's
desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of such Bank to the Company through the
Agent, the Company shall pay to the Bank, from time to time as specified by the
Bank, additional amounts sufficient to compensate the Bank for such increase.
4.04 FUNDING LOSSES. The Company shall reimburse each Bank and hold
each Bank harmless from any loss or expense which the Bank may sustain or incur
as a consequence of:
(i) the failure of the Company to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(ii) the failure of the Company to borrow, continue or convert
a Loan after the Company has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/ Continuation;
(iii) the failure of the Company to make any prepayment in
accordance with any notice delivered under Section 2.06;
(iv) the prepayment (including pursuant to Section 2.07) or
other payment (including after acceleration thereof) of an Offshore
Rate Loan on a day that is not the last day of the relevant Interest
Period; or
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(v) the automatic conversion under Section 2.04 of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the last
day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Company to the Banks under this Section and
under Section 4.03(a), each Offshore Rate Loan made by a Bank (and each related
reserve, special deposit or similar requirement) shall be conclusively deemed to
have been funded at the LIBOR used in determining the Offshore Rate for such
Offshore Rate Loan by a matching deposit or other borrowing in the interbank
eurodollar market for a comparable amount and for a comparable period, whether
or not such Offshore Rate Loan is in fact so funded.
4.05 INABILITY TO DETERMINE RATES. If the Agent determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan, or that the Offshore Rate applicable pursuant to Section 2.09(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to the Banks of funding such Loan, the
Agent will promptly so notify the Company and each Bank. Thereafter, the
obligation of the Banks to make or maintain Offshore Rate Loans hereunder shall
be suspended until the Agent revokes such notice in writing. Upon receipt of
such notice, the Company may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Banks shall make, convert or continue the Loans, as proposed by
the Company, in the amount specified in the applicable notice submitted by the
Company, but such Loans shall be made, converted or continued as Base Rate Loans
instead of Offshore Rate Loans.
4.06 RESERVES ON OFFSHORE RATE LOANS. The Company shall pay to each
Bank, as long as such Bank shall be required under regulations of the FRB to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), additional costs on the unpaid principal amount of each Offshore
Rate Loan equal to the actual costs of such reserves allocated to such Loan by
the Bank (as determined by the Bank in good faith, which determination shall be
conclusive), payable on each date on which interest is payable on such Loan,
provided the Company shall have received at least 15 days' prior written notice
(with a copy to the Agent) of such additional interest from the Bank. If a Bank
fails to give notice 15 days prior to the relevant Interest Payment Date, such
additional interest shall be payable 15 days from receipt of such notice.
4.07 CERTIFICATES OF BANKS. Any Bank claiming reimbursement or
compensation under this Article IV shall deliver to the Company (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to the Bank hereunder and such certificate shall be conclusive and binding on
the Company in the absence of manifest error.
4.08 SURVIVAL. The agreements and obligations of the Company in this
Article IV shall survive the payment of all other Obligations.
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ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.01 CONDITIONS OF INITIAL CREDIT EXTENSIONS. The obligation of each
Bank to make its initial Credit Extension hereunder is subject to the condition
that the Agent shall have received on or before the Closing Date all of the
following, in form and substance satisfactory to the Agent and each Bank, and in
sufficient copies for each Bank:
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the Notes
executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of
directors of the Company and each Subsidiary that may become party to a
Loan Document authorizing the transactions contemplated hereby,
certified as of the Closing Date by the Secretary or an Assistant
Secretary of such Person; and
(ii) A certificate of the Secretary or Assistant
Secretary of the Company, and each Subsidiary that may become party to
a Loan Document certifying the names and true signatures of the
officers of the Company or such Subsidiary authorized to execute,
deliver and perform, as applicable, this Agreement, and all other Loan
Documents to be delivered by it hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the
following documents:
(i) the articles or certificate of incorporation, the
bylaws and board of directors resolutions of the Company and each
Subsidiary as in effect on the Closing Date, certified by the Secretary
or Assistant Secretary of the Company or such Subsidiary as of the
Closing Date; and
(ii) a good standing certificate for the Company and
each Subsidiary party to any Loan Document from the Secretary of State
(or similar, applicable Governmental Authority) of its state of
incorporation and each state where the Company or such Subsidiary is
qualified to do business as a foreign corporation as of a recent date,
together with a bring-down certificate by facsimile, dated the Closing
Date;
(d) LEGAL OPINIONS. An opinion addressed to the Agent, the
Collateral Agent and the Banks (i) of Benesch, Friedlander, Coplan & Aronoff,
P.L.L., counsel to the Company, substantially in the form of EXHIBIT D-1, (ii)
from Arnstein & Lehr, special Illinois counsel to the Company, substantially in
the form of EXHIBIT D-2, and (iii) from local counsel in such jurisdictions as
the Agent may request, such opinion to be in form and substance acceptable to
the Agent.
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(e) PAYMENT OF FEES. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BAI to the extent invoiced
prior to or on the Closing Date, plus such additional amounts of Attorney Costs
as shall constitute BAI's reasonable estimate of Attorney Costs incurred or to
be incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between the Company and
BAI); including any such costs, fees and expenses arising under or referenced in
Sections 2.10 and 10.04;
(f) CERTIFICATE. A certificate signed by a Responsible
Officer, dated as of the Closing Date:
(i) stating that the representations and warranties
contained in Article VI are true and correct on and as of such date, as
though made on and as of such date;
(ii) stating that no Default or Event of Default
exists or would result from the Credit Extension; and
(iii) stating that there has occurred since September
30, 1996, no event or circumstance that has resulted or could
reasonably be expected to result in a Material Adverse Effect; and
(iv) certifying the names and true signatures of the
officers of the Company and each Subsidiary authorized to execute,
deliver and perform, as applicable, this Agreement and the other Loan
Documents to which it is a party, and all other Loan Documents to be
delivered hereunder.
(g) COLLATERAL DOCUMENTS. The Collateral Documents, executed
by the Company and each Subsidiary party to such Collateral Document, in
appropriate form for recording, where necessary, together with:
(i) acknowledgment copies of all UCC-l financing
statements filed, registered or recorded to perfect the security
interests of the Collateral Agent for the benefit of the Banks, or
other evidence satisfactory to the Agent that there has been or will be
filed, registered or recorded all financing statements and other
filings, registrations and recordings necessary and advisable to
perfect the Liens of the Collateral Agent for the benefit of the Banks
in accordance with applicable law;
(ii) written advice relating to such Lien and
judgment searches as the Collateral Agent shall have requested of the
Company, and such termination statements or other documents as may be
necessary to confirm that the Collateral is subject to no other Liens
in favor of any Persons (other than Permitted Liens);
(iii) all certificates and instruments representing
the Pledged Collateral, stock transfer powers executed in blank as the
Collateral Agent or the Banks may specify;
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(iv) evidence that all other actions necessary or, in
the opinion of the Collateral Agent or the Banks, desirable to perfect
and protect the first priority security interest created by the
Collateral Documents have been taken;
(v) funds sufficient to pay any filing or recording
tax or fee in connection with any and all UCC-1 financing statements;
(vi) evidence that the Collateral Agent has been
named as loss payee under all policies of casualty insurance, and as
additional insured under all policies of liability insurance;
(vii) such consents, estoppels, subordination
agreements and other documents and instruments executed by landlords,
tenants and other Persons party to material contracts relating to any
Collateral as to which the Agent shall be granted a Lien for the
benefit of the Banks, as requested by the Agent or any Bank; and
(viii) evidence that all other actions necessary or,
in the opinion of the Collateral Agent or the Banks, desirable to
perfect and protect the first priority Lien created by the Collateral
Documents, and to enhance the Collateral Agent's ability to preserve
and protect its interests in and access to the Collateral, have been
taken;
(h) SOLVENCY CERTIFICATE. A written solvency certificate from
the chief financial officer of the Company in form and content satisfactory to
the Banks, dated the initial Borrowing Date, with respect to the value, Solvency
and other factual information of, or relating to, as the case may be, Company,
after giving effect to the Initial Borrowing.
(i) SUBORDINATED DEBT DOCUMENTS. The Company shall have
delivered to the Agent the documentation governing the Subordinated Debt in
existence on the Closing Date, which documentation shall provide that the Loans
and all other Obligations and the Indebtedness permitted by Section 8.05(f) are
entitled to the benefits of the subordination provisions contained in such
documentation and shall otherwise be in form and substance satisfactory to the
Agent.
(j) OTHER DOCUMENTS. Such other approvals, opinions, documents
or materials as the Agent or any Bank may request.
5.02 CONDITIONS OF CREDIT EXTENSIONS ON THE NORDIC ACQUISITION DATE.
The obligation of each Bank to make Credit Extensions hereunder on and after the
Nordic Acquisition Date is subject to the condition that the Agent shall have
received on or before the Nordic Acquisition Date all of the following, in form
and substance satisfactory to the Agent and each Bank, and in sufficient copies
for each Bank:
(a) CERTIFICATE. A certificate signed by a Responsible
Officer, dated as of the Nordic Acquisition Date:
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(i) stating that the representations and warranties
contained in Article VI are true and correct on and as of such
date (both before and after giving effect to the Nordic
Acquisition), as though made on and as of such date;
(ii) stating that no Default or Event of Default
exists or would result from the Credit Extension; and
(iii) stating that German Sub and Sweden Sub have
collectively received, or are contemporaneously receiving,
proceeds in an aggregate principal amount of at least
$5,000,000 from the initial Borrowing under, and as defined
in, the documentation evidencing Indebtedness permitted to be
incurred by such Subsidiary pursuant to SECTION 8.05(F), and
that 100% of such proceeds were utilized in connection with
the Nordic Acquisition.
(b) NORDIC ACQUISITION. The Company shall have delivered to
the Agent all Nordic Acquisition Documents, certified as true and correct by a
Responsible Office, all of which Nordic Acquisition Documents shall be in form
and substance reasonably satisfactory to the Bank's and each of the conditions
precedent to the Company's obligations to consummate the Nordic Acquisition
shall have been satisfied (without any waiver thereto not agreed to by the
Banks) to the reasonable satisfaction of the Agent. The Nordic Acquisition shall
have been consummated in substantial compliance with the terms of the Nordic
Acquisition Documents and all applicable laws.
(c) SOLVENCY CERTIFICATE. A written solvency certificate from
the chief financial officer of the Company in form and content satisfactory to
the Banks, dated the Nordic Acquisition Date, with respect to the value,
Solvency and other factual information of, or relating to, as the case may be,
Company, after giving effect to the Credit Extensions made on the Nordic
Acquisition Date.
(d) PROJECTIONS; PRO FORMA BALANCE SHEET.
(i) Projected financial statements for Nordic Water
Products for the period from April 1, 1996 to and including March 31,
1997, which projections shall be in form and substance acceptable to
the Agent; and
(ii) a pro forma consolidated balance sheet of the
Company and its Subsidiaries, after giving effect to the Nordic
Acquisition and the related financing thereof, together with a
Compliance Certificate executed by a Responsible Officer, demonstrating
compliance by the Company with SECTIONS 8.15, 8.16, 8.17, 8.18, 8.19
and 8.20 as of December 31, 1996, which pro forma balance sheet and
Compliance Certificate shall be in form and substance acceptable to the
Agent.
(e) BRANTLEY DOCUMENTS. The Brantley Guaranty, executed by
Brantley, together with:
(i) a certificate signed by an authorized officer of
Brantley, dated as of the Nordic Acquisition Date:
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(1) certifying a true and correct copy of its limited
partnership agreement;
(2) stating that the representations and warranties
contained in the Brantley Guaranty are true and correct as of
such date, as though made on and as of such date;
(3) certifying the names and true signatures of the
officers of Brantley authorized to execute, deliver and
perform the Brantley Guaranty and all other documents to be
delivered thereunder and hereunder; and
(4) certifying that Brantley has available to it
immediately available funds, free and clear of any Liens,
prior commitments or any guaranty, in an amount at least equal
to $2,000,000; and
(ii) an opinion addressed to the Agent and the Banks
covering such matters as may be requested by, and otherwise in form and
substance acceptable to, the Agent.
(f) OTHER DOCUMENTS. Such other approvals, opinions, documents
or materials as the Agent or any Bank may request.
5.03 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each Bank
to make any Loan to be made by it (including its initial Loan) or to continue or
convert any Loan under Section 2.04 and the obligation of the Issuing Bank to
Issue any Letter of Credit (including the initial Letter of Credit) is subject
to the satisfaction of the following conditions precedent on the relevant
Borrowing Date or Issuance Date:
(a) NOTICE, APPLICATION. The Agent shall have received (with,
in the case of the initial Loans only, a copy for each Bank) a Notice of
Borrowing or, in the case of any Issuance of any Letter of Credit, the Issuing
Bank and the Agent shall have received an L/C Application or L/C Amendment
Application, as required under Section 3.02;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Article VI shall be true and correct on and as
of such Borrowing Date or Issuance Date with the same effect as if made on and
as of such Borrowing Date or Issuance Date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date); and
(c) NO EXISTING DEFAULT. No Default or Event of Default shall
exist or shall result from such Borrowing or continuation or conversion or
Issuance.
Each Notice of Borrowing, L/C Application or L/C Amendment Application submitted
by the Company hereunder shall constitute a representation and warranty by the
Company hereunder, as of the date of each such notice and as of each Borrowing
Date or Issuance Date, as applicable, that the conditions in this Section 5.03
are satisfied.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company represents and warrants to the Agent and each Bank that:
6.01 CORPORATE EXISTENCE AND POWER. The Company and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed
and in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification or license; and
(d) is in compliance with all Requirements of Law; except, in
each case referred to in clause (c) or clause (d), to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
6.02 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery
and performance by the Company and its Subsidiaries of this Agreement and each
other Loan Document to which such Person is party, have been duly authorized by
all necessary corporate action, and do not and will not:
(a) contravene the terms of any of such Person's Organization
Documents;
(b) conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation to which such Person is a party or any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law.
6.03 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company or
any of its Subsidiaries of the Agreement or any other Loan Document.
6.04 BINDING EFFECT. This Agreement and each other Loan Document to
which the Company or any of its Subsidiaries is a party constitute the legal,
valid and binding obligations of the Company and any of its Subsidiaries to the
extent it is a party thereto, enforceable against such
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Person in accordance with their respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles relating
to enforceability.
6.05 LITIGATION. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company, or its Subsidiaries or any of their respective
properties which: (a) purport to affect or pertain to this Agreement or any
other Loan Document, or any of the transactions contemplated hereby or thereby;
or (b) if determined adversely to the Company or its Subsidiaries, would
reasonably be expected to have a Material Adverse Effect. No injunction, writ,
temporary restraining order or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document,
or directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
6.06 NO DEFAULT. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Company. As of the Closing Date,
neither the Company nor any Subsidiary is in default under or with respect to
any Contractual Obligation in any respect which, individually or together with
all such defaults, could reasonably be expected to have a Material Adverse
Effect, or that would, if such default had occurred after the Closing Date,
create an Event of Default under Section 9.01(e).
6.07 ERISA COMPLIANCE.
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of the Company, nothing has occurred which would cause the loss of such
qualification. The Company and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected
to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Company nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Company nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a
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Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
6.08 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Section 7.12
and Section 8.07. Neither the Company nor any Subsidiary is generally engaged in
the business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
6.09 TITLE TO PROPERTIES. The Company and each Subsidiary have good
record and marketable title in fee simple to, or valid leasehold interests in,
all real property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Closing Date, the
property of the Company and its Subsidiaries is subject to no Liens, other than
Permitted Liens.
6.10 TAXES. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
6.11 FINANCIAL CONDITION. (a) The (x) audited consolidated financial
statements of the Company and its Subsidiaries dated September 30, 1996 and (y)
the unaudited consolidated financial statements of the Company and its
Subsidiaries dated December 31, 1996, in each case including the related
consolidated statements of income or operations, shareholders' equity and cash
flows for the period ended on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein (subject to ordinary, good faith year
end audit adjustments);
(ii) fairly present the financial condition of the
Company and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in SCHEDULE
6.11, show all material indebtedness and other liabilities, direct or
contingent, of the Company and its consolidated Subsidiaries as of the
date thereof, including liabilities for taxes, material commitments and
Contingent Obligations.
(b) Since September 30, 1996, there has been no Material
Adverse Effect.
6.12 ENVIRONMENTAL MATTERS.
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(a) The on-going operations of the Company and each of its
Subsidiaries comply in all respects with all Environmental Laws, except such
non-compliance which would not (if enforced in accordance with applicable law)
result in liability in excess of $250,000 in the aggregate.
(b) The Company and each of its Subsidiaries have obtained all
licenses, permits, authorizations and registrations required under any
Environmental Law ("Environmental Permits") and necessary for their respective
ordinary course operations, all such Environmental Permits are in good standing,
and the Company and each of its Subsidiaries are in compliance with all material
terms and conditions of such Environmental Permits.
(c) None of the Company, any of its Subsidiaries or any of
their respective present Property or operations, is subject to any outstanding
written order from or agreement with any Governmental Authority, nor subject to
any judicial or docketed administrative proceeding, respecting any Environmental
Law, Environmental Claim or Hazardous Material.
(d) There are no Hazardous Materials or other conditions or
circumstances existing with respect to any Property, or arising from operations
prior to the Closing Date, of the Company or any of its Subsidiaries that would
reasonably be expected to give rise to Environmental Claims with a potential
liability of the Company and its Subsidiaries in excess of $250,000 in the
aggregate for any such condition, circumstance or Property. In addition, (i)
neither the Company nor any of its Subsidiaries has any underground storage
tanks (x) that are not properly registered or permitted under applicable
Environmental Laws, or (y) that are leaking or disposing of Hazardous Materials
off-site, and (ii) the Company and its Subsidiaries have notified all of their
employees of the existence, if any, of any health hazard arising from the
conditions of their employment and have met all notification requirements under
Title III of CERCLA and all other Environmental Laws.
6.13 COLLATERAL DOCUMENTS.
(a) The provisions of each of the Collateral Documents are
effective to create in favor of the Collateral Agent for the benefit of the
Banks, a legal, valid and enforceable first priority security interest in all
right, title and interest of the Company and its Subsidiaries in the collateral
described therein; and financing statements have been delivered to the
Collateral Agent on the Closing Date to be filed in the offices in all of the
jurisdictions listed in the schedule to the Security Agreement, and each
Intellectual Property Assignment has been delivered to the Collateral Agent on
the Closing Date to be filed in the U.S. Patent and Trademark Office and the
U.S. Copyright Office.
(b) The provisions of the Pledge Agreement are effective to
create, in favor of the Collateral Agent for the benefit of the Banks, a legal,
valid and enforceable security interest in all of the collateral described
therein; and the Pledged Collateral was delivered to the Collateral Agent or its
nominee in accordance with the terms thereof. The Lien of the Pledge Agreement
constitutes a perfected, first priority security interest in all right, title
and interest of the Company or such Subsidiary, as the case may be, in the
Collateral described therein, prior and superior to all other Liens and
interests.
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(c) All representations and warranties of the Company and any
of its Subsidiaries party thereto contained in the Collateral Documents are true
and correct.
6.14 REGULATED ENTITIES. None of the Company nor any Subsidiary, is an
"Investment Company" within the meaning of the Investment Company Act of 1940.
The Company is not subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any
state public utilities code, or any other Federal or state statute or regulation
limiting its ability to incur Indebtedness.
6.15 NO BURDENSOME RESTRICTIONS. Neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
6.16 SOLVENCY. The Company and each of its Subsidiaries are Solvent.
6.17 LABOR RELATIONS. There are no strikes, lockouts or other labor
disputes against the Company or any of its Subsidiaries, or, to the best of the
Company's knowledge, threatened against or affecting the Company or any of its
Subsidiaries, and no significant unfair labor practice complaint is pending
against the Company or any of its Subsidiaries or, to the best knowledge of the
Company, threatened against any of them before any Governmental Authority.
6.18 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Company or
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Company, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Company or any
Subsidiary infringes upon any rights held by any other Person. No claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Company,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.
6.19 SUBSIDIARIES. As of the Closing Date and after giving effect to
the Nordic Acquisition, the Company has no Subsidiaries other than those
specifically disclosed in part (a) of SCHEDULE 6.19 hereto and has no equity
investments in any other corporation or entity other than those specifically
disclosed in part (b) of SCHEDULE 6.19.
6.20 BROKER'S; TRANSACTION FEES. Neither the Company nor any of its
Subsidiaries has any obligation to any Person in respect of any finder's,
broker's or investment banker's fee in connection with the transactions
contemplated hereby.
6.21 INSURANCE. The properties of the Company and its Subsidiaries are
insured with financially sound and reputable insurance companies not Affiliates
of the Company, in such amounts, with such deductibles and covering such risks
as are customarily carried by companies
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engaged in similar businesses and owning similar properties in localities where
the Company or such Subsidiary operates.
6.22 SWAP OBLIGATIONS. Neither the Company nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations. The Company has undertaken its own independent
assessment of its consolidated assets, liabilities and commitments and has
considered appropriate means of mitigating and managing risks associated with
such matters and has not relied on any swap counterparty or any Affiliate of any
swap counterparty in determining whether to enter into any Swap Contract.
6.23 FULL DISCLOSURE. None of the representations or warranties made by
the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Company to the Banks prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
6.24 SUBORDINATION PROVISIONS. The subordination provisions contained
in all notes, debentures and other instruments entered into or issued in respect
of Subordinated Debt are enforceable against the issuer of the respective
security and the holders thereof, and the Loans and all other Obligations are
within the definitions of "Senior Indebtedness", or other comparable definition,
included in such provisions, it being understood and agreed that the
Indebtedness listed in item 2 of Schedule 8.05 contains limitations on the
amount of "Senior Indebtedness" subject to such provisions.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
7.01 FINANCIAL STATEMENTS. The Company shall deliver to the Agent, in
form and detail satisfactory to the Agent and the Majority Banks, with
sufficient copies for the Agent and each Bank:
(a) as soon as available, but not later than 90 days after the
end of each fiscal year (commencing with the fiscal year ended September 30,
1996), a copy of the audited consolidated and consolidating balance sheet of the
Company and its Subsidiaries as at the end of such year and the related
consolidated and consolidating statements of income or operations, shareholders'
equity
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and cash flows for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, and accompanied by the opinion of Ernst &
Young LLP or another nationally-recognized independent public accounting firm
("INDEPENDENT AUDITOR") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted or
limited examination by the Independent Auditor of any material portion of the
Company's or any Subsidiary's records.
(b) as soon as available, but not later than 45 days after the
end of each of the first three fiscal quarters of each fiscal year (commencing
with the fiscal quarter ended December 31, 1996), a copy of the unaudited
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of such quarter and the related consolidated and consolidating
statements of income, shareholders' equity and cash flows for the period
commencing on the first day and ending on the last day of such quarter, and
certified by a Responsible Officer as fairly presenting, in accordance with GAAP
(subject to ordinary, good faith year-end audit adjustments), the financial
position and the results of operations of the Company and the Subsidiaries; and
(c) as soon as available, but not later than 45 days after the
end of each of the first eleven months of each fiscal year (commencing with the
month ended January 31, 1997), a copy of the unaudited consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the end of
such month and the related consolidated and consolidating statements of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such month, and certified by a Responsible Officer
as fairly presenting, in accordance with GAAP (subject to ordinary, good faith
year-end audit adjustments), the financial position and the results of
operations of the Company and the Subsidiaries.
7.02 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to the
Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial statements
referred to in SECTION 7.01(A), a certificate of the Independent Auditor stating
that in making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in SECTIONS 7.01(A) and (B), a Compliance Certificate executed by a
Responsible Officer;
(c) promptly, copies of all financial statements and reports
that the Company sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10K, 10Q
and 8K) that the Company or any Subsidiary may make to, or file with, the SEC;
(d) as soon as available, but in any event not later than the
30th day prior to the end of each fiscal year, a copy of the plan and forecast
(including a projected consolidated and
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consolidating balance sheet, income statement and cash flow statement) of the
Company and its Subsidiaries for the next fiscal year;
(e) within 30 days after each anniversary of the Closing Date,
new insurance certificates satisfying the requirements of SECTION 5.01(G)(VI);
and
(f) promptly, such additional information regarding the
business, financial or corporate affairs of the Company or any Subsidiary as the
Agent, at the request of any Bank, may from time to time request.
7.03 NOTICES. The Company shall promptly notify the Agent and each
Bank:
(a) of the occurrence of any Default or Event of Default;
(b) of any matter that has resulted or may reasonably be
expected to result in a Material Adverse Effect, including (i) breach or
non-performance of, or any default under, a Contractual Obligation of the
Company or any Subsidiary; (ii) any dispute, litigation, investigation,
proceeding or suspension between the Company or any Subsidiary and any
Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting the Company or any
Subsidiary; including pursuant to any applicable Environmental Laws;
(c) of the occurrence of any of the following events affecting
the Company or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Agent and each Bank a copy of any notice with respect
to such event that is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to the Company or any ERISA Affiliate with
respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(iii) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the
Company or any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan subject
to Section 412 of the Code, if such amendment results in a material
increase in contributions or Unfunded Pension Liability.
(d) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries; and
(e) upon the request from time to time of the Agent, the Swap
Termination Values, together with a description of the method by which such
values were determined, relating to any then-outstanding Swap Contracts to which
the Company or any of its Subsidiaries is party.
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Each notice under this Section shall be accompanied by a
written statement by a Responsible Officer setting forth details of the
occurrence referred to therein, and stating what action the Company or any
affected Subsidiary proposes to take with respect thereto and at what time. Each
notice under SECTION 7.03(A) shall describe with particularity any and all
clauses or provisions of this Agreement or other Loan Document that have been
(or foreseeably will be) breached or violated.
7.04 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company shall, and
shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state or
jurisdiction of incorporation;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business, except
in connection with transactions permitted by Section 8.03 and sales of assets
permitted by Section 8.02;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non-preservation of which could
reasonably be expected to have a Material Adverse Effect.
7.05 MAINTENANCE OF PROPERTY. The Company shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear and
tear excepted and make all necessary repairs thereto and renewals and
replacements thereof.
7.06 INSURANCE. The Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.
7.07 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
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(b) all lawful claims which, if unpaid, would by law become a
Lien (other than a Permitted Lien) upon its property; and
(c) all indebtedness, as and when due and payable, but subject
to any subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.
7.08 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.09 COMPLIANCE WITH ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification unless such Plan is terminated; and (c) make
all required contributions to any Plan subject to Section 412 of the Code.
7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit, representatives
and independent contractors of the Agent or any Bank to visit and inspect any of
their respective properties, to examine their respective corporate, financial
and operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the expense of
the Company and at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Company; PROVIDED, HOWEVER, when an Event of Default exists the Agent or any
Bank may do any of the foregoing at the expense of the Company at any time
during normal business hours and without advance notice.
7.11 ENVIRONMENTAL LAWS. The Company shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
7.12 USE OF PROCEEDS. The Company shall use the proceeds of the
Revolving Loans for working capital and other general corporate purposes, other
than for the purpose of financing a hostile Acquisition, and shall use the
proceeds of the Term Loans for the purpose of undertaking the Nordic
Acquisition, the refinancing of certain Indebtedness in connection therewith and
the payment of fees and expenses relating thereto, in each case not in
contravention of any Requirement of Law or of any Loan Document.
7.13 SOLVENCY. The Company shall at all times be, and shall cause each
of its Subsidiaries to be, Solvent.
7.14 FURTHER ASSURANCES.
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(a) The Company shall ensure that all written information,
exhibits and reports furnished to the Agent or the Banks do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state any material fact or any fact necessary to make the statements contained
therein not misleading in light of the circumstances in which made, and will
promptly disclose to the Agent and the Banks and correct any defect or error
that may be discovered therein or in any Loan Document or in the execution,
acknowledgment or recordation thereof.
(b) Promptly upon request the Agent or the Majority Banks, the
Company shall (and shall cause any of its Subsidiaries to) do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments the Agent or such
Banks, as the case may be, may reasonably require from time to time in order (i)
to carry out more effectively the purposes of this Agreement or any other Loan
Document, (ii) to subject any of the properties, rights or interests covered by
any of the Collateral Documents to the Liens created by any of the Collateral
Documents, (iii) to perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and the Liens intended to be created
thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve,
protect and confirm to the Collateral Agent and Banks the rights granted or now
or hereafter intended to be granted to the Collateral Agent and the Banks under
any Loan Document or under any other document executed in connection therewith.
7.15 FOREIGN SUBSIDIARIES SECURITY. If following a change in the
relevant sections of the Code, the regulations and rules promulgated thereunder
and any rulings issued thereunder and at the request of the Agent or the
Majority Banks, counsel for the Company acceptable to the Agent and the Majority
Banks does not within 30 days after such request deliver evidence satisfactory
to the Agent, with respect to any Foreign Subsidiary which is a Wholly-Owned
Subsidiary of the Company, that (i) a pledge of 66-2/3% or more of the total
combined voting power of all classes of capital stock of such Foreign Subsidiary
entitled to vote, (ii) the entering into by such Foreign Subsidiary of a
guaranty in substantially the form of the Guaranty or (iii) the entering into by
such Foreign Subsidiary of a security agreement in substantially the form of the
Security Agreement, in either case would cause the earnings of such Foreign
Subsidiary to be treated as a deemed dividend to such Foreign Subsidiary's
United States parent or would otherwise violate a material applicable law, then
in the case of a failure to deliver the evidence described in clause (i) above,
that portion of such Foreign Subsidiary's outstanding capital stock not
theretofore pledged pursuant to the Pledge Agreement shall be pledged to the
Collateral Agent for the benefit of the Banks pursuant to the Pledge Agreement
(or another pledge agreement in substantially similar form, if needed), (ii) in
the case of a failure to deliver the evidence described in clause (ii) above,
such Foreign Subsidiary shall execute and deliver a guaranty of the Obligations
of the Company under the Loan Documents and (iii) in the case of a failure to
deliver the evidence described in clause (iii) above, such Foreign Subsidiary
shall execute and deliver a security agreement granting the Collateral Agent for
the benefit of the Banks a security interest in all of such Foreign Subsidiary's
assets, in each case with all documents delivered pursuant to this Section 7.15
to be in form and substance satisfactory to the Agent and the Majority Banks.
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7.16 CASH MANAGEMENT SYSTEMS. Within 90 days after the Closing Date,
the Company and each Guarantor shall have established a cash management system
acceptable to the Agent and shall have duly authorized, executed and delivered a
lockbox agreement, in form and substance satisfactory to the Collateral Agent,
with the Collateral Agent and the relevant banking institutions, acknowledging
that the lockbox account maintained at such banking institution is under the
exclusive dominion and control of the Collateral Agent and that all monies,
securities and instruments deposited in such lockbox account are to be held by
such banking institution for the benefit of the Collateral Agent.
ARTICLE VIII
NEGATIVE COVENANTS
------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
8.01 LIMITATION ON LIENS. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("PERMITTED
LIENS"):
(a) any Lien (other than as described in SECTION 8.01(N))
existing on property of the Company or any Subsidiary on the Closing Date and
set forth in SCHEDULE 8.01 securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by Section 7.07, provided that no
notice of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty or which
are being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on the property of the Company or its Subsidiary
securing (i) the non-delinquent performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, (ii) contingent obligations
on surety and appeal bonds, and (iii) other non-delinquent
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obligations of a like nature; in each case, incurred in the ordinary course of
business, provided all such Liens in the aggregate would not (even if enforced)
cause a Material Adverse Effect;
(g) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for the Company and its
Subsidiaries do not exceed $250,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
(i) Liens on assets of corporations which become Subsidiaries
after the date of this Agreement, PROVIDED, HOWEVER, that such Liens existed at
the time the respective corporations became Subsidiaries and were not created in
anticipation thereof and do not in the aggregate at any time outstanding exceed
$250,000;
(j) purchase money security interests on any property acquired
or held by the Company or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property; PROVIDED THAT (i) any such Lien
attaches to such property concurrently with or within 20 days after the
acquisition thereof, (ii) such Lien attaches solely to the property so acquired
in such transaction and (iii) the principal amount of the Indebtedness secured
by any and all such purchase money security interests shall not at any time
exceed, together with Indebtedness permitted under Section 8.05(d), $250,000;
(k) Liens securing Capital Lease Obligations on assets subject
to such Capital Leases, provided that such Capital Leases are otherwise
permitted under Section 8.10(c);
(l) Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar rights
and remedies as to deposit accounts or other funds maintained with a creditor
depository institution; PROVIDED THAT (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the FRB, and (ii) such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution;
(m) Liens securing Indebtedness of German Sub and Sweden Sub
permitted under Section 8.05(f) to the extent attaching only to the assets of
the Subsidiary incurring such Indebtedness;
(n) Liens on the real estate, owned by Mass Transfer Systems,
Inc., located in Fall River, Massachusetts, securing Indebtedness of such
Person, without giving effect to any extensions or renewals thereof; and
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(o) Liens on the assets of Sweden Sub granted to the Swedish
government securing Sweden Sub's obligations up to an aggregate amount not to
exceed $600,000 with respect to its employee benefit plans at any time prior to
the date the Company has issued a guaranty to the Swedish government with
respect thereto limited to said amount (it being understood and agreed that the
Company shall issue such guaranty within 10 days after the completion of the
initial public offering of its common stock).
8.02 DISPOSITION OF ASSETS. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment (including, without limitation, demonstration or pilot plants), all in
the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment; and
(c) dispositions of inventory and/or equipment by (i) the
Company or any Guarantor to the Company or any Guarantor pursuant to reasonable
business requirements and (ii) other assets of the Company or any Subsidiary to
any Foreign Subsidiary in an aggregate amount for all such dispositions after
the date of this Agreement not to exceed $250,000.
8.03 CONSOLIDATIONS AND MERGERS. The Company shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions all or substantially all of its assets whether now owned
or hereafter acquired) to or in favor of any Person, except:
(a) any Domestic Subsidiary may merge with the Company,
provided that the Company shall be the continuing or surviving corporation, or
with any one or more Subsidiaries, provided that if any transaction shall be
between a Domestic Subsidiary and a Wholly-Owned Domestic Subsidiary, the
Wholly-Owned Domestic Subsidiary shall be the continuing or surviving
corporation;
(b) any Domestic Subsidiary may sell all or substantially all
of its assets (upon voluntary liquidation or otherwise), to the Company or
another Wholly-Owned Domestic Subsidiary;
(c) any Foreign Subsidiary may be merged with and into, or be
dissolved or liquidated into, or transfer any of its assets to , any Foreign
Subsidiary so long as in each case at least 65% of the total combined voting
power of all classes of capital stock of all first-tier Foreign Subsidiaries are
pledged pursuant to the Pledge Agreement.
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(d) the assets of any Foreign Subsidiary may be transferred to
the Company or any of its Domestic Subsidiaries, and any Foreign Subsidiary may
be merged with and into, or be dissolved or liquidated into, the Company or any
of its Domestic Subsidiaries so long as the Company or such Domestic Subsidiary
is the surviving corporation of any such merger, dissolution or liquidation.
8.04 LOANS AND INVESTMENTS. The Company shall not purchase or acquire,
or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any Person
including any Affiliate of the Company (together, "INVESTMENTS"), except for:
(a) Investments held by the Company or Subsidiary in the form
of Cash Equivalents;
(b) extensions of credit in the nature of accounts receivable
or notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) extensions of credit by (i) the Company to any Guarantor
or by any Guarantor to another Guarantor or the Company, (ii) any Wholly-Owned
Foreign Subsidiary to another Wholly-Owned Foreign Subsidiary, (iii) the Company
to Sweden Sub on the Nordic Acquisition Date in an amount up to $7,000,000 for
the purpose of effecting the Nordic Acquisition and (iv) the Company to German
Sub on the Nordic Acquisition Date in an amount up to $2,000,000 for the purpose
of effecting the Nordic Acquisition; PROVIDED, that any extension of credit
pursuant to this clause (c) (other than as described in subclause (ii)) shall be
evidenced by a promissory note, in form and substance acceptable to the Agent,
and such promissory note shall be delivered to the Collateral Agent pursuant to
the relevant Pledge Agreement;
(d) Investments, subject to Section 8.09, incurred in order to
consummate Acquisitions (other than the Nordic Acquisition) otherwise permitted
herein, PROVIDED that (i) any such Acquisition the aggregate consideration of
which exceeds $2,500,000 shall not be permitted without the prior written
approval of the Banks, (ii) no Default or Event of Default is in existence both
before and after giving effect to such Acquisition, (iii) such Acquisition is
undertaken in accordance with all applicable Requirements of Law, and (iv) the
prior, effective written consent or approval to such Acquisition of the board of
directors or equivalent governing body of the acquiree is obtained;
(e) Investments constituting Permitted Swap Obligations or
payments or advances under Swap Contracts relating to Permitted Swap
Obligations;
(f) Investments existing as of the Closing Date and listed on
SCHEDULE 8.04;
(g) Investments (other than pursuant to Section 8.04(c)) made
by the Company after the date of this Agreement in any Guarantor; and
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(h) the Nordic Acquisition, subject to compliance with all
conditions set forth in SECTION 5.02.
8.05 LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 8.08;
(c) Indebtedness existing on the Closing Date and set forth in
SCHEDULE 8.05, PROVIDED that in the event that on June 1, 1997 the subordination
provisions contained in the Indebtedness listed in item 2 of SCHEDULE 8.05
contains a limitation on the amount of senior indebtedness evidenced by this
Agreement and as permitted by SECTION 8.05(F) subject to such provisions, such
Indebtedness shall not be permitted to exist at any time on or after June 1,
1997;
(d) other Indebtedness in an aggregate amount outstanding not
to exceed $750,000 (including Indebtedness secured by Liens permitted by Section
8.01(i), (j) and (n));
(e) Indebtedness incurred in connection with leases permitted
pursuant to Section 8.10;
(f) at any time on or after the Nordic Acquisition Date,
Indebtedness of German Sub and Sweden Sub under lines of credit extended by
third Persons to such Subsidiary the proceeds of which Indebtedness are used for
such Subsidiary's working capital purposes, to provide funds to consummate, in
part, the Nordic Acquisition and/or for letter of credit or bank guarantee
facilities, provided that the aggregate principal amount and/or stated amount,
as the case may be, of such Indebtedness outstanding at any time for German Sub
and Sweden Sub shall not exceed the Equivalent (as such term is defined in the
agreements governing such Indebtedness as in effect on the Nordic Acquisition
Date) of $6,600,000;
(g) subordinated Indebtedness of the Company (other than as
listed on SCHEDULE 8.05) in an aggregate amount outstanding not to exceed (x) at
any time during which the Obligations are supported by the Brantley Guaranty,
$5,000,000, or (y) at any other time, $7,000,000, such Indebtedness to be on
terms and conditions satisfactory to the Agent; and
(h) Indebtedness permitted to be incurred pursuant to SECTION
8.04(C).
8.06 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would obtain in a
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comparable arm's-length transaction with a Person not an Affiliate of the
Company or such Subsidiary.
8.07 USE OF PROCEEDS. The Company shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of
Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of the Company or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
8.08 CONTINGENT OBLIGATIONS. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in SCHEDULE 8.08;
(d) Contingent Obligations of the Company with respect to
Indebtedness incurred by a Wholly-Owned Foreign Subsidiary pursuant to Section
8.05(f); and
(e) Contingent Obligations of the Company arising under this
Agreement.
8.09 JOINT VENTURES. The Company shall not, and shall not suffer or
permit any Subsidiary to enter into any Joint Venture.
8.10 LEASE OBLIGATIONS. The Company shall not, and shall not suffer or
permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except for:
(a) leases of the Company and of Subsidiaries in existence on
the Closing Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by the Company or any
Subsidiary after the Closing Date in the ordinary course of business; PROVIDED
that the aggregate annual rental payments for all such operating leases shall
not exceed in any fiscal year $250,000; and
(c) Capital Leases other than those permitted under clause (a)
of this Section, entered into by the Company or any Subsidiary after the Closing
Date to finance the acquisition of equipment; PROVIDED that the aggregate
Capital Lease Obligations for all such Capital Leases shall not at any time
exceed $250,000.
8.11 RESTRICTED PAYMENTS.
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(a) The Company shall not, and shall not suffer or permit any
Subsidiary to, declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock, or purchase, redeem or otherwise
acquire for value any shares of its capital stock or any warrants, rights or
options to acquire such shares, now or hereafter outstanding, except that any
Wholly-Owned Subsidiary may declare and make dividend payments or other
distributions to the Company or a Wholly-Owned Subsidiary of the Company.
(b) The Company shall not, and shall not permit any Subsidiary
to, make (or give any notice in respect or) any voluntary or optional payment or
prepayment on or redemption or acquisition for value of any Subordinated Debt
or, with respect to any Subordinated Debt incurred pursuant to SECTION 8.05(G),
any scheduled principal payment without the consent of the Banks.
8.12 ERISA. The Company shall not, and shall not suffer or permit any
of its Subsidiaries to, (i) terminate any Plan subject to Title IV of ERISA so
as to result in any material (in the opinion of the Majority Banks) liability to
the Company or any ERISA Affiliate, (ii) permit to exist any ERISA Event or any
other event or condition, which presents the risk of a material (in the opinion
of the Majority Banks) liability to any member of the Controlled Group, (iii)
make a complete or partial withdrawal (within the meaning of ERISA Section 4201)
from any Multiemployer Plan so as to result in any material (in the opinion of
the Majority Banks) liability to the Company or any ERISA Affiliate, (iv) enter
into any new Plan or modify any existing Plan so as to increase its obligations
thereunder which could result in any material (in the opinion of the Majority
Banks) liability to any member of the Controlled Group, or (v) permit the
present value of all nonforfeitable accrued benefits under any Plan (using the
actuarial assumptions utilized by the PBGC upon termination of a Plan)
materially (in the opinion of the Majority Banks) to exceed the fair market
value of Plan assets allocable to such benefits, all determined as of the most
recent valuation date for each such Plan.
8.13 CHANGE IN BUSINESS. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Company and its
Subsidiaries on the date hereof.
8.14 ACCOUNTING CHANGES. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Company or of any Subsidiary.
8.15 MINIMUM NET WORTH. The Company shall not permit its consolidated
Net Worth at any time to be less than an amount equal to the sum of (a)
$9,000,000 PLUS (b) 75% of the Company's positive Net Income, if any, for each
fiscal quarter ending after the date hereof and prior to the date of
determination.
8.16 LEVERAGE RATIO. The Company shall not permit its Leverage Ratio as
determined as of each date set forth below for the twelve month period ending on
such date to be greater than the ratio set forth below for such date:
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<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
March 31, 1997 5.20:1.0
June 30, 1997 4.60:1.0
September 30, 1997 4.40:1.0
December 31, 1997 4.40:1.0
March 31, 1998 4.40:1.0
June 30,1998 4.40:1.0
September 30, 1998 4.25:1.0
December 31, 1998 4.25:1.0
March 31, 1999 4.25:1.0
June 30, 1999 4.25:1.0
September 30, 1999 and each fiscal 4.00:1.0
quarter thereafter
</TABLE>
8.17 SENIOR LEVERAGE RATIO. The Company shall not permit its Senior
Leverage Ratio as determined as of each date set forth below for the twelve
month period ending on such date to be greater than the ratio set forth below
for such date:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
March 31, 1997 4.00:1.0
June 30, 1997 3.75:1.0
September 30, 1997 3.65:1.0
December 31, 1997 3.65:1.0
March 31, 1998 3.65:1.0
June 30, 1998 3.65:1.0
September 30, 1998 3.50:1.0
December 31, 1998 3.50:1.0
March 31, 1999 3.50:1.0
June 30, 1999 3.50:1.0
September 30, 1999 3.25:1.0
December 31, 1999 3.25:1.0
March 31, 2000 3.25:1.0
June 30, 2000 3.25:1.0
September 30, 2000 and each fiscal 3.00:1.0
quarter thereafter
</TABLE>
8.18 INTEREST COVERAGE RATIO. The Company shall not permit its ratio of
EBIT to Consolidated Interest Expense as determined as of the last day of any
quarter set forth below to be less than the ratio set forth below for such date.
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<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
March 31, 1997 1.60:1.0
June 30, 1997 1.70:1.0
September 30, 1997 1.80:1.0
December 31, 1997 1.80:1.0
March 31, 1998 1.80:1.0
June 30, 1998 1.80:1.0
September 30, 1998 2.00:1.0
December 31, 1998 2.00:1.0
March 31, 1999 2.00:1.0
June 30, 1999 2.00:1.0
September 30, 1999 and each fiscal 2.25:1.0
quarter thereafter
</TABLE>
8.19 CURRENT RATIO. The Company shall not permit (as of the end of any
fiscal quarter) its ratio of Consolidated Current Assets to Consolidated Current
Liabilities to be less than 1.50:1.
8.20 OPERATING INCOME. The Company shall not permit (as of the end of
any fiscal quarter) its operating income to be less than $.01.
ARTICLE IX
EVENTS OF DEFAULT
-----------------
9.01 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT
OF DEFAULT":
(a) NON-PAYMENT. The Company fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan or of any L/C
Obligation, or (ii) within five days after the same becomes due, any interest,
fee or any other amount payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty
by the Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) SPECIFIC DEFAULTS. The Company fails to perform or observe
any term, covenant or agreement contained in any of Section 7.01, 7.02, 7.03 or
7.09 or in Article VIII; or
(d) OTHER DEFAULTS. The Company or any Subsidiary party
thereto fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document,
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and such default shall continue unremedied for a period of 20 days after the
earlier of (i) the date upon which a Responsible Officer knew or reasonably
should have known of such failure or (ii) the date upon which written notice
thereof is given to the Company by the Agent or any Bank; or
(e) CROSS-DEFAULT. (i) The Company or any Subsidiary (A) fails
to make any payment in respect of any Indebtedness or Contingent Obligation
(other than in respect of Swap Contracts), having an aggregate principal amount
(including undrawn committed or available amounts and including amounts owing to
all creditors under any combined or syndicated credit arrangement) of more than
$500,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure]; or (B) fails to perform or observe any other
condition or covenant, or any other event shall occur or condition exist, under
any agreement or instrument relating to any such Indebtedness or Contingent
Obligation, and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such failure
if the effect of such failure, event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness to be declared to be
due and payable prior to its stated maturity, or such Contingent Obligation to
become payable or cash collateral in respect thereof to be demanded; or (ii)
there occurs under any Swap Contract an Early Termination Date (as defined in
such Swap Contract) resulting from (1) any event of default under such Swap
Contract as to which the Company or any Subsidiary is the Defaulting Party (as
defined in such Swap Contract) or (2) any Termination Event (as so defined) as
to which the Company or any Subsidiary is an Affected Party (as so defined),
and, in either event, the Swap Termination Value owed by the Company or such
Subsidiary as a result thereof is greater than $250,000; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the Company's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Company or any Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) the Company or any Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business; or
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(h) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Company under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$250,000 the aggregate amount of Unfunded Pension Liability among all Pension
Plans at any time exceeds $250,000; or (iii) the Company or any ERISA Affiliate
shall fail to pay when due, after the expiration of any applicable grace period,
any installment payment with respect to its withdrawal liability under Section
4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$250,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory
judgments, non- interlocutory orders, decrees or arbitration awards is entered
against the Company or any Subsidiary involving in the aggregate a liability (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $250,000 or more, and the same shall
remain unsatisfied, unvacated and unstayed pending appeal for a period of 30
days after the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order
or decree is entered against the Company or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) COLLATERAL.
(i) any provision of any Collateral Document shall
for any reason cease to be valid and binding on or enforceable against
the Company or any Subsidiary of the Company party thereto or the
Company or any Subsidiary of the Company shall so state in writing or
bring an action to limit its obligations or liabilities thereunder; or
(ii) any Collateral Document shall for any reason
(other than pursuant to the terms thereof or as a result of the failure
of the Collateral Agent to file appropriate continuation statements)
cease to create a valid security interest in the Collateral purported
to be covered thereby or such security interest shall for any reason
cease to be a perfected and first priority security interest subject
only to Permitted Liens; or
(l) CHANGE OF CONTROL. There occurs any Change of Control; or
(m) GUARANTOR DEFAULTS. Any Guarantor or Brantley, as the case
may be, fails in any material respect to perform or observe any term, covenant
or agreement in the Guaranty or the Brantley Guaranty, respectively; or the
Guaranty or the Brantley Guaranty is for any reason partially (including with
respect to future advances) or wholly revoked or invalidated, or otherwise
ceases to be in full force and effect, or any Guarantor or Brantley, as the case
may be, or any other Person contests in any manner the validity or
enforceability thereof or denies that it has any further liability or obligation
thereunder; or any event described at clauses (f) or (g) of this Section occurs
with respect to such Guarantor or Brantley, as the case may be; or
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<PAGE> 79
(n) INVALIDITY OF SUBORDINATION PROVISIONS. The subordination
provisions of any agreement or instrument governing any Subordinated Debt is for
any reason revoked or invalidated, or otherwise cease to be in full force and
effect, or enforceability thereof or denies that it has any further liability or
obligation thereunder, or the Indebtedness hereunder is for any reason
subordinated or does not have the priority contemplated by this Agreement or
such subordination provisions; or
(o) AMENDMENT. The amendment to this Agreement required as a
result of the occurrence of a Specified Event (as defined in SECTION 11.18)
shall not have been entered into on or prior to the Specified Amendment Date (as
defined in SECTION 11.18).
9.02 REMEDIES. If any Event of Default occurs, the Agent shall, at the
request of, or may, with the consent of, the Majority Banks,
(a) declare the commitment of each Bank to make Loans and any
obligation of the Issuing Bank to Issue Letters of Credit to be terminated,
whereupon such commitments and obligation shall be terminated;
(b) declare an amount equal to the maximum aggregate amount
that is or at any time thereafter may become available for drawing under any
outstanding Letters of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letters of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in Sections
9.01(f) or (g) (in the case of clause (i) of Section 9.01 (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Agent, the Issuing Bank or any Bank.
9.03 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
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<PAGE> 80
ARTICLE X
THE AGENT
---------
10.01 APPOINTMENT AND AUTHORIZATION; "AGENT".
(a) Each Bank hereby irrevocably (subject to Section 10.09)
appoints, designates and authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with
respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Agent may agree at the
request of the Majority Lenders to act for such Issuing Bank with respect
thereto; PROVIDED, HOWEVER, that the Issuing Bank shall have all of the benefits
and immunities (i) provided to the Agent in this Article X with respect to any
acts taken or omissions suffered by the Issuing Bank in connection with Letters
of Credit Issued by it or proposed to be Issued by it and the application and
agreements for letters of credit pertaining to the Letters of Credit as fully as
if the term "Agent", as used in this Article X, included the Issuing Bank with
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
10.02 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
10.03 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i)
be liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received
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by the Agent under or in connection with, this Agreement or any other Loan
Document, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or for any failure of
the Company or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under any obligation
to any Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or records of the
Company or any of the Company's Subsidiaries or Affiliates.
10.04 RELIANCE BY AGENT.
(a) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Banks as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 5.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Bank.
10.05 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Banks, unless the Agent shall
have received written notice from a Bank or the Company referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its receipt
of any such notice. The Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Majority Banks in
accordance with Article IX; PROVIDED, HOWEVER, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
10.06 CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to
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constitute any representation or warranty by any Agent-Related Person to any
Bank. Each Bank represents to the Agent that it has, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its Subsidiaries, and
all applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company and its Subsidiaries hereunder. Each Bank also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and other documents
expressly herein required to be furnished to the Banks by the Agent, the Agent
shall not have any duty or responsibility to provide any Bank with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of the Company which may come
into the possession of any of the Agent-Related Persons.
10.07 INDEMNIFICATION OF AGENT. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Company and without limiting the obligation of the Company to do so), pro rata,
from and against any and all Indemnified Liabilities; PROVIDED, HOWEVER, that no
Bank shall be liable for the payment to the Agent-Related Persons of any portion
of such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
shall reimburse the Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
10.08 AGENT IN INDIVIDUAL CAPACITY. BAI and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BAI were not the Agent or the Issuing Bank
hereunder and without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, BAI or its Affiliates may receive information
regarding the Company or its Affiliates (including information that may be
subject to confidentiality obligations in favor of the Company or such
Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, BAI shall have the
same rights and powers under this Agreement as any other Bank and may exercise
the same as though it were not the Agent or the Issuing Bank.
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10.09 SUCCESSOR AGENT. The Agent may, and at the request of the
Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If the
Agent resigns under this Agreement, the Majority Banks shall appoint from among
the Banks a successor agent for the Banks which successor agent shall be
approved by the Company. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and the Company, a successor agent from among the
Banks. Upon the acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article X and Sections 11.04 and 11.05 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above. Notwithstanding the foregoing, however, BAI may not be removed as the
Agent at the request of the Majority Banks unless BAI shall also simultaneously
be replaced as "Issuing Bank" hereunder pursuant to documentation in form and
substance reasonably satisfactory to BAI.
10.10 WITHHOLDING TAX
(a) If any Bank is a "foreign corporation, partnership or
trust" within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Agent, to deliver to the Agent:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, two
properly completed and executed copies of IRS Form 1001 before the
payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of such
Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Bank and in each succeeding taxable year of such Bank during which
interest may be paid under this Agreement; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
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(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of the Company to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Company to such Bank. To the extent of
such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no
longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Company to such Bank, such Bank agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by clause
(a) of this Section are not delivered to the Agent, then the Agent may withhold
from any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax imposed by
Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed, or
because such Bank failed to notify the Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Bank shall indemnify the Agent fully for all amounts
paid, directly or indirectly, by the Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any jurisdiction on
the amounts payable to the Agent under this Section, together with all costs and
expenses (including Attorney Costs). The obligation of the Banks under this
Section shall survive the payment of all Obligations and the resignation or
replacement of the Agent.
ARTICLE XI
MISCELLANEOUS
-------------
11.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company or any applicable Subsidiary therefrom, shall be
effective unless the same shall be in writing and signed by the Majority Banks
(or by the Agent at the written request of the Majority Banks) and the Company
and acknowledged by the Agent, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; PROVIDED, HOWEVER, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Banks and the Company and acknowledged
by the Agent, do any of the following:
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(a) increase or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to Section 8.02);
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Loan
Document ;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or (subject to clause (iii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the Banks
or any of them to take any action hereunder; or
(e) amend this Section, or Section 2.14, or any provision
herein providing for consent or other action by all Banks;
and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Issuing Bank in addition to the Majority Banks or all
the Banks, as the case may be, affect the rights or duties of the Issuing Bank
under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Majority Banks or
all the Banks, as the case may be, affect the rights or duties of the Agent
under this Agreement or any other Loan Document, and (iii) the Fee Letters may
be amended, or rights or privileges thereunder waived, in a writing executed by
the parties thereto.
11.02 NOTICES.
(a) All notices, requests, consents, approvals, waivers and
other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on SCHEDULE 11.02, and
(ii) shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on SCHEDULE 11.02; or, as directed to the Company or the Agent, to such
other address as shall be designated by such party in a written notice to the
other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to the Company and the
Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II, III or X to the Agent shall not be effective
until actually received by the Agent, and notices pursuant to Article III to the
Issuing Bank shall not be effective until actually
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received by the Issuing Bank at the address specified for the "Issuing Bank" on
the applicable signature page hereof.
(c) Any agreement of the Agent and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Company. The Agent and the Banks shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by the Company
to give such notice and the Agent and the Banks shall not have any liability to
the Company or other Person on account of any action taken or not taken by the
Agent or the Banks in reliance upon such telephonic or facsimile notice. The
obligation of the Company to repay the Loans and L/C Obligations shall not be
affected in any way or to any extent by any failure by the Agent and the Banks
to receive written confirmation of any telephonic or facsimile notice or the
receipt by the Agent and the Banks of a confirmation which is at variance with
the terms understood by the Agent and the Banks to be contained in the
telephonic or facsimile notice.
11.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
11.04 COSTS AND EXPENSES. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BAI (including in its capacity as Agent and
Issuing Bank) within five Business Days after demand (subject to Section
5.01(e)) for all costs and expenses incurred by BAI (including in its capacity
as Agent and Issuing Bank) in connection with the development, preparation,
delivery, administration and execution of, and any amendment, supplement, waiver
or modification to (in each case, whether or not consummated), this Agreement,
any Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs incurred by BAI (including in its
capacity as Agent and Issuing Bank) with respect thereto; and
(b) pay or reimburse the Agent and each Bank within five
Business Days after demand (subject to Section 5.01(e)) for all costs and
expenses (including Attorney Costs) incurred by them in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Agreement or any other Loan Document during the existence of an Event
of Default or after acceleration of the Loans (including in connection with any
"workout" or restructuring regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding).
11.05 COMPANY INDEMNIFICATION. Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify, defend and
hold the Agent-Related Persons, and each Bank and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"INDEMNIFIED PERSON") harmless from and against any and all liabilities,
obligations, losses,
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damages, penalties, actions, judgments, suits, costs, charges, expenses and
disbursements (including Attorney Costs) of any kind or nature whatsoever which
may at any time (including at any time following repayment of the Loans, the
termination of the Letters of Credit and the termination, resignation or
replacement of the Agent or replacement of any Bank) be imposed on, incurred by
or asserted against any such Person in any way relating to or arising out of the
Company entering into this Agreement or any document contemplated by or referred
to herein, or the transactions contemplated hereby, or any action taken or
omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or Letters of Credit or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, that the
Company shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this Section
shall survive payment of all other Obligations.
11.06 PAYMENTS SET ASIDE. To the extent that the Company makes a
payment to the Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any Insolvency Proceeding or otherwise, then (a)
to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Bank severally agrees to pay to the Agent upon demand its pro rata share of
any amount so recovered from or repaid by the Agent.
11.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank.
11.08 ASSIGNMENTS, PARTICIPATIONS, ETC.
(a) Any Bank may, with the written consent of the Agent and
the Issuing Bank, which consents shall not be unreasonably withheld, at any time
assign and delegate to one or more Eligible Assignees (provided that no written
consent of the Agent or the Issuing Bank shall be required in connection with
any assignment and delegation by a Bank to an Eligible Assignee that is an
Affiliate of such Bank) (each an "ASSIGNEE") all, or any ratable part of all, of
the Loans, the Commitments, the L/C Obligations and the other rights and
obligations of such Bank hereunder, in a minimum amount of $5,000,000; PROVIDED,
HOWEVER, that the Company and the Agent may continue to deal solely and directly
with such Bank in connection with the interest so assigned to an Assignee until
(i) written notice of such assignment, together with payment instructions,
addresses and related information with respect to the Assignee, shall have been
given to the Company and the Agent by such Bank and the Assignee; (ii) such Bank
and its Assignee shall have delivered to the Company and the Agent an Assignment
and Acceptance in the form of EXHIBIT E
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("ASSIGNMENT AND ACCEPTANCE") together with any Note or Notes subject to such
assignment and (iii) the assignor Bank or Assignee has paid to the Agent a
processing fee in the amount of $3,000. Any assignment pursuant to this Section
11.08(a) shall be ratable as between the Term Loans and Commitments of the
assigning Bank.
(b) From and after the date that the Agent notifies the
assignor Bank that it has received (and provided its consent with respect to) an
executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent
that rights and obligations hereunder and under the other Loan Documents have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Documents.
(c) Within five Business Days after its receipt of notice by
the Agent that it has received an executed Assignment and Acceptance and payment
of the processing fee, (and provided that it consents to such assignment in
accordance with Section 11.08(a)), the Company shall execute and deliver to the
Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and,
if the assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Loans retained by the assignor
Bank (such Notes to be in exchange for, but not in payment of, the Notes held by
such Bank). Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank PRO TANTO.
(d) Any Bank may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Company (a "PARTICIPANT")
participating interests in any Loans, the Commitment of that Bank and the other
interests of that Bank (the "originating Bank") hereunder and under the other
Loan Documents; PROVIDED, HOWEVER, that (i) the originating Bank's obligations
under this Agreement shall remain unchanged, (ii) the originating Bank shall
remain solely responsible for the performance of such obligations, (iii) the
Company, the Issuing Bank and the Agent shall continue to deal solely and
directly with the originating Bank in connection with the originating Bank's
rights and obligations under this Agreement and the other Loan Documents, and
(iv) no Bank shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Banks
as described in the FIRST PROVISO to Section 11.01. In the case of any such
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Company
hereunder shall be determined as if such Bank had not sold such participation;
except that, if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Bank under this Agreement.
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(e) Notwithstanding any other provision in this Agreement, any
Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law.
11.09 CONFIDENTIALITY. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Company and provided to it by the Company or any Subsidiary, or
by the Agent on the Company's or such Subsidiary's behalf, under this Agreement
or any other Loan Document, and neither it nor any of its Affiliates shall use
any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business now
or hereafter existing or contemplated with the Company or any Subsidiary; except
to the extent such information (i) was or becomes generally available to the
public other than as a result of disclosure by the Bank, or (ii) was or becomes
available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; PROVIDED, HOWEVER, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) as to any
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Company or any
Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I)
to its Affiliates.
11.10 SET-OFF. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Company, any such notice being waived by the Company to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of the Company against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Bank agrees promptly to
notify the Company and the Agent after any such set-off and application made by
such Bank; PROVIDED, HOWEVER, that the failure to give such notice shall not
affect the validity of such set-off and application.
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11.11 AUTOMATIC DEBITS OF FEES. With respect to any principal or
interest due on the Loans, unreimbursed L/C Obligation, commitment fee,
arrangement fee, letter of credit fee or other fee, or any other cost or expense
(including Attorney Costs) due and payable to the Agent, the Issuing Bank or BAI
under the Loan Documents, the Company hereby irrevocably authorizes BAI to debit
any deposit account of the Company with BAI in an amount such that the aggregate
amount debited from all such deposit accounts does not exceed such fee or other
cost or expense. If there are insufficient funds in such deposit accounts to
cover the amount of the fee or other cost or expense then due, such debits will
be reversed (in whole or in part, in BAI's sole discretion) and such amount not
debited shall be deemed to be unpaid. No such debit under this Section shall be
deemed a set-off.
11.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
11.13 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.14 SEVERABILITY. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
11.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
11.16 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT
THE PARTIES SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND
THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND
THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE
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OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE
BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.
11.17 WAIVER OF JURY TRIAL. THE COMPANY, THE BANKS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE
BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11.18 FINANCIAL COVENANTS ADJUSTMENTS. In the event that either (x) the
Nordic Acquisition Date does not occur on or prior to April 18, 1997 or (y) the
Company voluntarily terminates the available Term Commitment pursuant to SECTION
2.05 (each, a "Specified Event"), the Company hereby agrees to enter into an
amendment to this Agreement for the purpose, INTER ALIA, of reformulating the
amortization schedule contained in SECTION 2.08(A) (it being understood and
agreed that as of the date hereof and based upon facts and information available
to the Banks as of the date hereof, such reformulated amounts shall be equal to
50% of the scheduled amounts listed in said SECTION 2.08(A) as of the date
hereof) and the covenants contained in SECTIONS 8.15, 8.16, 8.17, 8.18 and 8.19,
and the definitions relating thereto, to give effect to the occurrence of such
Event, such amendment to become effective no later than the date (the "Specified
Amendment Date") which is 30 days after the earliest occurrence of an Event and
to be in form and substance reasonably satisfactory to the Banks.
11.19 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their proper and duly
authorized officers as of the day and year first above written.
WATERLINK, INC.
By:
-------------------------------------------------
Title:
----------------------------------------------
BANK OF AMERICA ILLINOIS, as Agent
By:
-------------------------------------------------
Title:
----------------------------------------------
BANK OF AMERICA ILLINOIS,
Individually as a Bank and as the Issuing Bank
By:
-------------------------------------------------
Title:
----------------------------------------------
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SCHEDULE 2.01
-------------
COMMITMENTS
-----------
AND PRO RATA SHARES
-------------------
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
---- ---------- -----
<S> <C> <C>
Bank of America Illinois $8,000,000 100%
TOTAL _________________
$8,000,000 100%
</TABLE>
<PAGE> 94
SCHEDULE 11.02
--------------
AGENT AND BANK NOTICE INFORMATION
---------------------------------
BANK OF AMERICA ILLINOIS,
- -------------------------
as Agent
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attn: David L. Graham
Tel: 312-828-7299
Fax: 312-974-9102
AGENT'S PAYMENT OFFICE:
- -----------------------
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
BANK OF AMERICA ILLINOIS,
- -------------------------
as a Bank
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Tim Pepowski
Tel: 312-828-1304
Fax: 312-828-1974
Notices (other than Borrowing notices and Notices of
Conversion/Continuation):
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Tim Pepowski
Tel: 312-828-1304
Fax: 312-828-1974
<PAGE> 95
BANK OF AMERICA ILLINOIS,
- -------------------------
as Issuing Bank
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Tim Pepowski
Tel: 312-828-1304
Fax: 312-828-1974
COMPANY NOTICE INFORMATION
--------------------------
Waterlink, Inc.
4100 Holiday Street N.W.
Canton, Ohio 44718
Attn: Chief Financial Officer
Tel: 330-649-4000
Fax: 330-649-4008
<PAGE> 1
Exhibit 10.7
Execution Copy
BRANTLEY GUARANTY
-----------------
FOR VALUE RECEIVED and in consideration of any loan or other financial
accommodation heretofore or hereafter at any time made or granted to WATERLINK,
INC., a Delaware corporation ("Waterlink"), PROVISTA
EINHUNDERTSECHSUNDFUNFZIGSTE VERWALTUNGSGESELLSCHAFT mgH (to be known as
Waterlink (Germany) GmbH), a German corporation ("German Sub"), and/or
GIGANTISSIMO 2061 AB (to be known as Waterlink (Sweden) AB), a Swedish
corporation ("Sweden Sub", and together with Waterlink and German Sub, each a
"Debtor" and collectively, the "Debtors"), BRANTLEY VENTURE PARTNERS III, L.P.,
a Delaware limited partnership (the "Guarantor") hereby absolutely, irrevocably
and unconditionally guarantees (this "Guaranty") the full and prompt payment
when due, whether by acceleration or otherwise, and at all times thereafter, of
(a) all obligations of Waterlink from time to time existing or arising under or
pursuant to the Credit Agreement, dated as of February 19, 1997, among
Waterlink, the financial institutions from time to time party thereto (the
"Banks") and Bank of America Illinois, as agent (the "Agent") (as from time to
time restated, amended or modified, the "Waterlink Credit Agreement"; any term
used but not otherwise defined herein shall have the meaning ascribed to such
term in the Waterlink Credit Agreement), (b) all obligations of German Sub from
time to time existing or arising under or pursuant to the Credit Agreement,
dated as of February 26, 1997 (as from time to time restated, amended or
modified, the "German Credit Agreement"), between German Sub and Bank of America
National Trust and Savings Association, Frankfurt Branch ("B of A Frankfurt"),
(c) all obligations of Sweden Sub from time to time existing or arising under or
pursuant to the Credit Agreement, dated as of February 26, 1997 (as from time to
time restated, amended or modified, the "Sweden Credit Agreement", and together
with the Waterlink Credit Agreement and the German Credit Agreement, each a
"Credit Agreement" and collectively, the "Credit Agreements"), between Sweden
Sub and Bank of America National Trust and Savings Association, London Branch
("B of A London", and together with the Agent, the Banks and B of A Frankfurt,
each a "Creditor" and collectively, the "Creditors") and (d) all other amounts
from time to time owing to the Creditors by the Debtors under the Loan Documents
(as such term is defined in the relevant Credit Agreement), whether direct or
indirect, absolute or contingent, or now or hereafter existing, or due or to
become due (all such obligations being hereinafter collectively called the
"Obligations"), and the Guarantor further agrees to pay all expenses (including
attorneys' fees and legal expenses) paid or incurred by any Creditor, in
endeavoring to collect the Obligations, or any part thereof, and in enforcing
this Guaranty; PROVIDED, HOWEVER, that (w) the Guarantor's maximum liability
hereunder shall be $2,000,000 (as such amount is permanently reduced from time
to time by an amount equal to the aggregate amount of Subordinated Debt incurred
by Waterlink pursuant to Section 8.05(g) of the Waterlink Credit Agreement and
the proceeds of which are utilized to repay Loans under, and as defined in, the
Waterlink Credit Agreement), (x) such liability shall exist to the extent, and
only to the extent, the aggregate Obligations equal or exceed (1) from the date
hereof to and including March 31, 1997, $20,800,000 or (2) at any time
thereafter, an amount equal to EBITDA of Waterlink listed in item II(2)(b) of
Schedule 1 to the Compliance Certificate delivered by Waterlink for the fiscal
quarter ended March
<PAGE> 2
31, 1997, multiplied by four, at the time of any acceleration of such
Obligations, (y) the Guarantor shall have 35 days to satisfy any claim made by a
Creditor under this Guaranty and (z) no claim may be initially made by any
Creditor against the Guarantor under this Guaranty at any time on and after June
1, 1997. This Guaranty constitutes a Guaranty of payment when due and not of
collection, and the Guarantor specifically agrees that it shall not be necessary
or required that any Creditor exercise any right, assert any claim or demand, or
enforce any remedy whatsoever against any Debtor (or any other Person) before or
as a condition to the obligations of the Guarantor hereunder.
The Guarantor agrees that, in the event of the dissolution or
insolvency of a Debtor or the inability of a Debtor to pay debts as they mature,
or an assignment by a Debtor for the benefit of creditors, or the institution of
any proceeding by or against a Debtor alleging that such Debtor is insolvent or
unable to pay debts as they mature, and if such event shall, subject to clause
(z) of the first paragraph of this Guaranty, occur at a time when any of the
Obligations may not then be due and payable, the Guarantor will pay to the
relevant Creditor forthwith the full amount that would be payable hereunder by
the Guarantor if all Obligations were then due and payable.
This Guaranty, subject to clause (z) of the first paragraph of this
Guaranty, shall in all respects be a continuing, absolute and unconditional
guaranty, and shall remain in full force and effect (notwithstanding, without
limitation, that at any time or from time to time all Obligations may have been
paid in full).
The Guarantor further agrees that, if at any time all or any part of
any payment theretofore applied by any Creditor to any of the Obligations is or
must be rescinded or returned by such Creditor for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
a Debtor, such Obligations, subject to clause (z) of the first paragraph of this
Guaranty, shall, for the purposes of this Guaranty, to the extent that such
payment is or must be rescinded or returned, be deemed to have continued in
existence, notwithstanding such application by such Creditor, and this guaranty
shall continue to be effective or be reinstated, as the case may be, as to such
Obligations, all as though such application by such Creditor had not been made.
Any Creditor may, from time to time, at its sole discretion and without
notice to the Guarantor, take any or all of the following actions: (a) retain or
obtain a security interest in any property to secure any of the Obligations or
any obligation hereunder; (b) retain or obtain the primary or secondary
obligation of any obligor or obligors, in addition to the Guarantor, with
respect to any of the Obligations; (c) extend or renew for one or more periods
(whether or not longer than the original period), alter, amend or exchange any
of the Obligations or any of the documentation pertaining thereto, or release or
compromise any obligation of the Guarantor hereunder or any obligation of any
nature of any other obligor with respect to any of the Obligations; (d) release
its security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Obligations or
any obligation hereunder, or extend or renew for one or more periods (whether or
not longer than the original period) or release, compromise, alter or exchange
any obligations of any nature of any obligor with respect to any such property;
and (e) resort to the Guarantor for payment, subject to clause (z) of the first
paragraph of this Guaranty, of any of the Obligations, whether or not such
Creditor (i) shall have resorted to any property
-2-
<PAGE> 3
securing any of the Obligations or any obligation hereunder or (ii) shall have
proceeded against any other obligor primarily or secondarily obligated with
respect to any of the Obligations (all of the actions referred to in preceding
clauses (i) and (ii) being hereby expressly waived by the Guarantor).
Any amounts received by a Creditor from whatsoever source on account of
the Obligations may be applied by it toward the payment of such of the
Obligations, and in such order of application, as such Creditor may from time to
time elect.
Until such time as the Creditors shall have received payment of the
full amount of all Obligations and of all obligations of the Guarantor
hereunder, no payment made by or for the account of the Guarantor pursuant to
this Guaranty shall entitle the Guarantor by subrogation or otherwise to any
payment by a Debtor or from or out of any property of such Debtor and the
Guarantor shall not exercise any right or remedy against any Debtor or any
property of any Debtor by reason of any performance by the Guarantor of this
Guaranty.
The Guarantor hereby expressly waives: (a) notice of the acceptance by
any Creditor of this Guaranty, (b) notice of the existence or creation or
nonpayment of all or any of the Obligations, (c) presentment, demand, notice of
dishonor, protest, and all other notices whatsoever, and (d) all diligence in
collection or protection of or realization upon the Obligations or any thereof,
any obligation hereunder, or any security for or guaranty of any of the
foregoing.
Until the irrevocable payment in full of all of the Obligations (other
than Obligations under the relevant Credit Agreement with a Creditor which
expressly survive the termination of such agreement) and termination of all
Commitments (as defined in the relevant Credit Agreement), (a) the Guarantor
waives any right of subrogation, reimbursement, indemnification and contribution
(contractual, statutory or otherwise), including any claim or right of
subrogation under the Bankruptcy Code or any successor statute, against any
Debtor arising from the existence or performance of this Guaranty and (b) the
Guarantor waives any right to enforce any remedy which any Creditor now has or
may hereafter have against any Debtor, and waives any benefit of, and any right
to participate in, any security now or hereafter held by a Creditor securing the
Obligations. Upon such irrevocable payment and termination, the Debtors shall
jointly and severally indemnify the Guarantor for the full amount of any payment
made by the Guarantor under this Guaranty and such Guarantor shall be subrogated
to the rights of the person to whom such payment shall have been made to the
extent of such payment.
All rights of subrogation of the Guarantor hereunder shall be fully
subordinated in time and priority of payment to the Obligations and all other
indebtedness of each Debtor to each Creditor.
Any Creditor may, from time to time, without notice to the Guarantor,
assign or transfer any or all of the Obligations or any interest therein; and,
notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Obligations, subject to clause (z) of the first paragraph
of this Guaranty, shall be and remain Obligations for the purposes of this
Guaranty, and each and every immediate and successive assignee or transferee of
any of the Obligations or of any interest therein shall, to the extent of the
interest of such assignee or transferee in the Obligations,
-3-
<PAGE> 4
be entitled to the benefits of this Guaranty to the same extent as if such
assignee or transferee were a Creditor.
The Guarantor hereby warrants to each Creditor that it now has and will
continue to have independent means of obtaining information concerning the
affairs, financial condition and business of each Debtor. No Creditor shall have
any duty or responsibility to provide the Guarantor with any credit or other
information concerning the affairs, financial condition or business of any
Debtor that may come into the possession of such Creditor.
The Guarantor represents and warrants to each Creditor that:
(a) the Guarantor:
(i) is a limited partnership duly organized, validly existing
and in good standing under the laws of Delaware and Ohio;
(ii) has the power and authority and all governmental
licenses, authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under this
Guaranty;
(iii) is in compliance with all Requirements of Law; except to
the extent that the failure to do so could not reasonably be expected to have a
material adverse change in, or a material adverse effect upon, the operations,
business, properties, condition (financial or otherwise) or prospects of the
Guarantor or materially impare the ability of the Guarantor to perform under
this Guaranty or a material adverse effect upon the legality, validity, binding
effect or enforceability against the Guarantor or this Guaranty (collectively, a
"Material Adverse Effect");
(b) the execution, delivery and performance by the Guarantor of this
Guaranty has been duly authorized by all necessary partnership action, and do
not and will not:
(i) contravene the terms its limited partnership agreement;
(ii) conflict with or result in any breach or contravention
of, or the creation of any Lien under, any document evidencing any Contractual
Obligation to which it is a party or any order, injunction, writ or decree of
any Governmental Authority to which it or its property is subject; or
(iii) violate any Requirement of Law;
(c) no approval, consent, exemption, authorization, or other action by,
or notice to, or filing with, any Governmental Authority is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, the Guarantor of this Guaranty;
(d) there are no actions, suits, proceedings, claims or disputes
pending, or to the best knowledge of the Guarantor, threatened or contemplates,
at law, in equity, in arbitration or before
-4-
<PAGE> 5
any Governmental Authority, against the Guarantor which: (i) purport to affect
or pertain to this Guaranty; or (ii) if determined adversely to the Guarantor,
would reasonably be expected to have a Material Adverse Effect. No injunction,
writ, temporary restraining order or any order of any nature has been issued by
any court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Guaranty, or directing that the
transactions provided for herein not be consummated as herein provided. As of
the date hereof, the Guarantor is not in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect;
(e) the Guarantor is Solvent both before and after giving effect to
this Guaranty;
(f) the Guarantor, as of the date hereof, has funds available to it
under its limited partnership agreement free and clear of any Liens, prior
commitments or any guaranty (other than this Guaranty), in an amount at least
equal to $2,000,000.
(g) none of the representations or warranties made by the Guarantor in
this Guaranty, and none of the statements contained in any exhibit, report,
statement or certificate furnished by or on behalf of the Guarantor in
connection with this Guaranty, contains any untrue statement of a material fact
or omits any material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
The Guarantor hereby agrees that it shall (a) at all times on or prior
to June 1, 1997 have funds available to it under its limited partnership
agreement free and clear of any Liens, prior commitments or any guaranty (other
than this Guaranty), in an amount at least equal to $2,000,000, and (b) deliver
a certificate to each Creditor every fourteen days, commencing March 12, 1997,
stating that the Guarantor remains in compliance with the provisions of the
preceding clause (a).
No delay on the part of any Creditor in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
any Creditor of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy; nor shall any modification
or waiver of any of the provisions of this Guaranty be binding upon any Creditor
except as expressly set forth in a writing duly signed and delivered (or
consented to) by or on behalf of each Creditor. No action of any Creditor
permitted hereunder shall in any way affect or impair the rights of any Creditor
and the obligations of the Guarantor under this Guaranty. For the purposes of
this Guaranty, Obligations shall include all obligations of each Debtor to each
Creditor arising under or in connection with the agreements relating to the
Obligations, notwithstanding any right or power of a Debtor or anyone else to
assert any claim or defense as to the invalidity or unenforceability of any such
obligation, and no such claim or defense shall affect or impair the obligations
of the Guarantor hereunder. The obligations of the Guarantor under this Guaranty
shall be absolute and unconditional irrespective of any circumstance whatsoever
that might constitute a legal or equitable discharge or defense of the
Guarantor. The Guarantors hereby acknowledge that, except as provided in the
first paragraph of this Guaranty, there are no conditions to the effectiveness
of this Guaranty.
-5-
<PAGE> 6
This Guaranty shall be binding upon the Guarantor, and upon the legal
representatives, successors and assigns of the Guarantors; and all references
herein to a Debtor and to the Guarantor, respectively, shall be deemed to
include any successor or successors, whether immediate or remote, to such
entities.
This Guaranty has been delivered at Chicago, Illinois, and shall be
construed in accordance with and governed by the internal laws of the State of
Illinois. Wherever possible each provision of this Guaranty shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty.
The Guarantor hereby expressly waives any right to a trial by jury in
any action or proceeding to enforce or defend any rights under this Guaranty or
under any amendment, instrument, document or agreement delivered or that may in
the future be delivered in connection herewith or arising from any banking
relationship existing in connection with this Guaranty, and agrees that any such
action or proceeding shall be tried before a court and not before a jury.
* * *
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Guarantors have executed this Guaranty by their
duly authorized officers as of the 4th day of March, 1997.
BRANTLEY VENTURE PARTNERS III, L.P.
By: BRANTLEY VENTURE MANAGEMENT III,
L.P., as General Partner
By: PINKAS FAMILY PARTNERS, L.P.,
a General Partner
By _____________________________________
Name: ______________________________
Title: General Partner
Acknowledged and Agreed as of
the 4th day of March, 1997:
WATERLINK, INC.
By ________________________
Name: __________________
Title: _________________
PROVISTA EINHUNDERTSECHSUNDFUNFZIGSTE
VERWALTUNGSGESELLSCHAFT mbH (to be known
as WATERLINK (GERMANY) GmbH)
By:______________________
Title:___________________
-7-
<PAGE> 8
GIGANTISSIMO 2061 AB (to be known as
WATERLINK (SWEDEN) AB)
By: _________________________
Title: ______________________
BANK OF AMERICA ILLINOIS,
as Agent
By __________________________
Name: _________________
Title: ________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
FRANKFURT BRANCH
By __________________________
Name: _________________
Title: ________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
LONDON BRANCH
By __________________________
Name: _________________
Title: ________________
-8-
<PAGE> 1
Exhibit 10.8
================================================================================
Equivalent of
$3,800,000
CREDIT AGREEMENT
DATED AS OF MARCH 4, 1997
AMONG
GIGANTISSIMO 2061 AB
(TO BE KNOWN AS WATERLINK (SWEDEN) AB),
AS BORROWER
WATERLINK, INC.,
AS GUARANTOR,
AND
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION, LONDON BRANCH
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
ARTICLE I
<S> <C> <C>
DEFINITIONS..........................................................................1
1.03 ACCOUNTING PRINCIPLES................................................................9
ARTICLE II
THE CREDITS..........................................................................9
2.01 AMOUNTS AND TERMS OF COMMITMENTS........................................................9
2.02 LOAN ACCOUNTS...........................................................................9
2.03 PROCEDURE FOR BORROWING................................................................10
2.05 VOLUNTARY TERMINATION OR REDUCTION OF THE COMMITMENT...................................11
2.06 OPTIONAL PREPAYMENTS...................................................................11
2.07 MANDATORY PREPAYMENTS OF LOANS; MANDATORY COMMITMENT REDUCTIONS
...................................................................................12
2.08 REPAYMENT..............................................................................12
2.09 INTEREST...............................................................................12
2.11 COMPUTATION OF FEES AND INTEREST.......................................................13
2.12 PAYMENTS BY THE BORROWER...............................................................13
2.13 UTILIZATION OF APPROVED CURRENCIES.....................................................14
ARTICLE III
THE LETTERS OF CREDIT...............................................................14
3.01 THE LETTER OF CREDIT SUBFACILITY.......................................................14
3.02 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT...................................15
3.03 DRAWINGS AND REIMBURSEMENTS............................................................17
3.04 ROLE OF THE ISSUING BANK...............................................................17
3.05 OBLIGATIONS ABSOLUTE...................................................................18
3.06 CASH COLLATERAL PLEDGE.................................................................19
3.07 LETTER OF CREDIT FEES..................................................................19
3.08 UNIFORM CUSTOMS AND PRACTICE...........................................................19
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY..............................................19
4.01 TAXES..................................................................................19
4.02 ILLEGALITY.............................................................................20
4.03 INCREASED COSTS AND REDUCTION OF RETURN................................................21
4.04 FUNDING LOSSES.........................................................................21
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
4.05 INABILITY TO DETERMINE RATES...........................................................22
4.06 RESERVES ON LOANS......................................................................22
4.07 CERTIFICATES OF THE BANK...............................................................23
4.08 SURVIVAL................................................................................23
ARTICLE V
CONDITIONS PRECEDENT................................................................23
5.01 CONDITIONS OF INITIAL CREDIT EXTENSIONS................................................23
(a) CREDIT AGREEMENT AND NOTES....................................................23
(b) RESOLUTIONS; INCUMBENCY.......................................................23
(c) ORGANIZATION DOCUMENTS; GOOD STANDING.........................................23
(d) LEGAL OPINIONS................................................................24
(e) PAYMENT OF FEES...............................................................24
(f) CERTIFICATE...................................................................24
(g) CONSENT LETTER................................................................24
(h) NORDIC ACQUISITION............................................................24
(i) SOLVENCY CERTIFICATE..........................................................25
(j) OTHER DOCUMENTS...............................................................25
5.02 CONDITIONS TO ALL CREDIT EXTENSIONS....................................................25
(a) NOTICE, APPLICATION...........................................................25
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES................................25
(c) NO EXISTING DEFAULT...........................................................25
ARTICLE VI
REPRESENTATIONS AND WARRANTIES......................................................25
ARTICLE VII
AFFIRMATIVE COVENANTS...............................................................26
ARTICLE VIII
NEGATIVE COVENANTS..................................................................26
ARTICLE IX
EVENTS OF DEFAULT...................................................................26
9.01 EVENT OF DEFAULT.......................................................................26
(a) NON-PAYMENT...................................................................26
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
(b) REPRESENTATION OR WARRANTY....................................................26
(c) WATERLINK CREDIT AGREEMENT DEFAULTS...........................................27
(d) GUARANTOR DEFAULTS............................................................27
9.02 REMEDIES...............................................................................27
9.03 RIGHTS NOT EXCLUSIVE...................................................................27
ARTICLE X
GUARANTY
...................................................................................27
ARTICLE XI
MISCELLANEOUS
...................................................................................31
11.01 AMENDMENTS AND WAIVERS................................................................31
11.02 NOTICES...............................................................................31
11.03 NO WAIVER; CUMULATIVE REMEDIES........................................................31
11.04 COSTS AND EXPENSES....................................................................31
11.05 INDEMNIFICATION.......................................................................32
11.06 PAYMENTS SET ASIDE....................................................................32
11.07 SUCCESSORS AND ASSIGNS................................................................32
11.08 PARTICIPATIONS........................................................................33
11.09 CONFIDENTIALITY.......................................................................33
11.10 SET-OFF...............................................................................34
11.11 AUTOMATIC DEBITS OF FEES..............................................................34
11.12 JUDGMENT......................................................................34
11.13 COUNTERPARTS..........................................................................35
11.14 SEVERABILITY..........................................................................35
11.15 NO THIRD PARTIES BENEFITED............................................................35
11.16 GOVERNING LAW AND JURISDICTION........................................................35
11.17 WAIVER OF JURY TRIAL..................................................................36
11.18 ENTIRE AGREEMENT......................................................................36
</TABLE>
- iii -
<PAGE> 5
SCHEDULES
Schedule 1 Calculation of MLA Costs
Schedule 11.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Continuation
Exhibit C-1 Form of Legal Opinion of Counsel to the Loan Parties
Exhibit C-2 Form of Legal Opinion of Special New York Counsel to the
Loan Parties
Exhibit C-3 Form of Legal Opinion of Special Sweden Counsel to the Loan
Parties
Exhibit D Form of Promissory Note
Exhibit E Form of L/C Application
- iv -
<PAGE> 6
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT is entered into as of March 4, 1997, among
Gigantissimo 2061 AB (to be known as Waterlink (Sweden) AB), a Swedish
corporation (the "Borrower"), Waterlink, Inc., a Delaware corporation (the
"Guarantor"), and Bank of America National Trust and Savings Association, London
Branch (the "Bank").
WHEREAS, the Bank has agreed to make available to the Borrower a
revolving credit facility with a letter of credit subfacility upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.01 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"AGREEMENT" means this Credit Agreement.
"AGREEMENT CURRENCY" has the meaning specified in SECTION
11.2.
"APPLICABLE CURRENCY" means, as to any particular payment,
Dollars or the Approved Currency in which it is denominated or is payable.
"APPLICABLE MARGIN" shall mean 2.50%.
"APPROVED CURRENCY" means, at any time, Dollars, Sterling,
Deutschmarks, Krona or ECU's or any other currency (other than Dollars)
acceptable to the Bank that is readily available and freely transferable in the
London interbank market.
"ASSIGNEE" has the meaning specified in Section 11.08(a).
"ATTORNEY COSTS" means and includes all reasonable and
customary fees and disbursements of any law firm or other external counsel, the
allocated cost of internal legal services and all disbursements of internal
counsel.
<PAGE> 7
"BAI" means Bank of America Illinois, an Illinois banking
association.
"BANK" has the meaning specified in the introductory clause
hereto.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss.101, ET SEQ.).
"BASE RATE" means, for any Interest Period, with respect to
Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/16th of 1%) determined by the Bank as follows:
Base Rate = LIBOR
--------------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect
on such day (whether or not applicable to the Bank) under
regulations issued from time to time by a relevant
Governmental Authority for determining the maximum reserve
requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities");
and
"LIBOR" means the rate of interest per annum determined by the
Bank to be the rate of interest per annum at which deposits in
the approximate amount of the amount of the Loan to be made or
continued by the Bank and having a maturity comparable to such
Interest Period would be offered to major banks in the London
interbank market at their request at approximately 11:00 a.m.
(London time) two Business Days prior to the commencement of
such Interest Period.
The Base Rate shall be adjusted automatically as to all Loans then
outstanding as of the effective date of any change in the Eurodollar
Reserve Percentage.
"BORROWER" has the meaning specified in the introductory
clause hereto.
"BORROWING" means a borrowing hereunder consisting of Loans of
the same Approved Currency made to the Borrower on the same day by the Bank
under Article II, and having the same Interest Period.
"BORROWING DATE" means any date on which a Borrowing occurs
under Section 2.03.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in Chicago, San Francisco, Stockholm,
Frankfurt or London are authorized or
2
<PAGE> 8
required by law to close and, if the applicable Business Day relates to any
Loan, means such a day on which dealings are carried on in the applicable
offshore interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"CASH COLLATERALIZE" means to pledge and deposit with or
deliver to the Bank as additional collateral for the L/C Obligations, cash or
deposit account balances pursuant to documentation in form and substance
satisfactory to the Bank. Derivatives of such term shall have corresponding
meaning. The Borrower hereby grants the Bank a security interest in all such
cash and deposit account balances. Cash collateral shall be maintained in
blocked, non-interest bearing deposit accounts at the Bank.
"CLOSING DATE" means the date on which all conditions
precedent set forth in Section 5.01 are satisfied or waived by the Bank.
"COMMITMENT" has the meaning specified in Section 2.01.
"COMPUTATION DATE" has the meaning specified in Section 2.13.
"CONTINUATION DATE" means any date on which, under Section
2.04, the Borrower continues Loans of the same Approved Currency, but with a new
Interest Period, having Interest Periods expiring on such date.
"CREDIT EXTENSION" means and includes (a) the making of any
Loans hereunder, and (b) the Issuance of any Letters of Credit hereunder.
"DEFAULT" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"DEUTSCHMARKS" means the lawful currency of Germany
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the
United States.
"ECU" means the European Currency Unit used in the European
Monetary System.
"EQUIVALENT" means, at any time, the equivalent amount of an
Approved Currency in Dollars as determined by the Bank at such time on the basis
of the Spot Rate for the purchase of Dollars with such Approved Currency on the
most recent Computation Date provided for in Section 2.13.
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"EFFECTIVE AMOUNT" means with respect to any Loans on any
date, the aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Loans occurring on such date.
For purposes of Section 2.07, the Effective Amount shall be determined without
giving effect to any mandatory prepayments to be made under said Section.
"EVENT OF DEFAULT" means any of the events or circumstances
specified in Section 9.01.
"FINANCIAL LETTERS OF CREDIT" means any Letter of Credit which
either the Bank or the Issuing Bank determines is required under applicable law
(including regulations and guidelines established by banking regulators)
relating to reserve requirements to be classified as a financial letter of
credit.
"FURTHER TAXES" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or similar
charges (including, without limitation, net income taxes and franchise taxes),
and all liabilities with respect thereto, imposed by any jurisdiction on account
of amounts payable or paid pursuant to Section 4.01.
"GERMAN CREDIT AGREEMENT" means the Credit Agreement, dated as
of March 4, 1997, among the Guarantor, Provista Einhundertsechsundfunfzigste
Verwaltungsgesellschaft mbH (to be known as Waterlink (Germany) GmbH), and Bank
of America National Trust and Savings Association, Frankfurt Branch.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"HONOR DATE" has the meaning specified in Section 3.03(b).
"INDEMNIFIED LIABILITIES" has the meaning specified in Section
11.05.
"INDEMNIFIED PERSON" has the meaning specified in Section
11.05.
"INTEREST PAYMENT DATE" means, as to any Loan, the last day of
each Interest Period applicable to such Loan.
"INTEREST PERIOD" means, as to any Loan, the period commencing
on the Borrowing Date of such Loan or on the Continuation Date on which the Loan
is continued, and ending on the date one, two or three months thereafter as
selected by the Borrower in its Notice of Borrowing or Notice of Continuation;
PROVIDED that:
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(a) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
(b) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest
Period; and
(c) no Interest Period shall extend beyond the
Termination Date.
"ISSUANCE DATE" has the meaning specified in Section 3.01(a).
"ISSUE" means, with respect to any Letter of Credit, to issue
or to extend the expiry of, or to renew or increase the amount of, such Letter
of Credit; and the terms "ISSUED," "ISSUING" and "ISSUANCE" have corresponding
meanings.
"JUDGMENT CURRENCY" has the meaning specified in SECTION
11.12.
"KRONA" means the lawful currency of Sweden.
"L/C ADVANCE" means the Bank's participation in any L/C
Borrowing.
"L/C AMENDMENT APPLICATION" means an application form for
amendment of outstanding standby or commercial documentary letters of credit as
shall at any time be in use at the Issuing Bank, as the Issuing Bank shall
request.
"L/C APPLICATION" means an application form for issuances of
standby or commercial documentary letters of credit substantially in the form of
Exhibit E or such other form as shall at any time be in use at the Issuing Bank
as the Issuing Bank shall request.
"L/C BORROWING" means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed on the
date when made nor converted into a Borrowing of Loans under Section 3.03(c).
"L/C COMMITMENT" means the commitment of the Issuing Bank to
Issue, and the commitment of the Bank to participate in, Letters of Credit from
time to time Issued or outstanding under Article III, in an aggregate amount not
to exceed on any date the amount of the Equivalent of the Commitment, as the
same shall be reduced as a result of a reduction in the L/C Commitment pursuant
to Section 2.06; PROVIDED that the L/C Commitment is a part of the Commitment,
rather than a separate, independent commitment.
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"L/C OBLIGATIONS" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the
amount of all unreimbursed drawings under all Letters of Credit, including all
outstanding L/C Borrowings.
"L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document relating to
any Letter of Credit, including any of the Issuing Bank's standard form
documents for letter of credit issuances.
"LENDING OFFICE" means the office or offices of the Bank
specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on SCHEDULE 11.02, or such other office or
offices as the Bank may from time to time notify the Borrower.
"LETTERS OF CREDIT" means any letters of credit or bank
guarantee (whether Financial Letters of Credit or Non-Financial Letters of
Credit) Issued by the Issuing Bank pursuant to Article III.
"LOAN" means an extension of credit by the Bank to the
Borrower under Article II or Article III in the form of a Loan or L/C Borrowing.
"LOAN DOCUMENTS" means this Agreement, the Note, the
L/C-Related Documents and all other documents delivered to the Bank in
connection herewith.
"LOAN PARTY" shall mean, collectively, the Guarantor and the
Borrower.
"MLA COST" means the cost imputed to the Bank of compliance
with the mandatory liquid assets requirements of the Bank of England during the
Interest Period of a Loan denominated in Sterling, determined in accordance with
Schedule 1.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Guarantor or the
Guarantor and its Subsidiaries taken as a whole or as to any Subsidiary; (b) a
material impairment of the ability of the Guarantor or any Subsidiary to perform
under any Loan Document and to avoid any Event of Default; or (c) a material
adverse effect upon the legality, validity, binding effect or enforceability
against the Guarantor or any Subsidiary of any Loan Document.
"NON-FINANCIAL LETTERS OF CREDIT" means Letters of Credit
which are not Financial Letters of Credit.
"NOTE" means a promissory note executed by the Borrower in
favor of the Bank pursuant to Section 2.02(b), in substantially the form of
EXHIBIT D.
"NOTICE OF BORROWING" means a notice in substantially the form
of EXHIBIT A.
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"NOTICE OF CONTINUATION" means a notice substantially in the
form of EXHIBIT B.
"OBLIGATIONS" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing by each
Loan Party to the Bank or any Indemnified Person, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"ORGANIZATION DOCUMENTS" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate of
determination or instrument relating to the rights of preferred shareholders of
such corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"OTHER TAXES" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery, performance, enforcement or registration of, or otherwise with respect
to, this Agreement or any other Loan Documents.
"PARTICIPANT" has the meaning specified in Section 11.08(d).
"PAYMENT OFFICE" means the address for payments set forth on
Schedule 11.02 or such other address as the Bank may from time to time specify.
"PERSON" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"REQUIREMENT OF LAW" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of its
property is subject.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of a Loan Party, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the Guarantor, or any
other officer having substantially the same authority and responsibility.
"LOAN" has the meaning specified in Section 2.01.
"SPOT RATE" for a currency means the rate generally quoted by
the Bank as the spot rate for the purchase by the Bank of such currency with
another currency through its FX trading office on the date two Business Days
prior to the date as of which the foreign exchange computation is made.
"STERLING" means the lawful currency of the United Kingdom.
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"TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges,
and all liabilities with respect thereto, excluding taxes imposed on or measured
by its net income by the jurisdiction (or any political subdivision thereof)
under the laws of which the Bank is organized or maintains a lending office.
"TERMINATION DATE" means the earlier to occur of:
(a) February 18, 2000; and
(b) the date on which the Commitment terminates in
accordance with the provisions of this Agreement.
"UNITED STATES" and "U.S." each means the United States of
America.
"WATERLINK CREDIT AGREEMENT" means the Credit Agreement, dated
as of February __, 1997, among the Guarantor, the financial institutions from
time to time party thereto and BAI, as agent, as the same may be amended,
restated, supplemented or otherwise modified from time to time. In the event
such credit agreement is terminated, "Waterlink Credit Agreement" means such
agreement as in effect on the date immediately prior to such termination.
1.02 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms
are equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and the
word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
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(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Bank by way of consent, approval or
waiver shall be deemed modified by the phrase "in its/their sole discretion."
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Bank, the Loan
Parties and the other parties, and are the products of all parties. Accordingly,
they shall not be construed against the Bank merely because of the Bank's
involvement in their preparation.
1.03 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Guarantor.
1.04 CURRENCY EQUIVALENTS GENERALLY. For all purposes of this Agreement
(but not for purposes of the preparation of any financial statements delivered
pursuant hereto), the equivalent in any Approved Currency of an amount in
Dollars, and the equivalent in Dollars of an amount in any Approved Currency,
shall be determined at the Spot Rate. Each determination of an Equivalent amount
by the Bank shall be conclusive and binding on the Borrower in the absence of
manifest error. The Bank will, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Bank in determining any
Equivalent amount.
ARTICLE II
THE CREDITS
-----------
2.01 AMOUNTS AND TERMS OF COMMITMENTS. THE REVOLVING CREDIT. The Bank
agrees, on the terms and conditions set forth herein, to make loans to the
Borrower (each such loan, a "LOAN") from time to time on any Business Day during
the period from the Closing Date to the Termination Date, in an aggregate amount
not to exceed at any time outstanding the Equivalent of the amount set forth
opposite the Bank's signature on the signature page to this Agreement (such
amount, the "COMMITMENT"); PROVIDED, HOWEVER, that, after giving effect to any
Borrowing of Loans, the Effective Amount of all outstanding Loans (exclusive of
Loans which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Loans) and the Effective Amount of
all L/C Obligations, shall not on any Computation Date exceed the Equivalent of
the Commitment, and subject to the other terms and conditions hereof, the
Borrower may borrow under this Section 2.01, prepay under Section 2.06 and
reborrow under this Section 2.01.
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2.02 LOAN ACCOUNTS. (a) The Loans made by the Bank and the Letters of
Credit Issued by the Bank shall be evidenced by one or more accounts or records
maintained by the Bank in the ordinary course of business. The accounts or
records maintained by the Bank shall be prima facia evidence of the amount of
the Loans made by the Bank to the Borrower and the Letters of Credit Issued for
the account of the Borrower, and the interest and payments thereon. Any failure
so to record or any error in doing so shall not, however, limit or otherwise
affect the obligation of the Borrower hereunder to pay any amount owing with
respect to the Loans or any Letter of Credit.
(b) Upon the request of the Bank, the Loans may be evidenced
by one or more Notes, instead of or in addition to loan accounts. The Bank shall
record on the schedules annexed to its Note(s) the date, amount and maturity of
each Loan made by it and the amount of each payment of principal made by the
Borrower with respect thereto. The Bank is irrevocably authorized by the
Borrower to make recordations on its Note(s) and the Bank's record shall be
deemed prima facia correct; PROVIDED, HOWEVER, that the failure of the Bank to
make, or an error in making, a notation thereon with respect to any Loan shall
not limit or otherwise affect the obligations of the Borrower hereunder or under
any such Note to the Bank.
2.03 PROCEDURE FOR BORROWING. (a) Each Borrowing (other than an L/C
Borrowing) shall be made upon the Borrowers's irrevocable written notice
delivered to the Bank in the form of a Notice of Borrowing (which notice must be
received by the Bank prior to 10:00 a.m. (London time)) two Business Days prior
to the requested Borrowing Date, specifying:
(i) the amount of the Borrowing, which shall be in an
aggregate minimum amount of the Equivalent of $250,000, or any
multiple of the Equivalent of $100,000 in excess thereof;
(ii) the Approved Currency in which the Borrowing is
to be denominated;
(iii) the requested Borrowing Date, which shall be a
Business Day; and
(iv) the duration of the Interest Period applicable
to such Loans included in such notice. If the Notice of
Borrowing fails to specify the duration of the Interest Period
for any Borrowing, such Interest Period shall be one month.
(b) The Bank will make the amount of each Borrowing available
for the account of the Borrower at the Payment Office on the Borrowing Date
requested by the Borrower in funds immediately available to the Bank. The
proceeds of all such Loans will then be made available to the Borrower by the
Bank at such office by crediting the account of the Borrower on the books of the
Bank.
(c) After giving effect to any Borrowing, unless the Bank
shall otherwise consent, there may not be more than five different Interest
Periods in effect.
2.04 CONTINUATION ELECTIONS. (a) The Borrower may, upon irrevocable
written notice to the Bank in accordance with Section 2.04(b), elect as of the
last day of the applicable Interest Period,
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to continue any Loans having Interest Periods expiring on such day (or any part
thereof in an amount not less than the Equivalent of $250,000, or that is in an
integral multiple of the Equivalent of $100,000 in excess thereof).
(b) The Borrower shall deliver a Notice of Continuation to be
received by the Bank not later than 10:00 a.m. (London time) at least two
Business Days in advance of the Continuation Date, specifying:
(i) the proposed Continuation Date;
(ii) the aggregate amount of Loans to be continued;
(iii) the Approved Currency in which the Loans
subject to the proposed continuation is denominated; and
(iv) the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to a Loan, the Borrower has failed to select a new Interest Period to be
applicable to such Loan by the time specified in Section 2.04(b), or if any
Default or Event of Default then exists, the Borrower shall be deemed to have
elected to convert such Loan into an Interest Period of one month.
(d) After giving effect to any continuation of Loans, unless
the Bank shall otherwise consent, there may not be more than five different
Interest Periods in effect.
2.05 VOLUNTARY TERMINATION OR REDUCTION OF THE COMMITMENT. The Borrower
may, upon not less than three Business Days' prior notice to the Bank, terminate
the Commitment, or permanently reduce the Commitment by an aggregate minimum
amount of $250,000 or any multiple of $100,000 in excess thereof; UNLESS, after
giving effect thereto and to any prepayments of Loans made on the effective date
thereof, (a) the Effective Amount of all Loans and L/C Obligations together
would exceed the amount of the Commitment then in effect, or (b) the Effective
Amount of all L/C Obligations then outstanding would exceed the L/C Commitment.
Once reduced in accordance with this Section, the Commitment may not be
increased. If and to the extent specified by the Borrower in the notice to the
Bank, some or all of the reduction in the Commitment shall be applied to reduce
the L/C Commitment. All accrued commitment and letter of credit fees to, but not
including, the effective date of any reduction or termination of the Commitment,
shall be paid on the effective date of such reduction or termination.
2.06 OPTIONAL PREPAYMENTS. Subject to Section 4.04, the Borrower may, at
any time or from time to time, upon irrevocable notice to the Bank, prepay Loans
in whole or in part, in minimum amounts of the Equivalent of $250,000 or any
multiple of the Equivalent of $100,000 in excess thereof. Such notice of
prepayment shall specify the date and amount of such prepayment and the Type(s)
of Loans to be prepaid. If such notice is given by the Borrower, the Borrower
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the
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date specified therein, together with accrued interest to each such date on the
amount prepaid and any amounts required pursuant to Section 4.04.
2.07 MANDATORY PREPAYMENTS OF LOANS; MANDATORY COMMITMENT REDUCTIONS.
(a) If on any date the Effective Amount of L/C Obligations exceeds the L/C
Commitment, the Borrower shall Cash Collateralize on such date the outstanding
Letters of Credit in an amount equal to the excess of the maximum amount then
available to be drawn under the Letters of Credit over the Aggregate L/C
Commitment. Subject to Section 4.04, if on any date after giving effect to any
Cash Collateralization made on such date pursuant to the preceding sentence, the
Effective Amount of all Loans then outstanding plus the Effective Amount of all
L/C Obligations exceeds the Commitment, the Borrower shall immediately, upon
demand, prepay the outstanding principal amount of the Loans and L/C Advances by
an amount equal to the applicable excess.
(b) Subject to Section 4.04, if on any Computation Date the Bank
shall have determined that due to a change in applicable rates of exchange
between Dollars and the Approved Currency the aggregate Equivalent principal
amount of all Loans then outstanding exceeds the Commitment by an amount equal
to or greater than 10% of the Commitment, THEN the Bank shall give notice to the
Borrower that a prepayment is required under this Section, and the Borrower
agrees thereupon to make prepayments of Loans such that, after giving effect to
such prepayment the aggregate Equivalent amount of all Loans does not exceed the
Commitment.
(c) Any prepayments pursuant to this Section 2.07 shall be
applied to Loans with the shortest Interest Periods remaining. The Borrower
shall pay, together with each prepayment under this Section 2.07, accrued
interest on the amount prepaid and any amounts required pursuant to Section
4.04.
2.08 REPAYMENT. The Borrower shall repay to the Bank on the Termination
Date the aggregate principal amount of Loans outstanding on such date.
2.09 INTEREST. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Base Rate PLUS the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and
upon payment (including prepayment) in full thereof and, during the existence of
any Event of Default, interest shall be paid on demand of the Bank.
(c) Notwithstanding Section 2.09(a), while any Event of
Default exists or after acceleration, the Borrower shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Obligations, at a rate per annum which is
determined by adding 2% per annum to the Applicable Margin for such Loans.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Borrower to the Bank hereunder shall be subject to the
limitation that payments of interest shall not be
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required for any period for which interest is computed hereunder, to the extent
(but only to the extent) that contracting for or receiving such payment by the
Bank would be contrary to the provisions of any law applicable to the Bank
limiting the highest rate of interest that may be lawfully contracted for,
charged or received by the Bank, and in such event the Borrower shall pay the
Bank interest at the highest rate permitted by applicable law.
2.10 FEES. In addition to certain fees described in Section 3.08, the
Borrower shall pay to the Bank a commitment fee on the average unused portion of
the Commitment calculated after giving effect to determinations made by the
Bank, pursuant to Section 2.13, computed on a quarterly basis in arrears on the
last Business Day of each calendar quarter based upon the daily utilization for
that quarter as calculated by the Bank, equal to .50% percent per annum. For
purposes of calculating utilization under this Section, the Commitment shall be
deemed used to the extent of the Equivalent of the Effective Amount of Loans
then outstanding, plus the Effective Amount of L/C Obligations then outstanding.
Such commitment fee shall accrue from the Closing Date to the Termination Date
and shall be due and payable quarterly in arrears on the last Business Day of
each March, June, September and December through the Termination Date, with the
final payment to be made on the Termination Date; PROVIDED that, in connection
with any reduction or termination of the Commitment under Section 2.05, the
accrued commitment fee calculated for the period ending on such date shall also
be paid on the date of such reduction or termination, with the following
quarterly payment being calculated on the basis of the period from such
reduction or termination date to such quarterly payment date. The commitment
fees provided in this Section shall accrue at all times after the
above-mentioned commencement date, including at any time during which one or
more conditions in Article V are not met.
2.11 COMPUTATION OF FEES AND INTEREST. (a) All computations of (i) fees
and interest (other than as provided in clause (ii) below) shall be made on the
basis of a 360-day year and actual days elapsed (which results in more interest
being paid than if computed on the basis of a 365-day year) and (ii) all
computations of interest on Loans denominated in Sterling shall be made on the
basis of a 365/366-day year and actual days elapsed. Interest and fees shall
accrue during each period during which interest or such fees are computed from
the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Bank shall
be conclusive and binding on the Borrower in the absence of manifest error. The
Bank will, at the request of the Borrower, deliver to the Borrower a statement
showing the quotations used by the Bank in determining any interest rate and the
resulting interest rate.
2.12 PAYMENTS BY THE BORROWER. (a) All payments to be made by the
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Bank at the Payment Office in immediately available funds, no later than
Noon (London time) on the date specified herein. Principal of, interest on, and
any other amounts relating to, any Loan, shall be made in the Approved Currency
in which such Loan is denominated or payable, and, with respect to all other
amounts payable hereunder, shall be made in Dollars. Any payment received by the
Bank later than 12:00 Noon (London time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue for the day actually received.
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(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
2.13 UTILIZATION OF APPROVED CURRENCIES. (a) The Bank will determine
the Equivalent amount with respect to any (i) Borrowing as of the requested
Borrowing Date, (ii) outstanding Loans and L/C Obligations as of the last
Business Day of each month, and (iii) outstanding Loans and L/C Obligations as
of any redenomination date pursuant to this Section 2.13 or Section 4.05 (each
such date under clauses (i) through (iii), a "COMPUTATION DATE").
(b) In the case of a proposed Borrowing, the Bank shall be
under no obligation to make Loans in the requested Approved Currency as part of
such Borrowing if the Bank cannot provide Loans in the requested Approved
Currency, in which event the Bank will give notice to the Borrower no later than
Noon (London time) on the second Business Day prior to the requested date of
such Borrowing that the Borrowing in the requested Approved Currency is not then
available. If the Bank shall have so notified the Borrower that any such
Borrowing in a requested Approved Currency is not then available, the Borrowing
requested therein shall not occur.
(c) In the case of a proposed continuation of any Loan for an
additional Interest Period pursuant to Section 2.04, the Bank shall be under no
obligation to continue such Loan if the Borrower has received notice from the
Bank by Noon (London time) two Business Days prior to the day of such
continuation that the Bank cannot continue to provide Loans in the relevant
Approved Currency. If the Bank shall have so notified the Borrower that any such
continuation of such Loan is not then available, any Notice of Continuation with
respect thereto shall be deemed withdrawn and such Loan shall be redenominated
into an available Approved Currency with effect from the last day of the
Interest Period with respect to any such Loans. The Bank will promptly notify
the Borrower of any such redenomination and in such notice will state the
aggregate Equivalent amount of the redenominated Loan as of the Computation Date
with respect thereto.
ARTICLE III
THE LETTERS OF CREDIT
---------------------
3.01 THE LETTER OF CREDIT SUBFACILITY. (a) On the terms and conditions
set forth herein the Bank agrees, (A) from time to time on any Business Day
during the period from the Closing Date to the Termination Date to issue Letters
of Credit for the account of the Borrower, and to amend or renew Letters of
Credit previously issued by it, in accordance with Sections 3.02(c) and (d), and
(B) to honor drafts under the Letters of Credit; PROVIDED, that the Bank shall
not be obligated to Issue any Letter of Credit if as of the date of Issuance of
such Letter of Credit (the "ISSUANCE DATE") (1) the Effective Amount of all L/C
Obligations plus the Effective Amount of all Loans exceeds the Commitment or (2)
the Effective Amount of L/C Obligations exceeds the L/C Commitment. Within the
foregoing limits, and subject to the other terms and conditions hereof, the
Borrower's ability to obtain Letters of Credit shall be fully revolving, and,
accordingly, the Borrower may, during the
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foregoing period, obtain Letters of Credit to replace Letters of Credit which
have expired or which have been drawn upon and reimbursed.
(b) The Bank is under no obligation to Issue any Letter of
Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or
restrain the Bank from such Letter of Credit, or any Requirement of Law
applicable to the Bank or any request or directive (whether or not
having the force of law) from any Governmental Authority with
jurisdiction over the Bank shall prohibit, or request that the Bank
refrain from, the Issuance of letters of credit generally or such
Letter of Credit in particular or shall impose upon the Bank with
respect to such Letter of Credit any restriction, reserve or capital
requirement (for which the Bank is not otherwise compensated hereunder)
not in effect on the Closing Date, or shall impose upon the Bank any
unreimbursed loss, cost or expense which was not applicable on the
Closing Date and which the Bank in good faith deems material to it;
(ii) the Bank has received written notice from the
Borrower, on or prior to the Business Day prior to the requested date
of Issuance of such Letter of Credit, that one or more of the
applicable conditions contained in Article V is not then satisfied;
(iii) the expiry date of any requested Letter of
Credit is after the Termination Date, unless the Borrower has Cash
Collateralized, in form and substance satisfactory to the Bank, its L/C
Obligations under such Letter of Credit on or prior to the date of the
Issuance of such Letter of Credit;
(iv) any requested Letter of Credit does not
provide for drafts, or is not otherwise in form and substance
acceptable to the Issuing Bank, or the Issuance of a Letter of
Credit shall violate any applicable policies of the Issuing
Bank; or
(v) such Letter of Credit is in a face amount less
than the Equivalent of $25,000, unless such lesser amount is approved
by the Bank, or to be denominated in a currency other an Approved
Currency.
3.02 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (a) Each
Letter of Credit shall be issued upon the irrevocable written request of the
Borrower received by the Bank at least three days (or such shorter time as the
Bank may agree in a particular instance in its sole discretion) prior to the
proposed date of issuance. Each such request for issuance of a Letter of Credit
shall be by facsimile, confirmed immediately in an original writing, in the form
of an L/C Application, and shall specify in form and detail satisfactory to the
Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be
a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry
date of the Letter of Credit; (iv) the name and address of the beneficiary
thereof; (v) the documents to be presented by the beneficiary of the Letter of
Credit in case of any drawing thereunder; (vi) the full text of any certificate
to be presented by the beneficiary in case of any drawing thereunder; and (vii)
such other matters as the Bank may require.
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(b) Unless the Bank determines that (A) it should not to issue
such Letter of Credit because such issuance is not then permitted under Section
3.01(a) as a result of the limitations set forth in clauses (1) or (2) thereof
or Section 3.01(b)(ii); or (B) that one or more conditions specified in Article
V are not then satisfied; then, subject to the terms and conditions hereof, the
Bank shall, on the requested date, issue a Letter of Credit for the account of
the Borrower in accordance with the Bank's usual and customary business
practices.
(c) From time to time while a Letter of Credit is outstanding
and prior to the Termination Date, the Bank will, upon the written request of
the Borrower received by the Bank at least three days (or such shorter time as
the Bank may agree in a particular instance in its sole discretion) prior to the
proposed date of amendment, amend any Letter of Credit issued by it. Each such
request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
Amendment Application and shall specify in form and detail satisfactory to the
Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of
amendment of the Letter of Credit (which shall be a Business Day); (iii) the
nature of the proposed amendment; and (iv) such other matters as the Issuing
Bank may require. The Bank shall be under no obligation to amend any Letter of
Credit if: (A) the Bank would have no obligation at such time to issue such
Letter of Credit in its amended form under the terms of this Agreement; or (B)
the beneficiary of any such letter of Credit does not accept the proposed
amendment to the Letter of Credit.
(d) The Bank agrees that, while a Letter of Credit is
outstanding and prior to the Termination Date, at the option of the Borrower and
upon the written request of the Borrower received by the Bank at least five days
(or such shorter time as the Bank may agree in a particular instance in its sole
discretion) prior to the proposed date of notification of renewal, the Bank
shall be entitled to authorize the automatic renewal of any Letter of Credit
issued by it. Each such request for renewal of a Letter of Credit shall be made
by facsimile, confirmed immediately in an original writing, in the form of an
L/C Amendment Application, and shall specify in form and detail satisfactory to
the Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of
notification of renewal of the Letter of Credit (which shall be a Business Day);
(iii) the revised expiry date of the Letter of Credit; and (iv) such other
matters as the Bank may require. The Bank shall be under no obligation so to
renew any Letter of Credit if: (A) the Bank would have no obligation at such
time to issue or amend such Letter of Credit in its renewed form under the terms
of this Agreement; or (B) the beneficiary of any such Letter of Credit does not
accept the proposed renewal of the Letter of Credit. If any outstanding Letter
of Credit shall provide that it shall be automatically renewed unless the
beneficiary thereof receives notice from the Bank that such Letter of Credit
shall not be renewed, and if at the time of renewal the Bank would be entitled
to authorize the automatic renewal of such Letter of Credit in accordance with
this clause (d) upon the request of the Borrower but the Bank shall not have
received any L/C Amendment Application from the Borrower with respect to such
renewal or other written direction by the Borrower with respect thereto, the
Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and
the Borrower hereby authorizes such renewal, and, accordingly, the Bank shall be
deemed to have received an L/C Amendment Application from the Borrower
requesting such renewal.
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(e) The Bank may, at its election, deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than the Termination Date.
(f) This Agreement shall control in the event of any conflict
with any L/C-Related Document (other than any Letter of Credit).
3.03 DRAWINGS AND REIMBURSEMENTS. (a) In the event of any request for a
drawing under a Letter of Credit by the beneficiary or transferee thereof, the
Bank will promptly notify the Borrower. The Borrower shall reimburse the Bank
(by an L/C Borrowing or otherwise) prior to 12:00 Noon (London time), on each
date that any amount is paid by the Bank under any Letter of Credit (each such
date, an "HONOR DATE"), in an amount equal to the amount so paid by the Bank. In
the event the Borrower fails to reimburse the Bank for the full amount of any
drawing under any Letter of Credit by 12:00 Noon (London time) on the Honor
Date, the Borrower shall be deemed to have requested that Base Rate Loans be
made by the Bank to be disbursed on the Honor Date under such Letter of Credit,
subject to the amount of the unutilized portion of the Commitment and subject to
the conditions set forth in Section 5.02. Any notice given by the Bank pursuant
to this clause (b) may be oral if immediately confirmed in writing (including by
facsimile); provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.
(b) With respect to any unreimbursed drawing that is not
converted into Loans consisting of Base Rate Loans to the Borrower in whole or
in part, because of the Borrower's failure to satisfy the conditions set forth
in Section 5.02 or for any other reason, the Borrower shall be deemed to have
incurred from the Bank an L/C Borrowing in the amount of such drawing, which L/C
Borrowing shall be due and payable on demand (together with interest) and shall
bear interest at a rate per annum equal to the rate of interest in effect for
such day as publicly announced by the Bank as its "base rate" with respect to
the relevant Approved Currency of such unreimbursed drawing plus 2% per annum.
3.04 ROLE OF THE ISSUING BANK. (a) The Borrower agrees that, in paying
any drawing under a Letter of Credit, the Bank shall not have any responsibility
to obtain any document (other than any sight draft and certificates expressly
required by the Letter of Credit) or to ascertain or inquire as to the validity
or accuracy of any such document or the authority of the Person executing or
delivering any such document.
(b) The Borrower hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; PROVIDED, however, that this assumption is not intended to, and shall
not, preclude the Borrower's pursuing such rights and remedies as it may have
against the beneficiary or transferee at law or under any other agreement. No
correspondents, participants or assignees of the Bank shall be liable or
responsible for any of the matters described in clauses (i) through (vii) of
Section 3.05; PROVIDED, however, anything in such clauses to the contrary
notwithstanding, that the Borrower may have a claim against the Bank, and the
Bank may be liable to the Borrower, to the extent, but only to the extent, of
any direct, as opposed to consequential or exemplary, damages suffered by the
Borrower which the Borrower proves were
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caused by the Bank's willful misconduct or gross negligence or the Bank's
willful failure to pay under any Letter of Credit after the presentation to it
by the beneficiary of a sight draft and certificate(s) strictly complying with
the terms and conditions of a Letter of Credit. In furtherance and not in
limitation of the foregoing: (i) the Bank may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary; and (ii) the Bank shall
not be responsible for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a 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.
3.05 OBLIGATIONS ABSOLUTE. The obligations of the Borrower under this
Agreement and any L/C-Related Document to reimburse the Bank for a drawing under
a Letter of Credit, and to repay any L/C Borrowing and any drawing under a
Letter of Credit converted into Loans, shall be unconditional and irrevocable,
and shall be paid strictly in accordance with the terms of this Agreement and
each such other L/C-Related Document under all circumstances, including the
following:
(i) any lack of validity or enforceability of this
Agreement or any L/C-Related Document;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the obligations of
the Borrower in respect of any Letter of Credit or any other amendment
or waiver of or any consent to departure from all or any of the
L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or
other right that the Borrower may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any Person
for whom any such beneficiary or any such transferee may be acting),
the Bank or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by the L/C-Related
Documents or any unrelated transaction;
(iv) any draft, demand, certificate or 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; or any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any Letter of Credit;
(v) any payment by the Bank under any Letter of
Credit against presentation of a draft or certificate that does not
strictly comply with the terms of any Letter of Credit; or any payment
made by the Bank under any Letter of Credit to any Person purporting to
be a trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other representative of
or successor to any beneficiary or any transferee of any Letter of
Credit, including any arising in connection with any Insolvency
Proceeding;
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(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any other guarantee, for all or any of the obligations
of the Borrower in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, the Borrower or a guarantor.
3.06 CASH COLLATERAL PLEDGE. Upon (i) the request of the Bank, (A) if
the Bank has honored any full or partial drawing request on any Letter of Credit
and such drawing has resulted in an L/C Borrowing hereunder, or (B) if, as of
the Termination Date, any Letters of Credit may for any reason remain
outstanding and partially or wholly undrawn, or (ii) the occurrence of the
circumstances described in Section 2.07(a) requiring the Borrower to Cash
Collateralize Letters of Credit, then, the Borrower shall immediately Cash
Collateralize the L/C Obligations in an amount equal to such L/C Obligations.
3.07 LETTER OF CREDIT FEES. (a) The Borrower shall pay to the Bank a
letter of credit fee with respect to the Letters of Credit equal to 2.25% per
annum of the average daily maximum amount available to be drawn of the
outstanding Letters of Credit, computed on a quarterly basis in arrears on the
last Business Day of each March, June, September and December based upon Letters
of Credit outstanding for that quarter as calculated by the Bank. Such letter of
credit fees shall be due and payable quarterly in arrears on the last Business
Day of each calendar quarter during which Letters of Credit are outstanding,
commencing on the first such quarterly date to occur after the Closing Date,
through the Termination Date (or such later date upon which the outstanding
Letters of Credit shall expire), with the final payment to be made on the
Termination Date (or such later expiration date).
(b) The Borrower shall pay to the Bank from time to time on
demand the normal issuance, presentation, amendment and other processing fees,
and other standard costs and charges, of the Bank relating to letters of credit
as from time to time in effect.
3.08 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
4.01 TAXES. (a) Any and all payments by the Borrower to the Bank under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for, any Taxes. In addition, the Borrower shall
pay all Other Taxes.
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(b) If the Borrower shall be required by law to deduct or
withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to the Bank, then:
(i) the sum payable shall be increased as necessary
so that, after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section), the Bank receives and retains an amount
equal to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings;
(iii) the Borrower shall pay the full amount deducted
or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Borrower shall also pay to the Bank, at the
time interest is paid, Further Taxes in the amount that the Bank
specifies as necessary to preserve the after-tax yield the Bank would
have received if such Taxes, Other Taxes or Further Taxes had not been
imposed.
(c) The Borrower agrees to indemnify and hold harmless and the
Bank for the full amount of i) Taxes, ii) Other Taxes, and iii) Further Taxes in
the amount that the Bank specifies as necessary to preserve the after-tax yield
the Bank would have received if such Taxes, Other Taxes or Further Taxes had not
been imposed, and any liability (including penalties, interest, additions to tax
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment
under this indemnification shall be made within 30 days after the date the Bank
makes written demand therefor.
(d) Within 30 days after the date of any payment pursuant to
this Section by the Borrower of Taxes, Other Taxes or Further Taxes, the
Borrower shall furnish to the Bank the original or a certified copy of a receipt
evidencing payment thereof, or other evidence of payment satisfactory to the
Bank.
(e) If the Borrower is required to pay any amount to the Bank
pursuant to clauses (b) or (c) of this Section, then the Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Borrower which may thereafter accrue, if such change in the sole
judgment of the Bank is not otherwise disadvantageous to the Bank.
4.02 ILLEGALITY. (a) If the Bank determines that the introduction of
any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for the Bank or its applicable Lending Office to make Loans
in an Approved Currency, then, on notice thereof by the Bank to the Borrower,
any obligation of the Bank to make Loans in such Approved Currency shall be
suspended until the Bank notifies the Borrower that the circumstances giving
rise to such determination no longer exist.
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(b) If the Bank determines that it is unlawful to maintain any
Loan in an Approved Currency, the Borrower shall, upon its receipt of notice of
such fact and demand from the Bank, prepay in full such Loans in such Approved
Currency of the Bank then outstanding, together with interest accrued thereon
and amounts required under Section 4.04, either on the last day of the Interest
Period thereof, if the Bank may lawfully continue to maintain such Loans to such
day, or immediately, if the Bank may not lawfully continue to maintain such
Loan. If the Borrower is required to so prepay any such Loan, then concurrently
with such prepayment, the Borrower may borrow from the Bank, in the amount of
such repayment, a Loan in an unaffected Approved Currency with an Interest
Period of one month.
(c) If the obligation of the Bank to make or maintain Loans in
an Approved Currency has been so terminated or suspended, the Borrower may
elect, by giving notice to the Bank that all Loans in such Approved Currency
which would otherwise be made by the Bank shall be instead Loans in an
unaffected Approved Currency.
(d) Before giving any notice to the Borrower under this
Section, the Bank shall designate a different Lending Office with respect to its
Loans in an Approved Currency if such designation will avoid the need for giving
such notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
4.03 INCREASED COSTS AND REDUCTION OF RETURN. (a) If the Bank
determines that, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance by the Bank
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to the Bank of agreeing to make or making, funding or maintaining
any Loans or any increase in the cost to the Bank of agreeing to issue, or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, then the Borrower
shall be liable for, and shall from time to time, upon demand, pay to the Bank,
additional amounts as are sufficient to compensate such Bank for such increased
costs.
(b) If the Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Lending Office) or any corporation controlling
the Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration the Bank's or
such corporation's policies with respect to capital adequacy and the Bank's
desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of the Bank to the Borrower through the
Bank, the Borrower shall pay to the Bank, from time to time as specified by the
Bank, additional amounts sufficient to compensate the Bank for such increase.
4.04 FUNDING LOSSES. The Borrower shall reimburse the Bank and hold the
Bank harmless from any loss or expense which the Bank may sustain or incur as a
consequence of:
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(i) the failure of the Borrower to make on a timely basis any
payment of principal of any Loan;
(ii) the failure of the Borrower to borrow, continue or
convert a Loan after the Borrower has given (or is deemed to have
given) a Notice of Borrowing or a Notice of Conversion/ Continuation;
(iii) the failure of the Borrower to make any prepayment in
accordance with any notice delivered under Section 2.06; or
(iv) the prepayment (including pursuant to Section 2.07) or
other payment (including after acceleration thereof) of an Loan on a
day that is not the last day of the relevant Interest Period.
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Loans or from fees payable to terminate
the deposits from which such funds were obtained. For purposes of calculating
amounts payable by the Borrower to the Bank under this Section and under Section
4.03(a), each Loan made by a Bank (and each related reserve, special deposit or
similar requirement) shall be conclusively deemed to have been funded at the
LIBOR used in determining the for such Loan by a matching deposit or other
borrowing in the interbank eurodollar market for a comparable amount and for a
comparable period, whether or not such Loan is in fact so funded.
4.05 INABILITY TO DETERMINE RATES. If the Bank determines that for any
reason adequate and reasonable means do not exist for determining the Base Rate
for any requested Interest Period with respect to a proposed Loan, or that the
Base Rate applicable pursuant to Section 2.09(a) for any requested Interest
Period with respect to a proposed Loan does not adequately and fairly reflect
the cost to the Bank of funding such Loan, the Bank will promptly so notify the
Borrower and each Bank. Thereafter, the obligation of the Bank to make or
maintain Loans hereunder shall be suspended until the Bank revokes such notice
in writing. Upon receipt of such notice, the Borrower may revoke any Notice of
Borrowing or Notice of Continuation then submitted by it. If the Borrower does
not revoke such Notice, the Bank shall make or continue the Loans, as proposed
by the Borrower, in the amount specified in the applicable notice submitted by
the Borrower, but such Loans shall be made or continued as Loans in an available
Approved Currency. In the case of any Loan, the Borrowing or continuation shall
be in an aggregate amount equal to the Equivalent of the originally requested
Borrowing or continuation in the available Approved Currency, and to that end
any outstanding Loans which are the subject of any continuation shall be
redenominated and converted into the available Approved Currency with effect
from the last day of the Interest Period with respect to any such Loan.
4.06 RESERVES ON LOANS. The Borrower shall pay to the Bank, as long as
the Bank shall be required under regulations of a relevant Governmental
Authority to maintain reserves with respect to liabilities or assets consisting
of or including Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), and, in respect of any Loans, under any applicable regulations of
a relevant Governmental Authority in the country in which the Approved Currency
of such Loan
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circulates, additional costs (including, without limitation, any MLA Cost) on
the unpaid principal amount of each Loan equal to the actual costs of such
reserves allocated to such Loan by the Bank (as determined by the Bank in good
faith, which determination shall be conclusive), payable on each date on which
interest is payable on such Loan, provided the Borrower shall have received at
least 15 days' prior written notice (with a copy to the Bank) of such additional
interest from the Bank. If a Bank fails to give notice 15 days prior to the
relevant Interest Payment Date, such additional interest shall be payable 15
days from receipt of such notice.
4.07 CERTIFICATES OF THE BANK. The Bank shall deliver to the Borrower a
certificate setting forth in reasonable detail the amount payable to the Bank
under this Article IV and such certificate shall be conclusive and binding on
the Borrower in the absence of manifest error.
4.08 SURVIVAL. The agreements and obligations of the Borrower in this
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.01 CONDITIONS OF INITIAL CREDIT EXTENSIONS. The obligation of the
Bank to make its initial Credit Extension hereunder is subject to the condition
that the Bank shall have received on or before the Closing Date all of the
following, in form and substance satisfactory to the Bank:
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the Note
executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of
directors of each Loan Party authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or an
Assistant Secretary of such Person; and
(ii) A certificate of an authorized officer of each
Loan Party certifying the names and true signatures of such Person
authorized to execute, deliver and perform, as applicable, this
Agreement, and all other Loan Documents to be delivered by it
hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the
following documents:
(i) the articles or certificate of incorporation, the
bylaws, minutes and board of directors resolutions of each Loan Party
as in effect on the Closing Date, certified by the Secretary or
Assistant Secretary of such Person as of the Closing Date; and
(ii) a good standing certificate, to the extent
available, for each Loan Party from the Secretary of State (or similar,
applicable Governmental Authority) of its jurisdiction
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of incorporation and each jurisdiction where such Person is qualified
to do business as a foreign corporation as of a recent date, together
with a bring-down certificate by facsimile, dated the Closing Date;
(d) LEGAL OPINIONS. An opinion addressed to the Bank, (i) of
Benesch, Friedlander, Coplan & Aronoff, P.L.L., counsel to the Loan Parties,
substantially in the form of EXHIBIT C-1, (ii) from Warshaw, Burnstein, Cohen,
Schlesinger & Kuh, LLP, special New York counsel to the Loan Parties,
substantially in the form of EXHIBIT C-2, and (iii) from local counsel in such
jurisdictions as the Bank may request, such opinion to be in form and substance
acceptable to the Bank.
(e) PAYMENT OF FEES. Evidence of payment by each Loan Party of
all accrued and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, together with Attorney Costs of the Bank to the
extent invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute the Bank's reasonable estimate of Attorney
Costs incurred or to be incurred by it through the closing proceedings (provided
that such estimate shall not thereafter preclude final settling of accounts
between each Loan Party and the Bank); including any such costs, fees and
expenses arising under or referenced in Sections 2.10 and 10.04;
(f) CERTIFICATE. A certificate signed by an authorized officer
of each Loan Party, dated as of the Closing Date:
(i) stating that the representations and warranties
contained in Article VI are true and correct on and as of such date, as
though made on and as of such date;
(ii) stating that no Default or Event of Default
exists or would result from the Credit Extension; and
(iii) stating that there has occurred since September
30, 1996, no event or circumstance that has resulted or could
reasonably be expected to result in a Material Adverse Effect; and
(iv) certifying the names and true signatures of the
officers of such Person authorized to execute, deliver and perform, as
applicable, this Agreement and the other Loan Documents to which it is
a party, and all other Loan Documents to be delivered hereunder.
(g) CONSENT LETTER. Letter from CT Corporation System,
presently located at 1633 Broadway, New York, New York 10019, indicating its
consent to its appointment by each Loan Party as their agent to receive service
of process.
(h) NORDIC ACQUISITION A certificate signed by a Responsible
Officer of the Guarantor, dated as of the Closing Date, stating that (x) the
Guarantor has received proceeds from a Borrowing under, and as defined in, the
Waterlink Credit Agreement and the Borrower under, and as defined in, the German
Credit Agreement has received proceeds from the initial
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Borrowing under, and as defined in, the German Credit Agreement, and such
proceeds, when aggregated with proceeds from the initial Borrowing under this
Agreement, will be sufficient to consummate the Nordic Acquisition, as defined
in the Waterlink Credit Agreement, and (y) 100% of the proceeds referred to in
the preceding clause (x) were utilized in connection with the consummation of
the Nordic Acquisition.
(i) SOLVENCY CERTIFICATE. A written solvency certificate from
the chief financial officer of the Borrower in form and content satisfactory to
the Bank, dated the initial Borrowing Date, with respect to the value, Solvency
and other factual information of, or relating to, as the case may be, the
Borrower, after giving effect to the initial Borrowing.
(j) OTHER DOCUMENTS. Such other approvals, opinions, documents
or materials as the Bank or any Bank may request.
5.02 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of the Bank to
make any Loan (including its initial Loan) or to continue any Loan under Section
2.04 and the obligation of the Bank to Issue any Letter of Credit (including the
initial Letter of Credit) is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Issuance Date:
(a) NOTICE, APPLICATION. The Bank shall have received a Notice
of Borrowing a Notice of Continuation, as applicable, or, in the case of any
Issuance of any Letter of Credit, the Bank shall have received an L/C
Application or L/C Amendment Application, as required under Section 3.02;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Article VI shall be true and correct on and as
of such Borrowing Date or Issuance Date with the same effect as if made on and
as of such Borrowing Date or Issuance Date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date); and
(c) NO EXISTING DEFAULT. No Default or Event of Default shall
exist or shall result from such Borrowing or continuation or Issuance.
Each Notice of Borrowing, L/C Application or L/C Amendment Application submitted
by the Borrower hereunder shall constitute a representation and warranty by the
Borrower hereunder, as of the date of each such notice and as of each Borrowing
Date or Issuance Date, as applicable, that the conditions in this Section 5.02
are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
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Each Loan Party makes the representations and warranties contained in
SECTION 6 of Waterlink Credit Agreement to the Bank, which representations and
warrants are incorporated herein by reference, each and all of which shall
survive the execution and delivery of this Agreement.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
So long as the Bank shall have a Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Bank waives compliance in writing, each
Loan Party agrees to perform, comply with and be bound by the covenants
contained in Section 7 of the Waterlink Credit Agreement, which covenants are
incorporated herein by reference.
ARTICLE VIII
NEGATIVE COVENANTS
------------------
So long as the Bank shall have a Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Bank waives compliance in writing, each
Loan Party agrees to perform, comply with and be bound by the covenants
contained in Section 8 of the Waterlink Credit Agreement which covenants are
incorporated herein by reference.
ARTICLE IX
EVENTS OF DEFAULT
-----------------
9.01 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT
OF DEFAULT":
(a) NON-PAYMENT. The Borrower fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan or of any L/C
Obligation, or (ii) within five days after the same becomes due, any interest,
fee or any other amount payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty
by either Loan Party or any of its Subsidiaries made or deemed made herein, in
any other Loan Document, or which is contained in any certificate, document or
financial or other statement by such Person, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
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(c) WATERLINK CREDIT AGREEMENT DEFAULTS. An Event of Default
under, and as defined in, the Waterlink Credit Agreement shall have occurred and
be continuing;
(d) GUARANTOR DEFAULTS. The Guarantor fails in any material
respect to perform or observe any term, covenant or agreement in Article X; or
Article X is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or the Guarantor or any other Person contests in any manner
the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder.
9.02 REMEDIES. If any Event of Default occurs, the Bank may:
(a) declare the Commitment and any obligation of the Bank to
Issue Letters of Credit to be terminated, whereupon the Commitment and
obligation shall be terminated;
(b) declare an amount equal to the maximum aggregate amount
that is or at any time thereafter may become available for drawing under any
outstanding Letters of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letters of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by each Loan Party; and
(c) exercise all rights and remedies available to it under the
Loan Documents or applicable law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in Sections
9.01(f) or (g) (in the case of clause (i) of Section 9.01 (g) upon the
expiration of the 60-day period mentioned therein) of the Waterlink Credit
Agreement, the obligation of the Bank to make Loans and Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Bank.
9.03 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
GUARANTY
--------
10.01 Guarantor hereby absolutely, irrevocably and unconditionally
guarantees prompt, full and complete payment when due, whether at stated
maturity, upon acceleration or otherwise, and at all times thereafter, of (a)
the principal of and interest on the Loans made by the Bank to, and the
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Note held by the Bank of, the Borrower, and all L/C Obligations and (b) all
other amounts from time to time owing to the Bank by the Borrower under this
Agreement, the Note, any Letter of Credit and the other Loan Documents,
including without limitation all Obligations of the Borrower (solely for
purposes of this ARTICLE X, collectively referred to as the "Guaranteed Debt").
This is a guaranty of payment, not a guaranty of collection.
10.02 The Guarantor waives notice of the acceptance of this ARTICLE X
(referred to as the "Guaranty") and of the extension or incurrence of the
Guaranteed Debt or any part thereof. The Guarantor further waives all setoffs
and counterclaims and presentment, protest, notice, filing of claims with a
court in the event of receivership, bankruptcy or reorganization of the
Borrower, demand or action on delinquency in respect of the Guaranteed Debt or
any part thereof, including any right to require the Bank to sue the Borrower,
or any other person obligated with respect to the Guaranteed Debt or any part
thereof, or otherwise to enforce payment thereof against any collateral securing
the Guaranteed Debt or any part thereof.
10.03 The Guarantor hereby agrees that, to the fullest extent permitted
by law, its obligations hereunder shall be continuing, absolute and
unconditional under any and all circumstances and not subject to any reduction,
limitation, impairment, termination, defense (other than indefeasible payment in
full), setoff, counterclaim or recoupment whatsoever (all of which are hereby
expressly waived by it to the fullest extent permitted by law), whether by
reason of any claim of any character whatsoever, including, without limitation,
any claim of waiver, release, surrender, alteration or compromise. The validity
and enforceability of this Guaranty shall not be impaired or affected by any of
the following: (a) any extension, modification or renewal of, or indulgence with
respect to, or substitution for, the Guaranteed Debt or any part thereof or any
agreement relating thereto at any time; (b) any failure or omission to perfect
or maintain any lien on, or preserve rights to, any security or collateral or to
enforce any right, power or remedy with respect to the Guaranteed Debt or any
part thereof or any agreement relating thereto, or any collateral securing the
Guaranteed Debt or any part thereof; (c) any waiver of any right, power or
remedy or of any default with respect to the Guaranteed Debt or any part thereof
or any agreement relating thereto or with respect to any collateral securing the
Guaranteed Debt or any part thereof; (d) any release, surrender, compromise,
settlement, waiver, subordination or modification, with or without
consideration, of any collateral securing the Guaranteed Debt or any part
thereof, any other guaranties with respect to the Guaranteed Debt or any part
thereof, or any other obligations of any person or entity with respect to the
Guaranteed Debt or any part thereof; (e) the enforceability or validity of the
Guaranteed Debt or any part thereof or the genuineness, enforceability or
validity of any agreement relating thereto or with respect to any collateral
securing the Guaranteed Debt or any part thereof; (f) the application of
payments received from any source to the payment of indebtedness other than the
Guaranteed Debt, any part thereof or amounts which are not covered by this
Guaranty even though the Bank might lawfully have elected to apply such payments
to any part or all of the Guaranteed Debt or to amounts which are not covered by
this Guaranty; (g) any change of ownership of the Borrower or the insolvency,
bankruptcy or any other change in the legal status of the Borrower; (h) any
change in, or the imposition of, any law, decree, regulation or other
governmental act which does or might impair, delay or in any way affect the
validity, enforceability or the payment when due of the Guaranteed Debt; (i) the
failure of the Borrower to maintain in full force, validity or effect or to
obtain or renew when required all governmental and other approvals, licenses or
consents required
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in connection with the Guaranteed Debt or this Guaranty, or to take any other
action required in connection with the performance of all obligations pursuant
to the Guaranteed Debt or this Guaranty; (j) the existence of any claim, setoff
or other rights which the Guarantor may have at any time against the Borrower in
connection herewith or with any unrelated transaction; (k) the Bank's election,
in any case or proceeding instituted under chapter 11 of the Bankruptcy Code, of
the application of section 1111(b)(2) of the Bankruptcy Code; (l) any borrowing,
use of cash collateral, or grant of a security interest by the Borrower, as
debtor in possession, under section 363 or 364 of the Bankruptcy Code; (m) the
disallowance of all or any portion of the Bank's claims for repayment of the
Guaranteed Debt under section 502 or 506 of the Bankruptcy Code; or (n) any
other fact or circumstance which might otherwise constitute grounds at law or
equity for the discharge or release of the Guarantor from its obligations
hereunder, all whether or not the Guarantor shall have had notice or knowledge
of any act or omission referred to in the foregoing CLAUSES (A) THROUGH (N) of
this paragraph. It is agreed that the Guarantor's liability hereunder is
independent of any other guaranties or other obligations at any time in effect
with respect to the Guaranteed Debt or any part thereof and that the Guarantor's
liability hereunder may be enforced regardless of the existence, validity,
enforcement or non-enforcement of any such other guaranties or other obligations
or any provision of any applicable law or regulation purporting to prohibit
payment by the Borrower of the Guaranteed Debt in the manner agreed upon between
the Bank and the Borrower.
10.04 Credit may be granted or continued from time to time by the Bank
to the Borrower without notice to or authorization from the Guarantor regardless
of the Borrower's financial or other condition at the time of any such grant or
continuation. The Bank shall not have any obligation to disclose or discuss with
the Guarantor its assessment of the financial condition of the Borrower.
10.05 Until the irrevocable payment in full of the Obligations and
termination of the Commitment which could give rise to any Obligation, the
Guarantor shall have no right of subrogation with respect to the Guaranteed Debt
and hereby waives any right to enforce any remedy which the Bank now has or may
hereafter have against the Borrower, any endorser or any other guarantor of all
or any part of the Guaranteed Debt, and the Guarantor hereby waives any benefit
of, and any right to participate in, any security or collateral given to the
Bank to secure payment of the Guaranteed Debt or any part thereof or any other
liability of the Borrower to the Bank.
10.06 The Guarantor authorizes the Bank to take any action or exercise
any remedy with respect to any collateral from time to time securing the
Guaranteed Debt, which the Bank in its sole discretion (but subject, as
applicable, to the terms of this Agreement and of any documentation pursuant to
which a Lien in such collateral is granted) shall determine, without notice to
the Guarantor.
10.07 In the event the Bank in its sole discretion elects to give
notice of any action with respect to any collateral securing the Guaranteed Debt
or any part thereof, ten (10) days' written notice mailed to the Guarantor by
ordinary mail at the address shown hereon shall be deemed reasonable notice of
any matters contained in such notice. The Guarantor consents and agrees that the
Bank shall not be under any obligation to marshall any assets in favor of the
Guarantor or against or in payment of any or all of the Guaranteed Debt.
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10.08 In the event that acceleration of the time for payment of any of
the Guaranteed Debt is stayed upon the insolvency, bankruptcy or reorganization
of the Borrower, or otherwise, all such amounts shall nonetheless be payable by
the Guarantor forthwith upon demand by the Bank. The Guarantor further agrees
that, to the extent that the Borrower makes a payment or payments to the Bank on
the Guaranteed Debt, or the Bank receives any proceeds of collateral securing
the Guaranteed Debt, which payment or receipt of proceeds or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be returned or repaid to the Borrower, its estate, trustee,
receiver, debtor in possession or any other party, including, without
limitation, the Guarantor, under any insolvency or bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such payment,
return or repayment, the obligation or part thereof which has been paid, reduced
or satisfied by such amount shall be reinstated and continued in full force and
effect as of the date when such initial payment, reduction or satisfaction
occurred.
10.09 No delay on the part of the Bank in the exercise of any right,
power or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Bank of any right, power or remedy shall preclude any further
exercise thereof; nor shall any amendment, supplement, modification or waiver of
any of the terms or provisions of this Guaranty be binding upon the Bank, except
as expressly set forth in a writing duly signed and delivered by the Bank. The
failure by the Bank at any time or times hereafter to require strict performance
by the Borrower or the Guarantor of any of the provisions, warranties, terms and
conditions contained in any promissory note, security agreement, agreement,
guaranty, instrument or document now or at any time or times hereafter executed
pursuant to the terms of, or in connection with, this Agreement by the Borrower
or the Guarantor and delivered to the Bank shall not waive, affect or diminish
any right of the Bank at any time or times hereafter to demand strict
performance thereof, and such right shall not be deemed to have been waived by
any act or knowledge of the Bank, its agents, officers or employees, unless such
waiver is contained in an instrument in writing duly signed and delivered by the
Bank. No waiver by the Bank of any default shall operate as a waiver of any
other default or the same default on a future occasion, and no action by the
Bank permitted hereunder shall in any way affect or impair the Bank's rights or
powers, or the obligations of the Guarantor under this Guaranty. Any
determination by a court of competent jurisdiction of the amount of any
Guaranteed Debt owing by the Borrower to the Bank shall be conclusive and
binding on the Guarantor irrespective of whether the Guarantor was a party to
the suit or action in which such determination was made.
10.10 Subject to the provisions of Section 10.08, this Guaranty shall
continue in effect until this Agreement has terminated, the Guaranteed Debt has
been paid in full and the other conditions of this Guaranty have been satisfied.
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ARTICLE XI
MISCELLANEOUS
-------------
11.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by either Loan Party therefrom, shall be effective unless the same
shall be in writing and signed by the Bank and the Loan Party effected thereby,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
11.02 NOTICES. (a) All notices, requests, consents, approvals, waivers
and other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on SCHEDULE 11.02, and
(ii) shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on SCHEDULE 11.02; or, as directed to a Loan Party or the Bank, to such
other address as shall be designated by such party in a written notice to the
other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to such Loan Party and the
Bank.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the mail, or if delivered, upon delivery; except that notices
pursuant to Article II, III or X to the Bank shall not be effective until
actually received by the Bank, and notices pursuant to Article III to the Bank
shall not be effective until actually received by the Bank at the address
specified for the " Bank" on the applicable signature page hereof.
(c) Any agreement of the Bank herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of a Loan Party. The Bank shall be entitled to rely on the authority of
any Person purporting to be a Person authorized by a Loan Party to give such
notice and the Bank shall not have any liability to either Loan Party or other
Person on account of any action taken or not taken by the Bank in reliance upon
such telephonic or facsimile notice. The obligation of the Borrower to repay the
Loans and L/C Obligations shall not be affected in any way or to any extent by
any failure by the Bank to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Bank of a confirmation which is at
variance with the terms understood by the Bank to be contained in the telephonic
or facsimile notice.
11.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
11.04 COSTS AND EXPENSES. The Borrower shall:
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(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Bank within five Business Days after demand
(subject to Section 5.01(e)) for all costs and expenses incurred by the Bank in
connection with the development, preparation, delivery, administration and
execution of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including
reasonable Attorney Costs incurred by the Bank with respect thereto; and
(b) pay or reimburse the Bank within five Business Days after
demand (subject to Section 5.01(e)) for all costs and expenses (including
Attorney Costs) incurred by the Bank in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of Default
or after acceleration of the Loans (including in connection with any "workout"
or restructuring regarding the Loans, and including in any Insolvency Proceeding
or appellate proceeding).
11.05 INDEMNIFICATION. Whether or not the transactions contemplated
hereby are consummated, the Borrower shall indemnify, defend and hold the Bank
and each of its officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including Attorney
Costs) of any kind or nature whatsoever which may at any time (including at any
time following repayment of the Loans, the termination of the Letters of Credit
and replacement of the Bank) be imposed on, incurred by or asserted against any
such Person in any way relating to or arising out of the Borrower entering into
this Agreement or any document contemplated by or referred to herein, or the
transactions contemplated hereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding) related to or arising out of this Agreement
or the Loans or Letters of Credit or the use of the proceeds thereof, whether or
not any Indemnified Person is a party thereto (all the foregoing, collectively,
the "INDEMNIFIED LIABILITIES"); PROVIDED, that the Borrower shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful misconduct of
such Indemnified Person. The agreements in this Section shall survive payment of
all other Obligations.
11.06 PAYMENTS SET ASIDE. To the extent that the Borrower makes a
payment to the Bank, or the Bank exercises its right of set-off, and such
payment or the proceeds of such set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by the Bank in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then to the extent of
such recovery the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such set-off had not occurred.
11.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no
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Loan Party may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the Bank.
11.08 PARTICIPATIONS. The Bank may at any time sell to one or more
commercial banks or other Persons not Affiliates of a Loan Party (a
"PARTICIPANT") participating interests in the Loans, the Commitment and the
other interests of the Bank (the "originating Bank") hereunder and under the
other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Bank's
obligations under this Agreement shall remain unchanged, (ii) the originating
Bank shall remain solely responsible for the performance of such obligations,
(iii) each Loan Party and the Bank shall continue to deal solely and directly
with the originating Bank in connection with the originating Bank's rights and
obligations under this Agreement and the other Loan Documents, and (iv) the Bank
shall not transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Bank as
described in the FIRST PROVISO to Section 11.01. In the case of any such
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Borrower
hereunder shall be determined as if the Bank had not sold such participation;
except that, if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as the Bank under this Agreement.
11.09 CONFIDENTIALITY. The Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by a Loan Party and provided to it by a Loan Party or any of its
Subsidiaries, under this Agreement or any other Loan Document, and neither it
nor any of its Affiliates shall use any such information other than in
connection with or in enforcement of this Agreement and the other Loan Documents
or in connection with other business now or hereafter existing or contemplated
with either Loan Party of any of its Subsidiaries; except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by the Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than a Loan Party, provided that such
source is not bound by a confidentiality agreement with a Loan Party known to
the Bank; PROVIDED, HOWEVER, that the Bank may disclose such information (A) at
the request or pursuant to any requirement of any Governmental Authority to
which the Bank is subject or in connection with an examination of such Bank by
any such authority; (B) pursuant to subpoena or other court process; (C) when
required to do so in accordance with the provisions of any applicable
Requirement of Law; (D) to the extent reasonably required in connection with any
litigation or proceeding to which the Bank or its Affiliates may be party; (E)
to the extent reasonably required in connection with the exercise of any remedy
hereunder or under any other Loan Document; (F) to the Bank's independent
auditors and other professional advisors; (G) to any Participant, actual or
potential, provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Bank hereunder; (H) as to the
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality
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to which the Company or any Subsidiary is party or is deemed party with the Bank
or such Affiliate; and (I) to its Affiliates.
11.10 SET-OFF. In addition to any rights and remedies of the Bank
provided by law, if an Event of Default exists or the Loans have been
accelerated, the Bank is authorized at any time and from time to time, without
prior notice to the Borrower, any such notice being waived by the Borrower to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, the Bank to or for the credit or
the account of the Borrower against any and all Obligations owing to the Bank,
now or hereafter existing, irrespective of whether or not the Bank shall have
made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. The Bank agrees promptly to notify
the Borrower after any such set-off and application made by the Bank; PROVIDED,
HOWEVER, that the failure to give such notice shall not affect the validity of
such set-off and application.
11.11 AUTOMATIC DEBITS OF FEES. With respect to any Loan, any
unreimbursed drawing under a Letter of Credit, commitment fee, letter of credit
fee or other fee, or any other cost or expense (including Attorney Costs) due
and payable to the Bank under the Loan Documents, the Borrower hereby
irrevocably authorizes the Bank to debit any deposit account of the Borrower
with the Bank in an amount such that the aggregate amount debited from all such
deposit accounts does not exceed such fee or other cost or expense. If there are
insufficient funds in such deposit accounts to cover the amount of the fee or
other cost or expense then due, such debits will be reversed (in whole or in
part, in the Bank's sole discretion) and such amount not debited shall be deemed
to be unpaid. No such debit under this Section shall be deemed a set-off.
11.12 JUDGMENT. If, for the purposes of obtaining judgment in any
court, it is necessary to convert a sum due under this Agreement or any other
Loan Document in one currency into another currency, the rate of exchange used
shall be that at which in accordance with normal banking procedures the Bank
could purchase the first currency with such other currency on the Business Day
preceding that on which final judgment is given. The obligation of the either
Loan Party in respect of any such sum due from it to the Bank under this
Agreement or under the other Loan Documents shall, notwithstanding any judgment
in a currency (the "Judgment Currency") other than that in which such sum is
denominated in accordance with the applicable provisions of this Agreement (the
"Agreement Currency"), be discharged only to the extent that on the Business Day
following receipt by the Bank of any sum adjudged to be so due in the Judgment
Currency, the Bank may in accordance with normal banking procedures purchase the
Agreement Currency with the Judgment Currency. If the amount of the Agreement
Currency so purchased is less than the sum originally due to the Bank in the
Agreement Currency, each Loan Party agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Bank or the Person to whom
such obligation was owing against such loss. If the amount of the Agreement
Currency so purchased is greater than the sum originally due to the Bank in such
currency, the Bank agrees to return the amount of any excess to the relevant
Loan Party (or to any other Person who may be entitled thereto under applicable
law).
34
<PAGE> 40
11.13 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.14 SEVERABILITY. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
11.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and legal benefit of each Loan Party and the Bank,
and their permitted successors and assigns, and no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement or any of the other Loan
Documents.
11.16 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK; PROVIDED THAT THE PARTIES SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY AND THE BANK
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH LOAN PARTY HEREBY IRREVOCABLY DESIGNATE,
APPOINT AND EMPOWER CT CORPORATION SYSTEMS, WITH OFFICES ON THE DATE HEREOF AT
1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS
PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDINGS. IF FOR ANY REASON SUCH
DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH
LOAN PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK
CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE
AGENT UNDER THIS AGREEMENT. EACH LOAN PARTY AND THE BANK IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH LOAN PARTY AND THE BANK WAIVES
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
35
<PAGE> 41
11.17 WAIVER OF JURY TRIAL. EACH LOAN PARTY AND THE BANK WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
EACH LOAN PARTY AND THE BANK AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11.18 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among each Loan Party
and the Bank and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
* * *
36
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
GIGANTISSIMO 2061 AB (to be known as
WATERLINK (SWEDEN) AB)
By:
---------------------------------------
Title:
------------------------------------
WATERLINK, INC., as Guarantor
By:
---------------------------------------
Title:
------------------------------------
Commitment: $3,800,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, LONDON BRANCH
By:
---------------------------------------
Title:
------------------------------------
37
<PAGE> 43
SCHEDULE 1
CALCULATION OF THE MLA COST
FOR ANY LOANS DENOMINATED IN STERLING
(a) The MLA Cost for a Loan denominated in Sterling for each
Interest Period for that Loan is calculated in accordance with
the following formula:
BY + L(Y-X) + S(Y-Z) % PER ANNUM
-------------------
100 - (B+S)
where on the day of the application of the formula:
B is the percentage of the Bank's eligible liabilities which
the Bank of England then requires the Bank to hold on a
non-interest-bearing deposit account in accordance with
its cash ratio requirements;
Y is the rate at which Sterling deposits are offered by the
Bank to leading banks in the London interbank market at or
about 11:00 a.m. on that day for the relevant period;
L is the percentage of eligible liabilities which (as a
result of the requirements of the Bank of England) the
Bank maintains as secured money with members of the London
Discount Market Association or in certain marketable or
callable securities approved by the Bank of England, which
percentage shall (in the absence of evidence that any
other figure is appropriate) be conclusively presumed to
be 5 per cent;
X is the rate at which secured Sterling deposits may be
placed by the Bank with members of the London Discount
Market Association at or about 11:00 a.m. on that day for
the relevant period or, if greater, the rate at which
Sterling bills of exchange (of a tenor equal to the
duration of the relevant period) eligible for
rediscounting at the Bank of England can be discounted in
the London Discount Market at or about 11:00 a.m. on that
day;
S is the percentage for the Bank's eligible liabilities
which the Bank of England requires the Agent to place as a
special deposit; and
Z is the interest rate per annum allowed by the Bank of
England on special deposits.
(b) For the purposes of this Schedule:
(i) "ELIGIBLE LIABILITIES" and "SPECIAL DEPOSITS" have
the meanings given to them at the time of application
of the formula by the Bank of England; and
38
<PAGE> 44
(ii) "RELEVANT PERIOD" in relation to each Interest Period
means:
(A) if it is 3 months or less, that Interest
Period or
(B) if it is 3 months, 3 months.
(c) In the application of the formula, B, Y, L, X, S and Z are
included in the formula as figures and not as percentages,
e.g. if B=0.5% and Y = 15% BY is calculated as 0.5 x 15.
(d) The formula is applied on the first day of each relevant
period. Each amount is rounded up to the nearest one-sixteenth
of one per cent.
(e) If the Bank determines that a change in circumstances has
rendered, or will render, the formula inappropriate, the Bank
shall notify the Borrower of the manner in which the MLA Cost
for such Loans will subsequently be calculated. The manner of
calculation so notified by the Bank shall, in the absence of
manifest error, be binding on the Borrower.
39
<PAGE> 45
SCHEDULE 11.02
--------------
BANK NOTICE INFORMATION
-----------------------
PAYMENT OFFICE:
- ---------------
Bank of America National Trust
and Savings Association,
London Branch
One Alie Street
1st Floor
London, E1 8DE
England
NOTICES:
- --------
All notices (other than Letters of Credit):
Bank of America National Trust
and Savings Association,
London Branch
1 Alie Street
London, E1 8DE
England
Attn: Richard Millar, Customer Service
Tel. No.: 011-44-181-313-2942
Fax No.: 011-44-181-313-2170
Notices for Letters of Credit:
Bank of America National Trust
and Savings Association,
London Branch
1 Alie Street
London, E1 8DE
England
Attn: David Whyman/Fiona Campbell,
Trade Finance Services
Tel. No.: 011-44-181-313-2717/2576
Fax No.: 011-44-181-313-2576/8
1
<PAGE> 46
BORROWER NOTICE INFORMATION
---------------------------
Waterlink (Sweden) AB
[Address]
Attn:
Tel. No.:
Fax No.:
GUARANTOR NOTICE INFORMATION
----------------------------
Waterlink, Inc.
4100 Holiday Street N.W.
Canton, Ohio 44718
Attn: Chief Financial Officer
Tel. No.: 330-649-4000
Fax No.: 330-649-4008
2
<PAGE> 1
Exhibit 10.9
================================================================================
Equivalent of
$2,200,000
CREDIT AGREEMENT
DATED AS OF MARCH 4, 1997
AMONG
PROVISTA EINHUNDERTSECHSUNDFUNFZIGSTE
VERWALTUNGSGESELLSCHAFT MBH
(TO BE KNOWN AS WATERLINK (GERMANY) GMBH),
AS BORROWER
WATERLINK, INC.,
AS GUARANTOR,
AND
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION, FRANKFURT BRANCH
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
ARTICLE I
<S> <C> <C>
DEFINITIONS..............................................................1
1.03 ACCOUNTING PRINCIPLES....................................................7
ARTICLE II
THE CREDITS..............................................................8
2.01 AMOUNTS AND TERMS OF COMMITMENTS............................................8
2.02 LOAN ACCOUNTS................................................................8
2.03 PROCEDURE FOR BORROWING.....................................................9
2.05 VOLUNTARY TERMINATION OR REDUCTION OF THE COMMITMENT.......................10
2.06 OPTIONAL PREPAYMENTS.......................................................10
2.07 MANDATORY PREPAYMENTS OF LOANS; MANDATORY COMMITMENT REDUCTIONS
.......................................................................10
2.08 REPAYMENT..................................................................10
2.09 INTEREST...................................................................10
2.11 COMPUTATION OF FEES AND INTEREST...........................................11
2.12 PAYMENTS BY THE BORROWER...................................................12
2.13 UTILIZATION OF APPROVED CURRENCIES.........................................12
ARTICLE III
[RESERVED]..............................................................13
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY..................................13
4.01 TAXES......................................................................13
4.02 ILLEGALITY.................................................................14
4.03 INCREASED COSTS AND REDUCTION OF RETURN....................................14
4.04 FUNDING LOSSES.............................................................15
4.05 INABILITY TO DETERMINE RATES...............................................15
4.06 RESERVES ON LOANS..........................................................16
4.07 CERTIFICATES OF THE BANK...................................................16
4.08 SURVIVAL....................................................................16
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
ARTICLE V
<S> <C> <C>
CONDITIONS PRECEDENT.........................................................................16
5.01 CONDITIONS OF INITIAL BORROWING........................................................16
(a) CREDIT AGREEMENT AND NOTES....................................................16
(b) RESOLUTIONS; INCUMBENCY.......................................................16
(c) ORGANIZATION DOCUMENTS; GOOD STANDING.........................................17
(d) LEGAL OPINIONS................................................................17
(e) PAYMENT OF FEES...............................................................17
(f) CERTIFICATE...................................................................17
(g) CONSENT LETTER................................................................18
(h) NORDIC ACQUISITION............................................................18
(i) SOLVENCY CERTIFICATE..........................................................18
(j) OTHER DOCUMENTS...............................................................18
5.02 CONDITIONS TO ALL BORROWINGS...........................................................18
(a) NOTICE, APPLICATION...........................................................18
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES................................18
(c) NO EXISTING DEFAULT...........................................................18
ARTICLE VI
REPRESENTATIONS AND WARRANTIES......................................................19
ARTICLE VII
AFFIRMATIVE COVENANTS...............................................................19
ARTICLE VIII
NEGATIVE COVENANTS..................................................................19
ARTICLE IX
EVENTS OF DEFAULT...................................................................19
9.01 EVENT OF DEFAULT.......................................................................19
(a) NON-PAYMENT...................................................................19
(b) REPRESENTATION OR WARRANTY....................................................20
(c) WATERLINK CREDIT AGREEMENT DEFAULTS...........................................20
(d) GUARANTOR DEFAULTS............................................................20
9.02 REMEDIES...............................................................................20
9.03 RIGHTS NOT EXCLUSIVE...................................................................20
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
ARTICLE X
GUARANTY............................................................................20
ARTICLE XI
<S> <C> <C>
MISCELLANEOUS.......................................................................23
11.01 AMENDMENTS AND WAIVERS................................................................23
11.02 NOTICES...............................................................................24
11.03 NO WAIVER; CUMULATIVE REMEDIES........................................................24
11.04 COSTS AND EXPENSES....................................................................24
11.05 INDEMNIFICATION.......................................................................25
11.06 PAYMENTS SET ASIDE....................................................................25
11.07 SUCCESSORS AND ASSIGNS................................................................25
11.08 PARTICIPATIONS........................................................................25
11.09 CONFIDENTIALITY.......................................................................26
11.10 SET-OFF...............................................................................26
11.11 AUTOMATIC DEBITS OF FEES..............................................................27
11.12 JUDGMENT...............................................................................27
11.13 COUNTERPARTS..........................................................................27
11.14 SEVERABILITY..........................................................................27
11.15 NO THIRD PARTIES BENEFITED............................................................27
11.16 GOVERNING LAW AND JURISDICTION........................................................28
11.17 WAIVER OF JURY TRIAL..................................................................28
11.18 ENTIRE AGREEMENT......................................................................29
</TABLE>
- iii -
<PAGE> 5
SCHEDULES
Schedule 11.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Continuation
Exhibit C-1 Form of Legal Opinion of Counsel to the Loan Parties
Exhibit C-2 Form of Legal Opinion of Special New York Counsel
to the Loan Parties
Exhibit C-3 Form of Legal Opinion of Special German Counsel to
the Loan Parties
Exhibit D Form of Promissory Note
- iv -
<PAGE> 6
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT is entered into as of March 4, 1997, among
Provista Einhundertsechsundfunfzigste Verwaltungsgesellschaft mbH (to be known
as Waterlink (Germany) GmbH), a German corporation (the "Borrower"), Waterlink,
Inc., a Delaware corporation (the "Guarantor"), and Bank of America National
Trust and Savings Association, Frankfurt Branch (the "Bank").
WHEREAS, the Bank has agreed to make available to the Borrower a
revolving credit facility upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.01 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"AGREEMENT" means this Credit Agreement.
"AGREEMENT CURRENCY" has the meaning specified in SECTION
11.2.
"APPLICABLE CURRENCY" means, as to any particular payment,
Dollars or the Approved Currency in which it is denominated or is payable.
"APPLICABLE MARGIN" shall mean 2.50%.
"APPROVED CURRENCY" means, at any time, Dollars, Sterling,
Deutschmarks, Krona or ECU's or any other currency (other than Dollars)
acceptable to the Bank that is readily available and freely transferable in the
Frankfurt interbank market.
"ASSIGNEE" has the meaning specified in Section 11.08(a).
"ATTORNEY COSTS" means and includes all reasonable and
customary fees and disbursements of any law firm or other external counsel, the
allocated cost of internal legal services and all disbursements of internal
counsel.
<PAGE> 7
"BAI" means Bank of America Illinois, an Illinois banking
association.
"BANK" has the meaning specified in the introductory clause
hereto.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. section 101, ET SEQ.).
"BASE RATE" means, for any Interest Period, with respect to Loans
comprising part of the same Borrowing, the rate of interest per annum (rounded
upward to the next 1/16th of 1%) determined by the Bank as follows:
Base Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect
on such day (whether or not applicable to the Bank) under
regulations issued from time to time by a relevant
Governmental Authority for determining the maximum reserve
requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities");
and
"LIBOR" means the rate of interest per annum determined by the
Bank to be the rate of interest per annum at which deposits in
the approximate amount of the amount of the Loan to be made or
continued by the Bank and having a maturity comparable to such
Interest Period would be offered to major banks in the
Frankfurt interbank market at their request at approximately
11:00 a.m. (Frankfurt time) two Business Days prior to the
commencement of such Interest Period.
The Base Rate shall be adjusted automatically as to all Loans then
outstanding as of the effective date of any change in the Eurodollar
Reserve Percentage.
"BORROWER" means has the meaning specified in the introductory
clause hereto.
"BORROWING" means a borrowing hereunder consisting of Loans of
the same Approved Currency made to the Borrower on the same day by the Bank
under Article II, and having the same Interest Period.
"BORROWING DATE" means any date on which a Borrowing occurs
under Section 2.03.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in Chicago, San Francisco, Stockholm,
Frankfurt or London are authorized or
- 2 -
<PAGE> 8
required by law to close and, if the applicable Business Day relates to any
Loan, means such a day on which dealings are carried on in the applicable
offshore interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"CLOSING DATE" means the date on which all conditions
precedent set forth in Section 5.01 are satisfied or waived by the Bank.
"COMMITMENT" has the meaning specified in Section 2.01.
"COMPUTATION DATE" has the meaning specified in Section 2.13.
"CONTINUATION DATE" means any date on which, under Section
2.04, the Borrower continues Loans of the same Approved Currency, but with a new
Interest Period, having Interest Periods expiring on such date.
"DEFAULT" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"DEUTSCHMARKS" means the lawful currency of Germany
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the
United States.
"ECU" means the European Currency Unit used in the European
Monetary System.
"EQUIVALENT" means, at any time, the equivalent amount of an
Approved Currency in Dollars as determined by the Bank at such time on the basis
of the Spot Rate for the purchase of Dollars with such Approved Currency on the
most recent Computation Date provided for in Section 2.13.
"EFFECTIVE AMOUNT" means with respect to any Loans on any
date, the aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Loans occurring on such date.
For purposes of Section 2.07, the Effective Amount shall be determined without
giving effect to any mandatory prepayments to be made under said Section.
"EVENT OF DEFAULT" means any of the events or circumstances
specified in Section 9.01.
- 3 -
<PAGE> 9
"FURTHER TAXES" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or similar
charges (including, without limitation, net income taxes and franchise taxes),
and all liabilities with respect thereto, imposed by any jurisdiction on account
of amounts payable or paid pursuant to Section 4.01.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section
11.05.
"INDEMNIFIED PERSON" has the meaning specified in Section
11.05.
"INTEREST PAYMENT DATE" means, as to any Loan, the last day of
each Interest Period applicable to such Loan.
"INTEREST PERIOD" means, as to any Loan, the period commencing
on the Borrowing Date of such Loan or on the Continuation Date on which the Loan
is continued, and ending on the date one, two or three months thereafter as
selected by the Borrower in its Notice of Borrowing or Notice of Continuation;
PROVIDED that:
(a) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
(b) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest
Period; and
(c) no Interest Period shall extend beyond the
Termination Date.
"JUDGMENT CURRENCY" has the meaning specified in SECTION
11.12.
"KRONA" means the lawful currency of Sweden.
"LENDING OFFICE" means the office or offices of the Bank
specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on
- 4 -
<PAGE> 10
SCHEDULE 11.02, or such other office or offices as the Bank may from time to
time notify the Borrower.
"LOAN" means an extension of credit by the Bank to the
Borrower under Article II.
"LOAN DOCUMENTS" means this Agreement, the Note and all other
documents delivered to the Bank in connection herewith.
"LOAN PARTY" shall mean, collectively, the Guarantor and the
Borrower.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Guarantor or the
Guarantor and its Subsidiaries taken as a whole or as to any Subsidiary; (b) a
material impairment of the ability of the Guarantor or any Subsidiary to perform
under any Loan Document and to avoid any Event of Default; or (c) a material
adverse effect upon the legality, validity, binding effect or enforceability
against the Guarantor or any Subsidiary of any Loan Document.
"NOTE" means a promissory note executed by the Borrower in
favor of the Bank pursuant to Section 2.02(b), in substantially the form of
EXHIBIT D.
"NOTICE OF BORROWING" means a notice in substantially the form
of EXHIBIT A.
"NOTICE OF CONTINUATION" means a notice substantially in the
form of EXHIBIT B.
"OBLIGATIONS" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing by each
Loan Party to the Bank or any Indemnified Person, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"ORGANIZATION DOCUMENTS" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate of
determination or instrument relating to the rights of preferred shareholders of
such corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"OTHER TAXES" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery, performance, enforcement or registration of, or otherwise with respect
to, this Agreement or any other Loan Documents.
"PARTICIPANT" has the meaning specified in Section 11.08(d).
"PAYMENT OFFICE" means the address for payments set forth on
Schedule 11.02 or such other address as the Bank may from time to time specify.
- 5 -
<PAGE> 11
"PERSON" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"REQUIREMENT OF LAW" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of its
property is subject.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of a Loan Party, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the Guarantor, or any
other officer having substantially the same authority and responsibility.
"LOAN" has the meaning specified in Section 2.01.
"SPOT RATE" for a currency means the rate generally quoted by
the Bank as the spot rate for the purchase by the Bank of such currency with
another currency through its FX trading office on the date two Business Days
prior to the date as of which the foreign exchange computation is made.
"STERLING" means the lawful currency of the United Kingdom.
"SWEDEN CREDIT AGREEMENT" means the Credit Agreement, dated as
of March 4, 1997, among the Guarantor, Gigantissimo 2061 AB (to be known as
Waterlink (Sweden) AB) and Bank of America National Trust and Savings
Association, London Branch.
"TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges,
and all liabilities with respect thereto, excluding taxes imposed on or measured
by its net income by the jurisdiction (or any political subdivision thereof)
under the laws of which the Bank is organized or maintains a lending office.
"TERMINATION DATE" means the earlier to occur of:
(a) February 18, 2000; and
(b) the date on which the Commitment terminates in
accordance with the provisions of this Agreement.
"UNITED STATES" and "U.S." each means the United States of
America.
"WATERLINK CREDIT AGREEMENT" means the Credit Agreement, dated
as of February 19, 1997, among the Guarantor, the financial institutions from
time to time party thereto and BAI, as agent, as the same may be amended,
restated, supplemented or otherwise modified from time to
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time. In the event such credit agreement is terminated, "Waterlink Credit
Agreement" means such agreement as in effect on the date immediately prior to
such termination.
1.02 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms
are equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and the
word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Bank by way of consent, approval or
waiver shall be deemed modified by the phrase "in its/their sole discretion."
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Bank, the Loan
Parties and the other parties, and are the products of all parties. Accordingly,
they shall not be construed against the Bank merely because of the Bank's
involvement in their preparation.
1.03 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
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(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Guarantor.
1.04 CURRENCY EQUIVALENTS GENERALLY. For all purposes of this Agreement
(but not for purposes of the preparation of any financial statements delivered
pursuant hereto), the equivalent in any Approved Currency of an amount in
Dollars, and the equivalent in Dollars of an amount in any Approved Currency,
shall be determined at the Spot Rate. Each determination of an Equivalent amount
by the Bank shall be conclusive and binding on the Borrower in the absence of
manifest error. The Bank will, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Bank in determining any
Equivalent amount.
ARTICLE II
THE CREDITS
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2.01 AMOUNTS AND TERMS OF COMMITMENTS. THE REVOLVING CREDIT. The Bank
agrees, on the terms and conditions set forth herein, to make loans to the
Borrower (each such loan, a "LOAN") from time to time on any Business Day during
the period from the Closing Date to the Termination Date, in an aggregate amount
not to exceed at any time outstanding the Equivalent of the amount set forth
opposite the Bank's signature on the signature page to this Agreement (such
amount, the "COMMITMENT"); PROVIDED, HOWEVER, that, after giving effect to any
Borrowing of Loans, the Effective Amount of all outstanding Loans (exclusive of
Loans which are repaid with the proceeds of, and simultaneously with the
incurrence of such Loans) shall not on any Computation Date exceed the
Equivalent of the Commitment, and subject to the other terms and conditions
hereof, the Borrower may borrow under this Section 2.01, prepay under Section
2.06 and reborrow under this Section 2.01.
2.02 LOAN ACCOUNTS. (a) The Loans made by the Bank shall be evidenced
by one or more accounts or records maintained by the Bank in the ordinary course
of business. The accounts or records maintained by the Bank shall be prima facia
evidence of the amount of the Loans made by the Bank to the Borrower and the
interest and payments thereon. Any failure so to record or any error in doing so
shall not, however, limit or otherwise affect the obligation of the Borrower
hereunder to pay any amount owing with respect to the Loans.
(b) Upon the request of the Bank, the Loans may be evidenced
by one or more Notes, instead of or in addition to loan accounts. The Bank shall
record on the schedules annexed to its Note(s) the date, amount and maturity of
each Loan made by it and the amount of each payment of principal made by the
Borrower with respect thereto. The Bank is irrevocably authorized by the
Borrower to make recordations on its Note(s) and the Bank's record shall be
deemed prima facia correct; PROVIDED, HOWEVER, that the failure of the Bank to
make, or an error in making, a notation thereon with respect to any Loan shall
not limit or otherwise affect the obligations of the Borrower hereunder or under
any such Note to the Bank.
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<PAGE> 14
2.03 PROCEDURE FOR BORROWING. (a) Each Borrowing shall be made upon the
Borrowers's irrevocable written notice delivered to the Bank in the form of a
Notice of Borrowing (which notice must be received by the Bank prior to 10:00
a.m. (Frankfurt time)) two Business Days prior to the requested Borrowing Date,
specifying:
(i) the amount of the Borrowing, which shall be in an
aggregate minimum amount of the Equivalent of $250,000, or any
multiple of the Equivalent of $100,000 in excess thereof;
(ii) the Approved Currency in which the Borrowing is
to be denominated;
(iii) the requested Borrowing Date, which shall be a
Business Day; and
(iv) the duration of the Interest Period applicable
to such Loans included in such notice. If the Notice of
Borrowing fails to specify the duration of the Interest Period
for any Borrowing, such Interest Period shall be one month.
(b) The Bank will make the amount of each Borrowing available
for the account of the Borrower at the Payment Office on the Borrowing Date
requested by the Borrower in funds immediately available to the Bank. The
proceeds of all such Loans will then be made available to the Borrower by the
Bank at such office by crediting the account of the Borrower on the books of the
Bank.
2.04 CONTINUATION ELECTIONS. (a) The Borrower may, upon irrevocable
written notice to the Bank in accordance with Section 2.04(b), elect as of the
last day of the applicable Interest Period, to continue any Loans having
Interest Periods expiring on such day (or any part thereof in an amount not less
than the Equivalent of $250,000, or that is in an integral multiple of the
Equivalent of $100,000 in excess thereof).
(b) The Borrower shall deliver a Notice of Continuation to be
received by the Bank not later than 10:00 a.m. (Frankfurt time) at least two
Business Days in advance of the Continuation Date, specifying:
(i) the proposed Continuation Date;
(ii) the aggregate amount of Loans to be continued;
(iii) the Approved Currency in which the Loans
subject to the proposed continuation is denominated; and
(iv) the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to a Loan, the Borrower has failed to select a new Interest Period to be
applicable to such Loan by the time
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specified in Section 2.04(b), or if any Default or Event of Default then exists,
the Borrower shall be deemed to have elected to convert such Loan into an
Interest Period of one month.
2.05 VOLUNTARY TERMINATION OR REDUCTION OF THE COMMITMENT. The Borrower
may, upon not less than three Business Days' prior notice to the Bank, terminate
the Commitment, or permanently reduce the Commitment by an aggregate minimum
amount of $250,000 or any multiple of $100,000 in excess thereof; UNLESS, after
giving effect thereto and to any prepayments of Loans made on the effective date
thereof, the Effective Amount of all Loans would exceed the amount of the
Commitment then in effect. Once reduced in accordance with this Section, the
Commitment may not be increased. All accrued commitment fees to, but not
including, the effective date of any reduction or termination of the Commitment,
shall be paid on the effective date of such reduction or termination.
2.06 OPTIONAL PREPAYMENTS. Subject to Section 4.04, the Borrower may, at
any time or from time to time, upon irrevocable notice to the Bank, prepay Loans
in whole or in part, in minimum amounts of the Equivalent of $250,000 or any
multiple of the Equivalent of $100,000 in excess thereof. Such notice of
prepayment shall specify the date and amount of such prepayment and the Type(s)
of Loans to be prepaid. If such notice is given by the Borrower, the Borrower
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
to each such date on the amount prepaid and any amounts required pursuant to
Section 4.04.
2.07 MANDATORY PREPAYMENTS OF LOANS; MANDATORY COMMITMENT REDUCTIONS.
(a) Subject to Section 4.04, if on any Computation Date the Bank shall have
determined that due to a change in applicable rates of exchange between Dollars
and the Approved Currency the aggregate Equivalent principal amount of all Loans
then outstanding exceeds the Commitment by an amount equal to or greater than
10% of the Commitment, THEN the Bank shall give notice to the Borrower that a
prepayment is required under this Section, and the Borrower agrees thereupon to
make prepayments of Loans such that, after giving effect to such prepayment the
aggregate Equivalent amount of all Loans does not exceed the Commitment.
(b) Any prepayments pursuant to this Section 2.07 shall be
applied to Loans with the shortest Interest Periods remaining. The Borrower
shall pay, together with each prepayment under this Section 2.07, accrued
interest on the amount prepaid and any amounts required pursuant to Section
4.04.
2.08 REPAYMENT. The Borrower shall repay to the Bank on the Termination
Date the aggregate principal amount of Loans outstanding on such date.
2.09 INTEREST. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Base Rate PLUS the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Loans under Section 2.06 or 2.07 for the
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portion of the Loans so prepaid and upon payment (including prepayment) in full
thereof and, during the existence of any Event of Default, interest shall be
paid on demand of the Bank.
(c) Notwithstanding Section 2.09(a), while any Event of
Default exists or after acceleration, the Borrower shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Obligations, at a rate per annum which is
determined by adding 2% per annum to the Applicable Margin for such Loans.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Borrower to the Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by the Bank would be contrary to
the provisions of any law applicable to the Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by the Bank,
and in such event the Borrower shall pay the Bank interest at the highest rate
permitted by applicable law.
2.10 FEES. In addition to certain fees described in Section 3.08, the
Borrower shall pay to the Bank a commitment fee on the average unused portion of
the Commitment calculated after giving effect to determinations made by the Bank
pursuant to Section 2.13, computed on a quarterly basis in arrears on the last
Business Day of each calendar quarter based upon the daily utilization for that
quarter as calculated by the Bank, equal to .50% percent per annum. For purposes
of calculating utilization under this Section, the Commitment shall be deemed
used to the extent of the Equivalent of the Effective Amount of Loans then
outstanding. Such commitment fee shall accrue from the Closing Date to the
Termination Date and shall be due and payable quarterly in arrears on the last
Business Day of each March, June, September and December through the Termination
Date, with the final payment to be made on the Termination Date; PROVIDED that,
in connection with any reduction or termination of the Commitment under Section
2.05, the accrued commitment fee calculated for the period ending on such date
shall also be paid on the date of such reduction or termination, with the
following quarterly payment being calculated on the basis of the period from
such reduction or termination date to such quarterly payment date. The
commitment fees provided in this Section shall accrue at all times after the
above-mentioned commencement date, including at any time during which one or
more conditions in Article V are not met.
2.11 COMPUTATION OF FEES AND INTEREST. (a) All computations of (i) fees
and interest (other than as provided in clause (ii) below) shall be made on the
basis of a 360-day year and actual days elapsed (which results in more interest
being paid than if computed on the basis of a 365-day year) and (ii) all
computations of interest on Loans denominated in Sterling shall be made on the
basis of a 365/366-day year and actual days elapsed. Interest and fees shall
accrue during each period during which interest or such fees are computed from
the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Bank shall
be conclusive and binding on the Borrower in the absence of manifest error. The
Bank will, at the request of the Borrower, deliver to the Borrower a statement
showing the quotations used by the Bank in determining any interest rate and the
resulting interest rate.
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<PAGE> 17
2.12 PAYMENTS BY THE BORROWER. (a) All payments to be made by the
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Bank at the Payment Office in immediately available funds, no later than
Noon (Frankfurt time) on the date specified herein. Principal of, interest on,
and any other amounts relating to, any Loan, shall be made in the Approved
Currency in which such Loan is denominated or payable, and, with respect to all
other amounts payable hereunder, shall be made in Dollars. Any payment received
by the Bank later than Noon (Frankfurt time) shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue for the day actually received.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
2.13 UTILIZATION OF APPROVED CURRENCIES. (a) The Bank will determine
the Equivalent amount with respect to any (i) Borrowing as of the requested
Borrowing Date, (ii) outstanding Loans as of the last Business Day of each
month, and (iii) outstanding Loans as of any redenomination date pursuant to
this Section 2.13 or Section 4.05 (each such date under clauses (i) through
(iii), a "COMPUTATION DATE").
(b) In the case of a proposed Borrowing, the Bank shall be
under no obligation to make Loans in the requested Approved Currency as part of
such Borrowing if the Bank cannot provide Loans in the requested Approved
Currency, in which event the Bank will give notice to the Borrower no later than
Noon (Frankfurt time) on the second Business Day prior to the requested date of
such Borrowing that the Borrowing in the requested Approved Currency is not then
available. If the Bank shall have so notified the Borrower that any such
Borrowing in a requested Approved Currency is not then available, the Borrowing
requested therein shall not occur.
(c) In the case of a proposed continuation of any Loan for an
additional Interest Period pursuant to Section 2.04, the Bank shall be under no
obligation to continue such Loan if the Borrower has received notice from the
Bank by Noon (Frankfurt time) two Business Days prior to the day of such
continuation that the Bank cannot continue to provide Loans in the relevant
Approved Currency. If the Bank shall have so notified the Borrower that any such
continuation of such Loan is not then available, any Notice of Continuation with
respect thereto shall be deemed withdrawn and such Loan shall be redenominated
into an available Approved Currency with effect from the last day of the
Interest Period with respect to any such Loans. The Bank will promptly notify
the Borrower of any such redenomination and in such notice will state the
aggregate Equivalent amount of the redenominated Loan as of the Computation Date
with respect thereto.
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ARTICLE III
[RESERVED]
----------
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
4.01 TAXES. (a) Any and all payments by the Borrower to the Bank under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for, any Taxes. In addition, the Borrower shall
pay all Other Taxes.
(b) If the Borrower shall be required by law to deduct or
withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to the Bank, then:
(i) the sum payable shall be increased as necessary
so that, after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section), the Bank receives and retains an amount
equal to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings;
(iii) the Borrower shall pay the full amount deducted
or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Borrower shall also pay to the Bank, at the
time interest is paid, Further Taxes in the amount that the Bank
specifies as necessary to preserve the after-tax yield the Bank would
have received if such Taxes, Other Taxes or Further Taxes had not been
imposed.
(c) The Borrower agrees to indemnify and hold harmless and the
Bank for the full amount of i) Taxes, ii) Other Taxes, and iii) Further Taxes in
the amount that the Bank specifies as necessary to preserve the after-tax yield
the Bank would have received if such Taxes, Other Taxes or Further Taxes had not
been imposed, and any liability (including penalties, interest, additions to tax
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment
under this indemnification shall be made within 30 days after the date the Bank
makes written demand therefor.
(d) Within 30 days after the date of any payment pursuant to
this Section by the Borrower of Taxes, Other Taxes or Further Taxes, the
Borrower shall furnish to the Bank the
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<PAGE> 19
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to the Bank.
(e) If the Borrower is required to pay any amount to the Bank
pursuant to clauses (b) or (c) of this Section, then the Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Borrower which may thereafter accrue, if such change in the sole
judgment of the Bank is not otherwise disadvantageous to the Bank.
4.02 ILLEGALITY. (a) If the Bank determines that the introduction of
any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for the Bank or its applicable Lending Office to make Loans
in an Approved Currency, then, on notice thereof by the Bank to the Borrower,
any obligation of the Bank to make Loans in such Approved Currency shall be
suspended until the Bank notifies the Borrower that the circumstances giving
rise to such determination no longer exist.
(b) If the Bank determines that it is unlawful to maintain any
Loan in an Approved Currency, the Borrower shall, upon its receipt of notice of
such fact and demand from the Bank, prepay in full such Loans in such Approved
Currency then outstanding, together with interest accrued thereon and amounts
required under Section 4.04, either on the last day of the Interest Period
thereof, if the Bank may lawfully continue to maintain such Loans to such day,
or immediately, if the Bank may not lawfully continue to maintain such Loan. If
the Borrower is required to so prepay any such Loan, then concurrently with such
prepayment, the Borrower may borrow from the Bank, in the amount of such
repayment, a Loan in an unaffected Approved Currency with an Interest Period of
one month.
(c) If the obligation of the Bank to make or maintain Loans in
an Approved Currency has been so terminated or suspended, the Borrower may
elect, by giving notice to the Bank that all Loans in such Approved Currency
which would otherwise be made by the Bank shall be instead Loans in an
unaffected Approved Currency.
(d) Before giving any notice to the Borrower under this
Section, the Bank shall designate a different Lending Office with respect to its
Loans in an Approved Currency if such designation will avoid the need for giving
such notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
4.03 INCREASED COSTS AND REDUCTION OF RETURN. (a) If the Bank
determines that, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance by the Bank
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to the Bank of agreeing to make or making, funding or maintaining
any Loans, then the Borrower shall be liable for, and shall from time to time,
upon demand, pay to the Bank, additional amounts as are sufficient to compensate
such Bank for such increased costs.
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<PAGE> 20
(b) If the Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Lending Office) or any corporation controlling
the Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration the Bank's or
such corporation's policies with respect to capital adequacy and the Bank's
desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of the Bank to the Borrower through the
Bank, the Borrower shall pay to the Bank, from time to time as specified by the
Bank, additional amounts sufficient to compensate the Bank for such increase.
4.04 FUNDING LOSSES. The Borrower shall reimburse the Bank and hold the
Bank harmless from any loss or expense which the Bank may sustain or incur as a
consequence of:
(i) the failure of the Borrower to make on a timely basis any
payment of principal of any Loan;
(ii) the failure of the Borrower to borrow, continue or
convert a Loan after the Borrower has given (or is deemed to have
given) a Notice of Borrowing or a Notice of Conversion/ Continuation;
(iii) the failure of the Borrower to make any prepayment in
accordance with any notice delivered under Section 2.06; or
(iv) the prepayment (including pursuant to Section 2.07) or
other payment (including after acceleration thereof) of an Loan on a
day that is not the last day of the relevant Interest Period.
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Loans or from fees payable to terminate
the deposits from which such funds were obtained. For purposes of calculating
amounts payable by the Borrower to the Bank under this Section and under Section
4.03(a), each Loan made by a Bank (and each related reserve, special deposit or
similar requirement) shall be conclusively deemed to have been funded at the
LIBOR used in determining the for such Loan by a matching deposit or other
borrowing in the interbank eurodollar market for a comparable amount and for a
comparable period, whether or not such Loan is in fact so funded.
4.05 INABILITY TO DETERMINE RATES. If the Bank determines that for any
reason adequate and reasonable means do not exist for determining the Base Rate
for any requested Interest Period with respect to a proposed Loan, or that the
Base Rate applicable pursuant to Section 2.09(a) for any requested Interest
Period with respect to a proposed Loan does not adequately and fairly reflect
the cost to the Bank of funding such Loan, the Bank will promptly so notify the
Borrower and each Bank. Thereafter, the obligation of the Bank to make or
maintain Loans hereunder shall be
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<PAGE> 21
suspended until the Bank revokes such notice in writing. Upon receipt of such
notice, the Borrower may revoke any Notice of Borrowing or Notice of
Continuation then submitted by it. If the Borrower does not revoke such Notice,
the Bank shall make or continue the Loans, as proposed by the Borrower, in the
amount specified in the applicable notice submitted by the Borrower, but such
Loans shall be made or continued as Loans in an available Approved Currency. In
the case of any Loan, the Borrowing or continuation shall be in an aggregate
amount equal to the Equivalent of the originally requested Borrowing or
continuation in the available Approved Currency, and to that end any outstanding
Loans which are the subject of any continuation shall be redenominated and
converted into the available Approved Currency with effect from the last day of
the Interest Period with respect to any such Loan.
4.06 RESERVES ON LOANS. The Borrower shall pay to the Bank, as long as
the Bank shall be required under regulations of a relevant Governmental
Authority to maintain reserves with respect to liabilities or assets consisting
of or including Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), and, in respect of any Loans, under any applicable regulations of
a relevant Governmental Authority in the country in which the Approved Currency
of such Loan circulates, additional costs on the unpaid principal amount of each
Loan equal to the actual costs of such reserves allocated to such Loan by the
Bank (as determined by the Bank in good faith, which determination shall be
conclusive), payable on each date on which interest is payable on such Loan,
provided the Borrower shall have received at least 15 days' prior written notice
(with a copy to the Bank) of such additional interest from the Bank. If a Bank
fails to give notice 15 days prior to the relevant Interest Payment Date, such
additional interest shall be payable 15 days from receipt of such notice.
4.07 CERTIFICATES OF THE BANK. The Bank shall deliver to the Borrower a
certificate setting forth in reasonable detail the amount payable to the Bank
under this Article IV and such certificate shall be conclusive and binding on
the Borrower in the absence of manifest error.
4.08 SURVIVAL. The agreements and obligations of the Borrower in this
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.01 CONDITIONS OF INITIAL BORROWING. The obligation of the Bank to
make its initial Loan hereunder is subject to the condition that the Bank shall
have received on or before the Closing Date all of the following, in form and
substance satisfactory to the Bank:
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the Note
executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY.
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<PAGE> 22
(i) Copies of the resolutions of the board of
directors of each Loan Party authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or an
Assistant Secretary of such Person; and
(ii) A certificate of an authorized officer of each
Loan Party certifying the names and true signatures of such Person
authorized to execute, deliver and perform, as applicable, this
Agreement, and all other Loan Documents to be delivered by it
hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the
following documents:
(i) the articles or certificate of incorporation, the
bylaws and board of directors resolutions of each Loan Party as in
effect on the Closing Date, certified by the Secretary or Assistant
Secretary of such Person as of the Closing Date; and
(ii) a good standing certificate, to the extent
available, for each Loan Party from the Secretary of State (or similar,
applicable Governmental Authority) of its jurisdiction of incorporation
and each jurisdiction where such Person is qualified to do business as
a foreign corporation as of a recent date, together with a bring-down
certificate by facsimile, dated the Closing Date;
(d) LEGAL OPINIONS. An opinion addressed to the Bank, (i) of
Benesch, Friedlander, Coplan & Aronoff, P.L.L., counsel to the Loan Parties,
substantially in the form of EXHIBIT C-1, (ii) from Warshaw, Burnstein, Cohen,
Schlesinger & Kuh, LLP, special New York counsel to the Loan Parties,
substantially in the form of EXHIBIT C-2, and (iii) from local counsel in such
jurisdictions as the Bank may request, such opinion to be in form and substance
acceptable to the Bank.
(e) PAYMENT OF FEES. Evidence of payment by each Loan Party of
all accrued and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, together with Attorney Costs of the Bank to the
extent invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute the Bank's reasonable estimate of Attorney
Costs incurred or to be incurred by it through the closing proceedings (provided
that such estimate shall not thereafter preclude final settling of accounts
between each Loan Party and the Bank); including any such costs, fees and
expenses arising under or referenced in Sections 2.10 and 10.04;
(f) CERTIFICATE. A certificate signed by an authorized officer
of each Loan Party, dated as of the Closing Date:
(i) stating that the representations and warranties
contained in Article VI are true and correct on and as of such date, as
though made on and as of such date;
(ii) stating that no Default or Event of Default
exists or would result from the initial Borrowing; and
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<PAGE> 23
(iii) stating that there has occurred since September
30, 1996, no event or circumstance that has resulted or could
reasonably be expected to result in a Material Adverse Effect; and
(iv) certifying the names and true signatures of the
officers of such Person authorized to execute, deliver and perform, as
applicable, this Agreement and the other Loan Documents to which it is
a party, and all other Loan Documents to be delivered hereunder.
(g) CONSENT LETTER. Letter from CT Corporation Systems,
presently located at 1633 Broadway, New York, New York 10019, indicating its
consent to its appointment by each Loan Party as their agent to receive service
of process.
(h) NORDIC ACQUISITION A certificate signed by a Responsible
Officer of the Guarantor, dated as of the Closing Date, stating that (x) the
Guarantor has received proceeds from a Borrowing under, and as defined in, the
Waterlink Credit Agreement and the Borrower under, and as defined in, the Sweden
Credit Agreement has received proceeds from the initial Borrowing under, and as
defined in, the Sweden Credit Agreement, and such proceeds, when aggregated with
proceeds from the initial Borrowing under this Agreement, will be sufficient to
consummate the Nordic Acquisition, as defined in the Waterlink Credit Agreement,
and (y) 100% of the proceeds referred to in the preceding clause (x) were
utilized in connection with the consummation of the Nordic Acquisition.
(i) SOLVENCY CERTIFICATE. A written solvency certificate from
the chief financial officer of the Borrower in form and content satisfactory to
the Bank, dated the initial Borrowing Date, with respect to the value, Solvency
and other factual information of, or relating to, as the case may be, the
Borrower, after giving effect to the initial Borrowing.
(j) OTHER DOCUMENTS. Such other approvals, opinions, documents
or materials as the Bank or any Bank may request.
5.02 CONDITIONS TO ALL BORROWINGS. The obligation of the Bank to make
any Loan (including its initial Loan) or to continue any Loan under Section 2.04
is subject to the satisfaction of the following conditions precedent on the
relevant Borrowing Date:
(a) NOTICE, APPLICATION. The Bank shall have received a Notice
of Borrowing a Notice of Continuation, as applicable;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Article VI shall be true and correct on and as
of such Borrowing Date with the same effect as if made on and as of such
Borrowing Date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date); and
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<PAGE> 24
(c) NO EXISTING DEFAULT. No Default or Event of Default shall
exist or shall result from such Borrowing.
Each Notice of Borrowing submitted by the Borrower hereunder shall constitute a
representation and warranty by the Borrower hereunder, as of the date of each
such notice and as of each Borrowing Date that the conditions in this Section
5.02 are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
Each Loan Party makes the representations and warranties contained in
SECTION 6 of Waterlink Credit Agreement to the Bank, which representations and
warrants are incorporated herein by reference, each and all of which shall
survive the execution and delivery of this Agreement.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
So long as the Bank shall have a Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Bank waives
compliance in writing, each Loan Party agrees to perform, comply with and be
bound by the covenants contained in Section 7 of the Waterlink Credit Agreement,
which covenants are incorporated herein by reference.
ARTICLE VIII
NEGATIVE COVENANTS
------------------
So long as the Bank shall have a Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Bank waives
compliance in writing, each Loan Party agrees to perform, comply with and be
bound by the covenants contained in Section 8 of the Waterlink Credit Agreement
which covenants are incorporated herein by reference.
ARTICLE IX
EVENTS OF DEFAULT
-----------------
9.01 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT
OF DEFAULT":
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<PAGE> 25
(a) NON-PAYMENT. The Borrower fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii) within
five days after the same becomes due, any interest, fee or any other amount
payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty
by either Loan Party or any of its Subsidiaries made or deemed made herein, in
any other Loan Document, or which is contained in any certificate, document or
financial or other statement by such Person, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) WATERLINK CREDIT AGREEMENT DEFAULTS. An Event of Default
under, and as defined in, the Waterlink Credit Agreement shall have occurred and
be continuing;
(d) GUARANTOR DEFAULTS. The Guarantor fails in any material
respect to perform or observe any term, covenant or agreement in Article X; or
Article X is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or the Guarantor or any other Person contests in any manner
the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder.
9.02 REMEDIES. If any Event of Default occurs, the Bank may:
(a) declare the Commitment to be terminated, whereupon the
Commitment shall be terminated; and
(b) exercise all rights and remedies available to it under the
Loan Documents or applicable law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in Sections
9.01(f) or (g) (in the case of clause (i) of Section 9.01 (g) upon the
expiration of the 60-day period mentioned therein) of the Waterlink Credit
Agreement, the obligation of the Bank to make Loans shall automatically
terminate and the unpaid principal amount of all outstanding Loans and all
interest and other amounts as aforesaid shall automatically become due and
payable without further act of the Bank.
9.03 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
GUARANTY
--------
10.01 Guarantor hereby absolutely, irrevocably and unconditionally
guarantees prompt, full and complete payment when due, whether at stated
maturity, upon acceleration or otherwise, and at all times thereafter, of (a)
the principal of and interest on the Loans made by the Bank to, and the
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<PAGE> 26
Note held by the Bank of, the Borrower and (b) all other amounts from time to
time owing to the Bank by the Borrower under this Agreement, the Note and the
other Loan Documents, including without limitation all Obligations of the
Borrower (solely for purposes of this ARTICLE X, collectively referred to as the
"Guaranteed Debt"). This is a guaranty of payment, not a guaranty of collection.
10.02 The Guarantor waives notice of the acceptance of this ARTICLE X
(referred to as the "Guaranty") and of the extension or incurrence of the
Guaranteed Debt or any part thereof. The Guarantor further waives all setoffs
and counterclaims and presentment, protest, notice, filing of claims with a
court in the event of receivership, bankruptcy or reorganization of the
Borrower, demand or action on delinquency in respect of the Guaranteed Debt or
any part thereof, including any right to require the Bank to sue the Borrower,
or any other person obligated with respect to the Guaranteed Debt or any part
thereof, or otherwise to enforce payment thereof against any collateral securing
the Guaranteed Debt or any part thereof.
10.03 The Guarantor hereby agrees that, to the fullest extent permitted
by law, its obligations hereunder shall be continuing, absolute and
unconditional under any and all circumstances and not subject to any reduction,
limitation, impairment, termination, defense (other than indefeasible payment in
full), setoff, counterclaim or recoupment whatsoever (all of which are hereby
expressly waived by it to the fullest extent permitted by law), whether by
reason of any claim of any character whatsoever, including, without limitation,
any claim of waiver, release, surrender, alteration or compromise. The validity
and enforceability of this Guaranty shall not be impaired or affected by any of
the following: (a) any extension, modification or renewal of, or indulgence with
respect to, or substitution for, the Guaranteed Debt or any part thereof or any
agreement relating thereto at any time; (b) any failure or omission to perfect
or maintain any lien on, or preserve rights to, any security or collateral or to
enforce any right, power or remedy with respect to the Guaranteed Debt or any
part thereof or any agreement relating thereto, or any collateral securing the
Guaranteed Debt or any part thereof; (c) any waiver of any right, power or
remedy or of any default with respect to the Guaranteed Debt or any part thereof
or any agreement relating thereto or with respect to any collateral securing the
Guaranteed Debt or any part thereof; (d) any release, surrender, compromise,
settlement, waiver, subordination or modification, with or without
consideration, of any collateral securing the Guaranteed Debt or any part
thereof, any other guaranties with respect to the Guaranteed Debt or any part
thereof, or any other obligations of any person or entity with respect to the
Guaranteed Debt or any part thereof; (e) the enforceability or validity of the
Guaranteed Debt or any part thereof or the genuineness, enforceability or
validity of any agreement relating thereto or with respect to any collateral
securing the Guaranteed Debt or any part thereof; (f) the application of
payments received from any source to the payment of indebtedness other than the
Guaranteed Debt, any part thereof or amounts which are not covered by this
Guaranty even though the Bank might lawfully have elected to apply such payments
to any part or all of the Guaranteed Debt or to amounts which are not covered by
this Guaranty; (g) any change of ownership of the Borrower or the insolvency,
bankruptcy or any other change in the legal status of the Borrower; (h) any
change in, or the imposition of, any law, decree, regulation or other
governmental act which does or might impair, delay or in any way affect the
validity, enforceability or the payment when due of the Guaranteed Debt; (i) the
failure of the Borrower to maintain in full force, validity or effect or to
obtain or renew when required all governmental and other approvals, licenses or
consents required in connection with the Guaranteed Debt or this Guaranty, or to
take any other action required in
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<PAGE> 27
connection with the performance of all obligations pursuant to the Guaranteed
Debt or this Guaranty; (j) the existence of any claim, setoff or other rights
which the Guarantor may have at any time against the Borrower in connection
herewith or with any unrelated transaction; (k) the Bank's election, in any case
or proceeding instituted under chapter 11 of the Bankruptcy Code, of the
application of section 1111(b)(2) of the Bankruptcy Code; (l) any borrowing, use
of cash collateral, or grant of a security interest by the Borrower, as debtor
in possession, under section 363 or 364 of the Bankruptcy Code; (m) the
disallowance of all or any portion of the Bank's claims for repayment of the
Guaranteed Debt under section 502 or 506 of the Bankruptcy Code; or (n) any
other fact or circumstance which might otherwise constitute grounds at law or
equity for the discharge or release of the Guarantor from its obligations
hereunder, all whether or not the Guarantor shall have had notice or knowledge
of any act or omission referred to in the foregoing CLAUSES (A) THROUGH (N) of
this paragraph. It is agreed that the Guarantor's liability hereunder is
independent of any other guaranties or other obligations at any time in effect
with respect to the Guaranteed Debt or any part thereof and that the Guarantor's
liability hereunder may be enforced regardless of the existence, validity,
enforcement or non-enforcement of any such other guaranties or other obligations
or any provision of any applicable law or regulation purporting to prohibit
payment by the Borrower of the Guaranteed Debt in the manner agreed upon between
the Bank and the Borrower.
10.04 Credit may be granted or continued from time to time by the Bank
to the Borrower without notice to or authorization from the Guarantor regardless
of the Borrower's financial or other condition at the time of any such grant or
continuation. The Bank shall not have any obligation to disclose or discuss with
the Guarantor its assessment of the financial condition of the Borrower.
10.05 Until the irrevocable payment in full of the Obligations and
termination of the Commitment which could give rise to any Obligation, the
Guarantor shall have no right of subrogation with respect to the Guaranteed Debt
and hereby waives any right to enforce any remedy which the Bank now has or may
hereafter have against the Borrower, any endorser or any other guarantor of all
or any part of the Guaranteed Debt, and the Guarantor hereby waives any benefit
of, and any right to participate in, any security or collateral given to the
Bank to secure payment of the Guaranteed Debt or any part thereof or any other
liability of the Borrower to the Bank.
10.06 The Guarantor authorizes the Bank to take any action or exercise
any remedy with respect to any collateral from time to time securing the
Guaranteed Debt, which the Bank in its sole discretion (but subject, as
applicable, to the terms of this Agreement and of any documentation pursuant to
which a Lien in such collateral is granted) shall determine, without notice to
the Guarantor.
10.07 In the event the Bank in its sole discretion elects to give
notice of any action with respect to any collateral securing the Guaranteed Debt
or any part thereof, ten (10) days' written notice mailed to the Guarantor by
ordinary mail at the address shown hereon shall be deemed reasonable notice of
any matters contained in such notice. The Guarantor consents and agrees that the
Bank shall not be under any obligation to marshall any assets in favor of the
Guarantor or against or in payment of any or all of the Guaranteed Debt.
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<PAGE> 28
10.08 In the event that acceleration of the time for payment of any of
the Guaranteed Debt is stayed upon the insolvency, bankruptcy or reorganization
of the Borrower, or otherwise, all such amounts shall nonetheless be payable by
the Guarantor forthwith upon demand by the Bank. The Guarantor further agrees
that, to the extent that the Borrower makes a payment or payments to the Bank on
the Guaranteed Debt, or the Bank receives any proceeds of collateral securing
the Guaranteed Debt, which payment or receipt of proceeds or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be returned or repaid to the Borrower, its estate, trustee,
receiver, debtor in possession or any other party, including, without
limitation, the Guarantor, under any insolvency or bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such payment,
return or repayment, the obligation or part thereof which has been paid, reduced
or satisfied by such amount shall be reinstated and continued in full force and
effect as of the date when such initial payment, reduction or satisfaction
occurred.
10.09 No delay on the part of the Bank in the exercise of any right,
power or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Bank of any right, power or remedy shall preclude any further
exercise thereof; nor shall any amendment, supplement, modification or waiver of
any of the terms or provisions of this Guaranty be binding upon the Bank, except
as expressly set forth in a writing duly signed and delivered by the Bank. The
failure by the Bank at any time or times hereafter to require strict performance
by the Borrower or the Guarantor of any of the provisions, warranties, terms and
conditions contained in any promissory note, security agreement, agreement,
guaranty, instrument or document now or at any time or times hereafter executed
pursuant to the terms of, or in connection with, this Agreement by the Borrower
or the Guarantor and delivered to the Bank shall not waive, affect or diminish
any right of the Bank at any time or times hereafter to demand strict
performance thereof, and such right shall not be deemed to have been waived by
any act or knowledge of the Bank, its agents, officers or employees, unless such
waiver is contained in an instrument in writing duly signed and delivered by the
Bank. No waiver by the Bank of any default shall operate as a waiver of any
other default or the same default on a future occasion, and no action by the
Bank permitted hereunder shall in any way affect or impair the Bank's rights or
powers, or the obligations of the Guarantor under this Guaranty. Any
determination by a court of competent jurisdiction of the amount of any
Guaranteed Debt owing by the Borrower to the Bank shall be conclusive and
binding on the Guarantor irrespective of whether the Guarantor was a party to
the suit or action in which such determination was made.
10.10 Subject to the provisions of Section 10.08, this Guaranty shall
continue in effect until this Agreement has terminated, the Guaranteed Debt has
been paid in full and the other conditions of this Guaranty have been satisfied.
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<PAGE> 29
ARTICLE XI
MISCELLANEOUS
-------------
11.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by either Loan Party therefrom, shall be effective unless the same
shall be in writing and signed by the Bank and the Loan Party effected thereby,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
11.02 NOTICES. (a) All notices, requests, consents, approvals, waivers
and other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on SCHEDULE 11.02, and
(ii) shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on SCHEDULE 11.02; or, as directed to a Loan Party or the Bank, to such
other address as shall be designated by such party in a written notice to the
other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to such Loan Party and the
Bank.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the mail, or if delivered, upon delivery; except that notices
pursuant to Article II, III or X to the Bank shall not be effective until
actually received by the Bank, and notices pursuant to Article III to the
Issuing Bank shall not be effective until actually received by the Issuing Bank
at the address specified for the "Issuing Bank" on the applicable signature page
hereof.
(c) Any agreement of the Bank herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of a Loan Party. The Bank shall be entitled to rely on the authority of
any Person purporting to be a Person authorized by a Loan Party to give such
notice and the Bank shall not have any liability to either Loan Party or other
Person on account of any action taken or not taken by the Bank in reliance upon
such telephonic or facsimile notice. The obligation of the Borrower to repay the
Loans shall not be affected in any way or to any extent by any failure by the
Bank to receive written confirmation of any telephonic or facsimile notice or
the receipt by the Bank of a confirmation which is at variance with the terms
understood by the Bank to be contained in the telephonic or facsimile notice.
11.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
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<PAGE> 30
11.04 COSTS AND EXPENSES. The Borrower shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Bank within five Business Days after demand
(subject to Section 5.01(e)) for all costs and expenses incurred by the Bank in
connection with the development, preparation, delivery, administration and
execution of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including
reasonable Attorney Costs incurred by the Bank with respect thereto; and
(b) pay or reimburse the Bank within five Business Days after
demand (subject to Section 5.01(e)) for all costs and expenses (including
Attorney Costs) incurred by the Bank in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of Default
or after acceleration of the Loans (including in connection with any "workout"
or restructuring regarding the Loans, and including in any Insolvency Proceeding
or appellate proceeding).
11.05 INDEMNIFICATION. Whether or not the transactions contemplated
hereby are consummated, the Borrower shall indemnify, defend and hold the Bank
and each of its officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including Attorney
Costs) of any kind or nature whatsoever which may at any time (including at any
time following repayment of the Loans) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of the Borrower
entering into this Agreement or any document contemplated by or referred to
herein, or the transactions contemplated hereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"INDEMNIFIED LIABILITIES"); PROVIDED, that the Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
resulting solely from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of all
other Obligations.
11.06 PAYMENTS SET ASIDE. To the extent that the Borrower makes a
payment to the Bank, or the Bank exercises its right of set-off, and such
payment or the proceeds of such set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by the Bank in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then to the extent of
such recovery the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such set-off had not occurred.
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<PAGE> 31
11.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no Loan Party may assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of the Bank.
11.08 PARTICIPATIONS. The Bank may at any time sell to one or more
commercial banks or other Persons not Affiliates of a Loan Party (a
"PARTICIPANT") participating interests in the Loans, the Commitment and the
other interests of the Bank (the "originating Bank") hereunder and under the
other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Bank's
obligations under this Agreement shall remain unchanged, (ii) the originating
Bank shall remain solely responsible for the performance of such obligations,
(iii) each Loan Party and the Issuing Bank shall continue to deal solely and
directly with the originating Bank in connection with the originating Bank's
rights and obligations under this Agreement and the other Loan Documents, and
(iv) the Bank shall not transfer or grant any participating interest under which
the Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Bank as
described in the FIRST PROVISO to Section 11.01. In the case of any such
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Borrower
hereunder shall be determined as if the Bank had not sold such participation;
except that, if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as the Bank under this Agreement.
11.09 CONFIDENTIALITY. The Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by a Loan Party and provided to it by a Loan Party or any of its
Subsidiaries, under this Agreement or any other Loan Document, and neither it
nor any of its Affiliates shall use any such information other than in
connection with or in enforcement of this Agreement and the other Loan Documents
or in connection with other business now or hereafter existing or contemplated
with either Loan Party of any of its Subsidiaries; except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by the Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than a Loan Party, provided that such
source is not bound by a confidentiality agreement with a Loan Party known to
the Bank; PROVIDED, HOWEVER, that the Bank may disclose such information (A) at
the request or pursuant to any requirement of any Governmental Authority to
which the Bank is subject or in connection with an examination of such Bank by
any such authority; (B) pursuant to subpoena or other court process; (C) when
required to do so in accordance with the provisions of any applicable
Requirement of Law; (D) to the extent reasonably required in connection with any
litigation or proceeding to which the Bank or its Affiliates may be party; (E)
to the extent reasonably required in connection with the exercise of any remedy
hereunder or under any other Loan Document; (F) to the Bank's independent
auditors and other professional advisors; (G) to any Participant, actual or
potential, provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Bank hereunder; (H) as to the
Bank or its Affiliate,
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<PAGE> 32
as expressly permitted under the terms of any other document or agreement
regarding confidentiality to which the Company or any Subsidiary is party or is
deemed party with the Bank or such Affiliate; and (I) to its Affiliates.
11.10 SET-OFF. In addition to any rights and remedies of the Bank
provided by law, if an Event of Default exists or the Loans have been
accelerated, the Bank is authorized at any time and from time to time, without
prior notice to the Borrower, any such notice being waived by the Borrower to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, the Bank to or for the credit or
the account of the Borrower against any and all Obligations owing to the Bank,
now or hereafter existing, irrespective of whether or not the Bank shall have
made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. The Bank agrees promptly to notify
the Borrower after any such set-off and application made by the Bank; PROVIDED,
HOWEVER, that the failure to give such notice shall not affect the validity of
such set-off and application.
11.11 AUTOMATIC DEBITS OF FEES. With respect to any Loan, commitment
fee or other fee, or any other cost or expense (including Attorney Costs) due
and payable to the Bank under the Loan Documents, the Borrower hereby
irrevocably authorizes the Bank to debit any deposit account of the Borrower
with the Bank in an amount such that the aggregate amount debited from all such
deposit accounts does not exceed such fee or other cost or expense. If there are
insufficient funds in such deposit accounts to cover the amount of the fee or
other cost or expense then due, such debits will be reversed (in whole or in
part, in the Bank's sole discretion) and such amount not debited shall be deemed
to be unpaid. No such debit under this Section shall be deemed a set-off.
11.12 JUDGMENT. If, for the purposes of obtaining judgment in any
court, it is necessary to convert a sum due under this Agreement or any other
Loan Document in one currency into another currency, the rate of exchange used
shall be that at which in accordance with normal banking procedures the Bank
could purchase the first currency with such other currency on the Business Day
preceding that on which final judgment is given. The obligation of the either
Loan Party in respect of any such sum due from it to the Bank under this
Agreement or under the other Loan Documents shall, notwithstanding any judgment
in a currency (the "Judgment Currency") other than that in which such sum is
denominated in accordance with the applicable provisions of this Agreement (the
"Agreement Currency"), be discharged only to the extent that on the Business Day
following receipt by the Bank of any sum adjudged to be so due in the Judgment
Currency, the Bank may in accordance with normal banking procedures purchase the
Agreement Currency with the Judgment Currency. If the amount of the Agreement
Currency so purchased is less than the sum originally due to the Bank in the
Agreement Currency, each Loan Party agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Bank or the Person to whom
such obligation was owing against such loss. If the amount of the Agreement
Currency so purchased is greater than the sum originally due to the Bank in such
currency, the Bank agrees to return the amount of any excess to the relevant
Loan Party (or to any other Person who may be entitled thereto under applicable
law).
- 27 -
<PAGE> 33
11.13 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.14 SEVERABILITY. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
11.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and legal benefit of each Loan Party and the Bank,
and their permitted successors and assigns, and no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement or any of the other Loan
Documents.
11.16 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK; PROVIDED THAT THE PARTIES SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY AND THE BANK
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH LOAN PARTY HEREBY IRREVOCABLY DESIGNATE,
APPOINT AND EMPOWER CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT
1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS
PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDINGS. IF FOR ANY REASON SUCH
DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH
LOAN PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK
CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE
AGENT UNDER THIS AGREEMENT. EACH LOAN PARTY AND THE BANK IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH LOAN PARTY AND THE BANK WAIVES
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
- 28 -
<PAGE> 34
11.17 WAIVER OF JURY TRIAL. EACH LOAN PARTY AND THE BANK WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
EACH LOAN PARTY AND THE BANK AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11.18 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among each Loan Party
and the Bank and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
* * *
- 29 -
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
PROVISTA EINHUNDERTSECHSUNDFUNFZIGSTE
VERWALTUNGSGESELLSCHAFT mbH (to be known
as WATERLINK (GERMANY) GmbH)
By:
-----------------------------------
Title:
--------------------------------
WATERLINK, INC., as Guarantor
By:
-----------------------------------
Title:
--------------------------------
Commitment: $2,200,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, FRANKFURT
BRANCH
By:
-----------------------------------
Title:
--------------------------------
- 30 -
<PAGE> 36
SCHEDULE 11.02
--------------
BANK NOTICE INFORMATION
-----------------------
PAYMENT OFFICE:
- ---------------
Bank of America National Trust
and Savings Association, Frankfurt Branch
Ulmenstrasse 30
60325 Frankfurt
Germany
NOTICES:
- --------
Bank of America National Trust
and Savings Association, Frankfurt Branch
Ulmenstrasse 30
60352 Frankfurt
Germany
Attn: Ruth Witzel
Tel. No.:
Fax No.: 011-49-69-7100-1261
BORROWER NOTICE INFORMATION
---------------------------
Waterlink (Germany) GmbH
[Address]
Attn:
Tel. No.:
Fax No.:
GUARANTOR NOTICE INFORMATION
----------------------------
Waterlink, Inc.
4100 Holiday Street N.W.
Canton, Ohio 44718
Attn: Chief Financial Officer
Tel. No.: 330-649-4000
Fax No.: 330-649-4008
S2-1
<PAGE> 1
Exhibit 10.10
================================================================================
COMMON STOCK WARRANT AGREEMENT
DATED AS OF FEBRUARY 19,1997
BETWEEN
WATERLINK, INC.,
AS ISSUER
AND
BANK OF AMERICA ILLINOIS,
AS PURCHASER
================================================================================
<PAGE> 2
COMMON STOCK WARRANT AGREEMENT
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1.
DEFINED TERMS........................................................1
SECTION 2.
WARRANT CERTIFICATES.................................................7
SECTION 3.
EXECUTION OF WARRANT
CERTIFICATES; MUTILATED OR MISSING WARRANT CERTIFICATES..............8
SECTION 4.
REGISTRATION/RESERVATION OF WARRANT SHARES...........................8
SECTION 5.
WARRANTS; EXERCISE OF WARRANTS.......................................9
SECTION 6.
PAYMENT OF TAXES....................................................10
SECTION 7.
FRACTIONAL INTERESTS................................................10
SECTION 8.
LIMITATIONS ON CERTAIN HOLDERS......................................11
SECTION 9.
ADJUSTMENT OF NUMBER OF WARRANT SHARES ISSUABLE.....................11
SECTION 10.
PAYMENTS IN RESPECT OF DIVIDENDS AND DISTRIBUTIONS..................16
SECTION 11.
REGISTRATION RIGHTS.................................................17
SECTION 12.
REPRESENTATIONS AND WARRANTIES......................................25
(i)
<PAGE> 3
PAGE
----
SECTION 13.
COVENANTS...........................................................26
SECTION 14.
AMENDMENTS AND WAIVERS..............................................30
SECTION 15.
TRANSFERS...........................................................31
SECTION 16.
MISCELLANEOUS.......................................................33
SCHEDULES
- ---------
Schedule I Existing Warrant and Option Holders
EXHIBITS
- --------
Exhibit A Form of Warrant Certificate
(ii)
<PAGE> 4
COMMON STOCK WARRANT AGREEMENT
THIS WARRANT AGREEMENT (as from time to time amended, supplemented,
modified or restated, this "AGREEMENT") is dated as of February 19, 1997 and
entered into by and between WATERLINK, INC., a Delaware corporation (the
"COMPANY") and BANK OF AMERICA ILLINOIS (the "PURCHASER").
WITNESSETH:
-----------
A. The Company and the Purchaser wish to provide for the issuance and
sale of warrants (the "WARRANTS") to purchase, at Purchaser's option, but
subject to the terms of Section 8 hereof, 225,000 shares of voting common stock,
$.001 par value (the "COMMON STOCK"), of the Company. Such number of shares
shall be subject to adjustment as provided herein.
B. This Agreement is being entered into by the Company and the
Purchaser in consideration of, among other things, the Purchaser's
contemporaneous entry into the Credit Agreement (as defined below) and as an
inducement to the Purchaser to enter into the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1.
DEFINED TERMS
The following terms when used in this Agreement, including its preamble
and recitals, shall have the following meanings:
"ADDITIONAL SHARES" means any shares of Common Stock issued
after the date hereof other than Common Stock issued upon the exercise
of any Warrant.
"AFFILIATE" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common
control with, that Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting
securities or by contract or otherwise.
"AGREEMENT" has the meaning specified in the Preamble.
<PAGE> 5
"APPLICABLE LAW" means all provisions of laws, statutes,
ordinances, rules, regulations, permits or certificates of any
Governmental Authority applicable to such Person or any of its assets
or property, and all judgments, injunctions, orders and decrees of all
courts, arbitrators or Governmental Authorities in proceedings or
actions in which such Person is a party or by which any of its assets
or properties are bound.
"ASSET SALE" means (a) the sale of all or substantially all of
the assets of the Company or any of its subsidiaries or (b) a merger or
consolidation of, or a merger or consolidation otherwise involving, the
Company (other than a merger or consolidation satisfying the
requirements of subsection 9(i)).
"CHANGE OF CONTROL" means (i) other than as a result of an
initial public offering of the capital stock of the Company, the
failure of the Closing Date Stockholders and their Affiliates to
beneficially own and control at least a majority of the issued and
outstanding shares of the capital stock of the Company entitled
(without regard to the occurrence of any contingency) to vote for the
election of members of the Board of Directors of the Company, or
failure of the Closing Date Stockholders and their Affiliates to own
and control more than 51% of the capital stock of the Company
outstanding as of the Closing Date, (ii) Theodore F. Savastano at any
time in the opinion of (x) the Majority Banks (as defined in the Credit
Agreement) or (y) in the event the Credit Agreement has been
terminated, the Requisite Holders, ceases to be actively engaged in the
day to day management of the Company or (iii) any Person or any two or
more Persons acting in concert (in any such case, excluding the Closing
Date Stockholders and their Affiliates) acquiring beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act), directly or indirectly, of capital
stock of the Company (or other securities convertible into such capital
stock) representing 20% or more of the combined voting power of all
capital stock of the Company entitled to vote in the election of
directors, other than capital stock having such power only by reason of
the happening of a contingency.
"CLOSING DATE" means the initial date of issuance of Warrants
under this Agreement.
"CLOSING DATE STOCKHOLDERS" means, collectively, Brantley
Venture Partners, III, Theodore F. Savastano, Environmental
Opportunities Fund, River Cities Capital Fund, IPP95, L.P. and William
B. Simon & Sons, L.L.C.
"COMMISSION" means the Securities and Exchange Commission or
any other federal agency at the time administering the 1933 Act.
"COMPANY" has the meaning specified in the Preamble.
"CONVERTIBLE SECURITIES" means rights to subscribe for, or any
rights or options to purchase, shares of Common Stock, or any stock or
other securities convertible into or exchangeable for shares of Common
Stock, either currently or upon the happening of a specified date or
event.
2
<PAGE> 6
"CREDIT AGREEMENT" means the Credit Agreement, dated as of
February 19,1997, among the Company, the Banks identified therein and
Bank of America Illinois, as Agent, as such agreement may be amended,
supplemented, modified or restated from time to time.
"EQUIVALENT NONVOTING SECURITY" means, with respect to any
security (a "FIRST SECURITY") issued or to be issued by any Person, a
security (an "EQUIVALENT SECURITY") of such Person that is identical in
rights and benefits to such first security, except that (a) the
equivalent security shall not be entitled to vote on any matter on
which holders of voting securities of such Person are entitled to vote,
other than as required by Applicable Law or with respect to any
amendment or repeal of any provision of the Organizational Documents of
such Person or any other agreement or instrument pursuant to which the
equivalent security was issued which provision specifically affects
such equivalent security, (b) subject to such reasonable restrictions
as any affected Regulated Holder may request (including any restriction
necessary to prevent the violation by such Regulated Holder of any
provision of Applicable Law with respect to its ownership of voting
securities), the equivalent security shall be convertible in a
one-to-one ratio into the first security and (c) the terms of the
equivalent security shall include such provisions requested by any
affected Regulated Holder as are reasonable and equitable to ensure
that (i) the equivalent security is treated comparably to the first
security with respect to dividends, distributions, stock splits,
reclassifications, capital reorganizations, mergers, consolidations and
other similar events and transactions, (ii) the conversion right
provided in clause (b) above is equitably protected and (iii) the
acquisition of the equivalent security will not cause such Regulated
Holder to violate Applicable Law.
"EXCHANGE ACT" has the meaning specified in Section 11.
"EXCLUDED SECURITIES" means:
(a) securities issued pursuant to a stock dividend,
stock split or subdivision;
(b) Common Stock issued upon the exercise of any
Warrant;
(c) securities issued by the Company in a Qualified
Public Offering;
(d) securities issued by the Company on the Closing
Date; and
(e) securities issued to a Person other than (i) a
Closing Date Shareholder and its Affiliates, or (ii) any other
person holding stock as of the Closing Date (other than
Management Employees).
"EXERCISE PRICE" has the meaning specified in Section 5.
"EXPIRATION DATE" has the meaning specified in Section 5.
3
<PAGE> 7
"FULLY-DILUTED BASIS" means the calculation of the total
number of shares of Common Stock outstanding at any time determined in
conformity with GAAP.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United
States of America or foreign.
"HOLDER" or "HOLDERS" means Purchaser (so long as it holds any
Warrants or Warrant Shares) and any other holder of any of the Warrants
or Warrant Shares so long as such Warrant Shares constitute Registrable
Securities.
"INDEPENDENT FINANCIAL EXPERT" means a nationally recognized
investment banking firm selected by the Company and acceptable to the
Requisite Holders (a) that does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect material
financial interest in the Company, (b) that has not been, and, at the
time it is called upon to serve as an Independent Financial Expert
under this Agreement is not (and none of whose directors, officers,
employees or Affiliates is) a promoter, director or officer of the
Company, (c) that has not been retained by the Company for any purpose,
and (d) that is otherwise qualified to serve as an independent
financial advisor. Any such Person may receive customary compensation
and indemnification by the Company for opinions or services it provides
as an Independent Financial Expert.
"MARKET PRICE" means, with respect to a share of Common Stock
on any Business Day:
(a) if the Common Stock is Publicly Traded at the
time of determination, the average of the closing prices on
such day of the Common Stock on all domestic securities
exchanges on which the Common Stock is then listed, or, if
there have been no sales on any such exchange on such day, the
average of the highest bid and lowest asked prices on all such
exchanges at the end of such day or, if on any such day the
Common Stock is not so listed, the average of the
representative bid and asked prices quoted on the NASDAQ
System as of 4:00 P.M., New York time, on such day, or if on
any day such security is not quoted on the NASDAQ System, the
average of the highest bid and lowest asked prices on such day
in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a
period of 20 days consisting of the day as of which "MARKET
PRICE" is being determined and the nineteen consecutive
Business Days prior to such day (PROVIDED that, if Market
Price is being determined as of the date of a Qualified Public
Offering, Market Price as of such date shall be the offering
price for the Common Stock subject to such Qualified Public
Offering); or
(b) if the Common Stock is not Publicly Traded at the
time of determination, the Market Value per share of Common
Stock.
4
<PAGE> 8
"MARKET VALUE" means the highest price that would be paid for
the entire common equity of the Company on a going-concern basis in an
arm's-length transaction between a willing buyer and a willing seller
(neither acting under compulsion), using valuation techniques then
prevailing in the securities industry (but without giving effect to any
discount in respect of a minority interest) and determined in
accordance with the Valuation Procedure, and assuming full disclosure
and understanding of all relevant information and a reasonable period
of time for effectuating such sale. For the purposes of determining the
Market Value, (a) the exercise price of options or warrants to acquire
Common Stock which are deemed to have been exercised for the purpose of
determining the number of shares of Common Stock outstanding on a
Fully-Diluted Basis, shall be deemed to have been received by the
Company and (b)(i) the liquidation preference or indebtedness, as the
case may be, represented by securities which are deemed exercised for
or converted into Common Stock for the purpose of determining the
number of shares of Common Stock outstanding on a Fully-Diluted Basis,
(ii) any contractual limitation in respect of the shares of Common
Stock, including their transfer, voting and other rights and (iii) any
liquidity arising under Applicable Law or contract in respect of the
shares of Common Stock, shall be deemed to have been eliminated or
canceled.
"MARKET VALUE PER SHARE OF COMMON STOCK" means the price per
share of Common Stock obtained by dividing (A) the Market Value by (B)
the number of shares of Common Stock outstanding (on a Fully-Diluted
Basis) at the time of determination.
"NASDAQ" means the National Association of Securities Dealers,
Inc., Automated Quotation System.
"ORGANIZATIONAL DOCUMENTS" means, with respect to any Person,
each instrument or other document that (a) defines the existence of
such Person, including its articles or certificate of incorporation, as
filed or recorded with an applicable Governmental Authority or (b)
governs the internal affairs of such Person, including its bylaws, in
each case as amended, supplemented or restated.
"PERSON" or "PERSONS" means and includes natural persons,
corporations, limited partnerships, general partnerships, joint stock
companies, Joint Ventures, associations, companies, trusts, banks,
trust companies, land trusts, business trusts or other organizations,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"PRIORITY REGISTRABLE SECURITIES" has the meaning specified in
Section 11.
"PROPORTIONATE PERCENTAGE" means, with respect to any Holder
at any time, the quotient obtained by dividing (a) the aggregate number
of Warrant Shares then held by such Holder by (b) the total number of
shares of Common Stock then outstanding (on a Fully-Diluted Basis).
5
<PAGE> 9
"PUBLICLY TRADED" means, with respect to any security, that
such security is (a) listed on a domestic securities exchange, (b)
quoted on NASDAQ or (c) traded in the domestic over-the-counter market,
which trades are reported by the National Quotation Bureau,
Incorporated.
"PURCHASER" has the meaning specified in the Preamble.
"QUALIFIED PUBLIC OFFERING" means any sale of the Common Stock
of the Company to the public pursuant to an offering registered under
the 1933 Act pursuant to which the Company sells not less than 20% of
the outstanding Common Stock.
"REGISTRABLE SECURITIES" means any shares of Common Stock, but
with respect to any share of Common Stock, only until such time as such
share (i) has been effectively registered under the 1933 Act and
disposed of in accordance with the registration statement covering it,
(ii) has been sold to the public pursuant to Rule 144 (or any similar
provision then in force) under the 1933 Act or (iii) has ceased to be
outstanding.
"REGISTRATION EXPENSES" means all expenses incident to the
Company's performance of or compliance with Section 11, including,
without limitation, all registration and filing fees, all fees of the
New York Stock Exchange, Inc., other national securities exchanges or
the National Association of Securities Dealers, Inc., all fees and
expenses of complying with federal securities or blue sky laws, all
word processing, duplicating and printing expenses (including expenses
of printing prospectuses and of certificates for the Registrable
Securities), messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of "cold comfort" letters required
by or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with
respect to the Registrable Securities) and the fees and expenses of one
counsel to the Selling Holders or the Requesting Holders, as applicable
(selected by Selling Holders or the Requesting Holders, as applicable,
representing at least 50% of the Registrable Securities covered by such
registration).
"REGULATED HOLDER" has the meaning specified in Section 8.
"REORGANIZATIONS" has the meaning specified in Section 9.
"REQUISITE HOLDERS" means Holders holding Warrants or Warrant
Shares representing at least a majority of all Warrant Shares issued or
issuable upon exercise of Warrants outstanding on the date of
determination.
"SECTION 13(E) TRANSACTION" has the meaning specified in
Section 13.
6
<PAGE> 10
"VALUATION PROCEDURE" means, with respect to the determination
of any amount or value required to be determined in accordance with
such procedure, a determination (which shall be final and binding on
the Company and the Holders) made (i) by agreement among the Company
and the Requisite Holders within 20 days following the event requiring
such determination or (ii) in the absence of such an agreement, by an
Independent Financial Expert selected in accordance with the further
provisions of this definition. If required, an Independent Financial
Expert shall be selected within five days following the expiration of
the 20-day period referred to above, either by agreement among the
Company and the Requisite Holders or, in the absence of such agreement,
by lot from a list of four potential Independent Financial Experts
remaining after the Company nominates three, the Requisite Holders
nominate three, and each side eliminates one potential Independent
Financial Expert. The Independent Financial Expert shall be instructed
by the Company and the Requisite Holders to make its determination
within 20 days of its selection. The fees and expenses of an
Independent Financial Expert selected hereunder shall be borne equally
by the Company and by the Holders (on a PRO RATA basis) participating
in the transaction to which the determination relates.
"WARRANT CERTIFICATES" has the meaning specified in Section 2.
"WARRANT NUMBER" has the meaning specified in Section 9.
"WARRANT SHARES" means (a) the shares of Common Stock issued
or issuable upon exercise of a Warrant in accordance with Section 5 or
upon exchange of a Warrant in accordance with Section 5, (b) all other
securities or other property issued or issuable upon any such exercise
or exchange in accordance with this Agreement and (c) any securities of
the Company distributed with respect to the securities referred to in
the preceding clauses (a) and (b). As used in this Agreement, the
phrase "Warrant Shares then held" by any Holder or Holders shall mean
Warrant Shares held at the time of determination by such Holder or
Holders, and shall include Warrant Shares issuable upon exercise of
Warrants held at the time of determination by such Holder or Holders.
"WARRANT DOCUMENTS" means this Agreement and the Warrant
Certificates.
"WARRANTS" has the meaning specified in Recital.
"1933 ACT" has the meaning specified in Section 15.
7
<PAGE> 11
SECTION 2.
WARRANT CERTIFICATES
Contemporaneously herewith, in consideration of the Purchaser's
entering into and extending credit to the Company under the Credit Agreement,
the Company is issuing and delivering to the Purchaser a certificate or
certificates evidencing the Warrants substantially in the form of Exhibit A
hereto (the "WARRANT CERTIFICATES"), which Warrant Certificates shall be dated
the date of issuance by the Company.
SECTION 3.
EXECUTION OF WARRANT CERTIFICATES;
MUTILATED OR MISSING WARRANT CERTIFICATES
Warrant Certificates shall be signed on behalf of the Company by its
Chairman of the Board or its President or a Vice President. Each such signature
upon the Warrant Certificates may be in the form of a facsimile signature of the
present or any future Chairman of the Board, President or Vice President, and
may be imprinted or otherwise reproduced on the Warrant Certificates and for
that purpose the Company may adopt and use the facsimile signature of any person
who shall have been Chairman of the Board, President or Vice President,
notwithstanding the fact that at the time the Warrant Certificates shall be
delivered or disposed of such Person shall have ceased to hold such office. Each
Warrant Certificate shall also be manually signed on behalf of the Company by
its Secretary or an Assistant Secretary.
In case any of the Warrant Certificates shall be mutilated, lost,
stolen or destroyed, the Company shall, upon request of the Holder of any such
Warrant Certificate, issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also satisfactory to the Company. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 4.
REGISTRATION/RESERVATION OF WARRANT SHARES
The Company shall number and register the Warrant Certificates in a
register as they are issued. The Company may deem and treat the registered
Holders of the Warrant Certificates as the absolute owners thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes and shall not be affected by any notice to the
contrary. The Warrants shall be registered initially in such name or names as
the Purchaser shall designate.
8
<PAGE> 12
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Stock or its authorized and issued Common Stock held in its treasury, for the
purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of Warrants, the maximum number of shares of Common Stock which may
then be deliverable upon the exercise of all outstanding options, warrants
(including the Warrants) or other securities convertible into or exchangeable or
exercisable for Common Stock.
The Company covenants that all Warrant Shares and other capital stock
issued upon exercise of Warrants will, upon payment of the Exercise Price
therefor and issue thereof, be validly authorized and issued, fully paid,
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests with respect to the issue thereof.
SECTION 5.
WARRANTS; EXERCISE OF WARRANTS
Subject to the terms of this Agreement, each Holder shall have the
right, which may be exercised at any time or from time to time until 5:00 p.m.,
Chicago time, on February 19, 2002 (the "EXPIRATION DATE") to receive from the
Company the number of fully paid and nonassessable Warrant Shares which the
Holder may at the time be entitled to receive on exercise of such Warrants and
payment of the Exercise Price then in effect for such Warrant Shares. Each
Warrant not exercised prior to 5:00 p.m., New York time, on the Expiration Date
shall become void and all rights thereunder and all rights in respect thereof
under this Agreement shall cease as of such time; PROVIDED that the occurrence
of the Expiration Date shall not relieve the Company of any obligation to any
Holder which arose pursuant to the terms of this Agreement prior to such date.
The price at which each Warrant shall be exercisable (the "EXERCISE
PRICE") shall initially be $4.50 per share.
A Warrant may be exercised upon surrender to the Company at its address
set forth on the signature pages hereto of the Warrant Certificate or Warrant
Certificates to be exercised with the form of election to purchase attached
thereto duly completed and signed, and upon payment to the Company of the
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are then exercised. Payment of the aggregate Exercise Price may be
made, at the option of the applicable Holder, (i) by cash, certified or bank
cashier's check or wire transfer, (ii) by surrendering to the Company the number
of Warrants which, when exercised, would entitle the Holder thereof to that
number of Warrant Shares which is equal to (A) such aggregate Exercise Price
divided by (B) the excess of (x) the product of the number of Warrant Shares
which may be purchased with one Warrant and the Market Price per share of Common
Stock over (y) the Exercise Price, (iii) by surrendering to the Company the
number of shares of Common Stock which is equal to (A) such aggregate Exercise
Price divided by (B) the Market Price per share of Common Stock or (iv) any
combination of the foregoing.
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Subject to the provisions of Section 6, upon such surrender of Warrants
and payment of the Exercise Price the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
Holder and in such name or names as such Holder may designate a certificate or
certificates for the number of full Warrant Shares issuable upon the exercise of
such Warrants (and such other consideration as may be deliverable upon exercise
of such Warrants) together with, at the sole option of the Company, cash for
fractional Warrant Shares as provided in Section 7. Such certificate or
certificates shall be deemed to have been issued and the Person so named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price,
irrespective of the date of delivery of such certificate or certificates for
Warrant Shares.
Each Warrant shall be exercisable, at the election of the Holder
thereof, either in full or from time to time in part and, in the event that a
Warrant Certificate is exercised in respect of fewer than all of the Warrant
Shares issuable on such exercise at any time prior to the date of expiration of
the Warrants, a new certificate evidencing the remaining Warrant or Warrants
will be issued and delivered pursuant to the provisions of this Section 5 and of
Section 2; PROVIDED, HOWEVER, that the Holder shall be limited to three separate
exercises and any partial exercise of a Warrant shall be for a number of Warrant
Shares equal to or greater than 33% of the Warrant Shares represented by the
Warrant as of the Closing Date.
All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled and disposed of by the Company. The Company shall keep copies of this
Agreement and any notices given or received hereunder available for inspection
by the Holders during normal business hours at its office.
SECTION 6.
PAYMENT OF TAXES
The Company will pay all taxes and other governmental charges
(including all documentary stamp taxes, but excluding all foreign, federal,
state or local income taxes payable by a Holder of a Warrant) in connection with
the issuance or delivery of the Warrants hereunder, including all such taxes
attributable to the initial issuance or delivery of Warrant Shares upon the
exercise of Warrants and payment of the Exercise Price. The Company shall not,
however, be required to pay any tax that may be payable in respect of any
subsequent transfer of the Warrants or any transfer involved in the issuance and
delivery of Warrant Shares in a name other than that in which the Warrants to
which such issuance relates were registered, and, if any such tax would
otherwise be payable by the Company, no such issuance or delivery shall be made
unless and until the Person requesting such issuance has paid to the Company the
amount of any such tax, or it is established to the reasonable satisfaction of
the Company that any such tax has been paid.
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SECTION 7.
FRACTIONAL INTERESTS
The Company shall not be required to issue fractional Warrant Shares on
the exercise of Warrants. If more than one Warrant shall be presented for
exercise in full at the same time by the same Holder, the number of full Warrant
Shares which shall be issuable upon the exercise thereof shall be computed on
the basis of the aggregate number of Warrant Shares purchasable on exercise of
the Warrants so presented. If any fraction of a Warrant Share would, except for
the provisions of this Section 7, be issuable on the exercise of any Warrants
(or specified portion thereof), the Company shall, at its sole option, pay an
amount in cash equal to the Market Price of the Warrant Share so issuable
multiplied by such fraction.
SECTION 8.
LIMITATIONS ON CERTAIN HOLDERS
Notwithstanding anything in this Agreement or any Warrant Certificate
to the contrary, no Holder which is subject to the provisions of Regulation Y
promulgated by the Board of Governors of the Federal Reserve, or any successor
regulation thereto ("REGULATION Y"), or which is affiliated with any entity
subject to the provisions of Regulation Y if such affiliate holds securities of
the Company (any such Holder being referred to herein as a "REGULATED HOLDER"),
may exercise the Warrants for a number of Warrant Shares which would permit such
Regulated Holder, together with its affiliates, to own or control a number of
Warrant Shares greater than that permitted by law, including without limitation,
Regulation Y.
SECTION 9.
ADJUSTMENT OF NUMBER OF WARRANT SHARES ISSUABLE
The number of shares of Common Stock issuable upon the exercise of each
Warrant (the "WARRANT NUMBER") is initially one. The Warrant Number is subject
to adjustment from time to time upon the occurrence of the events enumerated in,
or as otherwise provided in this Section 9.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(i) subdivides or reclassifies its outstanding shares of
Common Stock into a greater number of shares;
(ii) combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares; or
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(iii) issues by reclassification of its Common Stock any
shares of its capital stock;
then the Warrant Number in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which it would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the effective
date thereof. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) ADDITIONAL ISSUANCES. If the Company at any time shall issue any
Additional Shares at a price less than the Market Price or any Convertible
Securities (excluding any such issuance for which the number of Warrant Shares
purchasable hereunder shall have been adjusted pursuant to subsection (a) of
this Section 9 and excluding any issuance or exercise of Warrants), which are
exercisable or convertible for Additional Shares at an exercise or conversion
price less than the Market Price, the number of Warrant Shares purchasable
hereunder after such issuance shall be determined by multiplying the number of
Warrant Shares purchasable hereunder immediately prior to such issuance by a
fraction, (i) the denominator of which shall be the number of shares of Common
Stock on a Fully Diluted Basis immediately prior to such issuance plus the
number of shares that the aggregate consideration for the total number of such
Additional Shares issued or to be issued in connection with Convertible
Securities (including the issue price of any such Convertible Securities) would
purchase at the Market Price and (ii) the numerator of which shall be the number
of shares of Common Stock on a Fully Diluted Basis immediately after such
issuance. Shares of Common Stock owned by or held for the account of the Company
or any Subsidiary on such date shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall become effective immediately
after such issuance. Such adjustment shall be made successively whenever any
such event shall occur.
If the Company at any time shall issue two or more securities as a unit
and one or more of such securities shall be Additional Shares or Convertible
Securities subject to this subsection (b), the consideration allocated to each
such security shall be determined in good faith by the board of directors of the
Company; PROVIDED that if the aggregate issue price of all such units, in the
same issuance, exceeds $2,000,000, then, at the request of the Holders, such
allocation shall be determined by an Independent Financial Expert pursuant to
the Valuation Procedure.
(c) DISTRIBUTION OF EVIDENCES OF INDEBTEDNESS OR ASSETS. If the Company
at any time shall fix a record date for the making of a distribution to all
holders of its Common Stock (including any such distribution to be made in
connection with a consolidation or merger in which the Company is to be the
continuing corporation) of evidences of its indebtedness or assets (excluding
dividends paid in or distributions of the Company capital stock for which the
number of Warrant Shares purchasable hereunder shall have been adjusted pursuant
to subsection (a) of this Section 9 or regular cash dividends or distributions
payable out of earnings or surplus and made in the ordinary course of business
and which have been paid to the Holder pursuant to Section 10(a)) the number of
Warrant Shares purchasable hereunder after such record date shall be determined
by
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multiplying the number of Warrant Shares purchasable hereunder immediately prior
to such record date by a fraction, of which the denominator shall be the Market
Price per share of Common Stock on such record date, less the fair market value
(as determined in the reasonable judgment of the Board of Directors of the
Company and described in a statement mailed by certified mail to the Holder) of
the portion of the assets or evidences of indebtedness so to be distributed to a
holder of one share of Common Stock, and the numerator shall be such Market
Price per share of Common Stock. Such adjustment shall become effective
immediately after such record date. Such adjustment shall be made whenever such
a record date is fixed; and in the event that such distribution is not so made,
the number of Warrant Shares purchasable hereunder shall again be adjusted to be
the number that was in effect immediately prior to such record date.
(d) CONSIDERATION RECEIVED. For purposes of any computation respecting
consideration received pursuant to subsections (b) and (c) of this Section 9,
the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash (without any
deduction being made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise
in connection therewith);
(ii) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof
(irrespective of the accounting treatment thereof) as determined in
good faith by the Board of Directors of the Company; and
(iii) in the case of the issuance of Convertible Securities,
the aggregate consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, to be received by
the Company upon the conversion, exchange or exercise thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (i) and (ii) of this subsection).
(e) WHEN DE MINIMIS ADJUSTMENT DEFERRED. No adjustment in the Warrant
Number need be made unless the adjustment would require an increase or decrease
of greater than 10,000 shares of Common Stock. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment;
PROVIDED that no such adjustment shall be deferred beyond the date on which a
Warrant is exercised. All calculations under this Section 9 shall be made to the
nearest 1/1000th of a share.
(f) WHEN NO ADJUSTMENT REQUIRED. If an adjustment is made upon the
establishment of a record date for a distribution subject to subsections (a),
(b) or (c) hereof and such distribution is subsequently canceled, the Warrant
Number then in effect shall be readjusted, effective as of the date when the
Board of Directors determines to cancel such distribution, to that which would
have been in effect if such record date had not been fixed.
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(g) NOTICE OF ADJUSTMENT. Whenever the Warrant Number is adjusted, the
Company shall provide the notices required by subsection 13(a) hereof.
(h) WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED. In any case in which this
Section 9 shall require that an adjustment in the Warrant Number be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event (i) issuing to the Holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Warrant Number prior to such adjustment, and
(ii) at the sole option of the Company, paying to such Holder any amount in cash
in lieu of a fractional share pursuant to Section 7; PROVIDED that the Company
shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional Warrant Shares, other
capital stock and cash upon the occurrence of the event requiring such
adjustment.
(i) REORGANIZATIONS. In case of any capital reorganization, other than
in the cases referred to in subsection 9(a), (b) or (c) hereof, or the
consolidation or merger of the Company with or into another Person (other than a
merger or consolidation in which the Company is the surviving entity and which
does not result in any reclassification of the outstanding shares of Common
Stock into shares of other stock or other securities or property), or the sale
of the property of the Company as an entirety or substantially as an entirety
(collectively, such actions being hereinafter referred to as "REORGANIZATIONS"),
there shall thereafter be deliverable upon exercise of any Warrant (in lieu of
the number of shares of Common Stock theretofore deliverable) the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock that would otherwise have been deliverable upon the
exercise of such Warrant would have been entitled upon such Reorganization if
such Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a duly adopted resolution certified by the
Company's Secretary or Assistant Secretary, shall be made in the application of
the provisions herein set forth with respect to the rights and interests of
Holders so that the provisions set forth herein shall thereafter be applicable,
as nearly as possible, in relation to any shares or other property thereafter
deliverable upon exercise of Warrants.
The Company shall not effect or permit any such Reorganization unless
(i) the successor entity resulting from such Reorganization or the Person
purchasing such assets is a corporation duly organized and validly existing
under the laws of a state of the United States of America or such other
jurisdiction so long as the Holder, in the opinion of its legal counsel, (x)
will be permitted to hold the Warrant and the Common Stock represented by the
Warrant under the applicable laws of such jurisdiction and (y) there would be no
material adverse changes in the rights of the Holder as a holder of a warrant of
a company organized under such jurisdiction as a result of the corporate form of
the Holder or the status of the Holder as a bank or a bank affiliate and (ii)
prior to or simultaneously with the consummation of such Reorganization the
successor entity (if other than the Company) resulting from such Reorganization
or the Person purchasing such assets shall expressly assume, by a supplemental
warrant agreement to this Agreement or other acknowledgment
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executed and delivered to the Holder(s) in form and substance satisfactory to
the Requisite Holders, the obligation to deliver to each such Holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase, and all other obligations and
liabilities under this Agreement.
(j) FORM OF WARRANTS. Irrespective of any adjustments in the number or
kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
(k) ADJUSTMENTS IN OTHER SECURITIES. If as a result of any event or for
any other reason, any adjustment is made which increases the number of shares of
Common Stock issuable upon conversion, exercise or exchange of, or in the
conversion or exercise price or exchange ratio applicable to, any outstanding
Convertible Securities, then a corresponding adjustment shall be made hereunder
to adjust the number of shares of Common Stock issuable upon exercise of the
Warrants, but only to the extent that no such adjustment has been made pursuant
to subsection 9(a), (b) or (c) with respect to such event or for such other
reason.
(l) OTHER DILUTIVE EVENTS. If any corporate action shall occur as to
which the provisions of this Section 9 are not strictly applicable but as to
which the failure to make any adjustment would adversely affect the purchase
rights or value represented by the Warrants in accordance with the essential
intent and principles of this Section 9 (which are to place the Holder in a
position as nearly equal as possible to the position the Holder would have
occupied had the Holder purchased shares of Common Stock on the date hereof)
then, in each such case, the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company) to give their opinion upon the adjustment, if
any, on a basis consistent with the essential intent and principles established
in this Section 9, necessary to preserve, without dilution, the purchase rights
represented by Warrants. Upon receipt of such opinion, the Company will promptly
mail a copy thereof to Holders and will make the adjustments described therein.
(m) DISSOLUTION, LIQUIDATION OR WINDING UP. Notwithstanding any other
provision of this Agreement, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, each Holder shall be
entitled to share, with respect to the Warrant Shares issuable upon exercise of
the Holder's Warrants, equally and ratably in any cash or non-cash distributions
payable to holders of Common Stock, less the aggregate Exercise Price payable
upon the exercise of such Warrants. The Company shall give notice to each Holder
at the earliest practicable time (and, in any event, not less than 20 days
before the date of such dissolution, liquidation or winding-up, as the case may
be) and each Holder of outstanding Warrants shall be entitled to share equally
and ratably in any cash or noncash distributions payable to holders of Common
Stock. In case of any such voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall hold in escrow any funds or other
property which a Holder is entitled to receive in respect of such Holder's
Warrant Shares at the time of any distribution. No such Holder will be entitled
to receive payment of any such distribution until such Holder has surrendered
the Warrant Certificates evidencing such Warrant to the Company. From and after
such voluntary or involuntary
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dissolution, liquidation or winding up with respect to the Company, all rights
of the Holders, except the right to receive such distribution, without interest,
upon the surrender of the Warrant Certificates, shall cease and terminate and
such Warrants shall not thereafter be transferred (except with the consent of
the Company) and such Warrants shall not be deemed to be outstanding for any
other purpose whatsoever. For the purposes of this Agreement, neither the
voluntary sale, lease, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all the
property or assets of the Company, nor the consolidation or merger of the
Company with one or more other corporations, shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, with respect
to the Company.
(n) MISCELLANEOUS. In the event that at any time, as a result of an
adjustment made pursuant to this Section 9, the Holders shall become entitled to
purchase any securities of the Company other than, or in addition to, shares of
Common Stock, thereafter the number or amount of such other securities so
purchasable upon exercise of each Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in this Section 9, and
the provisions of Sections 5, 6, 7 and 8 with respect to the Warrant Shares or
the Common Stock shall apply on like terms to any such other securities.
(o) REGULATED HOLDERS. If, in the written opinion of counsel to any
Regulated Holder (which may be internal counsel), the receipt by such Regulated
Holder of Warrant Shares (or any security included therein) upon any exercise or
exchange pursuant to this Section 9 would cause such Regulated Holder to violate
any provision of Applicable Law with respect to its ownership of voting
securities of the Company, then the Company will use its best efforts (including
using its best efforts to cause its Organizational Documents to be amended) to
create an Equivalent Nonvoting Security with respect to Warrant Shares (or any
such security included therein), and such Regulated Holder shall be entitled to
receive upon such exercise or exchange, in lieu of such number (as it shall
specify) of shares or other units of Warrant Shares (or any such security
included therein) otherwise receivable by such Regulated Holder, the same number
of shares or other units of such Equivalent Nonvoting Security.
(p) EXCLUDED TRANSACTIONS. Notwithstanding any other provision of this
Section 9, no adjustment shall be made pursuant to this Section 9 in respect of
(x) the issuance of Common Stock to holders of options or warrants to purchase
Common Stock and holders of preferred stock of the Company convertible into
Common Stock, in each case as described on SCHEDULE I hereto, (y) the issuance
to holders of Subordinated Debt (as defined in the Credit Agreement) of options
or warrants to purchase Common Stock in accordance with the terms of such
Subordinated Debt in existence on the date hereof and (z) the issuance to
employees of the Company of options or warrants to purchase Common Stock, or the
issuance to such employees of Common Stock upon the exercise of any such options
or warrants, PROVIDED that the aggregate amount of all such Common Stock
qualifying for exclusion pursuant to this SECTION 9(P) which may be acquired
upon the exercise of such options or warrants pursuant to this clause (z) may
not exceed an aggregate of 2.5% of 8,159,284.
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SECTION 10.
PAYMENTS IN RESPECT OF DIVIDENDS AND DISTRIBUTIONS
If the Company pays any dividend or makes any distribution (whether in
cash, property or securities of the Company) on its Common Stock, then the
Company shall (a) in the case of a Holder other than a Regulated Holder,
simultaneously pay to each Holder, the dividend or distribution which would have
been paid to such Holder on the Warrant Shares receivable upon the exercise in
full of such Warrant had such Warrant been fully exercised immediately prior to
the record date for such dividend or distribution or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividend or
distribution are to be determined and (b) in the case of a Regulated Holder, on
the date the Company has fixed a record date for the making of such dividend or
distribution, adjust the number of Warrant Shares purchasable hereunder pursuant
to Section 9(c).
SECTION 11.
REGISTRATION RIGHTS
The Company hereby grants to the Holders the registration rights with
respect to the Registrable Securities as set forth in this Section 11.
(a) Incidental Registration.
-----------------------
(i) If the Company proposes to register any of its Common
Stock under the Securities Act of 1933, as amended (the "1933 ACT") by
registration on any form (other than Forms S-4 or S-8), whether or not
for sale for its own account, it will each such time give prompt
written notice to all Holders holding Registrable Securities of its
intention to do so and of such Holders' rights under this subsection
11(a) prior to the proposed registration. Upon the written request of
any such Holder (a "REQUESTING HOLDER") made as promptly as practicable
and in any event within 15 days after the receipt of any such notice
(which request shall specify the Registrable Securities intended to be
disposed of by such Requesting Holder), the Company will file a
registration statement with respect to, and use its best efforts to
make effective at the earliest possible date, the registration under
the 1933 Act of all Registrable Securities which the Company has been
so requested to register by the Requesting Holders thereof; PROVIDED,
HOWEVER, that if at any time after giving written notice of its
intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give
written notice of such determination to each Requesting Holder of
Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not
from any obligation of the Company to pay the Registration Expenses in
connection therewith) and (ii) in the case of a determination to delay
registering, shall be permitted to
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delay registering any Registrable Securities, for the same period as
the delay in registering such other securities.
(ii) If the managing underwriter of any underwritten offering
shall inform the Company that the number of Registrable Securities
requested to be included in such registration exceeds the number which
can be sold in such offering, and the Company has so advised the
Requesting Holders in writing, then the Company will include in such
registration, to the extent of the number of Registrable Securities
which the Company is so advised can be sold in (or during the time of)
such offering, (a) first, among the securities the Company proposes to
sell; (b) second, among the Preferred Securities (as defined in that
certain Registration Rights Agreement dated August 30, 1995 by and
among the Company, Brantley Venture Partners III, L.P., Theodore F.
Savastano, and River Cities Capital Fund Limited Partnership and the
Addendum to Registration Rights Agreement dated September 15, 1995 by
and among the Company, Brantley Venture Partners III, L.P., Theodore F.
Savastano, River Cities Capital Fund Limited Partnership as further
amended by the First Amendment to Registration Rights Agreement dated
as of June 27, 1996 among the Company, Brantley Venture Partners III,
L.P., Theodore F. Savastano, River Cities Capital Fund Limited
Partnership IPP95, L.P., Environmental Opportunity Fund, L.P. and
Environmental Opportunities Fund (Cayman) L.P. (such Registration
Rights Agreement, Addendum and First Amendment thereto are collectively
referred to as the "First Registration Rights Agreement")) in
accordance with the terms set forth in the First Registration Rights
Agreement; (c) third, among the Other Investor Shares, the Savastano
Shares (each as defined in the First Registration Rights Agreement),
the Priority Registrable Securities and among all holders of
Registrable Shares (as defined in Registration Rights Agreement dated
January 31, 1996 by and between the Company and Mass Transfer Systems,
Inc.) in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by the Other Investors (as
defined in the First Registration Rights Agreement), Theodore F.
Savastano, the Requesting Holder, and such holders at the time of
filing the registration statement; and (d) among other securities
requested to be included in such registration. The registration rights
of the Holders pursuant to this agreement are fully subordinated to the
rights of the holders under the First Registration Rights Agreement.
If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company
and the underwriter. In the event of any such withdrawal, the Company
and the underwriter. In the event of any such withdrawal, the Company
will include, on a proportionate basis (determined in accordance with
the preceding sentence), in any such registration in lieu thereof any
additional Registrable Shares which were requested to be included by a
Requesting Holder and which were excluded pursuant to the
above-described underwriter limitation up to the maximum set by such
underwriter.
(iii) The Company will pay all Registration Expenses in
connection with any registration effected pursuant to this subsection
11(a).
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(b) REGISTRATION PROCEDURES. If and whenever the Company is required to
use its best efforts to make effective the registration of any Registrable
Securities under the 1933 Act as provided in Section 11(a), the Company will, as
expeditiously as possible:
(i) Prepare and (within 90 days after the date a request for
registration is given to the Company or in any event as soon thereafter
as practicable) file with the Commission the requisite registration
statement to effect such registration and thereafter use its best
efforts to cause such registration statement to become effective;
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the 1933 Act
and the rules and regulations of the Commission thereunder with respect
to the disposition of all Registrable Securities covered by such
registration statement, and furnish to each seller of Registrable
Securities prior to the filing thereof a copy of any amendment or
supplement to such registration statement or prospectus and not file
any such amendment or supplement to which any such seller shall have
reasonably objected on the grounds that any information for which such
seller could be held responsible under this subsection 11(b) is untrue,
inaccurate or incomplete;
(iii) Furnish to each seller of Registrable Securities covered
by such registration statement, such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the 1933 Act, and in each case,
each amendment or supplement thereto, in conformity with the
requirements of the 1933 Act, such documents, if any, incorporated by
reference in such registration statement or prospectus, and such other
documents, as such seller may reasonably request;
(iv) Use its best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such States of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request, (y) to keep such
registration or qualification in effect for so long as such
registration statement remains in effect, and (z) to take any other
action which may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subsection 11(b) be obligated to
be so qualified or to consent to general service of process in any such
jurisdiction or to subject itself to taxation in such jurisdiction;
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(v) Use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the
Company or counsel to the seller or sellers of Registrable Securities
to enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities;
(vi) Furnish at the effective date of such registration
statement to each seller of Registrable Securities, and each such
seller's underwriters, if any, a signed counterpart of an opinion of
counsel for the Company, addressed to such seller and underwriters, if
any, dated the effective date of such registration statement and, if
applicable, the date of the closing under the underwriting agreement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel delivered to the
underwriters in underwritten public offerings of securities and such
other legal matters as the underwriters may reasonably request;
(vii) Promptly notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, in the light of the
circumstances under which they were made, and promptly prepare and, at
the request of any such seller, furnish to it a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
(viii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least 12 months, but
not more than 18 months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the 1933 Act
and Rule 158 promulgated thereunder, and promptly furnish to each such
seller of Registrable Securities a copy of any amendment or supplement
to such registration statement or prospectus;
(ix) Provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date
not later than the effective date of such registration;
(x) Use its best efforts to list all Registrable Securities
covered by such registration statement on any national securities
exchange on which Registrable Securities
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of the same class covered by such registration statement are then
listed (or, if other shares of Registrable Securities are so qualified,
qualify them for inclusion in the National Association of Securities
Dealers Automated Quotations National Market System, as the case may
be);
(xi) Enter into such customary agreements (including an
underwriting agreement in customary form, including customary
provisions concerning indemnification of the underwriters by the
Company) and take such other actions as the sellers of Registrable
Securities and the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(xii) Obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form and covering
matters of the type customarily covered by "cold comfort" letters as
the underwriters may reasonably request;
(xiii) Notify each seller of Registrable Securities and the
managing underwriter or agent, immediately, and confirm the notice in
writing (a) when the registration statement, or any post-effective
amendment to the registration statement, shall have become effective,
or any supplement to the prospectus or any amendment to the prospectus
shall have been filed, (b) of the receipt of any comments from the
Commission, (c) of any request of the Commission to amend the
registration statement or amend or supplement the prospectus or for
additional information, and (d) of the issuance by the commission of
any stop order suspending the effectiveness of the registration
statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of
the Registrable Securities for sale in any jurisdiction, or of the
institution or threatening of any proceedings for any such purposes;
(xiv) Use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the
earliest possible time;
(xv) Cooperate with the sellers of Registrable Securities and
the managing underwriter or agent, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be sold, and enable
such Registrable Securities to be in such denominations and registered
in such names as such sellers or the managing underwriter or agent, if
any, may reasonably request;
(xvi) Cause its subsidiaries and affiliates to take all action
necessary or advisable to effect the registration of the Registrable
Securities contemplated hereby, including preparing and filing any
required financial information; and
(xvii) Use its best efforts to take all other steps necessary
or advisable to effect the registration of the Registrable Securities
contemplated hereby.
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The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any written notice from the Company
of the happening of any event of the kind described in Section 11(b)(vii), such
holder will forthwith discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by this subsection 11(b) and, if so directed by
the Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
(c) PREPARATION, REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the 1933 Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, the underwriters, if
any, and their respective counsel and accountants, the timely opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be reasonably necessary or advisable, in the opinion of each
of such holders and such underwriters' respective counsel, to conduct
appropriate due diligence as contemplated by the 1933 Act.
(d) RULE 144. So long as the Common Stock shall be registered pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), the Company will file the reports required to be
filed by it under the Exchange Act and will take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration under the
1933 Act under the exemptions provided by Rule 144, as such rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company will deliver to such
Holder a written statement as to whether it has complied with such requirements
and, if it has not so complied, stating that it will promptly do so.
(e) HOLD-BACK. Each of the Company and each Holder holding Registrable
Securities included in a registration statement hereunder agrees not to effect
any public sale or distribution of shares of Common Stock during the period
specified by the managing underwriter or underwriters of the underwritten offer
being made pursuant to such registration statement (which period shall not
exceed seven days prior to and 180 days following the effective date of such
registration statement), except as part of such registration, if and to the
extent reasonably requested by such managing underwriter or underwriters.
(f) Indemnification.
---------------
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(i) The Company will, and hereby does agree to, indemnify and
hold harmless, in the case of any registration statement filed pursuant
to subsection 11(a) , each seller of any Registrable Securities covered
by such registration statement and each other Person who participates
as an underwriter in the offering or sale of such securities and each
other Person, if any, who controls such seller or any such underwriter
within the meaning of the 1933 Act, and their respective directors,
officers, partners, agents and affiliates, against any losses, claims,
damages or liabilities, joint or several, to which such seller or
underwriter or any such director, officer, partner, agent, affiliate or
controlling person may become subject under the 1933 Act or otherwise,
including, without limitation, the fees and expenses of legal counsel,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon (a) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement
under which such securities were registered under the 1933 Act, any
preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or (b) any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in
the case of a prospectus, in the light of the circumstances in which
they were made) not misleading, and the Company will promptly reimburse
such seller or underwriter and each such director, officer, partner,
agent, affiliate and controlling Person for any legal or any other
expenses (including reasonable fees and expenses of attorneys)
reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding;
PROVIDED, HOWEVER, that the Company shall not be liable to a seller or
underwriter in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance
upon and in conformity with written information furnished to the
Company by or on behalf of such seller or underwriter, as the case may
be, specifically stating that it is for use in the preparation thereof;
and PROVIDED FURTHER, that the Company shall not be liable to any
Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the 1933 Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's
failure to send or give a copy of the final prospectus, as the same may
be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected
in such final prospectus and the Company had previously furnished
copies thereof to such underwriter. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf
of such seller or underwriter or any such director, officer, partner,
agent, affiliate or controlling person and shall survive the transfer
of such securities by such seller.
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<PAGE> 27
(ii) As a condition to including any Registrable Securities in
any registration statement, the Company shall have received an
undertaking reasonably satisfactory to it from the prospective seller
of such Registrable Securities, to indemnity and hold harmless (in the
same manner and to the same extent as set forth in subsection 11(f)(i))
the Company, and each director of the Company, each officer of the
Company and each other Person, if any, who participates as an
underwriter in the offering or sale of such securities and each other
Person who controls the Company or any such underwriter within the
meaning of the 1933 Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto,
if, and only to the extent that, such statement or alleged statement or
omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
seller specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement; PROVIDED, that such seller
shall not be liable to the Company or any Person who participates as an
underwriter in the offering or sale of Registrable Securities or any
other Person, if any, who controls such underwriter within the meaning
of the 1933 Act, in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of the failure of the Company or such Person to
send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to
the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in such final
prospectus; PROVIDED FURTHER, that the liability of such indemnifying
party under this subsection 11(f)(ii) shall be limited to the amount of
net proceeds received by such indemnifying party in the offering giving
rise to such liability. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall
survive the transfer of such securities by such seller.
(iii) Promptly after receipt by an indemnified party of
written notice of the commencement of any action or proceeding
involving a claim referred to in subsection 11(f)(ii), such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the
commencement of such action; PROVIDED, HOWEVER, that the failure of any
indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under the preceding
subsections of this subsection 11(f) except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice. In case any such action 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 therein and, to the extent that it may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such
indemnified party and after written 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 (including fees and expenses of
attorneys) subsequently incurred by the indemnified party in connection
with the defense
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thereof. Notwithstanding the foregoing, in any action or proceeding in
which both the Company and an indemnified party are, or are reasonably
likely to become, a party, such indemnified party shall have the right
to employ separate counsel at the Company's expense and to control its
own defense of such action or proceeding if, in the reasonable opinion
of counsel to such indemnified party, (a) there are or will likely be
legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those
available to the Company or (b) any conflict or potential conflict
exists between the Company and such indemnified party that would make
such separate representation advisable; PROVIDED, HOWEVER, that in no
event shall the Company be required to pay the reasonable fees and
expenses for the indemnified parties under this subsection 11(f) for
more than one firm of attorneys in any jurisdiction in any one legal
action or group of related legal actions. No indemnifying party shall
be liable for any settlement of any action or proceeding effected
without its written consent, which consent shall not be unreasonably
withheld or delayed. No indemnifying party shall, without the consent
of each indemnified party, which consent shall not be unreasonably
withheld or delayed, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a
general release from all liability in respect to such claim or
litigation or which requires action by the indemnified party.
(iv) If the indemnification provided for in this subsection
11(f) shall for any reason be held by a court to be unavailable to an
indemnified party under subsection 11(f)(i) or 11(f)(ii) hereof in
respect of any loss, claim, damage or liability, or any action or
proceeding in respect thereof, then, in lieu of the amount paid or
payable under subsection 11(f)(i) or 11(f)(ii), the indemnified party
and the indemnifying party under subsection 11(f)(i) or 11(f)(ii) shall
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection
with investigating the same), (i) in such proportion as is appropriate
to reflect the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the registration statement
which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or
action or proceeding in respect thereof, as well as any other relevant
equitable considerations; PROVIDED, that for purposes of this clause
(i), the relative fault of the Company and the prospective sellers of
Registrable Securities covered by such registration statement will be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company or by such prospective sellers and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and such prospective sellers from the offering
of the securities covered by such registration statement; PROVIDED,
that for purposes of this clause (ii), the relative benefits received
by the prospective sellers shall be deemed not to exceed the amount of
net proceeds received by such prospective sellers. No Person guilty of
fraudulent misrepresentation (within the meaning of subsection 11 (f)
of the 1933 Act)
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shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation. Such Prospective sellers'
obligations to contribute as provided in this subsection 11(f)(iv) are
several in proportion to the relative value of their respective
Registrable Securities covered by such registration statement and not
joint. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or
claim effected without such Person's consent, which consent shall not
be unreasonably withheld.
The Company and the holders of the Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subsection
11(f)(iv) were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in the immediately preceding paragraph.
Indemnification and contribution similar to that specified in the
preceding subsections of this subsection 11(f) (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the 1933 Act.
The indemnification and contribution required by this Section 11 shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(g) The obligations of the Company under this Section 11 shall be in
addition to any other liability which the Company may otherwise have to any
other party under the Warrant Agreement, applicable law or otherwise.
SECTION 12.
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Holders that the
representations and warranties contained in Section 6 of the Credit Agreement
are hereby confirmed and restated, insofar as the representations and warranties
contained therein by their terms are applicable to the Company and its
properties, each such representation and warranty (insofar as applicable as
aforesaid), together with all related definitions and ancillary provisions,
being hereby incorporated into this Agreement by reference as though
specifically set forth in this Section; PROVIDED, HOWEVER, that for purpose of
such incorporation by reference, the term "Loan Documents" shall be deemed to
include this Agreement and the Warrant Certificates.
SECTION 13.
COVENANTS
(a) NOTICES OF CERTAIN ACTIONS. In the event that the Company:
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<PAGE> 30
(i) shall authorize the issuance to holders of Common Stock of
rights or warrants to subscribe for or purchase capital stock of the
Company or of any other subscription rights or warrants; or
(ii) shall authorize a dividend or other distribution to
holders of Common Stock of evidences of its indebtedness, cash or other
property or assets; or
(iii) proposes to become a party to any consolidation or
merger for which approval of any stockholders of the Company will be
required, or to a conveyance or transfer of the properties and assets
of the Company substantially as an entirety, or of any capital
reorganization or reclassification or change of the Common Stock; or
(iv) commences a voluntary or involuntary dissolution,
liquidation or winding up;
(v) commences a Qualified Public Offering; or
(vi) fails to comply with the provisions of this Agreement; or
(vii) proposes to take any other action which would require an
adjustment pursuant to Section 9;
then the Company shall provide a written notice to each Holder stating (i) the
date as of which the holders of record of Common Stock to be entitled to receive
any such rights, warrants or distribution are to be determined, (ii) the
material terms of any such consolidation or merger and the expected effective
date thereof, or (iii) the material terms of any such conveyance or transfer,
and the date on which any such conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of Common Stock will be entitled to
exchange their shares for securities or other property, if any, deliverable upon
such reclassification, conveyance, transfer, dissolution, liquidation or winding
up. Such notice shall be given not later than 10 Business Days prior to the
effective date (or the applicable record date, if earlier) of such event. The
failure to give the notice required by this subsection 13(a) or any defect
therein shall not affect the legality or validity of any distribution, right,
warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up, or the vote upon any action.
(b) FINANCIAL STATEMENTS AND REPORTS. The Company shall furnish to each
Holder the financial statements, reports, certificates, statements and notices
described in Section 7.01 of the Credit Agreement as in effect on the date
hereof, within the periods set forth therein (PROVIDED that the financial
statements to be furnished hereunder shall be of the Company and its
Subsidiaries), and such clauses, together with all related definitions and
ancillary definitions, are hereby incorporated into this Agreement by reference
as though specifically set forth in this Section and all of such provisions
shall survive the repayment of all obligations under the Credit Agreement.
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<PAGE> 31
(c) INFORMATION RIGHTS. Each Holder shall have all of the rights of a
holder of Common Stock under Applicable Law, whether or not such Holder has
exercised or exchanged any Warrants, to receive lists of stockholders or other
information respecting the Company, to inspect the books and records of the
Company and to visit the properties of the Company. Nothing contained in this
Agreement shall be construed as conferring upon any Holder, prior to its
exercise of any Warrant, the right to vote or to consent or to receive notice as
stockholders in respect of meetings of stockholders or the election of directors
of the Company or any other matter, or any rights whatsoever as stockholders of
the Company, except as expressly provided hereunder or under applicable law.
(d) COVENANTS INCORPORATED BY REFERENCE. The Company agrees with each
of the Holders that, until the performance of all of its obligations hereunder,
the Company will perform, comply with and be bound by all of the agreements,
covenants and obligations contained in Sections 7.04, 7.06, 7.08 and 7.10 of the
Credit Agreement as in effect on the date hereof, which by their terms are
applicable to the Company or its properties, each such agreement, covenant and
obligation, together with all related definitions and ancillary provisions,
being hereby incorporated into this Agreement by reference as though
specifically set forth in this subsection 18(d) and all of such agreements,
covenants and obligations shall survive the repayment of the Loans and the
termination of the Credit Agreement for purposes hereof.
(e) Regulated Holders.
-----------------
(i) Notwithstanding any other provision of this Agreement to
the contrary, except as provided in this subsection 13(e), without the
prior written consent of any Regulated Holder, the Company shall not,
directly or indirectly, redeem, purchase or otherwise acquire, convert
or take any action (including any amendment to an Organizational
Document) with respect to the voting rights of, or undertake any other
action or transaction (including any merger, consolidation or
recapitalization) affecting, any shares of its capital stock or other
voting securities if the result of the foregoing would be to cause the
ownership of the capital stock of any Person by such Regulated Holder,
or the ownership of voting securities of any Person (or any class
thereof) by such Regulated Holder, to exceed the quantity of such
capital stock or voting securities (or any class thereof) that such
Regulated Holder is permitted under Applicable Law to own. Any action
or transaction referred to in the preceding sentence shall be referred
to herein as a "SECTION 13(E) TRANSACTION." The Company shall be
permitted to undertake any Section 13(e) Transaction which would
otherwise result in the ownership by any Regulated Holder of voting
securities (or any class thereof in excess of the quantity permitted by
Applicable Law if, in a manner reasonably satisfactory to such
Regulated Holder, the Company shall provide or cause to be provided for
such Regulated Holder (i) to receive in connection with any such action
or transaction a number of shares or other units of Equivalent
Nonvoting Securities equal to such excess in lieu of the same number of
shares or other units of the voting securities it would otherwise have
received or (ii) if it would not otherwise have received voting
securities in connection with such action or transaction, to exchange a
number of shares or other units of voting securities then held by such
Regulated Holder equal to such excess for the same number of
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<PAGE> 32
shares or other units of Equivalent Nonvoting Securities. If the
Company proposes to undertake any action or transaction which could
constitute a Section 13(e) Transaction, it shall provide the Holders at
least 15 days prior written notice thereof. If, in the written opinion
of counsel to any Regulated Holder (which may be internal counsel)
delivered within 10 days following receipt of such notice, such action
or transaction constitutes a Section 13(e) Transaction with respect to
such Regulated Holder, then the Company shall delay undertaking such
Section 13(e) Transaction for the purpose of using its best efforts to
agree on a manner in which to restructure such action or transaction in
a manner reasonably satisfactory to the Company and such Regulated
Holder so that it no longer would constitute a Section 13(e)
Transaction. If the Company and such Regulated Holder are unable to
agree, within 20 days of the delivery of such written opinion, upon a
manner in which to so restructure such Section 13(e) Transaction, and
such Section 13(e) Transaction is a bona fide action or transaction
proposed by the Company in good faith, then the Company shall be
permitted to undertake such Section 13(e) Transaction if prior to or
concurrently with doing so it purchases from such Regulated Holder, at
a purchase price equal to the Market Value per share of Common Stock, a
number (specified by such Regulated Holder) of Warrants (based on the
number of Warrant Shares represented thereby) or Warrant Shares
sufficient, in the written opinion of counsel to such Regulated Holder
(which may be internal counsel), to prevent such Section 13(e)
Transaction from causing the ownership of the capital stock of any
Person by such Regulated Holder to exceed the quantity of such capital
stock that such Regulated Holder is permitted under Applicable Law to
own.
(ii) If it becomes unlawful for any Regulated Holder to
continue to hold some or all of the Warrants or Warrant Shares held by
it, or restrictions are imposed on any Regulated Holder by Applicable
Law which, in the reasonable judgment of such Regulated Holder, make it
unduly burdensome to continue to hold such Warrants or Warrant Shares,
the Company shall (i) cooperate with such Regulated Holder in any
efforts by such Regulated Holder to dispose of some or all of such
Warrants or Warrant Shares in a prompt and orderly manner, including
providing (and authorizing such Regulated Holder to provide) financial
and other information concerning the Company to any prospective
purchaser of such Warrants or Warrant Shares and (ii) at the request of
such Regulated Holder, take all steps (including using its best efforts
to cause its Organizational Documents to be amended) necessary to
create an Equivalent Nonvoting Security with respect to the Warrant
Shares then held by such Regulated Holder and permit such Regulated
Holder to exchange Warrant Shares for the same number of shares or
other units of such Equivalent Nonvoting Security; PROVIDED, that
nothing in this subsection 13(e) shall require the Company to register
or qualify such Warrants or Warrant Shares under any federal or state
securities laws.
(f) CURRENT PUBLIC INFORMATION. At all times after the Company has
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company will file all reports required to be filed by it under
the Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and will take such
further action as any Holder may reasonably request, all to the extent required
to enable such Holder to sell Warrant
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Shares pursuant to Rule 144 or Rule 144A adopted by the Commission under the
Securities Act. Upon request, the Company will deliver to any such Holder a
written statement as to whether it has complied with such requirements.
(g) PUBLIC DISCLOSURES. The Company will not disclose any Holder's name
or identity as an investor in the Company in any press release or other public
announcement or in any written consent of such Holder, unless such disclosure is
required by applicable law or governmental regulations or by order of a court of
competent jurisdiction in which case prior to making such disclosure the Company
will give written notice to such Holder describing in reasonable detail the
proposed content of such disclosure and will permit the Holder to review and
comment upon the form and substance of such disclosure.
(h) CERTAIN RESTRICTIONS. The Company will not:
(i) permit any amendment to its Organizational Documents, if
such amendment would alter the powers, preferences or special rights of
the shares of any class of capital stock of the Company (other than
Common Stock) so as to affect the holders of Common Stock adversely;
(ii) permit any amendment, modification or waiver of that
certain Stock Restriction Agreement, dated as of September 30, 1996,
among Company and shareholders of the former Water Equipment
Technologies, Inc., that certain Registration Rights Agreement, dated
as of September 30, 1996, among the Company and the shareholders of the
former Water Equipment Technologies, Inc., that certain Registration
Rights Agreement, dated as of August 30, 1995, among and the Company
and its shareholders, that certain Stock Restriction Agreement, dated
as of January 31, 1996, between the Company and the shareholder of the
former Mass Transfer Systems, Inc., that certain Stock Restriction
Agreement, dated as of April 26, 1996, between the Company and the
shareholder of the former Aero-Mod Incorporated, Resi-Tech, Inc., and
Blue Water Service, Inc., and that certain Preferred Shareholder's
Agreement, dated as of August 30, 1995, among the Company and the
holders of the preferred stock of the Company, in each case as such
agreement has been amended through the Closing Date, that would affect
the Holders adversely;
(iii) take any other action, corporate or otherwise, the
effect of which would be to alter, impair or affect adversely either
the rights and benefits of the Holders or the duties and obligations of
the Company under the Warrant Documents.
(i) SPECIFIC PERFORMANCE. Each Holder shall have the right to specific
performance by the Company of the provisions of this Agreement, in addition to
any other remedies it may have at law or in equity. The Company hereby
irrevocably waives, to the extent that it may do so under applicable law, any
defense based on the adequacy of a remedy at law which may be asserted as a bar
to the remedy of specific performance in any action brought against the Company
for specific performance of this Agreement by any Holder of the Warrants or
Warrant Shares.
30
<PAGE> 34
SECTION 14.
AMENDMENTS AND WAIVERS
(a) CONSENT OF HOLDERS. No amendment, modification, termination or
waiver of any provision of this Agreement (including the terms of any agreement
incorporated by reference) and the Warrant Certificates or consent to any
departure by the Company therefrom, shall in any event be effective without the
written concurrence of the Requisite Holders; PROVIDED, HOWEVER, that without
the consent of each Holder affected, no amendment, modification, termination or
waiver may:
(i) make any change to the definition of "REQUISITE HOLDERS";
(ii) make any change to the transfer provisions of Section 15
that adversely affects the ability of a Holder to make any transfer
described therein; or
(iii) make any change in the foregoing amendment and waiver
provisions.
After an amendment, modification, termination or waiver under this
Section 18 becomes effective, the Company shall mail to the Holders affected
thereby a notice briefly describing such amendment, modification, termination or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amendment, modification, termination or waiver.
In connection with any amendment, modification, termination or waiver
under this Section 18, the Company may offer, but shall not be obligated to
offer, to any Holder who consents to such amendment, modification, termination
or waiver, consideration for such Holder's consent, so long as such
consideration is offered to all Holders.
(b) SOLICITATION OF HOLDERS. The Company will not effect any proposed
amendment, modification, termination or waiver of any of the provisions of this
Agreement or the Warrant Certificates unless each Holder (irrespective of the
amount of Warrants or Warrant Shares then owned by it) shall be informed thereof
by the Company prior to the effectuation thereof (but only to the extent the
Company has been provided with addresses for the Holders) and shall be afforded
the opportunity of considering the same and shall be supplied by the Company
with sufficient information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any amendment,
modification, termination or waiver effected pursuant to the provisions of this
Section 18 shall be delivered by the Company to each Holder of outstanding
Warrants or Warrant Shares forthwith following the date on which the same shall
have been executed and delivered by the Holder or Holders of the requisite
percentage of outstanding Warrant Shares (but only to the extent the Company has
been provided with the addresses for the Holders).
(c) REVOCATION AND EFFECT OF CONSENTS. Until an amendment,
modification, termination or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and
31
<PAGE> 35
every subsequent Holder of a Warrant or Warrant Shares, even if notation of the
consent is not made on any Warrant Certificate or stock certificate. However,
any such Holder or subsequent Holder may revoke any such consent by notice to
the Company received before the date on which the Requisite Holders have
consented (and not heretofore revoked such consent) to such amendment,
modification, termination or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
modification, termination or waiver, which record date shall be at least 30 days
prior to the first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
SECTION 15.
TRANSFERS
(a) Each Holder, subject to the provisions of subsection 15(b) below,
shall be permitted to transfer each Warrant or each Warrant Share (and the
rights relating thereto under this Agreement and the other Warrant Documents),
in whole and not in part, to any Person other than a competitor of the Company
or any affiliate of such competitor; PROVIDED that:
(i) such transfer is made pursuant to a registration statement
under the Securities Act (it being acknowledged that the Company shall
not be obligated to assist in any manner in any such registration) or
pursuant to an exemption from the registration requirements of the
Securities Act;
(ii) if such transfer is being made pursuant to an exemption
from such registration requirements and if requested by the Company,
counsel for such Holder (which counsel shall be reasonably acceptable
to the Company) furnishes to the Company an opinion to the effect that
such transfer is being made pursuant such an exemption;
(iii) the applicable transferee (or, in the case of an account
manager, the managed account on behalf of which the account manager is
acting) is an "accredited investor" as defined in Regulation D
promulgated under the Securities Act;
(iv) such transferee represents to the Company in writing that
it is acquiring such Warrant or Warrant Share solely for its own
account (or in the case of Account Managers, on behalf of managed
accounts) and not as nominee or agent for any other Person (other than
for such managed accounts, if applicable) and not with a view to, or
for offer or sale in connection with, any distribution thereof (within
the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state
32
<PAGE> 36
thereof, without prejudice, however, to its right at all times to sell
or otherwise dispose of all or any part of said Warrant or Warrant
Share pursuant to a registration statement under the Securities Act or
pursuant to an exemption from the registration requirements of the
Securities Act, and subject, nevertheless, to the disposition of its
property being at all times within its control; and
(v) unless the Holder making such transfer is making such
transfer to any of its Affiliates or any of its partners or with the
Company's prior written consent, such transfer is of (A) all the
Warrants and Warrant Shares then held by such Holder or (B) Warrants
and Warrant Shares (assuming exercise of the Warrants) aggregating not
less than 1% of the shares of Common Stock outstanding (on a
Fully-Diluted Basis) as of the date hereof, as such amount may be
adjusted from time to time upon application of the provisions of
Section 15.
(b) Notwithstanding any provision of this Agreement to the contrary, no
Regulated Holder may transfer the Warrants or any voting securities issued upon
exercise of the Warrants, in whole or in part, except, in connection with (i) a
transfer to one or more of such Holder's Affiliates, (ii) any public offering or
public sale of securities of the Company (including a public offering registered
under the Securities Act and a public sale pursuant to Rule 144 or 144A of the
SEC or any similar rules then in force), (iii) any sale of the Warrants or
securities received upon the exercise thereof to a person or group of persons
(within the meaning of the Exchange Act) if, after such sale, such person or
persons in the aggregate own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the directors of the
Company, PROVIDED that such sale has been approved by the Company's Board of
Directors or a committee thereof, (iv) any sale of the Warrants or securities
received upon exercise thereof to a person or group of persons (within the
meaning of the Exchange Act) , if, after such sale, such person or group of
persons in the aggregate would own or control securities of the Company
(EXCLUDING the portion of the Warrants or securities received upon the exercise
thereof being disposed of connection with such sale) which possess in the
aggregate the ordinary voting power to elect a majority of the Company's
directors, (v) any sale of the Warrants (or securities received upon exercise
thereof) to a person or group of persons (within the meaning of the Exchange
Act) if, after such sale, such person or group of persons would not in the
aggregate own, control or have the right to acquire more than two percent (2%)
of the outstanding securities of any class of voting securities of the Company,
(vi) any sale of the Warrants (or securities received upon exercise thereof) to
a person or group of persons (within the meaning of the Exchange Act) if, prior
to such sale, such person or group of persons, in the aggregate already own or
control securities of the Company which possess in the aggregate the ordinary
voting power to a elect a majority of the Company's directors and (vii) a
merger, consolidation or similar transaction involving the Company if, after
such transaction, a person or group of persons (within the meaning of the
Exchange Act) would own or control securities which possess in the aggregate the
ordinary voting power to elect a majority of the surviving corporation's
directors; PROVIDED that such transaction has been approved by the Company's
Board of Directors or a committee thereof.
(c) The Company shall promptly register the transfer of any outstanding
Warrants in the Warrant Register and any outstanding Warrant Shares in a Common
Stock register to be maintained
33
<PAGE> 37
by the Company upon surrender thereof accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company, duly executed by
the registered Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant or Warrant Share, as the case may be,
shall be issued and delivered with all reasonable dispatch to the transferee(s)
and such transferee(s) shall be deemed to have become the Holder(s) of record of
such Warrant or Warrant Share, as the case may be, and the surrendered Warrant
or Warrant Share, as the case may be, shall be canceled and disposed of by the
Company.
SECTION 16.
MISCELLANEOUS
(a) NOTICES. Unless otherwise specifically provided herein, any notice
or other communication herein required or permitted to be given shall be in
writing and shall be made by personal service, telefacsimile, United States Mail
or reputable courier service:
(i) if to Purchaser or subsequent Holder, at the address or
telecopy number set forth on the signature pages to this Agreement, or
such other address as shall be designated in a written notice delivered
to the Company; and
(ii) if to the Company, at the address or telecopy number set
forth on the signature pages to this Agreement, or such other address
as shall be designated in a written notice delivered to the other
parties hereto.
Unless otherwise specifically provided herein, any notice or other
communication shall be deemed to have been given when delivered in person or by
courier service, upon receipt of telefacsimile, or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed.
(b) FAILURE OR DELAY NOT WAIVER, REMEDIES CUMULATIVE. No failure or
delay on the part of any Holder in the exercise of any power, right or privilege
hereunder or under any other Warrant Document shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement and the other
Warrant Documents are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
(c) SEVERABILITY. In case any provision in or obligation under this
Agreement or the Warrant Certificates shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
34
<PAGE> 38
(d) HEADINGS. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
(e) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of the parties hereto and the successors and assigns of the
Purchasers (including each Holder and its successors and assigns).
(g) COUNTERPARTS. This Agreement and any amendments, waivers, consents
or supplements hereto or in connection herewith may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
* * *
35
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
WATERLINK, INC.
By:
----------------------------------
Name:
-------------------------
Title:
------------------------
Notice Address:
---------------
Waterlink, Inc.
4100 Holiday Street, N.W., Suite 201
Canton, Ohio 44718
Attention: Chief Financial Officer
BANK OF AMERICA ILLINOIS
By:
----------------------------------
Name:
-------------------------
Title:
------------------------
Notice Address:
---------------
Bank of America Illinois
231 S. LaSalle Street
Chicago, Illinois 60697
Attention: Timothy J. Pepowski
0144228.05
S-1
<PAGE> 40
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
FEBRUARY 19, 1997, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND THE SHARES
ISSUABLE UPON EXERCISE OF SUCH SECURITIES) ARE SUBJECT TO A WARRANT AGREEMENT,
DATED FEBRUARY 19, 1997, BY AND BETWEEN THE ISSUER OF SUCH SECURITIES (THE
"COMPANY") AND THE PURCHASER REFERRED TO THEREIN. THE TRANSFER OF THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN SUCH WARRANT AGREEMENT AND
THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF THIS CERTIFICATE UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF
SUCH AGREEMENTS WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON WRITTEN REQUEST.
Warrants to Purchase at the Holders Option:
Common Stock, $.001 par value, of Waterlink, Inc.
No. W-BAI/1 225,000 Warrants
February 19, 1997
WARRANT CERTIFICATE
This Warrant Certificate certifies that Bank of America Illinois or
registered assigns is the registered owner of 225,000 Warrants, each Warrant
entitling such owner to purchase initially, at such owner's option, subject to
the provisions of Section 8 of the Warrant Agreement, one share of Common Stock,
$.001 par value ("COMMON STOCK "), of Waterlink, Inc. (the "COMPANY") at the
price of $4.50 per share (the "WARRANT EXERCISE PRICE") at any time or from time
to time until 5:00 p.m., Chicago time, on February 19, 2002 and, subject to the
terms and conditions hereof and of the Warrant Agreement hereinafter referred
to. The number of Warrant Shares issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events, as set forth in the
Warrant Agreement.
Exhibit A-1
<PAGE> 41
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, and are issued or to be issued pursuant to a
Warrant Agreement, dated as of February ____, 1997 (the "WARRANT AGREEMENT"),
duly executed and delivered by the Company and the Purchasers referred to
therein, which Warrant Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties and immunities thereunder of
the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants. A copy of the Warrant
Agreement may be obtained by the holder hereof upon written request to the
Company.
The holder of Warrants evidenced by this Warrant Certificate may
exercise such Warrants under and pursuant to the terms and conditions of the
Warrant Agreement by surrendering this Warrant Certificate, with the purchase
form attached hereto (and by this reference made a part hereof) properly
completed and executed, together with payment of the Exercise Price in
accordance with the terms of the Warrant Agreement. In the event that upon any
exercise of Warrants evidenced hereby the number of Warrants exercised shall be
less that the total number of Warrants evidenced hereby, there shall be issued
by the Company to the holder hereof or its registered assignee a new Warrant
Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of certain
events the number of Warrants set forth on the face hereof may, subject to
certain conditions, be adjusted.
Warrant Certificates, when surrendered with the assignment form
attached hereto (and by this reference made a part hereof) properly completed
and executed at the office of the Company by the registered holder thereof in
person or by a legal representative or attorney duly authorized in writing, may
be exchanged, in the manner and subject to the limitations provided in the
Warrant Agreement, but without payment of any service charge, for another
Warrant Certificate or Warrant Certificates of like tenor evidencing in the
aggregate a like number of Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY ARTICLE 8 OF THE UNIFORM
COMMERCIAL CODE OF DELAWARE AND BY THE DELAWARE BUSINESS CORPORATION CODE, AND
OTHERWISE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS.
Exhibit A-2
<PAGE> 42
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its Chairman of the Board, President or Vice President and attested
to by its Secretary or Assistant Secretary.
WATERLINK, INC.
By:
----------------------------
Name:
-------------------
Title:
------------------
ATTEST:
By:
--------------------------
Name:
------------------
Title:
-----------------
Exhibit A-3
<PAGE> 43
PURCHASE FORM
To:
The undersigned, pursuant to the provisions set forth in the attached
Warrant Certificate (Certificate No. W-__), hereby elects to exercise for the
purchase of _____ Warrant Shares covered by such Warrant Certificate and makes
payment herewith in full therefor at the price per share provided by such
Warrant Certificate, and directs that the Warrant Shares deliverable upon such
exercise be registered in the name and at the address specified below and
delivered thereto.
[HOLDER]
By:
---------------------------------
Name:
Title:
Notice Address:
---------------
------------------------------
------------------------------
------------------------------
------------------------------
Date: _________, _____
Exhibit A-4
<PAGE> 44
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned, pursuant to the provisions set
forth in the attached Warrant Certificate (Certificate No. W__), hereby sells,
assigns and transfers all of its rights under such Warrant Certificate with
respect to the number of Warrant Shares covered thereby set forth below, unto:
NAMES OF ASSIGNEE ADDRESS NO. OF SHARES
- ----------------- ------- -------------
[HOLDER]
By:
---------------------------------
Name:
Title:
Notice Address:
---------------
--------------------------
--------------------------
--------------------------
--------------------------
Date: ___________ ___, _____
Exhibit A-5
<PAGE> 1
Exhibit 10.11
WATERLINK, INC.
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
1. GENERAL. This Stock Option Plan (the "Plan") provides eligible
employees of Waterlink, Inc., a Delaware corporation (the "Company"), and its
subsidiaries with the opportunity to acquire or expand their equity interest in
the Company by making available for award or purchase shares of Common Stock,
.001 par value, of the Company ("Common Stock"), through the granting of
nontransferable options to purchase shares of Common Stock ("Stock Options").
Stock Options shall be referred to herein as "Grants," and an individual grant
of Stock Options shall be referred to herein as a "Grant."
It is intended that key employees may be granted simultaneously or
from time to time, Stock Options that qualify as incentive stock options
("Incentive Stock Options") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or Stock Options that do not so qualify
("Non-qualified Stock Options"). No provision of the Plan is intended or shall
be construed to grant employees alternative rights in any Incentive Stock Option
granted under the Plan so as to prevent such Option from qualifying under
Section 422 of the Code.
The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act of 1933, as amended (the "Securities Act"), and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any
and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including, without limitation, Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall be administered,
and Stock Options shall be granted and may be exercised, only in such a manner
as to conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and Stock Options granted hereunder shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.
2. PURPOSE OF THE PLAN. The purpose of the Plan is to provide
continuing incentives to key employees of the Company and of any subsidiary
corporation of the Company, by encouraging such key employees to acquire new or
additional share ownership in the Company, thereby increasing their proprietary
interest in the Company's business and enhancing their personal interest in the
Company's success.
For purposes of the Plan, a "subsidiary corporation" consists of any
corporation fifty percent (50%) of the stock of which is directly or indirectly
owned or controlled by the Company.
3. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective upon
its adoption by the Board of Directors of the Company (the "Board"), subject to
approval by holders of a majority of the outstanding shares of voting capital
stock of the Company. If the Plan is not so approved within twelve (12) months
after the date the Plan is adopted by the Board, the Plan and any Grants made
hereunder shall be null and void, However, if the Plan is so approved, no
further shareholder approval shall be required with respect to the making of
Grants pursuant to the Plan, except as provided in Section 12 hereof.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board unless and until the Board appoints a committee composed of no fewer than,
two (2) members of the Board (the
1
<PAGE> 2
"Committee"). No person shall be appointed to the Committee who, during the one
(1) year period immediately preceding such person's appointment to the
Committee, has received any Grants under the Plan or any similar stock option or
stock incentive plan, other than formula-based plan, maintained by the Company
or any subsidiary corporation. A member of the Committee shall not be eligible
to participate in the Plan while serving on the Committee.
A majority of the members of the Committee shall constitute a quorum.
The acts of a majority of the members present at any meeting at which a quorum
is present (or acts unanimously approved in writing by the members of the
Committee, shall constitute binding acts of the Committee.
Subject to the terms and conditions of the Plan, Board, or the
Committee, if any (hereinafter the "Administrator") shall be authorized and
empowered:
(a) To select the key employees to whom Grants may be made;
(b) To determine the number of shares of Common Stock to be
covered by any Grant;
(c) To prescribe the terms and conditions of any Grants made
under the Plan, and the form(s) and agreement(s) used in connection
with such Grants, which shall include agreements governing the
granting of Stock Options which may provide that the stock which is
the subject of any such Grant shall be subject to the restrictions on
transfer contained in any agreement in effect among the Company and
one or more of its stockholders;
(d) To determine the time or times when Stock Options will be
granted and when they will terminate in whole or in part;
(e) To determine the time or times when Stock Options that are
granted may be exercised; provided, however, that unless the
Administrator specifically determines otherwise in any individual
instance, the standard vesting schedule for Stock Options granted
hereunder shall be four equal yearly installments;
(f) To determine, at the time a Stock Option is granted under the
Plan, whether such Stock Option is an Incentive Stock Option entitled
to the benefits of Section 422 of the Code; and
(g) To establish any other Stock Option agreement provisions not
inconsistent with the terms and conditions of the Plan or, where the
Stock Option is an incentive Stock Option, with the terms and
conditions of Section 422 of the Code.
5. EMPLOYEES ELIGIBLE FOR GRANTS. Grants may be made from time to time
to those key employees of the Company or a subsidiary corporation who are
designated by the Administrator in its sole and exclusive discretion. Key
employees may include, but shall not necessarily be limited to, members of the
Board of Directors (excluding members of the Committee) and officers of the
Company and any subsidiary corporation; however, Stock Options intended to
qualify as Incentive
2
<PAGE> 3
Stock Options shall be granted to key employees only while actually employed by
the Company or a subsidiary corporation. The Administrator may grant more than
one Stock Option to the same key employee. No Stock Option shall be granted to
any key employee during any period of time when such key employee is on a leave
of absence.
6. STOCK SUBJECT TO THE PLAN. The shares to be issued pursuant to any
Grant made under the Plan shall be shares of Common Stock. Either shares of
Common Stock held as treasury stock or authorized and unissued shares of Common
Stock, or both, may be so issued, in such amount or amounts within the maximum
limits of the Plan as the Administrator shall from time to time determine.
Subject to the provisions of the next succeeding paragraph of this
Section 6 and the provisions of Section 7(h), the aggregate number of shares of
Common Stock that can be actually issued under the Plan shall be Eight Hundred
Thousand (800,000).
If, at any time subsequent to the date of adoption of the Plan by the
Board of Directors, the number of shares of Common Stock increased or decreased,
or changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company or of another corporation (whether as a
result of a stock split, stock dividend, combination or exchange of shares,
exchange for other securities, reclassification, reorganization, redesignation,
merger, consolidation, recapitalization or otherwise): (i) there shall
automatically be substituted for each share of Common Stock subject to an
unexercised Stock Option (in whole or in part) granted under the Plan, the
number and kind of shares of stock or other securities into which each share of
outstanding Common Stock shall be changed or for which each such share of Common
Stock shall be exchanged; and (ii) the option price per share of Common Stock or
unit of securities shall be increased or decreased proportionately so that the
aggregate purchase price for the securities subject to a Stock Option shall
remain the same as immediately prior to such event. In addition to the
foregoing, the Administrator shall be entitled in the event of any such
increase, decrease or exchange of shares of Common Stock to make other
adjustments to the securities subject to a Stock Option, the provisions of the
Plan, and to any related Stock Option agreements (including adjustments which
may provide for the elimination of fractional shares) where necessary (under
Section 422(a)(2) of the Code or otherwise) to preserve the terms and conditions
of any Grants hereunder.
7. STOCK OPTION PROVISIONS.
(a) GENERAL. The Administrator may grant to key employees (also
referred to as "optionees") nontransferable Stock Options that either
qualify as Incentive Stock Options under Section 422 of the Code or do
not so qualify. However, any Stock Option which is an Incentive Stock
Option shall only be granted within ten (10) years from the earlier of
(i) the date this Plan is adopted by the Board and (ii) the date this
Plan is approved by the stockholders of the Company.
(b) STOCK OPTION PLAN. The option price per share of Common Stock
which may be purchased under an Incentive Stock Option under the Plan
shall be determined by the Administrator at the time of Grant, but
shall not be less than one hundred percent (100%) of
3
<PAGE> 4
the fair market value of a share of Common Stock, determined as of the
date such Option is granted; however, if a key employee to whom an
Incentive Stock Option is granted is, at the time of the grant of such
Option, an "owner" as defined in Section 422(b)(6) of the Code
(modified as provided in Section 424(d) of the Code) of more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or any subsidiary corporation (a "Substantial
Shareholder"), the price per share of Common Stock of such Option, as
determined by the Administrator, shall not be less than one hundred
ten percent (110%) of the fair market value of a share of Common Stock
on the date such Option is granted. The option price per share of
Common Stock under each Stock Option granted pursuant to the Plan
which is not an Incentive Stock Option shall be determined by the
Administrator at the time of Grant. Except as specifically provided
above, the fair market value of a share of Common Stock shall be
determined in accordance with procedures to be established by the
Administrator. The day on which the Administrator approves the
granting of a Stock Option shall be considered the date on which such
Option is granted.
(c) PERIOD OF STOCK OPTION. The Administrator shall determine
when each Stock Option is to expire. However, no Incentive Stock
Option shall be exercisable after the expiration of ten (10) years
from the date upon which such Option is granted, or five (5) years
from the date upon which such Option is granted to a Substantial
Shareholder.
(d) LIMITATION ON EXERCISE AND TRANSFER OF STORK OPTIONS. Only
the key employee to whom a Stock Option is granted may exercise such
Option, except where a guardian or other legal representative has been
duly appointed for such employee, and except as otherwise provided in
the case of such employee's death. No Stock Option granted hereunder
shall be transferable by an optionee other than by will or the laws of
descent and distribution. No Stock Option granted hereunder may be
pledged or hypothecated, nor shall any such Option be subject to
execution, attachment or similar process.
(e) EMPLOYMENT, HOLDING PERIOD REQUIREMENTS FOR CERTAIN OPTIONS.
The Administrator may condition any Stock Option granted hereunder
upon the continued employment of the optionee by the Company or by a
subsidiary corporation. and may make any such Stock Option immediately
exercisable. However, the Administrator will require that, from and
after the date of grant of any Incentive Stock Option granted
hereunder until the day three (3) months prior to the date such Option
is exercised, such optionee must be an employee of the Company or of a
subsidiary corporation, but always subject to the right of the Company
or any such subsidiary corporation to terminate such optionee's
employment during such period (except if the optionee's employment is
terminated due to death or permanent and total disability, in which
event such period shall be one (1) year). Each Stock Option shall be
subject to such additional restrictions as to the time and method of
exercise as shall be prescribed by the Administrator. Upon compliance
with any condition or requirement imposed by the Administrator
pursuant to the foregoing, a Stock Option or the appropriate portion
thereof may be exercised in whole or in part from time to time during
the option period; however, such exercise right(s) shall be limited to
whole shares.
4
<PAGE> 5
(f) PAYMENT FOR STOCK OPTION PRICE. A Stock Option shall be
exercised by an optionee giving written notice to the Company of his
intention to exercise the same, accompanied by full payment of the
purchase price in cash or by check or, with the consent of the
Administrator, in whole or in part with a surrender of shares of
Common Stock having a fair market value on the date of exercise equal
to that portion of the purchase price for which payment in cash or
check is not made. The Administrator may, in its sole discretion,
approve other methods of exercise for a Stock Option or payment of the
option price, provided that no such method shall cause any option
granted under the Plan as an Incentive Stock Option to not qualify
under Section 422 of the Code, or cause any share of Common Stock
issued in connection with the exercise of an option not to be a fully
paid and non-assessable share of Common Stock.
(g) CERTAIN REISSUANCES OF STOCK OPTIONS. To the extent stares of
Common Stock are surrendered by an optionee in connection with the
exercise of a Stock Option in accordance with Section 7(f), the
Administrator may in its sole discretion grant new Stock Options to
such optionee (to the extent shares of Common Stock remain available
for Grants), subject to the following terms and conditions:
(i) The number of shares of Common Stock shall be equal to
the number of shares of Common Stock being surrendered by the
optionee;
(ii) The option price per share of Common Stock shall be
equal to the fair market value of shares of Common Stock,
determined on the date of exercise of the Stock Options whose
exercise caused such Grant; and
(iii) The terms and conditions of such Stock Options shall
in all other respect replicate such terms and conditions of the
Stock Options whose exercise caused such Grant, except to the
extent such terms and conditions are determined not to be wholly
consistent with the general provisions of this Section 7, or in
conflict with the remaining provisions of this Plan.
(h) CANCELLATION AND REPLACEMENT OF STOCK OPTIONS AND RELATED
RIGHTS. The Administrator may at any time or from time to time permit
the voluntary surrender by an optionee who is the holder of any
outstanding Stock Options under the Plan, where such surrender is
conditioned upon the granting of such optionee of new Stock Options
for such number of shares as the Administrator shall determine, or may
require such a voluntary surrender as a condition precedent to the
grant of new Stock Options. The Administrator shall determine the
terms and conditions of new Stock Options, including the prices at and
periods during which they may be exercised, in accordance with the
provisions of this Plan, all or any of which may differ from the terms
and conditions of the Stock Options surrendered. Any such new Stock
Options shall be subject to all the relevant provisions of this Plan.
The shares of Common Stock subject to any Stock Option so surrendered,
and/or any shares of Common Stock subject to any Stock Option that has
lapsed or been forfeited, shall no longer be charged against the
limitation provided in Section 6 of the Plan and may again become
shares subject to the Plan. The granting of new Stock Options in
connection
5
<PAGE> 6
with the surrender of outstanding Stock Options under this Plan shall
be considered for the purposes of the Plan as the granting of new
Stock Options and not an alteration, amendment or modification of the
Plan or of the Stock Options being surrendered.
(i) LIMITATION ON EXERCISABLE INCENTIVE STOCK OPTIONS. The
aggregate fair market value of the shares of Common Stock first
becoming subject to exercise as Incentive Stock Options by a key
employee during any given calendar year shall not exceed the sum of
One Hundred Thousand Dollars ($100,000). Such aggregate fair market
value shall be determined as of the date such Option is granted,
taking into account, in the order in which granted, any other
Incentive Stock Options granted by the Company, or by a parent or
subsidiary thereof.
(j) WITHHOLDING OF TAXES. The Administrator may, in its sole
discretion, require, as a condition to any Grant or to the delivery of
certificates for shares issued hereunder, that the optionee pay to the
Company, in cash, any federal, state or local taxes of any kind
required by law to be withheld with respect to any Grant or any
delivery of shares of Common Stock upon exercise thereof. The
Administrator, in its sole discretion, may permit optionees to pay
such taxes through the withholding of shares of Common Stock otherwise
deliverable to such optionee in connection with such Grant or the
delivery to the Company of shares of Common Stock otherwise acquired
by the optionee. The Fair Market Value of shares of Common Stock
withheld by the Company or tendered to the Company for the
satisfaction of tax withholding obligations under this Section 7(j)
shall be determined on the date such shares of Common Stock are
withheld or tendered. The Company, to the extent permitted or required
by law, shall have the right to deduct from any payment of any kind
(including salary, bonus, severance or insurance proceeds) otherwise
due to an optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any Grant or to the
delivery of shares of Common Stock under the Plan, or to retain or
sell without notice a sufficient number of shares of Common Stock to
be issued to such optionee to cover any such taxes, provided that the
Company shall not sell any such shares of Common Stock if such sale
would be considered a sale by such optionce for purposes of Section 16
of the Exchange Act.
8. TERMINATION OF EMPLOYMENT. If a key employee ceases to be an
employee of the company and every subsidiary corporation, for a reason other
than death, retirement, "permanent and total disability" (as defined below) or
such key employee's employment is terminated "without cause" (as defined below),
his Grants shall, unless extended by the Administrator on or before his date of
termination of employment, terminate on the effective date of such termination
of employment. Neither the key employee nor any other person shall have any
right after such date to exercise all or any part of his Stock Options which are
not vested or otherwise subject to restriction and they shall thereupon be
forfeited, declared void and without value, or both.
If termination of employment is due to death or permanent and total
disability or is without cause, then outstanding Stock Options may be exercised
within the one (1) year period ending on the anniversary of such death,
permanent and total disability or termination without cause (except that, with
respect to Incentive Stock Options held by key employees whose employment is
terminated without cause, such Incentive Stock Options must be exercised within
three (3) months of the date of such termination). In the case of death, such
outstanding Stock Options shall be exercised by such
6
<PAGE> 7
key employee's estate, or the person designated by such key employee by will, or
as otherwise designated by the laws of descent and distribution. Notwithstanding
the forgoing, in no event shall any Stock Option be exercisable after the
expiration of the option period, and in the case of exercises made after a key
employee's death, not to any greater extent than such key employee would have
been entitled to exercise such Option at the time of his death.
Subject to the discretion of the Administrator, in the event a key
employee terminates employment with the Company and all subsidiary corporations
because of normal or early retirement under any pension plan or retirement plan
hereafter adopted by the Company, or permanent and total disability, any
then-outstanding Stock Options held by such key employee shall lapse at the end
of the term of such Stock Option, or thirty (30) days after such retirement,
whichever first occurs.
For purposes hereof, "permanent and total disability" means a
permanent and total disability as defined in Section 22(e) of the Code. For
purposes hereof, termination "without cause" means termination of the employee's
employment by the Company for reasons other than (i) conviction of the employee
for a felony or for any crime or offense lesser than a felony involving the
property of the Company or a subsidiary corporation or affiliate of the Company;
(ii) conduct by the employee that has caused demonstrable and serious injury to
the Company or a subsidiary, monetary or otherwise; or (iii) substandard
performance, or material misconduct or negligence in the performance, of the
employee's duties in the reasonable judgment of the Board; provided, however,
that for any employee with a written employment agreement with the Company or
any subsidiary corporation, the without cause" definition, if any, contained in
such employment agreement shall be utilized for purposes hereof.
In the event an employee of the Company or one of its subsidiary
corporations is granted a leave of absence by the Company or such subsidiary
corporation to enter military service or because of sickness, his employment
with the Company or such subsidiary corporation shall not be considered
terminated, and he shall be deemed an employee of the Company or such subsidiary
corporation during such leave of absence or any extension thereof granted by the
Company or such subsidiary corporation.
9. AMENDMENTS TO PLAN. The Administrator is authorized to interpret
this Plan and from time to time adopt any rules and regulations for carrying out
this Plan that it may deem advisable. Subject to the approval of the Board, the
Administrator may at any time amend, modify, suspend or terminate this Plan. In
no event, however, without the approval of the stockholders, shall any action of
the Administrator or the Board result in:
(a) Materially amending, modifying or altering the eligibility
requirements provided in Section 5 hereof;
(b) Materially increasing, except as provided in Section 6
hereof, the maximum number of shares of Common Stock that may be made
subject to Grants; or
(c) Materially increasing the benefits accruing to participants
under this Plan;
7
<PAGE> 8
except to conform this Plan and any agreements made hereunto to changes in the
Code or required by governing law.
10. INVESTMENT REPRESENTATION, APPROVALS AND LISTING. The
Administrator may, if it deems appropriate, condition its grant of any Stock
Option hereunder upon receipt of the following investment representation from
the optionee:
"I agree that any shares of Common Stock of Waterlink, Inc. which I
may acquire by virtue of this Stock Option shall be acquired for
investment purposes only and not with a view to distribution or
resale, and may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of by me unless (i) a registration
statement or post-effective amendment to a registration statement
under the Securities Act, with respect to said shares of Common Stock
has become effective so as to permit the sale or other disposition of
said shares by me; or (ii) there is presented to Waterlink, Inc. an
opinion of counsel satisfactory to Waterlink, Inc. to the effect that
the sale or other proposed disposition of said shares of Common Stock
by me may lawfully be made otherwise than pursuant to an effective
registration statement or post-effective amendment to a registration
statement relating to the said shares under the Securities Act of
1933, as amended."
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of any Stock Option
granted under this Plan prior to (i) the obtaining of any approval from any
governmental agency which the Administrator shall, in its sole discretion,
determine to be necessary or advisable; (ii) the admission of such shares to
listing on any national securities exchange on which the shares of Common Stock
may be listed; (iii) the completion of any registration or other qualifications
of the shares of Common Stock under any state or federal law or ruling or
regulations of any governmental body which the Administrator shall, in its sole
discretion, determine to be necessary or advisable or the determination by the
Administrator, in its sole discretion, that any registration or other
qualification of the shares of Common Stock is not necessary or advisable, or
(iv) the obtaining of an investment representation from the optionee in the form
stated above or in such other form as the Administrator, in its sole discretion,
shall determine to be adequate.
11. GENERAL PROVISIONS. The form and substance of Stock Option
agreements made hereunder, whether granted at the same or different times, need
not be identical. Nothing in this Plan or in any Stock Option agreement shall
confer upon any employee any right to continue in the employ of the Company or
any of its subsidiary corporations or affiliates or to interfere with or limit
the right of the Company or any subsidiary corporation or affiliate to terminate
his employment at any time, with or without cause. Nothing contained in this
Plan or in any Stock Option shall be construed as entitling any optionee to any
rights of a shareholder as a result of the grant of a Stock Option, until such
time as shares of Common Stock are actually issued to such optionee pursuant to
the exercise of such Option. This Plan may be assumed by the successors and
assigns of the Company. The liability of the Company under this Plan and any
sale made hereunder is limited to the obligations set forth herein with respect
to such sale and no term or provision of this Plan shall be construed to impose
any liability on the Company in favor of any employee (or any other party acting
on his behalf
8
<PAGE> 9
or in his stead) with respect to any loss, cost or expense which such employee
or party may incur in connection with or arising out of any transaction in
connection with this Plan. The cash proceeds received by the Company from the
issuance of shares of Common Stock pursuant to this Plan will be used for
general corporate purposes. The expense of administering this Plan shall be
borne by the Company. The captions and section numbers appearing in this Plan
are inserted only as a matter of convenience. They do not define, limit,
construe or describe the scope or intent of the provisions of this Plan.
12. PROVISIONS APPLICABLE SOLELY TO INSIDERS. The following provisions
shall apply only to persons who are subject to Section 16 of the Exchange Act
with respect to securities of the Company ("Insiders"), and shall apply to
Insiders notwithstanding any provision of the Plan to the contrary:
(a) No Insider shall be permitted to transfer any security the
Company acquired by him, except to the extent permitted by 17 C.F.R.
Section 240.16a-2(D)(1), upon the exercise of any Stock Option,
until at lest [sic] six (6) months and one (1) day after the later
of (i) the day on which such security is granted to the Insider or
(ii) the day on which the exercise or conversion price of such
security is fixed.
(b) An Insider may elect to have shares withheld from a Grant or
tender shares to the Company in order to satisfy the tax withholding
consequences of a Grant only during the period beginning on the third
business day following the date on which the Company releases the
financial information specified in 17 C.F.R. Section
240.16b-3(e)(1)(ii) and ending on the twelfth business day following
such date. Notwithstanding the foregoing, an Insider may elect to
have shares withheld from a Grant in order to satisfy tax
withholding consequences thereof by providing the Company with a
written election to so withhold at least six (6) months in advance
of the withholding of shares otherwise issuable upon exercise of a
Stock Option.
13. TERMINATION OF THIS PLAN. This Plan shall terminate on February 1,
2005, and thereafter no Stock Options shall be granted hereunder. All Stock
Options outstanding at the time of termination of this Plan shall continue in
full force and effect according to their terms and the terms and conditions of
this Plan.
9
<PAGE> 1
Exhibit 10.12
SUBORDINATED NOTE PURCHASE AGREEMENT AND CREDIT FACILITY
AMONG
WATERLINK, INC.
AND
THE PURCHASERS NAMED HEREIN
DATED AS OF MARCH 6, 1997
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I DEFINITIONS....................................................................1
1.1 Definitions....................................................................1
1.2 Accounting Terms...............................................................6
1.3 References to Documents........................................................6
ARTICLE II PURCHASE AND SALE OF NOTES.....................................................6
2.1 Purchase and Sale of Notes.....................................................6
2.2 Interest Rate..................................................................7
2.3 Method of Payment and Prepayment...............................................8
2.4 The Closing....................................................................9
2.5 Delivery of the Note...........................................................9
2.6 Allocation of Purchase Price..................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES................................................10
3.1 Representations and Warranties of the Company.................................10
3.2 Representations and Warranties of the Purchasers..............................12
ARTICLE IV CONDITIONS PRECEDENT TO CLOSING...............................................13
4.1 Conditions Precedent to Obligations of the Purchasers.........................13
4.2 Conditions Precedent to Obligations of the Company............................15
ARTICLE V COVENANTS.....................................................................15
5.1 Financial Statements and Reports..............................................15
5.2 Compliance with Small Business Investment Act.................................16
5.3 Use of Proceeds...............................................................16
5.4 Dividends.....................................................................17
ARTICLE VI SUBORDINATION.................................................................17
6.1 Subordination.................................................................17
6.2 Subrogation...................................................................21
6.3 Constructive Trust, Etc.......................................................21
6.4 Restrictions on Additional Subordinated Indebtedness..........................21
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE VII DEFAULTS......................................................................22
7.1 Defaults......................................................................22
7.2 Cross Acceleration............................................................23
ARTICLE VIII INDEMNITY.....................................................................23
8.1 Indemnification by the Company................................................23
8.2 Indemnification by Purchasers.................................................24
ARTICLE IX MISCELLANEOUS.................................................................24
9.1 Survival of Provisions........................................................24
9.2 Termination...................................................................24
9.3 Waiver Modifications in Writing...............................................24
9.4 Notice........................................................................25
9.5 Determinations................................................................26
9.6 Execution in Counterparts.....................................................26
9.7 Binding Effect; Assignment....................................................26
9.8 Governing Law.................................................................26
9.9 Severability of Provisions....................................................26
9.10 Headings......................................................................26
9.11 Entire Agreement..............................................................27
</TABLE>
ii
<PAGE> 4
SUBORDINATED NOTE PURCHASE AGREEMENT AND CREDIT FACILITY
--------------------------------------------------------
SUBORDINATED NOTE PURCHASE AGREEMENT AND CREDIT FACILITY, dated
as of March 6, 1997 (the "Agreement"), by and among Waterlink, Inc., a Delaware
corporation (the "Company"), Brantley Venture Partners III, L.P. ("Brantley")
and the Purchasers (the "Purchasers") named on the execution pages hereof.
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
1.1 DEFINITIONS. As used in this Agreement, unless the context requires
a different meaning, the following terms have the meanings indicated:
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"ADVANCE" means purchases and sales of Notes in accordance with Article
II of this Agreement.
"ADVANCE FEE" has the meaning provided for in Section 2.1(d) of this
Agreement.
"AFFILIATE" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person in question. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"AGREEMENT" means this Note Purchase Agreement, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
"ASSET SALE" means the sale by the Company or any of the Subsidiaries
of the Company to any Person of all or substantially all of the assets
of the Company.
"BCC" means Brantley Capital Corporation.
"BOA" means BOAI, BOA London and BOA Frankfurt.
<PAGE> 5
"BRANTLEY" means Brantley Venture Partners III, L.P.
"BRANTLEY GUARANTY" means that certain Guaranty executed by Brantley,
dated as of February 26, 1997, in favor of BOAI under the Loan
Documents.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day in which banking institutions in the State of
Ohio are authorized or obligated by law to close.
"CHANGE IN CONTROL" means any (1) merger, consolidation or similar
transaction in which the Company is not the surviving corporation into
an entity with a class of equity securities registered under the
Exchange Act or (ii) any merger, consolidation or similar transaction
with a Person not having a class of securities registered under the
Exchange Act and as a result of which the holders of voting securities
of the Company immediately prior thereto receive or hold less than
sixty-seven percent (67%) of the securities of the Company or its
successor immediately thereafter.
"CLOSING" has the meaning provided therefor in Section 2.4(a) of this
Agreement.
"CLOSING DATE" has the meaning provided therefor in Section 2.4(a) of
this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended, as in
effect on the date of this Agreement and any successor code thereto.
"COMMISSION" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Act.
"COMMON STOCK" has the meaning provided therefor in Section 3.1(a) of
this Agreement.
"COMPANY" means Waterlink, Inc., a Delaware corporation.
"EOF" means Environmental Opportunities Fund, L.P.
"EOFC" means Environmental Opportunities Fund (Cayman), L.P.
"EVENT OF DEFAULT" has the meaning provided therefor in Section 7.1 of
this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
2
<PAGE> 6
"GAAP" means generally accepted accounted principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by a
significant segment of the accounting profession, that are applicable
to the circumstances as of the date of determination.
"GERMAN CREDIT AGREEMENT" means the Credit Agreement, dated as of March
4, 1997, among the Company, Provista Einhundertsechsundfunfzigste
Verwaltungsgesellschaft mbH (to be known as Waterlink (Germany) GmbH),
and Bank of America National Trust and Savings Association, Frankfurt
Branch ("BOA Frankfurt"), as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"HOLDER" OR "NOTEHOLDER" means a registered holder of a Note(s).
"INDEBTEDNESS" as applied to any Person, means (i) all indebtedness for
borrowed money, (ii) that portion of obligations with respect to
capital leases or industrial revenue or development bonds that is
properly classified as a liability on a balance sheet in conformity
with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for
borrowed money, (iv) any obligation owed for all or any part of the
deferred purchase price of the property or services (excluding any such
obligations incurred under an employee benefit plan, which purchase
price is (y) due more than six months from the date of incurrence of
the obligation in respect thereof or (z) evidenced by a note or similar
instrument and excluding, in connection with any business acquisition
by the Company or its subsidiaries, any earnout obligations or deferred
purchase price therefor, whether or not evidenced by promissory notes)
and (v) all indebtedness secured by any Lien (other than trade
indebtedness secured by a statutory lien) on any property or asset
owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person.
"INTEREST PAYMENT DATE" has the meaning provided therefor in Section
2.2 of this Agreement.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended, and the rules and regulations promulgated by the Commission
thereunder.
"IPO" means any initial firm commitment underwritten public offering of
Common Stock of the Company, the gross proceeds of which to the Company
and/or the selling stockholders (if any) are at least $30,000,000.
"IPP95" means IPP95, L.P.
3
<PAGE> 7
"LIEN" means any mortgage, pledge, security interest, encumbrance,
statutory lien, hypothecation or charge of any kind (including, without
limitation, any conditional sale or other title retention agreement or
lease in the nature thereof, any sale of receivables with recourse
against the seller or any other Person except the account debtors, any
filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect
ownership by a third party of property under a lease which is not in
the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person).
"LOAN DOCUMENTS" means the Loan Documents under, and as defined in, the
Waterlink Credit Agreement, the German Credit Agreement and the Sweden
Credit Agreement.
"MAXIMUM AGGREGATE ADVANCES" has the meaning provided therefor in
Section 2.1(a) of this Agreement.
"NCCC" means National City Capital Corporation.
"NOTE" or "NOTES" means the Subordinated Notes due 2002 to be issued by
the Company to the Purchasers hereunder, in substantially the form of
Exhibit A hereto.
"OFFERING DOCUMENTS" means, collectively, this Agreement, the Note, the
Warrant Agreement, the Registration Rights Agreement and the Warrants.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or
other entity of any kind.
"PREPAYMENT EVENT" means the earlier of (i) an IPO, (ii) a Change in
Control or (iii) an Asset Sale.
"PRO-RATA PERCENTAGE" means for any Holder the percentage determined by
dividing (i) the aggregate principal amount of Notes held by such
Holder by (ii) the aggregate principal amount of Notes outstanding. The
initial Pro-Rata Percentage is set forth on the signature pages hereto
of the Purchasers.
"PURCHASER" means each Person who accepts and agrees to the terms
hereof as indicated by signature on the execution page of this
Agreement or counterpart as referred to in Section 9.6 of this
Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the agreement providing the
Purchasers with certain registration rights pertaining to the Common
Stock underlying the Warrants, in the form of the attached Exhibit B.
4
<PAGE> 8
"REPRESENTATIVES" means, collectively, the directors, officers,
partners, employees, agents or representatives, including, without
limitation, financial advisors, attorneys, accountants, experts,
consultants or agents of the Purchasers.
"REQUIRED PREPAYMENT" has the meaning provided for in Section 2.3(c) of
this Agreement.
"RIVER CITIES" means River Cities Capital Fund Limited Partnership.
"SBA" mean the U.S. Small Business Administration.
"SECURITIES" means any stock, shares, voting trusts, certificates,
bonds, debentures, options, warrants, notes, or other evidences of
indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as "Securities"
or any certificates of interest, shares or participation in temporary
or interim certificates for the purchase or acquisition of, any rights
as subscribed to, purchased or acquired, any of the foregoing.
"SECURITYHOLDERS' AGREEMENT" means that certain Amended and Restated
Stockholders' Agreement in the form of Exhibit C hereto to be executed
by the Company and the Purchasers on the Closing Date.
"SENIOR CREDIT FACILITY" means the credit facilities evidenced by the
Loan Documents.
"SENIOR INDEBTEDNESS" has the meaning provided therefor in Section
6.1(a) of this Agreement.
"SERIES A SHARES," "SERIES B SHARES," AND "SERIES C SHARES" have the
meanings provided for in Section 3.1(e) of this Agreement.
"SHARE PURCHASE AGREEMENT" means the Share Purchase Agreement among
AWPE Svenska AB, Anglian Water Holdings GmbH and the Buyers (as defined
therein), dated March 4, 1997.
"SMALL BUSINESS ACT" has the meaning provided for in Section 3.1(f) of
this Agreement.
"SUBORDINATED INDEBTEDNESS" means the indebtedness evidenced by the
Notes.
"SUBSEQUENT CREDIT FACILITY" means any credit facility entered into
upon or after termination of the Senior Credit Facility.
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"SUBSEQUENT LOAN DOCUMENTS" means the Subsequent Security Documents and
all such other documents entered into in connection with a Subsequent
Credit Facility, including, without limitation, a credit agreement
between the Company, any Subsidiaries of the Company and a Subsequent
Senior Lender.
"SUBSEQUENT SECURITY DOCUMENTS" means security documents entered into
in connection with a Subsequent Credit Facility.
"SUBSEQUENT SENIOR LENDER" means the lender(s) under any Subsequent
Credit Facility.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the
total voting power of shares of stock entitled without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the
Subsidiaries of that Person or a combination thereof.
"SWEDEN CREDIT AGREEMENT" means the Credit Agreement, dated as of March
4, 1997, among the Company, Gigantissimo 2061 AB (to be known as
Waterlink (Sweden) AB) and Bank of America National Trust and Savings
Association, London Branch ("BOA London"), as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"TERMINATION DATE" means the earlier of (i) December 31, 1997 or (ii) a
Prepayment Event.
"WARRANT" or "WARRANTS" means the warrants to purchase Common Stock of
the Company to be issued to the Purchasers pursuant to the terms of the
Warrant Agreement.
"WARRANT AGREEMENT" means the Warrant Agreement of even date herewith,
in the form of Exhibit D hereto, among the Company and the Purchasers.
"WATERLINK CREDIT AGREEMENT" means the Credit Agreement, dated as of
February 19, 1997, among the Company, the financial institutions from
time to time party thereto and Bank of America Illinois ("BOAI"), as
agent, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP as in effect from time to
time, including, without limitation, applicable statements, bulletins, and
interpretations issued by the Financial Accounting Standards Board and
bulletins, opinions, interpretations, and statements issued by the American
Institute of Certified Public Accountants or its committees. When used herein,
the term "financial statements" shall include the notes and schedules thereto.
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1.3 REFERENCES TO DOCUMENTS. Any terms referring to instruments,
agreements or documents used herein shall mean and include such documents as
they may hereafter be amended, supplemented, modified or restated from time to
time.
ARTICLE II
----------
PURCHASE AND SALE OF NOTES
--------------------------
2.1 Purchase and Sale of Notes.
--------------------------
(a) ADVANCES. Subject to the provisions of this
Agreement, up to and including the Termination Date, each Purchaser for
itself and not for the others, hereby agrees to make Advances to the
Company up to but not exceeding an aggregate unpaid principal amount at
any one time outstanding equal to such Purchaser's Pro-Rata Percentage
multiplied by the difference between (i) Ten Million Dollars
($10,000,000) and (ii) the maximum amount guaranteed by Brantley under
the Brantley Guaranty (the "Maximum Aggregate Advances"). Upon
repayment of any Note or Notes, the principal amount thereof may not be
reborrowed by the Company. To the extent that Brantley or any
Contributor under the Contribution and Indemnification Agreement of
even date herewith among the parties hereto makes a payment under the
Brantley Guaranty, the amount of such payments shall be deemed an
Advance hereunder.
(b) ADVANCE PROCEDURE. Advances shall be made pursuant
to the Company's written or facsimile request therefor (a "Request for
an Advance"), given by the Company to Purchasers no later than three
(3) Business Days prior to the date of disbursement (other than for the
initial Advance hereunder if on the Closing Date) stating the date of
the proposed borrowing, and the amount of the aggregate and each
Purchaser's Advance. Each Request for an Advance shall be signed by an
authorized person of the Company. Each borrowing shall consist of an
Advance made by each Purchaser in an amount equal to its Pro-Rata
Percentage of such borrowing and shall be in $100,000 multiples from
each Purchaser (treating EOF and EOFC as a single Purchaser for this
purpose only) and aggregate not less than $1,000,000 from all
Purchasers. Each Purchaser shall make available to the Company in
immediately available funds the amount of such Purchaser's Pro-Rata
Percentage of the Advances on the date requested in the Request for an
Advance. In the event that upon any request for an Advance Brantley
Capital Corporation ("BCC") shall not have received the exemptive order
necessary for it to purchase Notes and Warrants as provided herein,
then each other Purchaser shall have the option to advance its pro rata
portion of the Advance that otherwise would have been required of BCC.
(c) NOTES. The Company shall execute and deliver to each
Purchaser a Note upon each Advance from such Purchaser.
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(d) ADVANCE FEE. Upon issuance of any Note to any
Purchaser, the Company shall pay to such Purchaser a fee ("Advance
Fee") equal to one percent (1%) of the principal amount of the Note
then issued; provided that the Advance Fee payable to IPP95 shall be
two percent (2%).
2.2 INTEREST RATE. The Company shall pay interest on the principal
amount of the Notes from time to time outstanding at the rate of twelve percent
(12%) (eight percent (8%) to IPP95 for the initial three month period of its
Notes) per annum for the period from and including the date of issuance of any
Note through, but not including the first anniversary date thereof and fourteen
percent (14%) per annum thereafter until the same shall be paid in full.
Interest payments shall be made quarterly in arrears on each June 30, September
30, December 31 and March 31 (collectively referred to herein as an "Interest
Payment Date"), commencing June 30, 1997. Interest will be computed on the basis
of a 360-day year and the actual number of days elapsed. Whenever any payment to
be made under the Notes shall be stated to be due on a day which is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time in such case shall be included in the computation of the
payment of interest on the Notes.
2.3 Method of Payment and Prepayment.
--------------------------------
(a) The Company shall make Required Prepayments of the
principal amount of the Notes as and to the extent required by Section
2.3(c) hereof, on a pro rata basis, and may make voluntary principal
prepayments, which voluntary principal prepayments will be made on a
pro rata basis, from time to time of principal amount of the Notes in
aggregate amounts of not less than $100,000 without premium or penalty.
Any payments made on the Notes, whether of principal, interest or
premium (if any), shall be made ratably to all the Noteholders. If the
Company sets a date for the prepayment of any part of the principal
amount of the Notes, any prepayments of principal due on such date
shall be accompanied by the payment of all accrued and unpaid interest
on the portion of the principal amount of the Notes being prepaid to
the date fixed for prepayment. The Company will maintain records of the
amount of each Note, all payments and prepayments of principal and
interest thereon, the current outstanding principal balance thereof and
other appropriate information relating to the Notes. The Holder must
surrender its Note to the Company to collect the final principal
payment in cash on the Note at maturity, upon any Required Prepayment
or in the event the Company voluntarily prepays the Note in full. Any
prepayments on the Notes shall be applied in inverse order to Advances
made (i.e. last in, first out).
(b) The Company shall pay principal and interest in
money of the United States of America that at the time of payment is
legal tender for payment of public and private debts. So long as the
Purchaser shall be a Noteholder, the Company will pay (i) by wire
transfer of immediately available funds all sums becoming due on each
Note registered in the name of the Purchaser pursuant to the wire
transfer instructions provided by such Purchaser, or (ii) by mailing a
check to such Purchaser's address as the same appears on the
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<PAGE> 12
books of the Company or such other address such Purchaser shall have
designated by notice to the Company, without presentment and without
notations being made thereon. All sums becoming due on each Note shall
be paid to the Purchaser thereof without reservation of any sums
therefrom for or on account of withholding (except to the extent
otherwise required by law), counterclaim or set off.
(c) To the extent that on or after March 6, 1999, the
Company refinances the Senior Credit Facility with a Subsequent Credit
Facility or suffers to exist any other Senior Indebtedness, which
Subsequent Credit Facility and other Senior Indebtedness, together,
provide aggregate senior credit to the Company of $30,000,000 or more
and the Company's Leverage Ratio (as defined in Section 8.16 of the
Waterlink Credit Agreement as in effect on the date hereof) exceeds 4.5
to 1.0, the Company shall prepay (a "Required Prepayment") the Notes in
an amount equal to the amount of such aggregate senior credit in excess
of $30,000,000. The Required Prepayment shall be made upon such
refinancing. The Notes shall be due and payable, subject to the terms
contained therein, together with all accrued interest thereon, on the
earlier of (i) March 6, 2002 or, solely as to NCCC and River Cities,
five (5) years from the date of the first Advance, or (ii) upon the
occurrence of a Prepayment Event.
2.4 The Closing.
-----------
(a) Subject to Section 2.4(b) and subject also to the
satisfaction or waiver of each of the conditions precedent to the
Closing set forth in Article IV, the initial purchase and sale of Notes
in the aggregate principal amount specified in the Company's initial
Request for an Advance, if any, up to the Maximum Aggregate Advances
shall take place at a closing (the "Closing") at the offices of
Benesch, Friedlander, Coplan & Aronoff, 2300 BP America Building, 200
Public Square, Cleveland, Ohio 44114, on the date hereof ("Closing
Date"), or at such other place agreed upon by the parties hereto.
(b) The Closing is conditioned on the simultaneous or
prior closings of the transactions contemplated by the Share Purchase
Agreement and the Loan Documents and the satisfaction or waiver of all
other conditions to Closing set forth in Article IV of this Agreement.
As a result, the Closing Date is subject to change. The Company has
provided or promptly shall provide each Purchaser which is a party to
this Agreement with written notice of any anticipated initial Advance
hereunder to be made on the Closing Date.
(c) Once each of the Purchasers is notified by the
Company personally (if in attendance at the Closing) or by telephone
that each and every condition to Closing has been or, simultaneously
with such Purchaser's payment hereunder, will be, either satisfied or
waived, each Purchaser shall then cause payment of the principal amount
of the Notes being purchased on such date, if any, to be made to the
Company by wire transfer of immediately available funds. The Company
shall have furnished to the Purchasers the
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<PAGE> 13
account information at the time the Company notifies the Purchasers of
the date and time of the Closing.
(d) The obligation of the Purchasers to make any Advance
hereunder shall be subject to satisfaction of the following conditions
that at the date of making such Advance, and after giving effect
thereto: (a) no Event of Default or event which with the passage of
time or giving of notice, or both, would constitute an Event of
Default, shall have occurred and be then continuing and (b) each
representation and warranty set forth in Section 3 hereof is true and
correct as if then made. The acceptance by the Company of the proceeds
of any Advance shall be deemed to constitute as of the date of
acceptance a representation and warranty by the Company that all
conditions to make such Advance set forth in this Agreement have been
satisfied.
2.5 DELIVERY OF THE NOTE. Delivery of the Note purchased by a Purchaser
pursuant to this Agreement shall be made by the Company upon any Advance by
delivering to each such Purchaser against payment of the purchase price
therefor, a Note substantially in the form of Exhibit A attached to this
Agreement. As soon as practicable following the Closing, the Company shall
deliver a Note to each Purchaser not in attendance at the Closing who has paid
the full purchase price therefor in accordance with the provisions of Section
2.4(c) hereof. The Notes will be registered in the name of such Purchaser. The
Notes may only be transferred together with the related Warrants, subject
otherwise only to the express terms of the Warrant Agreement, the Warrants and
that certain Indemnification and Contribution Agreement, dated as of February
26, 1997, among Purchasers and Brantley and acknowledged by the Company.
2.6 ALLOCATION OF PURCHASE PRICE. Each Purchaser and the Company agree
that, as determined in accordance with Section 1.1273-2(h) of the Regulations
promulgated pursuant to the Code as amended, the issue price for federal income
tax purposes to be allocated to each Note issued together with the Warrants
shall equal $970,000 for each $1,000,000 of principal amount of such Note, and
the issue price for the Warrants attributable to such $1,000,000 of principal
shall equal $30,000.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and covenants and agrees with, as of the Closing
Date and as of the date of each Advance, each of the Purchasers as follows, it
being acknowledged and agreed by the Company that each of the Purchasers is
relying upon such representations and warranties and covenants for the purpose
of making and undertaking the representations, warranties and covenants set
forth in Section 3.2 and in the purchase of the Notes hereunder:
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<PAGE> 14
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The
Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and is duly
licensed or qualified to do business as a foreign corporation and in
good standing in each other jurisdiction in which it owns or lease any
real property or in which the nature of business transacted by it makes
such licensing or qualification necessary and where the failure to be
so licensed or qualified would have a material adverse effect on the
operations or financial condition of the Company. The Company has the
corporate power and authority to own and hold its properties and to
carry on its business as currently conducted and as proposed to be
conducted, and to execute, deliver and perform this Agreement and the
transactions contemplated hereby, and to issue, sell and deliver Notes
and the Warrant and, upon exercise of the Warrants, to issue and
deliver the number of the shares of Common Stock, $.001 par value
("Common Stock"), of the Company issuable upon such exercise (the
"Conversion Shares"). The Company does not own of record or
beneficially, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into capital stock of any other
corporation other than shares of capital stock of its Subsidiaries, or
(ii) any participating interest in any partnership, joint venture or
other non-corporate business enterprise.
(b) AUTHORIZATION OF AGREEMENT. The execution, delivery
and performance by the Company of this Agreement and the other
agreements and transactions contemplated hereby to be delivered or
completed, the issuance, sale and delivery of the Notes, and the
delivery of the Conversion Shares upon exercise of the Warrants have
been duly authorized by all requisite corporate action and do not
violate any provision of law, any order of any court or other agency of
government, the Fourth Amended and Restated Certificate of
Incorporation (as amended) or the By-laws of the Company, or any
provision of any indenture, agreement or other instrument by which the
Company or any of its properties or assets is bound or affected, or
conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(c) AUTHORIZATION OF CONVERSION SHARES. The Conversion
Shares have been duly reserved for issuance upon exercise of the
Warrants and, when so issued, will be duly authorized, validly issued
and outstanding, fully paid and non-assessable shares of Common Stock.
Neither the issuance, sale and delivery of the Notes, nor the issuance
and delivery of the Conversion Shares upon exercise of the Warrants is
subject to any preemptive rights of stockholders of the Company or to
any right of first refusal or other similar right in favor of any
person, except as provided in the Securityholders Agreements, the
provisions of which have been complied with by the Company.
(d) VALIDITY. This Agreement and the other agreements
and documents contemplated hereby to be executed and delivered have
been duly executed and delivered by the Company and constitute the
legal, valid and binding obligations of the company,
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enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, fraudulent conveyance and other similar laws and
principles of equity affecting creditors' rights and remedies
generally.
(e) CAPITAL STOCK. The authorized capital stock of the
Company as of the date hereof is as set forth on Schedule 3.1 hereto.
(f) SMALL BUSINESS CONCERN. The Company acknowledges
that River Cities and NCCC are Federal licensees under the Small
Business Investment Act of 1958, as amended (the "Small Business Act").
The Company, together with its "affiliates" (as that term is defined in
Title 13, Code of Federal Regulations, ss. 121.101 ET SEQ.), is a
"small business concern" within the meaning of the Small Business Act
and the regulations thereunder, including Title 13, Code of Federal
Regulations, ss. 121.101 ET SEQ. The information regarding the Company
and its affiliates set forth in the SBA Forms 480, 652 and 1031
delivered at the Closing shall be accurate and complete. The Company
does not presently engage in, and it shall not hereafter engage in, any
activities, nor shall the Company use directly or indirectly the
proceeds hereunder for any purpose for which a Small Business
Investment Company is prohibited from providing funds by the Small
Business Act and the regulations thereunder (including Title 13, Code
of Federal Regulations, ss. 107.720 ET SEQ.).
(g) OFFERING OF THE NOTES. Neither the Company nor any
person acting on its behalf has taken or will take any action which
might subject the offering, issuance or sale of the Notes to the
registration provisions of the Act.
(h) DISCLOSURE. As of the date hereof, neither this
Agreement nor any Schedule annexed hereto, nor any certificate or other
instrument referred to herein and furnished to the Purchasers by the
Company, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
contained therein or herein, in the light of the circumstances under
which they were made, not misleading. During the course of the
transaction and prior to any Purchaser's purchase of the Notes, the
Company has provided to such Purchaser, or allowed such Purchaser free
access to, the information sufficient to allow the Purchasers to make
an informed investment decision. As of the date hereof, to the best
knowledge of the Company's management, there is no fact known to the
Company relating to its business, affairs, operations, condition,
prospects, properties or assets which may materially adversely affect
it and which has not been disclosed to the Purchasers by the Company.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers, severally and not jointly, represents and warrants to, and covenants
and agrees with, the Company as follows, it being acknowledged and agreed by
each such Purchaser that the Company is relying upon such representations and
warranties and covenants for the purpose of making and undertaking
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the representations, warranties and covenants set forth in Section 3.1 and
Article V of this Agreement and in the issuance and sale of the Notes hereunder:
(a) The Note and Warrants to be acquired by it pursuant
to the Offering Documents (i) are being acquired for its own account
and with no intention of distributing or reselling such Note or
Warrants or any part thereof (except in compliance with the Act and the
Offering Documents) and (ii) have not been, and will not be, registered
under the Act, by reason of their issuance by the Company in a
transaction exempt from the registration requirements of the Act, and
each Purchaser acknowledges that the Note and Warrants may not be sold,
transferred, pledged or hypothecated unless such sale, transfer, pledge
or hypothecation is pursuant to an effective registration statement
covering such Note and Warrants and filed in accordance with the Act or
is exempt from such registration in the opinion of counsel reasonably
acceptable to the Company.
(b) That it is an "accredited investor" as defined in
Rule 501(a) under the Act
(c) That (i) it is authorized, and has all requisite
power and authority, to execute and deliver this Agreement and perform
the obligations and duties created hereby;
(ii) this Agreement has been duly and validly executed
by it and constitutes its valid and binding obligation, enforceable in
accordance with its terms; (iii) the purchase of the Note and Warrants
does not violate its charter, by-laws, partnership agreement, agreement
of trust or similar document or any law or regulation to which it is
subject; (iv) it has had a full opportunity to request from the Company
and to review and has received all information which it deems relevant
in making a decision to purchase the Notes and Warrants being purchased
or to be purchased by it hereunder and the Conversion Shares, (v) it
will comply with the restrictions on transferability of the Warrants
and the Conversion Shares contained in the Securityholders' Agreement,
(vi) it has the experience in making investments to make its own
investment decision, (vii) it is able to withstand the total loss of
its investment in the Company and (viii) it acknowledges that it has
made its investment decision with respect to all of the Notes being
purchased and to be purchased by it hereunder and further acknowledges
that it is not entitled to any further disclosure in connection with
the Company's requiring Advances hereunder.
ARTICLE IV
----------
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
4.1 COMPANY OBLIGATIONS. The obligations of each Purchaser to purchase
the Note to be purchased by it hereunder is subject, at or prior to the Closing
Date and as specified below on each Advance date, to the satisfaction of each of
the following conditions (any and all of which may be waived in writing by any
of the Purchasers on behalf of themselves individually); provided that the
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<PAGE> 17
obligatons of BCC are subject to its having received an exemptive order from the
Securities and Exchange Commission permitting its purchase of Notes and Warrants
as provided for herein.
(a) The representations and warranties made by the Company
herein shall be true and correct in all material respects on and as of
the Closing Date and on each Advance date with the same effect as
though such representations and warranties had been made on and as of
the Closing Date and each Advance date, as the case may be, and the
Company shall have complied in all material respects with all
agreements hereunder required to be performed by it at or prior to the
Closing Date and on each Advance date.
(b) Neither the purchase of the Note agreed to be purchased by
such Purchaser hereunder nor the performance of any other obligations
of such Purchaser under the Offering Documents shall at the Closing
Date or any Advance date be prohibited or enjoined (temporarily or
permanently) under the laws of any jurisdiction to which Purchaser is
subject.
(c) On the Closing Date and each Advance date, each Purchaser
shall have received a certificate, dated the Closing Date, signed by an
authorized officer of the Company stating that the conditions specified
in Sections 4.1(a) and 4.1(b) have been satisfied, unless otherwise
waived by such Purchaser in accordance with the terms hereof.
(d) On the Closing Date, each Purchaser shall have received a
certificate, dated the Closing Date, signed by the secretary or
assistant secretary or other officer of the Company attaching true and
correct copies of the certificate of incorporation and By-Laws of the
Company and a resolution or resolutions of the Company's board of
directors authorizing the transactions contemplated by this Agreement.
(e) No default or Event of Default shall exist under this
Agreement as of the Closing Date or any Advance date.
(f) Purchaser shall have received all other documents,
agreements and certificates as Purchasers may reasonably request.
(g) There shall not have been any material adverse change in
the financial condition or prospects of the Company and or the
Subsidiaries of the Company, taken as a whole, prior to the Closing
Date.
(h) At or prior to the Closing Date, all consents and
approvals necessary to effect the transactions contemplated by this
Agreement shall have been obtained.
(i) At or prior to the Closing Date, the Offering Documents
required to be executed by the Company shall have been executed by the
Company and any other parties thereto other than the Purchaser and
delivered to the Purchasers.
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(j) Notes in form and substance reasonably satisfactory to
each Purchaser and its counsel, in an aggregate principal amount of the
initial Advances made hereunder shall have been issued to the
Purchasers as of any Advance date.
(k) The Company shall have duly authorized, validly issued and
delivered the Warrants to the Purchasers pursuant to the terms of the
Warrant Agreement.
(l) The transactions contemplated by the Share Purchase
Agreement and the Loan Documents shall have closed.
(m) The Company shall have paid to the Purchasers his or its
reasonable out-of-pocket expenses, including legal fees and
disbursements incurred in connection with the transactions contemplated
by this Agreement in an amount not to exceed fifteen thousand dollars
($15,000) and, on a pro rata basis, the Advance Fee pertaining to the
Notes issued upon Closing and each Advance date, as applicable.
(n) The Company shall have executed and delivered to
Purchasers the Registration Rights Agreement.
(o) The Company shall have entered into an advisory agreement
with Sanders Morris Mundy Inc. in a form mutually acceptable to the
Company and Sanders Morris Mundy Inc.
(p) The Company shall have executed and delivered to River
Cities and NCCC a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652, and shall have provided to
River Cities and NCCC information necessary for the preparation of a
Portfolio Financing Report on SBA Form 1031.
4.2 PURCHASER OBLIGATIONS. The obligations of the Company to issue and
sell the Notes pursuant to this Agreement are subject, at the Closing Date and
as of the date of any Advance to the representations and warranties made by each
of the Purchasers being true and correct in all material respects as though such
representations and warranties had been made on and as of the Closing Date and
as of the date of any Advance, as the case may be.
ARTICLE V
---------
COVENANTS
---------
5.1 FINANCIAL STATEMENTS AND REPORTS. The Company covenants and agrees
that so long as a Purchaser or any permitted transferee of a Purchaser shall
hold of record 100 or more of the shares of Common Stock acquired by such
Purchaser pursuant to this Agreement (treating for the purpose of such
computation the holders of Series A Shares and/or Series B Shares and/or Series
C
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<PAGE> 19
Shares or Warrants as holding the maximum number of Common Shares issuable upon
conversion of such shares or exercise of such Warrants), and as to any
Noteholder so long as its Note is outstanding the Company shall furnish to such
Purchasers and each such permitted transferee and to each Noteholder:
(a) Within 120 days after the end of each fiscal year of the
Company, a balance sheet of the Company (or a consolidated balance
sheet of the Company and its subsidiaries, as the case may be) as of
the end of such fiscal year and the related statements (or consolidated
statements) of income, changes in stockholders' equity and changes in
financial position of the Company (or of the Company and its
subsidiaries) for the fiscal year then ended, together with supporting
notes thereto, certified without qualification as to scope of audit by
a firm of independent public accountants of national standing selected
by the Company and reasonably acceptable to the Purchasers and each
such transferee;
(b) Within 30 days after the end of each month in each fiscal
year, a balance sheet of the Company and its subsidiaries, as the case
may be, and the related statement (or consolidated statements) of
income and changes in financial position, unaudited but certified by
the chief financial officer of the Company, such balance sheets to be
as of the end of such month and such statements of income to be for
such month and for the period from the beginning of the fiscal year to
the end of such month, in each case subject to normal and recurring
year-end adjustments; provided, however, that in the event that such
balance sheet and related statements of income cannot be prepared
within such 30-day period because of inadequacies in the accounting
system of any entity acquired by the Company, the Company shall furnish
such balance sheet and related statements of income as soon thereafter
as is possible, and the Company shall use reasonable efforts to remedy
such inadequacies so that future balance sheets and related statements
of income may be prepared within the applicable 30-day periods;
(c) Within 30 days prior to the beginning of each fiscal year
of the Company (and with respect to any revision thereof, promptly
after such revision has been prepared), a proposed operating budget for
the Company (or of the Company and its subsidiaries, as the case may
be), insofar as practicable, including projected monthly income
statements, cash flow statements during such fiscal year and a
projected balance sheet as of the end of such fiscal year, and each
monthly financial statement furnished pursuant to 9(b) above shall
reflect variances from such operating budget, as same may from time to
time be revised; provided, however, that in the event that such annual
budget cannot be prepared within such 30-day period because of
inadequacies in the accounting system of any entity acquired by the
Company, the Company shall furnish such annual budget as soon
thereafter as is possible, and the Company shall use reasonable efforts
to remedy such inadequacies so that future annual budgets may be
prepared within the applicable 30-day periods;
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(d) Promptly upon filing, copies of all registration
statements, prospectuses, periodic reports and other documents filed by
the Company with the Securities and Exchange Commission; and
(e) Promptly, from time to time, such other information
regarding the operations, business, affairs and financial condition of
the Company or any Subsidiary as Purchaser or any permitted transferee
of a Purchaser may reasonably request.
5.2 COMPLIANCE WITH SMALL BUSINESS INVESTMENT ACT. The Company agrees
to provide River Cities and NCCC with sufficient information to permit River
Cities and NCCC to comply with its obligations under the Small Business Act and
the regulations thereunder. Upon reasonable request, the Company shall also
provide River Cities and NCCC with (i) access to the Company's properties,
places of business, records (including financial records) and offices during
business hours and (ii) the opportunity to discuss the affairs, finances and
accounts of the Company with the officers. River Cities and NCCC and
representatives of the SBA shall be given access to the Company's records to
confirm that the proceeds received by the Company in connection with the Closing
are used for the purposes delineated in Section 5.3. The President of the
Company shall certify to River Cities and NCCC, within three (3) months of the
date of the Closing, that the Company has used the proceeds in accordance with
the purposes delineated in Section 5.3.
5.3 USE OF PROCEEDS. The Company agrees to use the investment proceeds
from each Purchaser that is a Small Business Investment Company for prospective
acquisitions, and/or for working capital. If the Company shall, without the
consent of such Purchaser, use the proceeds from such Purchaser's investment for
a purpose not described above, such Purchaser may demand that the Company
repurchase the Note and Warrants at a price equal to the purchase price paid for
such securities as required by SBA Regulations Section 107.305. Further, the
Company will use the investment proceeds from each Purchaser to repay any
overadvance under the Loan Documents with respect to which Brantley is a
guarantor.
5.4 DIVIDENDS. So long as any Notes are outstanding, the Company shall
not pay cash dividends on its capital stock.
ARTICLE VI
----------
SUBORDINATION
-------------
6.1 SUBORDINATION. So long as, and from time to time while, any Senior
Indebtedness is outstanding, anything in this Agreement or the Notes to the
contrary notwithstanding, the indebtedness of the Company hereunder as evidenced
by the Notes shall be subordinate and junior in right of payment, to the extent
and in the manner set forth in this Article VI, to all Senior Indebtedness of
the Company from time to time outstanding (whether outstanding at the date of
this Agreement or incurred after the date of this Agreement) and as the Notes
may at any time and from
17
<PAGE> 21
time to time be modified or amended in any respect and to all other indebtedness
hereafter made or assumed by the Company, which by the terms of such
indebtedness or by the terms of any indenture or other instrument pursuant to
which such indebtedness is made, assumed or incurred is specifically designated
as "Senior Indebtedness" for the purposes of this Agreement and which is
permitted to be issued, made, assumed and incurred according to the terms of
this Agreement provided that such indebtedness is included within the definition
of Senior Indebtedness as set forth in the following paragraph (a).
(a) "Senior Indebtedness" means all indebtedness and other
obligations specified below whether outstanding on the date of this
Agreement or hereafter created, incurred or assumed by the Company:
(i) the obligations of the Company and its
Subsidiaries, including, without limitations the principal of,
and premium and interest on, all loans, letters of credit
bankers' acceptances and other extensions of credit under the
Loan Documents and all commitment, facility and other fees and
all expenses, reimbursements, indemnities and other amounts
payable by the Company thereunder;
(ii) subject to Section 2.3(c) above, all other
indebtedness of the Company which by its express terms is made
senior to the Notes; provided, however, that any indebtedness
incurred by the Company under this clause (ii) must be created
in connection with or arise out of a transaction in which the
Company or any Subsidiaries of the Company received cash loan
proceeds, property or credit support in the form of a letter
of credit, guaranty or like instrument;
(iii) all interest accrued or accruing on Senior
Indebtedness after the commencement of any insolvency,
bankruptcy or receivership case or proceeding in accordance
with and at the contract rate (including, without limitation,
any rate applicable upon default) specified in the agreement
or instrument creating, evidencing or governing any such
Senior Indebtedness, whether or not, pursuant to applicable
law or otherwise, the claim for such interest is allowable as
a claim in such case or proceeding; and
(iv) subject to Section 2.3(c) above, any
refinancings, refundings, renewals or extensions, in whole or
in part, of any indebtedness or other obligation described in
clauses (i) or (ii) above under any Subsequent Loan Documents
or otherwise.
(b) In the event of (i) any insolvency or bankruptcy
proceeding brought by or against the Company; (ii) any receivership,
liquidation, reorganization or other similar proceeding relative to the
Company or to its property, including its Subsidiaries; or (iii) any
proceedings for voluntary liquidation, dissolution or other winding up
of the Company, whether or not involving insolvency or bankruptcy, the
holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of all principal, premium (if any), fees and
18
<PAGE> 22
charges in respect of, and interest on, all Senior Indebtedness
(including interest thereon accruing after the commencement of any such
proceedings) before the holders of the Notes shall be entitled to
receive any payment or distribution in respect of the Notes. Pursuant
to the foregoing, the holders of Senior Indebtedness (until payment in
full in cash of all principal, premium (if any), fees and charges in
respect of, and interest on, all Senior Indebtedness, including
interest thereon accruing after the commencement of any such
proceedings at the rate specified in the applicable Senior Indebtedness
whether or not such interest is an allowable claim in such case or
proceeding) shall be entitled to receive for application and payment
thereof any payment or distribution of any kind or character, whether
in cash or property or securities, which may be payable or deliverable
in any such proceedings in respect of the Notes (including any such
payment or distribution which may be payable or deliverable by virtue
of the provisions of, or any security for, any securities which are
subordinate and junior in right of payment of the Notes). The Holders
of the Notes shall not exercise or attempt to exercise any right of set
off or counterclaim in respect of any obligations of the Holders of the
Notes to the Company against the obligations of the Company under the
Notes if the effect thereof shall be to reduce the amount of any such
payment or distribution to which the holders of Senior Indebtedness
would be entitled in the absence of such set off or counterclaim; and
if and to the extent that notwithstanding the foregoing, the Holders of
the Notes are required by any mandatory provision of law to exercise
any such right of set off or counterclaim each reduction of the amount
owing on account of the principal of or interest on the Notes by reason
of such set off or counterclaim shall be deemed to be a payment by the
Company in a like manner in respect of the Notes to which the second
sentence of this paragraph (b) shall apply.
(c) In the event that any default shall occur and be
continuing with respect to any Senior Indebtedness permitting the
holders, with or without the making of demand, the giving of notice or
otherwise, of such Senior Indebtedness to accelerate the maturity
thereof, the Company shall not pay and the Holders shall not be
entitled to receive any payment or distribution in respect of the Notes
of any kind, whether of principal, premium (if applicable) or interest
or, except to the extent otherwise provided in Section 6.2 of this
Agreement, institute any judicial or legal proceedings or seek to
enforce any other rights or remedies whatsoever UNLESS AND UNTIL (i) a
period of one hundred seventy-five (175) days (the "Blocking Period")
shall have elapsed from the date of such default without the same
having been cured or waived; and (ii) the Blocking Period shall have
elapsed without any holder of Senior Indebtedness having accelerated
the maturity of such Senior Indebtedness, but in such event, upon the
satisfaction of the conditions set forth in (i) and (ii) above, the
holders of the Notes will have the rights and remedies contemplated by
this Agreement.
(d) Nothing in this Agreement will prohibit the holder of any
Senior Indebtedness at any time and from time to time without the
consent of or notice to any holder of the Notes from taking any of the
following actions:
19
<PAGE> 23
(i) subject to Section 2.3(c) above, extending,
renewing, modifying, waiving or amending the terms of such
Senior Indebtedness;
(ii) following 5 days notice to the Noteholders of
the terms thereof, (or, in the case of an auction, the time
and place of sale) the sale other than by the Company in the
ordinary course of business of any material portion of the
property pledged, mortgaged or otherwise securing Senior
Indebtedness in accordance with the terms of the Loan
Documents or the Subsequent Loan Documents, PROVIDED, HOWEVER,
that the failure to deliver such notice shall not otherwise
prohibit such Person from effecting such sale pursuant to the
terms of the Loan Documents or the Subsequent Loan Documents;
(iii) exchanging, releasing or otherwise dealing with
any property pledged, mortgaged or otherwise securing Senior
Indebtedness or releasing a guarantor or any other person
liable in any manner for the Senior Indebtedness or amending
or waiving the terms of any guaranty of the Senior
Indebtedness;
(iv) exercising or refraining from exercising any
rights against the Company or any other person;
(v) applying any sums, in any manner, by whomever
paid or however realized, to the Senior Indebtedness; and
(vi) taking any other action which otherwise might be
deemed to impair the rights of the holders of the Senior
Indebtedness.
Subject to the terms of this Agreement, any and all of such
actions may be taken by the holders of Senior Indebtedness without
incurring responsibility to any Holder of the Notes and without
impairing or releasing the obligations of any Holder of the Notes to
the holders of Senior Indebtedness.
(e) No right of any present or future holder of any Senior
Indebtedness to enforce the provisions of this Article VI shall at any
time in any way be prejudiced or impaired by any action or failure to
act on the part of the Company or anyone in custody of its assets or
property or by any act or any failure to act on the part of any such
holder or any other holder of Senior Indebtedness or by any breach by
the Company of the terms of this Agreement or the Notes, irrespective
of any knowledge thereof on the part of any such holder or any other
holder of Senior Indebtedness.
(f) Each Holder of the Notes will at all times retain the
right to vote its claims and otherwise act and participate in any
insolvency, bankruptcy or reorganization proceeding relative to the
Company; provided, however, no Holder of the Notes shall take any
action or
20
<PAGE> 24
vote its claims in the course of any such bankruptcy, insolvency or
reorganization proceedings so as to:
(i) contest the validity or the enforceability of the
agreements governing Senior Indebtedness including the Loan
Documents or any Subsequent Loan Documents, the promissory
notes issued to the holders of Senior Indebtedness, or the
liens and security interests to the extent granted with
respect to the Senior Indebtedness;
(ii) contest the rights and duties of the holders of
Senior Indebtedness established in the agreements or
instruments governing the same or any security agreement with
respect to such liens and security interests;
(iii) contest the validity or enforceability of this
Article VI;
(iv) contest the validity or enforceability of this
Agreement or any agreement or instrument to the extent
evidencing or relating to the Indebtedness of Company to such
Holder; or
(v) compromise their claims so as to deprive the
holders of Senior Indebtedness of the benefit of receiving all
amounts otherwise payable to the Holders of the Notes pursuant
to the reorganization or liquidation of the Company resulting
from such proceeding;
it being understood that nothing contained in this Section 6.1(f) shall
be deemed to relieve the Company of its obligations under Section
2.3(c) of this Agreement.
(g) No Affiliate or Subsidiary of the Company may take any
action or make any payment in respect of or in regard to the Notes if
the Company would be prohibited from taking such action or making such
payment pursuant to this Article VI.
(h) The provisions of this Article VI shall be given
independent effect so that if a particular payment as to the Notes is
prohibited by any one of such provisions, it shall be prohibited
although it otherwise may not be prohibited by any other provisions.
6.2 SUBROGATION Subject to the payment in cash in full of all Senior
Indebtedness, the Holders of the Notes shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company payable or distributable to the holders of Senior Indebtedness and,
as among the Company and its Subsidiaries, their creditors and the holders of
the Notes, no payments or distributions otherwise payable or deliverable in
respect of the Notes but by virtue of the provisions thereof and of Section 6.1,
paid or delivered to the holders of Senior Indebtedness shall be deemed to be a
payment by the Company on account of the Notes.
21
<PAGE> 25
6.3 CONSTRUCTIVE TRUST, ETC. In the event that any Noteholder receives
any payment or distribution in contravention of the provisions hereof, such
Holder shall hold such payment or distribution in trust for the benefit of the
holders of Senior Indebtedness, and shall deliver such payment or distribution
to the holders of such Senior Indebtedness, or their respective representatives,
ratably according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness held or represented by each, to the extent necessary to make
payment in cash in full of all Senior Indebtedness remaining unpaid after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness.
6.4 RESTRICTIONS ON ADDITIONAL SUBORDINATED INDEBTEDNESS. The Company
will not create or suffer to exist any Indebtedness that (i) provides that it is
subordinate in right of payment to the Senior Indebtedness other than the Notes
and (ii) is senior in right of payment to the Notes or is secured.
The Company shall give to each Noteholder a copy of any notice of
acceleration of the maturity date of any Senior Indebtedness promptly upon
receipt thereof.
No present or future holder of Senior Indebtedness shall be prejudiced
in such holder's right to enforce subordination of any Note by any act or
failure to act on the part of the Company or anyone in custody of its assets or
property. The provisions of this Article VI are solely for the purpose of
defining the relative rights of the holders of Senior Indebtedness on one hand,
and the Holders of the Notes on the other hand, and nothing herein shall impair,
as between the Company and the Holders of the Notes, the obligation of the
Company, which is unconditional and absolute, to pay the Holders thereof the
principal and interest thereon in accordance with the terms thereof.
ARTICLE VII
-----------
DEFAULTS
--------
7.1 DEFAULTS. If any of the following events (herein called an "Event
of Default" or collectively "Events of Default") shall have occurred and be
continuing, that is to say:
(a) default shall be made in the payment of any interest,
principal or premium (if any) when due on any of the Notes and such
default shall have continued for a period of twelve (12) days; or
(b) the Company breaches or defaults in the performance of any
provision of this Agreement and such breach or default shall have
continued for a period of thirty (30) days; or
(c) the Company defaults in any payment of principal of or
interest on any Senior Indebtedness, beyond any period of grace
provided with respect thereto or in the performance of any other term
or condition contained in any agreement under which any such obligation
is created if the effect of such default results in Senior Indebtedness
in excess of $1,000,000
22
<PAGE> 26
becoming due prior to its stated maturity without such indebtedness
being discharged or such acceleration being rescinded or annulled
within a period of sixty (60) days; or
(d) an order for relief shall be entered in any federal
bankruptcy proceeding in which the Company is the debtor; or
bankruptcy, receivership, insolvency, reorganization, relief,
dissolution, liquidation or other similar proceedings shall be
instituted by or against the Company or all or any part of the property
of the Company under the Federal Bankruptcy Code or any other
bankruptcy or insolvency law of the United States or any bankruptcy or
insolvency law of any state of competent jurisdiction unless, if such
proceedings are instituted against the Company, such proceedings are
dismissed and discharged within ninety (90) days after they are
instituted; or
(e) the Company shall have become insolvent or unable to pay
its debts as they mature, cease doing business as a going concern,
undergo dissolution or liquidation, make an assignment for the benefit
of creditors, admit in writing its inability to pay its debts as they
become due, or if a trustee, receiver or liquidator shall be appointed
for the Company, or for any substantial portion of the assets of the
Company, and such appointment shall not be vacated within ninety (90)
days; or
(f) further, any diversion by the Company of the proceeds
hereunder from the use of proceeds as delineated in Section 5.3 shall
be an Event of Default pertaining to River Cities and NCCC requiring
the immediate repayment of River Cities' and NCCC's Notes and full
refund of the purchase price for their Warrants, plus accrued and
unpaid interest on the Notes.
then, except as provided below with respect to an Event of Default under
paragraph (a) of this Section 7.1, the Holder of the Note if only one Note shall
be outstanding, or the Holders of at least a majority of the principal amount of
the Notes, if more than one Note shall be outstanding, may at its or their
option, after notice in writing to the Company, declare the Note or all of the
Notes, as the case may be, to be forthwith due and payable and thereupon the
Note, or all of the Notes, shall be and become due and payable, together with
interest and all other amounts accrued thereon (provided that if an Event of
Default results from the filing of a voluntary petition in any bankruptcy
proceeding or the filing of an involuntary petition in any bankruptcy proceeding
which is not dismissed and discharged within ninety (90) days, the Notes
thereupon shall immediately become due and payable, with interest accrued
thereon, without any notice from the holders of the Notes or otherwise), and,
subject to the provisions of Article VI hereof, the Holder or Holders of the
Note or Notes may take any action or proceeding at law or in equity which it or
they deem advisable for the protection of its or their interests to collect and
enforce payment and the Company shall pay all expenses, court costs and
reasonable attorneys' fees incurred in connection with or arising out of any
default hereunder. Notwithstanding the foregoing, in case an Event of Default
under paragraph (a) of this Section 7.1 shall occur, the Holders shall have none
of the rights and remedies otherwise contemplated by this Section 7.1
(including, without limitation, the right to accelerate the maturity of the
Notes) UNLESS AND UNTIL (i) Blocking Period shall have elapsed from the date of
such Event of
23
<PAGE> 27
Default without the same having been cured or waived; and (ii) the Blocking
Period shall have elapsed without any holder of Senior Indebtedness having
accelerated the maturity of such Senior Indebtedness, but in such event, upon
the satisfaction of said conditions (i) and (ii) above, the Holders will have
the rights and remedies contemplated by this Section 7.1.
7.2 CROSS ACCELERATION. In the event that the holders of Senior
Indebtedness in excess of $1,000,000 shall accelerate the maturity of any such
Senior Indebtedness, as a result of a default under the Loan Documents or the
Subsequent Loan Documents, then the indebtedness outstanding on the Notes,
including all accrued and unpaid interest, principal and premium, if any, as
well as any fees and expenses payable to the Noteholders, (unless waived by the
holders of Senior Indebtedness in excess of $1,000,000) shall be simultaneously
accelerated. If any acceleration is rescinded or annulled by the holders of
Senior Indebtedness within sixty (60) days from such acceleration of such Senior
Indebtedness, the acceleration of the Notes will automatically be rescinded.
ARTICLE VIII
------------
INDEMNITY
---------
8.1 INDEMNIFICATION BY THE COMPANY. The Company agrees and covenants to
hold harmless and indemnify each of the Purchasers and any Affiliates thereof
(including any director, officer, employee, agent, investment advisor or
controlling person of any of the foregoing) from and against any losses, claims,
damages, liabilities and any expenses (including, expenses of investigation) to
which such Purchaser and its Affiliates may become subject arising out of or
based upon any breach of a warranty, representation or covenant of the Company
hereunder.
8.2 INDEMNIFICATION BY PURCHASERS. The Purchasers, severally and not
jointly, agree and covenant to hold harmless and indemnify the Company and any
Affiliates of the Company (including any director, officer, employee, agent,
investment advisor or controlling person of any of the foregoing) from and
against any losses, claims, damages, liabilities and any expenses (including,
expenses of investigation) to which the Company and its Affiliates may become
subject arising out of or based upon any breach of a warranty, representation or
covenant of such Purchaser HEREUNDER.
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.1 SURVIVAL OF PROVISIONS. The representations, warranties and
covenants of the Company and the Purchasers contained in this Agreement shall
survive the Closing.
9.2 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
24
<PAGE> 28
(a) by the Company if any of the conditions specified in
Section 4.2 of this Agreement have not been met or waived by the
Company pursuant to the terms of this Agreement by March 31, 1997
unless such date is extended by mutual agreement of the parties hereto;
and
(b) by any Purchaser, individually, if any of the conditions
specified in Section 4.1 of this Agreement have not been met or waived
by such Purchaser pursuant to the terms of this Agreement by March 31,
1997 unless such date is extended by mutual agreement of the parties
hereto.
9.3 Waiver Modifications in Writing.
-------------------------------
(a) No failure or delay on the part of the Company or any
Purchaser in exercising any right power or remedy hereunder shall
operate as a waiver thereof nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of
any remedies that may be available to the Company or any Purchaser at
law or in equity or otherwise. No waiver of or consent to any departure
by the Company or by any Purchaser, as the case may be, from any
provision of this Agreement shall be effective without the consent of
the Holders of not less than two-thirds (2/3) of the aggregate
principal amount of the Notes then outstanding; PROVIDED, HOWEVER, that
no such amendment or waiver shall, without the consent of each of the
Holders of the Notes then outstanding affected thereby, (i) change the
stated maturity of the principal of, or any installment of interest on,
any Note or reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon redemption thereof or, change the
place of payment where, or the coin or currency in which, any Note or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
stated maturity thereof, or (ii) reduce the percentages in principal
amount of Notes, the consent of whose Holders is required for any
waiver or amendments provided for in this Agreement. No amendment or
modification of any provision of this Agreement in accordance with the
terms hereof shall be effective unless such amendment or modification
is (i) in writing and (ii) consented to by Holders of not less than
two-thirds (2/3) or more of the principal amount of the Notes then
outstanding.
(b) Except as contemplated by Section 2.1(d) or Section 4.1(o)
of this Agreement neither the Company nor the Subsidiaries of the
Company has paid or shall pay, or has caused or shall cause to be paid,
directly or indirectly, any remuneration, whether by way of interest,
fee or otherwise, to any Holder of the Notes as consideration or as an
inducement for the purchase of the Notes or any consent, waiver or
amendment of any of the terms or provisions of this Agreement.
25
<PAGE> 29
9.4 NOTICE. All notices, demands and other communications provided for
hereunder shall be in writing, and, if to the Purchasers, shall be given by
registered or certified mail, return receipt requested in a pre-paid envelope,
by overnight mail or courier, or by facsimile transmission, addressed to each
Purchaser as shown on the execution page hereof (with a copy to special counsel
for Purchasers as shown below) and to such other address as such Purchaser or
its counsel may designate to the Company in writing, or addressed to the Company
as set forth below:
To Company: Waterlink, Inc.
4100 Holiday Street, N.W.
Suite 201
Canton, Ohio 44718
Attention: Chief Financial Officer
Telecopier No.: (330) 649-4008
With copy to: Benesch, Friedlander, Coplan & Aronoff LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Ira C. Kaplan
Telecopier No.: (216) 363-4588
To Special Counsel Squire, Sanders & Dempsey
to Purchasers: 127 Public Square, Ste. 4900
Cleveland, Ohio 44114
Attention: James P. Oliver
Telecopier No.: (216) 479-8793
or to such other address as the Company may designate to the Purchasers in
writing. A notice made in accordance with the terms of this Section 9.4 shall be
deemed to have been given (i) when delivered, if sent by registered or certified
mail or delivered personally or by facsimile transmission, or (ii) on the next
following Business Day if sent by overnight mail or courier.
9.5 DETERMINATIONS. All determinations to be made by the Company or any
Purchaser hereunder in its opinion or judgment or with its approval or otherwise
shall be made by it in its sole discretion.
9.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be m original and all of which counterparts, taken together, shall constitute
but one and the same agreement.
26
<PAGE> 30
9.7 BINDING EFFECT; ASSIGNMENT. Prior to the Closing Date, the rights
and obligations of any Purchaser under this Agreement may not be assigned to any
other person except with the prior written consent of the Company. Except as
expressly provided in this Agreement this Agreement shall not be construed so as
to confer any right or benefit upon any person other than the parties to this
Agreement, and their respective successors and assigns. This Agreement and all
representations, warranties and covenants contained herein, shall be binding
upon the Company and each Purchaser, and their respective successors and
permitted assigns and shall inure to the benefit of the Company, all present and
future holders of Senior Indebtedness, the Noteholders and their respective
successors and assigns.
9.8 GOVERNING LAW. This Agreement shall be deemed to be a contract made
under the laws of the State of Ohio, and for all purposes will be construed in
accordance with the laws of said state, without regard to principles of
conflicts of law.
9.9 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
9.10 HEADINGS. The Article and Section headings and the table of
contents used or contained in this Agreement are for the convenience of
reference only and shall not affect the construction of this Agreement.
9.11 ENTIRE AGREEMENT. This Agreement (with the Schedules and Exhibits
attached hereto) contain, and are intended as, a complete statement of all the
terms and arrangements between the parties with respect to the matters provided
for herein, and supersedes any previous agreements and understandings between
the parties with respect to those matters.
IN WITNESS WHEREOF, the parties hereto have caused Agreement to be
executed by their respective officers hereunto duly authorized, as of the date
first above written.
BRANTLEY VENTURE PARTNERS III, L.P. WATERLINK, INC.
By: Brantley Venture Management III, L.P.,
its General Partner By: _____________________
By: Pinkas Family Partners, L.P., its General Its: ________________
Partner
By: ______________________________
Robert P. Pinkas
Its: General Partner
27
<PAGE> 31
NOTE PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
Brantley Capital Corporation
- ----------------------------
NAME OF PURCHASER
By: ____________________________
Robert P. Pinkas
Its: Chairman, Chief Executive Officer
and Treasurer
Address: 20600 Chagrin Boulevard
Suite 1150
Cleveland, Ohio 44122
Telephone No.: (216) 283-4800
Telecopier No.: (216) 283-5324
Aggregate principal amount of the Notes to be purchased by
you upon Advances and the aggregate purchase price thereof:
<TABLE>
<CAPTION>
1 $ 2,100,000 $ 2,037,000 21%
- ---------------- --------------------------- ----------------------- -------------------
<S> <C> <C> <C>
Number of Note Principal Amount of the Note Aggregate Purchase Price Pro-Rata Percentage
</TABLE>
Taxpayer Identification No.:
- ---------------
28
<PAGE> 32
NOTE PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
River Cities Capital Fund Limited Partnership
- ---------------------------------------------
NAME OF PURCHASER
By: RC Management Limited Partnership,
its General Partner
By: Mayson, Inc., its General Partner
By: ____________________________
Edwin T. Robinson
Its: President
Address: 221 East 4th Street
Suite 2250
Cincinnati, Ohio 45202
Telephone No.: (513) 621-9700
Telecopier No.: (513) 579-8939
Aggregate principal amount of the Notes to be purchased by
you upon Advances and the aggregate purchase price thereof:
<TABLE>
<CAPTION>
2 $ 900,000 $ 873,000 9%
----------- -------------------------- ------------------------- ------------------
<S> <C> <C> <C>
Number of Note Principal Amount of the Note Aggregate Purchase Price Pro-Rata Percentage
</TABLE>
Taxpayer Identification No.:
31-1413379
29
<PAGE> 33
NOTE PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
Environmental Opportunities Fund, L.P.
- --------------------------------------
NAME OF PURCHASER
By: Environmental Opportunities
Management Co., LLC, its
General Partner
By: ____________________________
Kenneth Ch'uan-k'ai Leung
Its: Manager
Address: 126 East 56th Street
24th Floor
New York, New York 10022
Telephone No.: (212) 980-0789
Telecopier No.: (212) 593-6150
Aggregate principal amount of the Notes to be purchased by
you upon Advances and the aggregate purchase price thereof:
<TABLE>
<CAPTION>
3 $ 1,779,373 $ 1,725,991.81 17.79%
- --------------- --------------------------- ----------------------- -------------------
<S> <C> <C> <C>
Number of Note Principal Amount of the Note Aggregate Purchase Price Pro-Rata Percentage
</TABLE>
Taxpayer Identification No.:
74-0488338
30
<PAGE> 34
NOTE PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of the date first above written:
Environmental Opportunities Fund (Cayman), L.P.
- -----------------------------------------------
NAME OF PURCHASER
By: Environmental Opportunities
Management Co., LLC, its
General Partner
By: ____________________________
Kenneth Ch'uan-k'ai Leung
Its: Manager
Address: c/o Citco Fund Services
(Cayman Islands) Limited
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands, B.W.I.
Telephone No.: (713) 250-4283
Telecopier No.: (713) 250-4294
Aggregate principal amount of the Notes to be purchased by
you upon Advances and the aggregate purchase price thereof:
<TABLE>
<CAPTION>
4 $ 220,627 $ 214,008.19 2.21%
- --------------- --------------------------- ----------------------- -------------------
<S> <C> <C> <C>
Number of Note Principal Amount of the Note Aggregate Purchase Price Pro-Rata Percentage
</TABLE>
Taxpayer Identification No.: N/A
Copy of notices to:
Environmental Opportunities
Management Company, L.L.C.
3100 Texas Commerce Tower
Houston, Texas 77002
31
<PAGE> 35
NOTE PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
National City Capital Corporation
- ---------------------------------
NAME OF PURCHASER
By: ____________________________
Todd S. McCuaig
Its: ____________________________
Address: 1965 E. 6th St.
10th Floor
Cleveland, OH 44114
Telephone No.: (216) 575-2480
Telecopier No.: (216) 575-9965
Aggregate principal amount of the Notes to be purchased by
you upon Advances and the aggregate purchase price thereof:
<TABLE>
<CAPTION>
5 $ 3,000,000 $ 2,910,000 30%
- --------------- --------------------------- ----------------------- -------------------
<S> <C> <C> <C>
Number of Note Principal Amount of the Note Aggregate Purchase Price Pro-Rata Percentage
</TABLE>
Taxpayer Identification No.:
34-1269115
32
<PAGE> 36
NOTE PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
IPP95, L.P.
- -----------
NAME OF PURCHASER
By: WESINVEST, Inc., its
General Partner
By: ____________________________
Christine Jenkins
Its: Secretary
Address: 310 South Street
P.O. Box 1913
Morristown, NJ 07461
Telephone No.: (212) 898-0290
Telecopier No.: (212) 898-0840
Aggregate principal amount of the Notes to be purchased by you upon Advances and
the aggregate purchase price thereof:
<TABLE>
<CAPTION>
6 $ 2,000,000 $ 1,940,000 20%
- --------------- --------------------------- ----------------------- -------------------
<S> <C> <C> <C>
Number of Note Principal Amount of the Note Aggregate Purchase Price Pro-Rata Percentage
</TABLE>
Taxpayer Identification No.: 22-3356204
Copies to:
IPP95.L.P.
310 South Street
P.O. Box 1913
Morristown, NJ 07461
Attn: Conor Mullett
33
<PAGE> 37
EXHIBIT A
TO THE PURCHASE AGREEMENT
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT'). IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR AN OPINION, SATISFACTORY TO THE COMPANY, FROM THE HOLDER'S COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED BY REASON OF AN APPLICABLE EXEMPTION OR UPON
COMPLIANCE WITH ANY APPLICABLE RULE OR REGULATION PROMULGATED UNDER THE ACT AND,
IF APPLICABLE, WITHOUT COMPLIANCE WITH ANY OTHER TERMS AND PROVISIONS
RESTRICTING ANY SUCH TRANSACTIONS, INCLUDING, WITHOUT LIMITATION, THE TERMS AND
PROVISIONS OF THAT CERTAIN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED AS
OF MARCH 6, 1997.
WATERLINK, INC.
SUBORDINATED NOTE
DUE 2002
No. __ $___________
AS STATED IN THE PURCHASE AGREEMENT (DEFINED BELOW), THE RIGHTS OF THE HOLDER
HEREOF ARE SUBJECT TO SUBORDINATION TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN
THE PURCHASE AGREEMENT REFERRED TO HEREIN) OF THE COMPANY.
Waterlink, Inc., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), for value received,
hereby promises to pay to ____________________ the principal sum of
_________________________ Dollars ($___________) on March 6, 2002 and to pay
interest on said principal amount at the rate of twelve percent (12%)[eight
percent (8%) to IPP95] per annum until [one year] and fourteen percent (14%) per
annum thereafter, which interest shall be payable quarterly in arrears on each
June 30, September 30, December 31, and March 31, commencing June 30, 1997 (each
June 30, September 30, December 31 and March 31 being herein referred to as an
"Interest Payment Date").
The principal of this Note is subject to certain mandatory prepayments
in accordance with the terms of the Purchase Agreement. The Company may at any
time and from time to time prepay all or portion of the principal amount
hereunder without premium or penalty. The Holder must surrender this Note to the
Company to collect the final principal payment hereunder at maturity or
<PAGE> 38
upon the Company's prepayment thereof. The Company will maintain records of all
payments and prepayments of principal and interest made with respect to this
Note, the current outstanding principal balance hereof and other appropriate
information. Such records shall be presumptive evidence of the principal amount
owing and unpaid hereon. The Company will pay principal and interest in money of
the United States of America that at the time of payment is legal tender for
payment of public and private debts. The Company may, however, pay principal and
interest by a check payable in such money. It may mail an interest check to the
Holder's registered address.
The Company shall give written notice of any payment of this Note to
the Holder of this Note not less than five (5) Business Days prior thereto and
the opportunity, upon surrender of this Note, to deliver notice to the Company
of the Holder's determination to convert to shares of Common Stock all or a
portion of the principal and accrued interest hereon, as specified in such
notice, in lieu of and in substitution for the exercise by the Holder of all or
part of its then exercisable Warrants (which conversion shall be in all respects
on the same terms and conditions as if the Holder had exercised a like amount of
such Warrants and such like amount of Warrants shall no longer be exercisable).
This Note is one of a duly authorized issue of Notes of the Company all
issued or to be issued under and pursuant to the Subordinated Note Purchase
Agreement and Credit Facility dated as of March 6, 1997 (the "Purchase
Agreement"), duly executed and delivered by the Company, to which Purchase
Agreement and all amendments thereto reference is hereby made for a statement of
the rights, limitations of rights, obligations, duties and immunities thereunder
of the Company and the Noteholders. All capitalized terms in this Note unless
otherwise defined, have the meanings assigned to them in the Purchase Agreement.
This Note is subordinated to Senior Indebtedness of the Company. To the
extent provided in the Purchase Agreement, Senior Indebtedness must be paid
before the Notes may be paid. Each Holder by accepting a Note agrees to such
subordination provisions and authorizes the Company to give them effect. The
Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of any instrument relating to the Senior
Indebtedness or extension or renewal of such Senior Indebtedness and the
subordination provisions. Reference is made to the Purchase Agreement for a
complete description of what constitutes Senior Indebtedness and the provisions
of regarding the subordination of the Note.
The Company shall keep at its principal office a register in which the
Company shall provide for the registration of the Notes. The registered Holder
of this Note may be treated as the owner of it for all purposes.
Subject to certain exceptions, the Purchase Agreement or this Note may
be amended with the written consent of the Holders of at least two-thirds (2/3),
in principal amount of the Notes then outstanding and any past default or
compliance with any provisions may be waived in a particular instance with the
written consent of the Holders of two-thirds (2/3) in principal amount of the
Notes
2
<PAGE> 39
then outstanding. Without the consent of or notice to any Holder, the Company
may amend the Purchase Agreement or the Notes to, among other things, cure any
ambiguity, defect or inconsistency or make any other change that does not
adversely affect the rights of any Holder.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company or any successor
corporation under this Note or the Purchase Agreement or for any claim based on,
in respect or by reason of such obligations or their creation. The Holder of
this Note by accepting this Note waives and releases all such liability. The
waiver and release are part of the consideration for the issue of this Note.
Customary abbreviations may be used in the name of a Noteholder such
as: TEN COM (tenants in common), TENANT (tenants by the entireties), JT TEN
(joint tenants with right of survivorship and not as tenants in common), CUST
(Custodian), and U/G/M/A (Uniform Gifts to Minors Act).
The Purchase Agreement and this Note shall be deemed to be contracts
made under the laws of the State of Ohio and shall for all purposes be governed
by, and construed in accordance with, the laws of such State.
IN WITNESS WHEREOF, Waterlink, Inc. has caused this Note to be signed
by an authorized officer as of the date indicated below.
Dated: ___________________, 1997
WATERLINK, INC.
(SEAL) By _______________________
Its ______________________
<PAGE> 1
Exhibit 10.13
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") dated as of March 6, 1997, among
WATERLINK, INC., a Delaware corporation (the "Company"), and each of the
Purchasers named on the execution page hereof (the "Purchasers").
R E C I T A L S:
----------------
This Agreement is entered into in connection with that certain
Subordinated Note Purchase Agreement and Credit Facility dated concurrently
herewith among the Company and the Purchasers (the "Note Purchase Agreement"),
pursuant to which the Company will be issuing and the Purchasers will be
purchasing the Company's Subordinated Notes due 2002 (the "Notes"). Capitalized
terms not otherwise defined herein shall have the meanings given to them in the
Note Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration the receipt of
which is hereby acknowledged and the promises and the mutual agreements set
forth herein, the parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrants.
--------------------------------------
1.1 GENERAL. The Company hereby agrees to issue (pro rata in
proportion to the principal amount of Notes issued to or for which each
Purchaser is then committed) to the Purchasers, at the times and upon
the conditions specified below, (i) warrants (the "Base Warrants") to
purchase, in the aggregate, up to 1,525,000 shares of the Company's
Common Stock, $.01 par value per share (the "Common Stock"), and (ii)
warrants (the "Additional Warrants") to purchase, in the aggregate, up
to 512,500 shares of Common Stock, in the case of (i) and (ii) above,
subject to the terms and on the conditions set forth in this Agreement.
The Base Warrants and the Additional Warrants are referred to herein
together as the "Warrants". The Base Warrants consist of up to five (5)
tranches of Base Warrants as set forth below (in the case of each
tranche, to be allocated pro rata in proportion to the principal amount
of Notes issued to or for which each Purchaser is then committed).
<TABLE>
<CAPTION>
Number of
Tranche Base Warrants
------- -------------
<S> <C>
Tranche 1 125,000
Tranche 2 up to 300,000
Tranche 3 up to 300,000
Tranche 4 up to 300,000
Tranche 5 up to 500,000
</TABLE>
Notwithstanding the foregoing, Tranche 1 Base Warrants to be issued hereunder to
Brantley Capital Corporation shall instead be issued to Brantley Venture
Partners III, L.P.
<PAGE> 2
The Additional Warrants consist of two (2) tranches of Additional
Warrants as set forth below (in the case of each tranche to be allocated pro
rata in proportion to the principal amount of Note issued to or for which each
Purchaser is then committed):
Number of
Tranche Additional Warrants
------- -------------------
Tranche 1 25% of the Warrants (other than
Tranche 5 Base Warrants) outstanding
at the Tranche 1 Additional Warrant
Date (defined below)
Tranche 2 50% of the Warrants (other than
Tranche 5 Base Warrants) outstanding
at the Tranche 2 Additional Warrant
Date (defined below)
Each Warrant, once issued, will initially entitle the holder thereof to
purchase one share of Common Stock for the purchase price set forth in
Section 5 below, as adjusted from time to time pursuant to the
provisions of Section 10 below.
1.2 ISSUANCE OF BASE WARRANTS. Base Warrants shall be issued
on the terms and upon the satisfaction of the following conditions, in
all cases on a pro rata basis in proportion to the principal amount of
Note issued to or for which each Purchaser or its assignee is then
committed.
(a) All of the Tranche 1 Base Warrants shall be
issued to the Purchasers on the date hereof.
(b) Tranche 2 Base Warrants shall be issued from time
to time by the Company to Purchasers or their assignees on or
prior to the earlier of a Prepayment Event or December 31,
1997 on the basis of 3,000 Tranche 2 Base Warrants for each
$100,000 of Advances (as defined in the Note Purchase
Agreement) under the Notes made on or prior to the earlier of
a Prepayment Event (as defined in the Note Purchase Agreement)
or December 31, 1997.
(c) Tranche 3 Base Warrants shall be issued from time
to time by the Company to Purchasers or their assignees prior
to a Prepayment Event on the basis of 3,000 Tranche 3 Base
Warrants for each $100,000 of Advances under the Notes
outstanding in excess of One Hundred Eighty (180) days.
(d) Tranche 4 Base Warrants shall be issued from time
to time by the Company to Purchasers or their assignees prior
to a Prepayment Event on the basis of 3,000 Tranche 4 Base
Warrants for each $100,000 of Advances under the Notes
outstanding in excess of two (2) years.
2
<PAGE> 3
(e) Tranche 5 Base Warrants shall be issued as of the
date forty-two (42) months after the date hereof by the
Company to Purchasers or their assignees if a Prepayment Event
has not then occurred on the basis of 5,000 Tranche 5 Base
Warrants for each $100,000 of Advances under the Notes
outstanding as of such date.
(f) For purposes of the determinations in subsections
1.2(c) and (d) above, prepayments of Notes shall be applied in
inverse order to Advances made (i.e. last in, first out).
1.3 ISSUANCE OF ADDITIONAL WARRANTS. Additional Warrants shall
be issued on the terms and upon satisfaction of the following
conditions, in all cases on a pro rata basis in proportion to the
principal amount of Notes issued to or for which each Purchaser is then
committed:
(a) If (i) (x) a Prepayment Event occurs prior to the
first anniversary of this Agreement and (y) the Prepayment
Event Price (defined below) is less than $9.00 per share of
Common Stock (subject to adjustment in the event of a stock
split, combination or similar event), or (ii) (x) a Prepayment
Event occurs on or after the first anniversary of this
Agreement but prior to the second anniversary thereof and (y)
the Prepayment Event Price is less than $12.00 per share of
Common Stock (subject to adjustment in the event of a stock
split, combination or similar event), then the Tranche 1
Additional Warrants shall be issued by the Company to
Purchasers or their assignees, as the case may be. The date
the foregoing conditions are met shall be referred to herein
as the "Tranche 1 Additional Warrant Date."
(b) (I) Upon the occurrence of a Prepayment Event, if
any, if (i) such Prepayment Event does not occur prior to the
second anniversary hereof, and (ii) (x) if prior the third
anniversary hereof, the Prepayment Event Price is then less
than $14.00 per share of Common Stock (subject to adjustment
in the event of a stock split, combination or similar event),
or (y) if on or following the third anniversary hereof but
prior to the fourth anniversary hereof, the Prepayment Event
Price is less than $16.00 per share of Common Stock (subject
to adjustment in the event of a stock split, combination or
similar event), then the Tranche 2 Additional Warrants shall
be issued by the Company to Purchasers or their assignees, as
the case may be, or (II) if a Prepayment Event has not
occurred prior to the fourth anniversary hereof, then the
Tranche 2 Additional Warrants shall be issued by the Company
to Purchasers or their assignees, as the case may be. The date
either of the foregoing conditions are met shall be referred
to herein as the "Tranche 2 Additional Warrant Date."
2. FORM OF WARRANTS. The text of the Warrants and of the form of
election to purchase Common Stock underlying the Warrants (the "Warrant Stock")
to be set forth on the reverse thereof shall be substantially as set forth in
the Warrant Certificate ("Warrant Certificate"), attached as EXHIBIT "A" to this
Agreement. Each Warrant Certificate shall be executed on behalf of the
3
<PAGE> 4
Company by the President or Vice President of the Company and attested by the
Secretary or an Assistant Secretary of the Company. Warrant Certificates shall
be dated as of the date of the execution thereof by the Company either upon
initial issuance or upon division, exchange, substitution or transfer as may be
permitted hereunder, provided that all such issuances of Warrants shall be
deemed effective upon the date that the conditions to their issuance are
satisfied.
3. REGISTRATION. The Warrant Certificates shall be numbered and shall
be registered on the books of the Company (the "Warrant Register") as they are
issued. The Company shall be entitled to treat the registered holder of any
Warrant Certificate on the Warrant Register (the "Holder") as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant Certificate, or the Warrants'
represented thereby, on the part of any other person, and shall not be liable
for any registration or transfer of Warrant Certificates which are registered or
to be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with knowledge
of such facts that the Company's participation therein amounts to bad faith.
4. Transfer of Warrant Certificate.
-------------------------------
(a) Prior to a Prepayment Event, outstanding Warrants
and any rights to the further issuance of Warrants pursuant
hereto may only be transferred together with the Notes on a
pro rata basis (as to each tranche of Base Warrants and
Additional Warrants issued or issuable) in proportion to the
principal amount of Notes issued to each Purchaser. After the
earlier of a Prepayment Event or the fourth (4th) anniversary
of the date hereof, the Warrants may be transferred
independent of the Notes, provided such transfer is in
accordance with the terms hereof. The Warrant Certificate
shall be transferable only on the Warrant Register upon
delivery of the Warrant Certificate duly endorsed by the
Holder or by its duly authorized attorney or representative
(with evidence reasonably satisfactory to the Company of such
authorization), or accompanied by evidence reasonably
satisfactory to the Company of succession, assignment or
authority to transfer. Notwithstanding the foregoing, the
Company shall have no obligation to cause Warrant Certificates
to be transferred on the Warrant Register to any person,
unless the Holder of such Warrants shall furnish to the
Company evidence satisfactory to the Company of (i) (x)
compliance with the registration provisions of Section 5 of
the Securities Act of 1933, as amended (the "Act"), or (y) the
availability of an exemption from compliance with the
registration provisions of Section 5 of the Act; and (ii)
compliance with that certain Amended and Restated
Stockholders' Agreement to be executed by or on behalf of the
parties hereto on the Closing Date (the "Amended and Restated
Stockholders' Agreement").
4
<PAGE> 5
(b) The parties hereto acknowledge and agree,
notwithstanding subsection (a) above, that this Agreement does
not restrict transfers of Warrants among the Purchasers to the
extent otherwise permitted under the Indemnification and
Contribution Agreement dated the date hereof among the
Purchasers.
5. Term of Warrants; Exercise of Warrants.
--------------------------------------
5.1 BASE WARRANTS: TERM AND EXERCISE PRICE. Each outstanding
Base Warrant entitles the registered owner thereof to purchase one (1)
share of Warrant Stock at any time prior to the close of business on
the fifth (5th) anniversary of the date hereof (the "Expiration Date")
at an initial purchase price per share of Warrant Stock of $4.50,
subject to adjustment pursuant to the provisions of Section 10 of this
Agreement (the "Base Warrant Price"; the Base Warrant Price and the
Additional Warrant Price (defined below) shall be referred to jointly
herein as the "Warrant Price.").
5.2 ADDITIONAL WARRANTS: TERM AND EXERCISE PRICE. Each
outstanding Additional Warrant entitles the registered owner thereof to
purchase one (1) share of Warrant Stock at any time prior to the
Expiration Date at the price determined as follows (the "Additional
Warrant Price."
(a) In the event a Prepayment Event occurs (i) prior
to the first anniversary of the date hereof and the Prepayment
Event Price is at that time less than $9.00 per share (subject
to adjustment pursuant to Section 10 hereof) or (ii) after the
first anniversary of the date hereof and prior to the second
anniversary of the date hereof and the Prepayment Event Price
is at that time less than $12.00 per share (subject to
adjustment pursuant to Section 10 hereof), the Additional
Warrant Price shall be the lesser of $4.50 per share (subject
to adjustment pursuant to Section 10 hereof) or the applicable
Prepayment Event Price.
(b) In the event a Prepayment Event does not occur
prior to the second anniversary of the date hereof, the
Additional Warrant Price shall be $4.50 per share (subject to
adjustment pursuant to Section 10 hereof).
(c) "Prepayment Event Price" shall mean the price per
share of Common Stock determined by the Board of Directors as
provided below within ten (10) days prior to the occurrence of
a Prepayment Event, subject to subsection (d) below. In the
event of an IPO (as defined in the Note Purchase Agreement),
the Prepayment Event Price shall be the price per share of
Common Stock offered pursuant to the IPO. In the event of a
Change in Control (as defined in the Note Purchase Agreement),
the Prepayment Event Price shall be the price reasonably and
in good faith determined by the Board of Directors as the per
share valuation of the Company based on arms length
negotiations with the acquiring entity (determined on a basis
taking into account all options, warrants, convertible
securities and similar securities then exercisable or
exercisable upon such Prepayment Event) and, if the Board so
5
<PAGE> 6
desires, the opinion of a financial advisor (which financial
advisor may be the Company's independent public accountant) (a
"Financial Advisor"), subject to subsection (d) below. In the
event of an Asset Sale (as defined in the Note Purchase
Agreement), the Prepayment Event Price shall be the price
reasonably and in good faith determined by the Board of
Directors as the per share valuation of the company based on
the arms length negotiations with the acquiring entity
(determined on a basis taking into account all options,
warrants, convertible securities and similar securities then
exercisable or exercisable upon such Prepayment Event) and, if
the Board so desires, the opinion of a Financial Advisor,
subject to subsection (d) below.
(d) In the event the Holders of a majority of the
then outstanding Warrants (the "Requisite Holders") provide
written notice to the Company within ten (10) days of receipt
of written notice of the Prepayment Event Price set by the
Company of their objection to such price, the Prepayment Event
Price shall be determined as follows: (i) by agreement among
the Company and the Requisite Holders within ten (10) days
following the event requiring such determination or (ii) in
the absence of such an agreement, by an Independent Financial
Expert selected in accordance with the further provisions of
this definition. If required, an Independent Financial Expert
shall be selected within five (5) days following the
expiration of the ten (10) day period referred to above,
either by agreement among the Company and the Requisite
Holders or, in the absence of such agreement, by lot from a
list of four potential Independent Financial Experts remaining
after the Company nominates three, the Requisite Holders
nominate three, and each side eliminates one potential
Independent Financial Expert. The Independent Financial Expert
shall be instructed by the Company and the Requisite Holders
to make its determination within 20 days of its selection. The
fees and expenses of an Independent Financial Expert selected
hereunder shall be borne equally by the Company and by the
Holders (on a PRO RATA basis based on the number of Warrants
held by each Holder) participating in the transaction to which
the determination relates.
5.3 General.
-------
(a) Subject to the provisions of this Agreement, each
Holder shall have the right to purchase from the Company (and
the Company shall issue and sell to such Holder) the number of
fully paid and nonassessable shares of Warrant Stock specified
in such Holder's Warrant Certificate(s) (as adjusted from time
to time in accordance with the provisions of Section 10 of
this Agreement), upon surrender of such Warrant Certificate(s)
to the Company or its duly authorized agent, and upon payment
to the Company of the Warrant Price, or, at the option of the
Holder, by conversion of unpaid principal and accrued interest
on the Notes, if then outstanding, in an amount equal to the
Warrant Price, as adjusted in accordance with the provisions
of Section 9 of this Agreement, for the number of shares of
Warrant Stock in respect of which such Warrants are then
exercised. The date of exercise (the
6
<PAGE> 7
"Exercise Date") of any Warrant shall be deemed to be the date
of receipt by the Company of the Warrant Certificate duly
filled in and signed and accompanied by proper payment as
hereinafter provided. Payment of the Warrant Price shall be
made as set forth in the Warrant Certificate.
(b) Subject to Section 6 of this Agreement, upon such
exercise of Warrants, and payment of the Warrant Price as
aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch (but in any event within twenty
(20) business days) to or (subject to the provisions of
Section 4 of this Agreement) upon the written order of the
Holder, a certificate for the number of full shares of Warrant
Stock so purchased upon the exercise of such Warrants,
together with cash, as provided in Section 10 of this
Agreement, in respect of any fraction of a share of such stock
otherwise issuable upon such exercise. Except under
circumstances described in the following sentence, the shares
of Warrant Stock purchased pursuant to the immediately
preceding sentence shall be deemed to be issued to the Holder
as the record owner of such shares as of the close of business
on the Exercise Date. Notwithstanding the foregoing, if the
Company determines, on or after the date of exercise of any
Warrant, that issuance of the Warrant Stock represented
thereby would violate an applicable order, law, rule, or
regulation, including federal or state securities laws, the
Company shall so notify immediately the exercising Holder and
shall in good faith, and as expeditiously as possible,
endeavor to issue the Warrant Stock without such violation.
The right of purchase represented by the Warrants shall be
exercisable, at the election of the Holder thereof, either in
full or from time to time in part and, in the event that any
Warrant is exercised in respect of less than all of the shares
of Warrant Stock purchasable on such exercise at any time
prior to the Expiration Date, a new Warrant Certificate
evidencing the remaining Warrants shall be issued.
6. PAYMENT OF TAXES. The Company shall pay all documentary stamp taxes,
if any, attributable to the initial issuance of Warrant Stock upon the exercise
of Warrants PROVIDED, HOWEVER, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any permitted transfer involved
in the issue or delivery of any Warrant Certificates or Warrant Stock in a name
other than that of the registered Holder of such Warrants.
7. MUTILATED OR MISSING WARRANTS. Upon (i) receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of a Warrant Certificate, (ii) if requested by the Company, the
posting of a bond in an amount equal to the value of the lost, stolen or
destroyed Warrant Certificate, (iii) reimbursement to the Company of all
reasonable expenses incident thereto, and (iv) surrender and cancellation of
such Warrant Certificate, if mutilated, the Company will make and deliver in
lieu of such Warrant Certificate a new Warrant Certificate of like tenor and
representing an equivalent right or interest. The term "outstanding" when used
herein with reference to the Warrant Certificate as of any particular time shall
not include any Warrant Certificate in lieu of which a new Warrant Certificate
has been made and delivered by the Company in accordance with the provisions
hereof.
7
<PAGE> 8
8. CAPITALIZATION OF THE COMPANY. Without giving effect to the Warrants
contemplated herein, the authorized capital stock of the Company is as set forth
in Schedule 3.1 to the Note Purchase Agreement.
9. Reservation Of Warrant Stock.
----------------------------
(a) The Company represents that there has been
reserved out of the authorized and unissued shares of Common
Stock, a number of shares sufficient to provide for the
exercise of the right of purchase represented by the Warrant
Certificates as initially issued, and the Company, which
currently acts as the transfer agent for its Common Stock
("Transfer Agent") and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the
exercise of any of the Warrants are hereby irrevocably
authorized and directed at all times until the Expiration Date
or earlier termination of this Agreement to reserve such
number of authorized and unissued shares of Common Stock as
shall be required for such purpose. The Company will keep a
copy of this Agreement on file with every subsequent Transfer
Agent for any shares of the Company's capital stock issuable
upon the exercise of the Warrants. The Company will supply any
such subsequent Transfer Agent with duly executed stock
certificates for issuance on exercise of Warrants and will
itself provide or make available any cash which may be
required by Section 11 of this Agreement. The Company will
furnish to any such subsequent Transfer Agent a copy of all
notices of adjustments, and certificates related thereto,
transmitted to each Holder pursuant to Section 10.3 of this
Agreement. All Warrant Certificates surrendered in the
exercise of the rights thereby evidenced shall be cancelled.
(b) The Company covenants that it shall endeavor to
comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon exercise of the
Warrants; and that if any shares of Common Stock required to
be reserved for purposes of exercising the Warrants hereunder
require registration with or approval of any governmental
authority under any Federal or state law before such shares
may be validly issued or delivered upon exercise of the
Warrants, the Company shall, in good faith and as
expeditiously as possible, endeavor to secure such
registration or approval, as the case may be. The Company
covenants that all shares of Common Stock which shall be
issued upon exercise of the Warrants shall upon issue and
payment therefor be validly issued, fully paid and
nonassessable.
10. ADJUSTMENTS OF WARRANT PRICE, PREPAYMENT EVENT PRICE AND NUMBER OF
SHARES OF WARRANT STOCK. The number and kind of securities purchasable upon the
exercise of each Warrant and the Warrant Price related thereto shall be subject
to adjustment from time to time upon the happening of certain events, as
hereinafter defined, but (with respect to Warrants) only as to Warrants
outstanding at the time of such adjustment. Upon each adjustment of the Warrant
Price pursuant to the provisions of Section 10.1(b), the Holder of such Warrant
shall thereafter, prior to the Expiration Date thereof, be entitled to purchase
at the Warrant Price resulting from such
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<PAGE> 9
adjustment, the number of shares of Warrant Stock obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Warrant Stock issuable upon exercise of such Warrant immediately prior
to such adjustment and dividing the product thereof by the Warrant Price
resulting from such adjustment.
10.1 ADJUSTMENT OF THE NUMBER OF SHARES OF WARRANT STOCK AND
THE WARRANT PRICE. The number of shares of Warrant Stock and the
Warrant Price shall be subject to adjustment as follows:
(a) In case the Company shall at any time after the
date of issuance of a Warrant (A) pay a dividend or make a
distribution on its Common Stock in shares of its capital
stock (whether in shares of Common Stock or of capital stock
of any other class), (B) subdivide its outstanding shares of
Common Stock into a greater number of shares, (C) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (D) reclassify, reorganize or effect any similar
transaction with respect to any of its shares of Common Stock,
or in substitution or exchange therefor (other than a change
in par value, or from par value to no par value, or from no
par value to par value), then the number and, if applicable,
kind of shares of Warrant Stock to be received by any Holder
shall be adjusted so that the Holder will be entitled to
receive on exercise the number and kind of shares of capital
stock which it would have owned immediately following such
action had its Warrants been exercised immediately prior
thereto. An adjustment made pursuant to this subsection (a)
shall become effective immediately after the payment date in
the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of
a subdivision, combination, reclassification, reorganization
or similar transaction. If, as a result of an adjustment made
pursuant to this subsection (a), a Holder shall become
entitled to receive shares of two or more classes of capital
stock of the Company, the Board of Directors or a duly
authorized committee thereof shall in good faith determine
(which determination shall be conclusive and binding) the
allocation of the Warrant Price between or among shares of
such classes of capital stock. After such allocation, the
Warrant Price and number of shares of each class of capital
stock that is part of the Warrant Stock shall thereafter be
subject to adjustment in a manner and on terms determined by
the Board of Directors (which determination shall be
conclusive and binding) to be as nearly equivalent as
practicable to those applicable to Common Stock under this
Section 10.
(b) (i) From the date hereof to and including the
second anniversary of the date hereof, if the Company
shall issue any shares of Common Stock other than
Excluded Shares (as hereinafter defined) for
consideration per share (the "Issuance Price") less
than the Warrant Price (as hereinafter defined) per
share in effect immediately prior to such issuance,
the Warrant Price in effect immediately prior to such
issuance shall be reduced (but shall not be
increased) to the Issuance Price.
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<PAGE> 10
10
<PAGE> 11
(ii) After the second anniversary of the date
hereof, if the Company shall issue any shares of
Common Stock other than Excluded Shares for
consideration per share less than the Warrant Price
per share in effect immediately prior to such
issuance, the Warrant Price in effect immediately
prior to such issuance shall be reduced (but shall
not be increased) to the price (calculated to the
nearest cent) determined: by dividing (A) an amount
equal to the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted basis
immediately prior to such issuance multiplied by the
Warrant Price per share in effect immediately prior
to such issuance and (2) the consideration, if any,
received by the Company upon such issuance by (B) the
number of shares of Common Stock outstanding on a
fully diluted basis immediately after such issuance.
(c) CERTAIN ADJUSTMENT FACTORS. For the purposes of
any adjustment of the Warrant Price pursuant to paragraph (b)
above, the following provisions shall be applicable:
(x) CASH. In the case of the issuance of shares of
Common Stock for cash, the amount of the consideration
received by the Company shall be deemed to be the amount of
the cash proceeds received by the Company for such shares of
Common Stock before deducting therefrom any discounts,
commissions, taxes or other expenses allowed, paid or incurred
by the Company for any underwriting or otherwise in connection
with the issuance and sale thereof; and
(y) CONSIDERATION OTHER THAN CASH. In the case of the
issuance of shares of Common Stock (other than upon the
conversion of shares of capital stock or other securities of
the Company) for consideration in whole or in part other than
cash, including securities acquired in exchange therefor
(other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair
value thereof (as determined by the Board of Directors of the
Company based on an opinion of an outside financial advisor of
recognized regional or national standing, which may, but need
not, be the independent public accountants who serve as the
regular auditors of the Company (the "Financial Advisor"),
whose determination shall be conclusive and binding),
irrespective of any accounting treatment; and
(z) OPTIONS AND CONVERTIBLE SECURITIES. In the case
of the issuance of (i) options, warrants or other rights to
purchase or acquire shares of Common Stock (whether or not
exercisable immediately following such issuance), (ii)
securities by their terms convertible into or exchangeable for
shares Common Stock (whether or not so convertible or
exchangeable immediately following such issuance), or (iii)
options, warrants or rights to purchase such convertible or
exchangeable securities (whether or not exercisable
immediately following such issuance):
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<PAGE> 12
(1) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options, warrants or other rights to purchase or
acquire shares of Common Stock shall be deemed to
have been issued at the time such options, warrants
or other rights are first issued and for a
consideration equal to the consideration (determined
in the manner provided in clauses (x) and (y) above),
if any, received by the Company upon the issuance of
such options, warrants or other rights plus the
purchase price provided in such options, warrants or
other rights for the shares of Common Stock covered
thereby (if the purchase price per share of Common
Stock is expressed as a range, the purchase price per
share for purposes of this subparagraph (z)(1) shall
be the average of such range of prices);
(2) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities, or upon the exercise of options, warrants
or other rights to purchase or acquire such
convertible or exchangeable securities and the
subsequent conversion or exchange thereto shall be
deemed to have been issued at the time such
convertible or exchangeable securities or such
options, warrants or other rights are first issued
and for a consideration equal to the consideration,
if any, received by the Company for any such
convertible or exchangeable securities or options,
warrants or other rights (excluding any cash received
on account of accrued interest or accumulated
dividends), plus the additional consideration, if
any, to be received by the Company upon the
conversion or exchange of such securities and the
exercise of any options, warrants or other rights
(the consideration in each case to be determined in
the manner provided in clauses (x) and (y) above);
(3) on any change in the number of shares of
Common Stock deliverable upon exercise of any such
options, warrants or other rights which have become
exercisable or conversion of or exchange of such
convertible or exchangeable securities which have
become convertible or exchangeable, or any change in
the consideration to be received by the Company upon
such exercise, conversion or exchange, the Warrant
Price as then in effect shall forthwith be readjusted
to such Warrant Price as would have been obtained had
such adjustment been made upon the original issuance
of such options, warrants or other rights; provided,
however, no adjustment shall be made with respect to
such options, warrants or other rights exercised
prior to such change, or securities converted or
exchanged prior to such change;
(4) on the expiration or cancellation of any
such options, warrants or other rights, or the
termination of the right to convert or exchange such
convertible or exchangeable securities, if the
Warrant Price shall have been adjusted upon such
securities being issued or becoming exercisable,
convertible or exchangeable, such Warrant Price shall
forthwith be readjusted
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<PAGE> 13
to such Warrant Price as would have been obtained had
an adjustment been made on the basis of the issuance
of only the number of shares of Common Stock actually
issued upon the exercise of such options, warrants or
other rights, or upon the conversion or exchange of
such securities; and
(5) if the Warrant Price shall have been
adjusted when such options, warrants or other rights
were first issued or such convertible or exchangeable
securities were first issued, no further adjustment
of the Warrant Price shall be made for the actual
issuance of shares of Common Stock upon the exercise,
conversion or exchange thereof.
(d) EXCLUDED SHARES. "Excluded Shares" shall mean (i)
any shares of Common Stock issued in a transaction described
in Section 10.1(a) of this Agreement; and (ii) issuances of
shares of Common Stock from time to time pursuant to stock
option or bonus plans authorized by the Board of Directors of
the Company as of the date hereof; (iii) issuances of Common
Stock, or warrants, options or rights to acquire shares of
Common Stock, or securities convertible into or exchangeable
for Common Stock pursuant to the terms of any acquisition by
the Company of all or substantially all of the operating
assets, or more than fifty percent (50%) of the voting capital
stock or other management interest of any business entity in a
transaction negotiated on an arms'-length basis and expressly
approved in advance by the Board of Directors of the Company;
(iv) issuances of shares of Common Stock from time to time
upon the exercise, exchange or conversion of warrants,
options, convertible securities, the Notes (whether or not
outstanding as of the date hereof) or other securities
outstanding as of the date hereof; and (v) issuances of shares
of Common Stock from time to time pursuant to the
anti-dilution provisions of other securities.
(e) No adjustment in the Warrant Price shall be
required unless such adjustment would require an increase or
decrease of at least 2.2% in such price; PROVIDED, HOWEVER,
that any adjustments which by reason of this subsection (f)
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations
under this Section 10.1 shall be made to the nearest tenth of
a cent or to the nearest one-hundredth of a share, as the case
may be.
(f) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any
such shares shall be considered an issuance of Common Stock
for the purposes of this Section 10.
10.2 RIGHTS TO PURCHASE OTHER SECURITIES. If any of the
following shall occur:
(a) any consolidation or merger to which the Company
is a party, other than a consolidation or a merger in which
the Company is the continuing or surviving
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<PAGE> 14
Company and which does not result in any reclassification of,
or change (other than as a result of a subdivision or
combination) in, outstanding shares of the Common Stock, or
(b) any sale or transfer to another corporation or
entity of all or substantially all of the assets of the
Company;
then, and in either such case, the Holder of each Warrant then
outstanding shall have the right to purchase the kind and amount of
shares of stock and/or other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number
of shares of Common Stock issuable upon exercise of such Warrant
immediately prior to such consolidation, merger, sale, or transfer. The
provisions of this Section 10.2 shall similarly apply to successive
consolidations, mergers, sales or transfers.
10.3 NOTICE OF ADJUSTMENT. Whenever the number of shares of
Warrant Stock purchasable upon the exercise of each Warrant or the
Warrant Price of such Warrant Stock is adjusted or reduced, as herein
provided, the Company shall mail by first class, postage prepaid, to
each Holder (a) notice of any reduction on or before the day the
reduction takes effect, which shall state the reduced Warrant Price and
the period during which it will be in effect and/or (b) a certificate
setting forth the number of shares of Warrant Stock purchasable upon
the exercise of each Warrant and the Warrant Price on such Warrant
Stock after adjustment setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which
such adjustment was made.
10.4 NO ADJUSTMENT FOR DIVIDENDS. No adjustment in respect of
any cash dividends shall be made during the term of a Warrant or upon
the exercise or conversion of a Warrant.
10.5 CERTAIN EVENTS. If any event occurs as to which in the
reasonable judgment of the Board of Directors of the Company, in good
faith, the other provisions of this Section 9 are not strictly
applicable but the lack of any adjustment would not in the opinion of
the Board of Directors of the Company fairly reflect the purchase
rights of the Holders of the Warrants in accordance with the basic
intent and principles of the provisions of this Agreement then the
Board of Directors of the Company shall appoint a Financial Advisor
which shall give its opinion upon the adjustment, if any, on a basis
consistent with the basic intent and principles established and the
other provisions of this Section 9, necessary to preserve, without
dilution, the exercise rights of the Holders. Upon receipt of such
opinion, the Company shall forthwith make the adjustments described
therein which adjustments shall be conclusive and binding.
11. Redemption of Warrants.
----------------------
(a) Upon ten (10) days prior notice (a "Redemption
Notice") to the Holders, prior to the fourth anniversary of
the date hereof, the Company may redeem
14
<PAGE> 15
all Warrants then outstanding for no consideration upon the
occurrence of the following events (provided the Company has
issued a notice of redemption, each a "Redemption Event"):
15
<PAGE> 16
(i) The offering price in a Qualified IPO
(defined below), or the average daily Closing Price
(defined below) for twenty (20) consecutive trading
days on a rolling basis exceeds 125% of the then
applicable Target Price (defined below); and
(ii) Either (x) registration statement which
is effective covering the issuance or resale of the
Warrant Stock or (y) each Holder otherwise is
certified to sell the Warrant Stock under Rule 144 of
the Securities Act of 1933, as amended (subject only
to volume limitations).
(b) For purposes of this Section 11, "Qualified IPO"
shall mean an underwritten public offering of shares of Common
Stock, the gross proceeds of which to the Company and/or the
selling stockholders (if any) are of at least $15,000,000.
(c) For purposes of this Section 11, "Closing Price"
for each day shall mean the last reported sales price of the
Common Stock (trading regular way) or, in case no such
reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either
case as reported on the New York Stock Exchange or, if such
security is not listed or admitted for trading on the New York
Stock Exchange or, if such security is not listed or admitted
for trading on the New York Stock Exchange, on NASDAQ NMS, or
if such security is not quoted on such NASDAQ NMS, the average
of the closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such security on such day shall not have been
reported through NASDAQ, the average of the bid and asked
prices on such day, as furnished by any New York Stock
Exchange member firm making a market in the Common Stock
selected from time to time by the Board of Directors of the
Company for that purpose.
(d) For purposes of this Section 11, "Target Price"
shall mean: (i) at all times prior to the first anniversary of
the date hereof, $9.00 per share of Common Stock; (ii) on or
after the first anniversary of the date hereof but prior to
the second anniversary of the date hereof, $12.00 per share of
Common Stock; (iii) on or after the second anniversary of the
date hereof but prior to the third anniversary of the date
hereof, $14.00 per share of Common Stock; and (iv) on or after
the third anniversary of the date hereof and thereafter,
$16.00 per share of Common Stock. "Target Price" shall be
determined before deducting any underwriting fee or selling
commissions but adjusted equitably for any stock split,
combination, reclassification or similar event involving the
Common Stock.
(e) Upon receipt of a Redemption Notice, each Holder
may exercise part or all of the Warrants then outstanding and
registered in its name in accordance with the provisions of
Section 5 hereof within ten (10) days of receipt of the
Redemption Notice. Warrants not exercised within this period
following the Redemption Notice
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<PAGE> 17
shall be deemed terminated. All Warrants not previously issued
as of a Redemption Event shall not subsequently be issued by
the Company and Purchasers shall have no rights to such
Warrants. In all events, prior to issuing a Redemption Notice,
the Company shall issue to the Purchasers all Warrants to
which the Purchasers are then entitled under Section 1 of this
Agreement.
12. ELIMINATION OF FRACTIONS. The Company shall not be required to
issue certificates representing fractional shares of Common Stock upon any
exercise of Warrants, but will make a payment in cash, in lieu of issuing such
fractional shares, based on the Current Market Price per share at the time.
13. Certificates to Bear Legends.
----------------------------
(a) The Warrant Certificates and certificates
representing shares of Warrant Stock shall be subject to a
stop-transfer order and each such certificate shall bear the
following legends by which each Holder shall be found:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 ("ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. THESE SECURITIES HAVE BEEN
ISSUED UNDER AND ARE GOVERNED BY AND ARE SUBJECT TO THAT
CERTAIN WARRANT AGREEMENT DATED MARCH 6, 1997 (THE WARRANT
AGREEMENT). A COPY OF THE WARRANT AGREEMENT CAN BE OBTAINED
FROM THE SECRETARY OF THE COMPANY.
(b) In addition, so long as the Security holders'
Agreement remains in effect all such certificates referred to
in paragraph (a) above shall also bear the following legend:
THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND OTHER TERMS SET FORTH IN THAT CERTAIN AMENDED AND
RESTATED STOCKHOLDERS' AGREEMENT DATED AS OF MARCH __, 1997,
AS IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH
AGREEMENT CAN BE OBTAINED FROM THE SECRETARY OF THE COMPANY.
14. NO RIGHTS AS STOCKHOLDERS; NOTICES TO HOLDERS; UNISSUED WARRANTS.
Nothing contained in this Agreement or in any of the Warrant Certificates shall
be construed conferring upon the Holders or their transferees the right to vote
or to receive dividends or to consent to or receive
17
<PAGE> 18
notice as stockholders in respect of any meeting of stockholders for the
election of directors of the Company or on any other matter, or any rights
whatsoever as stockholders of the Company. Warrants as to which the conditions
precedent to issuance are not satisfied shall be void and of no effect, and no
Purchaser or other party shall have any rights with respect thereto.
15. INVESTMENT INTENT. The Warrants to be purchased pursuant to this
Agreement are being purchased for each Purchaser's own account and with no
intention of distributing or reselling the Warrants. The Holder understands that
neither the Warrants nor the Common Stock have been registered under the Act or
any applicable state securities laws and that neither the Warrants nor the
Common Stock can be sold, transferred or otherwise disposed of without
registration under the Act and applicable state securities laws, unless it has
been established to the satisfaction of the Company that they may be sold,
transferred or otherwise disposed of without such registration.
16. NOTICES. Any notice pursuant to this Agreement to be given or made
by the Holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made if delivered personally or sent by telecopier or by
certified mail, addressed to the Chief Financial Officer of the Company at the
Company's principal executive offices at 4100 Holiday Street, N.W., Suite 201,
Canton, Ohio 44718 (unless notice has been given of a change of such address),
and shall be effective three (3) days after having been mailed or upon receipt
if delivered personally or sent by telecopier, with receipt confirmed by the
office of the President. Notices or demands authorized by this Agreement to be
given or made to the Holder of any Warrant Certificate shall be sufficiently
given or made if delivered personally or sent by certified mail or by
telecopier, addressed to such Holder at the address of such Holder as shown on
the Warrant Register, and shall be effective three (3) days after having been
mailed or upon receipt if delivered personally or sent by telecopier, with
receipt confirmed.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
18. SUPPLEMENTS, AMENDMENTS AND WAIVERS. Any supplement or amendment
to, or any waiver of any provision of, this Agreement shall be effective when
consented to in writing by the Holders of a majority of the Warrants then
outstanding (determined as though there were one Warrant for each share of
Common Stock issuable on the exercise of the then outstanding Warrants) and by
the Company.
19. SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day, month and year first above written.
WATERLINK, INC.
By:
---------------------------
Its:
--------------------------
19
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WARRANT PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
Brantley Capital Corporation
By:_______________________________________
[Please Sign Above This Line]
Name: Robert P. Pinkas
Title: Chairman, Chief Executive Officer
and Treasurer
Address: 20600 Chagrin Blvd.
Suite 1150
Cleveland, Ohio 44122
Telephone No.: (216) 283-4800
Telecopier No.: (216)
Taxpayer Identification No.: __________________________
20
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WARRANT PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
River Cities Capital Fund Limited Partnership
By: RC Management Limited Partnership,
its General Partner
By: Mayson, Inc., its General Partner
By:_______________________________________
[Please Sign Above This Line]
Name: Edwin T. Robinson
Title: President
Address: 221 East 4th Street
Suite 2250
Cincinnati, Ohio 45202
Telephone No.: (513) 621-9700
Telecopier No.: (513) 579-8939
Taxpayer Identification No.: 31-1413379
21
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WARRANT PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
Environmental Opportunities Fund, L.P.
By: Environmental Opportunities Management
Co., LLC, its General Partner
By:_______________________________________
[Please Sign Above This Line]
Name: Kenneth Ch'uan-k'ai Leung
Title: Manager
Address: 126 East 56th Street
24th Floor
New York, New York 10022
Telephone No.: (212) 980-0789
Telecopier No.: (212) 593-6150
Taxpayer Identification No.: 74-0488338
22
<PAGE> 23
WARRANT PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
Environmental Opportunities Fund (Cayman), L.P.
By: Environmental Opportunities Management
Co., LLC, its General Partner
By:_______________________________________
[Please Sign Above This Line]
Name: Kenneth Ch'uan-k'ai Leung
Title: Manager
Address: c/o Citco Fund Services
(Cayman Islands) Limited
P.O. Box 31106SMB
Grand Cayman, Cayman Islands, B.W.I.
Telephone No.: (713) 250-4283
Telecopier No.: (713) 250-4294
Taxpayer Identification No.: N/A
Copy of notices to:
Environmental Opportunities
Management Co., LLC
3100 Texas Commerce Tower
Houston, Texas 77002
23
<PAGE> 24
WARRANT PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
National City Capital Corporation
By:_______________________________________
[Please Sign Above This Line]
Name: Todd S. McCuaig
Title:
Address: 1965 E.6th Street
10th Floor
Cleveland, Ohio 44114
Telephone No.: (216) 575-2480
Telecopier No.: (216) 575-9965
Taxpayer Identification No.: 34-1269115
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<PAGE> 25
WARRANT PURCHASE AGREEMENT SIGNATURE PAGE
Accepted and agreed as of
the date first above written:
IPP95, L.P.
By: WESINVEST, Inc., its General Partner
By:_______________________________________
[Please Sign Above This Line]
Name: Christine Jenkins
Title: Secretary
Address: 310 South Street
P.O. Box 1913
Morristown, NJ 07461
Telephone No.: (212) 898-0290
Telecopier No.: (212) 898-0840
Taxpayer Identification No.: 22-3356204
Copy of notices to:
IPP95, L.P.
310 South Street
P.O. Box 1913
Morristown, NJ 07461
Attn: Conor Mullett
25
<PAGE> 26
EXHIBIT A
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
("ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OTHER TERMS
SET FORTH IN THAT CERTAIN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED AS
OF MARCH __, 1997, AS IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH
AGREEMENT CAN BE OBTAINED FROM THE SECRETARY OF THE COMPANY.
THESE SECURITIES HAVE BEEN ISSUED UNDER AND ARE GOVERNED BY AND ARE SUBJECT TO
THAT CERTAIN WARRANT AGREEMENT DATED MARCH 31, 1992 (THE "WARRANT AGREEMENT"). A
COPY OF THE WARRANT AGREEMENT CAN BE OBTAINED FROM THE SECRETARY OF THE COMPANY.
WARRANT TO PURCHASE COMMON STOCK OF
WATERLINK, INC.
WARRANT NO. _____
This certifies that, for value received, ____________________, or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from WATERLINK, INC., a Delaware corporation (the "Company"),
______________ shares (the "Shares") (subject to reduction as provided in
Section _____ of the Warrant Agreement) of fully paid and nonassessable common
stock, $.01 par value per share, of the Company (the "Common Stock"), at the
purchase price of $_____________ per share (the "Purchase Price"), at any time
or from time to time up until 5:00 P.M. Cleveland, Ohio time on _______________,
2002.
1. Exercise Provisions.
-------------------
(a) MANNER OF EXERCISE. This Warrant may be exercised by the
holder of this Warrant surrendering to the Company at its principal
office at 4100 Holiday Street, N.W., Suite 201, Canton, Ohio 44718, or
such other address as to which the Company may hereafter give notice to
the holder, this Warrant, together with the exercise form attached to
this Warrant duly executed by the holder together with payment to the
Company in the amount obtained by multiplying the Purchase Price by the
number of shares of Common Stock designated in the exercise form.
Payment may be in cash or by cashier's or certified bank check payable
to the order of the Company, or by conversion of the unpaid principal
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<PAGE> 27
and accrued interest under the Notes in the manner set forth in the
Notes and the Warrant Agreement.
(b) PARTIAL EXERCISE. On any partial exercise, the Company
shall promptly issue and deliver to the holder of this Warrant a new
Warrant or Warrants of like tenor in the name of that holder providing
for the right to purchase that number of shares of Common Stock as to
which this Warrant has not been exercised.
2. DELIVERY OF STOCK CERTIFICATES. Within a reasonable time after full
or partial exercise of this Warrant, the Company at its expense will cause to be
issued in the name of and delivered to the holder of this Warrant in accordance
with the requirements of the Warrant Agreement, a certificate or certificates
for the number of fully paid and nonassessable shares of Common Stock to which
that holder shall be entitled upon such exercise.
3. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF
COMMON STOCK. The holder of this Warrant, by acceptance hereof, agrees that this
Warrant and the Shares of Common Stock to be issued upon exercise hereof are
being acquired for investment and that the holder will not offer, sell or
otherwise dispose of this Warrant or any Shares of Common Stock to be issued
upon exercise hereof, except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act") nor violate the
terms of the Warrant Agreement and, if then applicable, the Amended and Restated
Stockholders' Agreement (as defined in the Warrant Agreement). In addition, any
permitted Warrant transferee will be required to agree to the provisions of this
Section 3. The provisions of this Section 3 shall not apply to any shares of
Common Stock, the issuance or resale of which is registered under the Act.
4. Miscellaneous Provisions.
------------------------
(a) RESERVATION OF STOCK. The Company covenants that it will
at all times reserve and keep available, solely for issuance upon
exercise of this Warrant, all shares of Common Stock or other
securities from time to time issuable upon exercise of this Warrant.
(b) MODIFICATION. This Warrant and any of its terms may be
changed, waived, or terminated only by a written instrument signed by
the party against whom enforcement of that change, waiver or
termination is sought.
(c) REPLACEMENT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and subject to the requirements of the
Warrant Agreement, the Company will execute and deliver, in lieu of
this Warrant, a new Warrant of like tenor.
(d) WARRANT AGENT. The Company may, on written notice to the
holder of this Warrant, appoint an agent having an office in Cleveland,
Ohio, for the purposes of issuing Common Stock upon the exercise of
this Warrant and of replacing or exchanging this
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<PAGE> 28
Warrant, and after that appointment any such issuance, replacement, or
exchange shall be made at that office by that agent.
(e) NO RIGHTS AS STOCKHOLDER. No holder of this Warrant, as
such, shall, solely by holding this Warrant, be entitled to vote or
receive dividends or be considered a stockholder of the Company for any
purpose, nor shall anything in this Warrant be construed to confer on
any holder of this Warrant as such, any rights of a stockholder of the
Company or any right to vote, to give or withhold consent to any
corporate action, to receive notice of meeting of stockholders, to
receive dividends or subscription rights or otherwise.
(f) ANTI-DILUTION RIGHTS. The holder hereof shall have certain
anti-dilution protection as to the Shares of Common Stock to be issued
upon exercise as specifically set forth in the Warrant Agreement which
may result in the adjustment from time to time of the Purchase Price
and/or the number of shares of Common Stock issuable upon the exercise
hereof.
(g) NOTICES. Notices hereunder to the holder of this Warrant
shall be sent as provided in the Warrant Agreement.
Dated: _______________, 1997 WATERLINK, INC.
By:
-----------------------
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<PAGE> 29
FORM OF EXERCISE
----------------
(To be signed only upon exercise of Warrant)
To: WATERLINK, INC.
The undersigned holder of the attached Warrant hereby irrevocably
elects to exercise the right to purchase _______________ shares of Common Stock
of WATERLINK, INC., and herewith makes payment of $___________________ for those
shares, and requests that the certificate for those shares be issued in the name
of the undersigned and delivered to the address below the signature of the
undersigned. The undersigned hereby affirms the statements and covenants all as
set forth in Section 3 of the Warrant.
Dated:_______________, 199__
(Signature must conform in all respects to
name of holder as specified on the face of
the attached Warrant)
-----------------------------------------
Signature
-----------------------------------------
Address
-----------------------------------------
<PAGE> 1
Exhibit 10.15
ASSET PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 31st day of January, 1996,
among WATERLINK ACQUISITION CORP., a Delaware corporation ("Purchaser"), MASS
TRANSFER SYSTEMS, INC., a MASSACHUSETTS corporation ("Seller"), WATERLINK, INC.,
a Delaware corporation ("Waterlink"), and MARK E. NEVILLE ("Neville") and
FREDERICK J. SIINO ("Siino"), shareholders of Seller (Neville and Siino are
collectively referred to as the "Shareholders").
R E C I T A L:
--------------
Purchaser desires to purchase, and Seller desires to sell to Purchaser,
all of the business, assets, and goodwill of Seller, except as otherwise
provided in this Agreement, in exchange for cash, promissory notes and for the
assumption of certain of Seller's liabilities and obligations, as expressly
provided in this Agreement.
NOW, THEREFORE, Purchaser and Seller agree as follows:
ARTICLE I
---------
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
1.1 TRANSFER OF ASSETS. On the terms and subject to the conditions in
this Agreement, Seller will convey, transfer, assign and deliver to Purchaser on
the Closing Date (defined below) all of the business, assets, and goodwill owned
or used by Seller on the Closing Date in the conduct of its business (the
"Business") of every kind and description, wherever located, known or unknown,
tangible or intangible, including, without limitation, all property, real,
personal or mixed, cash on hand and in accounts, accounts receivable,
securities, deposits on contractual obligations or otherwise, claims and rights
under contracts and leases, licenses, customer lists, trade secrets, know-how
and all other pending claims and other choses in action, exclusive rights to use
the name "Mass Transfer Systems" and any derivative or combination of that name
and all other names or slogans used by Seller in connection with the Business or
its products, all product catalogs and other advertising materials, all files,
books and records of Seller relating to the Business, and all rights, title and
interests in and to any computer programs, all as the same exist on the Closing
Date (collectively, the "Subject Assets"). Notwithstanding the foregoing, the
Subject Assets will not include any tax refund claims and those items
specifically referenced on Schedule 1.1.
1.2 ASSUMPTION OF LIABILITIES. Subject to the conditions in this
Agreement, on the Closing Date, Purchaser will deliver an undertaking in form
and substance reasonably satisfactory to Seller and its counsel pursuant to
which Purchaser will assume and agree to pay, perform and discharge (i) all
obligations and liabilities of Seller to the extent reflected or reserved
against in Seller's balance sheet as of September 30, 1995, included in the
Seller Financial Statements (defined below), (ii) all obligations and
liabilities of Seller arising after the Closing Date under any contracts,
agreements, instruments and arrangements listed on Schedule 3.19 furnished by
Seller to Purchaser pursuant to this Agreement or entered into in the ordinary
course of business, and (iii) all current
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<PAGE> 2
liabilities and obligations of Seller of the nature contained on Seller's
September 30, 1995 balance sheet or of the nature disclosed on Schedule 3.7
hereto, arising after the date of such balance sheet in the ordinary course of
business and not in violation of Section 10.1 of this Agreement PROVIDED,
HOWEVER, that Purchaser will not assume any liability of Seller in excess of
Four Hundred Thousand Dollars ($400,000) under the Promissory Note dated
December 18, 1995 made by Seller in favor of Neville in the original principal
amount of One Million Two Hundred Thousand Dollars ($1,200,000) (the "Neville
Note"). Any of the foregoing notwithstanding, Purchaser will not assume any
other obligations or liabilities of Seller, including, without limitation, those
arising out of or in connection with the negotiation and preparation of this
Agreement or the consummation of the transactions provided for in this Agreement
(except for the fees of Seller's professional advisors in an amount not to
exceed Forty-Five Thousand Dollars ($45,000), or for any taxes of Seller of any
nature other than VAT Taxes and GST Taxes (each as defined in Section 3.10) to
the extent reserved for on the Seller Financial Statement. The liabilities to be
assumed by Purchaser hereunder are collectively referred to as the "Assumed
Liabilities."
1.3 METHOD OF CONVEYANCE AND TRANSFER. The conveyance, transfer and
delivery of the Subject Assets will be effected by quit claim deeds, bills of
sale, endorsements, assignments and other instruments of transfer, all in such
form as Purchaser reasonably requests, vesting in Purchaser good and marketable
title to the Subject Assets, free and clear of all covenants, conditions,
easements, liens, charges, security interests, adverse claims, encumbrances,
demands or other title defects or restrictions of any kind, except, with respect
to the Real Property portion of the Subject Assets only, for those Permitted
Encumbrances set forth on Schedule 1.3 existing on the Closing Date ("Permitted
Encumbrances").
1.4 FURTHER ASSURANCES. Seller, within a reasonable period of time,
after the Closing Date, upon request of Purchaser, do, execute, acknowledge and
deliver, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably required for the
conveying transferring, assigning, and delivering to Purchaser, or to successors
and assigns, and for aiding and assisting in collecting and reducing to
possession, all the Subject Assets.
ARTICLE II
----------
PAYMENT OF PURCHASE PRICE
-------------------------
2.1 PAYMENT BY PURCHASER.
(a) At the Closing, Purchaser will pay to Seller the purchase
price for the Subject Assets, as follows:
(i) The sum of Two Million Five Hundred Thousand Dollars
($2,500,000) plus the amount equal to the Shareholders'
collective income tax liability for the prior fiscal year and the
current fiscal year resulting from Seller's operation of the
Business prior to the Closing (the "Shareholders' Tax Liability")
estimated to be approximately Two Hundred Fifty-One Thousand
Dollars ($251,000)
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<PAGE> 3
(the "Cash Purchase Price") by certified or bank check in
immediately available funds or by wire transfer to an account
designated by Seller, provided, however, that if prior to the
Closing Date, (A) Seller elects to pay down the Neville Note as
permitted by Section 10.1(g)(ii) of this Agreement, and/or (B)
Seller makes a distribution to the Shareholders in accordance
with Section 10.1(f) of this Agreement, then the Cash Purchase
Price will be reduced by the aggregate amount of such pay down
and/or distribution, as the case may be, and, provided, further,
that if the amount of the Shareholders' Tax Liability is not
known on the Closing Date, then it shall be deemed to be Two
Hundred Fifty-One Thousand Dollars ($251,000) for purposes of
payment of the Cash Purchase Price at the Closing (the "Estimated
Amount") and after the Closing, the Shareholders shall provide
evidence of the actual amount of the Shareholders' Tax Liability
and the difference between the actual amount of the Shareholders'
Tax Liability and the Estimated Amount promptly shall be paid by
Purchaser to Seller if the actual amount of the Shareholders' Tax
Liability is greater than the Estimated Amount or by Seller to
Purchaser if the actual amount of the Shareholders' Tax Liability
is less than the Estimated Amount.
(ii) Purchaser will issue to Seller its convertible
subordinated promissory note (the "Convertible Subordinated
Promissory Note") in the form of Exhibit "A" to this Agreement,
dated as of the Closing Date and payable to Seller in the
principal amount of Two Million Dollars ($2,000,000). The
Convertible Subordinated Promissory Note will be convertible into
shares of common stock of Waterlink, as provided for therein, and
will be guaranteed by Waterlink in accordance with Article XII of
this Agreement.
(iii) Purchaser will issue to Seller its subordinated
promissory note (the "Subordinated Promissory Note") in the form
of Exhibit "B" to this Agreement, dated as of the Closing Date
and payable to Seller in the principal amount of One Million
Three Hundred Thousand Dollars ($1,300,000). The Subordinated
Promissory Note will be guaranteed by Waterlink in accordance
with Article XII of this Agreement.
(iv) Purchaser will issue to Seller its subordinated
promissory note (the "Second Subordinated Promissory Note") in
the form of Exhibit "C" to this Agreement, dated as of the
Closing Date and payable to Seller in the principal amount of
Eight Hundred Thousand Dollars ($800,000). The Convertible
Subordinated Promissory Note, Subordinated Promissory Note and
Second Subordinated Promissory Note are collectively referred to
as the "Promissory Notes". The Second Subordinated Promissory
Note will be guaranteed by Waterlink in accordance with Article
XII of this Agreement.
(b) After the Closing, Purchaser will pay to Seller as additional
purchase price for the Subject Assets, the Earn-out Payments referred
to in Section 2.2 below, if applicable.
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<PAGE> 4
2.2 EARN-OUT.
(a) In addition to the payments referred to in Section 2.1(a)
above and with respect to the periods set forth below (the "Earn-out
Periods"), Purchaser shall pay to Seller the amounts set forth below
(the "Earn-out Payments") based on the adjusted earnings before income
and taxes ("Adjusted EBIT") (as more fully defined below) of the
Business.
(b) "Adjusted EBIT" for any period of determination shall mean
the earnings before interest (other than interest on borrowings used
for working capital purposes) and federal and state income taxes of
the Business and determined as if the Business was an independent
corporate entity whether or not it is subsequently merged into another
entity or other businesses or assets not relating to the Business are
operated or acquired by Purchaser (it being the intent of the parties
that extraordinary expenses and expenses incurred in connection with
new projects outside the ordinary and normal courst [sic] of business
[sic]), determined in accordance with generally accepted accounting
principals consistently applied, from period to period, except that no
purchase price accounting adjustments shall be made with respect to
the acquisition of the Subject Assets and the assumption of the
Assumed Liabilities and all the Subject Assets and the Assumed
Liabilities will be recorded at Seller's historical costs and using
Seller's historical useful lives based on the Seller Financial
Statements (defined below) at the Closing.
(c) In accordance with the following table, Earn-out Payments
shall be payable by Purchaser to Seller by certified or bank check in
immediately available funds for the Earnout Periods if the Adjusted
EBIT equals or exceeds the amounts set forth below:
<TABLE>
<CAPTION>
EARN-OUT PERIOD ADJUSTED EBIT EARN-OUT PAYMENT
--------------- ------------- ----------------
<S> <C> <C>
Twelve (12) month $1,000,000 $500,000
period ending
September 30, 1996
Twelve (12) month $1,485,000 $500,000
period ending
September 30, 1997
</TABLE>
(d) Purchaser shall deliver to Seller within ninety (90) days of
the end of each Earn-out Period, (i) Purchaser's financial statements
covering such Earn-out Periods, and (ii) a statement setting forth the
computation and amount of Adjusted EBIT for such Earn-out Period (the
"Earn-out Statement") (as reviewed and concurred to by Purchaser's
independent public accountants if such statement indicates that no
Earn-out Payment is due) and shall pay the Earn-out Payment, if any,
to Seller within thirty (30) days of the delivery of the Earn-out
Statement.
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<PAGE> 5
(e) Seller shall have thirty (30) days from the date the Earn-out
Statements are delivered to it to furnish Purchaser with a letter
requesting access to the books and records of Purchaser necessary to
compute Adjusted EBIT and upon receipt of such request, Purchaser
shall promptly make available such books and records to Seller. Seller
shall have sixty (60) days after such access is granted to furnish
Purchaser with a letter setting forth those items with which it
disagrees and the reasons for each such disagreement. The parties
shall promptly seek to reconcile any such disagreement; if they fail
to reach an agreement within thirty (30) days of receipt by Purchaser
of such letter, then an independent public accounting firm shall be
retained by the parties to settle any remaining disagreement, and the
decision of said firm shall be final and binding on all parties to
this Agreement. If Seller and Purchaser cannot agree on an accounting
firm to settle any remaining disagreement within such thirty (30) day
period, then Seller and Purchaser shall each designate an independent
public accounting firm and the two (2) firms so designated shall
select an independent public accounting firm and the decision of said
firm shall be final and binding on all parties to this Agreement. The
fees of all accounting firms involved shall be paid by the party which
fails to prevail with respect to the dispute. The payment of the
portion of the Earn-out Payment in dispute, if any, ultimately
determined (pursuant to the procedures set forth in this paragraph) to
be due the Seller shall be made within fifteen (15) days of such
determination.
(f) Waterlink hereby agrees that until September 30, 1997 it will
comply and will cause the Purchaser to comply with the following
covenants:
(i) The Purchaser shall maintain its corporate existence,
and shall be operated as a separate, consolidated subsidiary of
Waterlink, subject to CLAUSE (ii) below;
(ii) Purchaser shall not, without the consent of the Seller,
sell inventory to any affiliate of Waterlink at prices or upon
terms and conditions significantly less favorable to Purchaser
than would be the case if such transaction had been affected with
other arms-length purchasers of Purchaser unaffiliated with
Waterlink; and
(iii) No sales of or revenues generated by products
presently manufactured, distributed and sold or services
presently provided by Seller shall be diverted to Waterlink or
any subsidiary now or hereafter affiliated with Waterlink (it
being understood that Waterlink and its subsidiaries presently do
not manufacture or provide such products or services).
(g) The parties hereby agree that any expenses in the calculation
of the Adjusted EBIT or in enforcing the provisions of this Section
2.2 shall not be taken into account for purposes of calculating
Adjusted EBIT.
2.3 ALLOCATION OF PURCHASE PRICE. Purchaser will allocate the purchase
price among the Subject Assets in accordance with Section 1060 of the Internal
Revenue Code (the "Code") and the specification as listed and described in
Schedule 2.3. Seller will prepare any information or forms
5
<PAGE> 6
required by Section 1060 of the Code and provide Purchaser with a copy of such
information and forms. Purchaser and Seller will each attach a copy of such
information or forms as are required to be filed pursuant to Section 1060 of the
Code to the tax return filed covering the period in which the transfer of the
Subject Assets occurs. Any excess of the purchase price over the fair market
value of Subject Assets will be allocated to goodwill or other intangible assets
as designated by Purchaser so long as such designation is not adverse to Seller.
Seller and Purchaser will report the sale and purchase of the Subject Assets in
accordance with the allocations set forth on Schedule 2.3 for all federal, state
and local tax purposes. Seller will indemnify and hold Purchaser harmless, and
Purchaser will indemnify and hold Seller harmless, from and against any and all
losses, liabilities and expenses, including, without limitation, reasonable
attorneys' fees and additional income taxes, interest and penalties that may be
incurred by the indemnified party as a result of the failure of the indemnifying
party to so report the sale and purchase of the Subject Assets. Seller's tax
identification number is 04-2834159, and Purchaser's tax identification number
is 34-1820944.
2.4 TRANSFER TAXES. All applicable sales and transfer taxes, if any,
arising by reason of the transfer of the Subject Assets under this Agreement
will be borne by Purchaser.
2.5 REAL PROPERTY ADJUSTMENTS. The parties will prorate and apportion
as of the Closing Date (i) any long-term assessments and (ii) general real
estate taxes (including supplemental taxes, if any) using the rates and
valuations shown on the latest available tax duplicates. When the actual final
amount of such assessments and taxes becomes known (including, without
limitation, those resulting from a proposed or actual change in valuation prior
to the Closing Date) Seller and Purchaser will adjust between themselves the
assessment and tax proration based upon the actual final assessments and taxes
ultimately payable by Purchaser. Prepaid rents and other charges will be
prorated and apportioned as of the Closing Date. Seller will be charged with the
cost of discharging any monetary liens and they will be discharged as of the
Closing Date. All assessments, transfer taxes, conveyance fees and recording
costs will be charged to and paid by Purchaser.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER AND
--------------------------------------------------------
THE SHAREHOLDERS
----------------
Seller and each of the Shareholders, jointly and severally, represent
and warrant to, and agree with, Purchaser and Waterlink as follows:
3.1 ORGANIZATION AND STANDING.
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts.
Seller owns no voting stock or other capital stock of any other
corporation, directly or indirectly, nor is Seller directly or
indirectly a partner in any general partnership. Seller has full power
and authority to carry on its business as and where now conducted and
to own or lease and operate its properties at and where now owned or
leased and operated by it, and is duly qualified to do business
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<PAGE> 7
and is in good standing in every jurisdiction in which the property
owned, leased or operated by it, or the nature of the business
conducted by it, makes such qualification necessary except where the
failure to qualify would not have a material adverse effect on the
Business, Subject Assets or financial condition of Seller.
(b) Seller is not qualified to do business as a foreign
corporation in any jurisdiction.
3.2 AUTHORITY OF SELLER AND THE SHAREHOLDERS; CONSENTS. The execution,
delivery and consummation of this Agreement by Seller has been duly authorized
by the board of directors and the Shareholders in accordance with all applicable
laws and the Articles of Incorporation and By-Laws of Seller, and at the Closing
Date no further corporate action will be necessary on the part of Seller or the
Shareholders to make this Agreement valid and binding on Seller and the
Shareholders and enforceable against Seller and the Shareholders in accordance
with its terms. The execution, delivery and consummation of this Agreement by
Seller (i) is not contrary to the Articles of Incorporation or By-Laws of
Seller, (ii) does not now and will not, with the passage of time, the giving of
notice or otherwise, result in a violation or breach of, or constitute a default
under, any term or provision of any indenture, mortgage, deed of trust, lease,
instrument, order, judgment, decree, rule, regulation, law, contract, agreement
or any other restriction to which Seller is a party or to which Seller or any of
the Subject Assets is subject or bound except for such violations, breaches and
defaults which would not individually or in the aggregate have a material
adverse effect on the Business, Subject Assets or financial condition of Seller,
(iii) will not result in the creation of any lien or other charge upon any of
the Subject Assets, and (iv) other than the Slade's Ferry Mortgage and loan
(which will be paid off by Seller at the Closing), will not result in any
acceleration or termination of any loan or security interest agreement to which
Seller is a party or to which Seller or any of the Subject Assets is subject or
bound. Except as may be listed on Schedule 3.2 and other than consents required
under those of Seller's customer contracts which are less than One Hundred
Thousand Dollars ($100,000) or pursuant to which products or services have yet
to be shipped or provided, no approval or consent of any person, firm or other
entity or governmental body is or was required to be obtained by Seller for the
authorization of this Agreement or the consummation by Seller of the
transactions contemplated in this Agreement. Seller and Purchaser agree that if
any required consents listed on Schedule 3.2 and relating to any of Seller's
customer contracts are not obtained, Seller will not assign such contract if
such assignment would result in the termination of such contract or would
otherwise materially and adversely effect the value of such contract (unless and
until such consent is obtained) but will sub-contract with Purchaser to provide
the services and/or products required under such contracts and will deliver to
Purchaser all funds received relating to the performance of such contract, it
being the intention of the parties that Purchaser perform all the obligations
and receive all the benefits under such contracts to the same extent as if
assigned to Purchaser.
3.3 BUSINESS RELATIONS. Other than as set forth on Schedule 3.3,
Seller is not required, in the ordinary course of business, to provide any
bonding or any other financial security arrangements in connection with any
transactions with any customers or suppliers. Seller has not received any notice
of any disruption (including, without limitation, delayed deliveries or
allocations
7
<PAGE> 8
by suppliers) in the availability of any materials or products used in its
business and has no reason to believe that any such disruption will occur. There
are no sole source suppliers of goods, equipment or services used by Seller
(other than public utilities) with respect to which practical alternative
sources of supply are unavailable.
3.4 REAL PROPERTY.
(a) Schedule 3.4(a) is a true and complete list of (i) all real
property owned by Seller, including, without limitation, all
buildings, structures and improvements thereon and all appurtenances
thereto and the rights and privileges of Seller in all rights of way,
licenses or easements, and (ii) all options, deeds of trust, deeds of
declaration, mortgages and land contracts pursuant to or in which
Seller has any interest (collectively, the "Real Property"). Seller
has furnished to Purchaser or its counsel true and complete copies of
each written contract and a written description of each oral contract
relating to the list set forth on Schedule 3.4(a). Other than the Real
Property, Seller does not lease, sublet or otherwise occupy any other
real property.
(b) With respect to the Real Property, except as set forth on
Schedule 3.4(b):
(i) There is no condemnation proceeding or eminent domain
proceeding of any kind pending or, to the best knowledge of
Seller, threatened against any of the Real Property;
(ii) The Real Property is occupied under valid and current
certificates of occupancy or the like, and the transactions
contemplated by this Agreement will not require the issuance of
any new or amended certificates of occupancy or the like; there
are no facts known to Seller which would prevent each location
from being occupied after the Closing Date in substantially the
same manner as before;
(iii) To the best of Seller's knowledge, the Real Property
does not violate, and all improvements are constructed in
material compliance with, any applicable federal, state or local
statutes, laws, ordinances, regulations, rules, codes, orders or
requirements, including, without limitation, any building,
zoning, fire or environmental laws or codes (the "Laws and
Ordinances") and Seller will convey, transfer and assign the Real
Property free from any such violations;
(iv) To the best of Seller's knowledge, there are no
outstanding variances or special use permits affecting the Real
Property or its uses;
(v) No notice of a violation of any Laws and Ordinances, or
of any covenant, condition, easement or restriction affecting the
Real Property or relating to its use or occupancy has been given
to Seller, nor is Seller aware of any such violation;
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<PAGE> 9
(vi) Except as shown on the survey, no portion of the Real
Property is located within a special flood plain area as
designated by the Federal Emergency Management Agency or other
applicable government authority;
(vii) The Real Property has and will have as of the Closing
Date water supply, storm and sanitary sewage facilities,
telephone, gas, electricity, fire protection, means of ingress
and egress to and from public highways. All utility lines and
facilities presently serving the Real Property are serviced and
maintained by the appropriate public or quasi-public entity. All
utilities enter the Real Property through adjoining public
streets or, if they pass through adjoining private land, they do
so in accordance with valid public easements;
(viii) Seller has no knowledge of improvements made by any
public or private authority, the costs of which are to be
assessed as special taxes or charges against the Real Property,
and there are no present assessments;
(ix) No portion of the Real Property has been leased by
Seller or is occupied by any third party under any other
arrangement with Seller.
3.5 INVESTMENTS IN OTHER ENTITIES. Seller does not have any direct or
indirect equity interest, or debt convertible into any equity interest, in any
entity, corporation or otherwise, or any right, warrant or option to acquire any
such interest.
3.6 TITLE TO AND CONDITION OF ASSETS. Seller owns and possesses and
will own and possess as of the Closing Date all right, title and interest in and
to the Subject Assets, including, without limitation (i) good and marketable
title in fee simple to all its Real Property, and (ii) good and merchantable
title to the Subject Assets other than the Real Property, in each case free and
clear of all conveyances, conditions, easements, liens, charges, security
interests, adverse claims, encumbrances, encroachments, reservations, easements,
limitations, servitudes, other title defects or restrictions of any nature other
than, with respect to the Real Property only, Permitted Encumbrances. Seller has
and will have as of the Closing Date the right, power and authority to convey,
transfer, assign and deliver the Subject Assets free and clear of any title
defect or restriction, including, without limitation, those enumerated in this
Section 3.6. All tangible Subject Assets of Seller are in Seller's possession or
under its control, and all equipment included in the Subject Assets is in good
operating condition and repair, subject only to routine maintenance and ordinary
wear and tear consistent with the age and use thereof, and is fit and adequate
for use in the ordinary course of the Business as currently conducted by Seller.
Seller enjoys peaceful and quiet possession of the Subject Assets pursuant to or
by all of the deeds, bills of sale, leases, licenses and other agreements under
which it is operating its business.
3.7 FINANCIAL STATEMENTS. Prior to the date of this Agreement, Seller
provided Purchaser with the following financial statements of Seller and will
provide to Purchaser monthly financial statements for the months after September
30, 1995 (the "New Monthly Financial Statements") as soon as practicable after
the end of each month, to wit: the compiled balance sheets and statements
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of income at and for the fiscal years ended February 29, 1992, February 28,
1993, and February 28, 1994, and at and for the shortened fiscal year ended
December 31, 1994 and the unaudited balance sheet and statement of income at and
for the nine (9) month period ending September 30, 1995 (the "Seller Financial
Statements").
The Seller Financial Statements (i) present fairly (and, with respect
to the New Monthly Statements, when so delivered, will present fairly), in all
material respects, Seller's financial position, results of its operations and
cash flows at and for the periods therein specified, (ii) are (and, with respect
to the New Monthly Statements, when so delivered, will be) true and complete,
(iii) are (and, with respect to the New Monthly Statements, when so delivered,
will be) consistent with the books and records of Seller except that, the Seller
Financial Statements were (and with respect to the New Monthly Statements, when
so delivered, will be) subject to the normal recurring adjustments set forth on
Schedule 3.7. The Seller Financial Statements will be deemed to include any
accompanying notes and schedules.
3.8 ABSENCE OF CERTAIN CHANGES. Since September 30, 1995, Seller has
conducted its business in the ordinary and regular course consistent with past
practice (other than time spent by the Shareholders and certain of Seller's
employees in connection with the negotiation of and preparation for this
Agreement and the transactions contemplated hereby). Since such date, there has
not been any material adverse change in the business, financial condition,
assets, liabilities, results of operations or, to the best of Seller's
knowledge, prospects of Seller. Except as set forth on Schedule 3.8, without
limiting the generality of the foregoing, since September 30, 1995, there has
not been:
(a) Any increase made in the compensation or other remuneration
payable or to become payable by Seller to any of its employees or
agents;
(b) Any mortgage or pledge of, or any other lien, charge or
encumbrance of any kind, on any of the assets, tangible or intangible,
of Seller, except in the ordinary course of business;
(c) Any sale or transfer of any assets, except for sales of
inventory in the ordinary course of business, or settlement,
cancellation or release of any indebtedness owing to Seller or of any
other claims of Seller except in the ordinary course of business;
(d) Any sale, license, assignment or transfer by Seller of any
patents, trademarks, trade names or other similar intangible assets;
(e) Any amendments or termination of any material contract,
agreement or license to which Seller is a party or to which Seller or
any of its assets are subject or bound;
(f) Any commitment made (through negotiations or otherwise) or
any liability incurred to any recognized labor organization by Seller;
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(g) Except as otherwise permitted by Section 10.1 of this
Agreement, any payment, declaration or setting aside by Seller of
dividends or a return of capital or any distribution by Seller of any
cash or other assets to any of its shareholders in redemption of or as
the purchase price for any of its capital stock or in discharge or
cancellation in whole or in part of any indebtedness owing (whether in
payment of principal, interest or otherwise) to any of its
shareholders;
(h) Any discharge or satisfaction by Seller of any lien,
encumbrance, obligation or liability (accrued, absolute, fixed or
contingent), other than those incurred and discharged in the ordinary
course of business consistent with past practice;
(i) Any institution by Seller of a bonus, stock option,
profit-sharing, pension plan or similar arrangement or any changes in
any such existing plans other than Seller's 401(k) plan and year-end
bonuses referred to in Section 3.8(a) above;
(j) Any incurrence (whether discharged or not) of any obligation
or liability (whether accrued, absolute, fixed or contingent) other
than current liabilities incurred, and obligations entered into, in
the ordinary course of business consistent with past practice;
(k) Any adverse change in collection loss experience except for
extraordinary write-offs in the approximate amount of $17,000 in the
aggregate;
(l) Any material loss, damage or destruction to any of Seller's
properties (whether or not covered by insurance) or any labor trouble;
or
(m) Any change in accounting principles or practices from those
utilized in the preparation of the Financial Statements.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except (i) as set forth on the
September 30, 1995 balance sheet of the Financial Statements, (ii) as listed on
Schedule 3.9, (iii) those incurred in the ordinary course of business since
September 30, 1995 and (iv) those which individually or in the aggregate do not
exceed $10,000, Seller is not obligated for, nor are any of its assets or
properties subject to, any liabilities or adverse claims or obligations,
absolute or contingent. Seller is not in default with respect to any terms or
conditions of any material liability or obligation. There are no facts known to
Seller that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Financial Statements or in the Schedules.
3.10 TAXES.
(a) Seller has filed all income, franchise, sales and other tax
returns and reports of every nature required by law to be filed by it
accurately reflecting all taxes owing to the United States or any
other government or any government subdivision, state or local, or any
other taxing authority, and has paid in full or made adequate
provision for the payment of
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all taxes (including penalties and interest) for which it has or may
have liability. Seller has no knowledge of any unassessed tax
deficiency proposed or threatened against Seller as a result of the
operation of its business. There are no liens on the Subject Assets as
a result of any tax liabilities except for taxes not yet due and
payable (or contested in good faith and described on Schedule
3.10(a)). Other than those relating to value added taxes relating to
Seller's operations in the United Kingdom ("VAT Taxes") or those
relating to general sales taxes relating to Seller's operations in
Canada ("GST Taxes") there are, and after the date of this Agreement
will be, no tax deficiencies (including penalties and interest) of any
kind assessed against or relating to Seller with respect to any
taxable periods ending on or before, or including, the Closing Date of
a character or nature that would result in liens or claims on any of
the Subject Assets or on Purchaser's title to or use of the Subject
Assets, or that would result in any claim against Purchaser.
(b) Except as set forth on Schedule 3.10(b), there are no
outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local, or foreign tax
return of Seller for any period. The federal income tax returns of
Seller have not been audited by the Internal Revenue Service with
respect to any taxable period which is still open for assessment. No
state, local or foreign taxing authority has audited any tax return or
report filed by Seller with respect to any taxable period which is
still open for assessment. Seller has furnished to Purchaser complete
and correct copies of all federal tax returns filed by Seller for each
of its fiscal years beginning after January 1, 1990.
(c) Seller has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Code Section 897(c)(1)(A)(ii).
3.11 INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS. Other than
as evidenced by the Neville Note or the Agreements with John Michael relating to
the purchase/redemption of Mr. Michael's securities of Seller (the "Michael
Documents") as listed on Schedule 3.11, Seller is not indebted to any of its
current or former shareholders, officers or directors (or to members of their
immediate families) in any amount whatever other than for salaries payable or
for expenses incurred on behalf of Seller in the ordinary course of business.
3.12 ARTICLES OF INCORPORATION AND BY-LAWS. True, accurate and
complete copies of the Articles of Incorporation and By-laws of Seller, together
with all amendments thereto, have been delivered to Purchaser or its counsel.
3.13 CORPORATE MINUTES. Seller has furnished or made available to
Purchaser and its counsel the corporate record books of Seller and the same are
accurate and complete and reflect all material resolutions adopted and all
material actions taken, authorized or ratified by the shareholders and directors
of Seller. Copies of all corporate minutes of meetings held and of all written
actions taken after the date of this Agreement will be furnished to Purchaser
promptly, and in all events, prior to the Closing Date.
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3.14 BROKERAGE AND FINDER'S FEES. No shareholder, officer, director or
agent of Seller has incurred any liability to any broker, finder or agent for
any brokerage fees, finder's fees, or commissions with respect to the
transactions contemplated by this Agreement.
3.15 ACCOUNTS RECEIVABLE. Seller has previously delivered to Purchaser
an aging schedule as of December 31, 1995, which is true, correct and complete,
of the accounts receivables of Seller as of that date. All of Seller's accounts
receivable arose or will arise from valid sales in the ordinary course of
business.
3.16 EMPLOYMENT MATTERS.
(a) Except as set forth on Schedule 3.16, Seller is not a party
to, participant in, or bound by, any collective bargaining agreement,
union contract or employment, bonus, deferred compensation, insurance,
pension, profit sharing or similar personnel arrangement, any stock
purchase, stock option or other stock plans or programs or any
employee termination or severance arrangement.
(b) Except as set forth on Schedule 3.16, the employment by
Seller of any person (whether or not there is a written employment
agreement) may be terminated without cause (not inconsistent with
current law), without penalty or liability of any kind.
(c) Except as set forth on Schedule 3.16, there are no active,
pending or, to the best of Seller's and the Shareholders' knowledge,
threatened administrative or judicial proceedings under Title VII of
the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Fair Labor Standards Act, the Occupational Safety and Health
Act, the National Labor Relations Act or any other foreign, federal,
state or local law (including common law), ordinance or regulation
relating to employees of the Seller.
(d) The relation of Seller with its employees is good and there
are no pending or, to the best of Seller's and the Shareholders'
knowledge, threatened labor difficulties.
3.17 NO DEFAULTS. Other than warranty claims made in the ordinary
course of business, Seller is not in default (nor is any such default alleged to
exist) under the terms of any written or oral contract, agreement, lease,
license, mortgage, deed of trust, note, guaranty, instrument or understanding
(collectively, "Contracts") to which it is a party or to which any of its
assets, business or operations is subject, nor has any condition or event
occurred, nor, to Seller's knowledge is any condition or event threatened,
which, after notice or the passage of time, or both, would constitute a default
under any Contract. To Seller's knowledge, no such default, condition or event
exists or is alleged to exist with respect to the performance of any obligation
of any other party to any of the Contracts.
3.18 NON-TRADE ACCOUNTS RECEIVABLE. Schedule 3.18 is a true and
correct list of all of Seller's accounts receivable (other than trade accounts
receivable).
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3.19 MATERIAL CONTRACTS. Schedule 3.19 is a true and correct list of
each Contract to which Seller is a party or by which any of its assets,
businesses or operations is bound or affected. Schedule 3.19 excludes any
Contract that (i) may be cancelled by Seller on thirty (30) days' notice or less
without incurring a liability or obligation on the part of Seller for such
cancellation and which is not material to its business, condition (financial or
otherwise), assets, liabilities, results of operations or prospects, or (ii)
involves or is reasonably expected to involve the payment of consideration
having a value of less than Fifty Thousand Dollars ($50,000). A true, correct
and complete copy of each written, and a description of each oral, Contract, so
listed has been delivered or made available to Purchaser or its counsel.
3.20 INDEBTEDNESS. Schedule 3.20 is a true and complete list of all
indebtedness, including, without limitation, trade accounts payable in excess of
Fifty Thousand Dollars ($50,000) owed by Seller, including a description of the
terms of payment, and, if such indebtedness is secured, a description of all
properties or other assets pledged, mortgaged or otherwise hypothecated as
security.
3.21 LITIGATION. Schedule 3.21 is a true and complete list of all
administrative or judicial proceedings to which Seller is a party or, to the
best of Seller's and the Shareholders' knowledge, to which it is threatened to
be made a party which relate, directly or indirectly, to any of the Subject
Assets, including, without limitation, proceedings that could affect title to or
interests in the Subject Assets. There is no action, suit, claim, demand,
arbitration or other proceeding or investigation, administrative or judicial,
pending or, to the best of Seller's and the Shareholders' knowledge, threatened
against or affecting Seller or any of its assets, including, without limitation,
any relating to so-called product liability, which, if adversely determined or
resolved, would have a materially adverse effect on the Business, Subject
Assets, financial condition, or results of operations of Seller, or any
provisions of, or the validity of, or rights under, any leases or other
operating agreements, licenses, permits or grants of authority of Seller. Seller
has not received notice that it is the subject of any governmental investigation
and Seller is not subject to, nor is it or has it been in default with respect
to, any order, writ, injunction or decree of any court, or of any federal,
state, local or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign. Schedule 3.21 indicates which of the
matters listed are covered by valid insurance and the extent of such coverage.
3.22 INSURANCE. Schedule 3.22 is a true and correct list of all the
policies of insurance covering the business, properties and assets of Seller
presently in force (including as to each (i) risk insured against, (ii) name of
carrier, (iii) policy number, (iv) amount of coverage, (v) amount of premium,
(vi) expiration date and (vii) the property, if any, insured, indicating as to
each whether it insures on an "occurrence" or a "claims made" basis. All of the
insurance policies set forth on Schedule 3.22 are in full force and effect and
all premiums, retention amounts and other related expenses due have been paid,
and Seller has not received any notice of cancellations with respect to any of
the policies. Seller has not been refused any insurance by any insurance carrier
to which it has applied for insurance during the last five (5) years. To
Seller's knowledge, there are no circumstances existing which would enable any
insurer to avoid liability under any of Seller's policies.
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3.23 TRANSACTIONS WITH OFFICERS, ETC.
(a) Other than the Neville Note and the Michael Documents, there
are no Contracts (oral or written), including, but not limited to, any
loans or leases, to which Seller is a party and to which any of the
officers, directors, other employees or shareholders of Seller, or
members of their immediate families or other corporations,
partnerships or other entities in which any of them has a material
interest, is also a party.
(b) Neither Seller nor any officer, director, shareholder or, to
Seller's knowledge, employee of Seller or members of their immediate
families or other corporations, partnerships or other entities in
which any of them has a material interest, has any direct or indirect
interest in any competitor, supplier or customer of Seller or in any
person, firm or entity from whom or to whom Seller leases any
property, or in any other person, firm or entity with whom Seller
transacts business of any nature.
3.24 EMPLOYEES/INDEPENDENT SALES REPRESENTATIVES.
(a) Schedule 3.24(a) is a true and correct list of all employees
of Seller (as used in this Agreement, the term "employees" includes
employees, salespersons, consultants, agents, sales representatives
and all other persons associated with the Seller whose current annual
rate of fixed compensation exceeds Thirty Thousand Dollars ($30,000)),
and their accrued vacation and sick pay as of the date hereof. A true,
correct and complete copy of each written employment contract and a
description of each oral employment agreement with any employee has
been delivered to Purchaser or its counsel.
(b) Schedule 3.24(b) is a true and correct list of the four
highest producing independent or outside sales representatives of
Seller ("Independent Sales Representatives"), the amount of sales
attributable to each such Independent Sales Representative for each of
the last two years (or such shorter period of time if acting in such
capacity for less than two years), and a description of each such
Independent Sales Representative's compensation or commission
arrangements. A true, correct and complete copy of a representative
written agreement with respect to each Independent Sales
Representative has been delivered to Purchaser or its counsel.
3.25 TRADEMARKS, COPYRIGHTS AND SIMILAR MATTERS.
(a) Except as set forth on Schedule 3.25, Seller has never been
charged with infringement or violation of any patent, trademark,
service mark, trade name or copyright. To the best of Seller's
knowledge, Seller is not using or has not in any way made use of any
patentable or unpatentable invention, or any confidential information
or trade secret, of any former employer of any present or past
employee of Seller. Other than rights in and to the name Mass Transfer
Systems and derivatives thereof, Seller does not own or use any
patents, trademarks, service marks, trade names or copyrights.
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(b) To the best of Seller's knowledge, Seller is the sole and
exclusive owner, and has the full right, power and authority to transfer to
Purchaser the exclusive use of, the name "Mass Transfer Systems, Inc."
Except as set forth on Schedule 3.25, Seller does not use the name by
consent of any other person or entity, and Seller owns the name free and
clear of any attachments, liens, claims, encumbrances or agreements. Except
as set forth on Schedule 3.25, there are no claims or demands of any other
person or entity pertaining to the use of the name and no proceedings have
been instituted or, to the knowledge of the Seller, are threatened, which
challenge the right of Seller in respect of the name; and except as set
forth on Schedule 3.25, the use of the name by Seller does not infringe on
or, to the knowledge of Seller, is not being infringed on by others, and is
not subject to any outstanding order, decree, judgment, stipulation or
agreement restricting the scope of its use.
3.26 EMPLOYEE BENEFIT PLANS AND OTHER PLANS.
(a) For purposes of this Section 3.26, the following definitions
apply:
(i) "Benefit Plan" means each deferred compensation, equity
compensation, pension, profit-sharing, retirement and welfare plan,
each plan, arrangement or policy for the provision of bonuses and/or
severance benefits, each "employee benefit plan" (as defined in ERISA
Section 3(3)) and each fringe benefit plan that a Controlled Group
Member maintains, contributes to, has liability with respect to, or
has an obligation to contribute to;
(ii) "Controlled Group Member" means Seller and each other person
or entity required to be aggregated with Seller under Code Section
414(b), (c), (m) or (o); and
(iii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(b) No Controlled Group Member has directly or indirectly acted in any
manner or incurred any obligation or liability, and will not directly or
indirectly act in any manner in the future or incur any obligation or
liability in the future with respect to any Benefit Plan which has or could
give rise to any liens on any of the Subject Assets, or which could result
in any liability or obligation to Purchaser, whether arising out of the
establishment, operation, administration or termination of such Benefit
Plans or the transactions contemplated by this Agreement.
(c) No Controlled Group Member directly or indirectly maintains,
sponsors, contributes to, has an obligation to contribute to or has
liability with respect to, and has not directly or indirectly maintained,
sponsored, contributed to or had an obligation to contribute to at any time
within the ten (10) year period ending on the Closing Date, any Benefit
Plan which is subject to Title IV of ERISA (including, without limitation,
any multi employer plan subject to the requirements of Subtitle E of such
Title).
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(d) Schedule 3.26 is a true and correct list of all Benefit Plans that
Seller, directly or indirectly, sponsors, maintains or contributes to or
has, directly or indirectly, sponsored, maintained, or had an obligation to
contribute to at any time within the five (5) year period ending on the
Closing Date.
(e) Each Controlled Group Member has timely provided or will timely
provide all notices and any continuation of health benefit coverage
(including, without limitation, medical and dental coverage) required to be
provided to employees, former employees or the beneficiaries or dependents
of such employees or former employees, under Part 6 of Subtitle B of Title
I of ERISA or Code Section 4980B to the extent such notices and
continuation of health benefit coverage are required to be provided by
reason of the events occurring prior to or on the Closing Date or by reason
of the transactions contemplated by this Agreement.
3.27 ENVIRONMENTAL MATTERS.
(a) Except as set forth on Schedule 3.7, there have been no actual or
threatened "releases" in excess of legal limits, of "hazardous substances"
or "petroleum" into the "environment" at any real property "owned" or
"operated," in whole or in part, by Seller as those terms are used in the
federal Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. T9601, et seq.;
(b) There has been no "disposal" of "solid waste" as those terms are
used in the federal Solid Waste Disposal Act, 42 U.S.C. T6901, et seq.
(SWDA) at any real property owned or operated by Seller;
(c) No real property presently owned or operated by Seller poses an
"imminent and substantial endangerment to health or the environment" within
the meaning of Sections 7002 and 7003 of the federal Solid Waste Disposal
Act, 42 U.S.C. 6972 and 6973, or to the public health and safety within the
meaning of common law and statutory provisions relating to nuisances;
(d) Seller has not arranged with another for disposal or treatment, or
arranged with a transporter for transport for disposal or treatment of
hazardous substances generated by it at a site where there has been an
actual or threatened release of hazardous substances into the environment
within the meaning of Section 101(a)(4) of CERCLA, 42 U.S.C. T9607(a)(3);
(e) To the best of Seller's knowledge, Seller is not presently in
violation of, and has not previously violated, any federal, state or local
statute or regulation concerning the protection of the public health,
safety or the environment, including, but not limited to, CERCLA, SWDA, the
federal Toxic Substances Control Act, 15 U.S.C. T2601, et seq., the federal
Clean Air Act, 42 U.S.C. T7401, et seq., the federal Clean Water Act, 33
U.S.C. T125l, et seq., and the Occupational Health and Safety Act, 29
U.S.C. T651, et seq. ("Environmental Laws");
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(f) To the best of Seller's knowledge, Seller has obtained all
permits, registrations, plan approval and other governmental
authorizations ("governmental authorizations") necessary under
Environmental Laws to transact its business, all such governmental
authorizations are unexpired and in good standing, and Seller is in
compliance with all of the terms and conditions of such governmental
authorizations;
(g) Seller has received no order, complaint, notice of violation,
citizen suit demand or other communications, oral or written,
asserting that it is in violation or has violated any provisions of
Environmental Laws, and knows of no pending investigation of its
business activities for any such alleged violation.
3.28 BANK ACCOUNTS. Schedule 3.28 is a true and correct list of the
name of each bank, savings and loan, or other financial institution in which
Seller has an account or safe deposit box, the names of all persons authorized
to draw on each account or to have access to each box, the number of signatures
required to be given for a withdrawal and a description of the type of account.
3.29 COMPLIANCE WITH LAWS. To the best of Seller's knowledge, Seller
has complied in all material respects with all laws, regulations, rules and
orders of any governmental department or agency or any other commission, board,
agency or instrumentality, federal, state or local, or other requirements of law
affecting the Business and operations and is not in default under or in
violation of any provision of any federal, state or local law, regulation, rule
or order.
3.30 POWERS OF ATTORNEY. Except those provided to Seller's accountant
in connection with matters with the Internal Revenue Service, Seller has not
given any power of attorney (irrevocable or otherwise) to any person or entity
for any purpose.
3.31 LICENSES AND RIGHTS. Seller possesses all franchises, licenses,
easements, permits and other authorizations from governmental or regulatory
authorities and from all other persons or entities that are necessary to permit
it to engage in the Business as presently conducted in and at all locations and
places where it is presently operating, except where the failure to possess such
would not have a material adverse effect on the Business, Subject Assets or
financial condition of Seller. Such franchises, licenses, permits and other
authorizations are listed on Schedule 3.31.
3.32 PRODUCTS.
(a) To the best of Seller's knowledge, there are no existing or
threatened material product liability or material warranty claims
(other than warranty claims made in the ordinary course of business)
against Seller based on products which are, or are alleged to be,
defective or fail to meet product warranties.
(b) All existing warranties covering Seller's products were
issued in the normal course of business and are consistent with
Seller's normal warranty policy. To the extent transferable, Seller
will convey to Purchaser all its rights in manufacturers' warranties
for products sold by Seller (which will be deemed a part of the
Subject Assets). Except as may
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be listed on Schedule 3.32, no claims of customers or others based on
an alleged or admitted defect of material, workmanship or design or
otherwise in or in respect of any of Seller's products are presently
pending or, to the best of Seller's knowledge, threatened.
3.33 CASUALTY OCCURRENCES. There have been no occurrences during the
last five (5) years of damages to persons or property involving any defects or
alleged defects in any of Seller's products or their design.
3.34 INVENTORY. Other than an immaterial amount of obsolete inventory,
the inventory of Seller consists only of items of a quality and quantity usable
and saleable in the ordinary course of business, consistent with past practice,
within Seller's normal inventory "turn" experience and does not include any item
of inventory which has previously been written off by Seller. Items of
below-standard quality and items not previously readily saleable in the ordinary
course of business have been written down in value in accordance with generally
accepted accounting principles to estimated net realizable market values. The
value at which the inventory is carried on Seller's books reflects the lower of
cost (on a FIFO basis) or estimated net realizable market value, and is based on
quantities determined by physical count.
3.35 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Seller in this Agreement or in any Schedule hereto contain or
will contain any untrue statement of a material fact, or omit or will omit to
state a material fact necessary to make the statements of fact contained therein
not misleading.
3.36 FIRPTA. Seller is not a non-resident alien individual, foreign
person, or foreign corporation for purposes of the provision of Code Sections
871, 882 or 1445. On or before the Closing Date, Seller will deliver to
Purchaser qualifying statements as defined in Code Section 1445 or executed
affidavits pursuant to Code Section 1445.
3.37 INVESTMENT REPRESENTATIONS.
(a) Seller (i) is acquiring the Convertible Subordinated
Promissory Note, Subordinated Promissory Note and Second Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange of any of the Promissory Notes) for the purpose of investment
and not with a view towards the resale or distribution thereof within
the meaning of the Securities Act of 1933 (the "1933 Act"), (ii) will
not sell, transfer or otherwise dispose of the Convertible
Subordinated Promissory Note, Subordinated Promissory Note or Second
Subordinated Promissory Note (or any securities acquired upon
conversion or exchange of any of the Promissory Notes) except in
compliance with the 1933 Act, and (iii) is aware that the Convertible
Subordinated Promissory Note, Subordinated Promissory Note or Second
Subordinated Promissory Note (and any securities acquired upon
conversion or exchange of any of the Promissory Notes) are "restricted
securities" as that term is defined in Rule 144 of the General Rules
and Regulations under the 1933 Act;
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(b) Seller understands that the Convertible Subordinated
Promissory Note, Subordinated Promissory Note and Second Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange of any of the Promissory Notes) have not been registered
under the 1933 Act and must be held indefinitely unless they are
subsequently registered under the 1933 Act or an exemption from such
registration is available.
(c) Seller acknowledges that he has had an opportunity to ask
questions of and receive answers from duly designated representatives
of Purchaser and Waterlink concerning the terms and conditions
pursuant to which the Convertible Subordinated Promissory Note,
Subordinated Promissory Note and Second Subordinated Promissory Note
(and any securities acquired upon conversion or exchange of any of the
Promissory Notes) will be acquired. Seller further acknowledges that
it has been afforded an opportunity to examine such documents and
other information which it has requested for the purpose of evaluating
its investment in the Convertible Subordinated Promissory Note,
Subordinated Promissory Note and Second Subordinated Promissory Note
(and any securities acquired upon conversion or exchange of any of the
Promissory Notes).
(d) By reason of its knowledge and experience in financial and
business matters in general, and investments in particular, Seller is
capable of evaluating the merits and risks of its acquisition of the
Convertible Subordinated Promissory Note, Subordinated Promissory Note
and Second Subordinated Promissory Note (and any securities acquired
upon conversion or exchange of any of the Promissory Notes).
(e) Seller acknowledges that the Convertible Subordinated
Promissory Note, Subordinated Promissory Note and Second Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange of any of the Promissory Notes) and any and all securities
issued in replacement or exchange therefor will bear the following
legend:
This [name of security] has not been registered under the
Securities Act of 1933 (the "Act") and is a restricted security as
that term is defined in Rule 144 under the Act. The [name of security]
may not be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Act or
pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of
[name of issuer].
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<PAGE> 21
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND WATERLINK
---------------------------------------------------------
Purchaser and Waterlink, jointly and severally, warrant and represent
to, and agree with, Seller and the Shareholders as follows:
4.1 ORGANIZATION AND GOOD STANDING OF PURCHASER AND WATERLINK. Each of
Purchaser and Waterlink is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Purchaser and
Waterlink has full power and authority to carry on its business as and where now
conducted and to own or lease and operate its properties at and where now owned
or leased and operated by it, and is duly qualified to do business and is in
good standing in every jurisdiction in which the property owned, leased or
operated by it, or the nature of the business conducted by it, makes such
qualification necessary except where the failure to qualify would not have a
material adverse effect on the business or financial condition of Purchaser or
Waterlink, as the case may be. Other than actions taken in connection with its
organization and the transactions contemplated by this Agreement, Purchaser has
conducted no business since its organization.
4.2 AUTHORITY OF PURCHASER AND WATERLINK. The execution, delivery and
consummation of this Agreement, including, without limitation, Waterlink's
guarantee contained in Article XII of this Agreement, and each agreement
required to be executed, delivered and consummated hereby including, without
limitation, the Promissory Notes, by Purchaser and Waterlink (i) are within each
party's power and authority, (ii) have been or will be duly authorized by their
respective boards of directors in accordance with all applicable laws and the
Certificates of Incorporation and By-laws of Purchaser and Waterlink, as the
case may be, and at the Closing Date no further corporate action will be
necessary on the part of Purchaser or Waterlink to make this Agreement and each
agreement required to be executed, delivered and consummated hereby including,
without limitation, the Promissory Notes, valid and binding on Purchaser and
Waterlink and enforceable against Purchaser and Waterlink in accordance with
their respective terms, (iii) do not conflict with nor will result in any breach
of any provision of, or the creation of any lien, mortgage, charge, security
interest or other encumbrance upon any of the property of Waterlink or Purchaser
pursuant to their respective charters, by-laws or any law, regulation, order,
permit, judgment, agreement or instrument. Except as has been obtained, no
approval or consent of any person, firm or other entity or governmental body is
or was required to be obtained by Purchaser or Waterlink for the authorization
of this Agreement or the consummation by Purchaser or Waterlink of the
transactions contemplated in this Agreement. The execution, delivery and
consummation by the Purchaser and Waterlink of this Agreement, including,
without limitation, Waterlink's guarantee contained in Article XII of this
Agreement, and each such other agreement to which Purchaser and Waterlink is a
party, and the issuance of the Promissory Notes, do not require the approval or
consent of, or any filing with, any governmental authority or agency, except
such filings and notices as may be necessary to register securities or establish
and preserve any exemption from registration under applicable state and federal
securities laws.
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<PAGE> 22
4.3 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, accurate and
complete copies of the Certificate of Incorporation and the By-laws of Purchaser
and Waterlink, together with all amendments thereto, have been delivered to
Seller or its counsel.
4.4 WATERLINK FINANCIAL STATEMENTS; BUSINESS PLAN.
(a) Prior to the date of this Agreement, Waterlink provided
Seller with the following financial statements of Waterlink and its
subsidiaries (the "Waterlink Financial Statements"), to wit: the
consolidated audited balance sheet and statement of income at and for
the shortened fiscal year ended September 30, 1995 and unaudited
balance sheet and statement of income at and for the two (2) month
period ended November 30, 1995.
The Waterlink Financial Statements (i) have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods, (ii) present fairly, in all
material respects, Waterlink's financial position, results of
operations and cash flows at and for the periods therein specified,
(iii) are true and complete, (iv) are consistent with the books and
records of Waterlink, and (v) with respect to all of the unaudited
Waterlink Financial Statements, include all adjustments, consisting
only of normal recurring adjustments, required for a fair
presentation. The Waterlink Financial Statements will be deemed to
include any accompanying notes and schedules.
(b) Prior to the date of this Agreement, Waterlink provided
Seller with the preliminary financial statements of Waterlink as of
December 31, 1995 (the "Preliminary Statements"). The Preliminary
Statements present fairly, in all material respects, the financial
condition and results of operations of Waterlink as of the date and
for the periods indicated therein. Waterlink's business plan
previously delivered to Seller has been prepared by the management of
Waterlink in a good faith effort to describe Waterlink and its
existing subsidiaries' present and proposed products, and the markets
therefor. To the best knowledge of Waterlink, the assumptions used in
the preparation of the business plan are realistic and reasonable;
however, no warranty or representation is given as to the opinions,
forecasts or other non-factual or future matters contained in the
business plan.
4.5 WATERLINK AUTHORIZED CAPITALIZATION. The authorized capital stock
of Waterlink consists of, and at the Closing will consist of 6,126,000 shares of
common stock, $.001 par value per share (the "Common Shares) and 2,276,000
shares of preferred stock of which 440,000 have been designated as Series A (the
"Series A Shares") and 1,836,000 have been designated as Series B (the "Series B
Shares" and, together with the Series A Shares, the "Preferred Shares"). Of such
Common Shares, 1,450,000 shares immediately prior to the Closing, will be issued
and outstanding, 400,000 shares will be reserved for exercise of stock options
and 2,276,000 shares will be reserved for conversion of Preferred Shares; of
such Series A Shares, 400,000 shares immediately prior to the Closing, will be
issued and outstanding; and of such Series B Shares, 1,700,000 shares
immediately prior to Closing will be issued and outstanding. The outstanding
Common Shares and Preferred Shares are duly and validly issued, fully paid and
nonassessable. Except for the Convertible Subordinated Promissory Note,
Subordinated Promissory Note, Second Subordinated Promissory
22
<PAGE> 23
Note, the Preferred Shares and the outstanding options listed on Schedule 4.5,
there is no subscription right, option, warrant, convertible security or other
right (contingent or otherwise) presently outstanding, for the purchase,
acquisition or sale of any Common Shares, Preferred Shares or any securities
convertible into or exchangeable for Common Shares, Preferred Shares or other
securities of Waterlink.
4.6 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, Waterlink has
actively conducted its business in the ordinary and regular course consistent
with past practice. Except as set forth on Schedule 4.6, without limiting the
generality of the foregoing, since such date, there has been no material adverse
change in the business, financial condition, assets, liabilities, results of
operations or, to Waterlink's knowledge, prospects of Waterlink.
4.7 SUBSIDIARIES AND INVESTMENTS. The Purchaser has no subsidiaries,
nor any other investments in any person. Other than those subsidiaries listed on
Schedule 4.7, Waterlink has no subsidiaries, nor any other investments in any
person.
4.8 PROHIBITIVE AGREEMENTS. To the best knowledge of Waterlink, no
person who is or is contemplated to be a director, officer, employee or
consultant of Waterlink or its subsidiaries (collectively for this paragraph
"Waterlink") is presently obligated under or presently bound by any terms or
provisions of any agreements or contracts, or subject to any judgments, decrees
or orders of any court or administrative agency, that would preclude the
operation of the business of Waterlink in the ordinary course or of the Seller
in the ordinary course.
4.9 TITLE TO ASSETS. Waterlink and its subsidiaries own or lease all
assets used in the conduct of their respective businesses as presently
conducted, have good title to all of their owned assets, and have good title to
all of their leasehold interests, in each case subject to such mortgage, pledge,
lien, encumbrance, charge, or security interest as are described in the
Waterlink Financial Statements and the Preliminary Statements.
4.10 LITIGATION. There is no litigation or governmental proceeding or
investigation pending or, to the best knowledge of Waterlink, threatened against
Waterlink or any of its subsidiaries or affecting any of the properties or
assets of Waterlink or any of its subsidiaries which might result, either in any
case or in the aggregate, in any material adverse change in the business,
operations, or financial condition of Waterlink, or any of its subsidiaries or
which might call into question the validity of this Agreement.
4.11 TAXES. Waterlink and each subsidiary has prepared and filed all
federal, state and other tax returns required by law to be filed, which returns
are complete and correct in all material respects, and all taxes shown to be due
and all additional assessments have been paid or provision made therefor.
Waterlink knows of no additional tax assessments or adjustments pending or
threatened against Waterlink or any of its subsidiaries, for any period, nor of
any basis for any material assessment or adjustment.
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<PAGE> 24
4.12 COMPLIANCE WITH LAWS. To the best knowledge of Waterlink,
Waterlink and its subsidiaries have complied with all laws, regulations, rules
and orders of any governmental department or agency or any other commission,
board, agency or instrumentality, federal, state or local, or other requirements
of law affecting their businesses and operations and are not in default under or
in violation of any provision of any federal, state or local law, regulation,
rule or order.
4.13 EXCLUSIVE LICENSES. To the best knowledge of Waterlink, except as
set forth on Schedule 4.13 neither Waterlink nor any of its subsidiaries is a
party to or bound by any contract, agreement, license agreement, sublicense
agreement, consulting agreement or other instrument pursuant to which Waterlink
or such subsidiary has granted or is obligated to grant any party an exclusive
license of any kind relating to any of Waterlink's or its subsidiaries' products
or properties.
4.14 ENVIRONMENTAL MATTERS. To the best knowledge of Waterlink and
each subsidiary and based on reports prepared and delivered to Waterlink in
connection with the acquisition of its subsidiaries (the "Environmental
Reports"), there has been no on-site disposal or discharge of chemicals, oil or
solid waste in excess of legal limits by Waterlink and each subsidiary, or by
anyone else on the premises presently occupied, owned, leased or used by
Waterlink and each such subsidiary. To the best knowledge of Waterlink and each
subsidiary and based on the Environmental Reports, Waterlink and each subsidiary
and is presently complying with all applicable laws concerning the protection of
the public, health, safety or environment including without limitation the
Environmental Laws. To the best knowledge of Waterlink and based on the
Environmental Reports, there are no investigations, actions or proceedings
involving or affecting Waterlink or any subsidiary, or their assets, properties
or business arising under any Environmental Laws and there is no basis for any
such additional investigation, action or proceedings.
4.15 ERISA. Except as set forth on Schedule 4.15, Waterlink does not
make, and has not made, any contributions to any pension, defined benefit plans
or defined contribution plans for its employees, in each case which are subject
to the Federal Employee Retirement Income Security Act of 1974, as amended.
4.16 ABSENCE OF UNDISCLOSED LIABILITIES. Except (i) as set forth on
the Waterlink Financial Statements and the Preliminary Statements, (ii) those
incurred in the ordinary course of business since December 31, 1995, and (iii)
as set forth on Schedule 4.16, Waterlink and its subsidiaries are not obligated
for, nor are any of their respective assets or properties subject to, any
material liabilities or adverse claims or obligations, absolute or contingent.
Waterlink and its subsidiaries are not in default with respect to any terms or
conditions of any material liability or obligation. There are no facts known to
Waterlink that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Waterlink Financial Statements, the Preliminary Statements or in the Schedules.
4.17 CORPORATE MINUTES. Waterlink and Purchaser have furnished or made
available to Seller and its counsel the corporate record books of Waterlink and
Purchaser and the same are accurate and complete and reflect all material
resolutions adopted and all actions taken, authorized or ratified by the
shareholders and directors of Waterlink and Purchaser, as the case may be.
Copies
24
<PAGE> 25
of all corporate minutes of meetings held and of all written actions taken after
the date of this Agreement will be furnished to Seller promptly, and in all
events, prior to the Closing Date.
4.18 LABOR AND EMPLOYMENT MATTERS.
(a) Neither Waterlink nor any subsidiary is a party to any
collective bargaining agreements, and, to the best knowledge of
Waterlink and such subsidiary, no organizational efforts are presently
being made with respect to any of its employees.
(b) To the best knowledge of Waterlink, no officer or other key
employee or consultant of Waterlink has any present intention of
terminating his employment with, or engagement by Waterlink, and
Waterlink has no present intention of terminating such employment or
engagement.
4.19 REGISTRATION RIGHTS. Except as set forth on Schedule 4.17,
Waterlink is not under any contractual obligation to register any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
4.20 BROKERAGE AND FINDER'S FEES. No shareholder, officer, director or
agent of Purchaser or Waterlink has incurred any liability to any broker, finder
or agent for any brokerage fees, finder's fees, or commissions with respect to
the transactions contemplated by this Agreement.
4.21 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Seller in this Agreement or the Schedules hereto contain or
will contain any untrue statement of a material fact, or omit or will omit to
state a material fact necessary to make the statements of fact contained therein
not misleading.
ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND WATERLINK
--------------------------------------------------------------
The obligations of Purchaser and Waterlink under this Agreement are,
at their option, subject to satisfaction of the following conditions at or prior
to the Closing Date:
5.1 REPRESENTATIONS TRUE. The representations and warranties of Seller
and the Shareholders contained in this Agreement are true, complete and accurate
in all material respects on and as of the Closing Date to the same extent and
with the same force and effect as if made on such date, except as affected by
the transactions contemplated under this Agreement.
5.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by Seller and the Shareholders have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated under this
Agreement including, without limitation, such consents as may be listed or
required to be listed on Schedule 3.2.
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<PAGE> 26
5.3 PERFORMANCE AND OBLIGATIONS. Seller and the Shareholders have duly
performed all obligations, covenants and agreements undertaken by Seller or the
Shareholders in this Agreement and have complied with all terms and conditions
applicable to them under this Agreement to be performed and complied with on or
before the Closing Date.
5.4 RECEIPT OF DOCUMENTS BY PURCHASER. Purchaser has received:
(a) a certificate executed by the President and Secretary of the
Seller certifying as to the fulfillment of the matters contained in
Sections 5.1, 5.2, 5.3 and 5.5.
(b) a true and correct copy of Seller's Articles of
Incorporation, certified by the Secretary of the Commonwealth of
Massachusetts as of a date not more than five (5) days prior to the
Closing Date, and a true and correct copy of Seller's By-Laws
certified by the Secretary of Seller as of the Closing Date.
(c) a written opinion from counsel for Seller, dated as of the
Closing Date, addressed to Purchaser, satisfactory to Purchaser and
its counsel substantially in the form attached hereto as Exhibit ___.
(d) certified copies of resolutions duly adopted by the
shareholders and board of directors of Seller approving this Agreement
and the transactions contemplated under it;
(e) with respect to all Real Property, ALTA preliminary
commitments for title insurance, containing commitments to issue (a)
fee owner's title insurance policies on ALTA Form B, 1970, and (b)
loan policies for the benefit of any lender supplying financing for
Purchaser's acquisitions, on ALTA Loan Policy Form 1970. Each such
policy of title insurance must contain the following:
(i) an endorsement deleting standard printed exceptions;
(ii) an access endorsement, insuring, among other matters,
that the property subject to the policy and all entrances, exits,
driveways and access roads have free access to and from a public
road or highway;
(iii) affirmative assurance that the parcels comprising the
property subject to the policy are contiguous to each other
without any strips, gores or other parcels of land intervening;
(iv) affirmative assurance of title to all easements
benefiting the property subject to the policy;
(v) affirmative assurance of the state of facts shown on the
survey delivered to Purchaser pursuant to Section 5.4(f), which
must be read into and form
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<PAGE> 27
a part of each such commitment and the policies to be issued on
account of such commitments.
(f) surveys of all Real Property prepared at Purchaser's cost by
a land surveyor licensed in the state in which the property is
located, showing the perimeter of the property and the location of all
improvements, easements and other matters affecting the property
subject to the survey. The surveys are to be in form and substance
reasonably acceptable to Purchaser, are to have the seal and
registration number of the surveyor affixed to the survey and must
include the date on which the actual field survey was concluded. The
surveys must contain a certificate, in form and substance acceptable
to Purchaser, its counsel, the title company, any lender supplying
financing to Purchaser and any other parties designated by Purchaser
certifying that the survey is an accurate representation of the
property, made in accordance with the "Minimum Standard Detail
Requirements for Land Title Surveys" adopted by the American Title
Association. The surveys must show which portion of the property, if
any, is located within a flood plain or flood way area as designated
by the United States Federal Emergency Management Agency.
5.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to restrain or prohibit or to obtain material damages or relief in
connection with this Agreement or the consummation of this Agreement, or which
is likely to materially and adversely affect the value of the business or assets
of Seller.
5.6 EMPLOYMENT AGREEMENTS. Each of Neville and Siino has entered into
an Employment Agreement with Purchaser in the form of Exhibits "E" and "F",
respectively, to this Agreement.
5.7 DELIVERY OF BOOKS AND RECORDS. Seller has delivered or made
available to Purchaser all books and records of Seller relating to or reasonably
required for the operation of the business of Seller, including, without
limitation, copies of all Contracts, financial and accounting records, files and
records relating to employees, and all related correspondence.
5.8 INSTRUMENTS OF TRANSFER. Seller has executed and delivered to
Purchaser good and sufficient instruments of transfer transferring to Purchaser
title to all of the Subject Assets as required pursuant to Section 1.3. The
instruments of transfer must be in form and substance reasonably satisfactory to
Purchaser and its counsel, which form is usual and customary for transferring
the type of property involved under the laws of the jurisdictions applicable to
such transfer.
5.9 CONFIDENTIALITY AND NON-COMPETE AGREEMENTS. Seller has (i)
assigned to Purchaser any and all rights of Seller under any confidentiality
agreement covering confidential information concerning Seller's business or the
Subject Assets and under any non-compete or similar agreement in favor of Seller
restricting activities competitive with those of Seller's business, (ii) provide
Purchaser with a list of such agreements and (iii) deliver copies of such
agreements of Purchaser.
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<PAGE> 28
5.10 ABSENCE OF CHANGES. There has been no material adverse change in
the business (financial or otherwise), assets, liabilities, results of
operations or prospects of Seller since the date of this Agreement.
ARTICLE VI
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
---------------------------------------------
AND THE SHAREHOLDERS
--------------------
The obligations of Seller and the Shareholders under this Agreement
are, at their option, subject to satisfaction of the following conditions at or
prior to the Closing Date:
6.1 REPRESENTATIONS TRUE. The representations and warranties of
Purchaser and Waterlink contained in this Agreement are true, complete and
accurate in all material respects on and as of the Closing Date to the same
extent and with the same force and effect as if made on such date, except as
affected by the transactions contemplated under this Agreement.
6.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by Seller and the Shareholders have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated by this
Agreement.
6.3 PERFORMANCE OF OBLIGATIONS. Purchaser and Waterlink have duly
performed all obligations, covenants and agreements undertaken by Purchaser or
Waterlink in this Agreement and have complied with all the terms and conditions
applicable to them under this Agreement to be performed or complied with on or
before the Closing Date.
6.4 RECEIPT OF DOCUMENTS BY SELLER. Seller has received:
(a) the purchase price for the Subject Assets as provided in
Section 2.1(a);
(b) certificates executed by each of the President or CFO of
Purchaser and the President or CFO of Waterlink certifying as to the
fulfillment of the matters contained in Sections 6.1 and 6.3 of this
Article;
(c) a written opinion from counsel for Purchaser and Waterlink,
dated as of the Closing Date, addressed to Seller, satisfactory to
Seller and its counsel substantially in the form attached hereto as
Exhibit ___.
(d) certified copies of resolutions duly adopted by the Board of
Directors of Purchaser and Waterlink approving this Agreement and the
transactions contemplated under it.
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<PAGE> 29
6.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to restrain or prohibit or obtain material damages or relief from Seller
in connection with this Agreement or the consummation of this Agreement.
6.6 EMPLOYMENT AGREEMENTS. Each of Neville and Siino has entered into
an Employment Agreement with Purchaser in the form of Exhibits "E" and "F" to
this Agreement.
6.7 REGISTRATION RIGHTS AGREEMENT. Waterlink, each of the Shareholders
and Seller shall have entered into a Registration Rights Agreement substantially
in the form attached hereto as Exhibit "G".
6.8 ASSUMPTION OF LIABILITIES. Purchaser shall have entered into an
Assumption Agreement more particularly described in Section 1.2 of the
Agreement.
6.9 NEVILLE NOTE. The Neville Note has been amended and restated, and
issued by Purchaser to Neville in the form of Exhibit "G" to this Agreement
which will be guaranteed by Waterlink (the "New Neville Note").
ARTICLE VII
-----------
CLOSING
-------
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Benesch, Friedlander, Coplan &
Aronoff P.L.L., 200 Public Square, 2300 BP America Building, Cleveland, Ohio
44114 on January 31, 1996, at 10:00 A.M. Cleveland, Ohio Time or such other
place or date mutually agreeable to the parties (the "Closing Date"). If the
Closing has not taken place by such date by reason of failure of fulfillment of
any condition or conditions contained in this Agreement, then the non-breaching
party may, by written notice to the other party, extend the Closing Date for a
period of thirty (30) days to permit fulfillment of such condition or
conditions. Unless the parties otherwise agree in writing, if the Closing has
not occurred by [March 15, 1996], then this Agreement will be deemed to have
been terminated and abandoned, subject to the legal rights and remedies of
either party arising out of the other party's breach of any of the provisions of
this Agreement. The parties will in good faith use all reasonable efforts to
achieve the Closing.
ARTICLE VIII
------------
TERMINATION OF AGREEMENT
------------------------
This Agreement and the transactions contemplated under it may be
terminated and abandoned at any time prior to the Closing Date:
(a) by mutual consent in writing of Purchaser and Seller;
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<PAGE> 30
(b) by Purchaser or Seller if, in the case of Purchaser, there
has been a material misrepresentation or breach of warranty in the
representation and warranties of Seller or the Shareholders made under
this Agreement or if, in the case of Seller, there has been a material
misrepresentation or breach of warranty in the representations and
warranties of Purchaser or Waterlink made under this Agreement;
(c) by Purchaser if all or a material portion of the Subject
Assets have been materially damaged or destroyed before the Closing;
(d) By Purchaser if a substantial portion of the Real Property
has been taken, in whole or in part, by eminent domain or by
conveyance in lieu of eminent domain;
(e) by Purchaser, if any of the conditions contained in Article
V, or by Seller, if any of the conditions contained in Article VI,
respectively, have not been fulfilled in all material respects.
Any termination pursuant to this Article VIII will not affect the obligations of
the parties under Article XII or Section 16.5, and will be without prejudice to
the terminating party's legal rights and remedies by reason of any breach of
this Agreement occurring prior to such termination. Notwithstanding anything in
this Agreement to the contrary, if, on the Closing Date, Purchaser (i) has
complied with all of the conditions to Closing contained in Article VI, (ii) has
notified Seller of its intention to consummate the transactions contemplated
under this Agreement, and (iii) is ready and able to pay Seller the purchase
price and furnishes evidence to that effect to Seller, and if the Closing does
not then occur due to the refusal of Seller to so consummate the transactions
contemplated under this Agreement, Purchaser will be entitled to specifically
enforce the terms of this Agreement in a court of competent jurisdiction, it
being acknowledged that monetary damages due Purchaser in such case cannot be
adequately determined at law.
ARTICLE IX
----------
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES; INDEMNIFICATION; DISPUTES
-----------------------------------------
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding the
Closing of the transactions contemplated under this Agreement, or any
investigation made by or on behalf of any party to this Agreement, the
representations and warranties of Seller, the Shareholders, Purchaser and
Waterlink contained in this Agreement or in any certificate, Schedule, chart,
list, letter, compilation or other document furnished or to be furnished
pursuant to this Agreement, will survive the Closing for a period of one (1)
year, except that the representations and warranties of Seller and the
Shareholders contained in Sections 3.10, 3.26, 3.27 and 3.32 with respect to tax
matters, employee benefit matters, environmental matters and product
liability/warranty claims will survive for two (2) years. However, as to any
breach of, or misstatement in, any such representation or warranty as to which
the non-breaching party as given notice to the breaching party on or prior to
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<PAGE> 31
the expiration of the applicable period, as above set forth, the same will
continue to survive beyond said period, but only as to the matters contained in
such notice.
9.2 SELLER'S AND THE SHAREHOLDERS' INDEMNIFICATION. Seller and the
Shareholders, jointly and severally, will indemnify and save harmless Purchaser
and Waterlink and their respective subsidiaries, shareholders, directors,
officers, employees and agents from any and all costs, expenses, losses, damages
and liabilities incurred or suffered, directly or indirectly, by any of them
(including, without limitation, reasonable legal fees and expenses)
(collectively, the "damages") resulting from or attributable to (a) the breach
of, or misstatement in, any one or more of the representations or warranties of
Seller or the Shareholders made in or pursuant to this Agreement; (b) any
claims, demands, suits, investigations, proceedings or actions by any third
party containing or relating to allegations that, if true, would constitute a
breach of, or misstatement in, any one or more of the representations or
warranties of Seller or the Shareholders made in or pursuant to this Agreement,
provided, however, that if any such claim, demand, suit, investigation,
proceeding or action by any such third party does not result in any damages to
Purchaser other than the costs associated with defending such claim, demand,
suit, investigation, proceeding or action, then Purchaser, on the one hand,
shall bear one-half of such costs and Seller and the Shareholders, on the other
hand, shall collectively bear one-half of such costs; (c) Seller's treatment,
transport, recycling, storage or disposal, or any arrangement for any of same,
done or made prior to the Closing, of any Contaminant generated and transported
off-site from any facility owned or operated by Seller or any of its
predecessors; (d) any and all obligations, debts or other liabilities of Seller
not expressly assumed by Purchaser pursuant to this Agreement; (e) any facts or
circumstances which would have amounted to a breach of, or misstatement in, the
representations and warranties of Seller and the Shareholders contained in
Section 3.4(b) (iii) and 3.29 of the Agreement had Seller known the existence of
such; (f) Seller's failure to fulfill its obligations under the Order of
Conditions issued by the Fall River Conservation Commission delivered on or
about November 27, 1990; or (g) Seller's noncompliance with any provision of law
regarding bulk transfers or similar laws. Purchaser will be entitled to set off
against any payments due under the Promissory Notes the amount of such costs,
expenses, losses, damages and liabilities, and, to the extent not in a
liquidated amount, then in an amount reasonably and in good faith estimated by
Purchaser.
9.3 DEFENSE OF CLAIM. In case Purchaser or Waterlink received actual
notice of any claim asserted or any action administrative or other proceeding
commenced in respect of which claim, action or proceeding indemnity properly may
be sought against Seller and the Shareholders pursuant to this Agreement,
Purchaser will give notice in writing to Seller. Within ten (10) days after
receipt of such notice, Seller may give Purchaser written notice of its election
to conduct the defense of such claim, action or proceeding at its own expense.
If Seller has given Purchaser such notice of election to conduct the defense,
Seller may conduct the defense at its expense, but Purchaser will nevertheless
have the right to participate in the defense, but such participation will be
solely at the expense of Purchaser, without a right of further reimbursement. If
Seller has not so notified Purchaser in writing (within the time above provided)
of its election to conduct the defense of such claim, action or proceeding,
Purchaser may (but need not) conduct (at Seller's expense) the defense of such
claim, action or proceeding. Purchaser may at any time notify Seller of
Purchaser's intention to settle, compromise or satisfy any such claim, action or
proceeding (the defense of which Seller has not
31
<PAGE> 32
previously elected to conduct) and may make such settlement, compromise or
satisfaction (at Seller's expense) unless Sellers notifies Purchaser in writing
(within twenty (20) days (or such shorter period of time if required by the
terms of the proposed settlement, but in no event less than five (5) days) after
receipt of such notice of intention to settle, compromise or satisfy) of its
election to assume (at its sole expense) the defense of any such claim, action
or proceeding and promptly take appropriate action to implement such defense.
Any settlement, compromise or satisfaction made by Purchaser, or any such final
judgment or decree entered in, any claim, action or proceeding defended only by
Purchaser, regardless of the amount or terms, will be deemed to have been
consented to by, and will be binding on, Seller as fully as though it alone had
assumed the defense and a final judgment or decree had been entered in such
proceeding or action by a court of competent jurisdiction in the amount of such
settlement, compromise, satisfaction, judgment or decree. If Seller has elected
under this Section 9.3 to conduct the defense of any claim, action or
proceeding, then Seller will be obligated to pay the amount of any adverse final
judgment or decree rendered with respect to such claim, action or proceeding
subject to the terms of this Agreement. If Seller elects to settle, compromise
or satisfy any claim, action or proceeding defended by it, the cost of any such
settlement, compromise or satisfaction will be borne entirely by Seller and may
be made only with the consent of Purchaser if Purchase is not completely and
unconditionally released, is otherwise adversely affected, or has imposed upon
it any obligations or restrictions, which consent will not be unreasonably
withheld. Purchaser and Seller will use all reasonable efforts to cooperate
fully with respect to the defense of any claim, action or proceeding covered by
this Section 9.3.
9.4 PURCHASER'S AND WATERLINK'S INDEMNIFICATION. Purchaser and
Waterlink, jointly and severally, will indemnify and save harmless Seller and
the Shareholders from any and all costs, expenses, losses, damages and
liabilities incurred or suffered directly or indirectly by Seller or the
Shareholders (including, without limitation, reasonable legal fees and costs)
(collectively, the "damages") resulting from or attributable to the breach of,
or misstatement in, any one or more of the representations or warranties of
Purchaser or Waterlink made in or pursuant to this Agreement to the same extent
as provided in Clauses (a) and (b) of Section 9.2, and in the same manner as
provided in Section 9.3, of this Article IX.
9.5 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, no party will have any right to indemnification unless and
until the aggregate damages indemnifiable by the indemnifying party exceed
Seventy-Five Thousand Dollars ($75,000) and thereafter, will be entitled to the
full extent of the damages and in no event will the aggregate liability of
Seller and the Shareholders, on the one hand, or Purchaser and Waterlink, on the
other hand, exceed the aggregate amount of cash proceeds and the value of other
property realized by the Shareholders, net of all taxes, from the payment of the
Cash Purchase Price (excluding any adjustment based on any portion of the Cash
Purchase Price used to pay down the Neville Note) and the issuance of the
Promissory Notes.
32
<PAGE> 33
ARTICLE X
---------
CONDUCT PRIOR TO CLOSING DATE
-----------------------------
10.1 CONTINUATION OF BUSINESS. Until the Closing Date, Seller will
continue to conduct its business in the ordinary and usual course consistent
with past practice, and, without limiting the generality of this undertaking,
Seller will not do or suffer to be done any of the following, whether or not in
the ordinary and usual course, without the prior written consent of Purchaser:
(a) Dispose or contract to dispose of any Real Property or other
Subject Assets (other than in the ordinary course of business), or any
interest in any Real Property or other Subject Assets;
(b) Acquire or contract to acquire any Real Property or capital
assets in excess of $10,000;
(c) Enter into any obligations or commitments for future payments
in excess of $5,000 other than in connection with fulfilling currently
existing customer purchase orders;
(d) Enter into any capital or operating lease calling for
expenditures in excess of $5,000;
(e) Encumber any assets (other than in the ordinary course of
business);
(f) Declare or pay any dividend or declare or make any other
distribution to shareholders other than a distribution to Siino to
fulfill his obligations under the Michael Documents and the
corresponding, pro rata, distribution to Neville;
(g) Purchase or redeem any shares, notes or other securities
provided, however, that this Section 10.1(g) shall not prohibit Seller
from paying to Neville (i) any principal amount in excess of
$1,200,000 due under the Neville Note and (ii) $800,000 to reduce the
outstanding principal balance under the Neville Note to $400,000
(after giving effect to any payments permitted under subsection (g)(i)
of this Section 10.1);
(h) Increase the rate or amount of compensation or the amount or
type of other remuneration to any of its directors, officers,
employees, agents or other representatives, or agree to do so;
(i) Form or cause to be formed, or dispose or contract to dispose
of, any Subsidiary, or any interest in any Subsidiary;
(j) Reclassify, split or combine its shares, or issue, sell,
distribute or dispose of any shares, notes or other securities, or
commit itself to do so;
33
<PAGE> 34
(k) Make any new commitments or agree to make commitments for
capital improvements or significantly alter standing commitments for
capital improvements in excess of $10,000;
(l) Make any single expenditure or agree to make any single
expenditure, or series of expenditures in excess of $10,000 in the
aggregate (other than the payment of professional fees incurred in
connection with this transaction in an aggregate amount not to exceed
$45,000);
(m) Negotiate with anyone other than Purchaser for, or
participate with anyone other than Purchaser in, the acquisition of
all or any part of the Subject Assets;
(n) Amend, or permit to be amended, in any way, its Articles of
Incorporation or By-Laws other than relating to the change of Seller's
name;
(o) Make any material change in accounting methods; and
(p) Award any bonus compensation or enter into other bonus
arrangements with any employees or shareholders other than year-end
bonuses to employees in an aggregate amount not to exceed $125,000.
10.2 PRESERVATION OF BUSINESS. Seller will use its best efforts to (i)
preserve intact its present business organization and personnel, (ii) preserve
its business, actual and potential, and its advantageous relationships with all
persons having business dealings with it, and (iii) preserve and maintain in
force all its licenses, certificates, leases, contracts, permits, registrations,
franchises, confidential information, patents, trademarks, trade names, service
marks and copyrights, and applications for any of the same, and other similar
rights. Seller will use its best efforts to maintain in force all property,
casualty, crime, life, directors, officers and other forms of insurance and
bonds which it presently carries.
10.3 CONSENTS AND APPROVALS. Seller, the Shareholders, Purchaser and
Waterlink will use all reasonable efforts to obtain all necessary consents and
approvals of all persons, firms, entities and governmental authorities to the
consummation of the transactions contemplated by this Agreement.
ARTICLE XI
----------
ADDITIONAL COVENANTS
--------------------
11.1 ALLOCATION OF TAXES, FILING RESPONSIBILITY. Except as otherwise
specifically agreed to herein, Seller shall file all tax returns and pay all
taxes for all taxable periods ending on or before the Closing Date. Purchaser
shall file all returns and pay all taxes for all taxable periods commencing
after the Closing Date. For any taxable period commencing before and ending
after the Closing Date, the Purchaser shall file such returns (with full
cooperation from Seller) and any taxes due for such periods shall be allocated
between Seller and Purchaser based upon the relative
34
<PAGE> 35
taxable activity occurring on or before the Closing on the one hand, and after
the Closing on the other.
11.2 SELLER NAME CHANGE. Within three (3) business days after the
Closing, Seller will file appropriate and necessary documentation with the
Secretary of the Commonwealth of Massachusetts amending its Articles of
Incorporation to change its name to a name other than Mass Transfer Systems,
Inc. or any derivative thereof.
ARTICLE XII
-----------
WATERLINK GUARANTEE
-------------------
Waterlink hereby irrevocably and unconditionally guarantees the full,
timely and faithful performance by Purchaser of its obligations contained in
Section 2.2 of this Agreement, under the Promissory Notes and the New Neville
Note (the "Guaranteed Obligations"). This guarantee is a continuing, absolute
and unconditional guarantee and shall remain in full force and effect so long as
Purchaser has any obligations under the Guaranteed Obligations. Waterlink waives
notice of acceptance of this guarantee and notice of any liability to which it
may apply, and waives presentation, demand and protest of any Guaranteed
Obligation and also waives notice of any nonpayment. The obligations of
Waterlink under this guarantee are absolute and unconditional and shall not be
impaired by:
(a) the failure of Seller, the Shareholders or Neville to assert
any claim or demand or to enforce any right or remedy against
Purchaser;
(b) any rescission, waiver, amendment or modification of any of
the terms or provisions of this Agreement or any agreement or
instrument executed pursuant thereto; or
(c) the act or failure to act in any manner referred to in this
guarantee which may deprive Waterlink of its right to subrogation
against Purchaser to recover fully indemnity for any payment made
pursuant to this guarantee.
This guarantee is a continuing guarantee and shall be binding upon
Waterlink and its successors and assigns and shall inure to the benefit of the
successors and assigns of Seller and the Shareholders.
ARTICLE XIII
------------
ASSIGNMENT, THIRD PARTIES, BINDING EFFECT
-----------------------------------------
The rights under this Agreement are not assignable nor are the duties
delegable by a party without the written consent of the other party first having
been obtained, and any attempted assignment or delegation without such consent
will be null and void; provided, however, that Purchaser and Waterlink may
assign their respective rights hereunder to their principal lenders,
35
<PAGE> 36
subject to any defenses that Seller and the Shareholders may have hereunder
against Purchaser and Waterlink. Nothing contained in this Agreement is intended
to convey upon any person or entity, other than the parties and their successors
in interest and permitted assigns, any rights or remedies under or by reason of
this Agreement unless expressly stated. All covenants, agreements,
representations and warranties of the parties contained in this Agreement are
binding on and will inure to the benefit of Purchaser, Waterlink, Seller and the
Shareholders, respectively, and their respective successors and permitted
assigns.
ARTICLE XIV
-----------
EXPENSES
--------
Except as otherwise agreed to in this Agreement, Purchaser and
Waterlink, on the one hand, and Seller and the Shareholders, on the other hand,
will bear their own respective expenses, including, without limitation, counsel
and accountants' fees, in connection with the preparation and negotiation of,
and transactions contemplated under, this Agreement.
ARTICLE XV
----------
NOTICES
-------
All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
TO PURCHASER OR WATERLINK: Waterlink, Inc.
------------------------- 115 Dewalt Ave., N.W.
Canton, Ohio 44702
Facsimile No.: 216-455-8134
Attention: Theodore F. Savastano,
Chairman
With a copy to: Benesch, Friedlander,
Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Facsimile No.: 216-363-4588
Attention: Ira C. Kaplan
36
<PAGE> 37
TO SELLER OR THE SHAREHOLDERS: c/o Mark E. Neville
------------------------------ 146 Darrington Drive
Raynham, Massachusetts 02767
Facsimile No.: 508-821-2523
With a copy to: Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Facsimile No.: 401-277-9600
Attention: Sandra Matrone Mack
ARTICLE XVI
-----------
REMEDIES NOT EXCLUSIVE
----------------------
No remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy, and each and every
remedy will be cumulative and will be in addition to every remedy given under
this Agreement or now or subsequently existing, at law or in equity, by statute
or otherwise. The election of any one or more remedies by Purchaser or Seller
will not constitute a waiver of the right to pursue other available remedies.
ARTICLE XVII
------------
NON-COMPETITION
---------------
17.1 NON-COMPETITION AGREEMENT.
(a) For a period of five (5) years from and after the Closing
Date, (but as to clauses (iv) and (v) at any time after the Closing
Date), in any states in the United States or any countries outside the
United States where Purchaser or Waterlink then has done business or
is actively contemplating doing business, Seller shall not, directly
or indirectly, whether as an individual on Seller's own account, or as
a shareholder, partner, joint venturer, director, officer, employee,
consultant, creditor and/or agent, of any person, firm or organization
or otherwise, directly or indirectly:
(i) engage in, carry on or have any interest in a business
substantially similar to the business as carried on the date of
termination of this Agreement, by the Purchaser, Waterlink or any
subsidiary of Waterlink,
(ii) enter into, engage in, or be employed by or consult
with any business in, competition with the Purchaser, Waterlink
or any subsidiary of Waterlink on matters substantially similar
to the business as carried on by Purchaser or Waterlink on the
date of termination of this Agreement,
37
<PAGE> 38
(iii) employ, assist in employing or otherwise associate in
business with any present, former or future employee of
Purchaser, Waterlink or any subsidiary of Waterlink,
(iv) induce any person who is a present or future employee,
officer, agent, affiliate or customer of Purchaser, Waterlink or
any subsidiary of Waterlink to terminate the relationship, and
(v) induce any customer or supplier of Purchaser, Waterlink
or any subsidiary of Waterlink to refuse to do business with
Purchaser or Waterlink or any subsidiary of Waterlink, as the
case may be, on as favorable terms as previously done with
Purchaser, Waterlink or any subsidiary of Waterlink, as the case
may be.
Seller acknowledges that the length of time and geographic
restriction pertaining to all prohibitions in this Subsection (a) both
are reasonable and necessary for the legitimate protection of
Purchaser's business and interests.
(b) Seller expressly agrees and understands that the remedy at
law for any breach by Seller of this Article XVII will be inadequate
and that the damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly, it is
acknowledged that upon adequate proof of Seller's violation of this
Article XVII, Purchaser will be entitled, among other remedies, to
immediate injunctive relief and may obtain a temporary restraining
order restraining any threatened or further breach. Nothing in this
subsection (b) will be deemed to limit Purchaser's remedies at law or
in equity for any breach by Seller of any of the provisions of this
Agreement which may be pursued or availed of by Purchaser.
(c) In the event any court of competent jurisdiction determines
that the specified time period or geographical area set forth in this
Section 17.1 is unreasonable, arbitrary or against public policy, then
a lesser time period or geographical area that is determined by the
court to be reasonable, non-arbitrary and not against public policy
may be enforced.
(d) In the event Seller violates any legally enforceable
provision of this Section 17.1 as to which there is a specific time
period during which Seller is prohibited from taking certain actions
or engaging in certain activities, then, in such event the violation
will toll the running of the time period from the date of the
violation until the violation ceases.
17.2 DISCLOSURE OF CONFIDENTIAL INFORMATION. Except as may be required
by law or necessary in connection with any dealings with any public agency or
authority, from and after the Closing Date, Seller and the Shareholders will not
disclose, disseminate, divulge, discuss, copy or otherwise use or suffer to be
used, in competition with, or harmful to the interests of, Purchaser or
Waterlink, any information (written or oral), documents, lists or other data of
or respecting any aspect of the Subject Assets or the business being acquired by
Purchaser from Seller under this
38
<PAGE> 39
Agreement. The terms of this Section 17.2 shall not survive the termination of
this Agreement for any reason.
ARTICLE XVIII
-------------
MISCELLANEOUS
-------------
18.1 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same document.
18.2 CAPTIONS AND SECTION HEADINGS. Captions and section headings are
for convenience only, are not a part of this Agreement and may not be used in
construing it.
18.3 POSSESSION OF SUBJECT ASSETS. Possession of the Subject Assets
will be given to Purchaser on the Closing Date. Purchaser will not acquire any
title to the Subject Assets until possession has been given to it in accordance
with this Section 18.3, and, accordingly, all risk and loss with respect to the
Subject Assets will be borne by Seller until possession has been given to
Purchaser. For purposes of this Section 18.3, possession will be deemed to have
been given to Purchaser when Seller delivers or causes to be delivered to
Purchaser good and sufficient instruments of transfer and conveyance as provided
in this Agreement.
18.4 WAIVERS. Any failure by any of the parties to comply with any of
the obligations, agreements or conditions set forth in this Agreement may be
waived by the other party or parties, but any such waiver will not be deemed a
waiver of any other obligation, agreement or condition contained herein.
18.5 RIGHT OF INSPECTION. From and after the date of this Agreement to
the Closing Date, each of the parties hereto will give to the other and their
counsel, accountants and other representatives, full access during normal
business hours to its offices, properties, agreements, records and affairs, and
will furnish copies of all contracts and other instruments as such or counsel
may reasonably request. All such information will be treated confidentially and
will be used only for the purposes intended. If the transactions contemplated
under this Agreement do not take place, all documents and other property of the
disclosing party will be returned and all disclosures and information given to
the investigating party as contemplated under this Agreement will be treated as
confidential and not disclosed to others unless disclosed publicly by the
disclosing party or other third parties without fault on the part of the
investigating party, or unless otherwise required by law.
18.6 AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS. Each of the parties
agrees to cooperate in the effectuation of the transactions contemplated under
this Agreement and to execute any and all additional documents to take such
additional action as is reasonably necessary or appropriate for such purposes.
39
<PAGE> 40
18.7 ENTIRE AGREEMENT. This Agreement, including any certificate,
schedule, exhibit or other document delivered pursuant to its terms, constitutes
the entire agreement between the parties. There are no verbal agreements,
representations, warranties, undertakings or agreements between the parties, and
this Agreement may not be amended or modified in any respect, except by a
written instrument signed by the parties to this Agreement.
18.8 GOVERNING LAWS. This Agreement is to governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts.
18.9 KNOWLEDGE. All references to "knowledge" or "best knowledge" of
Seller means the actual knowledge of the Shareholders, and of Purchaser or
Waterlink means the actual knowledge of each such party, each after reasonable
investigation and due diligence. Failure to so investigate or exercise due
diligence may result in the imputation of knowledge to a party if the
circumstances, in the opinion of a trier of the facts, so warrants.
18.10 PRESS RELEASES. Prior to the Closing, no party will issue or
cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated under this Agreement
without the prior consent of the other party first obtained.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
WATERLINK ACQUISITION CORP.
By: /s/ Nancy A. Hamerly
----------------------------------
Its: CFO
MASS TRANSFER SYSTEMS, INC.
By: /s/ Mark E. Neville
----------------------------------
Its: President
WATERLINK, INC
By: /s/ Mark E. Neville
----------------------------------
Mark E. Neville
By: /s/ Frederick J. Siino
----------------------------------
Frederick J. Siino
40
<PAGE> 1
Exhibit 10.16
ASSET PURCHASE AGREEMENT
among
A-M ACQUISITIONS CORP.
WATERLINK, INC.,
AERO-MOD INCORPORATED,
RESI-TECH, INC.
and
LAWRENCE A. SCHMID
April 26, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE I TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES........ 1
1.1 Transfer of Assets...................................... 1
1.2 Transfer of Patents..................................... 2
1.3 Lease of Real Property.................................. 2
1.4 Assumption of Liabilities............................... 2
1.5 Method of Conveyance and Transfer....................... 2
1.6 Further Assurances...................................... 3
ARTICLE II PAYMENT OF PURCHASE PRICE............................... 3
2.1 Payment by Purchaser.................................... 3
2.2 Earn-Out................................................ 4
2.3 Allocation of Purchase Price............................ 5
2.4 Transfer Taxes.......................................... 6
ARTICLE III REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
SELLERS AND SHAREHOLDER................................. 6
3.1 Organization and Standing............................... 6
3.2 Authority of Sellers and Shareholder; Consents.......... 6
3.3 Business Relations...................................... 7
3.4 Leased Property......................................... 7
3.5 Investments in Other Entities........................... 8
3.6 Title to and Condition of Subject Assets................ 9
3.7 Financial Statements.................................... 9
3.8 Absence of Certain Changes.............................. 9
3.9 Absence of Undisclosed Liabilities...................... 11
3.10 Taxes................................................... 11
3.11 Indebtedness to Officers, Directors and Shareholders.... 12
3.12 Articles of Incorporation and By-Laws................... 12
3.13 Corporate Minutes....................................... 12
3.14 Brokerage and Finder's Fees............................. 12
3.15 Accounts Receivable..................................... 12
3.16 Employment Matters...................................... 12
3.17 No Defaults............................................. 13
3.18 Non-Trade Accounts Receivable........................... 13
3.19 Material Contracts...................................... 13
3.20 Purchase Orders......................................... 14
3.21 Indebtedness............................................ 14
(i)
<PAGE> 3
PAGE
3.22 Litigation.............................................. 14
3.23 Insurance............................................... 14
3.24 Transactions with Officers, Etc......................... 15
3.25 Employees/Independent Sales Representatives............. 15
3.26 Trademarks, Copyrights and Similar Matters.............. 15
3.27 Employee Benefit Plans and Other Plans.................. 16
3.28 Environmental Matters................................... 17
3.29 Bank Accounts........................................... 19
3.30 Compliance with Laws.................................... 19
3.31 Powers of Attorney...................................... 19
3.32 Licenses and Rights..................................... 19
3.33 Schedule of Government Reports.......................... 19
3.34 Products................................................ 19
3.35 Casualty Occurrences.................................... 20
3.36 Inventory............................................... 20
3.37 Material Misstatements or Omissions..................... 20
3.38 Investment Representations.............................. 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND WATERLINK........................................... 21
4.1 Organization and Good Standing of Purchaser
and Waterlink........................................... 21
4.2 Authority of Purchaser and Waterlink.................... 22
4.3 Certificate of Incorporation and By-Laws................ 22
4.4 Waterlink Financial Statements.......................... 22
4.5 Waterlink Authorized Capitalization..................... 22
4.6 Absence of Certain Changes.............................. 23
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
AND WATERLINK .......................................... 23
5.1 Representations True.................................... 23
5.2 All Consents Obtained................................... 23
5.3 Performance and Obligations............................. 23
5.4 Receipt of Documents by Purchaser....................... 23
5.5 No Litigation........................................... 25
5.6 Employment Agreement.................................... 25
5.7 Delivery of Books and Records........................... 26
5.8 Instruments of Transfer................................. 25
5.9 Confidentiality and Non-Compete Agreements.............. 26
5.10 Absence of Changes...................................... 26
5.11 Amended and Restated Exclusive License Agreement........ 26
(ii)
<PAGE> 4
PAGE
5.12 Lease for Leased Property.............................. 26
5.13 Environmental Investigation............................ 26
5.14 Title Commitment....................................... 26
5.15 Non-Disturbance Agreement.............................. 26
5.16 Blue Water Transaction................................. 26
5.17 SBA Loans.............................................. 26
5.18 Termination of Simplified Employee Pension Plan........ 27
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
AND SHAREHOLDER........................................ 27
6.1 Representations True................................... 27
6.2 All Consents Obtained.................................. 27
6.3 Performance of Obligations............................. 27
6.4 Receipt of Documents by Sellers and Shareholder........ 27
6.5 No Litigation.......................................... 28
6.6 Employment Agreement................................... 28
6.7 Registration Rights Agreement.......................... 28
6.8 Assumption of Liability................................ 28
6.9 Executive Committee.................................... 28
6.10 Lease for Leased Property.............................. 28
6.11 Blue Water Transaction................................. 28
ARTICLE VII CLOSING................................................ 29
ARTICLE VIII TERMINATION OF AGREEMENT............................... 29
ARTICLE IX SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION; DISPUTES.............. 30
9.1 Survival of Representations and Warranties............. 30
9.2 Sellers' and Shareholder's Indemnification............. 30
9.3 Defense of Claim....................................... 31
9.4 Purchaser's and Waterlink's Indemnification............ 31
9.5 Limitations on Indemnification......................... 32
ARTICLE X CONDUCT PRIOR TO CLOSING DATE.......................... 32
10.1 Continuation of Business............................... 32
10.2 Preservation of Business............................... 33
10.3 Consents and Approvals................................. 33
ARTICLE XI ASSIGNMENT, THIRD PARTIES, BINDING EFFECT.............. 33
(iii)
<PAGE> 5
PAGE
ARTICLE XII EXPENSES............................................... 34
ARTICLE XIII NOTICES................................................ 34
ARTICLE XIV REMEDIES NOT EXCLUSIVE................................. 35
ARTICLE XV NON-COMPETITION........................................ 35
15.1 Non-Competition Agreement.............................. 35
15.2 Disclosure of Confidential Information................. 37
ARTICLE XVI MISCELLANEOUS.......................................... 37
16.1 Counterparts........................................... 37
16.2 Captions and Section Headings.......................... 37
16.3 Possession of Acquired Assets.......................... 37
16.4 Waivers................................................ 37
16.5 Right of Inspection.................................... 37
16.6 Amendments, Supplements or Modifications............... 38
16.7 Entire Agreement....................................... 38
16.8 Governing Laws......................................... 38
16.9 Knowledge.............................................. 38
16.10 Press Releases......................................... 38
(iv)
<PAGE> 6
LIST OF EXHIBITS
----------------
PAGE
Exhibit A Legal Description of Leased Property...........................2
Exhibit B Convertible Subordinated Promissory Note...................... 3
Exhibit C Subordinated Promissory Note.................................. 3
Exhibit D Second Subordinated Promissory Note .......................... 3
Exhibit E Allocation of Earn-Out Payment................................ 4
Exhibit F Schmid Employment Agreement...................................25
Exhibit G Registration Rights Agreement.................................28
(v)
<PAGE> 7
LIST OF SCHEDULES
-----------------
PAGE
1.1 Cash Surrender of Life Insurance Policies and Associated Debt...1
1.2 Schedule of Patents.............................................2
1.4 Assumed Liabilities.............................................2
2.3 Allocation of Purchase Price....................................5
3.1 Jurisdictions of Incorporation, Qualification and
Business Conduct of Seller and Subsidiaries ....................6
3.2 Consents ...................................................7, 23
3.3 Business Relations..............................................7
3.4 Leased Property ................................................7
3.5 Equity Interests ...............................................8
3.6 Title to and Condition of Subject Assets .......................9
3.8 Absence of Certain Changes ....................................10
3.9 Undisclosed Liabilities .......................................11
3.10 Tax Waivers and Audits ........................................11
3.11 Indebtedness to Officers, Directors and Shareholders...........12
3.16 Employment Matters ........................................12, 13
3.17 Defaults...................................................... 13
3.18 Accounts Receivable ...........................................13
3.19 Contracts .............................................13, 24, 32
3.20 Purchase Orders ...............................................14
3.21 Indebtedness ..................................................14
(vi)
<PAGE> 8
PAGE
3.22 Litigation .....................................................14
3.23 Insurance ......................................................14
3.24(a) Ownership of Sellers in Certain Entities .......................15
3.24(b) Contracts With Officers, Etc. ................................. 15
3.24(c) Interest in Competitors ........................................15
3.25(a) Employees of Sellers............................................15
3.25(b) Independent or Outside Sales Representatives of Sellers.........15
3.26 Patents, Trademarks, Service Marks, Trade Names
and Copyrights ................................................ 16
3.27 Employee Benefit and Other Plans ...............................17
3.29 Bank Accounts ..................................................19
3.32 Licenses and Rights ............................................19
3.33 Government Reports .............................................19
3.34 Warranties and Customer Service Policies .................... 20
3.35 Product Liability Matters ......................................20
4.5 Authorized Capitalization.......................................22
4.6 Absence of Certain Changes......................................23
(vii)
<PAGE> 9
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT ("Agreement") is made this 26th day of April, 1996,
among A-M ACQUISITIONS CORP., a Delaware corporation ("Purchaser"), AERO-MOD
INCORPORATED, a Kansas corporation ("Aero-Mod") RESI-TECH, INC., a Kansas
corporation ("Resi-Tech") (each a "Seller" and collectively "Sellers"),
WATERLINK, INC., a Delaware corporation ("Waterlink"), and LAWRENCE A. SCHMID,
sole shareholder of each Seller ("Shareholder").
R E C I T A L:
--------------
Purchaser desires to purchase, and Sellers desire to sell to Purchaser,
all of the business, assets, and goodwill of each Seller, except as otherwise
provided in this Agreement, and Purchaser desires to purchase, and Shareholder
desires (i) to sell to Purchaser, certain patents and related know-how that are
used in the business of each Seller, in exchange for cash, promissory notes and
for the assumption of certain of Sellers' liabilities and obligations, as
expressly provided in this Agreement and (ii) to lease certain real property on
which the business of Sellers is presently being conducted and on which
Purchaser, among other things, will conduct its business.
NOW, THEREFORE, Purchaser, Waterlink, Sellers and Shareholder agree as
follows:
ARTICLE I
---------
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
1.1 TRANSFER OF ASSETS. On the terms and subject to the conditions in
this Agreement, except as set forth below, Sellers will convey, transfer, assign
and deliver to Purchaser on the Closing Date (defined below) all of the
business, assets, and goodwill owned or used by Sellers on the Closing Date in
the conduct of business of each Seller (together, the "Business") of every kind
and description, wherever located, known or unknown, tangible or intangible,
including, without limitation, all property, real, personal or mixed, cash on
hand and in accounts, accounts receivable, securities, deposits on contractual
obligations or otherwise, claims and rights under contracts and leases,
licenses, customer lists, trade secrets, tax refund claims and all other pending
claims and other choses in action, exclusive rights to use the names "Aero-Mod
Incorporated" or "Resi-Tech, Inc.," any derivative or combination thereof and
all other names or slogans used by Sellers in connection with the Business or
its products, all product catalogs and other advertising materials, all files,
books and records of Sellers relating to the Business, and all computer
programs, all as the same exist on the Closing Date (collectively, the "Acquired
Assets"). Notwithstanding the foregoing, the Acquired Assets will not include
(i) those certain Notes receivable of Sellers from Shareholder set forth on
SCHEDULE 1.1 of amounts up to Sixty-Two Thousand Nine Hundred and Six Dollars
and Sixty-Two Cents ($62,406.62) and (ii) the cash surrender value of certain
life insurance policies and the associated borrowings thereon as specifically
referenced on SCHEDULE 1.1, which net to an amount of up to Seven Thousand Six
Hundred and Sixty-Four Dollars and Nineteen Cents ($7,664.19) (collectively, the
"Excluded Assets").
<PAGE> 10
1.2 TRANSFER OF PATENTS. On the terms and subject to the conditions in
this Agreement, Shareholder will convey, transfer, assign and deliver to
Purchaser on the Closing Date, certain patents, patent applications or invention
disclosures set forth in SCHEDULE 1.2 and related know-how that are used in
connection with the conduct of the Business (the "Patents"), and Seller
covenants and agrees that all such assets relating to the Business are disclosed
therein. Seller will execute any documents deemed necessary by Purchaser to
secure or perfect the transfer of such Patents to Purchaser, and will provide
reasonable assistance to Purchaser in any enforcement that Purchaser may, in its
discretion, seek to undertake relative thereto.
1.3 LEASE OF REAL PROPERTY. Shareholder will lease to Purchaser certain
real property containing approximately _____ acres, together with the
improvements thereon, known for street numbering purposes as 7927 U.S. Highway
24, Manhattan, Kansas and more particularly described on the lease (the "Lease")
attached hereto as EXHIBIT A (the "Leased Property" and, together with the
Patents and the Acquired Assets, the "Subject Assets").
1.4 ASSUMPTION OF LIABILITIES. Subject to the conditions in this
Agreement, on the Closing Date, Purchaser will deliver an undertaking in form
and substance reasonably satisfactory to Shareholder, Sellers and their counsel
pursuant to which Purchaser will assume and agree to pay, perform and discharge
(i) all obligations and liabilities of Sellers to the extent reflected or
reserved against in each Sellers balance sheet as of January 31, 1995, included
in the Financial Statements (defined below), (ii) all obligations and
liabilities of each Seller arising after the Closing Date under any contracts,
agreements, instruments and arrangements listed on SCHEDULE 1.4 to this
Agreement and (iii) all current liabilities of each Seller arising after the
date of such balance sheet in the ordinary course of business and not in
violation of this Agreement PROVIDED, HOWEVER, that Purchaser will not assume
any liability of Sellers incurred or arising in connection with (i) any tax
obligations of Sellers or Shareholder of any nature whatsoever (including
penalties, interest and additions to tax); (ii) any product liability claims
related to products shipped or in finished goods inventory as of the close of
business on the Closing Date; (iii) any liabilities related to any violation of
any Environmental Laws (defined below) arising prior to the close of business on
the Closing Date; (iv) any liabilities related to Sellers' Benefit Plans
(defined below); and (v) any liability or obligations of Sellers and/or
Shareholder to The First National Bank of Wamego or the U.S. Small Business
Administration under loan number GP 762-047-30-03-KC and related note dated
October 12, 1994. Any of the foregoing notwithstanding, Purchaser will not
assume any other obligations or liabilities of Sellers or Shareholder,
including, without limitation, those arising out of or in connection with the
negotiation and preparation of this Agreement or the consummation of the
transactions provided for in this Agreement which shall be borne personally by
Shareholder. The liabilities to be assumed by Purchaser hereunder are
collectively referred to as the "Assumed Liabilities."
1.5 METHOD OF CONVEYANCE AND TRANSFER. The conveyance, transfer and
delivery of the Subject Assets will be effected by bills of sale, endorsements,
assignments and other instruments of transfer, all in such form as Purchaser
reasonably requests, vesting in Purchaser good and marketable title to the
Subject Assets, free and clear of all covenants, conditions, easements, liens,
charges, security interests, adverse claims, encumbrances, demands or other
title defects or restrictions of any kind.
2
<PAGE> 11
1.6 FURTHER ASSURANCES. Each Seller and Shareholder, at any time and
from time to time after the Closing Date, upon request of Purchaser, will do,
execute, acknowledge and deliver, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required for the better conveying, transferring, assigning, and delivering to
Purchaser, or to its successors and assigns, and for aiding and assisting in
collecting and reducing to possession, all the Subject Assets.
ARTICLE II
----------
PAYMENT OF PURCHASE PRICE
-------------------------
2.1 PAYMENT BY PURCHASER.
(a) At the Closing, Purchaser will pay to Sellers and
Shareholder the purchase price for the Subject Assets, as follows:
(i) By certified or bank check in immediately available
funds or by wire transfer to an account designated by Sellers
or Shareholder, as the case may be, Two Hundred Thousand
Dollars ($200,000) payable to Aero-Mod in partial payment for
its Acquired Assets, Four Hundred Thousand Dollars ($400,000)
payable to Resi-Tech in partial payment for its Acquired
Assets and Three Hundred Thousand Dollars ($300,000) payable
to Shareholder in partial payment for the Patents.
(ii) Purchaser will issue to Shareholder, in partial
payment for the Patents, its convertible subordinated
promissory note (the "Convertible Subordinated Promissory
Note") in the form of EXHIBIT B to this Agreement, dated as of
the Closing Date and payable to Shareholder in the principal
amount of Four Hundred Thousand Dollars ($400,000). The
Convertible Subordinated Promissory Note will be convertible
into shares of common stock of Waterlink, as provided for
therein.
(iii) Purchaser will issue to Aero-Mod, in partial
payment for its Acquired Assets, its subordinated promissory
note (the "Subordinated Promissory Note") in the form of
EXHIBIT C to this Agreement, dated as of the Closing Date and
payable to Aero-Mod in the principal amount of One Hundred
Fifty Thousand Dollars ($150,000).
(iv) Purchaser will issue to Resi-Tech, in partial
payment for its Acquired Assets, its subordinated promissory
note (the "Second Subordinated Promissory Note") in the form
of EXHIBIT D to this Agreement, dated as of the Closing Date
and payable to Resi-Tech in the principal amount of One
Hundred Fifty Thousand Dollars ($150,000). The Convertible
Subordinated Promissory Note, Subordinated Promissory Note and
Second Subordinated Promissory Note are collectively referred
to as the "Promissory Notes".
3
<PAGE> 12
(b) After the Closing, Purchaser will pay to each of Resi-Tech
and Shareholder as additional purchase price for the Resi-Tech Acquired
Assets and the Patents, the Earn-Out Payments referred to in Section
2.2 below, if applicable.
2.2 EARN-OUT.
(a) In addition to the payments referred to in Section 2.1(a)
above and with respect to the period set forth below (the "Earn-Out
Period"), Purchaser shall pay to Resi-Tech and Shareholder the amount
set forth below (the "Earn-Out Payment") based on the adjusted earnings
before income and taxes ("Adjusted EBIT") (as more fully defined below)
of the Business. The Earn-Out Payment, if any, shall be allocated
between Resi-Tech and Shareholder as is set forth on the attached
EXHIBIT E.
(b) "Adjusted EBIT" for any period of determination shall mean
the earnings before interest (other than interest on borrowings used
for working capital purposes) and federal, state and local taxes of any
nature whatsoever of the Business and determined as if the Business was
an independent corporate entity whether or not it is subsequently
merged into another entity or other businesses or assets not relating
to the Business are operated or acquired by Purchaser, determined in
accordance with generally accepted accounting principals consistently
applied, from period to period, based on the Sellers Financial
Statements (defined below) at the Closing.
(c) In accordance with the following table, the Earn-Out
Payment shall be payable for the Earn-Out Period if the Adjusted EBIT
equals or exceeds the amount set forth below:
EARN-OUT PERIOD ADJUSTED EBIT EARN-OUT PAYMENT
- --------------- ------------- ----------------
Eighteen (18) month $1,300,000 $300,000
period ending
September 30, 1997
To the extent the Earn-Out Period is different than the
expected eighteen (18) month period set forth above, the Adjusted EBIT
target will be adjusted to reflect the actual months (or partial months
based on days elapsed) included at an average expected monthly EBIT of
Seventy-Two Thousand Two Hundred Twenty-Two Dollars and Twenty-Two
Cents ($72,222.22).
For example, if there are only sixteen (16) full months after
the Closing, the Adjusted EBIT target shall be the product of the
average expected monthly EBIT of Seventy-Two Thousand Two Hundred
Twenty-Two Dollars and Twenty-Two Cents ($72,222.22) times sixteen (16)
which would equal One Million One Hundred Fifty-Five Thousand Five
Hundred and Fifty-Five Dollars and Forty Cents ($1,155,555.40).
(d) Purchaser shall deliver to each of Resi-Tech and
Shareholder within ninety (90) days of the end of the Earn-Out Period,
(i) Purchaser's financial statements covering the Earn-Out Period, and
(ii) a statement setting forth the computation and amount of Adjusted
4
<PAGE> 13
EBIT for the Earn-Out Period (the "Earn-out Statement") and shall pay
the Earn-Out Payment, if any, within thirty (30) days of the delivery
of the Earn-out Statement.
(e) Resi-Tech and Shareholder shall have thirty (30) days from
the date the Earn-Out Statements are delivered to it or him, as the
case may be, to furnish Purchaser with a letter requesting access to
the books and records of Purchaser necessary to compute Adjusted EBIT
and upon receipt of such request, Purchaser shall promptly make
available such books and records to Resi-Tech and Shareholder.
Resi-Tech and Shareholder shall have thirty (30) days after such access
is granted to furnish Purchaser with a letter setting forth those items
with which he or it disagrees and the reasons for each such
disagreement. The parties shall promptly seek to reconcile any such
disagreement; if they fail to reach an agreement within thirty (30)
days of receipt by Purchaser of such letter, then an independent public
accounting firm shall be retained by the parties to settle any
remaining disagreement, and the decision of said firm shall be final
and binding on all parties to this Agreement. If Resi-Tech and
Shareholder, on the one hand, and Purchaser, on the other hand, cannot
agree on an accounting firm to settle any remaining disagreement within
such thirty (30) day period, then Resi-Tech and Shareholder, on the one
hand, and Purchaser, on the other hand, shall each designate one (1)
independent public accounting firm and the firms so designated shall
select an independent public accounting firm and the decision of said
firm shall be final and binding on all parties to this Agreement. The
fees of all accounting firms involved shall be paid by the party which
fails to prevail with respect to the dispute. The payment of the
portion of the Earn-Out Payment in dispute, if any, or overpayment due
to Purchaser, if any, as the case may be, ultimately determined
(pursuant to the procedures set forth in this paragraph) to be due
Resi-Tech and Shareholder shall be made within fifteen (15) days of
such determination.
2.3 ALLOCATION OF PURCHASE PRICE. The parties agree to allocate the
purchase price, including the Assumed Liabilities and all other capitalizable
costs, among the Subject Assets for all purposes (including Financial accounting
and tax purposes) in accordance with the individual fair market value of the
Subject Assets as set forth on SCHEDULE 2.3, which schedule shall be prepared by
Purchaser and agreed to by Sellers prior to the Closing Date and shall be
adjusted post-closing to reflect actual balance sheet amounts. Purchaser and
Sellers shall file an IRS Form 8594 in accordance with the post-closing SCHEDULE
2.3 as required by Section 1060 of the Internal Revenue Code of 1986, as
amended. Aero-Mod's tax identification number is ________________________, Resi-
Tech's tax identification number is __________________, Shareholder's social
security number is __________________________, Purchaser's tax identification
number is 34-1829167 and Waterlink's tax identification number is 34-1820944.
5
<PAGE> 14
2.4 TRANSFER TAXES. All applicable sales and transfer taxes of any
nature whatsoever, if any, arising by reason of the transfer of the Subject
Assets under this Agreement will be borne by Sellers or Shareholder, as the case
may be.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLERS
-----------------------------------------------------
AND SHAREHOLDER
---------------
Each Seller and Shareholder, jointly and severally, represent and
warrant to, and agree with, Purchaser and Waterlink as follows:
3.1 ORGANIZATION AND STANDING.
(a) Aero-Mod is a corporation duly organized, validly existing
and in good standing under the laws of the state of Kansas. Resi-Tech
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Kansas. Neither Seller owns any voting
stock or other capital stock of any other corporation, directly or
indirectly, nor is either Seller directly or indirectly a partner in
any general partnership. Each Seller has full power and authority to
carry on its business as and where now conducted and to own or lease
and operate its properties at and where now owned or leased and
operated by it, and is duly qualified to do business and is in good
standing in every jurisdiction in which the property owned, leased or
operated by it, or the nature of the business conducted by it, makes
such qualification necessary.
(b) Set forth on SCHEDULE 3.1 is a true and correct list of
all jurisdictions in which each Seller is qualified to do business as a
foreign corporation or partnership, and each jurisdiction where each
Seller does business or owns or leases property.
3.2 AUTHORITY OF SELLERS AND SHAREHOLDER; CONSENTS. The execution,
delivery and consummation of this Agreement by each Seller has been duly
authorized by the board of directors and the shareholder(s) of each Seller in
accordance with all applicable laws and the Articles of Incorporation and
By-Laws of each Seller, and at the Closing Date no further corporate action will
be necessary on the part of either Seller or Shareholder to make this Agreement
valid and binding on each Seller and Shareholder and enforceable against each
Seller and Shareholder in accordance with its terms. The execution, delivery and
consummation of this Agreement by each Seller and Shareholder (as applicable)
(i) is not contrary to the Articles of Incorporation or By-Laws of Seller, (ii)
does not now and will not, with the passage of time, the giving of notice or
otherwise, result in a violation or breach of, or constitute a default under,
any term or provision of any indenture, mortgage, deed of trust, lease,
instrument, order, judgment, decree, rule, regulation, law, contract, agreement
or any other restriction to which either Seller or Shareholder is a party or to
which either Seller or Shareholder or any of its or his assets are subject or
bound, (iii) will not result in the creation of any lien or other charge upon
any assets of either Seller or Shareholder, and (iv) will not result in any
acceleration or termination of any loan or security
6
<PAGE> 15
interest agreement to which either Seller or Shareholder is a party or to which
either Seller or Shareholder or any of its or his assets is subject or bound.
Except as may be listed on SCHEDULE 3.2, no approval or consent of any person,
firm or other entity or governmental body (including in connection with any
customer bids or proposals) is or was required to be obtained by either Seller
or Shareholder for the authorization of this Agreement or the consummation by
either Seller or Shareholder of the transactions contemplated in this Agreement.
3.3 BUSINESS RELATIONS. Other than as set forth on SCHEDULE 3.3,
Sellers are not required, in the ordinary course of business, to provide any
bonding or any other financial security arrangements in connection with any
transactions with any customers or suppliers. Sellers have not received any
notice of any disruption (including, without limitation, delayed deliveries or
allocations by suppliers) in the availability of any materials or products used
in its business and has no reason to believe that any such disruption will
occur. There are no sole source suppliers of goods, equipment or services used
by Sellers (other than public utilities) with respect to which practical
alternative sources of supply are unavailable.
3.4 LEASED PROPERTY. With respect to the Leased Property, except as
set forth on SCHEDULE 3.4:
(a) There is no condemnation proceeding or eminent domain
proceeding of any kind pending or, to the best knowledge of
Shareholder or Sellers, threatened against any of the Leased Property;
(b) The Leased Property is occupied under valid and current
certificates of occupancy or the like, and the transactions
contemplated by this Agreement will not require the issuance of any new
or amended certificates of occupancy or the like; there are no facts
known to Shareholder or Sellers which would prevent the Leased Property
from being occupied after the Closing Date in substantially the same
manner as before;
(c) The Leased Property does not violate, and all improvements
are constructed in compliance with, any applicable federal, state or
local statutes, laws, ordinances, regulations, rules, codes, orders or
requirements, including, without limitation, any building, zoning, fire
or environmental laws or codes (the "Laws and Ordinances") and
Shareholder will lease the Leased Property free from any such
violations;
(d) Sellers and/or Shareholder has obtained all appropriate
licenses, permits, building permits and occupancy permits that are
required by the Laws and Ordinances for the operations of the
businesses of Sellers on the Leased Property;
(e) There are no outstanding variances or special use permits
affecting the Leased Property or its uses;
(f) No notice of a violation of any Laws and Ordinances, or of
any covenant, condition, easement or restriction affecting the Leased
Property or relating to its use or occupancy has been given to Sellers,
nor are Sellers aware of any such violation;
7
<PAGE> 16
(g) No portion of the Leased Property is located within a
special flood plain area as designated by the Federal Emergency
Management Agency or other applicable government authority;
(h) The Leased Property has and will have as of the Closing
Date adequate potable water supply, storm and sanitary sewage
facilities, telephone, gas, electricity, fire protection, means of
ingress and egress to and from public highways and, without limitation,
other required public utilities. All utility lines and facilities
presently serving the Leased Property are serviced and maintained by
the appropriate public or quasi-public entity. All utilities enter the
Leased Property through adjoining public streets or, if they pass
through adjoining private land, they do so in accordance with valid
public easements;
(i) Sellers and Shareholder have no knowledge of improvements
made or contemplated to be made by any public or private authority, the
costs of which are to be assessed as special taxes or charges against
the Leased Property, and there are no present assessments;
(j) All improvements constituting the Leased Property are
without structural defects, are located entirely within the boundary
lines of the Leased Property and do not encroach upon any street or
land of others; and
(k) The Leased Property either (a) is freely accessible
directly from all public streets on which it abuts, or (b) uses
adjoining private land to access the same in accordance with valid
public easements. Sellers and Shareholder have no knowledge of any
condition which would result in the termination of such access;
(l) Sellers and Shareholder have no boundary or water drainage
disputes with the owners of any premises adjacent to the Leased
Property and have no knowledge of any such dispute involving former
owners of the Leased Property;
(m) Sellers and Shareholder have no notice of outstanding
requirements or recommendations by the insurance companies who issued
the insurance policies insuring the Leased Property, or by any board of
fire underwriters or other body exercising similar functions requiring
or recommending any repairs or work to be done on the Leased Property;
(n) Shareholder and Sellers will obtain from all mortgagees of
the Leased Property a so-called "Non-Disturbance Agreement" (the
"Non-Disturbance Agreement") assuring Purchaser that so long as
Purchaser is not in default of the Lease, Purchaser's tenancy will not
be disturbed and containing such other terms and provisions as are
reasonably acceptable to Purchaser.
3.5 INVESTMENTS IN OTHER ENTITIES. Except as set forth on SCHEDULE 3.5,
Sellers do not have any direct or indirect equity interest, or debt convertible
into any equity interest, in any entity, corporation or otherwise, or any right,
warrant or option to acquire any such interest.
8
<PAGE> 17
3.6 TITLE TO AND CONDITION OF SUBJECT ASSETS. Except as set forth on
SCHEDULE 3.6, each of Sellers and Shareholder own and possess and will own and
possess as of the Closing Date all right, title and interest in and to the
Subject Assets, including, without limitation, good and merchantable title to
the Subject Assets, in each case free and clear of all conveyances, conditions,
easements, liens, charges, security interests, adverse claims, encumbrances,
encroachments, reservations, easements, limitations, servitudes, other title
defects or restrictions of any nature. Each of Sellers and Shareholder have and
will have as of the Closing Date the right, power and authority to convey,
transfer, lease, assign and deliver the Subject Assets free and clear of any
title defect or restriction, including, without limitation, those enumerated in
this SECTION 3.6. All tangible Subject Assets of Sellers are in Sellers'
possession or under its control, and all equipment included in the Subject
Assets is in good operating condition and repair, subject only to routine
maintenance and ordinary wear and tear consistent with the age and use thereof,
and is fit and adequate for the purposes intended. Each of Sellers and
Shareholder enjoy peaceful and quiet possession of the Subject Assets pursuant
to or by all of the deeds, bills of sale, leases, licenses and other agreements
under which it is operating its business. The Subject Assets comprise all assets
of any kind or character necessary for the operation of Sellers' business as it
is presently conducted.
3.7 FINANCIAL STATEMENTS. Prior to the date of this Agreement, each
Seller provided Purchaser with the following financial statements of each Seller
and will provide to Purchaser monthly financial statements for the months after
January 31, 1996 (the "New Monthly Financial Statements") as soon as practicable
after the end of each month, to wit: the consolidated balance sheets and
statements of income at and for the fiscal years ended October 31, 1993, October
31, 1994 and October 31, 1995 and the consolidated balance sheets and statements
of income at and for the five (5) month period ending March 31, 1995 (the
"Sellers Financial Statements").
The Sellers Financial Statements each respectively (i) have been (and,
with respect to the New Monthly Statements, when delivered, will have been)
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods, (ii) present fairly (and, with respect to
the New Monthly Statements, when so delivered, will present fairly), in all
material respects, each Seller's financial position, results of its operations
and cash flows at and for the periods therein specified, (iii) are (and, with
respect to the New Monthly Statements, when so delivered, will be) true and
complete, (iv) are (and, with respect to the New Monthly Statements, when so
delivered, will be) consistent with the books and records of each Seller, and
(v) with respect to all of the unaudited Sellers Financial Statements, include
(and, with respect to the New Monthly Statements, when so delivered, will
include) all adjustments, consisting only of normal recurring adjustments,
required for a fair presentation. The Sellers Financial Statements will be
deemed to include any accompanying notes and schedules.
3.8 ABSENCE OF CERTAIN CHANGES. Since October 31, 1995, each Seller has
actively conducted its business in the ordinary and regular course consistent
with past practice. Since such date, there has not been any material adverse
change in the business, condition (financial or otherwise), assets, liabilities,
results of operations or prospects of Sellers. To Sellers' knowledge, there has
not occurred any event or governmental regulation or order which could cause
such a
9
<PAGE> 18
change, nor to Sellers' knowledge, is the occurrence of any such event,
regulation or order threatened. Except as set forth on SCHEDULE 3.8, without
limiting the generality of the foregoing, since October 31, 1995, there has not
been:
(a) Any increase made or promised in the compensation or other
remuneration payable or to become payable by Sellers to any of its
employees, agents or partners;
(b) Any mortgage or pledge of, or any other lien, charge or
encumbrance of any kind, on any of the assets, tangible or intangible,
of Sellers, except in the ordinary course of business;
(c) Any sale or transfer of any assets, except for sales of
inventory in the ordinary course of business, or settlement,
cancellation or release of any indebtedness owing to Sellers or of any
other claims of Sellers, except in the ordinary course of business;
(d) Any sale, license, assignment or transfer by Sellers or
Shareholder of any patents, trademarks, trade names or other similar
intangible assets;
(e) Any amendments or termination of any material contract,
agreement or license to which Sellers are a party or to which Sellers
or any of its assets are subject or bound;
(f) Any commitment made (through negotiations or otherwise) or
any liability incurred to any labor organization by Sellers;
(g) Any payment, declaration or setting aside by Sellers of
dividends or a return of capital or any distribution by Sellers of any
cash or other assets to any of its shareholders in redemption of or as
the purchase price for any of its capital stock or in discharge or
cancellation in whole or in part of any indebtedness owing (whether in
payment of principal, interest or otherwise) to any of its
shareholders;
(h) Any discharge or satisfaction by Sellers of any lien,
encumbrance, obligation or liability (accrued, absolute, fixed or
contingent), other than those shown on the January 31, 1996 balance
sheet of the Sellers Financial Statements that have been discharged or
satisfied in the ordinary course without acceleration and other than
those incurred and discharged in the ordinary course of business
consistent with past practice;
(i) Any transaction entered into by Sellers other than in the
ordinary course of business consistent with past practice;
(j) Any institution by Sellers of a bonus, stock option,
profit-sharing, pension plan or similar arrangement or any changes in
any such existing plans;
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(k) Any incurrence (whether discharged or not) of any
obligation or liability (whether accrued, absolute, fixed or
contingent) other than current liabilities incurred, and obligations
entered into, in the ordinary course of business consistent with past
practice;
(l) Any adverse change in collection loss experience;
(m) Any material loss, damage or destruction to any of
Sellers' properties (whether or not covered by insurance) or any labor
trouble; or
(n) Any change in accounting principles or practices from
those utilized in the preparation of the Sellers Financial Statements.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
January 31, 1996 balance sheet of the Sellers Financial Statements, or on
SCHEDULE 3.9, Sellers are not obligated for, nor are any of its assets or
properties subject to, any liabilities or adverse claims or obligations,
absolute or contingent, except those incurred in the ordinary course of business
since January 31, 1996, and Sellers are not in default with respect to any terms
or conditions of any material liability or obligation. There are no facts known
to Sellers that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Sellers Financial Statements or in the Schedules.
3.10 TAXES.
(a) Each Seller has filed on a timely basis (or will file when
due) all income, franchise, sales, withholding and other tax returns
and reports of every nature required by law to be filed by it
accurately reflecting all taxes owing to (including any taxes required
to be withheld and paid over to) the United States or any other
government or any government subdivision, state or local, or any other
taxing authority, and has paid in full, or in the case of taxes not yet
due and payable, made adequate provision for the payment of, all taxes
(including penalties, interest and additions to tax) for which it has
or may have liability, including, without limitation, withholding taxes
and taxes payable to any jurisdiction by reason of the transfer of the
Subject Assets pursuant to this Agreement. Sellers have no knowledge of
any unassessed tax deficiency proposed or threatened against Sellers as
a result of the operation of its business or otherwise. There are no
liens on the Subject Assets as a result of any tax liabilities except
for taxes not yet due and payable. There are, and after the date of
this Agreement will be, no tax deficiencies (including penalties,
interest and additions to tax) of any kind assessed against or relating
to Sellers with respect to any taxable periods ending on or before, or
including, the Closing Date of a character or nature that would result
in liens or claims on any of the Subject Assets or on Purchaser's title
to or use of the Subject Assets, or that would result in any claim
against Purchaser.
(b) Except as set forth on SCHEDULE 3.10, there are no
outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local, or foreign tax
return of any nature whatsoever of Sellers for any period. The federal
income tax returns of Sellers have never been audited by the Internal
Revenue Service. No state,
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local or foreign taxing authority has audited any tax return or report
filed by Sellers for any taxable period. Sellers have furnished to
Purchaser complete and correct copies of all federal, state and foreign
tax returns filed by Sellers for each of its fiscal years beginning
after January 1, 1990. Sellers have furnished to Purchaser complete and
correct copies of all audit reports received by Sellers from the U.S.
Treasury Department, or from any state, local or foreign taxing
authority, with respect to the audit of any federal, state, local or
foreign tax return for any taxable period beginning after January 1,
1990.
3.11 INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS. Other than
as listed on SCHEDULE 3.11, Sellers are not indebted to any of its current or
former shareholders, officers or directors (or to members of their immediate
families) in any amount whatever other than for salaries payable or for expenses
incurred on behalf of Sellers in the ordinary course of business.
3.12 ARTICLES OF INCORPORATION AND BY-LAWS. True, accurate and complete
copies of the Articles of Incorporation and By-laws of each Seller, together
with all amendments thereto, have been delivered to Purchaser or its counsel.
3.13 CORPORATE MINUTES. Each Seller has furnished or made available to
Purchaser and its counsel the corporate record books of such Seller and the same
are accurate and complete and reflect all resolutions adopted and all actions
taken, authorized or ratified by the shareholders and directors of such Seller.
Copies of all corporate minutes of meetings held and of all written actions
taken after the date of this Agreement will be furnished to Purchaser promptly,
and in all events, prior to the Closing Date.
3.14 BROKERAGE AND FINDER'S FEES. No shareholder, officer, director or
agent of either Seller has incurred any liability to any broker, finder or agent
for any brokerage fees, finder's fees, or commissions with respect to the
transactions contemplated by this Agreement.
3.15 ACCOUNTS RECEIVABLE. Each Seller has previously delivered to
Purchaser an aging schedule as of a date not more than thirty (30) days prior to
the date of this Agreement, which is true, correct and complete, of the accounts
receivables of such Seller as of that date. Sellers will update the list as of a
date not more than five (5) days prior to the Closing Date. The reserves for
doubtful receivables and uncollectible accounts that will be reflected on the
books of each Seller as of the Closing Date will not exceed one percent (1%) of
the then aggregate accounts receivable, and will be sufficient to provide for
any losses that may arise in connection with the collection of the accounts
receivable. The accounts receivable as reflected on the books of each Seller as
of the Closing Date, net of such reserves, will be fully collectible in the
ordinary course of business within ninety (90) days after the Closing Date,
without resort to legal proceedings. All of such accounts receivable will
represent valid claims that have arisen in the ordinary course of business.
3.16 EMPLOYMENT MATTERS.
(a) Except as set forth on SCHEDULE 3.16, Sellers are not a
party to, participant in, or bound by, any collective bargaining
agreement, union contract or employment, bonus, deferred compensation,
insurance, pension, profit sharing or similar personnel arrangement,
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any stock purchase, stock option or other stock plans or programs or
any employee termination or severance arrangement.
(b) Except as set forth on SCHEDULE 3.16, the employment by
Sellers of any person including employees of any related entity for
which either Seller provides or has provided prior to Closing any or
all compensation, benefits and/or labor supervision (whether or not
there is a written employment agreement) may be terminated for any
reason whatsoever not inconsistent with current law, without penalty or
liability of any kind.
(c) Except as set forth on SCHEDULE 3.16, there are no
administrative or judicial proceedings against either Seller active,
pending or, to the best of Sellers' and Shareholder's knowledge,
threatened under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Fair Labor Standards Act, the
Occupational Safety and Health Act, the National Labor Relations Act or
any other foreign, federal, state or local law (including common law),
ordinance or regulation relating to employees of either Seller
including employees of any related entity for which either Seller
provides or has provided prior to Closing any or all compensation,
benefits, and/or labor supervision.
(d) The relation of Sellers with its respective employees
including employees of any related entity for which either Seller
provides or has provided prior to Closing any or all compensation,
benefits, and/or labor supervision is good and there are no pending or,
to the best of Sellers' and Shareholder's knowledge, threatened labor
difficulties.
3.17 NO DEFAULTS. Except as set forth on SCHEDULE 3.17 no Seller is in
default (nor is any such default alleged to exist) under the terms of any
written or oral contract, agreement, lease, license, mortgage, deed of trust,
note, guaranty, instrument or understanding (collectively, "Contracts") to which
it is a party or to which any of its assets, business or operations is subject,
nor has any condition or event occurred, nor, to Sellers' knowledge is any
condition or event threatened, which, after notice or the passage of time, or
both, would constitute a default under any Contract. To Sellers' knowledge, no
such default, condition or event exists or is alleged to exist with respect to
the performance of any obligation of any other party to any of the Contracts.
3.18 NON-TRADE ACCOUNTS RECEIVABLE. SCHEDULE 3.18 is a true and correct
list of all of each Seller's accounts receivable (other than trade accounts
receivable).
3.19 MATERIAL CONTRACTS. SCHEDULE 3.19 is a true and correct list of
each Contract to which each Seller is a party or by which any of its assets,
businesses or operations is bound or affected. SCHEDULE 3.19 includes a
description of any consents or approvals required of third parties under the
terms of such Contracts for the consummation of the transactions contemplated by
this Agreement. SCHEDULE 3.19 excludes any Contract that (i) may be cancelled by
Sellers on thirty (30) days' notice or less without incurring a liability or
obligation on the part of Sellers for such cancellation and which is not
material to its business, condition (financial or otherwise), assets,
liabilities, results of operations or prospects, or (ii) involves or is
reasonably expected to involve the payment of consideration having an aggregate
value of less than Ten Thousand Dollars ($10,000) and that is not material to
the Business. A true, correct and complete copy of each
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written, and a description of each oral, Contract, so listed has been delivered
to Purchaser or its counsel.
3.20 PURCHASE ORDERS. SCHEDULE 3.20 is a true and complete list of all
purchase orders under which each Seller is or will become obligated to pay any
particular vendor an aggregate sum in excess of Five Thousand Dollars ($5,000).
3.21 INDEBTEDNESS. SCHEDULE 3.21 is a true and complete list of all
indebtedness, including, without limitation, trade accounts payable in excess of
Ten Thousand Dollars ($10,000) owed or to be owed by each Seller, including a
description of the terms of payment, and, if such indebtedness is secured, a
description of all properties or other assets pledged, mortgaged or otherwise
hypothecated (voluntarily or involuntarily) as security.
3.22 LITIGATION. SCHEDULE 3.22 is a true and complete list of all
administrative or judicial proceedings to which any Seller or Shareholder is a
party or, to the best of Sellers' and Shareholder's knowledge, to which it or he
is threatened to be made a party which relate, directly or indirectly, to any of
the Subject Assets, including, without limitation, proceedings that could affect
title to or interests in the Subject Assets. There is no action, suit, claim,
demand, arbitration or other proceeding or investigation, administrative or
judicial, pending or, to the best of Sellers' and Shareholder's knowledge,
threatened against or affecting any Seller or any of its assets, including,
without limitation, any relating to so-called product liability, which, if
adversely determined or resolved, would have an adverse effect on the Business,
Subject Assets, condition (financial or otherwise), results of operations or
prospects of any Seller, or any provisions of, or the validity of, or rights
under, any leases or other operating agreements, licenses, permits or grants of
authority of Sellers. Neither Sellers nor Shareholder have received notice that
it or he is the subject of any governmental investigation and neither Sellers
nor Shareholder is subject to, nor is he or it in default with respect to, any
order, writ, injunction or decree of any court, or of any federal, state, local
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. SCHEDULE 3.22 indicates which of the
matters listed are covered by valid insurance and the extent of such coverage.
3.23 INSURANCE. SCHEDULE 3.23 is a true and correct list of all the
policies of insurance covering the business, properties and assets of Sellers
presently in force (including as to each (i) risk insured against, (ii) name of
carrier, (iii) policy number, (iv) amount of coverage, (v) amount of premium,
(vi) expiration date and (vii) the property, if any, insured, indicating as to
each whether it insures on an "occurrence" or a "claims made" basis. The
insurance described on SCHEDULE 3.23 does and will, on the Closing Date, insure
Sellers in the amounts and against such perils as are generally maintained for
comparable businesses. All of the insurance policies set forth on SCHEDULE 3.23
are in full force and effect and all premiums, retention amounts and other
related expenses due have been paid, and Sellers have not received any notice of
cancellations with respect to any of the policies. Sellers have not been refused
any insurance by any insurance carrier to which it has applied for insurance
during the last five (5) years. There are no circumstances existing which would
enable any insurer to avoid liability under any of Sellers' policies.
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3.24 TRANSACTIONS WITH OFFICERS, ETC.
(a) SCHEDULE 3.24(a) is a true and correct list of the
ownership of any Seller or Shareholder in any entity that has any
existing contractual relationship, oral or written, or other business
relationship with Sellers or Shareholder.
(b) SCHEDULE 3.24(b) is a true and correct list of all
Contracts (oral or written), including, but not limited to, any loans
or leases, to which any Seller is a party and to which any of the
officers, directors or other employees or shareholders of such Seller,
or members of their immediate families or other corporations,
partnerships or other entities in which any of them has a material
interest, is also a party. SCHEDULE 3.24(b) includes a list of
indebtedness of any such person or entity to any Seller.
(c) Except as set forth on SCHEDULE 3.24(c), none of Sellers
nor any officer, director, employee or shareholder of either Seller, or
members of their immediate families or other corporations, partnerships
or other entities in which any of them has a material interest, has any
direct or indirect interest in any competitor, supplier or customer of
either Seller or in any person, firm or entity from whom or to whom
Sellers lease any property, or in any other person, firm or entity with
whom Sellers transact business of any nature.
3.25 EMPLOYEES/INDEPENDENT SALES REPRESENTATIVES.
(a) SCHEDULE 3.25(a) is a true and correct list of all
employees of each Seller and of any related entity for which either
Seller provides or has provided prior to Closing any or all
compensation, benefits and/or labor supervision (as used in this
Agreement, the term "employees" includes employees, salespersons,
consultants, agents, and all other persons associated with the
Sellers), their accrued vacation and sick pay, the nature of their
duties and the date and amount of their last increase in compensation.
A true, correct and complete copy of each written employment contract
and a description of each oral employment agreement with any employee
has been delivered to Purchaser or its counsel.
(b) SCHEDULE 3.25(b) is a true and correct list of all
independent or outside sales representatives of each Seller and of any
related entity for which either Seller provides or has provided prior
to Closing any or all compensation, benefits and/or labor supervision
("Independent Sales Representatives"), the length of time they have
been acting in such capacity and the amount of sales attributable to
each Independent Sales Representative for each of the last three years
(or such shorter period of time if acting in such capacity for less
than three years). A true, correct and complete copy of each written
agreement and a description of each oral agreement with respect to each
Independent Sales Representative has been delivered to Purchaser or its
counsel.
3.26 PATENTS, TRADEMARKS, COPYRIGHTS AND SIMILAR MATTERS.
(a) Sellers or Shareholder have never been charged with
infringement or violation of any patent, trademark, service mark, trade
name or copyright. Neither Seller
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nor Shareholder is using or has in any way made use of any patentable
or unpatentable invention, or any confidential information or trade
secret, of any former employer of any present or past employee of
either Seller. All patents, trademarks, service marks, trade names and
copyrights (the "Specified Items"), and all applications or
registrations (including those whose use is limited to one or more
states of the United States), owned or used by either Seller or by
Shareholder (in connection with the Business or Subject Assets) are
listed on SCHEDULE 3.26 and, to the extent indicated, have been duly
registered in, filed in or issued by the United States Patent Office or
the corresponding agency or office of each of such states. Except as
indicated on SCHEDULE 3.26, which Schedule shall include, without
limitation, the Exclusive License (as defined below) Shareholder and
Sellers are the sole and exclusive owner of, or have the sole and
exclusive rights to use, the Specified Items except for the rights of
licensees (whose names are listed on SCHEDULE 3.26) or as specified on
such Schedule. Except as set forth on SCHEDULE 3.26, none of Sellers or
Shareholder use any of the Specified Items by consent of any other
party and the same are free and clear of any attachments, liens,
claims, encumbrances or agreements. Except as listed on SCHEDULE 3.26,
there are no claims or demands of any other person, firm or corporation
pertaining to any of the Specified Items, and no proceedings have been
instituted, are pending or, to the knowledge of Sellers or Shareholder,
are threatened which challenge the right of Sellers or Shareholder in
respect of any of the Specified Items. None of the Specified Items
infringes on, or, to the knowledge of Sellers or Shareholder, is being
infringed on by others, and none of the Specified Items is subject to
any outstanding order, decree, judgment, stipulation or agreement
restricting the scope of its use.
(b) Aero-Mod and Resi-Tech are the sole and exclusive owners,
and have the full right, power and authority to transfer to Purchaser
the exclusive use of, the name "Aero-Mod Incorporated" and "Resi-Tech,
Inc." respectively. Sellers do not use the name by consent of any other
person or entity, and each Seller owns its respective name free and
clear of any attachments, liens, claims, encumbrances or agreements.
There are no claims or demands of any other person or entity pertaining
to the use of the name and no proceedings have been instituted or, to
the knowledge of the Sellers or Shareholder, are threatened, which
challenge the right of any Sellers in respect of its name; and the use
by each Seller of its name does not infringe on or, to the knowledge of
Sellers, is not being infringed on by others, and is not subject to any
outstanding order, decree, judgment, stipulation or agreement
restricting the scope of its use.
(c) True, correct and complete copies of all patents,
trademarks, service marks, trade names and copyrights, and of all
related applications or registrations, that are listed on SCHEDULE 3.26
have been delivered to Purchaser or its counsel.
3.27 EMPLOYEE BENEFIT PLANS AND OTHER PLANS.
(a) For purposes of this Section 3.27, the following
definitions apply:
(i) "Benefit Plan" means each deferred compensation,
equity compensation, pension, profit-sharing, retirement and
welfare plan, each plan,
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arrangement or policy for the provision of bonuses and/or
severance benefits, each "employee benefit plan" (as defined
in ERISA Section 3(3)) and each fringe benefit plan that a
Controlled Group Member maintains, contributes to, has
liability with respect to, or has an obligation to contribute
to;
(ii) "Controlled Group Member" means Sellers and each
other person or entity required to be aggregated with Sellers
under Code Section 414(b), (c), (m) or (o); and
(iii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(b) No Controlled Group Member has directly or indirectly
acted in any manner or incurred any obligation or liability, and will
not directly or indirectly act in any manner in the future or incur any
obligation or liability in the future with respect to any Benefit Plan
which has or could give rise to any liens on any of the Subject Assets,
or which could result in any liability or obligation to Purchaser,
whether arising out of the establishment, operation, administration or
termination of such Benefit Plans or the transactions contemplated by
this Agreement.
(c) No Controlled Group Member directly or indirectly
maintains, sponsors, contributes to, has an obligation to contribute to
or has liability with respect to, and has not directly or indirectly
maintained, sponsored, contributed to or had an obligation to
contribute to at any time within the ten (10) year period ending on the
Closing Date, any Benefit Plan which is subject to Title IV of ERISA
(including, without limitation, any multi employer plan subject to the
requirements of Subtitle E of such Title).
(d) SCHEDULE 3.27 is a true and correct list of all Benefit
Plans that each Seller, directly or indirectly, sponsors, maintains or
contributes to or has, directly or indirectly, sponsored, maintained,
or had an obligation to contribute to at any time within the five (5)
year period ending on the Closing Date.
(e) Each Controlled Group Member has timely provided or will
timely provide all notices and any continuation of health benefit
coverage (including, without limitation, medical and dental coverage)
required to be provided to employees, former employees or the
beneficiaries or dependents of such employees or former employees,
under Part 6 of Subtitle B of Title I of ERISA or Code Section 4980B to
the extent such notices and continuation of health benefit coverage are
required to be provided by reason of the events occurring prior to or
on the Closing Date or by reason of the transactions contemplated by
this Agreement.
3.28 ENVIRONMENTAL MATTERS.
(a) There have been no actual or threatened "releases" of
"hazardous substances" "hazardous or infections wastes," "hazardous
materials," "toxic substances,"
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pollutants, contaminants, asbestos or petroleum or petroleum-based
products ("Hazardous Substances") into the "environment" at any real
property "owned" or "operated," in whole or in part, by any Seller or
Shareholder as those terms are used in any federal, state or local law,
regulation, permit, agreement, rule or order relating to the
environment or health and safety matters, including, but not limited
to, the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601, ET SEQ. ("CERCLA") Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.)
("RCRA"), the Clean Water Act (33 U.S.C. Section 1251 ET SEQ.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.),
the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the Emergency
Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 ET
SEQ.) and the Occupational Safety and Health Act (29 U.S.C. Section 651
ET SEQ.), all as amended (collectively, "Environmental Laws");
(b) There has been no "disposal" of "solid waste" as those
terms are used in RCRA at any real property owned or operated by any
Seller or Shareholder;
(c) No real property owned or operated by any Seller or
Shareholder poses an "imminent and substantial endangerment to health
or the environment" within the meaning of Sections 7002 and 7003 of
RCRA or to the public health and safety within the meaning of common
law and statutory provisions relating to nuisances;
(d) Neither Seller or Shareholder has arranged with another
for disposal or treatment, or arranged with a transporter for transport
for disposal or treatment of Hazardous Substances generated by it at a
site in violation of Environmental Laws where there has been an actual
or threatened release of Hazardous Substances into the environment;
(e) Neither Seller or Shareholder is presently in violation
of, and have not previously violated, any Environmental Laws;
(f) Each of Seller and Shareholder has obtained all permits,
registrations, plan approval and other governmental authorizations
("Governmental Authorizations") necessary under Environmental Laws to
transact its business at all locations and in the manner such business
is presently conducted and all such Governmental Authorizations are
unexpired and in good standing, and each Seller or Shareholder is in
compliance with all of the terms and conditions of such Governmental
Authorizations;
(g) Neither Seller or Shareholder has received an order,
complaint, claim, notice of violation, citizen suit demand or other
communications ("Violation"), oral or written, asserting that he or it
is in violation or has violated any provisions of Environmental Laws,
and neither Sellers nor Shareholder knows of any pending or threatened
investigation for any such alleged Violation; and
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(h) Sellers or Shareholder do not and have not permitted any
third party to use, manufacture, generate, treat, dispose of, transport
or otherwise manage or handle Hazardous Substances on or off-site of
any of the real property.
3.29 BANK ACCOUNTS. SCHEDULE 3.29 is a true and correct list of the
name of each bank, savings and loan, or other financial institution in which any
Seller has an account or safe deposit box, the names of all persons authorized
to draw on each account or to have access to each box, the number of signatures
required to be given for a withdrawal, a description of the type of account and
the balance of each account as of the most recent statement.
3.30 COMPLIANCE WITH LAWS. To the best of Sellers' knowledge, Sellers
have complied in all material respects with all laws, regulations, rules and
orders of any governmental department or agency or any other commission, board,
agency or instrumentality, federal, state or local, or other requirements of law
affecting the Business and operations and is not in default under or in
violation of any provision of any federal, state or local law, regulation, rule
or order.
3.31 POWERS OF ATTORNEY. Neither Seller has given any power of attorney
(irrevocable or otherwise) to any person or entity for any purpose.
3.32 LICENSES AND RIGHTS. Each Seller and Shareholder possesses all
franchises, licenses, easements, permits and other authorizations from
governmental or regulatory authorities and from all other persons or entities
that are necessary to permit it to engage in the Business as presently conducted
in and at all locations and places where it is presently operating, except where
the failure to possess such would not have a material adverse effect on the
Business, Subject Assets or financial condition of Sellers. Such franchises,
licenses, permits and other authorizations are listed on SCHEDULE 3.32.
3.33 SCHEDULE OF GOVERNMENT REPORTS. SCHEDULE 3.33 is a true and
correct list, and Sellers have furnished to Purchaser or its counsel complete
copies of all reports, if any, filed since December 31, 1992, by either Seller
with the Department of Labor, Equal Employment Opportunity Commission, Federal
Trade Commission, Department of Justice, Occupational Safety and Health
Administration, Internal Revenue Service (other than tax returns and standard
forms relating to compensation or remuneration of employees), Environmental
Protection Agency, Securities and Exchange Commission or Pension Benefit
Guarantee Corporation, or any similar state agency.
3.34 PRODUCTS.
(a) The products sold by Sellers conform to and meet or exceed
the standards required by all applicable laws, ordinances and
regulations now in effect and, to Sellers' knowledge, there is no
pending legislation, ordinance or regulation which if adopted or
enacted would have a material adverse effect on such products or
Sellers' business.
(b) SCHEDULE 3.34 contains a written statement accurately
describing Sellers' warranties and customer service policies and any
recurring warranty problems. Sellers do
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not have any outstanding contracts or proposals that depart from the
warranty and customer service policy and practice described in such
Schedule. To the extent transferrable, Sellers will convey to Purchaser
all its rights in manufacturers' warranties for products sold by
Sellers (which will be deemed a part of the Subject Assets). Except as
may be listed on SCHEDULE 3.34, no claims of customers or others based
on an alleged or admitted defect of material, workmanship or design or
otherwise in or in respect of any of Sellers' products are presently
pending or, to the best of Sellers' and the Shareholder's knowledge,
threatened.
3.35 CASUALTY OCCURRENCES. SCHEDULE 3.35 is a true and correct list of
occurrences during the last five (5) years of damages to persons or property
involving any defects or alleged defects in any of Sellers' products or their
design. All such occurrences are fully and adequately covered by paid-for
insurance.
3.36 INVENTORY. The inventory of each Seller consists only of items of
a quality and quantity usable and saleable in the ordinary course of business,
consistent with past practice, within such Seller's normal inventory "turn"
experience and does not include any item of inventory which has previously been
written off by such Seller. Items of below-standard quality and items not
previously readily saleable in the ordinary course of business have been written
down in value in accordance with generally accepted accounting principles to
estimated net realizable market values. The value at which the inventory is
carried on Sellers' books reflects the lower of cost (on a FIFO basis) or
estimated net realizable market value, and is based on quantities determined by
physical count.
3.37 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Sellers or Shareholder in this Agreement or in any document,
statement, certificate, Schedule, chart, list, letter, compilation or other
document furnished or to be furnished to Purchaser or its counsel pursuant to
this Agreement, or in connection with the transactions contemplated under this
Agreement (collectively, the "Documents"), contain or will contain any untrue
statement of a material fact, or omit or will omit to state a material fact
necessary to make the statements of fact contained therein not misleading.
References in any Document, or in any Contract, a copy of which has been
provided to Purchaser or its counsel, to any other Document or Contract that
prior to the date of this Agreement has not been provided to Purchaser or its
counsel will not be deemed for any purposes of this Agreement to be a disclosure
of any term, provision or statement of fact of, or relating to, such other
Document or Contract.
3.38 INVESTMENT REPRESENTATIONS.
(a) Shareholder (i) is acquiring the Convertible Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange therefor) for the purpose of investment and not with a view
towards the resale or distribution thereof within the meaning of the
Securities Act of 1933 (the "1933 Act"), (ii) will not sell, transfer
or otherwise dispose of the Convertible Subordinated Promissory Note
(or any securities acquired upon conversion or exchange therefor)
except in compliance with the 1933 Act, and (iii) is aware that the
Convertible Subordinated Promissory Note (and any securities acquired
upon
20
<PAGE> 29
conversion or exchange therefor) are "restricted securities" as that
term is defined in Rule 144 of the General Rules and Regulations under
the 1933 Act;
(b) Shareholder understands that the Convertible Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange therefor) has not been registered under the 1933 Act and must
be held indefinitely unless they are subsequently registered under the
1933 Act or an exemption from such registration is available.
(c) Shareholder acknowledges that he has had an opportunity to
ask questions of and receive answers from duly designated
representatives of Purchaser and Waterlink concerning the terms and
conditions pursuant to which the Convertible Subordinated Promissory
Note (and any securities acquired upon conversion or exchange therefor)
will be acquired. Shareholder further acknowledges that he has been
afforded an opportunity to examine such documents and other information
which he has requested for the purpose of evaluating the investment in
the Convertible Subordinated Promissory Note (and any securities
acquired upon conversion or exchange therefor).
(d) By reason of his knowledge and experience in financial and
business matters in general, and investments in particular, Shareholder
is capable of evaluating the merits and risks of its acquisition of the
Convertible Subordinated Promissory Note (and any securities acquired
upon conversion or exchange therefor).
(e) Shareholder acknowledges that the Convertible Subordinated
Promissory Note (and any securities acquired upon conversion or
exchange therefor) and any and all securities issued in replacement or
exchange therefor will bear the following legend:
This [name of security] has not been registered under the
Securities Act of 1933 (the "Act") and is a restricted
security as that term is defined in Rule 144 under the Act.
The [name of security] may not be offered for sale, sold or
otherwise transferred except pursuant to an effective
registration statement under the Act or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of [name of
issuer].
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND WATERLINK
---------------------------------------------------------
Purchaser and Waterlink, jointly and severally, warrant and represent
to, and agree with, Sellers and the Shareholder as follows:
4.1 ORGANIZATION AND GOOD STANDING OF PURCHASER AND WATERLINK. Each of
Purchaser and Waterlink is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Purchaser and
Waterlink has full power and authority to carry
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<PAGE> 30
on its business as and where now conducted and to own or lease and operate its
properties at and where now owned or leased and operated by it, and is duly
qualified to do business and is in good standing in every jurisdiction in which
the property owned, leased or operated by it, or the nature of the business
conducted by it, makes such qualification necessary, except where the failure to
qualify would not have a material adverse effect on the business or financial
condition of Purchaser or Waterlink, as the case may be. Other than actions
taken in connection with its organization, Purchaser has conducted no business
since its organization.
4.2 AUTHORITY OF PURCHASER AND WATERLINK. The execution, delivery and
consummation of this Agreement by Purchaser and Waterlink has been or will be
duly authorized by their respective boards of directors of Purchaser in
accordance with all applicable laws and the Certificates of Incorporation and
By-laws of Purchaser and Waterlink, as the case may be, and at the Closing Date
no further corporate action will be necessary on the part of Purchaser or
Waterlink to make this Agreement valid and binding on Purchaser and Waterlink
and enforceable against Purchaser and Waterlink in accordance with its terms.
Except as has been or will be obtained from Purchaser's secured lender, no
approval or consent of any person, firm or other entity or governmental body is
or was required to be obtained by Purchaser or Waterlink for the authorization
of this Agreement or the consummation by Purchaser or Waterlink of the
transactions contemplated in this Agreement.
4.3 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, accurate and
complete copies of the Certificate of Incorporation and the By-laws of Purchaser
and Waterlink, together with all amendments thereto, have been delivered to
Seller or its counsel.
4.4 WATERLINK FINANCIAL STATEMENTS. Prior to the date of this
Agreement, Waterlink provided Sellers with the following financial statements of
Waterlink (the "Waterlink Financial Statements"), to wit: the audited balance
sheet and statement of income at and for the shortened fiscal year ended
September 30, 1995, the unaudited balance sheet and statement of income at and
for the six (6) month period ended March 31, 1995 and the unaudited balance
sheet and statement of income at and for the interim five (5) month period ended
February 29, 1996.
The Waterlink Financial Statements (i) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods, (ii) present fairly, in all material respects, Waterlink's
financial position, results of operations and cash flows at and for the periods
therein specified, (iii) are true and complete, (iv) are consistent with the
books and records of Waterlink, and (v) with respect to all of the unaudited
Waterlink Financial Statements, include all adjustments, consisting only of
normal recurring adjustments, required for a fair presentation. The Waterlink
Financial Statements will be deemed to include any accompanying notes and
schedules.
4.5 WATERLINK AUTHORIZED CAPITALIZATION. The authorized, issued and
outstanding and reserved capital stock of Waterlink is as set forth on the
attached SCHEDULE 4.5. The outstanding shares of capital stock of Waterlink are
duly and validly issued, fully paid and nonassessable. Except as listed on
SCHEDULE 4.5 and except for the common stock underlying the Convertible
Subordinated Promissory Note, there is no subscription right, option, warrant,
convertible security
22
<PAGE> 31
or other right (contingent or otherwise) presently outstanding, for the
purchase, acquisition or sale of any common stock or any securities convertible
into or exchangeable for common stock or other securities of Waterlink.
4.6 ABSENCE OF CERTAIN CHANGES. Since February 29, 1996, Waterlink has
actively conducted its business in the ordinary and regular course consistent
with past practice. Except as set forth on SCHEDULE 4.6, without limiting the
generality of the foregoing, since such date, there has been no material adverse
change in the condition (financial or otherwise), or business of Waterlink.
ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND WATERLINK
--------------------------------------------------------------
The obligations of Purchaser and Waterlink under this Agreement are, at
their option, subject to satisfaction of the following conditions at or prior to
the Closing Date:
5.1 REPRESENTATIONS TRUE. The representations and warranties of each of
Sellers and Shareholder contained in this Agreement are true, complete and
accurate in all material respects on and as of the Closing Date to the same
extent and with the same force and effect as if made on such date, except as
affected by the transactions contemplated under this Agreement.
5.2 ALL CONSENTS OBTAINED. All necessary approvals or consents required
to be obtained by Purchaser and Waterlink have been obtained from all local,
state and federal departments and agencies, from all other commissions, boards,
agencies and from any other person or entity whose approval or consent is
necessary to consummate the transactions contemplated under this Agreement
including, without limitation, such consents as may be listed or required to be
listed on SCHEDULE 3.2.
5.3 PERFORMANCE AND OBLIGATIONS. Sellers and Shareholder have duly
performed all obligations, covenants and agreements undertaken by Sellers or
Shareholder in this Agreement and have complied with all terms and conditions
applicable to them under this Agreement to be performed and complied with on or
before the Closing Date.
5.4 RECEIPT OF DOCUMENTS BY PURCHASER. Purchaser has received:
(a) a certificate executed by the President and Secretary of
each Seller certifying as to the fulfillment of the matters contained
in Sections 5.1, 5.2, 5.3 and 5.5.
(b) a true and correct copy of each Seller's Articles of
Incorporation, certified by the Secretary of State of Kansas as of a
date not more than five (5) days prior to the Closing Date, and a true
and correct copy of each Seller's By-Laws certified by the Secretary of
each Seller as of the Closing Date.
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<PAGE> 32
(c) a written opinion from counsel for Sellers and
Shareholder, dated as of the Closing Date, addressed to Purchaser,
satisfactory to Purchaser and its counsel in form and substance, to the
effect that:
(i) Each Seller is duly incorporated, validly existing
and is in good standing under the laws of its state of
incorporation, has full corporate power and authority to carry
on its business as and where now conducted, and to own or
lease and operate its properties at and where now owned or
leased and operated by it, and is qualified to do business as
a foreign corporation and is in good standing in every
jurisdiction in which the property owned, leased or operated
by it, or the nature of the business conducted by it, makes
such qualification necessary;
(ii) Each Seller has full right and lawful authority to
convey, transfer and assign the Acquired Assets to Purchaser
as provided in this Agreement, Shareholder has full right and
authority to convey, transfer and assign the Patents to
Purchaser as provided in this Agreement, and the instruments
of transfer delivered by Sellers or Shareholder, as the case
may be, to Purchaser at the Closing are sufficient to transfer
to Purchaser all right, title and interest of Sellers and
Shareholder in and to the Subject Assets;
(iii) Each Seller has all requisite corporate power to
execute, deliver and carry out its obligations under this
Agreement and the execution, delivery and performance of this
Agreement and the other agreements to be executed, delivered
and performed pursuant to this Agreement by each Seller have
been duly authorized by all requisite corporate action,
including, without limitation, the requisite authorization by
the shareholders of each Seller;
(iv) This Agreement and the other agreements to be
executed, delivered and performed pursuant to this Agreement
constitute the legal, valid and binding obligation of each
Seller that is a party thereto, and are enforceable against
each Seller that is a party thereto in accordance with their
respective terms with appropriate bankruptcy exceptions;
(v) This Agreement and the other agreements to be
executed, delivered and performed pursuant to this Agreement
to which Shareholder is a party constitute the legal, valid
and binding obligation of Shareholder, and are enforceable
against Shareholder in accordance with their respective terms
with appropriate bankruptcy exceptions;
(vi) Except as set forth in this Agreement or in any
Schedule, the execution and delivery of this Agreement and the
consummation of the transactions contemplated under this
Agreement by each Seller or Shareholder, as applicable (a) are
not in conflict with the Articles of Incorporation or By-Laws
of such Seller, (b) do not (with or without notice or the
passage of time or both) constitute a default under, and are
not in conflict with, any Contract listed on SCHEDULE 3.19 to
24
<PAGE> 33
this Agreement, (c) do not violate any order, judgment or
decree or any rule, regulation or law, or any other
restriction known to such counsel to which any Seller or
Shareholder is a party or to which any of its or his assets
are subject and (d) will not (with or without notice or the
passage of time or both) result in the creation of any lien or
any charge on or any loss of any assets of any Seller,
Shareholder or in the acceleration or termination of any loan,
security interest or other agreement known to such counsel to
which any Seller is a party or to which any of its or his
assets are subject;
(vi) Except with respect to those matters as may be
disclosed in any Schedule, such counsel has no knowledge of
any action, suit, claim, demand, arbitration or other
proceeding or investigation, administrative or judicial,
pending or threatened against or affecting any Seller,
Shareholder or any of its or his assets at law or in equity,
or before or by any federal, state, municipal or other
governmental department or by any other commission, board,
agency or instrumentality, domestic or foreign, that can
reasonably be expected to have any adverse effect on the
business, assets, condition (financial or otherwise), results
of operations or prospects of any Seller;
(vii) Such other material matters which Purchaser or
its counsel reasonably requests;
(d) certified copies of resolutions duly adopted by the
shareholders and board of directors of each Seller approving this
Agreement and the transactions contemplated under it.
5.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to restrain or prohibit or to obtain material damages or relief in
connection with this Agreement or the consummation of this Agreement, or which
is likely to materially and adversely affect the value of the business or assets
of Sellers or of the Patents.
5.6 EMPLOYMENT AGREEMENT. Shareholder has entered into an Employment
Agreement with Purchaser in the form of EXHIBIT F to this Agreement containing
the non-competition and confidentiality provisions set forth therein (the
"Employment Agreement").
5.7 DELIVERY OF BOOKS AND RECORDS. Each Seller has delivered or made
available to Purchaser all books and records of such Seller relating to or
reasonably required for the operation of the business of such Seller, including,
without limitation, copies of all Contracts, financial and accounting records,
files and records relating to employees, and all related correspondence.
5.8 INSTRUMENTS OF TRANSFER. Each Seller and Shareholder have executed
and delivered to Purchaser good and sufficient instruments of transfer
transferring to Purchaser title to all of the Subject Assets as required
pursuant to Section 1.4. The instruments of transfer must be in form and
substance reasonably satisfactory to Purchaser and its counsel, which form is
usual and
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<PAGE> 34
customary for transferring the type of property involved under the laws of the
jurisdictions applicable to such transfer. All of such instruments must contain
general warranties of title and good right to convey.
5.9 CONFIDENTIALITY AND NON-COMPETE AGREEMENTS. Shareholder and Sellers
have (i) assigned to Purchaser any and all rights of Sellers under any
confidentiality agreement covering confidential information concerning Sellers'
business or the Subject Assets and under any non-compete or similar agreement in
favor of any Seller restricting activities competitive with those of Sellers'
business, (ii) provided Purchaser with a list of such agreements and (iii)
delivered copies of such agreements of Purchaser.
5.10 ABSENCE OF CHANGES. There has been no material adverse change in
the business (financial or otherwise), assets, liabilities, results of
operations or prospects of Sellers since the date of this Agreement.
5.11 AMENDED AND RESTATED EXCLUSIVE LICENSE AGREEMENT. Shareholder has
entered into an Amended and Restated Exclusive License Agreement (the "Exclusive
License") with Teknofanghi [Inc.] in connection with the Draimad product line
which is, in form and substance, satisfactory to Purchaser.
5.12 LEASE FOR LEASED PROPERTY. Shareholder shall have entered into a
Lease for the Leased Property (the "Lease") substantially in the form of EXHIBIT
A to this Agreement.
5.13 ENVIRONMENTAL INVESTIGATION. Purchaser has completed an
environmental investigation of the Leased Property (at its own expense) to the
satisfaction of Purchaser.
5.14 TITLE COMMITMENT. Purchaser shall have received (at Sellers'
expense) and approved a so-called "title commitment" for the Leased Property
reflecting the status of the title thereto and all liens and other encumbrances
affecting the Leased Property.
5.15 NON-DISTURBANCE AGREEMENT. Purchaser shall have received the
Non-Disturbance Agreement.
5.16 BLUE WATER TRANSACTION. Blue Water Services, Inc ("Blue Water")
and Shareholder shall have entered into that certain Asset Purchase Agreement
among B-W Acquisition Corp., a Delaware corporation and wholly owned subsidiary
of Waterlink ("BW Acquisition Corp.") Waterlink, Blue Water and Shareholder (the
"Blue Water Purchase Agreement") and all agreements in connection therewith and
the transactions contemplated thereby shall have been consummated.
5.17 SBA LOANS. Shareholder shall cause to have released those certain
liens (the "Release") on the inventory, equipment, accounts receivables,
machinery, furniture and equipment securing obligations owed to the First
National Bank of Wamego. Shareholder shall provide evidence of the Release in
form and substance satisfactory to Purchaser and Waterlink.
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<PAGE> 35
5.18 TERMINATION OF SIMPLIFIED EMPLOYEE PENSION PLAN. Sellers and
Shareholder shall have discontinued and terminated the Aero-Mod simplified
employee pension plan effective immediately upon consummation of the
transactions contemplated hereby and shall provide evidence of such
discontinuance or termination in form and substance satisfactory to Purchaser
and Waterlink.
ARTICLE VI
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS AND SHAREHOLDER
--------------------------------------------------------------
The obligations of Sellers and Shareholder under this Agreement are, at
their option, subject to satisfaction of the following conditions at or prior to
the Closing Date:
6.1 REPRESENTATIONS TRUE. The representations and warranties of
Purchaser and Waterlink contained in this Agreement are true, complete and
accurate in all material respects on and as of the Closing Date to the same
extent and with the same force and effect as if made on such date, except as
affected by the transactions contemplated under this Agreement.
6.2 ALL CONSENTS OBTAINED. All necessary approvals or consents required
to be obtained by Sellers and Shareholder have been obtained from all local,
state and federal departments and agencies, from all other commissions, boards,
agencies and from any other person or entity whose approval or consent is
necessary to consummate the transactions contemplated by this Agreement.
6.3 PERFORMANCE OF OBLIGATIONS. Purchaser and Waterlink have duly
performed all obligations, covenants and agreements undertaken by Purchaser or
Waterlink in this Agreement and have complied with all the terms and conditions
applicable to them under this Agreement to be performed or complied with on or
before the Closing Date.
6.4 RECEIPT OF DOCUMENTS BY SELLERS AND SHAREHOLDER. Sellers and
Shareholder have received:
(a) the purchase price for the Subject Assets as provided in
Section 2.1(a);
(b) a certificate executed by the President or CFO of
Purchaser certifying as to the fulfillment of the matters contained in
Sections 6.1, 6.2 and 6.3 of this Article;
(c) a written opinion from counsel for Purchaser and
Waterlink, dated as of the Closing Date, addressed to Sellers and
Shareholder, satisfactory to Sellers and Shareholder and their counsel
in form and substance, to the effect that:
(i) Each of Purchaser and Waterlink is duly
incorporated, validly existing and is in good standing under
the laws of the State of Delaware. Each of Purchaser and
Waterlink has full corporate power and authority to carry on
its
27
<PAGE> 36
business as and where now conducted, and to own or lease and
operate its properties at and where now owned or leased and
operated by it;
(ii) Each of Purchaser and Waterlink has all
requisite corporate power to execute, deliver and carry out
its obligations under this Agreement and the execution,
delivery and performance of this Agreement by Purchaser and
Waterlink have been duly authorized by all requisite corporate
action;
(iii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated under
this Agreement by Purchaser and Waterlink are not in conflict
with the Certificate of Incorporation or By-laws of Purchaser
and Waterlink; and
(iv) This Agreement constitutes the legal, valid, and
binding obligation of Purchaser and Waterlink, and is
enforceable against Purchaser and Waterlink in accordance with
its terms;
(d) certified copies of resolutions duly adopted by the Board
of Directors of Purchaser and Waterlink approving this Agreement and
the transactions contemplated under it.
6.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to obtain material damages from Seller in connection with this Agreement
or the consummation of this Agreement.
6.6 EMPLOYMENT AGREEMENT. Purchaser has entered into the Employment
Agreement with Shareholder.
6.7 REGISTRATION RIGHTS AGREEMENT. Waterlink shall have entered into a
Registration Rights Agreement with Shareholder substantially in the form
attached hereto as EXHIBIT G.
6.8 ASSUMPTION OF LIABILITY. Purchaser shall have entered into an
Assumption Agreement, more particularly described in Section 1.4 of this
Agreement.
6.9 EXECUTIVE COMMITTEE. Shareholder shall have been appointed to serve
on the Executive Committee of Waterlink.
6.10 LEASE FOR LEASED PROPERTY. Purchaser shall have entered into the
Lease.
6.11 BLUE WATER TRANSACTION. B-W Acquisition Corp. and Waterlink shall
have entered into the Blue Water Purchase Agreement and all agreements in
connection therewith and the transactions contemplated thereby shall have been
consummated.
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<PAGE> 37
ARTICLE VII
-----------
CLOSING
-------
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Benesch, Friedlander, Coplan &
Aronoff P.L.L., 200 Public Square, 2300 BP America Building, Cleveland, Ohio
44114 on April 26, 1996, at 10:00 A.M. Cleveland, Ohio Time or such other date
mutually agreeable to the parties (the "Closing Date"). If the Closing has not
taken place by such date by reason of failure of fulfillment of any condition or
conditions contained in this Agreement, then the non-breaching party may, by
written notice to the other party, extend the Closing Date for a period of
thirty (30) days to permit fulfillment of such condition or conditions. Unless
the parties otherwise agree in writing, if the Closing has not occurred by May
31, 1996, then this Agreement will be deemed to have been terminated and
abandoned, subject to the legal rights and remedies of either party arising out
of the other party's breach of any of the provisions of this Agreement. The
parties will in good faith use all reasonable efforts to achieve the Closing.
ARTICLE VIII
------------
TERMINATION OF AGREEMENT
------------------------
This Agreement and the transactions contemplated under it may be
terminated and abandoned at any time prior to the Closing Date:
(a) by mutual consent in writing of Purchaser, Sellers and
Shareholder;
(b) by Purchaser if there has been a material
misrepresentation or breach of warranty in the representation and
warranties of Sellers and Shareholder made under this Agreement or by
Sellers and Shareholder if there has been a material misrepresentation
or breach of warranty in the representations and warranties of
Purchaser made under this Agreement;
(c) by Purchaser if all or a material portion of the Subject
Assets have been materially damaged or destroyed before the Closing;
(d) by Purchaser, if any of the conditions contained in
Article V, or by Sellers and Shareholder, if any of the conditions
contained in Article VI, respectively, have not been fulfilled in all
material respects.
Any termination pursuant to this Article VIII will not affect the obligations of
the parties under Article XII or Section 16.5, and will be without prejudice to
the terminating party's legal rights and remedies by reason of any breach of
this Agreement occurring prior to such termination. Notwithstanding anything in
this Agreement to the contrary, if, on the Closing Date, Purchaser (i) has
complied with all of the conditions to Closing contained in Article VI, (ii) has
notified
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<PAGE> 38
Sellers and Shareholder of its intention to consummate the transactions
contemplated under this Agreement, and (iii) is ready and able to pay Sellers
and Shareholder the purchase price and furnishes evidence to that effect to
Sellers and Shareholder, and if the Closing does not then occur due to the
refusal of Sellers and Shareholder to so consummate the transactions
contemplated under this Agreement, Purchaser will be entitled to specifically
enforce the terms of this Agreement in a court of competent jurisdiction, it
being acknowledged that monetary damages due Purchaser in such case cannot be
adequately determined at law.
ARTICLE IX
----------
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES; INDEMNIFICATION; DISPUTES
-----------------------------------------
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding the
Closing of the transactions contemplated under this Agreement, or any
investigation made by or on behalf of any party to this Agreement, the
representations and warranties of Sellers, Shareholder, Purchaser and Waterlink
contained in this Agreement or in any certificate, Schedule, chart, list,
letter, compilation or other document furnished or to be furnished pursuant to
this Agreement, will survive the Closing for a period of three (3) years, except
that the representations and warranties of Seller and Shareholder contained in
Sections 3.10, 3.27 and 3.28 will survive for so long as any applicable statute
of limitations has not expired, been suspended or been waived or extended, and
for thirty (30) days after. However, as to any breach of, or misstatement in,
any such representation or warranty as to which the non-breaching party as given
notice to the breaching party on or prior to the expiration of the applicable
period, as above set forth, the same will continue to survive beyond said
period, but only as to the matters contained in such notice.
9.2 SELLERS' AND SHAREHOLDER'S INDEMNIFICATION. Sellers and
Shareholder, jointly and severally, will indemnify and save harmless Purchaser
and Waterlink and their respective subsidiaries, shareholders, directors,
officers, employees and agents from any and all costs, expenses, losses, damages
and liabilities incurred or suffered, directly or indirectly, by any of them
(including, without limitation, reasonable legal fees and expenses)
(collectively, the "damages") resulting from or attributable to (a) the breach
of, or misstatement in, any one or more of the representations or warranties of
Sellers or Shareholder made in or pursuant to this Agreement, (b) any claims,
demands, suits, investigations, proceedings or actions by any third party
containing or relating to allegations that, if true, would constitute a breach
of, or misstatement in, any one or more of the representations or warranties of
Sellers or Shareholder made in or pursuant to this Agreement, (c) Sellers'
treatment, transport, recycling, storage or disposal, or any arrangement for any
of same, done or made prior to the Closing, of any Contaminant generated and
transported off-site from any facility owned or operated by any Seller or any of
its predecessors, (d) any and all obligations, debts or other liabilities of
Sellers not expressly assumed by Purchaser pursuant to this Agreement, or (e)
any and all obligations of Purchaser to withhold a portion of the purchase price
to satisfy the requirements of any applicable laws of any jurisdiction, federal,
state or local. Purchaser will be entitled to set off against any payments due
under the Promissory Notes the
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<PAGE> 39
amount of such costs, expenses, losses, damages and liabilities, and, to the
extent not in a liquidated amount, then in an amount reasonably and in good
faith estimated by Purchaser.
9.3 DEFENSE OF CLAIM. In case Purchaser or Waterlink has received
actual notice of any claim asserted or any action or administrative or other
proceeding commenced in respect of which claim, action or proceeding indemnity
properly may be sought against Sellers and/or Shareholder pursuant to this
Agreement, Purchaser will give notice in writing to Sellers and Shareholder.
Within ten (10) days after the earlier of (i) receipt of such notice or (ii)
receipt of actual notice by Sellers or Shareholder from sources other than
Purchaser, Sellers and Shareholder may give Purchaser written notice of their
election to conduct the defense of such claim, action or proceeding at its own
expense. If Sellers or Shareholder have given Purchaser such notice of election
to conduct the defense, Sellers and Shareholder may conduct the defense at its
expense, but Purchaser will nevertheless have the right to participate in the
defense, but such participation will be solely at the expense of Purchaser,
without a right of further reimbursement. If Sellers and Shareholder have not so
notified Purchaser in writing (within the time above provided) of their election
to conduct the defense of such claim, action or proceeding, Purchaser may (but
need not) conduct (at Sellers' and Shareholder's expense) the defense of such
claim, action or proceeding. Purchaser may at any time notify Sellers or
Shareholder of Purchaser's intention to settle, compromise or satisfy any such
claim, action or proceeding (the defense of which Sellers or Shareholder have
not previously elected to conduct) and may make such settlement, compromise or
satisfaction (at Sellers' and Shareholder's expense) unless Sellers and
Shareholder notify Purchaser in writing (within five (5) days after receipt of
such notice of intention to settle, compromise or satisfy) of their election to
assume (at its sole expense) the defense of any such claim, action or proceeding
and promptly take appropriate action to implement such defense. Any settlement,
compromise or satisfaction made by Purchaser, or any such final judgment or
decree entered in, any claim, action or proceeding defended only by Purchaser,
regardless of the amount or terms, will be deemed to have been consented to by,
and will be binding on, Sellers and Shareholder as fully as though they alone
had assumed the defense and a final judgment or decree had been entered in such
proceeding or action by a court of competent jurisdiction in the amount of such
settlement, compromise, satisfaction, judgment or decree. If Sellers and
Shareholder have elected under this Section 9.3 to conduct the defense of any
claim, action or proceeding, then Sellers and Shareholder will be obligated to
pay the amount of any adverse final judgment or decree rendered with respect to
such claim, action or proceeding. If Sellers and Shareholder elect to settle,
compromise or satisfy any claim, action or proceeding defended by them, the cost
of any such settlement, compromise or satisfaction will be borne entirely by
Sellers and Shareholder and may be made only with the consent of Purchaser,
which consent will not be unreasonably withheld. Purchaser, Sellers and
Shareholder will use all reasonable efforts to cooperate fully with respect to
the defense of any claim, action or proceeding covered by this Section 9.3.
9.4 PURCHASER'S AND WATERLINK'S INDEMNIFICATION. Purchaser and
Waterlink covenant and agree to indemnify and save harmless Sellers and
Shareholder from any and all costs, expenses, losses, damages and liabilities
incurred or suffered by Sellers or Shareholder (including reasonable legal fees
and costs) (collectively, the "damages") resulting from or attributable to the
breach of, or misstatement in, any one or more of the representations or
warranties of Purchaser or Waterlink
31
<PAGE> 40
made in or pursuant to this Agreement to the same extent as provided in Clauses
(a) and (b) of Section 9.2, and in the same manner as provided in Section 9.3,
of this Article IX.
9.5 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, no party will have any right to indemnification under Section
9.2(a) or (b) or Section 9.4 hereof unless and until the aggregate damages
indemnifiable by the indemnifying party exceed Twenty Thousand Dollars ($20,000)
and thereafter, will be entitled to the full extent of the damages and in no
event will the aggregate liability of Sellers and Shareholder, on the one hand,
or Purchaser and Waterlink, on the other hand, exceed Two Million Dollars
($2,000,000).
ARTICLE X
---------
CONDUCT PRIOR TO CLOSING DATE
-----------------------------
10.1 CONTINUATION OF BUSINESS. Until the Closing Date, each Seller will
continue to conduct its business in the ordinary and usual course consistent
with past practice, and, without limiting the generality of this undertaking,
Sellers will not do or suffer to be done any of the following, whether or not in
the ordinary and usual course, without the prior written consent of Purchaser:
(a) Dispose or contract to dispose of, or acquire or contract
to acquire, any Real Property or other assets, or any interest in any
Real Property or other capital assets;
(b) Borrow any money;
(c) Enter into any lease;
(d) Encumber any assets;
(e) Enter into any contract, commitment or arrangement of the
type required by Section 3.19 above to be listed on SCHEDULE 3.19;
(f) Declare or pay any dividend or declare or make any other
distribution to shareholders;
(g) Purchase or redeem any shares, notes or other securities;
(h) Increase the rate or amount of compensation or the amount
or type of other remuneration to any of its directors, officers,
employees, agents or other representatives, or agree to do so;
(i) Form or cause to be formed, or dispose or contract to
dispose of, any Subsidiary, or any interest in any Subsidiary;
32
<PAGE> 41
(j) Reclassify, split or combine its shares, or issue, sell,
distribute or dispose of any shares, notes or other securities, or
commit itself to do so;
(k) Make any new commitments or agree to make commitments for
capital improvements or significantly alter standing commitments for
capital improvements;
(l) Make any single expenditure or agree to make any single
expenditure, or series of expenditures in excess of Five Thousand
Dollars ($5,000) in the aggregate;
(m) Negotiate with anyone other than Purchaser for, or
participate with anyone other than Purchaser in, the acquisition of all
or any part of the Acquired Assets;
(n) Amend, or permit to be amended, in any way, its Articles
or By-Laws; or
(o) Make any material change in accounting methods.
(p) Award any bonus compensation or enter into other bonus
arrangements with any employees or shareholders.
10.2 PRESERVATION OF BUSINESS. Sellers will each (i) preserve intact
its present business organization and personnel, (ii) preserve its business,
actual and potential, and its advantageous relationships with all persons having
business dealings with it, and (iii) preserve and maintain in force all its
licenses, certificates, leases, contracts, permits, registrations, franchises,
confidential information, patents, trademarks, trade names, service marks and
copyrights, and applications for any of the same, and other similar rights.
Sellers will maintain in force all property, casualty, crime, life, directors,
officers and other forms of insurance and bonds which it presently carries.
10.3 CONSENTS AND APPROVALS. Sellers and Shareholder will use all
reasonable efforts to obtain all necessary consents and approvals of all
persons, firms, entities and governmental authorities to the consummation of the
transactions contemplated by this Agreement.
ARTICLE XI
----------
ASSIGNMENT, THIRD PARTIES, BINDING EFFECT
-----------------------------------------
The rights under this Agreement are not assignable nor are the duties
delegable by a party without the written consent of the other party first having
been obtained, and any attempted assignment or delegation without such consent
will be null and void; provided, however, that Purchaser and Waterlink may
assign their respective rights hereunder to their principal lenders, subject to
any defenses that Sellers and Shareholder may have hereunder against Purchaser
and Waterlink and provided further that each of Aero-Mod and Resi-Tech may
assign their interest in the Subordinated Promissory Note and the Second
Subordinated Promissory Note, as the case may be, as provided therein. Nothing
contained in this Agreement is intended to convey upon any person or entity,
other than the parties and their successors in interest and permitted assigns,
any
33
<PAGE> 42
rights or remedies under or by reason of this Agreement unless expressly stated.
All covenants, agreements, representations and warranties of the parties
contained in this Agreement are binding on and will inure to the benefit of
Purchaser, Waterlink, Sellers and Shareholder, respectively, and their
respective successors and permitted assigns.
ARTICLE XII
-----------
EXPENSES
--------
Purchaser and Waterlink will bear their own expenses, and Shareholder
will bear his and Sellers' expenses, including, without limitation, counsel and
accountants' fees, in connection with the preparation and negotiation of, and
transactions contemplated under, this Agreement.
ARTICLE XIII
------------
NOTICES
-------
All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
TO PURCHASER OR WATERLINK : Waterlink, Inc.
-------------------------- 115 Dewalt Ave., N.W.
Canton, Ohio 44702
Facsimile No.: 330-455-8134
Attention: Theodore F. Savastano,
Chairman
With a copy to: Benesch, Friedlander,
Coplan & Aronoff LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Facsimile No.: 216-363-4588
Attention: Ira C. Kaplan
34
<PAGE> 43
To Sellers or the Shareholder: Aero-Mod Incorporated/Resi-Tech Inc.
7927 U.S. Highway 24
Manhattan, Kansas 66052
Facsimile No.: 913-537-0813
Attention: Lawrence A. Schmid,
President
With a copy to: Arthur, Green, Arthur, Conderman,
Stutzman & Roberson
Commerce Bank Tower
Manhattan, Kansas 66502
Facsimile No.: 913-573-7874
Attention: David Stutzman
ARTICLE XIV
-----------
REMEDIES NOT EXCLUSIVE
----------------------
No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy, and each and every remedy will
be cumulative and will be in addition to every remedy given under this Agreement
or now or subsequently existing, at law or in equity, by statute or otherwise.
The election of any one or more remedies by Purchaser, Sellers or Shareholder
will not constitute a waiver of the right to pursue other available remedies.
ARTICLE XV
----------
NON-COMPETITION
---------------
15.1 NON-COMPETITION AGREEMENT.
(a) For a period of five (5) years from and after the Closing
Date, but as to clauses (iv) and (v) at any time after the Closing
Date, Sellers and Shareholder will not, directly or indirectly (and
Sellers will cause all Subsidiaries, now or subsequently existing,
other than Subsidiaries that constitute part of the Acquired Assets,
not to, directly or indirectly):
(i) engage in, carry on or have any interest in a
business substantially similar to the business as carried on
by Sellers on the Closing Date and being acquired by
Purchaser,
(ii) enter into, engage in, or be employed by or
consult with any business in, competition with Purchaser on
matters substantially similar to the business as carried on by
Sellers on the Closing Date and being acquired by Purchaser,
35
<PAGE> 44
(iii) employ, assist in employing or otherwise
associate in business with any present, former or future
employee of Purchaser or any of its Subsidiaries now or
subsequently existing until a period of at least two (2) years
has expired since such employee was employed by Purchaser or
any Subsidiary,
(iv) induce any person who is a present or future
employee, officer, agent, affiliate or customer of Purchaser
or any of its Subsidiaries now or subsequently existing to
terminate the relationship, and
(v) induce any customer or supplier of either Seller to
refuse to do business with Purchaser on as favorable terms as
previously done with either Seller.
The prohibitions in clauses (i) and (ii) will apply to any place or
location in the world in any state in the United States or any
countries outside the United States where Purchaser or Waterlink has
done business or is actively contemplating doing business. Sellers and
Shareholder acknowledge that the length of time and geographic
restriction pertaining to all prohibitions in this Subsection (a) both
are reasonable and necessary for the legitimate protection of
Purchaser's business and interests.
(b) Sellers and Shareholder expressly agree and understand
that the remedy at law for any breach by Sellers of this Article XV
will be inadequate and that the damages flowing from such breach are
not readily susceptible to being measured in monetary terms.
Accordingly, it is acknowledged that upon adequate proof of Sellers' or
Shareholder's violation of this Article XV, Purchaser will be entitled,
among other remedies, to immediate injunctive relief and may obtain a
temporary restraining order restraining any threatened or further
breach. Nothing in this subsection (b) will be deemed to limit
Purchaser's remedies at law or in equity for any breach by Sellers or
Shareholder of any of the provisions of this Agreement which may be
pursued or availed of by Purchaser.
(c) In the event any court of competent jurisdiction
determines that the specified time period or geographical area set
forth in this Section 15.1 is unreasonable, arbitrary or against public
policy, then a lesser time period or geographical area that is
determined by the court to be reasonable, non-arbitrary and not against
public policy may be enforced.
(d) In the event either Seller or Shareholder violates any
legally enforceable provision of this Section 15.1 as to which there is
a specific time period during which Sellers or Shareholder are
prohibited from taking certain actions or engaging in certain
activities, then, in such event the violation will toll the running of
the time period from the date of the violation until the violation
ceases.
(e) The prohibitions set forth in this Section 15.1 shall
automatically terminate upon expiration of the applicable grace period
(as set forth in the Notes) in the event of non-payment of or any
material non-performance by Purchaser under the Notes, or any one of
them.
36
<PAGE> 45
15.2 DISCLOSURE OF CONFIDENTIAL INFORMATION. Except as may be required
by law or necessary in connection with any dealings with any public agency or
authority, from and after the Closing Date, Sellers and Shareholder will not
(and Sellers will cause all Subsidiaries, now or subsequently existing, not to),
disclose, disseminate, divulge, discuss, copy or otherwise use or suffer to be
used, in competition with, or harmful to the interests of, Purchaser or
Waterlink, any information (written or oral), documents, lists or other data of
or respecting any aspect of the Acquired Assets or the business being acquired
by Purchaser from Sellers or Shareholder under this Agreement.
ARTICLE XVI
-----------
MISCELLANEOUS
-------------
16.1 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same document.
16.2 CAPTIONS AND SECTION HEADINGS. Captions and section headings are
for convenience only, are not a part of this Agreement and may not be used in
construing it.
16.3 POSSESSION OF ACQUIRED ASSETS. Possession of the Subject Assets
will be given to Purchaser on the Closing Date. Purchaser will not acquire any
title to the Subject Assets until possession has been given to it in accordance
with this Section 16.3, and, accordingly, all risk and loss with respect to the
Acquired Assets will be borne by Sellers and Shareholder until possession has
been given to Purchaser. For purposes of this Section 16.3, possession will be
deemed to have been given to Purchaser when Sellers or Shareholder, as the case
may be, deliver or cause to be delivered to Purchaser good and sufficient
instruments of transfer and conveyance as provided in this Agreement.
16.4 WAIVERS. Any failure by any of the parties to comply with any of
the obligations, agreements or conditions set forth in this Agreement may be
waived by the other party or parties, but any such waiver will not be deemed a
waiver of any other obligation, agreement or condition contained herein.
16.5 RIGHT OF INSPECTION. From and after the date of this Agreement to
the Closing Date, Sellers will give to Purchaser and its counsel, accountants
and other representatives, full access during normal business hours to its
offices, properties, agreements, records and affairs, and will furnish copies of
all Contracts and other instruments as Purchaser or its counsel may reasonably
request. Such investigation will not affect the warranties and representations
of Seller under this Agreement. All such information will be treated
confidentially and will be used only for the purposes intended. If the
transactions contemplated under this Agreement do not take place, all documents
and other property of Sellers will be returned and all disclosures and
information given to Purchaser as contemplated under this Agreement will be
treated as confidential and not
37
<PAGE> 46
disclosed to others unless disclosed publicly by Sellers or other third parties
without fault on the part of Purchaser, or unless otherwise required by law.
16.6 AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS. Each of the parties
agrees to cooperate in the effectuation of the transactions contemplated under
this Agreement and to execute any and all additional documents to take such
additional action as is reasonably necessary or appropriate for such purposes.
16.7 ENTIRE AGREEMENT. This Agreement, including any certificate,
schedule, exhibit or other document delivered pursuant to its terms, constitutes
the entire agreement between the parties. There are no verbal agreements,
representations, warranties, undertakings or agreements between the parties, and
this Agreement may not be amended or modified in any respect, except by a
written instrument signed by the parties to this Agreement.
16.8 GOVERNING LAWS. This Agreement is to governed by and construed in
accordance with the internal laws of the State of Ohio.
16.9 KNOWLEDGE. All references to "knowledge" or "best knowledge" of a
party means the actual knowledge of a party after reasonable investigation and
due diligence. Failure to so investigate or exercise due diligence may result in
the imputation of knowledge to a party if the circumstances, in the opinion of a
trier of the facts, so warrants. Actual knowledge of any officer, director or
supervisory employee of a party will be imputed to, and deemed to be actual
knowledge of, that party.
16.10 PRESS RELEASES. Prior to the Closing, no party will issue or
cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated under this Agreement
without the prior consent of the other party first obtained; provided, however,
that nothing in this Agreement will prohibit any party from issuing or causing
publication of any press release or public announcement to the extent that such
party determines, on advice on counsel, that such action is required by law, in
which case the party making such
38
<PAGE> 47
determination will, if practicable under the circumstances, use reasonable
efforts to allow the other parties reasonable time to comment on such release or
announcement in advance of its issuance.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
WATERLINK, INC
By: /s/ Nancy A. Hamerly
-----------------------------------
Its: Vice President & Chief Financial
Officer
A-M ACQUISITIONS CORP.
By: /s/ Nancy A. Hamerly
-----------------------------------
Its: Secretary
AERO-MOD INCORPORATED
By: /s/ Lawrence A. Schmid
-----------------------------------
Its: President
RESI-TECH, INC.
By: /s/ Lawrence A. Schmid
-----------------------------------
Its: President
/s/ Lawrence A. Schmid
--------------------------------------
LAWRENCE A. SCHMID
39
<PAGE> 1
Exhibit 10.17
ASSET PURCHASE AGREEMENT
among
B-W ACQUISITION CORP.
WATERLINK, INC.,
BLUE WATER SERVICES, INC.
and
LAWRENCE A. SCHMID
April 26, 1996
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I TRANSFER OF ASSETS AND ASSUMPTION OF
LIABILITIES............................................................................... 1
1.1 Transfer of Assets............................................................... 1
1.2 Assumption of Liabilities........................................................ 1
1.3 Method of Conveyance and Transfer................................................ 2
1.4 Further Assurances............................................................... 2
ARTICLE II PAYMENT OF PURCHASE PRICE................................................................. 2
2.1 Payment by Purchaser............................................................. 2
2.2 Allocation of Purchase Price..................................................... 2
2.3 Transfer Taxes................................................................... 2
ARTICLE III REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF SELLER
AND SHAREHOLDER........................................................................... 3
3.1 Organization and Standing........................................................ 3
3.2 Authority of Seller and Shareholder;
Consents......................................................................... 3
3.3 Business Relations............................................................... 4
3.4 Investments in Other Entities.................................................... 4
3.5 Title to and Condition of Subject Assets......................................... 4
3.6 Financial Statements............................................................. 4
3.7 Absence of Certain Changes....................................................... 5
3.8 Absence of Undisclosed Liabilities............................................... 6
3.9 Taxes............................................................................ 6
3.10 Indebtedness to Officers, Directors
and Shareholders................................................................. 7
3.11 Articles of Incorporation and By-Laws............................................ 7
3.12 Corporate Minutes................................................................ 7
3.13 Brokerage and Finder's Fees...................................................... 7
3.14 Accounts Receivable.............................................................. 7
3.15 Employment Matters............................................................... 8
3.16 No Defaults...................................................................... 8
3.17 Non-Trade Accounts Receivable.................................................... 8
3.18 Material Contracts............................................................... 8
3.19 Purchase Orders.................................................................. 9
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.20 Indebtedness..................................................................... 9
3.21 Litigation....................................................................... 9
3.22 Insurance........................................................................ 9
3.23 Transactions with Officers, Etc.................................................. 10
3.24 Employees/Independent Sales Representatives...................................... 10
3.25 Trademarks, Copyrights and Similar Matters....................................... 10
3.26 Employee Benefit Plans and Other Plans........................................... 11
3.27 Environmental Matters............................................................ 12
3.28 Bank Accounts.................................................................... 14
3.29 Compliance with Laws............................................................. 14
3.30 Powers of Attorney............................................................... 14
3.31 Licenses and Rights.............................................................. 14
3.32 Schedule of Government Reports................................................... 14
3.33 Products [sic]................................................................... 14
3.34 Casualty Occurrences............................................................. 15
3.35 Inventory........................................................................ 15
3.36 Material Misstatements or Omissions.............................................. 15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PURCHASER AND WATERLINK................................................................... 16
4.1 Organization and Good Standing of Purchaser
and Waterlink.................................................................... 16
4.2 Authority of Purchaser and Waterlink............................................. 16
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF
PURCHASER AND WATERLINK .................................................................. 16
5.1 Representations True............................................................. 16
5.2 All Consents Obtained............................................................ 17
5.3 Performance and Obligations...................................................... 17
5.4 Receipt of Documents by Purchaser................................................ 17
5.5 No Litigation.................................................................... 18
5.6 Delivery of Books and Records.................................................... 19
5.7 Instruments of Transfer.......................................................... 19
5.8 Confidentiality and Non-Compete Agreements....................................... 19
5.9 Absence of Changes............................................................... 19
5.10 Sublease for Property............................................................ 19
5.11 Aero-Mod/Resi-Tech Transaction................................................... 19
5.12 Non-Compete Agreement.............................................................19
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF
SELLER AND SHAREHOLDER.................................................................... 20
6.1 Representations True............................................................. 20
6.2 All Consents Obtained............................................................ 20
6.3 Performance of Obligations....................................................... 20
6.4 Receipt of Documents by Seller
and Shareholder.................................................................. 20
6.5 No Litigation.................................................................... 21
6.6 Assumption of Liability.......................................................... 21
6.7 Sublease for Property............................................................ 21
6.8 Aero-Mod/Resi-Tech Transaction................................................... 21
ARTICLE VII CLOSING................................................................................... 21
ARTICLE VIII TERMINATION OF AGREEMENT.................................................................. 22
ARTICLE IX SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION; DISPUTES................................................. 22
9.1 Survival of Representations and Warranties....................................... 22
9.2 Seller's and Shareholder's Indemnification....................................... 23
9.3 Defense of Claim................................................................. 23
9.4 Purchaser's and Waterlink's Indemnification...................................... 24
9.5 Limitations on Indemnification................................................... 24
ARTICLE X CONDUCT PRIOR TO CLOSING DATE............................................................. 25
10.1 Continuation of Business......................................................... 25
10.2 Preservation of Business......................................................... 26
10.3 Consents and Approvals........................................................... 26
ARTICLE XI ASSIGNMENT, THIRD PARTIES, BINDING EFFECT................................................. 26
ARTICLE XII EXPENSES.................................................................................. 27
ARTICLE XIII NOTICES................................................................................... 27
ARTICLE XIV REMEDIES NOT EXCLUSIVE.................................................................... 28
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE XV NON-COMPETITION........................................................................... 28
15.1 Non-Competition Agreement........................................................ 28
15.2 Disclosure of Confidential Information........................................... 30
ARTICLE XVI MISCELLANEOUS............................................................................. 30
16.1 Counterparts..................................................................... 30
16.2 Captions and Section Headings.................................................... 30
16.3 Possession of Acquired Assets.................................................... 30
16.4 Waivers.......................................................................... 30
16.5 Right of Inspection.............................................................. 30
16.6 Amendments, Supplements or Modifications......................................... 31
16.7 Entire Agreement................................................................. 31
16.8 Governing Laws................................................................... 31
16.9 Knowledge........................................................................ 31
16.10 Press Releases................................................................... 31
</TABLE>
(iv)
<PAGE> 6
LIST OF EXHIBITS
----------------
Page
----
Exhibit A Sublease.................................................. 19
Exhibit B Non-Compete Agreement..................................... 19
(v)
<PAGE> 7
LIST OF SCHEDULES
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1.2 Assumed Liabilities.............................................................................1
2.2 Allocation of Purchase Price....................................................................2
3.2 Consents ...................................................................................3, 17
3.7 Absence of Certain Changes .....................................................................5
3.8 Undisclosed Liabilities ........................................................................6
3.15 Employment Matters ............................................................................ 8
3.17 Accounts Receivable ............................................................................8
3.18 Contracts ............................................................................. 8, 18, 25
3.19 Purchase Orders ................................................................................9
3.20 Indebtedness ...................................................................................9
3.22 Insurance ..................................................................................9, 10
3.23(a) Transactions with Officers, Etc............................................................... 10
3.23(b) Transactions with Officers, Etc............................................................... 10
3.24(b) Transactions With Officers, Etc. ............................................................. 10
3.24(a) Independent or Outside Sales Representatives of Seller.........................................10
3.25 Trademarks, Service Marks, Trade Names
and Copyrights ................................................................................11
3.26 Employee Benefit and Other Plans ..............................................................12
3.27(h) Environmental Matters .........................................................................13
3.28 Bank Accounts .................................................................................14
3.31 Licenses and Rights ...........................................................................14
</TABLE>
(vi)
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.33 Products and Services......................................................................... 15
3.34 Casualty Occurrences.......................................................................... 15
</TABLE>
(vii)
<PAGE> 9
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT ("Agreement") is made this 26th day of April, 1996,
among B-W ACQUISITION CORP., a Delaware corporation ("Purchaser"), BLUE WATER
SERVICES, INC., a Kansas corporation ("Seller"), WATERLINK, INC., a Delaware
corporation ("Waterlink"), and LAWRENCE A. SCHMID, sole shareholder of Seller
("Shareholder").
R E C I T A L:
--------------
Purchaser desires to purchase, and Seller and Shareholder desire to
sell to Purchaser, all of the business, assets, and goodwill of Seller, except
as otherwise provided in this Agreement,
NOW, THEREFORE, Purchaser, Waterlink, Seller and Shareholder agree as
follows:
ARTICLE I
---------
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
1.1 TRANSFER OF ASSETS. On the terms and subject to the conditions in
this Agreement, except as set forth below, Seller will convey, transfer, assign
and deliver to Purchaser on the Closing Date (defined below) all of the
business, assets, and goodwill owned or used by Seller on the Closing Date in
the conduct of business of Seller (the "Business") of every kind and
description, wherever located, known or unknown, tangible or intangible,
including, without limitation, all property, real, personal or mixed, cash on
hand and in accounts, accounts receivable, securities, deposits on contractual
obligations or otherwise, claims and rights under contracts and leases,
licenses, customer lists, trade secrets, tax refund claims and all other pending
claims and other choses in action, exclusive rights to use the name Blue Water
Services, Inc. any derivative or combination thereof and all other names or
slogans used by Seller in connection with the Business or its products, all
contracts, all product catalogs and other advertising materials, all files,
books and records of Seller relating to the Business, and all computer programs,
all as the same exist on the Closing Date (collectively, the "Subject Assets").
1.2 ASSUMPTION OF LIABILITIES. Subject to the conditions in this
Agreement, on the Closing Date, Purchaser will deliver an undertaking in form
and substance reasonably satisfactory to Shareholder, Seller and its counsel
pursuant to which Purchaser will assume and agree to pay, perform and discharge
(i) all obligations and liabilities of Seller to the extent reflected or
reserved against in Seller's balance sheet as of December 31, 1995, included in
the Financial Statements (defined below), (ii) all obligations and liabilities
of Seller arising after the Closing Date under any contracts, agreements,
instruments and arrangements listed on SCHEDULE 1.2 to this Agreement and (iii)
all current liabilities of Seller arising after the date of such balance sheet
in the ordinary course of business and not in violation of this Agreement
PROVIDED, HOWEVER, that Purchaser will not assume any liability of Seller
incurred or arising in connection with (i) any tax obligations of Seller or
Shareholder of any nature whatsoever (including penalties, interest and
additions to tax); (ii) any
<PAGE> 10
product liability claims related to services rendered or products shipped or in
finished goods inventory as of the close of business on the Closing Date; (iii)
any liabilities related to any violation of any Environmental Laws (defined
below) arising prior to the close of business on the Closing Date; (iv) any
liabilities related to Seller's Benefit Plans (defined below); and any workers
compensation or related claims made or to be made by Paul Bowen. Any of the
foregoing notwithstanding, Purchaser will not assume any other obligations or
liabilities of Seller or Shareholder, including, without limitation, those
arising out of or in connection with the negotiation and preparation of this
Agreement or the consummation of the transactions provided for in this Agreement
which shall be borne personally by Shareholder. The liabilities to be assumed by
Purchaser hereunder are collectively referred to as the "Assumed Liabilities."
1.3 METHOD OF CONVEYANCE AND TRANSFER. The conveyance, transfer and
delivery of the Subject Assets will be effected by bills of sale, endorsements,
assignments and other instruments of transfer, all in such form as Purchaser
reasonably requests, vesting in Purchaser good and marketable title to the
Subject Assets, free and clear of all covenants, conditions, easements, liens,
charges, security interests, adverse claims, encumbrances, demands or other
title defects or restrictions of any kind.
1.4 FURTHER ASSURANCES. Seller and Shareholder, at any time and from
time to time after the Closing Date, upon request of Purchaser, will do,
execute, acknowledge and deliver, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required for the better conveying, transferring, assigning, and delivering to
Purchaser, or to its successors and assigns, and for aiding and assisting in
collecting and reducing to possession, all the Subject Assets.
ARTICLE II
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PAYMENT OF PURCHASE PRICE
-------------------------
2.1 PAYMENT BY PURCHASER. At the Closing, Purchaser will pay to Seller
by certified or bank check in immediately available funds or by wire transfer to
an account designated by Seller, One Hundred Thousand Dollars ($100,000) payable
to Seller in full payment for the Subject Assets.
2.2 ALLOCATION OF PURCHASE PRICE. The parties agree to allocate the
purchase price, including the Assumed Liabilities and all other capitalizable
costs, among the Subject Assets for all purposes (including Financial accounting
and tax purposes) in accordance with the individual fair market value of the
Subject Assets as set forth on SCHEDULE 2.2, which schedule shall be prepared by
Purchaser and agreed to by Seller prior to the Closing Date. Purchaser and
Seller shall file an IRS Form 8594 in accordance with SCHEDULE 2.2 as required
by Section 1060 of the Internal Revenue Code of 1986, as amended. Seller's tax
identification number is ___________ [sic] and Purchaser's tax identification
number is 34-1829166.
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2.3 TRANSFER TAXES. All applicable sales and transfer taxes of any
nature whatsoever, if any, arising by reason of the transfer of the Subject
Assets under this Agreement will be borne by Seller or Shareholder, as the case
may be.
ARTICLE III
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REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER
----------------------------------------------------
AND SHAREHOLDER
---------------
Seller and Shareholder, jointly and severally, represent and warrant
to, and agree with, Purchaser and Waterlink as follows:
3.1 ORGANIZATION AND STANDING.
(a) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the state of Kansas. Seller does
not own any voting stock or other capital stock of any other
corporation, directly or indirectly, nor is Seller directly or
indirectly a partner in any general partnership. Seller has full power
and authority to carry on its business as and where now conducted and
to own or lease and operate its properties at and where now owned or
leased and operated by it, and is duly qualified to do business and is
in good standing in every jurisdiction in which the property owned,
leased or operated by it, or the nature of the business conducted by
it, makes such qualification necessary.
(b) Seller is not qualified to do business as a foreign
corporation or partnership in any foreign jurisdiction and does not do
business or own or leases property in any foreign jurisdiction.
3.2 AUTHORITY OF SELLER AND SHAREHOLDER; CONSENTS. The execution,
delivery and consummation of this Agreement by Seller has been duly authorized
by the board of directors and the shareholder(s) of Seller in accordance with
all applicable laws and the Articles of Incorporation and By-Laws of Seller, and
at the Closing Date no further corporate action will be necessary on the part of
Seller or Shareholder to make this Agreement valid and binding on Seller and
Shareholder and enforceable against Seller and Shareholder in accordance with
its terms. The execution, delivery and consummation of this Agreement by Seller
and Shareholder (as applicable) (i) is not contrary to the Articles of
Incorporation or By-Laws of Seller, (ii) does not now and will not, with the
passage of time, the giving of notice or otherwise, result in a violation or
breach of, or constitute a default under, any term or provision of any
indenture, mortgage, deed of trust, lease, instrument, order, judgment, decree,
rule, regulation, law, contract, agreement or any other restriction to which
Seller or Shareholder is a party or to which Seller or Shareholder or any of its
or his assets are subject or bound, (iii) will not result in the creation of any
lien or other charge upon any assets of Seller, and (iv) will not result in any
acceleration or termination of any loan or security interest agreement to which
Seller is a party or to which Seller or any of its assets is subject or bound.
Except as may be listed on SCHEDULE 3.2, no approval or consent of any person,
firm or other entity or governmental body (including in connection with any
customer bids or proposals) is or was required to be obtained
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by Seller or Shareholder for the authorization of this Agreement or the
consummation by either Seller or Shareholder of the transactions contemplated in
this Agreement.
3.3 BUSINESS RELATIONS. Seller is not required, in the ordinary course
of business, to provide any bonding or any other financial security arrangements
in connection with any transactions with any customers or suppliers. Seller has
not received any notice of any disruption (including, without limitation,
delayed deliveries or allocations by suppliers) in the availability of any
materials or products used in its business and has no reason to believe that any
such disruption will occur. There are no sole source suppliers of goods,
equipment or services used by Seller (other than public utilities) with respect
to which practical alternative sources of supply are unavailable.
3.4 INVESTMENTS IN OTHER ENTITIES. Seller does not have any direct or
indirect equity interest, or debt convertible into any equity interest, in any
entity, corporation or otherwise, or any right, warrant or option to acquire any
such interest.
3.5 TITLE TO AND CONDITION OF SUBJECT ASSETS. Seller owns and possesses
and will own and possess as of the Closing Date all right, title and interest in
and to the Subject Assets, including, without limitation, good and merchantable
title to the Subject Assets, in each case free and clear of all conveyances,
conditions, easements, liens, charges, security interests, adverse claims,
encumbrances, encroachments, reservations, easements, limitations, servitudes,
other title defects or restrictions of any nature. Seller has and will have as
of the Closing Date the right, power and authority to convey, transfer, lease,
assign and deliver the Subject Assets free and clear of any title defect or
restriction, including, without limitation, those enumerated in this SECTION
3.5. All tangible Subject Assets are in Seller's possession or under its
control, and all equipment included in the Subject Assets is in good operating
condition and repair, subject only to routine maintenance and ordinary wear and
tear consistent with the age and use thereof, and is fit and adequate for the
purposes intended. Seller enjoys peaceful and quiet possession of the Subject
Assets pursuant to or by all of the deeds, bills of sale, leases, licenses and
other agreements under which it is operating its business. The Subject Assets
comprise all assets of any kind or character necessary for the operation of
Seller's business as it is presently conducted.
3.6 FINANCIAL STATEMENTS. Prior to the date of this Agreement, Seller
provided Purchaser with the following financial statements of Seller and will
provide to Purchaser monthly financial statements for the months after December
31, 1995 (the "New Monthly Financial Statements") as soon as practicable after
the end of each month, to wit: __________________ [sic] (the "Seller's Financial
Statements").
The Seller's Financial Statements each respectively (i) have been (and,
with respect to the New Monthly Statements, when delivered, will have been)
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods, (ii) present fairly (and, with respect to
the New Monthly Statements, when so delivered, will present fairly), in all
material respects, each Seller's financial position, results of its operations
and cash flows at and for
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the periods therein specified, (iii) are (and, with respect to the New Monthly
Statements, when so delivered, will be) true and complete, (iv) are (and, with
respect to the New Monthly Statements, when so delivered, will be) consistent
with the books and records of Seller, and (v) with respect to all of the
unaudited Seller's Financial Statements, include (and, with respect to the New
Monthly Statements, when so delivered, will include) all adjustments, consisting
only of normal recurring adjustments, required for a fair presentation. The
Seller's Financial Statements will be deemed to include any accompanying notes
and schedules.
3.7 ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, Seller has
actively conducted its business in the ordinary and regular course consistent
with past practice. Since such date, there has not been any material adverse
change in the business, condition (financial or otherwise), assets, liabilities,
results of operations or prospects of Seller. To Seller's knowledge, there has
not occurred any event or governmental regulation or order which could cause
such a change, nor to Seller's knowledge, is the occurrence of any such event,
regulation or order threatened. Except as set forth on SCHEDULE 3.7, without
limiting the generality of the foregoing, since December 31, 1995, there has not
been:
(a) Any increase made or promised in the compensation or other
remuneration payable or to become payable by Seller to any of its
employees, agents or partners;
(b) Any mortgage or pledge of, or any other lien, charge or
encumbrance of any kind, on any of the assets, tangible or intangible,
of Seller, except in the ordinary course of business;
(c) Any sale or transfer of any assets, except for sales of
inventory in the ordinary course of business, or settlement,
cancellation or release of any indebtedness owing to Seller or of any
other claims of Seller, except in the ordinary course of business;
(d) Any sale, license, assignment or transfer by Seller or
Shareholder of any patents, trademarks, trade names or other similar
intangible assets;
(e) Any amendments or termination of any material contract,
agreement or license to which Seller is a party or to which Seller or
any of its assets is subject or bound;
(f) Any commitment made (through negotiations or otherwise) or
any liability incurred to any labor organization by Seller;
(g) Any payment, declaration or setting aside by Seller of
dividends or a return of capital or any distribution by Seller of any
cash or other assets to any of its shareholders in redemption of or as
the purchase price for any of its capital stock or in discharge or
cancellation in whole or in part of any indebtedness owing (whether in
payment of principal, interest or otherwise) to any of its
shareholders;
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(h) Any discharge or satisfaction by Seller of any lien,
encumbrance, obligation or liability (accrued, absolute, fixed or
contingent), other than those shown on the December 31, 1995 balance
sheet of the Seller's Financial Statements that have been discharged or
satisfied in the ordinary course without acceleration and other than
those incurred and discharged in the ordinary course of business
consistent with past practice;
(i) Any transaction entered into by Seller other than in the
ordinary course of business consistent with past practice;
(j) Any institution by Seller of a bonus, stock option,
profit-sharing, pension plan or similar arrangement or any changes in
any such existing plans;
(k) Any incurrence (whether discharged or not) of any
obligation or liability (whether accrued, absolute, fixed or
contingent) other than current liabilities incurred, and obligations
entered into, in the ordinary course of business consistent with past
practice;
(l) Any adverse change in collection loss experience;
(m) Any material loss, damage or destruction to any of
Seller's properties (whether or not covered by insurance) or any labor
trouble; or
(n) Any change in accounting principles or practices from
those utilized in the preparation of the Seller's Financial Statements.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
December 31, 1996 balance sheet of the Seller's Financial Statements, or on
SCHEDULE 3.8, Seller is not obligated for, nor are any of its assets or
properties subject to, any liabilities or adverse claims or obligations,
absolute or contingent, except those incurred in the ordinary course of business
since December 31, 1995, and Seller is not in default with respect to any terms
or conditions of any material liability or obligation. There are no facts known
to Seller that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Seller's Financial Statements or in the Schedules.
3.9 TAXES.
(a) Seller has filed on a timely basis (or will file when due)
all income, franchise, sales, withholding and other tax returns and
reports of every nature required by law to be filed by it accurately
reflecting all taxes owing to (including any taxes required to be
withheld and paid over to) the United States or any other government or
any government subdivision, state or local, or any other taxing
authority, and has paid in full, or in the case of taxes not yet due
and payable, made adequate provision for the payment of, all taxes
(including penalties, interest and additions to tax) for which it has
or may have liability,
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including, without limitation, withholding taxes and taxes payable to
any jurisdiction by reason of the transfer of the Subject Assets
pursuant to this Agreement. Seller has no knowledge of any unassessed
tax deficiency proposed or threatened against Seller as a result of the
operation of its business or otherwise. There are no liens on the
Subject Assets as a result of any tax liabilities except for taxes not
yet due and payable. There are, and after the date of this Agreement
will be, no tax deficiencies (including penalties, interest and
additions to tax) of any kind assessed against or relating to Seller
with respect to any taxable periods ending on or before, or including,
the Closing Date of a character or nature that would result in liens or
claims on any of the Subject Assets or on Purchaser's title to or use
of the Subject Assets, or that would result in any claim against
Purchaser.
(b) There are no outstanding agreements or waivers extending
the statutory period of limitations applicable to any federal, state,
local, or foreign tax return of any nature whatsoever of Seller for any
period. The federal income tax returns of Seller have never been
audited by the Internal Revenue Service. No state, local or foreign
taxing authority has audited any tax return or report filed by Seller
for any taxable period. Seller has furnished to Purchaser complete and
correct copies of all federal, state and foreign tax returns filed by
Seller for each of its fiscal years beginning after January 1, 1990.
Seller has furnished to Purchaser complete and correct copies of all
audit reports received by Seller from the U.S. Treasury Department, or
from any state, local or foreign taxing authority, with respect to the
audit of any federal, state, local or foreign tax return for any
taxable period beginning after January 1, 1990.
3.10 INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS. Seller is
not indebted to any of its current or former shareholders, officers or directors
(or to members of their immediate families) in any amount whatever other than
for salaries payable or for expenses incurred on behalf of Seller in the
ordinary course of business.
3.11 ARTICLES OF INCORPORATION AND BY-LAWS. True, accurate and complete
copies of the Articles of Incorporation and By-laws of Seller, together with all
amendments thereto, have been delivered to Purchaser or its counsel.
3.12 CORPORATE MINUTES. Seller has furnished or made available to
Purchaser and its counsel the corporate record books of Seller and the same are
accurate and complete and reflect all resolutions adopted and all actions taken,
authorized or ratified by the shareholders and directors of Seller. Copies of
all corporate minutes of meetings held and of all written actions taken after
the date of this Agreement will be furnished to Purchaser promptly, and in all
events, prior to the Closing Date.
3.13 BROKERAGE AND FINDER'S FEES. No shareholder, officer, director or
agent of Seller has incurred any liability to any broker, finder or agent for
any brokerage fees, finder's fees, or commissions with respect to the
transactions contemplated by this Agreement.
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3.14 ACCOUNTS RECEIVABLE. Seller has previously delivered to Purchaser
an aging schedule as of a date not more than thirty (30) days prior to the date
of this Agreement, which is true, correct and complete, of the accounts
receivables of Seller as of that date. Seller will update the list as of a date
not more than five (5) days prior to the Closing Date. The reserves for doubtful
receivables and uncollectible accounts that will be reflected on the books of
Seller as of the Closing Date will not exceed ____ percent (__%) [sic] of the
then aggregate accounts receivable, and will be sufficient to provide for any
losses that may arise in connection with the collection of the accounts
receivable. The accounts receivable as reflected on the books of Seller as of
the Closing Date, net of such reserves, will be fully collectible in the
ordinary course of business within ninety (90) days after the Closing Date,
without resort to legal proceedings. All of such accounts receivable will
represent valid claims that have arisen in the ordinary course of business.
3.15 EMPLOYMENT MATTERS.
(a) Seller is not a party to, participant in, or bound by, any
collective bargaining agreement, union contract or employment, bonus,
deferred compensation, insurance, pension, profit sharing or similar
personnel arrangement, any stock purchase, stock option or other stock
plans or programs or any employee termination or severance arrangement.
(b) The employment by Seller of any person (whether or not
there is a written employment agreement) may be terminated for any
reason whatsoever not inconsistent with current law, without penalty or
liability of any kind.
(c) There are no administrative or judicial proceedings
against Seller active, pending or, to the best of Seller's and
Shareholder's knowledge, threatened under Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act, the Fair Labor
Standards Act, the Occupational Safety and Health Act, the National
Labor Relations Act or any other foreign, federal, state or local law
(including common law), ordinance or regulation relating to employees
of either Seller.
(d) Except as set forth on SCHEDULE 3.15 the relation of
Seller with its respective employees is good and there are no pending
or, to the best of Seller's and Shareholder's knowledge, threatened
labor difficulties.
3.16 NO DEFAULTS. Seller is not in default (nor is any such default
alleged to exist) under the terms of any written or oral contract, agreement,
lease, license, mortgage, deed of trust, note, guaranty, instrument or
understanding (collectively, "Contracts") to which it is a party or to which any
of its assets, business or operations is subject, nor has any condition or event
occurred, nor, to Seller's knowledge is any condition or event threatened,
which, after notice or the passage of time, or both, would constitute a default
under any Contract. To Seller's knowledge, no such default, condition or event
exists or is alleged to exist with respect to the performance of any obligation
of any other party to any of the Contracts.
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3.17 NON-TRADE ACCOUNTS RECEIVABLE. SCHEDULE 3.17 is a true and correct
list of all of Seller's accounts receivable (other than trade accounts
receivable).
3.18 MATERIAL CONTRACTS. SCHEDULE 3.18 is a true and correct list of
each Contract to which each Seller is a party or by which any of its assets,
businesses or operations is bound or affected. SCHEDULE 3.18 includes a
description of any consents or approvals required of third parties under the
terms of such Contracts for the consummation of the transactions contemplated by
this Agreement. SCHEDULE 3.18 excludes any Contract that may be cancelled by
Seller on thirty (30) days' notice or less without incurring a liability or
obligation on the part of Seller for such cancellation and which is not material
to its business, condition (financial or otherwise), assets, liabilities,
results of operations or prospects. A true, correct and complete copy of each
written, and a description of each oral, Contract, so listed has been delivered
to Purchaser or its counsel.
3.19 PURCHASE ORDERS. SCHEDULE 3.19 is a true and correct list of all
purchase orders under which each Seller is or will become obligated to pay any
particular vendor an aggregate sum in excess of One Thousand Dollars ($1,000).
3.20 INDEBTEDNESS. SCHEDULE 3.20 is a true and complete list of all
indebtedness, including, without limitation, trade accounts payable in excess of
One Thousand Dollars ($1,000) owed or to be owed by Seller, including a
description of the terms of payment, and, if such indebtedness is secured, a
description of all properties or other assets pledged, mortgaged or otherwise
hypothecated (voluntarily or involuntarily) as security.
3.21 LITIGATION. There are no administrative or judicial proceedings to
which Seller or Shareholder is a party or, to the best of Seller's and
Shareholder's knowledge, to which it or he is threatened to be made a party
which relate, directly or indirectly, to any of the Subject Assets, including,
without limitation, proceedings that could affect title to or interests in the
Subject Assets. There is no action, suit, claim, demand, arbitration or other
proceeding or investigation, administrative or judicial, pending or, to the best
of Seller's and Shareholder's knowledge, threatened against or affecting Seller
or any of its assets, including, without limitation, any relating to so-called
product liability, which, if adversely determined or resolved, would have an
adverse effect on the Business, Subject Assets, condition (financial or
otherwise), results of operations or prospects of any Seller, or any provisions
of, or the validity of, or rights under, any leases or other operating
agreements, licenses, permits or grants of authority of Seller. Neither Seller
nor Shareholder have received notice that it or he is the subject of any
governmental investigation and neither Seller nor Shareholder is subject to, nor
is he or it in default with respect to, any order, writ, injunction or decree of
any court, or of any federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
3.22 INSURANCE. SCHEDULE 3.22 is a true and correct list of all the
policies of insurance covering the business, properties and assets of Seller
presently in force (including as to each (i) risk insured against, (ii) name of
carrier, (iii) policy number, (iv) amount of coverage, (v) amount of premium,
(vi) expiration date and (vii) the property, if any, insured, indicating as to
each whether it insures on an "occurrence" or a "claims made" basis. The
insurance described on SCHEDULE 3.22
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does and will, on the Closing Date, insure Seller in the amounts and against
such perils as are generally maintained for comparable businesses. All of the
insurance policies set forth on SCHEDULE 3.22 are in full force and effect and
all premiums, retention amounts and other related expenses due have been paid,
and Seller has not received any notice of cancellations with respect to any of
the policies. Seller has not been refused any insurance by any insurance carrier
to which it has applied for insurance during the last five (5) years. There are
no circumstances existing which would enable any insurer to avoid liability
under any of Seller's policies.
3.23 TRANSACTIONS WITH OFFICERS, ETC.
(a) Except for certain relationships with Aero-Mod more fully
described on SCHEDULE 3.23(a) hereto, Seller or Shareholder does not
have any ownership interest in any entity that has any existing
contractual relationship, oral or written, or other business
relationship with Seller or Shareholder.
(b) SCHEDULE 3.23(b) is a true and correct list of all
Contracts (oral or written), including, but not limited to, any loans
or leases, to which Seller is a party and to which any of the officers,
directors or other employees or shareholders of Seller, or members of
their immediate families or other corporations, partnerships or other
entities in which any of them has a material interest, is also a party.
SCHEDULE 3.23(b) includes a list of indebtedness of any such person or
entity to Seller.
(c) Neither Seller nor any officer, director, employee or
shareholder of Seller, or members of their immediate families or other
corporations, partnerships or other entities in which any of them has a
material interest, has any direct or indirect interest in any
competitor, supplier or customer of Seller or in any person, firm or
entity from whom or to whom Seller leases any property (other than the
property subject to the Sublease (as defined in Section 5.10) or in any
other person, firm or entity with whom Seller transacts business of any
nature.
3.24 EMPLOYEES/INDEPENDENT SALES REPRESENTATIVES.
(a) SCHEDULE 3.24(a) is a true and correct list of all
employees of Seller (as used in this Agreement, the term "employees"
includes employees, salespersons, consultants, agents, and all other
persons associated with the Seller), their accrued vacation and sick
pay, the nature of their duties and the date and amount of their last
increase in compensation. A true, correct and complete copy of each
written employment contract and a description of each oral employment
agreement with any employee has been delivered to Purchaser or its
counsel.
(b) SCHEDULE 3.24(b) is a true and correct list of all
independent or outside sales representatives of Seller ("Independent
Sales Representatives"), the length of time they have been acting in
such capacity and the amount of sales attributable to each Independent
Sales Representative for each of the last three years (or such shorter
period of time if acting in such
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capacity for less than three years). A true, correct and complete copy
of each written agreement and a description of each oral agreement with
respect to each Independent Sales Representative has been delivered to
Purchaser or its counsel.
3.25 TRADEMARKS, COPYRIGHTS AND SIMILAR MATTERS.
(a) Seller has never been charged with infringement or
violation of any patent, trademark, service mark, trade name or
copyright. Seller is not using nor has in any way made use of any
patentable or unpatentable invention, or any confidential information
or trade secret, of any former employer of any present or past employee
of Seller. All patents, trademarks, service marks, trade names and
copyrights (the "Specified Items"), and all applications or
registrations (including those whose use is limited to one or more
states of the United States), owned or used by Seller (in connection
with the Business or Subject Assets) are listed on SCHEDULE 3.25 and,
to the extent indicated, have been duly registered in, filed in or
issued by the United States Patent Office or the corresponding agency
or office of each of such states. Except as indicated on SCHEDULE 3.25,
which Schedule shall include, without limitation, the Exclusive License
(as defined below) Seller is the sole and exclusive owner of, or has
the sole and exclusive rights to use, the Specified Items except for
the rights of licensees (whose names are listed on SCHEDULE 3.25) or as
specified on such Schedule. Except as set forth on SCHEDULE 3.25,
Seller does not use any of the Specified Items by consent of any other
party and the same are free and clear of any attachments, liens,
claims, encumbrances or agreements. Except as listed on SCHEDULE 3.25,
there are no claims or demands of any other person, firm or corporation
pertaining to any of the Specified Items, and no proceedings have been
instituted, are pending or, to the knowledge of Seller or Shareholder,
are threatened which challenge the right of Seller in respect of any of
the Specified Items. None of the Specified Items infringes on, or, to
the knowledge of Seller or Shareholder, is being infringed on by
others, and none of the Specified Items is subject to any outstanding
order, decree, judgment, stipulation or agreement restricting the scope
of its use.
(b) Seller is the sole and exclusive owner, and has the full
right, power and authority to transfer to Purchaser the exclusive use
of, the name "Blue Water Services, Inc." Seller does not use the name
by consent of any other person or entity, and Seller owns its name free
and clear of any attachments, liens, claims, encumbrances or
agreements. There are no claims or demands of any other person or
entity pertaining to the use of the name and no proceedings have been
instituted or, to the knowledge of Seller or Shareholder, are
threatened, which challenge the right of Seller in respect of its name;
and the use by each Seller of its name does not infringe on or, to the
knowledge of Seller, is not being infringed on by others, and is not
subject to any outstanding order, decree, judgment, stipulation or
agreement restricting the scope of its use.
(c) True, correct and complete copies of all patents,
trademarks, service marks, trade names and copyrights, and of all
related applications or registrations, that are listed on SCHEDULE 3.25
have been delivered to Purchaser or its counsel.
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3.26 EMPLOYEE BENEFIT PLANS AND OTHER PLANS.
(a) For purposes of this Section 3.26, the following
definitions apply:
(i) "Benefit Plan" means each deferred compensation,
equity compensation, pension, profit-sharing, retirement and
welfare plan, each plan, arrangement or policy for the
provision of bonuses and/or severance benefits, each "employee
benefit plan" (as defined in ERISA Section 3(3)) and each
fringe benefit plan that a Controlled Group Member maintains,
contributes to, has liability with respect to, or has an
obligation to contribute to;
(ii) "Controlled Group Member" means Seller and each
other person or entity required to be aggregated with Seller
under Code Section 414(b), (c), (m) or (o); and
(iii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(b) No Controlled Group Member has directly or indirectly
acted in any manner or incurred any obligation or liability, and will
not directly or indirectly act in any manner in the future or incur any
obligation or liability in the future with respect to any Benefit Plan
which has or could give rise to any liens on any of the Subject Assets,
or which could result in any liability or obligation to Purchaser,
whether arising out of the establishment, operation, administration or
termination of such Benefit Plans or the transactions contemplated by
this Agreement.
(c) No Controlled Group Member directly or indirectly
maintains, sponsors, contributes to, has an obligation to contribute to
or has liability with respect to, and has not directly or indirectly
maintained, sponsored, contributed to or had an obligation to
contribute to at any time within the ten (10) year period ending on the
Closing Date, any Benefit Plan which is subject to Title IV of ERISA
(including, without limitation, any multi employer plan subject to the
requirements of Subtitle E of such Title).
(d) SCHEDULE 3.26 is a true and correct list of all Benefit
Plans that Seller, directly or indirectly, sponsors, maintains or
contributes to or has, directly or indirectly, sponsored, maintained,
or had an obligation to contribute to at any time within the five (5)
year period ending on the Closing Date.
(e) Each Controlled Group Member has timely provided or will
timely provide all notices and any continuation of health benefit
coverage (including, without limitation, medical and dental coverage)
required to be provided to employees, former employees or the
beneficiaries or dependents of such employees or former employees,
under Part 6 of Subtitle B of Title I of ERISA or Code Section 4980B to
the extent such notices and continuation of health benefit coverage are
required to be provided by reason of the events
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<PAGE> 21
occurring prior to or on the Closing Date or by reason of the
transactions contemplated by this Agreement.
3.27 ENVIRONMENTAL MATTERS.
(a) There have been no actual or threatened "releases" of
"hazardous substances" "hazardous or infectious wastes," hazardous
materials," toxic substances," pollutants, contaminants, asbestos or
petroleum or petroleum-based products ("Hazardous Substances") into the
"environment" at any real property "owned" or "operated," in whole or
in part, by Seller or Shareholder as those terms are used in any
federal, state or local law, regulation, permit, agreement, rule or
order relating to the environment or health and safety matters,
including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601, ET
SEQ. ("CERCLA") Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 ET SEQ.) ("RCRA"), the Clean Water Act (33 U.S.C. Section
1251 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET
SEQ.), the Toxic Substances Control Act (15 U.S.C. Section 2601 ET
SEQ.), the Emergency Planning and Community Right-to-Know Act (42
U.S.C. Section 11001 ET SEQ.) anD the Occupational Safety and Health
Act (29 U.S.C. Section 651 ET SEQ.), all as amended (collectively,
"Environmental Laws");
(b) There has been no "disposal" of "solid waste" as those
terms are used in RCRA at any real property owned or operated by Seller
or Shareholder;
(c) No real property owned or operated by Seller or
Shareholder poses an "imminent and substantial endangerment to health
or the environment" within the meaning of Sections 7002 and 7003 of
RCRA or to the public health and safety within the meaning of common
law and statutory provisions relating to nuisances;
(d) Seller nor Shareholder has arranged with another for
disposal or treatment, or arranged with a transporter for transport for
disposal or treatment of Hazardous Substances generated by it at a site
in violation of Environmental Laws where there has been an actual or
threatened release of Hazardous Substances into the environment;
(e) Neither Seller nor Shareholder is presently in violation
of, and have not previously violated, any Environmental Laws;
(f) Seller and Shareholder has obtained all permits,
registrations, plan approval and other governmental authorizations
("Governmental Authorizations") necessary under Environmental Laws to
transact its business at all locations and in the manner such business
is presently conducted and all such Governmental Authorizations are
unexpired and in good standing, and Seller or Shareholder is in full
and complete compliance with all of the terms and conditions of such
Governmental Authorizations;
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<PAGE> 22
(g) Except as disclosed on Schedule 3.27(h), Seller or
Shareholder has not, during the past five (5) years violated or failed
to comply with any governmental authorizations or permits, and, except
as set forth on Schedule 3.27(h) there have been no fines, penalties or
levies imposed on Seller or Shareholder for any such violation or
failure to comply.
(h) Seller nor Shareholder has received an order, complaint,
claim, notice of violation, citizen suit demand or other communications
("Violation"), oral or written, asserting that he or it is in violation
or has violated any provisions of Environmental Laws, and Seller nor
Shareholder knows of any pending or threatened investigation for any
such alleged Violation; and
(i) Seller and Shareholder do not and have not permitted any
third party to use, manufacture, generate, treat, dispose of, transport
or otherwise manage or handle Hazardous Substances on or off-site of
any of the real property.
3.28 BANK ACCOUNTS. SCHEDULE 3.28 is a true and correct list of the
name of each bank, savings and loan, or other financial institution in which
Seller has an account or safe deposit box, the names of all persons authorized
to draw on each account or to have access to each box, the number of signatures
required to be given for a withdrawal, a description of the type of account and
the balance of each account as of the most recent statement.
3.29 COMPLIANCE WITH LAWS. To the best of Seller's knowledge, Seller
has complied in all material respects with all laws, regulations, rules and
orders of any governmental department or agency or any other commission, board,
agency or instrumentality, federal, state or local, or other requirements of law
affecting the Business and operations and is not in default under or in
violation of any provision of any federal, state or local law, regulation, rule
or order.
3.30 POWERS OF ATTORNEY. Seller has not given any power of attorney
(irrevocable or otherwise) to any person or entity for any purpose.
3.31 LICENSES AND RIGHTS. Seller possesses all franchises, licenses,
easements, permits and other authorizations from governmental or regulatory
authorities and from all other persons or entities that are necessary to permit
it to engage in the Business as presently conducted in and at all locations and
places where it is presently operating, except where the failure to possess such
would not have a material adverse effect on the Business, Subject Assets or
financial condition of Seller. Such franchises, licenses, permits and other
authorizations are listed on SCHEDULE 3.31.
3.32 SCHEDULE OF GOVERNMENT REPORTS. Seller has furnished to Purchaser
or its counsel complete copies of all reports, if any, filed since December 31,
1992, by Seller with the Department of Labor, Equal Employment Opportunity
Commission, Federal Trade Commission, Department of Justice, Occupational Safety
and Health Administration, Internal Revenue Service (other than tax returns and
standard forms relating to compensation or remuneration of employees),
Environmental Protection Agency, Securities and Exchange Commission or Pension
Benefit Guarantee Corporation, or any similar state agency.
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<PAGE> 23
3.33 PRODUCTS AND SERVICES.
(a) The services rendered and/or the products sold by Seller
conforms to and meet or exceed the standards required by all applicable
laws, ordinances and regulations now in effect and, to Seller's
knowledge, there is no pending legislation, ordinance or regulation
which if adopted or enacted would have a material adverse effect on
such products or Seller's business.
(b) SCHEDULE 3.33 contains a written statement accurately
describing Seller's warranties and customer service policies and any
recurring warranty problems. Seller does not have any outstanding
contracts or proposals that depart from the warranty and customer
service policy and practice described in such Schedule. To the extent
transferrable, Seller will convey to Purchaser all its rights in
manufacturers' warranties for products sold by Seller (which will be
deemed a part of the Subject Assets). Except as may be listed on
SCHEDULE 3.33, no claims of customers or others based on an alleged or
admitted defect of material, workmanship or design or otherwise in or
in respect of any of Seller's services or products are presently
pending or, to the best of Seller's and the Shareholder's knowledge,
threatened.
3.34 CASUALTY OCCURRENCES. SCHEDULE 3.34 is a true and correct list of
occurrences during the last five (5) years of damages to persons or property
involving any defects or alleged defects in any of Seller's services or products
or their design. All such occurrences are fully and adequately covered by
paid-for insurance.
3.35 INVENTORY. The inventory of Seller consists only of items of a
quality and quantity usable and saleable in the ordinary course of business,
consistent with past practice, within Seller's normal inventory "turn"
experience and does not include any item of inventory which has previously been
written off by Seller. Items of below-standard quality and items not previously
readily saleable in the ordinary course of business have been written down in
value in accordance with generally accepted accounting principles to estimated
net realizable market values. The value at which the inventory is carried on
Seller's books reflects the lower of cost (on a FIFO basis) or estimated net
realizable market value, and is based on quantities determined by physical
count.
3.36 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Seller or Shareholder in this Agreement or in any document,
statement, certificate, Schedule, chart, list, letter, compilation or other
document furnished or to be furnished to Purchaser or its counsel pursuant to
this Agreement, or in connection with the transactions contemplated under this
Agreement (collectively, the "Documents"), contain or will contain any untrue
statement of a material fact, or omit or will omit to state a material fact
necessary to make the statements of fact contained therein not misleading.
References in any Document, or in any Contract, a copy of which has been
provided to Purchaser or its counsel, to any other Document or Contract that
prior to the date of this Agreement has not been provided to Purchaser or its
counsel will not be deemed for any purposes of this Agreement to be a disclosure
of any term, provision or statement of fact of, or relating to, such other
Document or Contract.
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<PAGE> 24
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND WATERLINK
---------------------------------------------------------
Purchaser and Waterlink, jointly and severally, warrant and represent
to, and agree with, Seller and the Shareholder as follows:
4.1 ORGANIZATION AND GOOD STANDING OF PURCHASER AND WATERLINK. Each of
Purchaser and Waterlink is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Purchaser and
Waterlink has full power and authority to carry on its business as and where now
conducted and to own or lease and operate its properties at and where now owned
or leased and operated by it, and is duly qualified to do business and is in
good standing in every jurisdiction in which the property owned, leased or
operated by it, or the nature of the business conducted by it, makes such
qualification necessary, except where the failure to qualify would not have a
material adverse effect on the business or financial condition of Purchaser or
Waterlink, as the case may be. Other than actions taken in connection with its
organization, Purchaser has conducted no business since its organization.
4.2 AUTHORITY OF PURCHASER AND WATERLINK. The execution, delivery and
consummation of this Agreement by Purchaser and Waterlink has been or will be
duly authorized by their respective boards of directors of Purchaser in
accordance with all applicable laws and the Certificates of Incorporation and
By-laws of Purchaser and Waterlink, as the case may be, and at the Closing Date
no further corporate action will be necessary on the part of Purchaser or
Waterlink to make this Agreement valid and binding on Purchaser and Waterlink
and enforceable against Purchaser and Waterlink in accordance with its terms.
Except as has been or will be obtained from Purchaser's secured lender, no
approval or consent of any person, firm or other entity or governmental body is
or was required to be obtained by Purchaser or Waterlink for the authorization
of this Agreement or the consummation by Purchaser or Waterlink of the
transactions contemplated in this Agreement.
ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND WATERLINK
--------------------------------------------------------------
The obligations of Purchaser and Waterlink under this Agreement are, at
their option, subject to satisfaction of the following conditions at or prior to
the Closing Date:
5.1 REPRESENTATIONS TRUE. The representations and warranties of Seller
and Shareholder contained in this Agreement are true, complete and accurate in
all material respects on and as of the Closing Date to the same extent and with
the same force and effect as if made on such date, except as affected by the
transactions contemplated under this Agreement.
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<PAGE> 25
5.2 ALL CONSENTS OBTAINED. All necessary approvals or consents required
to be obtained by Purchaser and Waterlink have been obtained from all local,
state and federal departments and agencies, from all other commissions, boards,
agencies and from any other person or entity whose approval or consent is
necessary to consummate the transactions contemplated under this Agreement
including, without limitation, such consents as may be listed or required to be
listed on SCHEDULE 3.2.
5.3 PERFORMANCE AND OBLIGATIONS. Seller and Shareholder have duly
performed all obligations, covenants and agreements undertaken by Seller or
Shareholder in this Agreement and have complied with all terms and conditions
applicable to them under this Agreement to be performed and complied with on or
before the Closing Date.
5.4 RECEIPT OF DOCUMENTS BY PURCHASER. Purchaser has received:
(a) a certificate executed by the President and Secretary of
Seller certifying as to the fulfillment of the matters contained in
Sections 5.1, 5.2, 5.3 and 5.5.
(b) a true and correct copy of Seller's Articles of
Incorporation, certified by the Secretary of State of Kansas as of a
date not more than five (5) days prior to the Closing Date, and a true
and correct copy of Seller's By-Laws certified by the Secretary of
Seller as of the Closing Date.
(c) a written opinion from counsel for Seller and Shareholder,
dated as of the Closing Date, addressed to Purchaser, satisfactory to
Purchaser and its counsel in form and substance, to the effect that:
(i) Seller is duly incorporated, validly existing and
is in good standing under the laws of its state of
incorporation, has full corporate power and authority to carry
on its business as and where now conducted, and to own or
lease and operate its properties at and where now owned or
leased and operated by it, and is qualified to do business as
a foreign corporation and is in good standing in every
jurisdiction in which the property owned, leased or operated
by it, or the nature of the business conducted by it, makes
such qualification necessary;
(ii) Seller has full right and lawful authority to
convey, transfer and assign the Acquired Assets to Purchaser
as provided in this Agreement, and the instruments of transfer
delivered by Seller to Purchaser at the Closing are sufficient
to transfer to Purchaser all right, title and interest of
Seller in and to the Subject Assets;
(iii) Seller has all requisite corporate power to
execute, deliver and carry out its obligations under this
Agreement and the execution, delivery and performance of this
Agreement and the other agreements to be executed, delivered
and performed pursuant to this Agreement by Seller have been
duly authorized by all requisite corporate action, including,
without limitation, the requisite authorization by the
shareholders of Seller;
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(iv) This Agreement and the other agreements to be
executed, delivered and performed pursuant to this Agreement
constitute the legal, valid and binding obligation of Seller
that is a party thereto, and are enforceable against each
Seller that is a party thereto in accordance with their
respective terms with appropriate bankruptcy exceptions;
(v) This Agreement and the other agreements to be
executed, delivered and performed pursuant to this Agreement
to which Shareholder is a party constitute the legal, valid
and binding obligation of Shareholder, and are enforceable
against Shareholder in accordance with their respective terms
with appropriate bankruptcy exceptions;
(vi) Except as set forth in this Agreement or in any
Schedule, the execution and delivery of this Agreement and the
consummation of the transactions contemplated under this
Agreement by Seller or Shareholder, as applicable (a) are not
in conflict with the Articles of Incorporation or By-Laws of
Seller, (b) do not (with or without notice or the passage of
time or both) constitute a default under, and are not in
conflict with, any Contract listed on SCHEDULE 3.18 to this
Agreement, (c) do not violate any order, judgment or decree or
any rule, regulation or law, or any other restriction known to
such counsel to which Seller or Shareholder is a party or to
which any of its or his assets are subject and (d) will not
(with or without notice or the passage of time or both) result
in the creation of any lien or any charge on or any loss of
any assets of Seller, or in the acceleration or termination of
any loan, security interest or other agreement known to such
counsel to which Seller is a party or to which any of its
assets are subject;
(vi)[sic] Except with respect to those matters as may be
disclosed in any Schedule, such counsel has no knowledge of
any action, suit, claim, demand, arbitration or other
proceeding or investigation, administrative or judicial,
pending or threatened against or affecting Seller or any of
its assets at law or in equity, or before or by any federal,
state, municipal or other governmental department or by any
other commission, board, agency or instrumentality, domestic
or foreign, that can reasonably be expected to have any
adverse effect on the business, assets, condition (financial
or otherwise), results of operations or prospects of Seller;
(vii) Such other material matters which Purchaser or its
counsel reasonably requests;
(d) certified copies of resolutions duly adopted by the
shareholders and board of directors of Seller approving this Agreement
and the transactions contemplated under it.
5.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to restrain or prohibit or to obtain material damages or relief in
connection with this Agreement or the consummation of this
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<PAGE> 27
Agreement, or which is likely to materially and adversely affect the value of
the business or assets of Seller or of the Patents.
5.6 DELIVERY OF BOOKS AND RECORDS. Seller has delivered or made
available to Purchaser all books and records of Seller relating to or reasonably
required for the operation of the business of Seller, including, without
limitation, copies of all Contracts, financial and accounting records, files and
records relating to employees, and all related correspondence.
5.7 INSTRUMENTS OF TRANSFER. Seller and Shareholder have executed and
delivered to Purchaser good and sufficient instruments of transfer transferring
to Purchaser title to all of the Subject Assets as required pursuant to Section
1.3. The instruments of transfer must be in form and substance reasonably
satisfactory to Purchaser and its counsel, which form is usual and customary for
transferring the type of property involved under the laws of the jurisdictions
applicable to such transfer. All of such instruments must contain general
warranties of title and good right to convey.
5.8 CONFIDENTIALITY AND NON-COMPETE AGREEMENTS. Shareholder and Seller
have (i) assigned to Purchaser any and all rights of Seller under any
confidentiality agreement covering confidential information concerning Seller's
business or the Subject Assets and under any non-compete or similar agreement in
favor of Seller restricting activities competitive with those of Seller's
business, (ii) provided Purchaser with a list of such agreements and (iii)
delivered copies of such agreements of Purchaser.
5.9 ABSENCE OF CHANGES. There has been no material adverse change in
the business (financial or otherwise), assets, liabilities, results of
operations or prospects of Seller since the date of this Agreement.
5.10 SUBLEASE FOR PROPERTY. Seller shall have entered into a sublease
(the "Sublease") with Purchaser for certain real property containing
approximately five percent (5%) of thetotal [sic] square feet in that certain
building, known for street numbering purposes as 7927 U.S. Highway 24,
Manhattan, Kansas, substantially in the form of EXHIBIT A to this Agreement.
5.11 AERO-MOD/RESI-TECH TRANSACTION. Seller and Shareholder shall have
entered into that certain Asset Purchase Agreement among A-M Acquisitions Corp.,
Waterlink, Aero-Mod Incorporated ("Aero-Mod"), Resi-Tech Inc. ("Resi-Tech"), and
Shareholder (the "Aero-Mod Purchase Agreement") and all agreements in connection
therewith and the transactions contemplated thereby shall have been consummated.
5.12 NON-COMPETE AGREEMENT. Shareholder shall have entered into a
non-compete agreement with Purchaser substantially in the form of EXHIBIT B
attached hereto.
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ARTICLE VI
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND SHAREHOLDER
-------------------------------------------------------------
The obligations of Seller and Shareholder under this Agreement are, at
their option, subject to satisfaction of the following conditions at or prior to
the Closing Date:
6.1 REPRESENTATIONS TRUE. The representations and warranties of
Purchaser and Waterlink contained in this Agreement are true, complete and
accurate in all material respects on and as of the Closing Date to the same
extent and with the same force and effect as if made on such date, except as
affected by the transactions contemplated under this Agreement.
6.2 ALL CONSENTS OBTAINED. All necessary approvals or consents required
to be obtained by Seller and Shareholder have been obtained from all local,
state and federal departments and agencies, from all other commissions, boards,
agencies and from any other person or entity whose approval or consent is
necessary to consummate the transactions contemplated by this Agreement.
6.3 PERFORMANCE OF OBLIGATIONS. Purchaser and Waterlink have duly
performed all obligations, covenants and agreements undertaken by Purchaser or
Waterlink in this Agreement and have complied with all the terms and conditions
applicable to them under this Agreement to be performed or complied with on or
before the Closing Date.
6.4 RECEIPT OF DOCUMENTS BY SELLER AND SHAREHOLDER. Seller and
Shareholder have received:
(a) the purchase price for the Subject Assets as provided in
Section 2.1;
(b) a certificate executed by the President or CFO of
Purchaser certifying as to the fulfillment of the matters contained in
Sections 6.1, 6.2 and 6.3 of this Article;
(c) a written opinion from counsel for Purchaser and
Waterlink, dated as of the Closing Date, addressed to Seller and
Shareholder, satisfactory to Seller and Shareholder and their counsel
in form and substance, to the effect that:
(i) Each of Purchaser and Waterlink is duly
incorporated, validly existing and is in good standing under
the laws of the State of Delaware. Each of Purchaser and
Waterlink has full corporate power and authority to carry on
its business as and where now conducted, and to own or lease
and operate its properties at and where now owned or leased
and operated by it;
(ii) Each of Purchaser and Waterlink has all requisite
corporate power to execute, deliver and carry out its
obligations under this Agreement and the execution, delivery
and performance of this Agreement by Purchaser and Waterlink
have been duly authorized by all requisite corporate action;
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<PAGE> 29
(iii) The execution and delivery of this Agreement and
the consummation of the transactions contemplated under this
Agreement by Purchaser and Waterlink are not in conflict with
the Certificate of Incorporation or By-laws of Purchaser and
Waterlink; and
(iv) This Agreement constitutes the legal, valid, and
binding obligation of Purchaser and Waterlink, and is
enforceable against Purchaser and Waterlink in accordance with
its terms;
(d) certified copies of resolutions duly adopted by the Board
of Directors of Purchaser and Waterlink approving this Agreement and
the transactions contemplated under it.
6.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to obtain material damages from Seller in connection with this Agreement
or the consummation of this Agreement.
6.6 ASSUMPTION OF LIABILITY. Purchaser shall have entered into an
Assumption Agreement, more particularly described in Section 1.2 of this
Agreement.
6.7 SUBLEASE FOR PROPERTY. Purchaser shall have entered into the
Sublease.
6.8 AERO-MOD/RESI-TECH TRANSACTION. Purchaser shall have entered into
the Aero-Mod Purchase Agreement and all agreements in connection therewith and
the transactions contemplated thereby shall have been consummated.
ARTICLE VII
-----------
CLOSING
-------
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Benesch, Friedlander, Coplan &
Aronoff P.L.L., 200 Public Square, 2300 BP America Building, Cleveland, Ohio
44114 on April 26, 1996, at 10:00 A.M. Cleveland, Ohio Time or such other date
mutually agreeable to the parties (the "Closing Date"). If the Closing has not
taken place by such date by reason of failure of fulfillment of any condition or
conditions contained in this Agreement, then the non-breaching party may, by
written notice to the other party, extend the Closing Date for a period of
thirty (30) days to permit fulfillment of such condition or conditions. Unless
the parties otherwise agree in writing, if the Closing has not occurred by May
31, 1996, then this Agreement will be deemed to have been terminated and
abandoned, subject to the legal rights and remedies of either party arising out
of the other party's breach of any of the provisions of this Agreement. The
parties will in good faith use all reasonable efforts to achieve the Closing.
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<PAGE> 30
ARTICLE VIII
------------
TERMINATION OF AGREEMENT
------------------------
This Agreement and the transactions contemplated under it may be
terminated and abandoned at any time prior to the Closing Date:
(a) by mutual consent in writing of Purchaser, Seller and
Shareholder;
(b) by Purchaser if there has been a material
misrepresentation or breach of warranty in the representation and
warranties of Seller and Shareholder made under this Agreement or by
Seller and Shareholder if there has been a material misrepresentation
or breach of warranty in the representations and warranties of
Purchaser made under this Agreement;
(c) by Purchaser if all or a material portion of the Subject
Assets have been materially damaged or destroyed before the Closing;
(d) by Purchaser, if any of the conditions contained in
Article V, or by Seller and Shareholder, if any of the conditions
contained in Article VI, respectively, have not been fulfilled in all
material respects.
Any termination pursuant to this Article VIII will not affect the obligations of
the parties under Article XII or Section 16.5, and will be without prejudice to
the terminating party's legal rights and remedies by reason of any breach of
this Agreement occurring prior to such termination. Notwithstanding anything in
this Agreement to the contrary, if, on the Closing Date, Purchaser (i) has
complied with all of the conditions to Closing contained in Article VI, (ii) has
notified Seller and Shareholder of its intention to consummate the transactions
contemplated under this Agreement, and (iii) is ready and able to pay Seller and
Shareholder the purchase price and furnishes evidence to that effect to Seller
and Shareholder, and if the Closing does not then occur due to the refusal of
Seller and Shareholder to so consummate the transactions contemplated under this
Agreement, Purchaser will be entitled to specifically enforce the terms of this
Agreement in a court of competent jurisdiction, it being acknowledged that
monetary damages due Purchaser in such case cannot be adequately determined at
law.
ARTICLE IX
----------
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES; INDEMNIFICATION; DISPUTES
-----------------------------------------
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding the
Closing of the transactions contemplated under this Agreement, or any
investigation made by or on behalf of any party to this Agreement, the
representations and warranties of Seller, Shareholder, Purchaser and
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<PAGE> 31
Waterlink contained in this Agreement or in any certificate, Schedule, chart,
list, letter, compilation or other document furnished or to be furnished
pursuant to this Agreement, will survive the Closing for a period of three (3)
years, except that the representations and warranties of Seller and Shareholder
contained in Sections 3.9, 3.26 and 3.27 will survive for so long as any
applicable statute of limitations has not expired, been suspended or been waived
or extended, and for thirty (30) days after. However, as to any breach of, or
misstatement in, any such representation or warranty as to which the
non-breaching party as given notice to the breaching party on or prior to the
expiration of the applicable period, as above set forth, the same will continue
to survive beyond said period, but only as to the matters contained in such
notice.
9.2 SELLER'S AND SHAREHOLDER'S INDEMNIFICATION. Seller and Shareholder,
jointly and severally, will indemnify and save harmless Purchaser and Waterlink
and their respective subsidiaries, shareholders, directors, officers, employees
and agents from any and all costs, expenses, losses, damages and liabilities
incurred or suffered, directly or indirectly, by any of them (including, without
limitation, reasonable legal fees and expenses) (collectively, the "damages")
resulting from or attributable to (a) the breach of, or misstatement in, any one
or more of the representations or warranties of Seller or Shareholder made in or
pursuant to this Agreement, (b) any claims, demands, suits, investigations,
proceedings or actions by any third party containing or relating to allegations
that, if true, would constitute a breach of, or misstatement in, any one or more
of the representations or warranties of Seller or Shareholder made in or
pursuant to this Agreement, (c) Seller's treatment, transport, recycling,
storage or disposal, or any arrangement for any of same, done or made prior to
the Closing, of any Contaminant generated and transported off-site from any
facility owned or operated by Seller or any of its predecessors, (d) any and all
obligations, debts or other liabilities of Seller not expressly assumed by
Purchaser pursuant to this Agreement, or (e) any and all obligations of
Purchaser to withhold a portion of the purchase price to satisfy the
requirements of any applicable laws of any jurisdiction, federal, state or
local.
9.3 DEFENSE OF CLAIM. In case Purchaser or Waterlink has received
actual notice of any claim asserted or any action or administrative or other
proceeding commenced in respect of which claim, action or proceeding indemnity
properly may be sought against Seller and/or Shareholder pursuant to this
Agreement, Purchaser will give notice in writing to Seller and Shareholder.
Within ten (10) days after the earlier of (i) receipt of such notice or (ii)
receipt of actual notice by Seller or Shareholder from sources other than
Purchaser, Seller and Shareholder may give Purchaser written notice of their
election to conduct the defense of such claim, action or proceeding at its own
expense. If Seller or Shareholder have given Purchaser such notice of election
to conduct the defense, Seller and Shareholder may conduct the defense at its
expense, but Purchaser will nevertheless have the right to participate in the
defense, but such participation will be solely at the expense of Purchaser,
without a right of further reimbursement. If Seller and Shareholder have not so
notified Purchaser in writing (within the time above provided) of their election
to conduct the defense of such claim, action or proceeding, Purchaser may (but
need not) conduct (at Seller's and Shareholder's expense) the defense of such
claim, action or proceeding. Purchaser may at any time notify Seller or
Shareholder of Purchaser's intention to settle, compromise or satisfy any such
claim, action or proceeding (the defense of which Seller or Shareholder have not
previously elected to conduct) and may make such settlement, compromise or
satisfaction (at Seller's and Shareholder's expense) unless
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<PAGE> 32
Seller and Shareholder notify Purchaser in writing (within five (5) days after
receipt of such notice of intention to settle, compromise or satisfy) of their
election to assume (at its sole expense) the defense of any such claim, action
or proceeding and promptly take appropriate action to implement such defense.
Any settlement, compromise or satisfaction made by Purchaser, or any such final
judgment or decree entered in, any claim, action or proceeding defended only by
Purchaser, regardless of the amount or terms, will be deemed to have been
consented to by, and will be binding on, Seller and Shareholder as fully as
though they alone had assumed the defense and a final judgment or decree had
been entered in such proceeding or action by a court of competent jurisdiction
in the amount of such settlement, compromise, satisfaction, judgment or decree.
If Seller and Shareholder have elected under this Section 9.3 to conduct the
defense of any claim, action or proceeding, then Seller and Shareholder will be
obligated to pay the amount of any adverse final judgment or decree rendered
with respect to such claim, action or proceeding. If Seller and Shareholder
elect to settle, compromise or satisfy any claim, action or proceeding defended
by them, the cost of any such settlement, compromise or satisfaction will be
borne entirely by Seller and Shareholder and may be made only with the consent
of Purchaser, which consent will not be unreasonably withheld. Purchaser, Seller
and Shareholder will use all reasonable efforts to cooperate fully with respect
to the defense of any claim, action or proceeding covered by this Section 9.3.
9.4 PURCHASER'S AND WATERLINK'S INDEMNIFICATION. Purchaser and
Waterlink covenant and agree to indemnify and save harmless Seller and
Shareholder from any and all costs, expenses, losses, damages and liabilities
incurred or suffered by Seller or Shareholder (including reasonable legal fees
and costs) (collectively, the "damages") resulting from or attributable to the
breach of, or misstatement in, any one or more of the representations or
warranties of Purchaser or Waterlink made in or pursuant to this Agreement to
the same extent as provided in Clauses (a) and (b) of Section 9.2, and in the
same manner as provided in Section 9.3, of this Article IX.
9.5 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, no party will have any right to indemnification under Section
9.2(a) or (b) or Section 9.4 hereof unless and until the aggregate damages
indemnifiable by the indemnifying party exceed Twenty Thousand Dollars ($20,000)
and thereafter, will be entitled to the full extent of the damages and in no
event will the aggregate liability of Seller and Shareholder, on the one hand,
or Purchaser and Waterlink, on the other hand, exceed Two Million Dollars
($2,000,000).
24
<PAGE> 33
ARTICLE X
---------
CONDUCT PRIOR TO CLOSING DATE
-----------------------------
10.1 CONTINUATION OF BUSINESS. Until the Closing Date, Seller will
continue to conduct its business in the ordinary and usual course consistent
with past practice, and, without limiting the generality of this undertaking,
Seller will not do or suffer to be done any of the following, whether or not in
the ordinary and usual course, without the prior written consent of Purchaser:
(a) Dispose or contract to dispose of, or acquire or contract
to acquire, any Real Property or other assets, or any interest in any
Real Property or other capital assets;
(b) Borrow any money;
(c) Enter into any lease;
(d) Encumber any assets;
(e) Enter into any contract, commitment or arrangement of the
type required by Section 3.18 above to be listed on SCHEDULE 3.18;
(f) Declare or pay any dividend or declare or make any other
distribution to shareholders;
(g) Purchase or redeem any shares, notes or other securities;
(h) Increase the rate or amount of compensation or the amount
or type of other remuneration to any of its directors, officers,
employees, agents or other representatives, or agree to do so;
(i) Form or cause to be formed, or dispose or contract to
dispose of, any Subsidiary, or any interest in any Subsidiary;
(j) Reclassify, split or combine its shares, or issue, sell,
distribute or dispose of any shares, notes or other securities, or
commit itself to do so;
(k) Make any new commitments or agree to make commitments for
capital improvements or significantly alter standing commitments for
capital improvements;
(l) Make any single expenditure or agree to make any single
expenditure, or series of expenditures in excess of One Thousand
Dollars ($1,000) in the aggregate;
(m) Negotiate with anyone other than Purchaser for, or
participate with anyone other than Purchaser in, the acquisition of all
or any part of the Acquired Assets;
25
<PAGE> 34
(n) Amend, or permit to be amended, in any way, its Articles
or By-Laws; or
(o) Make any material change in accounting methods.
(p) Award any bonus compensation or enter into other bonus
arrangements with any employees or shareholders.
10.2 PRESERVATION OF BUSINESS. Seller will (i) preserve intact its
present business organization and personnel, (ii) preserve its business, actual
and potential, and its advantageous relationships with all persons having
business dealings with it, and (iii) preserve and maintain in force all its
licenses, certificates, leases, contracts, permits, registrations, franchises,
confidential information, patents, trademarks, trade names, service marks and
copyrights, and applications for any of the same, and other similar rights.
Seller will maintain in force all property, casualty, crime, life, directors,
officers and other forms of insurance and bonds which it presently carries.
10.3 CONSENTS AND APPROVALS. Seller and Shareholder will use all
reasonable efforts to obtain all necessary consents and approvals of all
persons, firms, entities and governmental authorities to the consummation of the
transactions contemplated by this Agreement.
ARTICLE XI
----------
ASSIGNMENT, THIRD PARTIES, BINDING EFFECT
-----------------------------------------
The rights under this Agreement are not assignable nor are the duties
delegable by a party without the written consent of the other party first having
been obtained, and any attempted assignment or delegation without such consent
will be null and void; provided, however, that Purchaser and Waterlink may
assign their respective rights hereunder to their principal lenders, subject to
any defenses that Seller and Shareholder may have hereunder against Purchaser
and Waterlink. Nothing contained in this Agreement is intended to convey upon
any person or entity, other than the parties and their successors in interest
and permitted assigns, any rights or remedies under or by reason of this
Agreement unless expressly stated. All covenants, agreements, representations
and warranties of the parties contained in this Agreement are binding on and
will inure to the benefit of Purchaser, Waterlink, Seller and Shareholder,
respectively, and their respective successors and permitted assigns.
26
<PAGE> 35
ARTICLE XII
-----------
EXPENSES
--------
Purchaser and Waterlink will bear their own expenses, and Shareholder
will bear his and Seller's expenses, including, without limitation, counsel and
accountants' fees, in connection with the preparation and negotiation of, and
transactions contemplated under, this Agreement.
ARTICLE XIII
------------
NOTICES
-------
All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
To Purchaser or Waterlink: Waterlink, Inc.
------------------------- 115 Dewalt Ave., N.W.
Canton, Ohio 44702
Facsimile No.: (330) 455-8134
Attention: Theodore F. Savastano,
Chairman
With a copy to: Benesch, Friedlander,
Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Facsimile No.: 216-363-4588
Attention: Ira C. Kaplan
To Seller or the Shareholder: Blue Water Services, Inc.
---------------------------- 7927 U.S. Highway 24
Manhattan, Kansas 66502
Facsimile No.: (913) 537-0813
Attention: Lawrence A. Schmid
27
<PAGE> 36
With a copy to: Arthur, Green, Arthur, Conderman,
Stutzman & Roberson
Commerce Bank Tower
Manhattan, Kansas 66502
Facsimile No.: (913) 537-7874
Attention: David Stutzman
ARTICLE XIV
-----------
REMEDIES NOT EXCLUSIVE
----------------------
No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy, and each and every remedy will
be cumulative and will be in addition to every remedy given under this Agreement
or now or subsequently existing, at law or in equity, by statute or otherwise.
The election of any one or more remedies by Purchaser, Seller or Shareholder
will not constitute a waiver of the right to pursue other available remedies.
ARTICLE XV
----------
NON-COMPETITION
---------------
15.1 NON-COMPETITION AGREEMENT.
(a) For a period of five (5) years from and after the Closing
Date, but as to clauses (iv) and (v) at any time after the Closing
Date, Seller and Shareholder will not, directly or indirectly (and
Seller will cause all Subsidiaries, now or subsequently existing, other
than Subsidiaries that constitute part of the Acquired Assets, not to,
directly or indirectly):
(i) engage in, carry on or have any interest in a
business substantially similar to the business as carried on
by Seller on the Closing Date and being acquired by Purchaser,
(ii) enter into, engage in, or be employed by or consult
with any business in, competition with Purchaser on matters
substantially similar to the business as carried on by Seller
on the Closing Date and being acquired by Purchaser,
(iii) employ, assist in employing or otherwise associate
in business with any present, former or future employee of
Purchaser or any of its Subsidiaries now or subsequently
existing until a period of at least two (2) years has expired
since such employee was employed by Purchaser or any
Subsidiary,
28
<PAGE> 37
(iv) induce any person who is a present or future
employee, officer, agent, affiliate or customer of Purchaser
or any of its Subsidiaries now or subsequently existing to
terminate the relationship, and
(v) induce any customer or supplier of Seller to refuse
to do business with Purchaser on as favorable terms as
previously done with Seller.
The prohibitions in clauses (i) and (ii) will apply to any place or
location in the world in any state in the United States or any
countries outside the United States where Purchaser or Waterlink has
done business or is actively contemplating doing business. Seller and
Shareholder acknowledge that the length of time and geographic
restriction pertaining to all prohibitions in this Subsection (a) both
are reasonable and necessary for the legitimate protection of
Purchaser's business and interests.
(b) Seller and Shareholder expressly agree and understand that
the remedy at law for any breach by Seller of this Article XV will be
inadequate and that the damages flowing from such breach are not
readily susceptible to being measured in monetary terms. Accordingly,
it is acknowledged that upon adequate proof of Seller's or
Shareholder's violation of this Article XV, Purchaser will be entitled,
among other remedies, to immediate injunctive relief and may obtain a
temporary restraining order restraining any threatened or further
breach. Nothing in this subsection (b) will be deemed to limit
Purchaser's remedies at law or in equity for any breach by Seller or
Shareholder of any of the provisions of this Agreement which may be
pursued or availed of by Purchaser.
(c) In the event any court of competent jurisdiction
determines that the specified time period or geographical area set
forth in this Section 15.1 is unreasonable, arbitrary or against public
policy, then a lesser time period or geographical area that is
determined by the court to be reasonable, non-arbitrary and not against
public policy may be enforced.
(d) In the event Seller or Shareholder violates any legally
enforceable provision of this Section 15.1 as to which there is a
specific time period during which Seller or Shareholder are prohibited
from taking certain actions or engaging in certain activities, then, in
such event the violation will toll the running of the time period from
the date of the violation until the violation ceases.
(e) The prohibitions set forth in this Section 15.1 shall
automatically terminate upon expiration of the applicable grace period
in the event of non-payment of or any material non-performance by A-M
Acquisitions Corp. under any of (i) that certain Convertible
Subordinated Note of A-M Acquisitions Corp. in favor of Shareholder in
the principal amount of $400,000; (ii) that certain Subordinated
Promissory Note of A-M Acquisitions Corp. in favor of Aero-Mod
Incorporated in the principal amount of $150,000; or (iii) that certain
Subordinated Promissory Note of A-M Acquisitions Corp. in favor of
Resi-Tech, Inc. in the principal amount of $150,000.
29
<PAGE> 38
15.2 DISCLOSURE OF CONFIDENTIAL INFORMATION. Except as may be required
by law or necessary in connection with any dealings with any public agency or
authority, from and after the Closing Date, Seller and Shareholder will not (and
Seller will cause all Subsidiaries, now or subsequently existing, not to),
disclose, disseminate, divulge, discuss, copy or otherwise use or suffer to be
used, in competition with, or harmful to the interests of, Purchaser or
Waterlink, any information (written or oral), documents, lists or other data of
or respecting any aspect of the Acquired Assets or the business being acquired
by Purchaser from Seller or Shareholder under this Agreement.
ARTICLE XVI
-----------
MISCELLANEOUS
-------------
16.1 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same document.
16.2 CAPTIONS AND SECTION HEADINGS. Captions and section headings are
for convenience only, are not a part of this Agreement and may not be used in
construing it.
16.3 POSSESSION OF ACQUIRED ASSETS. Possession of the Subject Assets
will be given to Purchaser on the Closing Date. Purchaser will not acquire any
title to the Subject Assets until possession has been given to it in accordance
with this Section 16.3, and, accordingly, all risk and loss with respect to the
Acquired Assets will be borne by Seller and Shareholder until possession has
been given to Purchaser. For purposes of this Section 16.3, possession will be
deemed to have been given to Purchaser when Seller or Shareholder, as the case
may be, deliver or cause to be delivered to Purchaser good and sufficient
instruments of transfer and conveyance as provided in this Agreement.
16.4 WAIVERS. Any failure by any of the parties to comply with any of
the obligations, agreements or conditions set forth in this Agreement may be
waived by the other party or parties, but any such waiver will not be deemed a
waiver of any other obligation, agreement or condition contained herein.
16.5 RIGHT OF INSPECTION. From and after the date of this Agreement to
the Closing Date, Seller will give to Purchaser and its counsel, accountants and
other representatives, full access during normal business hours to its offices,
properties, agreements, records and affairs, and will furnish copies of all
Contracts and other instruments as Purchaser or its counsel may reasonably
request. Such investigation will not affect the warranties and representations
of Seller under this Agreement. All such information will be treated
confidentially and will be used only for the purposes intended. If the
transactions contemplated under this Agreement do not take place, all documents
and other property of Seller will be returned and all disclosures and
information given to Purchaser as contemplated under this Agreement will be
treated as confidential and not disclosed to others unless
30
<PAGE> 39
disclosed publicly by Seller or other third parties without fault on the part of
Purchaser, or unless otherwise required by law.
16.6 AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS. Each of the parties
agrees to cooperate in the effectuation of the transactions contemplated under
this Agreement and to execute any and all additional documents to take such
additional action as is reasonably necessary or appropriate for such purposes.
16.7 ENTIRE AGREEMENT. This Agreement, including any certificate,
schedule, exhibit or other document delivered pursuant to its terms, constitutes
the entire agreement between the parties. There are no verbal agreements,
representations, warranties, undertakings or agreements between the parties, and
this Agreement may not be amended or modified in any respect, except by a
written instrument signed by the parties to this Agreement.
16.8 GOVERNING LAWS. This Agreement is to governed by and construed in
accordance with the internal laws of the State of Ohio.
16.9 KNOWLEDGE. All references to "knowledge" or "best knowledge" of a
party means the actual knowledge of a party after reasonable investigation and
due diligence. Failure to so investigate or exercise due diligence may result in
the imputation of knowledge to a party if the circumstances, in the opinion of a
trier of the facts, so warrants. Actual knowledge of any officer, director or
supervisory employee of a party will be imputed to, and deemed to be actual
knowledge of, that party.
16.10 PRESS RELEASES. Prior to the Closing, no party will issue or
cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated under this Agreement
without the prior consent of the other party first obtained; provided, however,
that nothing in this Agreement will prohibit any party from issuing or causing
publication of any press release or public announcement to the extent that such
party determines, on advice on counsel, that such action is required by law, in
which case the party
31
<PAGE> 40
making such determination will, if practicable under the circumstances, use
reasonable efforts to allow the other parties reasonable time to comment on such
release or announcement in advance of its issuance.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
WATERLINK, INC
By: /s/ Nancy A. Hamerly
---------------------------------------------
Its: Vice President and Chief Financial Officer
B-W ACQUISITION CORP.
By: /s/ Nancy A. Hamerly
---------------------------------------------
Its: Secretary
BLUE WATER SERVICES, INC.
By: /s/ Nancy A. Hamerly
---------------------------------------------
Its: Secretary
/s/ Lawrence A. Schmid
-------------------------------------------------
LAWRENCE A. SCHMID
32
<PAGE> 1
Exhibit 10.18
AGREEMENT AND PLAN OF MERGER
by and among
WATERLINK, INC.
WET ACQUISITION CORP.
and
WATER EQUIPMENT TECHNOLOGIES, INC.,
AND THE SHAREHOLDERS OF
WATER EQUIPMENT TECHNOLOGIES, INC.
Dated as of September 27, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER.................................................................................1
Section 1.1 The Merger...............................................................1
Section 1.2 Effective Time..........................................................1
Section 1.3 Closing.................................................................2
Section 1.4 Directors and Officers..................................................2
Section 1.5 Shareholders' Meeting...................................................2
Section 1.6 Tax-Free Reorganization.................................................2
ARTICLE II CONVERSION OF SHARES.......................................................................3
Section 2.1 Conversion of Shares.....................................................3
Section 2.2 Issuance of Parent Common Stock; Cash in Lieu
of Fractional Shares.....................................................7
Section 2.3 Stock Transfer Books.....................................................9
ARTICLE III REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
COMPANY AND THE SHAREHOLDERS........................................................................9
Section 3.1 Organization and Standing................................................9
Section 3.2 Conflicts; Consents......................................................9
Section 3.3 Capital Stock...........................................................10
Section 3.4 Investments of the Company.............................................10
Section 3.5 Outstanding Options and Warrants........................................10
Section 3.6 Business Relations......................................................10
Section 3.7 Real Property...........................................................10
Section 3.8 Title to and Condition of Assets........................................13
Section 3.9 Financial Statements....................................................13
Section 3.10 Absence of Certain Changes..............................................14
Section 3.11 Absence of Undisclosed Liabilities......................................15
Section 3.12 Taxes...................................................................15
Section 3.13 Indebtedness to Officers, Directors and Shareholders....................17
Section 3.14 Articles of Incorporation and Bylaws....................................17
Section 3.15 Corporate Minutes.......................................................17
Section 3.16 Brokerage and Finder's Fees.............................................17
Section 3.17 Accounts Receivable.....................................................17
Section 3.18 Employment Matters......................................................18
Section 3.19 No Defaults.............................................................18
Section 3.20 Material Contracts......................................................19
Section 3.21 Purchase Orders.........................................................19
Section 3.22 Indebtedness............................................................19
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 3.23 Litigation..............................................................19
Section 3.24 Insurance...............................................................19
Section 3.25 Transactions with Officers, Etc.........................................20
Section 3.26 Employees...............................................................20
Section 3.27 Trademarks, Copyrights and Similar Matters..............................21
Section 3.28 Employee Benefit Plans and Other Plans..................................21
Section 3.29 Environmental Matters...................................................24
Section 3.30 Bank Accounts...........................................................26
Section 3.31 Compliance with Laws....................................................26
Section 3.32 Powers of Attorney......................................................26
Section 3.33 Licenses and Rights.....................................................26
Section 3.34 Schedule of Government Reports..........................................26
Section 3.35 Products................................................................26
Section 3.36 Casualty Occurrences....................................................27
Section 3.37 Inventory...............................................................27
Section 3.38 Capital Expenditure Plans...............................................27
Section 3.39 No Intentions to Dispose................................................27
Section 3.40 Ultra/Pure Spin-off.....................................................27
Section 3.41 Material Misstatements or Omissions.....................................27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND SUB...........................................................................28
Section 4.1 Organization and Standing...............................................28
Section 4.2 Conflicts; Consents.....................................................28
Section 4.3 Certificate of Incorporation and By-Laws................................28
Section 4.4 Parent Disclosure Memorandum............................................29
Section 4.5 Parent Authorized Capitalization........................................29
Section 4.6 Absence of Certain Changes..............................................30
Section 4.7 Subsidiaries and Investments............................................30
Section 4.8 Absence of Undisclosed Liabilities......................................30
Section 4.9 Brokerage and Finder's Fees.............................................30
Section 4.10 Taxes...................................................................30
Section 4.11 Material Misstatements or Omissions.....................................30
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF
PARENT AND SUB............................................................................31
Section 5.1 Representations True....................................................31
Section 5.2 All Consents Obtained...................................................31
Section 5.3 Performance and Obligations.............................................31
Section 5.4 Receipt of Documents by Parent..........................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 5.5 No Litigation...........................................................31
Section 5.6 Employment Agreements...................................................32
Section 5.7 Shareholder Approval....................................................32
Section 5.8 Termination or Exercise of Stock Options................................32
Section 5.9 Resignation.............................................................32
Section 5.10 Investment Letter.......................................................32
Section 5.11 Leases for West Palm Beach and Clearwater Sites.........................32
Section 5.12 Stock Restriction Agreement.............................................32
Section 5.13 Minimum Net Working Capital.............................................32
Section 5.14 Delivery of Books and Records...........................................32
Section 5.15 Absence of Changes......................................................33
Section 5.16 Parent's Review.........................................................33
Section 5.17 Company Debentures......................................................33
Section 5.18 Company Credit Facility.................................................33
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDERS......................................................................33
Section 6.1 Representations True....................................................33
Section 6.2 All Consents Obtained...................................................33
Section 6.3 Performance of Obligations..............................................34
Section 6.4 Receipt of Documents by the Company.....................................34
Section 6.5 No Litigation...........................................................34
Section 6.6 Employment Agreements...................................................34
Section 6.7 Leases for West Palm and Clearwater Sites...............................34
ARTICLE VII TERMINATION OF AGREEMENT.........................................................34
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
INDEMNIFICATION: DISPUTES.................................................................35
Section 8.1 Survival of Representations and Warranties..............................35
Section 8.2 Shareholders' Indemnification...........................................35
Section 8.3 Defense of Claim........................................................36
Section 8.4 Defense of Tax Claim....................................................37
Section 8.5 Parent and Sub's Indemnification........................................38
ARTICLE IX CONDUCT PRIOR TO CLOSING DATE....................................................39
Section 9.1 Continuation of Business................................................39
Section 9.2 Preservation of Business................................................40
Section 9.3 Consents and Approvals..................................................40
iii
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE X ASSIGNMENT, THIRD PARTIES, BINDING EFFECT.................................................40
ARTICLE XI EXPENSES..................................................................................41
ARTICLE XII NOTICES...................................................................................41
ARTICLE XIII REMEDIES NOT EXCLUSIVE....................................................................42
ARTICLE XIV NON-COMPETITION...........................................................................42
Section 14.1 Non-Competition Agreement...............................................42
Section 14.2 Disclosure of Confidential Information..................................43
ARTICLE XV MISCELLANEOUS.............................................................................44
Section 15.1 Counterparts............................................................44
Section 15.2 Captions and Section Headings...........................................44
Section 15.3 Waivers.................................................................44
Section 15.4 Right of Inspection.....................................................44
Section 15.5 Amendments, Supplements or Modifications................................44
Section 15.6 Entire Agreement........................................................44
Section 15.7 Governing Law...........................................................44
Section 15.8 Knowledge...............................................................45
Section 15.9 Press Releases..........................................................45
Section 15.10 Disclosure Schedules....................................................45
List of Schedules
Schedule I Allocation of Waterlink Corporate Overhead
Schedule II Determination of Waterlink Common Stock Fair Market Value
Schedule III List of Shareholders
Schedule IV List of WET Supervisory Employees
List of Exhibits
Exhibits A-1, A-2
and A-3 Forms of Employment Agreements
Exhibit B Form of Investment Letter
Exhibits C-1, C-2 Forms of West Palm Beach Lease and Clearwater Lease
Exhibit D Form of Stock Restriction Agreement
Exhibit E Ultra/Pure Description of Business
</TABLE>
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of September 27,
1996, by and among Waterlink, Inc., a Delaware corporation ("Parent"), WET
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent
("Sub"), Water Equipment Technologies, Inc., a Florida corporation (the
"Company") and the shareholders of the Company listed on the signature page
hereof (collectively, the "Shareholders" and each individually, a
"Shareholder").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved, and deem it advisable and in the best interests of their respective
shareholders to consummate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the acquisition be accomplished by a
merger of the Company with and into Sub, with Sub being the surviving
corporation; and
WHEREAS, the parties intend for the merger to qualify as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and in accordance with the Florida Business Corporation Act ("FBCA")
and the General Corporation Law of the State of Delaware ("DGCL"), at the
Effective Time (as defined below), the Company and Sub shall consummate a merger
(the "Merger") pursuant to which (i) the Company shall be merged with and into
Sub and the separate corporate existence of the Company shall thereupon cease,
and (ii) Sub shall be the successor or surviving corporation in the Merger (the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware. Pursuant to and by virtue of the Merger, (x) the Articles of
Incorporation of Sub, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation except
that the name of the Surviving Corporation shall be Water Equipment
Technologies, Inc. and shall be so reflected in such Articles of Incorporation,
and (y) the Bylaws of Sub, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided by law, the Articles of Incorporation of the Surviving Corporation and
such Bylaws. The Merger shall have the effects set forth in the FBCA and the
DGCL.
Section 1.2 EFFECTIVE TIME. Parent, Sub and the Company will cause
Articles of Merger or Certificates of Merger, as the case may be, (collectively,
the "Certificates of Merger") with respect to the Merger to be executed and
filed on the date of the Closing (as defined in
<PAGE> 7
Section 1.3) (or on such other date as Parent and the Company may agree) with
the Secretaries of State of the States of Florida and Delaware as provided in
the FBCA and the DGCL, respectively. The Merger shall become effective when the
Certificates of Merger and other filings required by the FBCA and the DGCL have
been duly filed with the Secretaries of State of the States of Florida and
Delaware or at such time as is agreed upon by the parties and specified in the
Certificates of Merger, and such time is hereinafter referred to as the
"Effective Time".
Section 1.3 CLOSING. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., Cleveland, Ohio time, on a date to be mutually agreed
by the parties hereto, such date to be not more than thirty (30) days of the
date of this Agreement, unless an extension is mutually agreed to by the parties
(the "Closing Date"), at the offices of Benesch, Friedlander, Coplan & Aronoff
P.L.L., 2300 BP America Building, 200 Public Square, Cleveland, Ohio 44114
unless another time, date or place is agreed to in writing by the parties
hereto.
Section 1.4 DIRECTORS AND OFFICERS. The Directors of the Surviving
Corporation shall be, from and after the Effective Time, Larry Stenger, Chet
Ross and Nancy Hamerly and the officers of the Surviving Corporation shall be,
from and after the Effective Time, Chet Ross, Chairman, Larry Stenger, Chief
Operating Officer, Kathleen Donatini, Secretary and Nancy Hamerly, Treasurer, in
each case until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws; PROVIDED,
HOWEVER, that the Board of Directors of Parent, subject to the satisfaction of
its fiduciary duties and the terms of Larry Stenger's employment agreement
referred to in Section 5.6 hereof, will elect Larry Stenger as the Chief
Operating Officer of the Surviving Corporation during each EBIT Earn-out Period
(as defined in Section 2.1(d) below).
Section 1.5 SHAREHOLDERS' MEETING. In order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
the FBCA and all other applicable law, duly call, give notice of, convene and
hold a special meeting of its shareholders (the "Company Special Meeting"), as
soon as practicable for the purpose of considering and taking action upon this
Agreement. The Board of Directors of the Company shall recommend that the
shareholders of the Company vote in favor of the approval of the Merger and the
adoption of this Agreement. In lieu of the Company Special Meeting, the
shareholders of the Company may take action upon and approve the Company's
execution and delivery of, and performance of its obligations under, this
Agreement without a meeting by unanimous written consent of all such
shareholders to the extent permitted by and in accordance with the FBCA and the
Company's Bylaws. In connection with the Shareholders' consideration and
evaluation of this Agreement and the transactions contemplated hereby,
including, without limitation, the issuance to the Shareholders of the shares of
Parent Common Stock (as defined in and contemplated by Section 2.1), the Company
will, sufficiently in advance of such consideration, provide or make available
to all the Shareholders, such material information relating to the Company, its
business, financial condition and prospects, deemed by the Shareholders to be
necessary to enable such Shareholders to evaluate this Agreement and the
transactions contemplated hereby.
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<PAGE> 8
Section 1.6 TAX-FREE REORGANIZATION. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Code. Each Shareholder agrees not to dispose of any Parent Common Stock received
in the Merger within two (2) years of the Effective Time unless the Shareholder
obtains an opinion of counsel reasonably satisfactory to Parent that such
transfer will not violate the continuity of shareholder interest requirement set
forth in Treasury Regulation Section 1.368-1. Subject to the terms of the Stock
Restriction Agreement (as defined in Section 5.16 below), any Shareholder
wishing to dispose of any shares of Parent Common Stock received in the Merger
shall provide written notice to Parent, not less than thirty (30) days prior to
the intended date of disposition, specifying the number of shares of which the
Shareholder proposes to dispose.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 CONVERSION OF SHARES.
(a) Each share of common stock, par value $.01 per share, of
Sub issued and outstanding immediately prior to the Effective Time, by
virtue of the Merger and without any other action taken by Parent, Sub
or the Company, shall be, at the Effective Time, automatically
converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
(b) Each share of common stock of the Company ("Company Common
Stock") issued and outstanding immediately prior to the Effective Time
shall be, at the Effective Time, by virtue of the Merger and without
any action taken on the part of the holder thereof, be automatically
converted into the right to receive (i) (A) cash equal to the quotient
of Two Million One Hundred Twenty Five Thousand Dollars ($2,125,000)
divided by the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (collectively, the
"Outstanding Shares") and (B) a number of duly authorized, validly
issued, fully paid and nonassessable shares of common stock, par value
$.001 per share, of Parent ("Parent Common Stock") equal to the
quotient of Five Hundred Thousand (500,000) shares divided by the
number of Outstanding Shares, subject in part however, to adjustment as
hereinafter provided (the consideration referred to in clauses (i)(A)
and (B) of this subsection (b) is referred to as the "Initial Merger
Consideration") and (ii) the Earn-out Consideration Per Share, if any,
contemplated by clauses (d) and (e) below, subject in part however, to
claims for indemnification as hereinafter provided.
(c) The Initial Merger Consideration will be adjusted based on
the actual earnings before interest and federal and state income taxes
of the Company for the year ended September 30, 1996, determined in
accordance with generally accepted accounting
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<PAGE> 9
principles ("GAAP") consistently applied without giving effect to any
earnings attributed to distributions or dividends from the Company's
subsidiaries and without giving effect to the legal fees and expenses
(subject to Article XI hereof) incurred by the Company in connection
with the transactions contemplated by this Agreement ("EBIT"). If the
EBIT of the Company for the year ended September 30, 1996 is less than
or greater than Seven Hundred Fifty Thousand Dollars ($750,000) (the
"Forecasted EBIT"), the Initial Merger Consideration will be increased
or decreased, as the case may be, equally between the cash portion
thereof and the Parent Common Stock portion thereof (it being
understood and agreed that for purposes of valuing the Parent Common
Stock, each share of Parent Common Stock shall be deemed to have a
value of Four Dollars and Twenty Five Cents ($4.25)) so that the
Initial Merger Consideration, as adjusted, equals the excess of (i) the
product of six (6) times the EBIT of the Company for the year ended
September 30, 1996 (the "Initial Merger Consideration Adjustment") over
(ii) Two Hundred Fifty Thousand Dollars ($250,000). Any such adjustment
will be effected in the manner set forth in Sections 2.1(e) and (f) and
2.2(d) below. By way of example, if the EBIT of the Company for such
period is Seven Hundred Ninety Two Thousand Five Hundred Dollars
($792,500), the Initial Merger Consideration would be increased by Two
Hundred Fifty Five Thousand Dollars ($255,000) in the aggregate (six
(6) times the difference between the EBIT and the Forecasted EBIT), One
Hundred Twenty Seven Thousand Five Hundred Dollars ($127,500) of which
would be payable in cash and the remainder payable in thirty thousand
(30,000) shares of Parent Common Stock ($127,500 divided by $4.25). If
the EBIT of the Company for such period is less than Seven Hundred
Fifty Thousand Dollars ($750,000), the Initial Merger Consideration
will be decreased accordingly and such adjustment will be effected in
the manner set forth in Sections 2.1(f) and (g) and 2.2(d) below.
(d) In addition to the Initial Merger Consideration and with
respect to the year ended September 30, 1997 (the "First EBIT Earn-out
Period") and the year ended September 30, 1998 (the "Second EBIT
Earn-out Period" and, together with the First Earn-out Period, the
"EBIT Earn-out Periods") each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be, at the
Effective Time, by virtue of the Merger and without any action taken on
the part of the holder thereof, automatically converted into the right
to receive cash and shares of Parent Common Stock in the amounts set
forth below (the "EBIT Earn-out Consideration") based on the adjusted
earnings before income and taxes ("Adjusted EBIT") (as more fully
defined below) of the Surviving Corporation for such EBIT Earn-out
Periods.
(i) "Adjusted EBIT" for each EBIT Earn-out Period
shall mean the earnings before interest (other than interest
on borrowings used for working capital purposes) and federal
and state income taxes of the Surviving Corporation determined
in accordance with GAAP consistently applied, from period to
period, except that (A) no effect shall be given to any
expenses of the Surviving Corporation relating to Larry
Stenger's Employment Agreement referred to in Section 5.6
below or any expenses, including but not limited to, the
amortization
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<PAGE> 10
of good will, which is the result of purchase accounting
adjustments required by GAAP on the books of the Company
solely as a result of the Merger under the purchase method of
accounting or other applicable method of accounting for a
business combination, (B) the Surviving Corporation shall be
allocated a portion of Parent's expenses incurred on behalf of
the Surviving Corporation determined in the manner illustrated
in Schedule I attached hereto, and (C) no effect shall be
given to any revenues generated from, and associated expenses
incurred in connection with, sales which individually exceed
One Hundred Thousand Dollars ($100,000) and that are sales to
or referred by Parent or, other than the Surviving
Corporation, any subsidiary of Parent or any employee of
Parent or, other than the Surviving Corporation, of any
subsidiary of Parent. Notwithstanding the foregoing, in the
event that the business operations of the Surviving
Corporation are materially interrupted as a result of fire,
flood, acts of God, or other casualty occurrence beyond the
control of the Surviving Corporation, then Adjusted EBIT shall
include the proceeds of any business interruption or like
insurance policy insuring against such casualty occurrences to
the extent such proceeds represent lost profits during the
relevant EBIT Earn-out Period.
(ii) The EBIT Earn-out Consideration in the aggregate
for the First EBIT Earn-out Period shall equal one-half (1/2)
of the excess, if any, of the Adjusted EBIT for the year ended
September 30, 1997 over the Adjusted EBIT for the year ended
September 30, 1996 and the EBIT Earn-out Consideration in the
aggregate for the Second EBIT Earn-out Period shall equal
one-half (1/2) of the excess, if any, of the Adjusted EBIT for
the year ended September 30, 1998 over the greater of (A) the
Adjusted EBIT for the year ended September 30, 1997 and (B)
the Adjusted EBIT for the year ended September 30, 1996;
provided, however, that if the Adjusted EBIT for the year
ended September 30, 1997 is less than the Adjusted EBIT for
the year ended September 30, 1996, then the aggregate EBIT
Earn-Out Consideration for the Second EBIT Earn-Out Period
shall be reduced by the excess of the Adjusted EBIT for the
year ended September 30, 1996 over the Adjusted EBIT for the
year ended September 30, 1997. The EBIT Earn-out Consideration
Per Share for each EBIT Earn-out Period, if any, shall equal
the quotient of the EBIT Earn-out Consideration for such EBIT
Earn-out Period divided by the number of Outstanding Shares.
The EBIT Earn-out Consideration Per Share shall be payable by
Parent to the Shareholders with respect to each Outstanding
Share owned by each such Shareholder in (A) cash in an amount
equal to one-half (1/2) of the EBIT Earn-out Consideration Per
Share and (B) a number of duly authorized, validly issued,
fully paid and nonassessable shares of Parent Common Stock
equal to the quotient of one-half (1/2) of the EBIT Earn-out
Consideration Per Share divided by the Fair Market Value Per
Share of Parent Common Stock as of the date of payment as
determined in the manner set forth on Schedule II attached
hereto.
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<PAGE> 11
(e) In addition to the Initial Merger Consideration and the
EBIT Earn-out Consideration, each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time shall be, at
the Effective Time, by virtue of the Merger and without any action
taken on the part of the holder thereof, automatically converted into
the right to receive additional cash in the amounts set forth below
(the "KDF Earn-out Consideration") based on the Surviving Corporation's
purchases of KDF-Wool from KDF Fluid Treatment, Inc. ("KDF"). The KDF
Earn-out Consideration in the aggregate shall equal the product of One
Dollar and Twenty-Seven Cents ($1.27) multiplied by the number of
pounds of KDF-Wool purchased by the Surviving Corporation from KDF
during the period beginning at the Effective Time and ending on the
earlier of (i) the third (3rd) anniversary of the Effective Time and
(ii) the date through which the aggregate KDF Earn-out Consideration
equals Three Hundred and Thirty Thousand Dollars ($330,000), the
maximum amount of KDF Earn-out Consideration that may become payable in
the aggregate to holders of Outstanding Shares (the "KDF Earn-out
Termination Date"). The KDF Earn-out Consideration Per Share for any
period of determination (together with the EBIT Earn-out Consideration
Per Share, the "Earn-out Consideration Per Share") shall equal the
quotient of the KDF Earn-out Consideration divided by the number of
Outstanding Shares. The KDF Earn-out Consideration Per Share shall be
payable in cash by Parent to the Shareholders with respect to each
Outstanding Share owned by such Shareholder on a quarterly basis
beginning on February 15, 1997 with respect to the period beginning at
the Effective Time and ending on December 31, 1996 and each May 15,
August 15, November 15 and February 15 thereafter until the KDF
Earn-out Termination Date. Parent shall deliver to the Shareholders'
Representative (as defined below), together with each KDF Earn-out
Consideration payment, a statement setting forth the amount of KDF-Wool
purchased by the Surviving Corporation from KDF during the relevant
period and the corresponding calculation of KDF Earn-out Consideration
Per Share (the "KDF Earn-out Statement").
(f) Parent shall deliver to Larry Stenger, as representative
of all the shareholders of the Company (the "Shareholders'
Representative"), (i) on or before the later of December 31, 1996, or
the ninetieth (90th) day next following the Effective Time, (A) the
Surviving Corporation's financial statements for the year ended
September 30, 1996 and (B) a statement setting forth the computation
and amount of EBIT of the Surviving Corporation for such period and the
related computation and amount of cash and shares of Parent Common
Stock payable or forfeitable, as the case may be, comprising the
Initial Merger Consideration Adjustment (the "EBIT Adjustment
Statement") as reviewed by and concurred with by Parent's independent
public accountants, and (ii) within ninety (90) days of the end of each
EBIT Earn-out Period, (A) the Surviving Corporation's financial
statements covering such EBIT Earn-out Period, and (B) a statement
setting forth the computation and amount of Adjusted EBIT for such EBIT
Earn-out Period and the related computation and amount of cash and
shares of Parent Common Stock, if any, payable as EBIT Earn-out
Consideration Per Share (the "EBIT Earn-out Statement") as reviewed by
and concurred with by Parent's independent public accountants.
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<PAGE> 12
(g) The Shareholders' Representative shall have thirty (30)
days from the date the EBIT Adjustment Statement, an EBIT Earn-out
Statement or a KDF Earn-out Statement, as the case may be, is delivered
to it to furnish Parent with a letter requesting access to the books
and records of Parent necessary to compute EBIT, Adjusted EBIT or the
KDF Earn-out Consideration Per Share, as the case may be, and upon
receipt of such request, Parent shall promptly make available such
books and records to the Shareholders' Representative. The
Shareholders' Representative shall have sixty (60) days after such
access is granted to furnish Parent with a letter setting forth those
items with which it disagrees and the reasons for each such
disagreement. The parties shall promptly seek to reconcile any such
disagreement. If they fail to reach an agreement within thirty (30)
days of receipt by Parent of such letter, then an independent public
accounting firm shall be retained by the parties to settle any
remaining disagreement, and the decision of said firm shall be final
and binding on all parties to this Agreement. If the Shareholders'
Representative and Parent cannot agree on an accounting firm to settle
any remaining disagreement within such thirty (30) day period, then the
Shareholders' Representative and Parent shall each designate an
independent public accounting firm and the two (2) firms so designated
shall select a third independent public accounting firm and the
decision of said firm shall be final and binding on all parties to this
Agreement. The fees of all accounting firms involved shall be paid by
the party which fails to prevail with respect to the dispute.
(h) In the event that Parent fails to deliver the cash portion
of the EBIT Earn- out Consideration or the KDF Earn-out Consideration
within sixty (60) days of the due date of any such payment, then the
Shareholders, acting through the Shareholders' Representative, may
elect, at their option while such payment remains unpaid, to require
Parent to deliver a subordinated demand promissory note in the original
principal amount of such unpaid payment plus interest at the rate of
ten percent (10%) per annum.
(i) On and after the Effective Time, holders of certificates
which immediately prior to the Effective Time represented outstanding
shares of Company Common Stock (the "Certificates") shall cease to have
any rights as shareholders of the Company, except the right to receive
the Initial Merger Consideration and the Earn-out Consideration Per
Share set forth in this Article II (collectively, the "Merger
Consideration").
Section 2.2 ISSUANCE OF PARENT COMMON STOCK; CASH IN LIEU OF FRACTIONAL
SHARES.
(a) The manner in which each share of Company Common Stock
shall be converted into the Merger Consideration shall be as set forth
in this Section 2.2.
(b) Parent shall act as exchange/escrow agent for the holders
of shares of Company Common Stock in connection with the Merger (the
"Exchange/Escrow Agent"). In connection therewith, the Exchange/Escrow
Agent shall accept the Certificates delivered by such holders and shall
pay and deliver (and hold, pending cancellation, forfeiture or
delivery, pursuant to Section 2.2(d) below), cash and certificates
evidencing shares of
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<PAGE> 13
Parent Common Stock to which the holders of Company Common Stock shall
become entitled pursuant to this Article II.
(c) As soon as reasonably practicable after the Effective
Time, the Exchange/Escrow Agent shall mail to each holder of Company
Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange/Escrow Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) (the "Letter of
Transmittal") and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange/Escrow
Agent or to such other agent or agents as may be appointed by Parent,
together with such Letter of Transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for such shares of Company Common Stock formerly
represented by such Certificate and Parent shall cause the Surviving
Company to cancel the Certificate so surrendered. The name of each
Shareholder, the number of shares of Company Common Stock owned by such
Shareholder, the amount of cash and number of shares of Parent Common
Stock to which each such Shareholder shall become entitled to receive
as of the Effective Time, and the amount of Escrow Cash and number of
Escrow Shares (as each such term is defined below) issuable to each
such holder is set forth on Schedule III attached hereto. The shares of
Parent Common Stock into which the shares of Company Common Stock have
been converted in the Merger and comprising the Initial Merger
Consideration are hereinafter referred to as the "Exchange Shares."
(d) Notwithstanding anything to the contrary contained in this
Agreement, Two Hundred Twelve Thousand Five Hundred Dollars ($212,500)
and Fifty Thousand (50,000) of the Exchange Shares shall be held by the
Exchange/Escrow Agent, in trust, for the benefit of all the
Shareholders, until the EBIT Adjustment Statement is delivered and the
information contained thereon agreed to by Parent and the Shareholders'
Representative or finally decided by the independent public accounting
firm pursuant to the provisions of Section 2.1(g) (the "Escrow Release
Date"). The cash and shares of Parent Common Stock being held by the
Exchange/Escrow Agent are referred to as the "Escrow Cash" and "Escrow
Shares", respectively. The Escrow Cash shall bear interest at the rate
of six percent (6%) per annum from the Effective Date to the date of
forfeiture or release, as the case may be. The Escrow Cash and Escrow
Shares will be held to satisfy any decrease in the Initial Merger
Consideration in the event the Initial Merger Consideration Adjustment
is negative in accordance with Section 2.1(c). On the Escrow Release
Date, if the Initial Merger Consideration Adjustment is not negative,
the Exchange/Escrow Agent will release all the Escrow Cash (including
all interest accrued thereon) and Escrow Shares to the Shareholders
listed on Schedule III hereto (provided, however, that such
Shareholders have delivered to the Exchange/Escrow Agent duly executed
Letters of Transmittal together with their Certificates for
cancellation in accordance with Section 2.2(c)) and, within five (5)
days of the Escrow Release Date, Parent will deliver to such
Shareholders the additional cash and shares of Parent Common Stock to
be delivered
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<PAGE> 14
pursuant to Section 2.1(c). If the Initial Merger Consideration
Adjustment is negative, the Exchange/Escrow Agent will retain that
portion of the Escrow Cash (including all interest accrued thereon) and
Escrow Shares necessary to effect the decrease in the Initial Merger
Consideration pursuant to Section 2.1(c) and will promptly deliver to
the Shareholders the balance of the Escrow Cash (including all interest
accrued thereon) and Escrow Shares, if any. Notwithstanding the
foregoing, in the event that the Escrow Cash (including all interest
accrued thereon) and Escrow Shares are insufficient to cover the
decrease in the Initial Merger Consideration, the Shareholders listed
on Schedule III hereto shall remain obligated to deliver that number of
shares for cancellation and cash required to cover such Shareholders'
pro rata portion of such decrease.
(e) No fractional shares of Parent Common Stock comprising the
Initial Merger Consideration or the EBIT Earn-out Consideration will be
issued. In lieu thereof, cash will be delivered in an amount equal to
such fraction of a share of Parent Common Stock multiplied by Four and
25/100 Dollars ($4.25).
Section 2.3 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock on the records of
the Company.
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
---------------------------------------------
THE COMPANY AND THE SHAREHOLDERS
--------------------------------
The Company and the Shareholders, severally, represent and warrant to,
and agree with, Parent and Sub as follows (except where the concept otherwise
requires, for purposes of this Article III, the "Company" includes its
subsidiary, Water Equipment Technologies (Europe) Limited):
Section 3.1 ORGANIZATION AND STANDING.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida.
The Company has full corporate power and authority to carry on its
business as and where now conducted and to own or lease and operate its
properties at and where now owned or leased and operated by it, and is
duly qualified to do business and is in good standing in every
jurisdiction in which the property owned, leased or operated by it, or
the nature of the business conducted by it, makes such qualification
necessary.
(b) Set forth on Schedule 3.1(b)(i) is a true and correct
list of all jurisdictions in which the Company is qualified to do
business as a foreign Corporation and on
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<PAGE> 15
Schedule 3.1(b)(ii) each jurisdiction where the Company does business
or owns or leases property.
Section 3.2 CONFLICTS; CONSENTS.
(a) Except as set forth on Schedule 3.2(a), the execution,
delivery and consummation of this Agreement by the Company (i) does not
now and will not, with the passage of time, the giving of notice or
otherwise, result in a violation or breach of, or constitute a default
under, the Company's Articles of Incorporation or By-laws, or any term
or provision of any indenture, mortgage, deed of trust, lease,
instrument, order, judgment, decree, rule, regulation, law, contract,
agreement or any other restriction to which the Company is a party or
to which the Company or any of its assets is subject or bound, (ii)
will not result in the creation of any lien or other charge upon any
assets of the Company, and (iii) will not result in any acceleration or
termination of any loan or security interest agreement to which the
Company is a party or to which the Company or any of its assets is
subject or bound.
(b) Except as may be listed on Schedule 3.2(b), no approval or
consent of any person, firm or other entity or governmental body is or
was required to be obtained by the Company for the authorization of
this Agreement or the consummation by the Company of the transactions
contemplated by this Agreement.
Section 3.3 CAPITAL STOCK. Schedule 3.3 sets forth the authorized
capital stock of the Company and the number of shares of such capital stock
issued and outstanding. The record holders thereof are as set forth on Schedule
III attached hereto. All of the outstanding shares of the Company are duly
authorized, validly issued, fully paid and nonassessable and were not issued in
violation of preemptive or any other rights, including any rights under any
federal or state securities laws, of any shareholder.
Section 3.4 INVESTMENTS OF THE COMPANY. Except as set forth on Schedule
3.4, the Company has no direct or indirect equity, debt or other interest in any
entity, corporate or otherwise, or any right, warrant or option to acquire any
such interest.
Section 3.5 OUTSTANDING OPTIONS AND WARRANTS. Except as set forth on
Schedule 3.5, there are no subscriptions, options, warrants, rights, puts,
calls, commitments or agreements (respecting issuance, redemption, repurchase,
voting or otherwise) relating to, nor any outstanding securities convertible
into, any shares of capital stock or other equity interest of the Company, or
into any such convertible securities (collectively, "Rights"). The Company has
not agreed to issue, purchase, sell or transfer any of same, except as provided
in this Agreement. On or prior to the Closing, all outstanding Rights will have
been exercised or otherwise terminated and after the Closing, the Surviving
Corporation will have no further obligations under any agreements with respect
thereto.
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Section 3.6 BUSINESS RELATIONS. Other than as set forth on Schedule
3.6(a), the Company is not required, in the ordinary course of business, to
provide any bonding or any other financial security arrangements in connection
with any transactions with any customers or suppliers. The Company has not
received any notice of any disruption (including, without limitation, delayed
deliveries or allocations by suppliers) in the availability of any materials or
products used in the Company's business and has no reason to believe that any
such disruption will occur. Except as set forth on Schedule 3.6(a), there are no
sole source suppliers of goods, equipment or services used by the Company (other
than public utilities) with respect to which practical alternative sources of
supply are unavailable. Other than as set forth on Schedule 3.6(b), no single
customer or group of commonly-owned or controlled customers of the Company
accounted for greater than five percent (5%) of the Company's gross revenues for
either the most recently completed fiscal year or the portion of the current
fiscal year ended July 31, 1996.
Section 3.7 REAL PROPERTY.
(a) Schedule 3.7(a) is a true and complete list of (i) all
real property leases to which the Company is a party and (ii) all
options, deeds of trust, deeds of declaration, mortgages and land
contracts pursuant to or in which the Company has any interest
(collectively, the "Real Property"). The Company has furnished to
Parent or its counsel true and complete copies of each written contract
and a written description of each oral contract relating to the list
set forth on Schedule 3.7(a). The Company owns no real property.
(b) Except as set forth on Schedule 3.7(b), with respect to
the Real Property:
(i) There is no condemnation proceeding or eminent
domain proceeding of any kind pending or, to the best
knowledge of the Company, threatened against any of the Real
Property;
(ii) The Real Property is occupied under valid and
current certificates of occupancy or the like, and the
transactions contemplated by this Agreement will not require
the issuance of any new or amended certificates of occupancy
or the like; there are no facts known to the Company which
would prevent each location from being occupied after the
Closing Date in substantially the same manner as before;
(iii) To the best knowledge of the Company, the Real
Property does not violate, and all improvements are
constructed in compliance with, any applicable federal, state
or local statutes, laws, ordinances, regulations, rules,
codes, orders or requirements, including, without limitation,
any building, zoning, fire or environmental laws or codes (the
"Laws and Ordinances");
(iv) The Company has obtained all appropriate
licenses, permits, building permits and occupancy permits that
are required with respect to the Real
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<PAGE> 17
Property by the Laws and Ordinances and all such licenses and
permits are in full force and effect;
(v) There are no outstanding variances or special
use permits affecting the Real Property or its uses;
(vi) No written notice of a violation of any Laws and
Ordinances, or of any covenant, condition, easement or
restriction affecting the Real Property or relating to its use
or occupancy has been given, nor is the Company aware of any
facts or circumstances that may result in any such violation;
(vii) No portion of the Real Property is located
within a special flood plain area as designated by the Federal
Emergency Management Agency or other applicable government
authority;
(viii) The Real Property has and will have as of the
Closing Date adequate water supply, storm and sanitary sewage
facilities, telephone, electricity, fire protection, means of
ingress and egress to and from public highways and, without
limitation, other required public utilities. All utility lines
and facilities presently serving the Real Property are
serviced and maintained by the appropriate public or
quasi-public entity. All utilities enter the Real Property
through adjoining public streets or, to the best knowledge of
the Company, if they pass through adjoining private land, they
do so in accordance with valid public easements. The Company
has no knowledge of any increase in the applicable rate for
any utility service being furnished to the Real Property from
the rate in effect with respect to the most recent bill that
the Company has received for such service;
(ix) The Company has no knowledge of improvements
made or contemplated to be made by any public or private
authority, the costs of which are to be assessed as special
taxes or charges against the Real Property, and there are no
present assessments;
(x) All improvements constituting the Real Property
and made by the Company are without structural defects, were
constructed in substantial conformity with all plans and
specifications, are located entirely within the boundary lines
of the Real Property and do not encroach upon any street or
land of others;
(xi) The Real Property either (a) is freely
accessible directly from all public streets on which it abuts,
or (b) to the best knowledge of the Company, uses adjoining
private land to access the same in accordance with valid
public easements. The Company has no knowledge of any
condition which would result in the termination of such
access.
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(c) With respect to the leased property comprising the Real
Property including all leasehold improvements (collectively, the
"Leased Property"), except as set forth on Schedule 3.7(c):
(i) All leases are in writing and are duly executed
and, to the best knowledge of the Company, where required,
witnessed, acknowledged and recorded to make them valid and
binding and in full force and effect for their full term, and
none have been modified, amended, sublet or assigned;
(ii) The rental set forth in each such lease is the
actual rental being paid, and there are no separate agreements
or understandings with respect to the same not set forth on
Schedule 3.7(c);
(iii) Where the Company is the lessee, the lessee
under each such lease has the full right to exercise any
renewal option and on due exercise will be entitled to enjoy
the use of the leased premises for the full term of such
renewal option, and such renewal option does not terminate on
assignment of such lease;
(iv) There is no default by the Company which affects
the Leased Property;
(v) Where the Company is the lessee, on performance
by the lessee of the terms of each lease (all of which terms
have been fully performed by the lessee as of the date of this
Agreement and will have been fully performed as of the Closing
Date), the lessee has the full right to enjoy the use of the
premises demised for the full term of the lease without
disturbance by any other party, and there are no written or
oral contracts between the Company and any third party
relating to any claim by such third party of any right to all
or any part of the interest of the Company in any leasehold
estate or otherwise relating to the use and occupancy by the
Company of such estate;
(vi) Where the Company is the lessee, all leasehold
improvements are in good operating or working condition and
repair, after taking into account ordinary wear and tear, and
are adequate for the operation of the business of the Company
as presently conducted. All contributions required to have
been paid by any lessor of property in respect of any
leasehold improvements have been paid.
Section 3.8 TITLE TO AND CONDITION OF ASSETS. Except as set forth on
Schedule 3.8, the Company owns and possesses all right, title and interest in
and to its assets, including, without limitation (i) valid and subsisting
leasehold interests in all leasehold estates comprising the Real Property and
(ii) good and merchantable title to all properties and assets other than the
Real Property, in each case free and clear of all conveyances, conditions,
easements, liens, charges, security interests, adverse claims, encumbrances,
encroachments, reservations, easements, limitations, servitudes, other title
defects or restrictions of any nature other than purchase money
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security interests. All tangible assets of the Company are in the Company's
possession or under its respective control, and all equipment used by the
Company is in good operating condition and repair, subject only to routine
maintenance, and is fit and adequate for the purposes intended. The Company
enjoys peaceful and quiet possession of its assets pursuant to or by all of the
deeds, bills of sale, leases, licenses and other agreements under which it is
operating its business.
Section 3.9 FINANCIAL STATEMENTS. Prior to the date of this Agreement,
the Company has provided Parent with the consolidated financial statements of
the Company and its subsidiaries listed below (collectively, the "Financial
Statements"):
(a) Balance Sheets at September 30, 1993, 1994 and 1995 as
reviewed by the Company's independent certified public accountants;
(b) Statement of Operations for the years ended September 30,
1993, 1994 and 1995 as reviewed by the Company's independent certified
public accountants; and
(c) Unaudited Balance Sheets and Statements of Operations at
and for the quarter ended December 31, 1995, and the nine-month period
ended June 30, 1996.
Except as set forth or [sic] Schedule 3.9, the Financial Statements (i)
have been prepared in accordance with GAAP applied on a consistent basis during
the periods, (ii) present fairly in all material respects, the Company's
financial position, results of its operations and changes in its financial
position at and for the periods therein specified, (iii) are true and complete,
(iv) are consistent with the books and records of the Company, and (v) with
respect to all of the unaudited Financial Statements, include all adjustments,
consisting only of normal recurring adjustments, required for a fair
presentation. The Financial Statements will be deemed to include any
accompanying notes and schedules.
Section 3.10 ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, other
than time spent in connection with the negotiation and preparation of this
Agreement and the transactions contemplated hereby, the Company has conducted
its business in the ordinary and regular course consistent with past practice.
Since such date, there has not been any material adverse change in the business,
condition (financial or otherwise), assets, liabilities, results of operations
or, to the Company's knowledge, prospects of the Company. To the Company's
knowledge, other than the transactions contemplated by this Agreement, there has
not occurred any event or governmental regulation or order which could cause
such a change, nor, to the Company's knowledge, is the occurrence of any such
event, regulation or order threatened. Except as set forth on Schedule 3.10,
without limiting the generality of the foregoing, since June 30, 1996, there has
not been:
(a) Any increase made or promised in the compensation or other
remuneration payable or to become payable by the Company to any of its
employees, agents or partners;
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(b) Any mortgage or pledge of, or any other lien, charge or
encumbrance of any kind, on any of the assets, tangible or intangible,
of the Company.
(c) Other than the contemplated distribution by the Company to
the Shareholders of all the capital stock of the Company's subsidiary,
Ultra/Pure Water, Inc., any sale or transfer of any assets, except for
sales of inventory in the ordinary course of business, or settlement,
cancellation or release of any indebtedness owing to the Company or of
any other claims of the Company;
(d) Other than the contemplated distribution by the Company to
the Shareholders of all the capital stock of the Company's subsidiary
Ultra/Pure Water, Inc., any sale, license, assignment or transfer by
the Company of any patents, trademarks, trade names or other similar
intangible assets;
(e) Any amendments or termination of any material contract,
agreement or license to which the Company is a party or to which the
Company or any of its assets are subject or bound;
(f) Any commitment made (through negotiations or otherwise) or
any liability incurred to any labor organization by the Company;
(g) Any payment, declaration or setting aside by the Company
of dividends or a return of capital or any distribution by the Company
of any cash or other assets to any of its shareholders in redemption of
or as the purchase price for any of the Company's capital stock or
equity or in discharge or cancellation in whole or in part of any
indebtedness owing (whether in payment of principal, interest or
otherwise) to any of its shareholders;
(h) Except for the redemption of the Company's 1995 Ten
Percent Convertible Debentures in the aggregate principal amount not
exceeding Five Hundred Thousand Dollars ($500,000), any discharge or
satisfaction by the Company of any lien, encumbrance, obligation or
liability (accrued, absolute, fixed or contingent), other than those
shown on the June 30, 1996 balance sheet of the Financial Statements
that have been discharged or satisfied in the ordinary course without
acceleration and other than those incurred and discharged in the
ordinary course of business consistent with past practice;
(i) Any material transaction entered into by the Company other
than in the ordinary course of business consistent with past practice;
(j) Any institution by the Company of a bonus, stock option,
profit-sharing, pension plan or similar arrangement or any changes in
any such existing plans;
(k) Any incurrence by the Company (whether discharged or not)
of any obligation or liability (whether accrued, absolute, fixed or
contingent) other than current
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liabilities incurred, and obligations entered into, in the ordinary
course of business consistent with past practice;
(l) Any adverse change in collection loss experience;
(m) Any material loss, damage or destruction to any of the
Company's properties (whether or not covered by insurance) or any labor
trouble;
(n) Any payments in cash or otherwise by the Company to its
shareholders or any affiliate pursuant to a tax sharing arrangement or
any other type of intercompany agreement; or
(o) Any change in accounting principles or practices from
those utilized in the preparation of the Financial Statements.
Section 3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
the June 30, 1996 balance sheet of the Financial Statements, or on Schedule
3.11, the Company is not obligated for, nor are any of its assets or properties
subject to, any material liabilities or adverse claims or obligations, absolute
or contingent, except those incurred in the ordinary course of business since
June 30, 1996, and the Company is not in default with respect to any terms or
conditions of any liability or obligation. There are no facts known to the
Company that might reasonably serve as a basis, in whole or in part, for any
material liabilities or obligations not disclosed in this Agreement, in the
Financial Statements or in the Schedules and Exhibits attached hereto.
Section 3.12 TAXES.
(a) The Company has filed, and will file, on a timely basis,
all income, franchise, sales, property, gross receipts, employment and
other tax returns and reports of every nature whatsoever required to be
filed by it (including any consolidated or combined return required to
be filed by it and any affiliated person or entity) on or before the
Closing Date accurately reflecting all taxes, including penalties,
additions to tax, and interest ("Taxes") owing to the United States or
any other government or any government subdivision, state or local, or
any other taxing authority ("Tax Returns"), and has paid in full or
made adequate provision in the Financial Statements for the payment of
all Taxes for which it has or may have liability. All such Tax Returns
are true, correct and complete in all respects. The Company has no
knowledge of any unassessed Taxes proposed or threatened against the
Company as a result of the operation of its business. There are no
liens on the Company's assets as a result of any liabilities for Taxes,
except for Taxes not yet due and payable. There are, and after the date
of this Agreement will be, no deficiencies for Taxes, of any kind
assessed against or relating to the Company with respect to any taxable
period ending on or before the Closing Date. There are, and after the
date of this Agreement will be, no federal income tax deficiencies
assessed against the Company pursuant to Treasury Regulations Section
1.1502-6. There are, and after the date of this Agreement will be, no
other deficiencies for Taxes, relating to Tax Returns
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<PAGE> 22
which include the Company for periods ending on or before the Closing
Date. As to all tax periods, or portions thereof, which end prior to,
or include, the Closing Date for which no Tax Returns are yet due, the
liability of the Company for Taxes allocable to periods (or portions
thereof) ending on or before the Closing Date does not exceed the
amount accrued on the Financial Statements for such Taxes. The
liability of the Company for Taxes has not increased since December 31,
1995, except in the ordinary course of business.
(b) The Company is not a party to any action or proceeding by
any governmental authority for the assessment or collection of Taxes,
nor has any such event been asserted or threatened. The Company has not
filed any consent of the type described under Section 341(f) of the
Code, nor is it subject to any accumulated earnings penalties. The
Company has not made any payments, is not obligated to make any
payments, or is not a party to any agreement that under certain
circumstances could oblige it to make any payments that would not be
deductible under Section 280G of the Code. The Company was never a
member of any unitary group for purposes of any state income or
franchise tax laws. The Company has not been a United States real
property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
(c) Except as set forth on Schedule 3.12, there are no
outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local, or foreign Tax
Return of the Company for any period. The federal income tax returns
which include the Company currently are being audited by the Internal
Revenue Service for the fiscal year ended September 30, 1994. All
deficiencies for Taxes raised as a result of any past audits have been
satisfied and all deficiencies for Taxes with respect to the fiscal
year ended September 30, 1994 will be borne by the Shareholders. No
federal, state, local or foreign taxing authority has audited any tax
return or report filed by the Company for any taxable period beginning
after September 30, 1994.
(d) The Company has furnished to Parent complete and correct
copies of all federal income tax returns of the Company for all taxable
years beginning after September 30, 1990. The Company has furnished to
Parent complete and correct copies of all state, local and foreign
income or franchise tax returns filed by the Company for each of their
respective taxable years beginning after December 31, 1990.
(e) The Company has furnished to Parent complete and correct
copies of all audit reports (or portions thereof) received by the
Company from the U.S. Treasury Department which relate to the Company
for any taxable period beginning after September 30,1990 and will
furnish to Parent complete and correct copies of any such audit reports
relating to any such periods received after the date hereof. The
Company has furnished to Parent complete and correct copies of all
audit reports (or portions thereof) received by the Company from any
state, local or foreign taxing authority, which relate to the Company
for any taxable period beginning after December 31, 1990 and will
furnish
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to Parent complete and correct copies of any such audit reports
relating to any such periods received after the date hereof.
(f) Schedule 3.12 sets forth all tax elections made by the
Company, all adjustments under Section 481(a) of the Code which will
affect the Taxes of Parent for all taxable years which end on or after
the Closing Date and all tax rulings or closing agreements to which the
Company is a party. Schedule 3.12 sets forth all jurisdictions in which
the Company has filed or will file state income or franchise tax
returns for each taxable period, or portion thereof, ending on or
before the Effective Time.
(g) There are no liens for Taxes currently in existence with
respect to the Company. There are no tax sharing agreements or similar
arrangements in effect that include the Company.
Section 3.13 INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS.
Except as set forth on Schedule 3.13, the Company is not indebted to any of its
shareholders, officers or directors (or to members of their immediate families)
in any amount whatever other than for salaries payable or for expenses incurred
on behalf of the Company in the ordinary course of business.
Section 3.14 ARTICLES OF INCORPORATION AND BYLAWS. True, accurate and
complete copies of the Articles of Incorporation and Bylaws of the Company,
together with all amendments thereto, have been delivered to Parent or its
counsel.
Section 3.15 CORPORATE MINUTES. The Company has furnished or made
available to Parent and its counsel the corporate record books of the Company
and the same are accurate and complete and reflect all material resolutions
adopted and all actions taken, authorized or ratified by the shareholders and
directors of the Company. Copies of all corporate minutes of meetings held and
of all written actions taken after the date of this Agreement will be furnished
to Parent promptly, and in all events, prior to the Closing Date.
Section 3.16 BROKERAGE AND FINDER'S FEES. None of the Company or any
shareholder, officer, director or agent of the Company has incurred any
liability to any broker, finder or agent for any brokerage fees, finder's fees,
or commissions with respect to the transactions contemplated by this Agreement.
Section 3.17 ACCOUNTS RECEIVABLE. The Company has previously delivered
to Parent an aging schedule as of a date not more than thirty (30) days prior to
the date of this Agreement, which is true, correct and complete, of the accounts
receivables, both trade and non-trade, of the Company as of that date. The
Company will update the list as of a date not more than five (5) days prior to
the Closing Date. The reserves for doubtful receivables and uncollectible
accounts that will be reflected on the books of the Company as of the Closing
Date will not exceed two and one-half percent (2.5%) of the then aggregate
accounts receivable, and will be sufficient to provide for any losses that may
arise in connection with the collection of the accounts receivable. Except as
set forth on Schedule 3.17 with respect to those accounts receivable that are
secured by
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outstanding letters of credit, the accounts receivable as reflected on the books
of the Company as of the Closing Date, net of such reserves, will be fully
collectible in the ordinary course of business within ninety (90) days after the
Closing Date, without resort to legal proceedings. All of such accounts
receivable will represent valid claims that have arisen in the ordinary course
of business.
Section 3.18 EMPLOYMENT MATTERS.
(a) Except as set forth on Schedule 3.18, the Company is not a
party to, participant in, or bound by, any collective bargaining
agreement, union contract or employment, bonus, deferred compensation,
insurance, pension, profit sharing or similar personnel arrangement,
any stock purchase, stock option or other stock plans or programs or
any employee termination or severance arrangement.
(b) Except as set forth on Schedule 3.18, the employment by
the Company of any person (whether or not there is a written employment
agreement) may be terminated for any reason whatsoever not inconsistent
with current law, without penalty or liability of any kind other than
accrued vacation pay.
(c) Except as set forth on Schedule 3.18, there are no active,
pending or, to the best of Company's knowledge, threatened
administrative or judicial proceedings under Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the Fair
Labor Standards Act, the Occupational Safety and Health Act, the
National Labor Relations Act or any other foreign, federal, state or
local law (including common law), ordinance or regulation relating to
employees of the Company.
(d) The relation of the Company with its employees is
generally good and there are no pending or, to the best of Company's
knowledge, threatened, labor difficulties.
Section 3.19 NO DEFAULTS. Except as set forth on Schedule 3.19, the
Company is not in default (nor is any such default alleged to exist) under the
terms of any written or oral contract (including, without limitation, purchase
orders), agreement, lease, license, mortgage, deed of trust, note, guaranty,
instrument or understanding (collectively, "Contracts") to which it is a party
or to which any of its assets, business or operations is subject, nor, to the
best of the Company's knowledge, is any condition or event threatened, which,
after notice or the passage of time, or both, would constitute a default under
any Contract. To the Company's' knowledge, no such default, condition or event
exists or is alleged to exist with respect to the performance of any obligation
of any other party to any of such Contracts.
Section 3.20 MATERIAL CONTRACTS. (a) Schedule 3.20(a) is a true and
correct list of each Contract to which the Company is a party or by
which any of its assets, businesses or operations is bound or affected.
Schedule 3.20(a) includes a description of any consents or approvals
required of third parties under the terms of such Contracts for the
consummation of the transactions contemplated by this Agreement.
Schedule 3.20(a)
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excludes any Contract that involves or is reasonably expected to
involve the payment of consideration having an aggregate value of less
than Fifteen Thousand Dollars ($15,000). A true, correct and complete
copy of each written, and a description of each oral, Contract, so
listed has been delivered to Parent or its counsel.
(b) Schedule 3.20(b) is a true and correct list of each
Contract with a customer of the Company that contains provisions (i)
providing for payment terms to the Company of forty-five (45) days or
greater, (ii) permitting the customer to retain in excess of five
percent (5%) of the purchase price for the products or services to be
provided thereby as security for warranty claims or for any other
purpose, or (iii) providing for liquidated or stipulated damages.
Section 3.21 PURCHASE ORDERS. Schedule 3.21 is a true and complete list
of all purchase orders under which the Company is or will become obligated to
pay any particular vendor an aggregate sum in excess of Ten Thousand Dollars
($10,000).
Section 3.22 INDEBTEDNESS. Schedule 3.22 is a true and complete list of
all indebtedness, including, without limitation, trade accounts payable owed or
to be owed by the Company and, if such indebtedness is secured, a description of
all properties or other assets pledged, mortgaged or otherwise hypothecated
(voluntarily or involuntarily) as security.
Section 3.23 LITIGATION. Schedule 3.23 is a true and complete list of
all administrative or judicial proceedings to which the Company is a party or,
to the knowledge of the Company, to which it is threatened to be made a party
which relate, directly or indirectly, to any of the Company's assets, including,
without limitation, proceedings that could affect title to or interests in the
assets. There is no action, suit, claim, demand, arbitration or other proceeding
or investigation, administrative or judicial, pending or threatened against or
affecting the Company or any of its assets, including, without limitation, any
relating to so-called product liability, which, if adversely determined or
resolved, would have an adverse effect on the business, assets, condition
(financial or otherwise), results of operations or prospects of the Company, or
any provisions of, or the validity of, or rights under, any leases or other
operating agreements, licenses, permits or grants of authority of the Company.
The Company has not received notice that it is the subject of any governmental
investigation and the Company is not subject to, nor is it or has it been in
default with respect to, any order, writ, injunction or decree of any court, or
of any federal, state, local or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. Schedule 3.23
indicates which of the matters listed are covered by valid insurance and the
extent of such coverage.
Section 3.24 INSURANCE. Schedule 3.24 is a true and correct list of all
the policies of insurance covering the business, properties and assets of the
Company presently in force (including as to each (i) risk insured against, (ii)
name of carrier, (iii) policy number, (iv) amount of coverage, (v) amount of
premium, (vi) expiration date and (vii) the property, if any, insured),
indicating as to each whether it insures on an "occurrence" or a "claims made"
basis and whether it provides for any retrospective rate or premium adjustments.
The insurance described on
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Schedule 3.24 insures the Company in the amounts and against such perils as are
generally maintained for comparable businesses. All of the insurance policies
set forth on Schedule 3.24 are in full force and effect and all premiums,
retention amounts and other related expenses due have been paid, and the Company
has not received any notice of cancellations with respect to any of the
policies. The Company has not been refused any insurance by any insurance
carrier to which it has applied for insurance during the last five (5) years. To
the best of the Company's knowledge, there are no circumstances existing which
would enable any insurer to avoid liability under any of the Company's policies.
Section 3.25 TRANSACTIONS WITH OFFICERS, ETC.
(a) Schedule 3.25(a) is a true and correct list of the
ownership of the Company in any entity that has any existing
contractual relationship, oral or written, or other business
relationship with any shareholders of the Company.
(b) Schedule 3.25(b) is a true and correct list of all
Contracts (oral or written), including, but not limited to, any loans
(other than those set forth on Schedule 3.13 of this Agreement or not
required to be set forth thereon) or leases, to which the Company is a
party and to which any of the officers, directors or other employees or
shareholders of the Company, or members of their immediate families or
other Companies, partnerships or other entities in which any of them
has a material interest, is also a party. Schedule 3.25(b) includes a
list of indebtedness of any such person or entity to the Company.
(c) Except as set forth on Schedule 3.25(c) and other than the
ownership of not more than one percent (1%) of the outstanding shares
of any class of capital stock of a publicly held corporation, none of
the Company or any officer, director, employee or shareholder of the
Company, or members of their immediate families or other corporations,
partnerships or other entities in which any of them has a material
interest, has any direct or indirect interest in any competitor,
supplier or customer of the Company or in any person, firm or entity
from whom or to whom the Company leases any property, or in any other
person, firm or entity with whom the Company transacts business of any
nature.
Section 3.26 EMPLOYEES. Schedule 3.26 is a true and correct list of all
employees of the Company (as used in this Agreement, the term "employees"
includes employees, salesmen, agents, sales representatives and all other
persons associated with the Company), their accrued vacation and sick pay, the
nature of their duties and the date and amount of their last increase in
compensation. A true, correct and complete copy of each written employment
contract and a description of each oral employment agreement with any employee
has been delivered to Parent or its counsel.
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Section 3.27 TRADEMARKS, COPYRIGHTS AND SIMILAR MATTERS.
(a) The Company has never been charged with infringement or
violation of any patent, trademark, service mark, trade name or
copyright. To the best knowledge of the Company, the Company is not
using nor has it in any way made use of any patentable or unpatentable
invention, or any confidential information or trade secret, of any
former employer of any present or past employee of the Company. All
patents, trademarks, service marks, trade names and copyrights (the
"Specified Items"), and all applications or registrations (including
those whose use is limited to one or more states of the United States),
owned or used by the Company are listed on Schedule 3.27 and, to the
extent indicated, have been duly registered in, filed in or issued by
the United States Patent Office or the corresponding agency or office
of each of such states. Except as indicated on Schedule 3.27, the
Company is the sole and exclusive owner of, or has the sole and
exclusive right to use, the Specified Items, except for the rights of
licensees (whose names and addresses are listed on Schedule 3.27).
Except as set forth on Schedule 3.27, the Company does not use any of
the Specified Items by consent of any other party and the same are free
and clear of any attachments, liens, claims, encumbrances or
agreements. Except as listed on Schedule 3.27, there are no claims or
demands of any other person, firm or corporation pertaining to any of
the Specified Items, and no proceedings have been instituted, are
pending or, to the knowledge of the Company, are threatened which
challenge the right of the Company with respect to any of the Specified
Items. To the best knowledge of the Company, none of the Specified
Items infringes on, or, to the knowledge of the Company, is being
infringed on by others, and none of the Specified Items is subject to
any outstanding order, decree, judgment, stipulation or agreement
restricting the scope of its use.
(b) The Company is the sole and exclusive owner of its
corporate name and any trade names under which it does business. The
Company does not use any such names by consent of any other person or
entity, and owns such names free and clear of any attachments, liens,
claims, encumbrances or agreements. There are no claims or demands of
any other person or entity pertaining to the use of the names and no
proceedings have been instituted or, to the knowledge of the Company,
are threatened, which challenge the right of the Company in respect of
any such names; and the use of such name by the Company does not
infringe on or, to the knowledge of the Company, is not being infringed
on by others, and is not subject to any outstanding order, decree,
judgment, stipulation or agreement restricting the scope of their use.
(c) True, correct and complete copies of all patents,
trademarks, service marks, trade names and copyrights, and of all
related applications or registrations, that are listed on Schedule 3.27
have been delivered to Parent or its counsel.
Section 3.28 EMPLOYEE BENEFIT PLANS AND OTHER PLANS. Except for the
plans or arrangements listed on Schedule 3.28 (hereinafter referred collectively
to as the "Plans" and individually as the "Plan"), the Company does not,
directly or indirectly, maintain, sponsor or
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have an obligation or liability with respect to, any "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), executive compensation or incentive plan, profit sharing
plan, bonus or severance arrangement, employment contract, collective bargaining
agreement, union contract, deferred compensation agreement, stock purchase or
incentive plan or arrangement, or other employee benefit plan or arrangement.
For the purposes of this Agreement, "Controlled Group" shall mean the
Shareholders, the Company and any trade or business, whether or not
incorporated, which is treated together with the Shareholders or Company under
Section 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the Code as a
single employer. With respect to each Plan identified on Schedule 3.28:
(a) All applicable ERISA and Code requirements with respect to
such Plan as to the filing of reports, documents and notices with the
Secretary of Labor, the Pension Benefit Guaranty Company, and the
Secretary of the Treasury, or the furnishing of such documents to
Company employees, participants or beneficiaries, have been complied
with in all respects by such Plan or its administrators;
(b) No member of the Controlled Group, Plan, fiduciary of such
Plan or administrator of such Plan, has taken any action, or failed to
take any action, which action or failure could subject the Company, or
any employee of the Company to any liability for breach of any
fiduciary duty, or for any prohibited transaction (as defined in
Section 4975 of the Code), with respect to or in connection with such
Plan;
(c) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Company,
threatened against such Plan, the Company, or against any fiduciary of
such Plan;
(d) Such Plan, the fiduciaries of such Plan, Controlled Group
members and administrators of such Plan have at all times complied with
applicable requirements of ERISA, the Code, and any other applicable
law governing such Plan, and such Plan has at all times been properly
administered in accordance with all such requirements of law and in
accordance with its terms to the extent consistent with all such
requirements of law;
(e) The Plan is not a "multiemployer plan" as described in
Section 3(37) of ERISA or Section 414(f) of the Code, nor is it subject
to Title IV of ERISA;
(f) All bonding required by applicable provisions of ERISA
with respect to the Plan has been obtained and is in full force and
effect;
(g) No trust associated with the Plan has earned any
"unrelated business taxable income" (as such term is defined in Section
512 of the Code and the regulations thereunder) or "unrelated debt
financed income" (as such term is defined in Section 514 of the Code
and regulations thereunder);
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<PAGE> 29
(h) If the Plan is an "employee pension benefit plan" (as
defined in ERISA Section 3(2)), the Plan and its associated trust
complies with the applicable provisions of the Code (including, but not
limited to, Code Sections 401(a), 401(a)(4), 410(b), 401(a)(26) and
501(a)), has received a favorable determination letter from the
Internal Revenue Service stating that the Plan qualifies under Section
401(a) and that the associated trust, if any, qualifies under Section
501(a), has been timely amended (and the amendment has been submitted
to the Internal Revenue Service for a favorable determination letter)
with respect to changes required by the Code, ERISA, and the
regulations thereunder;
(i) The Plan has not incurred any "accumulated funding
deficiency," as defined in Section 302(a)(2) of ERISA whether or not
waived;
(j) The Plan does not (i) provide for non-terminable or
non-alterable medical benefits for employees, dependents or retirees or
(ii) provide any benefits for any person upon or following retirement
or termination of employment except as otherwise required by Part 6 of
subtitle B of Title I of ERISA or Section 4980B of the Code (herein
collectively referred to as "COBRA"), and then only to the extent the
person pays the "applicable premium" (as defined in Code Section
4980B(f)(4)) for such coverage;
(k) No events or changes have occurred or are expected to
occur with respect to the Plan that would cause an increase in the cost
of providing the benefits under the Plan;
(l) Full payment has been made of all amounts which the
Company or other member of the Controlled Group, is required, under
applicable law or under the Plan, to have paid as a contribution or a
benefit for the plan years of the Plan ended prior to the date hereof.
All contributions required to be made by, and all other liability of,
the Company with respect to the Plan for the periods covered by the
Financial Statements shall have been set forth on the appropriate
Financial Statement in accordance with GAAP. Benefits under the Plan
are as represented and have not been increased subsequent to the date
as of which documents have been provided.
(m) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or
officer of the Company to severance pay, unemployment compensation or
any other payment, (ii) accelerate the time of payment or vesting under
the Plan, (iii) increase the amount of compensation due any such
employee or officer, (iv) except as specifically set forth herein,
directly or indirectly cause the Company to transfer or set aside any
assets to fund or otherwise provide for the benefits under the Plan for
any current or former employee, officer or director, or (v) result in
any non-exempt prohibited transaction described in ERISA Section 406 or
Code Section 4975.
(n) The Company has timely provided or will timely provide all
notices and has provided and will continue to provide any continuation
of health benefit coverage (including but not limited to medical and
dental coverage) required to be provided to any
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<PAGE> 30
of the Company's, or any other member of the Controlled Group's,
employees, former employees, or the beneficiaries or dependents of such
employees or former employees, under COBRA, to the extent such notices
and continuation of health benefit coverage are required to be provided
by reason of the events occurring prior to or on the Closing.
(o) The Company has delivered or caused to be delivered to
Parent or Parent's counsel true and correct copies of the following
with respect to the Plan:
(i) A copy of the Plan and amendments thereto to the
date hereof;
(ii) A copy of each trust agreement and insurance
contract pertaining to the investment of the assets, if any,
of the Plan or the payment of benefits thereunder, including
all amendments to such documents to the date hereof;
(iii) The most recent determination letter issued by
the IRS with respect to the Plan for which a determination
letter has been issued and any pending determination letter
request with respect to the Plan;
(iv) The three (3) most recent IRS Form 5500 series
annual return/reports, including all applicable Schedules and
audited financial statements, filed with respect to the Plan;
and
(v) A copy of the latest summary plan description
(within the meaning of Section 102(a)(1) of ERISA) for the
Plan and each summary of material modifications (within the
meaning of Section 102(a)(2) of ERISA) thereto, each of which
has been provided to employees and filed with the Department
of Labor.
Section 3.29 ENVIRONMENTAL MATTERS.
(a) Definitions. For purposes of this Section:
(i) "Contaminant" means any substance or waste
containing hazardous substances, pollutants or contaminants as
those terms are defined in the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section
U.S.C. 9601 ET SEQ., and any other substance similarly defined
or identified in any other federal, state or local laws, rules
or regulations governing the manufacture, import, use,
handling, storage, processing, release or disposal of
substances or wastes deemed hazardous, toxic, dangerous or
injurious to public health or to the environment. This
definition includes asbestos-containing material and petroleum
or petroleum-based products.
(ii) "Requirements of Law" means any federal, state
or local law, rule, regulation, permit, agreement, order or
other binding determination of any governmental authority
relating to the environment, public health or safety.
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<PAGE> 31
(iii) "Release" has the same meaning as in the
Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section U.S.C. 9601 ET SEQ.
(b) Except as set forth on Schedule 3.29(b):
(i) the Company has not caused or allowed any
Contaminant to be used, manufactured, stored, placed,
processed or released on or off-site of any of the Real
Property listed on Schedule 3.7(a);
(ii) the Real Property is in material compliance with
all applicable Requirements of Law;
(iii) neither the Company, nor the Real Property, nor any
real property owned or leased by the Company in the past or in
which the Company has had any interest in the past, are the
subject of any notice, order or agreement regarding any
remedial action or the Release, threatened Release or presence
of a Contaminant; and
(iv) to the best knowledge of the Company, neither the
Company, nor the Real Property are subject to any contingent
liability in connection with the Release, threatened Release,
or presence of any Contaminants on or off-site of the Real
Property.
(c) Except as set forth on Schedule 3.29(c):
(i) the Company has obtained all environmental,
health and safety permits necessary, and made all
notifications necessary, for the current use of its assets;
(ii) all such permits and notifications are in good
standing and the Company has made timely application for
renewal of such permits where necessary;
(iii) the Company is in material compliance with all
terms and conditions of such permits and notifications; and
(iv) the Company's assets are in material compliance
with all applicable Requirements of Law and, to the best
knowledge of the Company, are subject to no contingent
liability in connection with the Release, threatened Release
or presence of any Contaminants on or off-site of such assets.
26
<PAGE> 32
(d) Except as set forth on Schedule 3.29(d), there is not now
on or in the Company's assets, including but not limited to, the Real
Property:
(i) any treatment, storage, recycling, disposal or
arrangement therefor, of any hazardous waste as that term is
defined under 40 CFR Part 261 or any state equivalent;
(ii) any underground storage tanks, in use or abandoned;
(iii) any asbestos-containing material;
(iv) any polychlorinated biphenyls (PCBs) in any
hydraulic oils, transformers, capacitors or other electrical
equipment.
Section 3.30 BANK ACCOUNTS. Schedule 3.30 is a true and correct list of
the name of each bank, savings and loan, or other financial institution in which
the Company has an account or safe deposit box, the names of all persons
authorized to draw on each account or to have access to each box, the number of
signatures required to be given for a withdrawal and a description of the type
of account.
Section 3.31 COMPLIANCE WITH LAWS. The Company has complied with all
laws, regulations, rules and orders of any governmental department or agency or
any other commission, board, agency or instrumentality, federal, state or local,
or other requirements of law affecting its business and operations and is not in
default under or in violation of any provision of any federal, state or local
law, regulation, rule or order except, in each case, where such default would
not have a material adverse effect on the business or financial condition of the
Company.
Section 3.32 POWERS OF ATTORNEY. The Company has not given any power of
attorney (irrevocable or otherwise) that is presently in effect to any person or
entity for any purpose.
Section 3.33 LICENSES AND RIGHTS. The Company possesses all franchises,
licenses, easements, permits and other authorizations from governmental or
regulatory authorities and from all other persons or entities that are necessary
to permit it to engage in its business as presently conducted in and at all
locations and places where it is presently operating. Such franchises, licenses,
permits and other authorizations are listed on Schedule 3.33.
Section 3.34 SCHEDULE OF GOVERNMENT REPORTS. Schedule 3.34 is a true
and correct list, and the Company has furnished to Parent or its counsel
complete copies of all reports, if any, filed since December 31, 1992, by the
Company with the Department of Labor, Equal Employment Opportunity Commission,
Federal Trade Commission, Department of Justice, Occupational Safety and Health
Administration, Internal Revenue Service (other than tax returns and standard
forms relating to compensation or remuneration of employees), Environmental
Protection Agency, Securities and Exchange Commission or Pension Benefit
Guarantee Company, or any similar state agency.
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<PAGE> 33
Section 3.35 PRODUCTS.
(a) The products sold by the Company conform to and meet or
exceed the standards required by all applicable laws, ordinances and
regulations now in effect and, to the Company's knowledge, there is no
pending legislation, ordinance or regulation which if adopted or
enacted would have a material adverse effect on such products or the
Company's business.
(b) Schedule 3.35 contains a written statement accurately
describing the Company's warranties and customer service policies and
any recurring warranty problems. The Company has no outstanding
contracts or proposals that depart from the warranty and customer
service policy and practice described in such Schedule. Except as may
be listed on Schedule 3.35, no claims of customers or others based on
an alleged or admitted defect of material, workmanship or design or
otherwise in or in respect of any of the Company's products are
presently pending or, to the knowledge of the Company, threatened other
than product warranty claims in the aggregate not in excess of
Twenty-Five Thousand Dollars ($25,000). All liabilities of the Company
relating to any such claims, contingent or otherwise, have been set
forth on the appropriate Financial Statements in accordance with GAAP.
Section 3.36 CASUALTY OCCURRENCES. Schedule 3.36 is a true and correct
list of occurrences during the last five (5) years of damages to persons or
property involving any defects or alleged defects in any of the Company's
products or their respective designs. All such occurrences are fully and
adequately covered by paid-for insurance.
Section 3.37 INVENTORY. Except as set forth on Schedule 3.37, the
inventories of the Company consist only of items of a quality and quantity
usable and saleable in the ordinary course of business, consistent with past
practice, within the Company's and the subsidiaries' normal inventory "turn"
experience and do not include any item of inventory which has previously been
written off by the Company. Items of below-standard quality and items not
previously readily saleable in the ordinary course of business have been written
down in value in accordance with generally accepted accounting principles to
estimated net realizable market values. The value at which the inventories are
carried on the Company's books reflects the average cost (on a LIFO basis) and
is based on quantities determined by physical count.
Section 3.38 CAPITAL EXPENDITURE PLANS. Schedule 3.38 sets forth a
description of each capital expenditure program of the Company involving the
expenditure of at least Ten Thousand Dollars ($10,000) as to which the
expenditure of funds is incomplete, setting forth (i) the budgeted expenditures
and (ii) the actual amounts expended, if any.
Section 3.39 NO INTENTIONS TO DISPOSE. No Shareholder has any present
plan, intention, or arrangement to dispose of any of the Parent Common Stock
received in the Merger if such disposition would reduce the fair value of the
Parent Common Stock (with such fair value measured as of the Effective Time)
retained by the Shareholder to an amount less than fifty
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<PAGE> 34
percent (50%) of the fair value of the Company Common Stock held by the
Shareholder immediately before the Merger.
Section 3.40 ULTRA/PURE SPIN-OFF. The fair market value of all the
outstanding capital stock of Ultra/Pure Water, Inc. to be distributed to the
Shareholders, at the time of such distribution, did not or will not exceed ten
percent (10%) of the fair market value of the Company's net assets nor more than
thirty percent (30%) of the fair market value of the Company's gross assets held
immediately prior to such distribution.
Section 3.41 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by the Company in this Agreement or the Schedules hereto or in
any disclosures made to the Shareholders or other security holders of the
Company in connection with their consideration of the approval of this Agreement
and the transactions contemplated hereby contain or will contain any untrue
statement of a material fact, or omit or will omit to state a material fact
necessary to make the statements of fact contained therein not misleading.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
------------------------------------------------
Parent and Sub, jointly and severally, warrant and represent to, and
agree with, the Company and the Shareholders as follows:
Section 4.1 ORGANIZATION AND STANDING. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of Parent and Sub has full power and authority to
carry on its business as and where now conducted and to own or lease and operate
its properties at and where now owned or leased and operated by it, and is duly
qualified to do business and is in good standing in every jurisdiction in which
the property owned, leased or operated by it, or the nature of the business
conducted by it, makes such qualification necessary. Other than actions taken in
connection with its organization and the transactions contemplated by this
Agreement, Sub has conducted no businesses since its organization.
Section 4.2 CONFLICTS; CONSENTS.
(a) The execution, delivery and consummation of this Agreement
by Parent and Sub (i) does not now and will not, with the passage of
time, the giving of notice or otherwise, result in a violation or
breach of, or constitute a default under, either of their respective
Certificates of Incorporation or By-laws, or any term of provision of
any indenture, mortgage, deed of trust, lease instrument, order,
judgment, decree, rule, regulation, law, contract, agreement or any
other restriction to which either of Parent or Sub is a party or to
which either Parent or Sub or any of their respective assets is subject
or bound, (ii) will not result in the creation of any lien or other
charge upon any assets of
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<PAGE> 35
either of Parent or Sub, and (iii) will not result in any acceleration
or termination of any loan or security interest agreement to which
either of Parent or Sub is a party or to which either of Parent or Sub
or any of their respective assets is subject or bound.
(b) Except as may be listed on Schedule 4.2, no approval or
consent of any person, firm or other entity or governmental body is or
was required to be obtained by Parent or Sub for the authorization of
this Agreement or the consummation by Parent or Sub of the transactions
contemplated by this Agreement.
Section 4.3 CERTIFICATE OF INCORPORATION AND BY-LAWS. True, accurate
and complete copies of the Certificate of Incorporation and the By-laws of
Parent and Sub, together with all amendments thereto, have been delivered to the
Company or its counsel.
Section 4.4 PARENT DISCLOSURE MEMORANDUM.
(a) Prior to the date of this Agreement, Parent provided the Company
and the Shareholders with a Disclosure Memorandum dated September 20, 1996 as
may be amended, (the "Disclosure Memorandum") which contained, among other
things the following financial statements of Parent and its subsidiaries (the
"Parent Financial Statements"): the consolidated audited balance sheet and
statement of income at and for the shortened fiscal year ended September 30,
1995 and unaudited balance sheet and statement of income at and for the nine (9)
month period ended June 30, 1996. The Parent Financial Statements (i) have been
prepared in accordance with GAAP applied on a consistent basis during the
periods, (ii) present fairly, in all material respects, Parent's consolidated
financial position, results of operations and changes in its financial position
at and for the periods therein specified, (iii) are true and compete, (iv) are
consistent with the books and records of Parent, and (v) with respect to all of
the unaudited Parent Financial Statements include all adjustments, consisting
only of normal recurring adjustments, required for a fair presentation. The
Parent Financial Statements will be deemed to include any accompanying notes and
schedules.
(b) The Disclosure Memorandum has been prepared by the management of
Parent in a good faith effort to describe Parent and its existing subsidiaries'
present and proposed businesses, products, and the markets therefore. To the
best knowledge of Parent, the assumptions used in the preparation of the
Disclosure Memorandum are realistic and reasonable; however, no warranty or
representation is given as to the opinions, forecasts or other non-factual or
future matters contained in the Disclosure Memorandum. The Disclosure Memorandum
does not contain any material misstatement of fact, or omit to state a material
fact, necessary to make the statements of fact contained therein not misleading.
Section 4.5 PARENT AUTHORIZED CAPITALIZATION. The authorized capital
stock of Parent consists of, and at the Closing will consist of 9,537,000 shares
of common stock, $.001 par value per share (the "Common Shares") and 5,463,000
shares of preferred stock of which 440,000 have been designated as Series A (the
"Series A Shares") 1,836,000 have been designated as Series B (the "Series B
Shares"), 1,647,000 have been designated as Series C (the "Series C Shares"),
and
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<PAGE> 36
1,540,000 have been designated as Blank Check Preferred Shares (the "Blank Check
Preferred Shares" and, together with the Series A Shares, the Series B Shares
and the Series C Shares, the "Preferred Shares"). Of such Common Shares
1,500,000 shares immediately prior to the Closing, will be issued and
outstanding, 750,000 shares will be reserved for exercise of stock options and
3,923,000 shares will be reserved for conversion of Preferred Shares; of such
Series A Shares, 400,000 shares immediately prior to the Closing, will be issued
and outstanding; of such Series B Shares, 1,700,000 shares immediately prior to
Closing will be issued and outstanding; of such Series C Shares, 1,150,000
shares immediately prior to the Closing will be issued and outstanding and no
Blank Check Preferred Shares are issued and outstanding. The outstanding Common
Shares and Preferred Shares are duly and validly issued, fully paid and
nonassessable. Except for the Convertible Subordinated Note of Parent dated
January 31, 1996 in favor of Mass Transfer Systems, Inc. in the principal amount
of $2,000,000, the Subordinated Notes of Parent dated January 31, 1996 each in
favor of Mass Transfer Systems, Inc. in the aggregate principal amount of
$2,100,000 and the Convertible Subordinated Note of Parent dated April 26, 1996
in favor of Lawrence A. Schmid in the principal amount of $400,000, the
Preferred Shares and the outstanding options listed on Schedule 4.5, there is no
subscription right, option, warrant, convertible security or other right
(contingent or otherwise) presently outstanding, for the purchase, acquisition
or sale of any Common Shares, Preferred Shares or any securities convertible
into or exchangeable for Common Shares, Preferred Shares or other securities of
Parent. The Exchange Shares, when issued, will be fully paid, validly issued and
non-assessable.
Section 4.6 ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, Parent has
actively conducted its business in the ordinary and regular course consistent
with past practice. Except as set forth on Schedule 4.6, without limiting the
generality of the foregoing, since such date, there has been no material adverse
change in the business, financial condition, assets, liabilities, results of
operations or, to Parent's knowledge, prospects of Parent.
Section 4.7 SUBSIDIARIES AND INVESTMENTS. The Sub has no subsidiaries,
nor any other investments in any person. Other than those subsidiaries listed on
Schedule 4.7, Parent has no subsidiaries, nor any other investments in any
person.
Section 4.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except (i) as set forth
on the Parent Financial Statements, (ii) those incurred in the ordinary course
of business since June 30, 1996, and (iii) as set forth on Schedule 4.8, Parent
and its subsidiaries are not obligated for, nor are any of their respective
assets or properties subject to, any material liabilities or adverse claims or
obligations, absolute or contingent. Parent and its subsidiaries are not in
default with respect to any terms or conditions of any material liability or
obligation. There are no facts known to Parent that might reasonably serve as a
basis, in whole or in part, for any material liabilities or obligations not
disclosed in this Agreement, in the Parent Financial Statements or in the
Schedules.
Section 4.9 BROKERAGE AND FINDER'S FEES. Other than fees payable by
Parent to the Environmental Business Journal, none of Parent, Sub or any
shareholder, officer, director or agent of Parent or Sub has incurred any
liability to any broker, finder or agent for any brokerage
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<PAGE> 37
fees, finder's fees, or commissions with respect to the transactions
contemplated by this Agreement.
Section 4.10 TAXES. Parent has filed all material federal and state
income tax returns required to be filed by it with respect to tax years ending
on or before the Closing Date, and has paid in full or made adequate provision
for the payment of all such taxes (including penalties and interest) shown to be
due on such tax returns.
Section 4.11 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Parent or Sub in this Agreement or the Schedules hereto
contain or will contain any untrue statement of a material fact, or omit or will
omit to state a material fact necessary to make the statements of fact contained
therein not misleading.
ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB
-----------------------------------------------------
The obligations of Parent and Sub to close under this Agreement are, at
each of their options, subject to the satisfaction of the following conditions
at or prior to the Closing Date.
Section 5.1 REPRESENTATIONS TRUE. The representations and warranties of
the Company and the Shareholders contained in this Agreement are true, complete
and accurate in all material respects on and as of the Effective Time to the
same extent and with the same force and effect as if made on such date, except
as affected by the transactions contemplated under this Agreement.
Section 5.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by the Company, Parent or Sub have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated under this
Agreement including, without limitation, such consents as may be listed or
required to be listed on Schedules 3.2 and 4.2.
Section 5.3 PERFORMANCE AND OBLIGATIONS. The Company and the
Shareholders have duly performed all obligations, covenants and agreements
undertaken by them in this Agreement and have complied with all terms and
conditions applicable to them under this Agreement to be performed and complied
with on or before the Closing Date.
Section 5.4 RECEIPT OF DOCUMENTS BY PARENT. Parent has received:
(a) a certificate executed by the President and Secretary or
Treasurer of the Company certifying as to the fulfillment of the
matters contained in Sections 5.1, 5.2, 5.3 and 5.5;
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<PAGE> 38
(b) a true and correct copy of the Company's Articles of
Incorporation, certified by the Secretary of State of Florida, as of a
date not more than seven (7) days prior to the Closing Date, and a true
and correct copy of the Company's Bylaws certified by the Secretary of
the Company as of the Closing Date;
(c) a written opinion from counsel for the Company (who must
be satisfactory to Parent and its counsel), dated as of the Closing
Date, addressed to Parent, satisfactory to Parent and its counsel in
form and substance; and
(d) certified copies of resolutions duly adopted by the Board
of Directors and Shareholders of the Company approving this Agreement
and the transactions contemplated under it.
Section 5.5 NO LITIGATION. No suit, action, or other proceeding is
threatened or pending before any court or governmental agency in which it will
be or it is sought to restrain or prohibit or to obtain material damages or
relief in connection with this Agreement or the consummation of this Agreement,
or which is likely to materially and adversely affect the value of the business
or assets of the Company.
Section 5.6 EMPLOYMENT AGREEMENTS. Larry Stenger, Jorg Menningmann and
John Stenger have entered into Employment Agreements substantially in the forms
of EXHIBITS "A-1", "A-2" and "A-3" to this Agreement (the "Employment
Agreements").
Section 5.7 SHAREHOLDER APPROVAL. This Agreement has been adopted and
approved by all the Shareholders in accordance with the FBCA and the Company has
delivered or made available to all the Shareholders the disclosure information
referred to in Section 1.5.
Section 5.8 TERMINATION OR EXERCISE OF STOCK OPTIONS. All Rights,
including those stock options set forth on Schedule 3.5, have been either
terminated or exercised. To the extent that any Rights have been exercised into
shares of Company Common Stock, each holder thereof shall be deemed to be a
"Shareholder" for purposes of this Agreement and shall have executed an addendum
to this Agreement acknowledging such holder's agreement to be bound by the
provisions of this Agreement as a Shareholder to the same extent as if such
holder was an original signatory to this Agreement.
Section 5.9 RESIGNATION. All directors and officers of the Company,
other than those continuing in such positions as set forth in Section 1.4, have
tendered resignations to become effective at the Effective Time.
Section 5.10 INVESTMENT LETTER. Parent shall have received from each
shareholder of the Company at the Effective Time an agreement and acknowledgment
substantially in the form of EXHIBIT "B" to this Agreement.
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<PAGE> 39
Section 5.11 LEASES FOR WEST PALM BEACH AND CLEARWATER SITES. Larry and
Theresa Stenger and Florida Real Estate Development, respectively, have entered
into leases substantially in the forms of EXHIBIT "C-1" and "C-2" to this
Agreement (the "West Palm Beach Lease" and "Clearwater Lease", respectively).
Section 5.12 STOCK RESTRICTION AGREEMENT. Each shareholder of the
Company at the Effective Time will have entered into the Stock Restriction
Agreement substantially in the form of EXHIBIT "D" to this Agreement.
Section 5.13 MINIMUM NET WORKING CAPITAL. The Net Working Capital of
the Company shall be at least One Million Five Hundred Thousand Dollars
($1,500,000). Net Working Capital shall mean the excess, if any, of current
assets over current liabilities as determined in accordance with GAAP.
Section 5.14 DELIVERY OF BOOKS AND RECORDS. The Company has delivered
or made available to Parent all books and records of the Company relating to or
reasonably required for the operation of the business of the Company, including,
without limitation, copies of all Contracts, financial and accounting records,
files and records relating to employees, and all related correspondence.
Section 5.15 ABSENCE OF CHANGES. There has been no material adverse
change in the business (financial or otherwise), assets, liabilities, results of
operations or prospects of the Company since the date of this Agreement.
Section 5.16 PARENT'S REVIEW. Parent has conducted a review of the
business, assets, books and records of the Company and has found the results of
such review to be satisfactory to Parent, in its sole discretion.
Section 5.17 COMPANY DEBENTURES. All the Company's outstanding 1995
Series Three Year Ten Percent Convertible Debentures shall have been redeemed by
the Company or converted by the holders thereof into shares of Company Common
Stock in each case in accordance with the terms thereof and the Company shall
have no remaining obligations or liabilities whatsoever thereunder or in
connection therewith.
Section 5.18 COMPANY CREDIT FACILITY. The Company's credit facility
with SunTrust Bank, South Florida National Association (the "Company Credit
Facility") shall have been terminated, all indebtedness owing by the Company
thereunder repaid in full and all liens on any of the Company's assets securing
such indebtedness released or terminated.
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ARTICLE VI
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE
----------------------------------------------------------
SHAREHOLDERS
------------
The obligations of the Company and the Shareholders to close under this
Agreement are, at the option of the Company or the Shareholders (acting through
the Shareholders holding at least a majority in interest of the shares of
Company Common Stock), subject to the satisfaction of the following conditions
at or prior to the Closing Date.
Section 6.1 REPRESENTATIONS TRUE. The representations and warranties of
Parent and Sub contained in this Agreement are true, complete and accurate in
all material respects on and as of the Effective Time to the same extent and
with the same force and effect as if made on such date, except as affected by
the transactions contemplated under this Agreement.
Section 6.2 ALL CONSENTS OBTAINED. All necessary approvals or consents
required to be obtained by the Company, Parent or Sub have been obtained from
all local, state and federal departments and agencies, from all other
commissions, boards, agencies and from any other person or entity whose approval
or consent is necessary to consummate the transactions contemplated by this
Agreement including, without limitation, such consents as may be listed or
required to be listed on Schedules 2.2 and 4.2.
Section 6.3 PERFORMANCE OF OBLIGATIONS. Parent and Sub have duly
performed all obligations, covenants and agreements undertaken by such party in
this Agreement and have complied with all the terms and conditions applicable to
such party under this Agreement to be performed or complied with on or before
the Closing Date.
Section 6.4 RECEIPT OF DOCUMENTS BY THE COMPANY. The Company has
received:
(a) certificates executed by the President and Secretary or
Treasurer of each of Parent and Sub certifying as to the fulfillment of
the matters contained in Sections 6.1, 6.2 and 6.3 of this Article;
(b) a written opinion from counsel for Parent, dated as of
the Closing Date, addressed to the Company, satisfactory to the
Company and its counsel in form and substance; and
(c) certified copies of resolutions duly adopted by the Board
of Directors of Parent and Sub approving this Agreement and the
transactions contemplated under it.
Section 6.5 NO LITIGATION. No suit, action, or other proceeding is
threatened or pending before any court or governmental agency in which it will
be or it is sought to obtain material damages from the Company in connection
with this Agreement or the consummation of this Agreement.
35
<PAGE> 41
Section 6.6 EMPLOYMENT AGREEMENTS. The Surviving Corporation and Parent
have entered into the Employment Agreements.
Section 6.7 LEASES FOR WEST PALM AND CLEARWATER SITES. The Surviving
Corporation has entered into the West Palm Beach Lease and the Clearwater Lease
and Parent has entered into the guaranties of such leases included on Exhibits
"C-1" and "C-2".
ARTICLE VII
-----------
TERMINATION OF AGREEMENT
------------------------
This Agreement and the transactions contemplated under it may be
terminated and abandoned at any time prior to the Closing Date (unless otherwise
specified below):
(a) by mutual consent in writing of Parent, Sub and the
Company;
(b) by Parent or the Company if, in the case of Parent, there
has been a material misrepresentation or breach of warranty in the
representation and warranties of the Company and the Shareholders made
under this Agreement or, in the case of the Company, if there has been
a material misrepresentation or breach of warranty in the
representations and warranties of Parent and Sub made under this
Agreement;
(c) by Parent if all or a material portion of the Company's
assets have been materially damaged or destroyed before the Closing;
(d) by Parent if any of the Real Property has been taken, in
whole or in part, by eminent domain or by conveyance in lieu of eminent
domain;
(e) by the Company if all or a material portion of Parent's
assets have been materially damaged or destroyed before the Closing; or
(f) by Parent, if any of the conditions contained in Article
V, or by the Company, if any of the conditions contained in Article VI,
respectively, have not been fulfilled in all respects in each case at
or prior to the Closing Date.
Any termination pursuant to this Article VII will not affect the obligations of
the parties under Article XI and Section 15.10, and will be without prejudice to
the terminating party's legal rights and remedies by reason of any breach of
this Agreement occurring prior to such termination.
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<PAGE> 42
ARTICLE VIII
------------
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES: INDEMNIFICATION: DISPUTES
-----------------------------------------
Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
the Closing of the transactions contemplated under this Agreement, or any
investigation made by or on behalf of any party to this Agreement, the
representations and warranties of the Company and the Shareholders, on the one
hand, and Parent and the Sub, on the other hand, contained in this Agreement or
in any certificate, Schedule, chart, list, letter, compilation or other document
furnished or to be furnished pursuant to this Agreement, will survive the
Closing for a period of two (2) years, except (a) that the representations and
warranties of the Company and the Shareholders contained in Sections 3.12, 3.28
and 3.29 with respect to tax matters, employee benefit matters and environmental
matters will survive for so long as any applicable statute of limitations has
not expired, been suspended or been waived or extended, and for thirty (30) days
after and (b) the representations and warranties of the Company and the
Shareholders contained in Sections 3.3 and 3.5 will survive the Closing
indefinitely. However, as to any breach of, or misstatement in, any such
representation or warranty as to which Parent has given notice to the
Shareholders on or prior to the expiration of the applicable period, as above
set forth, the same will continue to survive beyond said period, but only as to
the matters contained in such notice.
Section 8.2 SHAREHOLDERS' INDEMNIFICATION. Each Shareholder, severally
in pro rata proportion to the number of Outstanding Shares held by such
Shareholder immediately prior to the Effective Time, will indemnify and save
harmless Parent and Sub and their respective subsidiaries, shareholders,
directors, officers, employees and agents from any and all costs, expenses,
losses, damages and liabilities incurred or suffered, directly or indirectly, by
any of them (including, without limitation, reasonable legal fees and expenses)
(collectively, in each case, an "Indemnification Claim") resulting from or
attributable to (a) the breach of any covenant or agreement of the Company or
any of the Shareholders hereunder, (b) the breach of, or misstatement in, any
one or more of the representations or warranties of the Shareholders and the
Company made in or pursuant to this Agreement, (c) any claims, demands, suits,
investigations, proceedings or actions by any third party containing or relating
to allegations that, if true, would constitute a breach of, or misstatement in,
any one or more of the representations or warranties of the Company and the
Shareholders made in or pursuant to this Agreement, (d) the Company's treatment,
transport, recycling, storage or disposal, or any arrangement for any of same,
done or made prior to the Effective Time, of any Contaminant generated and
transported off-site from any facility owned or operated by the Company or any
of its predecessors or the noncompliance by the Company with any Requirement of
Law, (e) any defect in any product manufactured, shipped or installed by the
Company prior to the Effective Time (provided that such damages or defect were
not caused by Parent or the Surviving Corporation's service on or modifications
to such products), or (f) liquidated damages arising pursuant to the Company's
contract with Cooper City Membrane Softening Water Treatment Plant or the
Seminole Water Control District Contract. Notwithstanding anything to the
contrary in the preceding sentence, the Shareholders shall be obligated to
indemnify Parent and Sub pursuant to clause (e) of this Section 8.2 only to the
extent
37
<PAGE> 43
of Parent and Sub's damages in excess of the proceeds of any insurance policies
concerning the losses or damages arising from such defective product (i.e., any
applicable deductible or damages in excess of the coverage limits of such
policy). Parent will be entitled to set off against any Earn-out Consideration
the amount of such costs, expenses, losses, damages and liabilities and, to the
extent not in a liquidated amount, then in an amount reasonably and in good
faith estimated by Parent.
Section 8.3 DEFENSE OF CLAIM. If Parent or Sub has received actual
notice of any claim asserted or any action or administrative or other proceeding
commenced in respect of which claim, action or proceeding indemnity properly may
be sought against the Shareholders pursuant to this Agreement, Parent will give
notice in writing to the Shareholders. Within fifteen (15) days after the
earlier of (i) receipt of such notice or (ii) receipt of actual notice by the
Shareholders from sources other than Parent, the Shareholders acting through the
Shareholders' Representative may give Parent written notice of their election to
conduct the defense of such claim, action or proceeding at its own expense. If
the Shareholders have given Parent such notice of election to conduct the
defense, the Shareholders may conduct the defense at their expense, but Parent
will nevertheless have the right to participate in the defense, but such
participation will be solely at the expense of Parent, without a right of
further reimbursement. If the Shareholders have not so notified Parent in
writing (within the time above provided) of their election to conduct the
defense of such claim, action or proceeding, Parent may (but need not) conduct
(at the Shareholders' expense) the defense of such claim, action or proceeding.
Parent may at any time notify the Shareholders of Parent's intention to settle,
compromise or satisfy any such claim, action or proceeding (the defense of which
the Shareholders have not previously elected to conduct) and may make such
settlement, compromise or satisfaction (at the Shareholders' expense) unless the
Shareholders notify Parent in writing (within seven (7) days after receipt of
such notice of intention to settle, compromise or satisfy) of its election to
assume (at its sole expense) the defense of any such claim, action or proceeding
and promptly take appropriate action to implement such defense. Any settlement,
compromise or satisfaction made by Parent, or any such final judgment or decree
entered in, any claim, action or proceeding defended only by Parent, regardless
of the amount or terms, will be deemed to have been consented to by, and will be
binding on, the Shareholders as fully as though they alone had assumed the
defense and a final judgment or decree had been entered in such proceeding or
action by a court of competent jurisdiction in the amount of such settlement,
compromise, satisfaction, judgment or decree. If the Shareholders have elected
under this Section 8.3 to conduct the defense of any claim, action or
proceeding, then the Shareholders will be obligated to pay the amount of any
adverse final judgment or decree rendered with respect to such claim, action or
proceeding. If the Shareholders elect to settle, compromise or satisfy any
claim, action or proceeding defended by them, the cost of any such settlement,
compromise or satisfaction will be borne entirely by the Shareholders and may be
made only with the consent of Parent. Parent and the Shareholders will use all
reasonable efforts to cooperate fully with respect to the defense of any claim,
action or proceeding covered by this Section 8.3.
Section 8.4 DEFENSE OF TAX CLAIM. Notwithstanding anything to the
contrary herein, if (i) a claim is made or a deficiency alleged by the Internal
Revenue Service or any other taxing authority, which, if successful, would
result in a cost, expense, loss, damage or liability in respect
38
<PAGE> 44
of which indemnity properly may be sought against Shareholders pursuant to this
Agreement, and (ii)(X) such claim or alleged deficiency, if successful, could
adversely impact Parent's or the Surviving Corporation's liability for Taxes
attributable to periods beginning after, or including, the Closing Date, and (Y)
Shareholders do not furnish Parent with evidence of their ability to pay any
such claim or deficiency, if successful, then the following exclusively shall
apply.
(a) Parent shall, after Parent receives actual notice of same,
promptly notify the Shareholders in writing of such claim or alleged
deficiency and shall not make payment of the Taxes claimed for at least
thirty (30) days after the giving of such notice.
(b) Parent shall give to Shareholders any relevant information
relating to such claim or alleged deficiency which may be particularly
within the knowledge of Parent;
(c) If the Shareholders desire that Parent contest such claim
or alleged deficiency, within thirty (30) days after receipt of notice
by the Shareholders from Parent of such claim or alleged deficiency,
the Shareholders shall:
(i) request in writing that such claim or alleged
deficiency be contested;
(ii) if so requested by Parent, furnish Parent with
an opinion of independent tax counsel selected by the
Shareholders and approved by Parent, at the Shareholders'
expense, to the effect that a meritorious defense exists with
respect to such claim or alleged deficiency; and
(iii) indemnify Parent in a manner satisfactory to
Parent and pay to Parent on demand all liabilities and
expenses (including, without limitation, fees and
disbursements of attorneys and accountants and any interest,
penalties or other additions to tax) which may be entailed in
such defense, along with such security for such
indemnification as Parent reasonably may request;
(d) On the Shareholders' furnishing Parent with such items as
are set forth above, Parent shall take such legal or other action
deemed reasonable by it in contesting such claim or alleged deficiency,
provided that:
(i) Parent, at its sole option, may forego any and
all administrative appeals, proceedings, hearings and
conferences with the Internal Revenue Service or other
appropriate taxing authority in respect of such claim or
alleged deficiency; and
(ii) Parent, at its sole option, may either pay the
Taxes claimed (in which event the Shareholders shall promptly
pay, on written request from Parent, the amount of any such
deficiency to Parent) and sue for a refund in the appropriate
United States District Court and/or the United States Court of
Claims
39
<PAGE> 45
and/or other appropriate court or forums, and/or may agree to
a reasonable settlement of such claims or deficiencies
(e) If the Shareholders have paid additional amounts to Parent
pursuant to subsection (c) of this Section 8.4 with respect to a tax
claim, action or proceeding in respect of which indemnity properly may
be sought against the Shareholders pursuant to this Agreement, and such
claim for Taxes shall be ultimately recovered in whole or in part by
Parent, by reason of an agreement with the Internal Revenue Service,
the United States or other appropriate taxing authority, or any court
decision (including a decision of the Tax Court of the United States or
other comparable court or forum) which is not appealed, then Parent
shall pay the Shareholders the additional amounts previously paid by
the Shareholders to Parent (pursuant to said Section 8.4(c)) with
respect to the tax claimed which were ultimately recovered plus any
interest thereon received by Parent, within fourteen (14) days after
receipt thereof by Parent.
Section 8.5 PARENT AND SUB'S INDEMNIFICATION. Parent and Sub, jointly
and severally, covenant and agree to indemnify and save harmless the
Shareholders from any and all costs, expenses, losses, damages and liabilities
incurred or suffered by the Shareholders (including reasonable legal fees and
costs) resulting from or attributable to the breach of, or misstatement in, any
one or more of the covenants, representations or warranties of Parent and Sub
made in or pursuant to this Agreement to the same extent as provided in Clauses
(a), (b) and (c) of Section 8.2, and in the same manner as provided in Section
8.3, of this Article VIII.
Section 8.6 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, in no event will the aggregate liability of each Shareholder on
the one hand, or Parent and Sub, on the other hand, exceed the aggregate amount
of each Shareholder's pro rata portion of the Initial Merger Consideration and
any Earn-out Consideration delivered pursuant to the Merger.
ARTICLE IX
----------
CONDUCT PRIOR TO CLOSING DATE
-----------------------------
Section 9.1 CONTINUATION OF BUSINESS. Except as otherwise contemplated
by this Agreement, until the Closing Date, the Shareholders will cause the
Company to continue to conduct its business in the ordinary and usual course
consistent with past practice, and, without limiting the generality of this
undertaking, the Shareholders will not, and will cause the Company
40
<PAGE> 46
not to, do or suffer to be done any of the following, whether or not in the
ordinary and usual course, without the prior written consent of Parent:
(a) Other than the contemplated distribution by the Company to
the Shareholders of all the outstanding capital stock of the Company's
subsidiary, Ultra/Pure Water, Inc., dispose or contract to dispose of,
or acquire or contract to acquire, any Real Property or other assets
(except for inventory disposed of or acquired in the ordinary course of
business), or any interest in any Real Property or other capital
assets;
(b) Other than pursuant to the terms of the Company Credit
Facility and subject to Section 5.20 hereof, borrow any money;
(c) Enter into any lease;
(d) Encumber any assets;
(e) Enter into any contract, commitment or arrangement of the
type required by Section 3.20 above to be listed on Schedule 3.20;
(f) Declare or pay any dividend or declare or make any other
distribution to shareholders;
(g) Purchase or redeem any shares, notes or other securities;
(h) Other than pursuant to existing contractual arrangements,
increase the rate or amount of compensation or the amount or type of
other remuneration to any of its directors, officers, employees, agents
or other representatives, or agree to do so;
(i) Except as contemplated by Section 9.1(a) above, form or
cause to be formed, or dispose or contract to dispose of, any
subsidiary, or any interest in any subsidiary or acquire any stock or
equity interest in any Company or other entity;
(j) Reclassify, split or combine its shares, or issue, sell,
distribute or dispose of any shares, notes or other securities, or
issue or make any changes to any options, warrants or rights with
respect to its shares (except as contemplated by Section 5.8), or
commit itself to do so;
(k) Make any new commitments or agree to make commitments for
capital improvements or significantly alter standing commitments for
capital improvements;
(l) Make any single expenditure or agree to make any single
expenditure, or series of expenditures in excess of Ten Thousand
Dollars ($10,000) in the aggregate;
41
<PAGE> 47
(m) Negotiate with anyone other than Sub for, or participate
with anyone other than Parent and Sub in, the acquisition of the
Company;
(n) Amend, or permit to be amended, in any way, its Articles
of Incorporation or Bylaws or merge or consolidate with any other
corporation or other entity or change the character of its business; or
(o) Make any material change in accounting methods.
Section 9.2 PRESERVATION OF BUSINESS. The Shareholders will use their
best efforts to cause the Company to (i) preserve intact its present business
organization and personnel, (ii) preserve its business, actual and potential,
and its advantageous relationships with all persons having business dealings
with it, and (iii) preserve and maintain in force all its licenses,
certificates, leases, contracts, permits, registrations, franchises,
confidential information, patents, trademarks, trade names, service marks and
copyrights, and applications for any of the same, and other similar rights. The
Shareholders will cause the Company to maintain in force all property, casualty,
crime, life, directors, officers and other forms of insurance and bonds which it
presently carries.
Section 9.3 CONSENTS AND APPROVALS. The Shareholders will use all
reasonable efforts to obtain all necessary consents and approvals of all
persons, firms, entities and governmental authorities to the consummation of the
transactions contemplated by this Agreement.
ARTICLE X
---------
ASSIGNMENT, THIRD PARTIES, BINDING EFFECT
-----------------------------------------
The rights under this Agreement are not assignable nor are the duties
delegable by a party without the written consent of the other party first having
been obtained and any attempted assignment or delegation without such consent
will be null and void. Nothing contained in this Agreement is intended to convey
upon any person or entity, other than the parties hereto and their successors in
interest and permitted assigns, any rights or remedies under or by reason of
this Agreement unless expressly stated. All covenants, agreements,
representations and warranties of the parties contained in this Agreement are
binding on and will inure to the benefit of Parent and Sub, on the one hand and
the Company and the Shareholders, on the other, and their respective successors
and permitted assigns.
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<PAGE> 48
ARTICLE XI
----------
EXPENSES
--------
All costs and expenses, including, without limitation, counsel and
accountants' fees, incurred in connection with the preparation and negotiation
of, and transactions contemplated under, this Agreement shall be paid by Parent
and Sub on the one hand, and by the Shareholders on account of the costs and
expenses incurred by the Shareholders and the Company, on the other hand,
provided, however, that the Company will pay, prior to the Closing, up to a
maximum of Fifteen Thousand Dollars ($15,000) of such expenses of the Company.
ARTICLE XII
-----------
NOTICES
-------
All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (iv) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
TO PARENT OR SUB: Waterlink, Inc.
4100 Holiday Street, N.W.
Canton, Ohio 44718
Facsimile No.: (330) 649-4000
Attention: Nancy A. Hamerly, CFO
With a copy to: Benesch, Friedlander,
Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Facsimile No.: (216) 363-4588
Attention: Dominic A. DiPuccio
</TABLE>
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<PAGE> 49
<TABLE>
<CAPTION>
<S> <C> <C>
To Sellers or c/o Water Equipment Technologies, Inc.
THE COMPANY: 832 Pike Road
West Palm Beach, Florida 33411
Facsimile No.:(561) 795-6597
Attention: Larry Stenger, P&C
With a copy to: Arnstein & Lehr
515 N. Flagler Dr., Suite 600
West Palm Beach, Florida 33401
Facsimile No.:(561) 655-5551
Attention: Wesley A. Lauer
</TABLE>
ARTICLE XIII
------------
REMEDIES NOT EXCLUSIVE
----------------------
No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy, and each and every remedy will
be cumulative and will be in addition to every remedy given under this Agreement
or now or subsequently existing, at law or in equity, by statute or otherwise.
The election of any one or more remedies by any party hereto will not constitute
a waiver of the right to pursue other available remedies.
ARTICLE XIV
-----------
NON-COMPETITION
---------------
Section 14.1 NON-COMPETITION AGREEMENT.
(a) For a period of five (5) years from and after the
Effective Time, but as to clauses (iv) and (v) at any time after the
Closing Date, each Shareholder (other than Larry Stenger, John Stenger
and Jorg Menningmann (whose non-competition agreements are contained in
the employment agreements referred to in Section 5.6) and other than
Scott Stenger, Kristie D. Stenger, Dawn Stenger and Gary Prae, to which
the provisions of clauses (i) and (ii) do not apply) will not, directly
or indirectly:
(i) engage in, carry on, be employed by or have any
interest in a business substantially similar to the business
as carried on by the Company on the Closing Date; provided,
however, that the ownership of not more than one percent (1%)
of the outstanding shares of any class of capital stock of a
publicly held corporation shall not be deemed a violation of
this Section 14.1;
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<PAGE> 50
(ii) enter into, engage in, or be employed by or consult
with any business in, competition with the Company on matters
substantially similar to the business as carried on by the
Company on the Closing Date;
(iii) employ, assist in employing or otherwise associate
in business with any present, former or future employee of the
Company now or subsequently existing until a period of at
least two (2) years has expired since such employee was
employed by the Company;
(iv) induce any person who is a present or future
employee, officer, agent, affiliate or customer of the Company
now or subsequently existing to terminate the relationship;
and
(v) induce any customer, supplier or any other party
with whom the Company does business to refuse to do business
with the Company on as favorable terms as previously done with
the Company.
The prohibitions in clauses (i) and (ii) will apply anywhere in the
world. Notwithstanding the foregoing, each Shareholder shall be
permitted to maintain his relationship as a shareholder, officer,
director or employee of Ultra/Pure Water, Inc. and KDF Fluid Treatment,
Inc. so long as the businesses of such companies do not compete with
any of the businesses of Parent except as conducted on the date hereof
and described on EXHIBIT "E" to this Agreement. Each Shareholder bound
hereby acknowledges that the length of time and geographic restriction
pertaining to all prohibitions in this subsection (a) both are
reasonable and necessary for the legitimate protection of Parent's
business and interests.
(b) Each Shareholder expressly agrees and understands that the
remedy at law for any breach by him of this Article XV will be
inadequate and that the damages flowing from such breach are not
readily susceptible to being measured in monetary terms. Accordingly,
it is acknowledged that upon adequate proof of any Shareholder's
violation of this Article XV, Parent will be entitled, among other
remedies, to immediate injunctive relief and may obtain a temporary
restraining order restraining any threatened or further breach. Nothing
in this subsection (b) will be deemed to limit Parent's remedies at law
or in equity for any breach by any Shareholder of any of the provisions
of this Agreement which may be pursued or availed of by Parent.
(c) In the event any court of competent jurisdiction
determines that the specified time period or geographical area set
forth in this Section 14.1 is unreasonable, arbitrary or against public
policy, then a lesser time period or geographical area that is
determined by the court to be reasonable, non-arbitrary and not against
public policy may be enforced.
(d) In the event any Shareholder violates any legally
enforceable provision of this Section 14.1 as to which there is a
specific time period during which such Shareholder
45
<PAGE> 51
is prohibited from taking certain actions or engaging in certain
activities, then, in such event the violation will toll the running of
the time period from the date of the violation until the violation
ceases.
Section 14.2 DISCLOSURE OF CONFIDENTIAL INFORMATION. Except as may be
required by law or necessary in connection with any dealings with any public
agency or authority or in enforcing any rights hereunder, from and after the
Closing Date, the Shareholders will not disclose, disseminate, divulge, discuss,
copy or otherwise use or suffer to be used, in competition with, or harmful to
the interests of, the Company, any non-public information (written or oral),
documents, lists or other data of or respecting any aspect of the business being
acquired by Parent under this Agreement.
ARTICLE XV
----------
MISCELLANEOUS
-------------
Section 15.1 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same document.
Section 15.2 CAPTIONS AND SECTION HEADINGS. Captions and section
headings are for convenience only, are not a part of this Agreement and may not
be used in construing it.
Section 15.3 WAIVERS. Any failure by any of the parties to comply with
any of the obligations, agreements or conditions set forth in this Agreement may
be waived by the other party or parties, but any such waiver will not be deemed
a waiver of any other obligation, agreement or condition contained herein.
Section 15.4 RIGHT OF INSPECTION. From and after the date of this
Agreement to the Closing Date, the Shareholders and the Company will give to
Parent and its counsel, accountants and other representatives, full access
during normal business hours to the offices, properties, agreements, records and
affairs of the Company, and will furnish copies of all Contracts and other
instruments as Parent or its counsel may reasonably request. Such investigation
will not affect the warranties and representations of the Shareholders and the
Company under this Agreement. All such information will be treated
confidentially and will be used only for the purposes intended. If the
transactions contemplated under this Agreement do not take place, all documents
and other property of the Company or the Shareholders will be returned and all
disclosures and information given to Parent as contemplated under this Agreement
will be treated as confidential and not disclosed to others unless disclosed
publicly by the Shareholders or other third parties without fault on the part of
Parent, or unless otherwise required by law.
Section 15.5 AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS. Each of the
parties agrees to cooperate in the effectuation of the transactions contemplated
under this Agreement and to execute
46
<PAGE> 52
any and all additional documents to take such additional action as is reasonably
necessary or appropriate for such purposes.
Section 15.6 ENTIRE AGREEMENT. This Agreement, including any
certificate, schedule, exhibit or other document delivered pursuant to its
terms, constitutes the entire agreement between the parties and supersedes all
prior agreements, written and oral, between the parties. There are no verbal
agreements, representations, warranties, undertakings or agreements between the
parties, and this Agreement may not be amended or modified in any respect,
except by a written instrument signed by the parties to this Agreement.
Section 15.7 GOVERNING LAW. This Agreement is to governed by and
construed in accordance with the internal laws of the State of Florida.
Section 15.8 KNOWLEDGE. All references to "knowledge" or "best
knowledge", of a party or "known to" a party means the actual knowledge of a
party after reasonable investigation and due diligence. Actual knowledge of any
officer, director or supervisory employee of a party will be imputed to, and
deemed to be actual knowledge of, that party. For purposes of this Section 15.8,
"supervisory employee" of the Company shall mean any of the employees listed on
Schedule IV hereto.
Section 15.9 PRESS RELEASES. Prior to the Closing, no party will issue
or cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated under this Agreement
without the prior consent of the other party first obtained; provided, however,
that nothing in this Agreement will prohibit either party from issuing or
causing publication of any press release or public announcement to the extent
that such party determines, on advice on counsel, that such action is required
by law, in which case the party making such determination will, if practicable
under the circumstances, use reasonable efforts to allow the other party
reasonable time to comment on such release or announcement in advance of its
issuance.
Section 15.10 DISCLOSURE SCHEDULES. Disclosure of any matter on any
schedule hereto by any party hereto shall be deemed to be disclosure on every
other schedule hereto to the extent applicable.
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<PAGE> 53
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
WATERLINK, INC. WET ACQUISITION CORP.
By: /S/ NANCY A. HAMERLY By: /s/ Nancy A. Hamerly
--------------------------- -------------------------------
"Sub"
"SHAREHOLDERS"
/s/ LAWRENCE STENGER
-----------------------------------------
Lawrence Stenger
/s/ Theresa H. Stenger
-----------------------------------------
Theresa H. Stenger
/s/ Lawrence Stenger Theresa H. Stenger
-----------------------------------------
Lawrence and Theresa H. Stenger, Jointly
/s/ Ronald P. Jaworski Christine Jaworski
-----------------------------------------
Ronald P. And Christine Jaworski, Jointly
/s/ John Stenger
-----------------------------------------
John Stenger
/s/ Dawn P. Stenger
-----------------------------------------
Dawn P. Stenger
/s/ Scott Stenger
-----------------------------------------
Scott Stenger
/s/ Kristie D. Stenger
-----------------------------------------
Kristie D. Stenger
/s/ Jorg Menningmann
-----------------------------------------
Jorg Menningmann
/s/ Michael Mudrick
-----------------------------------------
Michael Mudrick
48
<PAGE> 54
/s/ Robert Young
-----------------------------------------
Robert Young
/s/ Gary Prae
-----------------------------------------
Gary Prae
Water Equipment
Technologies, Inc.
By: /s/ Lawrence Stenger
------------------------
49
<PAGE> 1
Exhibit 10.19
SHARE PURCHASE AGREEMENT
among
GIGANTISSIMO 2061 AB under change of name to
WATERLINK (SWEDEN) AB
PROVISTA EINHUNDERTSECHSUNDFUNFZIGSTE
VERWALTUNGSGESELLSCHAFT MBH under change of name to
WATERLINK (GERMANY) GMBH
AWPE SVENSKA AB
ANGLIAN WATER HOLDING GMBH
Concerning the acquisition of shares in
NORDIC WATER PRODUCTS AB
and
AXEL JOHNSON ENGINEERING GMBH
DATED MARCH 4, 1997
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SHARE PURCHASE AGREEMENT
------------------------
This SHARE PURCHASE AGREEMENT is made this 4th day of March, 1997, between, on
the one hand, GIGANTISSIMO 2061 AB under change of name to WATERLINK (SWEDEN)
AB, a corporation organized under the laws of Sweden ("Sweden Sub"), and
PROVISTA EINHUNDERTSECHSUNDFUNFZIGSTE VERWALTUNGSGESELLSCHAFT MBH under change
of name to WATERLINK (GERMANY) GmbH, a company organized under the laws of
Germany ("Germany Sub" and together with Sweden Sub, the "Buyers"), and, on the
other hand, AWPE SVENSKA AB, a company organized under the laws of Sweden
("AWPE") and ANGLIAN WATER HOLDING GmbH, a company organized under the laws of
Germany ("Holding") (AWPE and Holding are collectively referred to as
"Sellers.") Buyers and Sellers are each a "Party" and collectively the
"Parties".
1. BACKGROUND
WHEREAS, NORDIC WATER PRODUCTS AB, a company organized under the laws
of Sweden with Swedish corporate registration number 556027-6155 ("Nordic") and
AXEL JOHNSON ENGINEERING GmbH, a company organized under the laws of Germany,
registered in the Commercial Register of the local court in Neuss under the
registration number HRB 6260 and having a total nominal share capital of DEM
50,000 ("Axel Johnson") (collectively the "Companies") are both engaged
principally in business related to the sale and licensing of proprietary water
and wastewater treatment equipment; and
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WHEREAS, Sellers own all of the issued and outstanding capital stock of
the Companies, which consists with respect to Nordic of 40,000 shares, each
having a par value of SEK 100, and with respect to Axel Johnson, one control
with another person or entity. For purposes of this definition the term
"control" (including the terms "controlling" and "controlled") shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person or entity, whether through
the ownership of voting securities, by contract, or otherwise.
"Agreement" shall mean this share purchase agreement between Buyers and
Sellers, including all exhibits and schedules hereto, all as may be amended from
time to time as provided herein.
"Anglian Water" shall mean Anglian Water International Limited.
"Audited Financial Statements" shall mean the audited financial
statements, including the balance sheets and profit and loss statements, and the
notes and schedules, if any, thereto, of each of the Companies and the
Subsidiaries, for the years ended March 31, 1994, 1995 and 1996 prepared in
accordance with the Accounting Principles and certified by the present external
auditors of each of the Companies.
"Authorizations" shall have the meaning set forth in Section 4.4(b)
hereof.
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"Buyers" shall have the meaning set forth in the introductory paragraph
hereof.
"Closing" shall mean the closing of the sale and the purchase of the
Shares in accordance with Section 3.4 hereof.
"Closing Date" shall mean the date of signing of this Agreement.
"Confidential Information" shall mean any and all information of any
kind or nature whatsoever, written or oral, including, without limitation,
financial information, trade secrets, client or customer or supplier lists and
other proprietary business information regarding Buyers, Sellers, the Companies
or any Subsidiary, which information is not known to the general public or to
persons unaffiliated with Buyers, Sellers, the Companies or the Subsidiaries, as
the case may be (unless such information was lawfully in the possession of
Buyers, Sellers, the Companies or the Subsidiaries, as the case may be, as
evidenced by written records, and was not acquired directly or indirectly from
Buyers, Sellers, the Companies or the Subsidiaries, as the case may be) .
"Debt" shall have the meaning set forth in Section 3.3(a) hereof.
"Deductible" shall have the meaning set forth in Section 8.2(c) hereof.
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"Domination Agreements" shall mean the domination agreement between
Nordic Water Services GmbH and the former Axel Johnson Engineering GmbH dated
June 30, 1992, the domination and profit transfer agreement between Axel Johnson
and Purac GmbH Gesellschaft fur Wasser - und Abwasserreinigung dated June 30,
1992, and the domination agreement between Holding and Axel Johnson dated August
10, 1993.
"Environmental Laws" shall have the meaning set forth in Section 4.18
hereof.
"Governmental Authority" shall have meaning set forth in Section 4.4(b)
hereof.
"Group Companies" shall mean the Companies and each of the Subsidiaries
collectively and/or individually.
"Intellectual Property" shall have the meaning set forth in Section
4.17 hereof.
"Losses" shall have the meaning set forth in Section 8.1(a) hereof.
"Lien" shall mean any lien, security interest, charge, mortgage,
option, encumbrance or other restriction or right of any third party of any kind
or nature whatsoever.
"material [sic]" shall mean material to the assets, liabilities,
operations or result of operations of the Companies and the Subsidiaries, taken
as a whole.
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"Material Adverse Effect" shall mean a material adverse effect on the
assets, liabilities, operations or result of operations of the companies and the
Subsidiaries, taken as a whole.
"Nordic Group Shares" shall have the meaning set forth in Section 1
hereof.
"Party" and "Parties" shall have the meanings set forth in the
introductory paragraph hereof.
"Purac Engineering" shall mean Purac Engineering Inc.
"Purchase Price" shall have the meaning set forth in Section 3.2(a)
hereof.
"Qualified Losses" shall have the meaning set forth in Section 8.2 (c)
hereof.
"Receivables" shall have the meaning set forth in Section 4.10 hereof.
"Representatives" shall mean any and all of the following affiliates of
any of the Parties and their respective Affiliates: directors, officers,
employees, partners or potential partners, agents or Representatives, including
(but not limited to) financial advisors, business advisors, scientific advisors,
technical advisors, bankers, consultants, independent accountants and counsel.
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"Sellers" shall have meaning set forth in the introductory paragraph
hereof.
"Shares" shall have the meaning set forth in Section 1 hereof.
"Subsidiaries" shall mean the directly or indirectly owned subsidiaries
of the Companies, listed in Schedule 1 attached hereto.
"Taxes" shall mean taxes and other governmental fees and assessments,
including any interest, costs, late payment charges, late filing charges and
comparable obligations.
"Unaudited Financial Statements" shall mean the unaudited financial
statements for each of the Group Companies for the nine-month period ended
December 31, 1996.
3. THE TRANSACTION
3.1 Purchase and Sale of the Shares
-------------------------------
Subject to the terms and conditions set forth in this Agreement, on the
Closing Date Sellers agree to sell, assign, transfer and deliver the
Shares to Buyers and Buyers agree to purchase the Shares from Sellers.
Consummation of the transactions contemplated herein including the
transfer of the title to the Shares and all rights vested therein,
shall be effected on the Closing Date.
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3.2 Purchase Price
--------------
(a) The purchase price payable by Buyers to Sellers for the Shares
at the Closing shall be the amount of Six Million One Hundred
Two Thousand US dollars (USD 6,102,000) (the "Purchase
Price"). Of the Purchase Price, an amount of Four Million
Three Hundred Twenty One Thousand US dollars (USD 4,321,000)
is payable by Sweden Sub and attributable to the shares in
Nordic, while an amount of Three Million Fifteen Thousand Nine
Hundred Forty Five marks Forty pfennig (DEM 3,015,945.40) is
payable by German Sub and attributable to the interest share
in Axel Johnson.
(b) The Purchase Price shall be paid as follows:
(i) the amount of Two Million Three Hundred Twenty One
Thousand US dollars (USD 2,321,000) by wire transfer
to a bank account to be designated by Sellers;
(ii) the amount of Three Million Fifteen Thousand Nine
Hundred Forty Five marks Forty pfennig (DEM
3,015,945.40) by wire transfer to a bank account to
be designated by Sellers;
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(iii) One Million US dollars (USD 1,000,000) by wire
transfer to a bank account to Svenska Handelsbanken
as escrow agent in connection with the escrow account
established pursuant to an Escrow Agreement
substantially in the form attached to this Agreement
as EXHIBIT A; and
(iv) a promissory note from Sweden Sub in favor of Anglian
Water in the amount of One Million US Dollars (USD
1,000,000) plus an annual interest on the said amount
of Seven (7) percent, calculated on a compounded
basis, in the form attached hereto as EXHIBIT B.
3.3 Payment of Debt
---------------
(a) Buyers shall at the Closing pay the principal amount of all
debts, other than any amounts owing under ordinary commercial
business transactions, carried by the Companies and/or the
Subsidiaries on the Closing Date which are owed to Sellers,
Anglian Water or Anglian Water's Affiliates, as the case may
be, all of which are set forth on SCHEDULE 3.3(a), (the
"Debt").
(b) No later than three (3) business days before the Closing Date,
Sellers shall have provided notice to Buyers of the amount of
the Debt. Payment of the Debt shall be made on the Closing
Date by wire transfer of Five Million Six Hundred Nineteen
Thousand US dollars (USD 5,619,000) to the account or accounts
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designated by Sellers, Anglian Water or Anglian Water's
Affiliates, as the case may be, representing the total amount
of Debt as set forth in Section 3.3(a).
(c) Sellers, Anglian Water or Anglian Water's Affiliates, as the
case may be, shall at the Closing execute and deliver to the
Group Companies releases, in form and substance reasonably
satisfactory to Sellers, evidencing the payment in full of,
and release from, the Debt.
3.4 Closing
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(a) At the Closing, Sellers shall deliver to Buyers all share
certificates representing the Shares duly endorsed in blank.
With respect to the shares in Axel Johnson, Sellers and Buyers
shall enter into an Assignment Agreement in the form of
EXHIBIT C to this Agreement in front of a German notary
public.
In exchange for the Shares, Buyers shall (i) pay the Purchase
Price to Sellers in immediately available funds to Sellers in
accordance with Section 3.2(b), and (ii) pay the Debt to
Sellers the amount set forth in Section 3.3(b) above.
(b) Upon the delivery by Sellers to Buyers of all share
certificates representing the Shares, duly endorsed in blank
and the execution of the Assignment Agreement in front of a
German notary public as provided for in Section 3.4(a) hereof
and the
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payment of the Purchase Price, Buyers shall have and Sellers
shall deliver full title to and ownership of the Shares, free
and clear of any and all Liens, other than any Liens created
by Buyers.
(c) Sellers will on the Closing Date terminate all their
liabilities and undertakings in connection with the existing
banking facilities of the Group Companies, as set forth on
SCHEDULE 3.4(c), including the bank guarantee supporting the
lease of Axel Johnson's offices, and Buyers shall cause the
Group companies to release Anglian Water and its Affiliates
from the guarantee commitments and other guarantees, as set
forth in Schedule 3.4(c).
(d) Concurrently with the Closing and with respect to Axel
Johnson, after notarization and payment of the portion of the
Purchase Price attributable to the interest share in Axel
Johnson have been made, Buyers shall cause shareholders'
meetings of the Companies and the Subsidiaries, if applicable,
to be held at which, INTER ALIA, the existing directors of the
Companies representing Sellers shall be forthwith removed from
office.
(e) The Parties shall at the Closing enter into an Escrow
Agreement as set forth in Exhibit A.
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(f) With respect to the guarantees and bonds which have been issued by
banks up to the Closing Date relating to completed projects and/or for
projects where the work is in progress as set forth in SCHEDULE 3.4(f),
Anglian Water undertakes to maintain such commitments in place and to
not revoke such specific guarantee commitments and will fulfill such
financial guarantee commitments vis-a-vis the principal, provided,
however, that:
(i) with respect to completed projects, Buyers will cause
Group Companies to make every endeavor consistent
with past practice to resolve problems and disputes
on the projects and thereby avoid claims being made
against the guarantees and bonds in Schedule 3.4(f).
In the event of a claim being made and Anglian Water
being required to fulfill the financial guarantee
commitments vis-a-vis the principal, then Buyers
will:
(a) cause Group Companies to continue to make
every endeavor consistent with past practice
to resolve the problems and disputes;
(b) pay to Sellers the value of any contract
reserves, provisions etc. relating to the
project and provided for in the Unaudited
Financial Statements, AND SET FORTH IN
SCHEDULE 3.4(f)(i)(b).
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(ii) with respect to work in progress contracts, Anglian
Water will not accept any commercial responsibility
for the fulfillment of such projects. In the event of
a claim being made and Anglian Water being required
to fulfill the financial guarantee commitments
vis-a-vis the principal, then Buyers will indemnify
Anglian Water for such claim and reasonable costs and
expenses related thereto.
Buyers shall on the Closing Date give an absolute counter
indemnity in respect of their obligations in (i)(b) and (ii)
above and the promissory note set forth in Exhibit B, and will
in connection herewith issue a counter indemnity in the form
of an on-demand bank guarantee of Five Hundred Thousand US
dollars (USD 500,000) by a bank reasonable satisfactory to
Sellers. Before exercising their right to draw on the
on-demand bank guarantee, Sellers undertake to notify Buyers
of their intention to draw on such guarantee. Upon request by
Sellers, Buyers undertake to provide Sellers with information
on the status of the relevant projects and the guarantees
given by Sellers or their Affiliates and to assist Sellers in
the recovery of these guarantees upon termination/expiry.
(g) No later than on the Closing Date, Sellers shall pay all
accounts receivables of the Group Companies owed by Anglian
Water or any of its Affiliates, other than any amounts owed
under ordinary commercial business transactions on an arm's
length basis not yet due and payable.
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(h) Sellers have offset against the Purchase Price one half (1/2)
of the Group Companies' pension liabilities set forth on
SCHEDULE 3.4(h) (the "Pension Liabilities") representing an
amount of Five Hundred Twenty Nine Thousand US dollars (USD
529,000).
Buyers shall on the Closing Date release Sellers from any
commitments, undertakings or guarantees (parent company
guarantees) in connection with the Pension Liabilities, as set
forth in Schedule 3.4(h).
(i) As soon as possible after the Closing Date, Buyers shall cause
appropriate Nordic Group Company to enter into a distribution
agreement with Aquafine Engineering Services Ltd ("AES"),
providing AES with a three year continued non-exclusive right
to market and sell the DynaSand, Zickert Scraper and NWP
Lamellas within the European Economic Area ("the EEA"), on
terms mutually agreeable to the parties.
In addition, as soon as possible after the Closing Date Buyers
shall cause each of Great Lakes Environmental Inc. ("Great
Lakes"), Aero-Mod Incorporated ("Aero-Mod"), and Water
Equipment Technologies Inc. ("WET") to enter into
non-exclusive distribution agreements for AES to market and
sell certain products of Great Lakes, Aero-Mod and WET within
the European Economic Area ("the EEA"), on terms mutually
agreeable to the parties. In addition, on the Closing
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Date, Buyers will deliver a letter agreement setting forth the
commitment of Great Lakes, Aero-Mod and WET to negotiate in
good faith toward the execution of a definitive license
agreement granting AES a license to manufacture certain
licensed products of Great Lakes, Aero-Mod and WET on terms
satisfactory to the parties substantially in the form of
Exhibit D.
(j) As soon as possible after the Closing Date, Buyers shall cause
Zickert Products AB to enter into an agreement with Purac
Engineering Inc. ("Purac Engineering") concerning the mutual
termination of license agreement relating to Purac
Engineering's license with respect to the Zickert Scraper,
substantially in the form of EXHIBIT E. Notwithstanding the
foregoing, Purac Engineering shall be entitled to continue to
use, on unchanged terms and conditions, Zickert Scraper
products in order for Purac Engineering to complete any
outstanding bids and inquiries as per the Closing Date.
(k) At the Closing, Buyers shall receive:
(i) legalized copies of an extract from the Commercial
Register in respect of Axel Johnson and the presently
valid version of the Statutes of Axel Johnson of a
date not more than ten (10) days prior to the Closing
Date;
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(ii) a true and correct copy of Nordic's Articles of
Association and a Registration Certificate as of a
date not more than seven (7) days prior to the
Closing Date.
(l) Except for the notarization of the Assignment Agreement
contemplated by Section 3.4(c), the Closing shall take place on the
Closing Date at the offices of White & Case, Stockholm.
4. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby make the following representations and warranties to and
for the benefit of Buyers, each of which is made on and as of the Closing Date.
4.1 Organization
------------
Sellers and each of the Group Companies are limited liability companies
duly organized and validly existing under the laws of their respective
jurisdictions of organization and has power and authority to carry on
their businesses as presently being conducted. Other than the
Subsidiaries, the Group companies do not own or control, whether
directly or indirectly, any capital stock or other equity or ownership
interest in any business, corporation, joint venture, partnership or
other entity. Sellers and each of the Group Companies are in compliance
with their respective articles of association. All
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documentation of each of the Group Companies including the share
register, minutes of board of directors' meetings and shareholders'
meetings, accounting records and contracts exists and are properly
kept, correct and complete, PROVIDED, HOWEVER, that this does not apply
with respect to Axel Johnson regarding its share register, minutes of
board of directors' meetings and shareholders' meetings, as such
records are not required by applicable laws to be maintained. To the
best of Sellers' knowledge, all minutes from shareholders' meetings of
Axel Johnson since 1993 have been delivered to Buyers and are true and
correct.
Copies of the following documents are attached to this Agreement as
appendices:
- up-to-date extracts from the commercial register of the Neuss
local court relating to Axel Johnson showing all matters
requiring registration (Appendix A); and
- the Articles of Association of Axel Johnson as last amended
(Appendix A).
Axel Johnson is not a party to, and has not committed itself to
entering into, an enterprise, partnership, domination or profit
transfer agreement. The Domination Agreements have been terminated
prior to the Closing Date.
4.2 Authorization, Execution and Delivery
-------------------------------------
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Sellers have full corporate power and authority to enter into this
Agreement and to perform the transactions contemplated hereby. The
execution of this Agreement and each other document delivered in
connection herewith by Sellers and the performance by Sellers of the
transactions contemplated herein have been duly and validly executed
and authorized by all necessary corporate action on the part of
Sellers. This Agreement and each other document delivered in connection
herewith by Sellers constitutes a legal, valid and binding obligation
of Sellers, enforceable against Sellers in accordance with its terms.
4.3 Sellers' Title to the Shares; Subsidiaries
------------------------------------------
(a) Sellers solely own and have title to all the Shares, free and
clear of all Liens. The Shares are fully transferable to
Buyers. The Shares represent all the outstanding capital stock
of the Companies.
(b) Nordic owns and has title, directly or indirectly, to all the
authorized and outstanding Nordic Group Shares, free and clear
of all Liens.
(c) The shares in Nordic and the Nordic Group Shares have been
duly authorized and validly issued, fully paid and
non-assessable and are, except as set forth on SCHEDULE
4.3(c), free of any preemptive rights and rights of
redemption. With respect to Axel Johnson, the registered
share-interest capital amounts to DEM 50,000. It is fully paid
and has not been repaid to the shareholder, and is
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free of any preemptive rights and rights of redemption. Except
as set forth on Schedule 4.3(c), there are no outstanding
obligations, warrants, calls, commitments, conversion rights,
rights of exchange, options, subscriptions or preemptive
rights or other agreements of any character providing for the
purchase, issuance or sale of any shares of the capital stock
of the Group Companies or by which Sellers are bound to
provide for the sale or issuance of any additional shares of
the Group Companies and no other convertible debentures,
warrants or other securities of the Group Companies
convertible into or exchangeable for shares are issued and
outstanding.
4.4 No Conflicts; Consents; Filings, etc.
------------------------------------
Except as set forth in SCHEDULE 4.4 attached hereto, the execution of
this Agreement by Sellers does not, and the consummation of the
transactions contemplated hereby will not:
(a) violate any law, regulation, order or judgment applicable to
Sellers or any of the Group Companies,
(b) violate or conflict with or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute
a default) under, or give rise to a right of termination or
modification, or acceleration of the performance required by
(i) any license, permit, approval or other authorization of
any Group Companies issued
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by any governmental authority or agency (each, a "Governmental
Authority") (the "Authorizations"), or (ii) any material
agreement, contract, undertaking or other commitment to which
any of the Group Companies is a party or may be bound or to
which any of the Group Companies' assets are subject;
(c) result in the creation of any Liens upon any of the assets of
the Group Companies;
(d) require Sellers or any of the Group Companies to file for
approval by a Governmental Authority; or
(e) require Sellers or any Group Company to obtain the approval or
consent of any person, firm or other entity.
4.5 Compliance with applicable law
------------------------------
Neither Sellers nor the Group Companies have received any written
notice of any violation of, and the Group Companies are not in any
material violation of any applicable law or regulation promulgated by
any supranational, state or court or Governmental Authority.
4.6 Authorizations
--------------
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Each of the Group Companies has received all material Authorizations
necessary in order to enable it to own and conduct its businesses as
presently conducted. Each such material Authorization is in full force
and effect. Each of the Group Companies is, and has during the last
three (3) years been, complying with such material Authorizations.
Except as set forth in SCHEDULE 4.6, to the best of Sellers' knowledge,
neither of the Group Companies is subject to an investigation by a
Governmental Authority.
4.7 Financial Statements; No Material Adverse Change; Conduct of Business
---------------------------------------------------------------------
(a) Prior to the date of this Agreement, Sellers have provided
Buyers with:
(i) the Audited Financial Statements;
(ii) the Unaudited Financial Statements;
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(iii) since September 1996, monthly reports of the
operations of the Companies.
The Audited Financial Statements (x) have been prepared in
accordance with the Accounting Principles, (y) fairly present
in all material respects Axel Johnson's, Nordic's or each of
the Subsidiaries, as the case may be, financial position,
results of its operations and changes in its financial
position at and for the period specified therein, and (z) are
consistent with the books and records of Axel Johnson, Nordic
or each of the Subsidiaries, as the case may be. As of the
relevant accounts date, no Group Company had any liabilities,
actual and known, other than those shown in the Audited
Financial Statements.
The Unaudited Financial statements and the reports mentioned
in (iii) above have been prepared in consistency with the
reporting principles applied by the management of the
companies within the Anglian Water group. Except as set forth
on SCHEDULE 4.7, the Unaudited Financial Statements (i) fairly
present in all material respects, Axel Johnson's, Nordic's or
each of the Subsidiaries', as the case may be, financial
position, results of its operation and changes in its
financial position at and for the periods specified therein,
(ii) are consistent with the books and records of Axel
Johnson, Nordic or each of the Subsidiaries, as the case may
be, and (iii) include all adjustments, consisting only of
normal recurring adjustments, required for a fair
presentation. With respect to contingent
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liabilities, such liabilities have been accounted for to the
extent required by the Accounting Principles. As of December
31, 1996, the Group Companies taken as a whole have no
liabilities, actual and known, other than those shown in the
Unaudited Financial Statements.
(b) Since December 31, 1996, except as contemplated by this
Agreement and accounted for in the Unaudited Financial
Statements, there has not occurred or arisen:
(i) any Material Adverse Effect,
(ii) any payment, declaration or setting aside by any of
the Group Companies of dividends or a return of
capital or any distribution by any of the Group
Companies of any cash or other assets to any of its
shareholders in redemption of or as the purchase
price for any of the Group Companies' capital stock
or equity or in discharge or cancellation in whole or
in part of any indebtness owing (whether in payment
of principal, interest or otherwise) to any of its
shareholders, except, in the case of the discharge or
cancellation of any indebtness only, for ordinary
commercial transactions;
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(iii) any institution by any of the Group Companies of a
bonus, stock option, profit-sharing, pension or
similar arrangement or any changes in any such
existing plans;
(iv) any material loss, damage or destruction to any of
the Group Companies' properties (whether or not
covered by insurance);
(v) any increase made or promised in the compensation or
other remuneration payable or to become payable by
any of the Group Companies to any of its employees,
agents or partners outside the ordinary course of
business;
(vi) any material commitment made (through negotiations or
otherwise) or any material liability incurred to any
labor organization or works council by any of the
Group Companies; or
(vii) any changes in accounting or reporting principles or
practices from those utilized in the preparation of
the Audited Financial Statements and the Unaudited
Financial Statements, respectively.
(c) Since March 31, 1996 each of the Group Companies has conducted
its business in the ordinary course and in a manner consistent
with prior business practice.
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4.8 Liabilities
-----------
Except for the liabilities or obligations that (i) are included in the
balance sheet included in the Unaudited Financial Statements of such
Group Company; or (ii) were incurred since December 31, 1996 in the
ordinary course of business, there are no material liabilities of any
nature (whether or not accrued or otherwise) of the Group Companies.
None of the Group Companies are presently in default under and, to the
best of Sellers' knowledge, there does not exist an event which, with
notice or lapse of time or both would constitute a default under, or
give rise to acceleration of any of the liabilities of the Group
Companies.
4.9 Title to Assets and Properties; Liens
-------------------------------------
SCHEDULE 4.9(a) lists all leases and licenses pursuant to which the
Companies lease or are licensed to use real estate or other material
personal property. Each of the Group Companies has good title to all of
the assets and properties owned (but not leased) by it which are used
in the conduct of its business, and such assets and properties are
reflected in the Audited Financial Statements, other than assets and
properties purchased or sold since March 31, 1996 in the ordinary
course of business. Such assets and properties are free and clear of
any Liens, other than (i) reservations of title provided for in
contracts for the purchase of goods (or the relevant invoices) entered
into in the ordinary course of business; and (ii) Liens reflected in
the Audited Financial Statements.
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4.10 Accounts Receivable
-------------------
All accounts receivable ("Receivables") of the Group Companies as per
the Closing Date are set forth on SCHEDULE 4.10, and have arisen from
bona fide transactions of the Group Companies and represent valid
obligations due to the applicable Group Company(ies) which have been
accounted for in a manner consistent with the Accounting Principles.
Reserves for such Receivables have been calculated in accordance with
Accounting Principles and in a manner consistent with past practice.
All Receivables have been, or will be, collected according to their
respective terms by the applicable Group Company(ies) in the ordinary
course of its business (assuming collection efforts will be made in a
manner consistent with past practice), except for an aggregate amount
of Receivables that shall not exceed the aggregate of the reserves for
Receivables as of the Closing Date for the Group Companies taken as a
whole, as set forth on Schedule 4.10.
4.11 Material Agreements
-------------------
(a) SCHEDULE 4.11(a) lists the contracts to which any of the Group
Companies is a party or by which any of its assets, businesses
or operations is bound or affected other than any contract
that (i) may be canceled by such Group Company on thirty (30)
days' notice or less without incurring a liability or
obligation caused by such cancellation, or (ii) involves or is
reasonably expected to involve the payment of consideration
having an aggregate value of less than Seven Hundred Thousand
<PAGE> 27
27
Swedish Kronor (SEK 700,000) with respect to Nordic, and One
Hundred Fifty Thousand German Marks (DEM 150,000) with respect
to Axel Johnson. A true, correct and complete copy of each
written, and a description of each oral contract listed on
Schedule 4.11(a) has been delivered to Buyers or its counsel.
(b) Neither of the Group Companies has received any written notice
of breach by it and, to the best of Sellers' knowledge, they
are not currently in breach of any material agreement,
contract or commitment to which any of the Group Companies is
a party or to which it is bound.
(c) SCHEDULE 4.11(c) lists all outstanding purchase orders as of 5
days prior to Closing under which any of the Group Companies
is or will become obligated to pay any particular vendor an
aggregate sum in excess of the equivalent of Three Hundred
Fifty Thousand Swedish Kronor (SEK 350,000). All purchase
orders subsequently entered into by the Group Companies have
been entered into in the ordinary course of business,
consistent with past practice.
4.12 Insurance
---------
(a) Except as set forth on SCHEDULE 4.12(a) attached hereto, the
Group Companies' assets and properties (whether owned or
leased) are insured against fire, damage and loss in
accordance with customary practice in the industry.
<PAGE> 28
28
(b) The Group Companies maintain normal and customary liability
insurance and normal and customary insurance against
operational interruption;
(c) The insurance policies under subsections (a) - (b) above have
been valid and in effect since March 31, 1996; and
(d) all insurance premiums due have been paid.
A list of the insurance policies for the Group Companies is set forth
in Schedule 4.12(b) attached hereto. Sellers will maintain certain
insurance policies until March 31, 1997, unless requested to be earlier
terminated by Buyers, as indicated on Schedule 4.12(b) and the Group
Companies shall reimburse Sellers for the reasonable costs thereof.
Buyers and the Group Companies shall not be entitled to put forward any
claims vis-a-vis Rutland Insurance Ltd. under insurance policies issued
by Rutland Insurance Ltd. as set forth in Schedule 4.12(b).
4.13 Employment and Pension Agreements
---------------------------------
(a) Except as (i) set forth on SCHEDULE 4.13(a) attached hereto,
(ii) expressly provided for in collective bargaining
agreements applicable to any of the Group Companies and their
respective employees and delivered to Buyers, (iii) expressly
provided
<PAGE> 29
29
for in employment agreements between any of the Group
Companies and their respective employees and delivered to
Buyers, or (iv) established or required by law in the
jurisdiction in which the Group Companies are organized or do
business, there are no deferred compensation agreements, bonus
plans (other than discretionary payments of annual bonuses),
profit-sharing plans, pension plans, severance pay or
retirement plans, employee stock option or purchase plans,
private life insurance plans or hospitalization insurance
plans (collectively referred to as the "Employment and Pension
Agreements") in effect with respect to any director, officer
or other employee of any of the Group Companies.
(b) There is no pending and, to Sellers' best knowledge, no
threatened claim by any current or former director, officer or
employee working for any of the Group Companies against any of
the Group Companies or Sellers.
(c) The relation of each of the Group Companies with its employees
is generally good, and there are no pending or, to the best of
Sellers' knowledge, threatened material labor difficulties.
(d) All obligations of the Group Companies incurred in connection
with the Employment and Pension Agreements has been and is
properly reflected in the Audited Financial Statements and the
Unaudited Financial Statement, respectively, to the extent
required by the Accounting Principles.
<PAGE> 30
30
4.14 Taxes
-----
(a) All returns and reports regarding Taxes required to be filed
prior to the Closing Date by or on behalf of any of the Group
Companies have been filed with the appropriate authority, and
all such Tax returns and reports were true, correct and
complete in all respects, and all contingent information
required to be filed for correct Tax assessment has been
filed. Sellers have no knowledge of any unassessed tax
deficiency proposed or threatened against any of the Group
Companies as a result of the operation of their business. All
Taxes assessed against any Group Company up to December 31,
1996, have either been paid or reserved for in the Unaudited
Financial Statements for such Group Company. There is no tax
audit or other investigation being conducted by a Governmental
Authority against any Group Company. It is the Parties
intention that Sellers shall be responsible for all Taxes,
unless already paid or reserved for on such Group Company's
balance sheet contained in the Unaudited Financial Statements,
which Taxes are (i) incurred by or assessed or levied against
any Group Company on the basis of the financial year-end
accounts up to and including March 31, 1996; and (ii) assessed
or levied against any Group Company on an on-going basis and
due prior to December 31, 1996.
(b) Except as reserved for in the relevant balance sheet contained
in the Unaudited Financial Statements, none of the Group
Companies will be required to repay (in
<PAGE> 31
31
full or in part), other than as a result of a change in
business or other measure after Closing Date, any investment
grants or subsidies or any other financial support given by
public bodies which have been received by such Group Company
prior to the Closing Date.
4.15 Litigation
----------
Except as set forth in SCHEDULE 4.15 attached hereto, there is no suit,
claim, action, arbitration, inquiry, administrative or other proceeding
pending, or to the best of Sellers' knowledge, threatened, by or before
any court or Governmental Authority or arbitral panel against any of
the Group Companies.
4.16 Dividends; Payments; Material Agreements With Sellers
-----------------------------------------------------
Since March 31, 1996, no Group Company has declared any dividends or
made any other distribution of its profits or unrestricted equity to
its shareholders, other than to other Group Companies. None of the
Group Companies has any obligation to make such payments or
distributions (other than to other Group Companies), nor has any Group
Companies made any material transactions or dealings with Sellers or
any Affiliate of Sellers since March 31, 1996 that has been outside the
ordinary course of business. No Group Company has any liability,
obligation or debt to any current or former shareholder, officer or
director of any of the Group Companies, Seller or any Affiliate of
Seller.
<PAGE> 32
32
4.17 Intellectual Property
---------------------
(a) Each of the Group Companies owns, or has valid licenses or
other right to use (i) all of its patents, copyrights, trade
marks and service marks, all of which are set forth in
SCHEDULE 4.17(i), and (ii) all trade secrets, know-how and any
other intellectual property. The intellectual property in (i)
and (ii) is jointly referred to as the "Intelletctual
Property". All Intellectual Property has been duly registered
in, filed in or issued by the appropriate Governmental
Authority, and such registrations remain in force as of this
day and all renewal fees due for such registrations have been
paid. To the best of Sellers' knowledge, the conduct by each
of the Group Companies does not infringe upon or violate any
proprietary rights or related rights of any third party.
Except as set forth on SCHEDULE 4.17(ii), there has not been
during the last three (3) years and there is currently no
claim by any third party or any proceeding pending, or, to the
best of Sellers' knowledge, threatened against any of the
Group Companies relating to the Intellectual Property. To the
best of Sellers' knowledge, no third party is presently
infringing upon any Intellectual Property, except as set forth
on SCHEDULE 4.17(iii).
(b) Each of Group Companies has the right to use its present
corporate name for the business presently conducted by such
Company.
<PAGE> 33
33
4.18 Environmental Matters; Health & Safety
--------------------------------------
(a) All permits of environmental character or required by any
Environmental Law of any Group Company are in full force and
effect and no Group Company is in violation of such permit.
Except as set forth on SCHEDULE 4.18 hereto, there is no
material order or instruction from any court or Governmental
Authority directed to any Group Company regarding
non-compliance with environmental laws or health and safety
laws for its employees (collectively referred to as the
"Environmental Laws"). The Group Companies are in compliance
with, all permits, licenses, authorizations and concessions
regarding Environmental Laws necessary for the conduct of the
business.
(b) No real property is being or has been used by any of the Group
Companies in such a way which may lead to or have led to any
such real property becoming contaminated in a manner resulting
in any liability under Environmental Laws.
Notwithstanding the foregoing in this Section 4.18, Sellers
shall not be responsible for any obligations, losses or costs
resulting from more restrictive standards of any and all
Environmental Laws enacted subsequent to the date of this
Agreement.
<PAGE> 34
34
(c) With respect to the operations at Zickert Products AB
("Zickert"), Sellers hereby undertake to indemnify Buyers for
any costs and expenses incurred by Zickert or Buyers caused by
an order from a Governmental Authority or required under any
Environmental Laws in relation to clean up measures, fines,
costs and expenses required as a result of waste disposal or
other non-compliance with Environmental Laws by Zickert prior
to the Closing Date and while owned by Nordic, PROVIDED,
HOWEVER, that Buyer shall cause Zickert to comply with the
written approval, attached hereto in SCHEDULE 4.18, granted by
the Governmental Authority by completing the investments
required in this respect prior to January 1, 1998, unless such
deadline is extended by the Governmental Authority. Sellers
have informed Buyers that the estimated cost for such
investment will be approximately SEK 350,000 in the aggregate.
4.19 Bank Accounts etc.
-----------------
SCHEDULE 4.19 is a list of the name of each bank, savings and loan, or
other financial institution in which each of the Group Companies has an
account or safe deposit box, the names of all persons authorized to
draw on each account or to have access to each box, the number of
signatures required to be given for a withdrawal and a description of
the type of account.
<PAGE> 35
35
4.20 Powers of Attorney
------------------
None of the Group Companies has given any power of attorney that is
presently in effect to any person or entity for any material purpose.
4.21 Capital Expenditure Plans
-------------------------
SCHEDULE 4.21 sets forth a description of each capital expenditure plan
of each of the Group Companies involving the expenditure of at least an
amount equivalent to Fifty Thousand US dollars (USD 50,000) as to which
the expenditure of funds is incomplete, setting forth (i) the budgeted
expenditure and (ii) the actual amounts expended, if any.
4.22 Business Relations
------------------
Other than as set forth on SCHEDULE 4.22, no Group Company is required,
in the ordinary course of business, to provide any bonding or any other
financial security arrangements in connection with any customers or
suppliers.
4.23 Real Property
-------------
SCHEDULE 4.23 contains a list of all real property leases to which any
of the Group Companies is a party (the "Real Property"). All leases are
in writing and are duly
<PAGE> 36
36
executed and are valid for their full term and none have been modified,
amended, sublet or assigned. There is no default by any Group Company,
or to the best of Sellers' knowledge, any other party which materially
affects the Real Property. No Group Company owns any real property.
4.24 Transactions with Officers, etc.
-------------------------------
Sellers and its Affiliates have no ownership or other forms of
controlling interest in any entity (other than an Affiliate) that has
any existing material relationship, oral or written, or other business
relationship with any of the Group Companies.
4.25 Products
--------
To the best of Sellers' knowledge, the products sold by each of the
Group Companies conformed to and met or exceeded the standards required
by all applicable laws, ordinances and regulations in effect at the
time of such sales. To the best of Sellers' knowledge, there is no
pending legislation, ordinance or regulation which if adopted or
enacted would have a Material Adverse Effect on such products or any of
the Group Companies business as presently conducted.
Except as set forth on SCHEDULE 4.25, no claims of customers or others
based on an alleged or admitted defect of material, workmanship or
design or otherwise in or in
<PAGE> 37
37
respect of any of the Group Companies' products are presently pending,
or to the best of Sellers' knowedge, threatened, other than product
warranty claims reserved for on the balance sheets contained in the
Unaudited Financial Statements or which in the aggregate do not exceed
Fifteen Thousand US Dollars (USD 15,000).
4.26 Casualty Occurrences
--------------------
None of the Group Companies has received notice of any occurrences
during the last five (5) years which has resulted in damages in excess
of One Hundred Thousand US Dollars (USD 100,000) (or the equivalent
thereof in any other currency) to persons or property involving any
defects or alleged defects in any of such Group Company's products or
their respective designs. All such occurrences are fully and adequately
covered by paid-for insurance.
4.27 Inventory
---------
The inventories of each of the Group Companies reflected on the
Unaudited Financial Statements and acquired since December 31, 1996
consist only of items of a quality and quantity usable and saleable in
the ordinary course of business, consistent with past practice and do
not include any item of inventory which has previously been written off
by such Group Company. Items of below-standard quality and items not
previously readily saleable in the ordinary course of business have
been written down in value in
<PAGE> 38
38
accordance with Accounting Principles to estimated net realizable
market values. The value at which the inventories are carried on each
of the Group Companies' books reflects the lower of cost (on a FIFO
basis) or estimated net realizable market value. The inventory
reflected on the March 31, 1996 balance sheet of each of the Group
Companies, is based on quantities determined by physical count.
4.28 Work in Progress Projects
-------------------------
To the best of Sellers' knowledge, there is no occurrence in relation
to any work in progress project that is likely to give rise to a claim
against any existing guarantee, as set forth on Schedule 3.4(f), by any
principal due to any fraudulent or negligent acts outside professional
standard of any Group Company prior to the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers hereby make and agree to the following representations and
warranties to and for the benefit of Sellers, each of which is made on
and as of the Closing Date.
5.1 Organization
------------
Sweden Sub is a corporation duly organized and validly existing under
the laws of Sweden. Germany Sub is a corporation duly organized and
validly existing under the
<PAGE> 39
39
laws of Germany, and registered in the Commercial Register of the local
court in Hamburg under the registration number HRB 626 96.
5.2 Authorization, Execution and Delivery
-------------------------------------
(a) Buyers have all requisite corporate power and authority to
enter into, execute and deliver this Agreement and each other
document delivered in connection herewith and to perform all
of their obligations hereunder.
(b) The execution of this Agreement and each other document
delivered in connection herewith by Buyers and the performance
by Buyers of the transactions contemplated herein have been
duly authorized and executed by all necessary corporate action
on the part of the Buyers.
(c) This Agreement constitutes a legal, valid and binding
obligation of Buyers, enforceable against Buyers in accordance
with its terms.
5.3 No Conflicts
------------
The execution and performance of this Agreement and the fulfillment of
the terms hereof will not result in a breach of any applicable law,
judgment, decree or order of any court or
<PAGE> 40
40
Governmental Authority or of Buyers' respective articles of association
or any of their other organizational documents.
5.4 Consents, Filings, etc.
----------------------
Buyers have made all necessary filings and obtained any and all
necessary approvals including, but not limited to, approvals in the
European Community, Germany or Sweden pursuant to all relevant and
applicable competition legislation.
6. COVENANTS BY SELLERS AND BUYERS
6.1 Publicity
---------
None of the Parties shall issue any press releases or make any other
public statements, in each case relating to, connected with or arising
out of this Agreement or any matters contained herein, without
obtaining prior approval from the other Party with respect to the
contents and the manner of presentation and publication thereof,
PROVIDED, however, that nothing herein shall prevent any Party from
making any announcement or filing required by (i) any applicable law or
regulation or (ii) the rules and regulations of any stock exchange or
an agreement with any stock exchange on which it or any Affiliate is
listed.
<PAGE> 41
41
6.2 Confidentiality
---------------
Buyers and Sellers shall not, and shall cause each of their respective
Affiliates not to, disclose any of the other Parties' Confidential
Information of the other Parties to any person except:
(a) those directors or employees of Buyers, Sellers or their
respective Affiliates that are likely to be directly concerned
with the transactions contemplated herein and who need to know
the Confidential Information (or any part of it) for the
purpose of conducting such transactions, and
(b) those Representatives of Buyers, Sellers or their respective
Affiliates engaged to advise with respect to the transactions
contemplated herein and who need to know the Confidential
Information (or any part of it) in order to advise upon such
transactions; PROVIDED, HOWEVER, that Buyers and Sellers shall
ensure that such directors, employees and Representatives to
whom Confidential Information is to be disclosed are made
aware of and agree to adhere to the terms of this
confidentiality provision as if each were a party to it,
unless such disclosure (i) is required under any applicable
law or regulation, (ii) is required under any applicable stock
exchange regulation or an agreement with any stock exchange,
(iii) is made in connection with the ordinary course of
business of the Group Companies, or (iv) has been consented to
by the other Parties, which consent shall
<PAGE> 42
42
not be unreasonably withheld. This Section 6.2 shall be valid
for a period of two (2) years from the date of the signing of
this Agreement.
6.3 Breach of Undertaking etc.
-------------------------
(a) Buyers shall hold Sellers harmless for all costs and expenses
incurred by Sellers as a result of a breach by Buyers of their
undertakings stated in this Agreement. In addition, Sellers
shall be entitled to set off such costs and expenses against
Losses under Section 8 below. Further, Sellers shall hold
Buyers harmless for all costs and expenses incurred by Buyers
or any of the Group Companies as a result of a breach by
Sellers of their undertakings stated in this Agreement. In
addition, Buyers shall be entitled to set off such costs and
expenses and Qualified Losses (as defined below) against
amounts in the escrow pursuant to the Escrow Agreement
referred to in Section 3.2(b)(ii) and the promissory note
referred to in Section 3.2(b)(iii).
(b) Buyers shall hold Sellers harmless for all liabilities, costs
and expenses incurred by Sellers as of the Closing Date in
connection with the banking facilities, as set forth in
Section 3.4(c) and in Schedule 3.4(c).
<PAGE> 43
43
6.4 Non-competition
---------------
(a) As from the Closing Date and for a period of two (2) years
from the Closing Date, neither Sellers, Anglian Water nor any
of their Affiliates shall commence or, directly or
intentionally indirectly through a significant interest,
engage in business competing with the business of the Group
Companies relating to the manufacture and sales of products or
services sold or provided by the Group Companies as per the
Closing Date. Notwithstanding the above, Sellers, Anglian
Water and all their Affiliates shall be entitled to market and
sell the GEWE Lamella separator for their own design and build
contracts for treatment plants. Moreover, Purac Engineering is
entitled to continue to sell the GEWE Lamella separator
without territorial restrictions or otherwise. If Affiliates
of Anglian Water are required to procure and sell products for
its own design and build contracts or build-own-operate
projects or similar contracts, then such procurement and sales
shall not be deemed to be in breach of this Section 6.4(a). To
the extent possible under applicable regulations issued by the
relevant Government Authority, Anglian Water and its
Affiliates will use their best efforts to source such products
from the Group Companies, if requested by such Group
Companies, provided their products are deemed by Anglian Water
or any of its Affiliates in good faith to be appropriate for
use in the relevant project and competitive in price and
function.
<PAGE> 44
44
In the event that Sellers, Anglian Water or any Affiliate of
Anglian Water should commit a breach of the undertaking stated
herein, Buyers shall not be entitled to terminate this
Agreement.
Each Seller acknowledges that the length of time of the
prohibitions in this Subsection (a) both are reasonable and
necessary for the legitimate protection of Buyers' and the
Group Companies' businesses and interests.
(b) Sellers and Anglian Water expressly agree and understand that
the remedy at law for breach of this Agreement is not entirely
adequate for breach of Section 6.4 and that damages may not be
susceptible to being measured in monetary terms. Accordingly,
it is acknowledged that upon adequate proof of any of Sellers
or Anglian Water's or its Affiliates' violation of this
Section 6.4, Buyers will be entitled, in addition, to any
other remedies available at law, to immediate injunctive
relief and may obtain a temporary restraining order
restraining any further breach.
(c) In the event any court of competent jurisdiction determines
that the specified time period set forth in this Section 6.4.
is unreasonable, arbitrary or against public policy, then a
lesser time period or geographical area that is determined by
the court to be reasonable, non-arbitrary and not against
public policy be enforced.
<PAGE> 45
45
(d) In the event either Sellers or Anglian Water violates any
legally enforceable provision of this Section 6.4 as to which
there is a specific time period during which such Sellers are
prohibited from taking certain actions or engaging in certain
activities, then, in such event the violation will toll the
running of the time period from the date of the violation
until the violation ceases.
6.5 The name "Anglian Water"
------------------------
Buyers undertake to use all reasonable efforts not to and to cause
their Affiliates to cease to use or make any references to the trade
mark or corporate name Anglian Water in their operations as soon as
possible and in no event as from six (6) months after the Closing Date.
During this six month period, the Group Companies are entitled to
continue to use the name Anglian Water in any literature or brochure
existing on the Closing Date. Buyers hereby waive any rights whatsoever
to the name "Anglian Water" or any derivatives thereof.
6.6 The name of the Group Companies
-------------------------------
Sellers undertake to use all reasonable efforts not to and to cause
their Affiliates to cease to use or make any references to the trade
mark or corporate name of any of the Group Companies in their
operations as soon as possible and in no event as from six (6) months
after the Closing Date. During this six month period, Sellers and their
Affiliates are
<PAGE> 46
46
entitled to continue to use the name of any of the Group Companies in
any literature or brochure existing on the Closing Date. Sellers hereby
waive any rights whatsoever to any of the corporate names of the Group
Companies as per the Closing Date.
7. DISCHARGE OF DIRECTOR LIABILITY
At the annual general meetings of shareholders of the Companies and
each Subsidiary for the fiscal year 1996/1997, Buyers shall cause the former
directors and managing directors of the Companies and each Subsidiary to be
discharged from liability for their administration of the Companies and the
Subsidiaries up to and including the Closing Date, PROVIDED that the respective
external auditors of the Companies and the Subsidiaries recommend such discharge
from liability.
8. INDEMNIFICATION BY SELLERS
8.1 Sellers' Indemnification Obligation
-----------------------------------
(a) Subject to the terms of this Section 8, Sellers hereby agree
to indemnify and hold Buyers harmless from and against any and
all losses, damages, liabilities or expenses incurred by
Buyers or any of the Group Companies as a result of an
incorrectness, misstatement or breach of any representations
and warranties under this Agreement ("Losses"), which shall be
Buyers' exclusive remedy for such
<PAGE> 47
47
breach. Prior to the signing of this Agreement, Buyers have
been provided by Sellers and the Group Companies with the
information and documentation set forth in SCHEDULE 8.1.
Buyers shall be deemed to have had actual knowledge of the
facts and circumstances set forth in Schedule 8.1 provided and
to the extent that such schedule contains reasonably specified
particulars. NOTWITHSTANDING THE FOREGOING, Sellers shall not
be liable under this Section 8 with respect to any claim
arising out of facts or circumstances which Buyers or their
Representatives had actual knowledge of prior to the execution
of this Agreement as described in Schedule 8.1 with such
reasonably specific particulars. This limitation does not
apply to claims by Buyers for any untruth or breach of
Sections 4.3 (ownership to shares), 4.14 (taxes), 4.8
(liabilities) and 4.18 (environmental matters).
(b) Sellers shall pay to Buyers any and all amounts it owes to
Buyers pursuant to this Section 8 indemnification as soon as
practicable and in any event no later than thirty (30) days
after a claim for such indemnification has been submitted in
writing by Buyers to Sellers, except if such claim is disputed
by Sellers, in which case Sellers shall pay said amounts no
later than thirty (30) days after a valid and final judgment
(including any appeal as of right therefrom) has been
rendered.
(c) The amount of any Loss shall be calculated by taking into
account as a deduction therefrom of (i) any corresponding
saving or net benefits from any payment to any of Buyers, any
affiliate of Buyers or the Group Companies on account of the
Loss,
<PAGE> 48
48
including any payment under any insurance policy, taking into
account the cost for any increase in insurance premium due to
such payment, and (ii) any actual tax benefits realized under
any applicable law by any of the Group Companies on account of
the Loss OR fifty (50) percent of the discounted present value
(using a discount rate of LIBOR 90 days plus one (1)
percentage unit) of any possible tax benefits on a net basis,
which can be realized in accordance with sound business
judgment during the period covered by such tax claim under any
applicable law by any of the Group Companies an account of the
Loss, whichever is the highest.
(d) A payment by Sellers under this Section 8 shall be deemed to
be in the nature of a reduction of the Purchase Price and not
a penalty. Such reduction of the Purchase Price shall be
Buyers' sole and exclusive remedy for any Loss incurred in
connection with any and all transactions arising out of,
relating to or in connection with this Agreement. Buyers
hereby waive any rights they may have arising under the
Swedish Sale of Goods Act of 1990.
(e) Unless taken in good faith or for a valid business reason as
determined in good faith by Buyers, Buyers will not take any
action other than in the ordinary course of business that
results in Losses giving rise to a claim for indemnification
under this Section 8.1. In the event that Buyers take any
action in contravention of the preceding sentence that results
in Losses and but for the taking of such action, such Losses
would not have been incurred, Buyers shall not be entitled to
<PAGE> 49
49
indemnification for such Losses under this Agreement. All
actions taken by Buyers shall be presumed to have been taken
in good faith and for a valid business reason unless
established to the contrary by Sellers.
8.2 Indemnification Limitations
---------------------------
(a) Except as provided in Section 8.2(b), any and all claims for
indemnification hereunder shall be made by Buyers in writing
as soon as practicable after Buyers become aware of such
claim, and shall describe in reasonable detail the nature of
the claim and provide a good faith estimate of the amount
claimed; PROVIDED that the failure to provide such notice
shall not prejudice Buyers' rights hereunder except to the
extent that such failure prejudices Sellers with respect to
the Losses. Sellers' obligation to indemnify Buyers pursuant
to this Section 8 shall terminate twelve (12) months following
the Closing Date; PROVIDED, however, that all claims for which
a claim has been submitted to Sellers within such twelve (12)
month period shall terminate only upon resolution of Sellers'
obligation to indemnify Buyers' for such claims in accordance
with this Section 8; and PROVIDED further that Sellers'
obligation to indemnify Buyers with respect to liabilities for
Taxes and environmental matters shall terminate pursuant to
Section 8.2(b) and with respect to liabilities for a breach of
Section 4.3 shall not terminate.
<PAGE> 50
50
(b) Any and all claims for indemnification hereunder with respect
to liabilities for Taxes shall be made by Buyers in writing as
soon as possible after such liability has been established by
any competent Governmental Authority; PROVIDED that the
failure to provide such notice shall not prejudice Buyers'
right hereunder except to the extent that such failure
prejudices Sellers with respect to the Losses. Sellers'
obligation to indemnify Buyers with respect to such liability
shall survive as long as applicable statute of limitations has
not expired and for three (3) months thereafter. Sellers'
obligation to indemnify Buyers with respect to a claim for
breach of Section 4.18 (environmental matters) shall terminate
on January 1, 2000.
(c) Notwithstanding the above, Sellers shall not be obligated to
indemnify Buyers for the first USD 200,000 in Losses under
this Section 8 (the "Deductible"), except for losses under
Sections 8.2(b) and 4.3 as to which, in each case, the
Deductible shall not apply. Sellers shall be obligated to
indemnify Buyers pursuant to Section 8.1 hereof only when such
Losses, except for losses under Section 8.2(b), exceed, in the
aggregate, the amount of the Deductible and with respect to
Losses under Sections 8.2(b) and 4.3 upon any occurrence
thereof ("Qualified Losses").
(d) Notwithstanding anything herein to the contrary, the aggregate
amount of Losses for which Sellers may be liable to indemnify
Buyers pursuant to this Agreement
<PAGE> 51
51
shall not exceed Three Million US dollars (USD 3,000,000);
PROVIDED that such limitation shall not apply to losses
demanded under Section 8.2(b) and 4.3.
8.3 Third Party Claims
------------------
Upon Buyers becoming aware of any claim, suit, action or proceeding by
a third party against any of the Group Companies which may give rise to
a Loss which may be indemnifiable under this Section 8, Buyers shall:
(a) Subject to Section 8.3(c) below, make no admission of
liability, agreement or compromise of any kind to or with any
person or entity with respect thereto without the prior
written consent of Sellers, which consent shall not be
unreasonably withheld;
(b) Permit Sellers and their Representatives to (i) have access to
any of the Group Companies' personnel, (ii) have access to any
relevant accounts, documents and/or records within the
possession or control of any of the Group Companies so that
Sellers and their Representatives may assess the merits and
potential liability with respect to such claims, suits,
actions or proceedings, and (iii) take copies or photographs
of such relevant accounts, documents and records at their own
expense. Notwithstanding the foregoing, Sellers shall have no
rights under this Section 8.3(b) if Buyers discharge and
release Sellers from their indemnification
<PAGE> 52
52
obligations under this Section 8 with respect to Losses
relating to, arising out of or in connection with such claims,
suits, actions or proceedings;
(c) Upon the request of Sellers, tender the defense of any such
claim, suit, action or proceeding to Sellers, in which event
Sellers shall assume all liabilities and obligations with
respect to such claim, suit, action or proceeding and shall be
relieved of their indemnification obligations under this
Section 8 for any and all Losses resulting from such claim,
suit, action or proceeding which are incurred after Sellers
have assumed such defense. In the event Sellers do not assume
such defense, Buyers shall have the right to decide whether or
not and in what manner to settle or compromise such claim or
otherwise accept liability for such claim, suit or proceeding.
With respect to Losses under or in connection with Section
4.14, Sellers undertake to communicate with Buyers any
proposals for settlement or compromise of any such claim, and
to use their best reasonable efforts to reach an understanding
with Buyers prior to settling or compromising such claim. If
Buyers do not accept Sellers' proposal concerning the
settlement or compromise of such claim, Buyers shall assume
defense of such claim, suit, action or proceeding, and
Sellers' obligation to indemnify Buyers for Losses in
connection with Section 4.14 shall be limited to the amount of
the proposal presented by Sellers to Buyers. If, Sellers do
not assume the defense, Buyers shall have the corresponding
obligation as Sellers have to communicate with Sellers in
order to reach an understanding prior to settling or
compromising such claim.
<PAGE> 53
53
8.4 Receivables
-----------
Twelve (12) months after the Closing Date, Sellers shall assume any
outstanding Receivables, except for Receivables within and between the
Group Companies, at face value from Buyers net of the reserves
applicable thereto as of the Closing Date, provided that such
Receivables are deemed Qualified Losses. Buyers will cause the Group
Companies to notify each debtor of the assignment and will cause any
payment received for the Receivables thus assigned to be transferred to
Sellers. If Buyers prior to the end of the twelve month period have
obtained a settlement offer in connection with the collection of
Receivables exceeding in the aggregate the total corresponding face
value of Ten Thousand US Dollars (USD 10,000), Buyers are required to
obtain the prior written approval from Sellers before accepting such
offer. Sellers shall respond to such request within five (5) working
days after having received notice of such offer. If such approval is
not granted by Sellers, Buyers shall have the right to settle such
claim. However, Sellers shall in such case not be obliged to assume
liability for the remaining amount of such Receivable at the end of the
twelve month period.
Following assignment of Receivables to Sellers, Sellers shall be
entitled to take all measures considered necessary by Sellers to
recover such Receivables. Buyers undertake to assist Sellers in
pursuing such proceedings by providing Sellers with the necessary
information and access to the relevant Group Companies and their books
in order to pursue these proceedings.
<PAGE> 54
54
8.5 Claims Against Holding
----------------------
(a) Sellers will indemnify Buyers in full for any liability of
Holding incurred by Buyers in accordance with Section 419 of
the German Civil Code (BGB) as a result of a claim against
Holding following Holding's divestiture of the interest share
in Axel Johnson, as envisaged by this Agreement.
(b) In the event Holding will be required to contribute any funds
to Axel Johnson as a result of the Domination Agreement and
following the audited financial statements for Axel Johnson as
per financial year ending December 31, 1996, Holding
undertakes to pay the full amount of such contribution to Axel
Johnson within five (5) days after having been notified of
such claim. Buyers undertake to simultaneously reimburse
Holding for the full corresponding amount that Holding will
pay to Axel Johnson as set forth in this paragraph of
subsection (b).
Correspondingly, in the event Axel Johnson will be required to
contribute any funds as a result of any of the Domination
Agreements, Axel Johnson undertakes to pay the full amount of
such contribution within five (5) days after having been
notified of such claim. Sellers undertake to simultaneously
reimburse Axel Johnson for the full corresponding amount that
Axel Johnson will pay as set forth in this paragraph of
subsection (b).
<PAGE> 55
55
8.6 Escrow Agreement
----------------
If, as of the date twelve (12) months after the Closing Date, Buyers
have presented claims for indemnification in accordance with Section 8
herein which do not exceed the Escrow Amount (as defined in the Escrow
Agreement) and having notified Svenska Handelsbanken (the "Escrow
Agent") in accordance with Section 6.2(a) of the Escrow Agreement,
Buyers undertake to jointly with Sellers sign a notice instructing the
Escrow Agent to release the remaining, undisputed part of the Escrow
Amount to Sellers, in accordance with Section 6.2(b)(i) of the Escrow
Agreement.
9. MISCELLANEOUS
9.1 Entire Agreement
----------------
This Agreement, including all the other documents referred to herein
which form a part hereof and all other documents delivered at the
Closing contemplated hereby contain the entire agreement and
understanding of the Parties with respect to the subject matter
contained herein and therein. This Agreement supersedes all other prior
agreements and understandings between the Parties, whether oral or
written, with respect to such subject matter. The Parties agree that:
<PAGE> 56
56
(i) none of them has entered into this Agreement in reliance on
any representation, warranty or undertaking by any other Party
or any other person which is not expressly set out in this
Agreement or a document which is expressly referred to in this
Agreement;
(ii) no Party shall have any remedy in respect of misrepresentation
or untrue statement made by the other Parties except and to
the extent that a claim lies for breach of a warranty under
this Agreement; and
(iii) for the avoidance of doubt, nothing in this clause shall
exclude any liability for fraud or fraudulent
misrepresentation.
9.2 Amendments
----------
This Agreement may only be amended pursuant to a written instrument
signed and duly executed by the Parties.
9.3 Assignment
----------
This Agreement may not be assigned by any Party without the prior
written consent of the other Parties; PROVIDED, that Buyers may assign
their rights to indemnification hereunder to their, Waterlink's or any
of Waterlink's Affiliate's lender(s) subject to any
<PAGE> 57
57
defense available to Sellers hereunder, which assignment shall be in
form and substance reasonably satisfactory to Sellers.
9.4 Expenses; Fees
--------------
Sellers and Buyers shall each bear their own fees and expenses
including, but not limited to legal fees and expenses, in connection
with this Agreement and in connection with the transactions
contemplated hereby including the fees and expenses of their own
Representatives.
9.5 Notices
-------
Any and all notices or other communications hereunder shall either be
delivered personally, sent by registered mail or sent by facsimile
(followed by immediate letter sent by registered mail or delivered
personally) to the following respective addresses or to such other
addresses as may be notified in said manner by one Party to the other
Party:
<PAGE> 58
58
If to Sellers, to:
Anglian Water International Ltd.
Anglian House
Ambury Road
Huntingdon, Cambs. PE18 6NZ
England
Attention: Company Secretary
If to Buyers, to:
Waterlink Inc.
4100 Holiday Street, NW
Canton, Ohio, USA 44718
Attention: Theodore F. Savastano
with a copy to:
Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio, USA 41144
Attention: Ira C. Kaplan
<PAGE> 59
59
A notice shall be served as follows:
(i) if personally delivered, at the time of delivery;
(ii) if by registered mail, seven (7) days after the envelope
containing the notice was posted; and
(iii) if by facsimile, at the time the facsimile has been sent,
provided such facsimile is followed by immediate letter sent
by registered mail or delivered personally.
9.6 Press Release
-------------
The Parties agree that a special press release concerning the
transactions contemplated herein shall be worked out jointly by the
Parties and shall be released on the Closing Date.
9.7 Governing Law and Jurisdiction
------------------------------
Except for the Assignment Agreement in Exhibit C, which shall be
governed by and construed in accordance with the laws of the Federal
Republic of Germany, this Agreement shall be governed by and construed
in accordance with the laws of the Kingdom of Sweden. Any dispute,
controversy or claim arising out of or in connection
<PAGE> 60
60
with this Agreement, or the breach, termination or invalidity thereof,
shall be finally settled by arbitration in accordance with the Rules of
the Arbitration Institute of the Stockholm Chamber of Commerce;
provided that nothing contained herein shall prevent Buyers or Sellers
from obtaining or seeking to obtain injunctive relief in connection
with any violation of Sections 6.1, 6.2 and 6.4 of this Agreement
before any court of competent jurisdiction. The arbitral tribunal shall
be composed of three arbitrators, who all shall be appointed by the
Arbitration Institute. The place of arbitration shall be Stockholm. The
language of the arbitration shall be English.
9.8 Severability
------------
In case any provision in this Agreement shall be held invalid or
unenforceable, in whole or in part, the other provisions of this
Agreement shall remain in force. The Parties shall replace the invalid
or unenforceable provisions, according to the intent and purpose of
this Agreement, with such valid provisions which in their economic
effect come as close as legally possible to that of the invalid or
unenforceable provisions.
------------------------------
<PAGE> 61
61
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the day and year first above written.
GIGANTISSIMO 2061 AB PROVISTA EINHUNDERTSECHS-
under change of name to UNDFUNFZIGSTE VERWALTUNGS-
WATERLINK (SWEDEN) AB GESELLSCHAFT MBH under change
of name to WATERLINK
(GERMANY) GMBH
By /s/ Michael J. Vantusko By /s/ Michael J. Vantusko
--------------------------- -------------------------------------
Name: Michael J. Vantusko Name: Michael J. Vantusko
Title: Director Title: Attorney-in-fact for Wilfried
Lahman, Managing Director
AWPE SVENSKA AB ANGLIAN WATER HOLDING GMBH
By /s/ Goran Widjmark By /s/ Goran Widjmark
--------------------------- -------------------------------------
Name: Goran Widjmark Name: Goran Widjmark
Title: Title:
<PAGE> 62
62
GUARANTEE
Anglian Water International Ltd hereby guarantees as for its own debt (sasom for
egen skuld) the due performance of the obligations of AWPE Svenska AB and
Anglian Water Holding GmbH under this Agreement and all side-letters delivered
in connection herewith. Anglian Water International Ltd hereby accepts the
undertakings set forth in Sections 6.1, 6.2 and 6.4.
ANGLIAN WATER INTERNATIONAL LIMITED
By /s/ Goran Widjmark
-------------------------
Name: Goran Widjmark
<PAGE> 63
63
GUARANTEE
Waterlink Inc. hereby guarantees as for its own debt (sasom for egen skuld) the
due performance of the obligations of Gigantissimo 2061 AB under change of name
to Waterlink (Sweden) AB and Provista Einhundertsechsundfunfzigste
Verwaltungsgesellschaft mbH under change of name to Waterlink (Germany) GmbH
under this Agreement, the promissory note attached hereto as Exhibit B and all
side-letters delivered in connection herewith. Waterlink Inc. hereby accepts the
undertakings set forth in Sections 6.1 and 6.2.
WATERLINK INC.
By /s/ Michael J. Vantusko
--------------------------------
Name: Michael J. Vantusko
Chief Financial Officer
<PAGE> 1
Exhibit 10.20
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") dated as of March
14, 1995, is by and between Waterlink, Inc., a Delaware corporation
("Purchaser"), and Sanborn, Inc., a Delaware corporation as Debtor and
Debtor-in-Possession in that certain Bankruptcy Case No. 94- 40207-HJB
("Seller"). Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to them in Article VII of this Agreement.
WHEREAS, Seller is a designer, fabricator and distributor of industrial
separation systems primarily used in the metalworking industry, and whose
products utilize centrifugal, classical settling and advance membrane separation
technologies to provide high performance, solid-liquid and liquid-liquid
separation;
WHEREAS, Seller operates its equipment business through the Sanborn
Technologies Division (a/k/a SanTech) and the Process Equipment Division (the
"Divisions"), together with licenses of certain patents, if any, from Separation
Methods, Inc., a wholly-owned subsidiary of Seller ("SMI");
WHEREAS, Seller filed a voluntary petition, and is currently operating
its business as a debtor-in-possession, under Chapter 11 of the United States
Bankruptcy Code under the supervision of the United States Bankruptcy Court for
the District of Massachusetts Case No. 94-40207-HJB;
WHEREAS, Seller has decided to dispose of certain of its operating
divisions and subsidiaries in an attempt to satisfy the secured and unsecured
claims of its creditors;
WHEREAS, Seller has determined that a sale of such assets to Purchaser,
upon the terms and subject to the conditions set forth in this Agreement,
represents the highest and best offer for such assets and is in the best
interests of Seller's estate and its creditors; and
WHEREAS, Seller desires to sell and convey to Purchaser, and Purchaser
desires to purchase from Seller, such assets and Seller and Purchaser desire to
enter into certain other agreements in connection with the purchase and sale of
such assets upon the terms and conditions stated herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements contained herein, intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
Section 1.01 ASSETS TO BE SOLD. Subject to and in accordance with the
terms and conditions of this Agreement, at the Effective Time, Seller shall
transfer, convey, assign and deliver, or shall cause to be transferred,
conveyed, assigned and delivered, to Purchaser, and Purchaser will acquire and
accept from Seller, all of Seller's right, title and interest, of every kind and
description, to the following properties and assets (any item qualified by the
term "of the Divisions" meaning any such
<PAGE> 2
item relating to, or used or useful in connection with, the businesses or
operations of the Divisions irrespective of whether title to or ownership of
such item is in the name of Seller, one of the Divisions or SMI):
(a) All of Seller's right, title and interest in and to the business of
the Divisions as a going concern and the goodwill pertaining thereto;
(b) All of Seller's right, title and interest in and to the Inventory
plus all work-in-progress of the Divisions;
(c) All of Seller's right, title and interest, in whatever media or
form, of every kind and description whatsoever, in and to all sales and
equipment documentation of the Divisions, including without limitation, all
sales literature (including original artwork and all stationery, envelopes and
related items), forms of sales invoices, purchase orders and sales contracts,
bills of materials, instruction and repair manuals, sales training materials,
equipment designs, specifications, drawings and notes, blueprints, technical
drawings and notes and other technical information;
(d) All of Seller's right, title and interest, in whatever media or
form, of every kind and description whatsoever, in and to all proprietary
information of the Divisions, including without limitation all historical and
current sales information, historical and current accounting data, software
programs, computer data files, customer lists and files, price lists, competitor
files, quote files, sales invoices, purchase orders, costing files, log books,
sales contracts and manufacturing and purchasing records and files and all other
books and records of the Divisions;
(e) All of Seller's right, title and interest, in and to all of the
following tooling and other equipment of the Divisions: all patterns, jigs and
fixtures, trade show booths and sales demonstration models;
(f) All of Seller's right, title and interest in and to all United
States and foreign patents, patent rights, patent applications and licenses,
trademarks, trademark rights, service marks, service mark rights, trade names,
trade name rights, copyrights, trade secrets, shop rights, inventions, know-how,
formulae, product designs, engineering documentation, drawing specifications,
research and development material, product improvements, production schedules,
testing procedures, technical information, unpatented inventions, techniques,
discoveries, designs, proprietary rights and non-public information, whether
patentable or not, and registrations, reissues and extensions thereof and
applications and licenses therefor, of the Divisions, including without
limitation, all such intellectual property owned by or in the name of SMI that
is used in, useful or necessary to the business or operations of the Divisions
(the "Patents and Technology");
(g) All of Seller's right, title and interest in and to the customer
sales contracts, customer purchase orders, customer rental agreements and other
customer agreements of the Divisions;
2
<PAGE> 3
(h) All of Seller's right, title and interest in and to all of the
goodwill and trade connections of the Divisions and the Seller's right to use
the following names: "Sanborn", "Sanborn Technologies", "Sanborn Process
Equipment", "Separation Technologies, Inc.", and "SanTech";
(i) The demonstration equipment listed and described on Schedule
1.01(i);
(j) The furniture and office equipment listed and described on Schedule
1.01(j);
(k) The laboratory equipment listed and described on Schedule 1.01(k);
(1) The computer equipment listed and described on Schedule 1.01(l);
(m) The shop equipment listed and described on Schedule 1.01(m);
(n) The Toshiba Perception Telephone System listed and described on
Schedule 1.01(n);
(o) The MicroVax computer system listed and described on Schedule
1.01(o);
(p) The MicroVax computer enhancements listed and described on Schedule
1.01(p);
(q) The additional demonstration equipment listed and described on
Schedule 1.01(q);
(r) The machines and raw materials listed and described on Schedule
1.01(r);
(s) The finished goods listed and described on Schedule 1.01(s);
(t) All phone numbers (including facsimile numbers) used in connection
with the business of the Divisions including, but not limited to, (i)
(508)384-3181, (ii) (800)343-3381, and (iii) (508)384-5346 which Seller using
its best efforts is able to transfer to Purchaser; and
(u) All of Seller's right, title and interest in and to all rights,
claims and causes of actions of Seller against any officer, former officer,
employee, former employee or other person arising out of the disclosure or use,
or threatened disclosure or threatened use, of any proprietary Information
relating to the Assets or the businesses or operations of the Divisions
including without limitation, any invention, process, method, formulae,
treatment, discovery or improvement or application thereof, or other "know-how",
or compilation of information, list of customers or suppliers, documents or
records with respect thereto or contained therein.
The assets, properties and rights of Seller listed in Section 1.01(a)-(u) are
hereinafter collectively referred as the "Assets."
3
<PAGE> 4
Section 1.02. RETAINED EQUIPMENT.
(a) Subject to the right of use contained in Section 1.02(b) below,
Seller shall have the option to retain any Asset listed on Schedules 1.01(j),
(k) and (l) by providing to Purchaser written notice of the exercise of its
option hereunder no later than five (5) days after the execution hereof, which
notice shall state with particularity a description of each item of Retained
Equipment, the aggregate Allocated Value of the Retained Equipment, and the
reduction of the Purchase Price resulting from the exercise by Seller of its
option hereunder.
(b) Seller hereby grants to Purchaser a right of usage on each piece of
Retained Equipment in accordance with the terms set forth in this paragraph. The
usage of Retained Equipment shall be for an initial term of 30 days and shall be
renewable for successive 30-day terms unless either Purchaser or Seller notifies
the other party in writing at least 15 days prior to the expiration of the
initial or any successive term of usage of its election to not renew the rental
obligation for t he next-successive 30-day term. The monthly usage fee for the
Retained Equipment shall be calculated by dividing the aggregate Allocated Value
of the Retained Equipment by five (5) and further dividing such amount by twelve
(12).
Section 1.03 THIRD PARTY EQUIPMENT. If Seller is unable to sell,
assign, deliver or convey title to any Asset listed and described in Sections 1.
01 (m), (n), (o) or (p), Seller may retain any such item of Third Party
Equipment by giving Purchaser written notice thereof no less than five (5) court
days (as computed pursuant to Bankruptcy Rule 9006) prior to the Closing, which
notice shall state with particularity a description of each item of Third Party
Equipment, the Allocated Value of the Third Party Equipment and the reduction of
the Purchase Price resulting therefrom. Seller hereby grants to Purchaser the
right to use each item of Third Party Equipment until such time as Seller loses
possession thereof. Purchaser shall pay to Seller a daily usage fee for the
Third Party Equipment in an amount calculated by dividing the Allocated Value of
such Assets by five (5), dividing such amount by twelve (12) and further
dividing such amount by thirty (30). The usage fee shall be paid monthly in
arrears. Seller shall immediately notify Purchaser of any notices, claims or
actions instituted by or asserted against Seller that may result in Seller
losing possession of any item of Third Party Equipment.
Section 1.04 TRANSFER OF TITLE. The Assets shall be sold, conveyed,
assigned, transferred and delivered by Seller to Purchaser at Closing pursuant
to Section 363 of the Bankruptcy Code by appropriate instruments of transfer,
bills of sale, endorsements and assignments, as the case may be, all in form and
substance reasonably satisfactory to Purchaser and its counsel.
Section 1.05 FREE AND CLEAR OF LIENS. The Assets shall be sold,
conveyed, assigned, transferred and delivered by Seller to Purchaser at Closing
free and clear of any and all liens, mortgages, pledges, security interests,
restrictions, prior assignments liabilities, obligations, encumbrances, charges,
tenancies, licenses, encroachments, covenants, successor or transferee
liabilities, and claims of any and every kind, nature and description
whatsoever, including any "interest in property" within the meaning of that term
as it is used in the Bankruptcy Code.
4
<PAGE> 5
Section 1.06 ASSUMPTION OF LIABILITIES. Purchaser agrees to assume, at
the Closing, all of Seller's obligations to deliver Products pursuant to the
Purchase Orders assigned by Seller to Purchaser pursuant to this Agreement.
Except to the extent set forth in the preceding sentence, the Parties understand
and agree that Purchaser does not assume or agree to pay, perform or otherwise
be responsible for any debts, liabilities, contracts, commitments or obligations
of Seller that initially arise prior to the Closing Date, whether post-petition
or pre-petition and whether or not associated with the Assets, including,
without limitation, those obligations and liabilities relating to employee
compensation, collective bargaining agreements, pension, profit-sharing,
vacation, health insurance, disability insurance or other employee benefit
programs, worker's compensation, breach or negligent performance of any contract
or breach of warranty relating thereto, and any product liability relating to
products manufactured or sold by Seller. All such liabilities, debts and
obligations shall remain the responsibility of Seller.
Section 1.07 DISCLAIMERS. The Assets are being acquired by Purchaser on
an "AS IS, WHERE IS" basis, based solely on Purchaser's investigation, without
any representations or warranties by Seller, express or implied, as to
condition, fitness or merchantability, all of which are hereby expressly
disclaimed.
ARTICLE II
PURCHASE PRICE; PAYMENT; ADJUSTMENTS TO THE PURCHASE PRICE
----------------------------------------------------------
Section 2.01 PURCHASE PRICE. The aggregate purchase price (the
"Purchase Price") for the Assets shall be Seven Hundred Fifty-One Thousand
Dollars ($751,000), as adjusted pursuant to Section 2.02. The Purchase Price
shall be payable by certified check or by wire transfer of immediately available
funds as follows:
(a) Two Hundred Fifty Thousand Dollars ($250,000) bid deposit (the "Bid
Deposit") upon the execution and delivery of this Agreement, and
(b) Five Hundred One Thousand Dollars ($501,000) at the Closing.
Section 2.02. ADJUSTMENTS OF THE PURCHASE PRICE. Purchaser and Seller
hereby agree that the Purchase Price payable at Closing shall be subject to
adjustment as follows:
(a) RETAINED EQUIPMENT. The Purchase Price shall be reduced by the
Allocated Value of any Asset retained by Seller pursuant to Sections 1.02 and
1.03, if any.
(b) INVENTORY. In the event that the Inventory List shall reflect a
value that is greater than the Inventory Base Price, then the Purchase Price
shall be increased by such amount. In the event that the Inventory List shall
reflect a value that is less than the Inventory Base Price, then the Purchase
Price shall be reduced by such amount.
5
<PAGE> 6
(c) NET WIP. In the event the Net WIP is a positive number, then the
Purchase Price shall be increased by such amount. In the event Net WIP is a
negative number, the Purchase Price shall be reduced by such amount.
ARTICLE III
BANKRUPTCY COURT APPROVAL
-------------------------
Section 3.01 CONDITION PRECEDENT. Subject to the provisions of Section
3.03 below, it shall be a condition precedent to the obligations of all Parties
to this Agreement that the Bankruptcy Court shall have entered a final and
non-appealable judgment or order pursuant to the Bankruptcy Code confirming the
sale and transfer of good and marketable title of the Assets to Purchaser
substantially in the form of Exhibit A attached hereto (after proper notice
under the Bankruptcy Code and a hearing as defined in Section 102(1) of the
Bankruptcy Code) authorizing and approving the terms and conditions of this
Agreement and authorizing Seller to perform all acts necessary to consummate the
transactions contemplated hereby.
Section 3.02 APPEALS. Purchaser shall have the right, at its exclusive
option, to (i) either terminate this Agreement, or (ii) postpone the Closing
Date through the appeal period (or if the sale of the Assets is subject to any
stay, pending any such appeal), without any liability to Seller or any of its
successors in interest, if any order of the Bankruptcy Court approving,
modifying or confirming this Agreement, providing for notice of any related
court hearing, overruling any objection to this Agreement, or rejecting any
purportedly "higher and/or better" offer(s) for the Assets, is modified or
vacated by the Bankruptcy Court, or appealed by an Entity. Seller shall provide
Purchaser with written notice of any such modification, appeal or stay
immediately upon receipt of notice thereof, which notice to Purchaser shall
contain a copy of the notice of appeal or any other applicable pleadings,
applications or orders.
Section 3.03 BANKRUPTCY CODE SECTION 363(m). The Parties acknowledge
and agree that Purchaser is a "good faith purchaser" within the meaning of
Section 363(m) of the Bankruptcy Code and is thereby entitled to the Bankruptcy
Code protection afforded good faith, arm's-length purchasers. In the event that
any Entity files a Notice of Appeal from any order of the Bankruptcy Court
approving or otherwise related to this Agreement and the underlying
transactions, nothing in this Agreement constitutes or shall be construed or
interpreted to constitute either a waiver of Section 363(m) or Purchaser's
consent to a stay of this Agreement, pending any appeal. At its option, to a
exercised by written notice to Seller within five (5) business days after
receipt of Seller's written notice referred to in Section 3.02, Purchaser may
close this Agreement subsequent to the entry of the Bankruptcy Court order and
during the applicable period for appeal, without waiving the protection afforded
Purchaser pursuant to Section 363(m) of the Bankruptcy Code. Purchaser has
negotiated in good faith and at arm's length with Seller.
6
<PAGE> 7
ARTICLE IV
CLOSING
-------
Section 4.01 CLOSING DATE. The closing hereunder (the "Closing") shall
occur on the seventh court day (as computed pursuant to Bankruptcy Rule 9006)
after all conditions precedent contained in Article VI herein are satisfied or
on such other date as Seller and Purchaser shall mutually agree (the "Closing
Date"). Notwithstanding the foregoing, unless the Purchaser otherwise agrees,
the Closing Date shall not occur after April 7, 1995. The Closing shall take
place on the Closing Date, at 2:00 p.m., local time (the "Effective Time"), at
the offices of Choate, Hall & Stewart in Boston, Massachusetts or at such other
time or place as may be mutually agreed to by the Parties.
Section 4.02 PHYSICAL INVENTORY. At least three (3) days prior to the
Closing, Purchaser and Seller shall complete the Physical Inventory and the
Inventory List.
Section 4.03 CLOSING DOCUMENTS. At or prior to the Closing, the Parties
shall execute any and all Closing Documents reasonably required to effectuate,
consummate and implement the terms and conditions of this Agreement. The Closing
Documents shall include, but not be limited to, the documents and instruments
required to be delivered by Purchaser and Seller, and their respective
representatives, pursuant to Section VI hereof.
Section 4.04 PASSAGE OF TITLE. Title to all Assets shall pass from
Seller to Purchaser at Closing, subject to the terms and conditions of this
Agreement. Purchaser assumes no risk of loss to the Assets prior to Closing.
Section 4.05 PROCEEDINGS. All proceedings to be taken by Seller and all
Closing Documents to be executed an, delivered by Seller in connection with this
Agreement shall be reasonably satisfactory in form and substance to Purchaser,
in its reasonable discretion. All proceedings to be taken and all Closing
Documents to be executed and delivered by purchaser in connection with this
Agreement shall be satisfactory in form and substance to Seller, in its
reasonable discretion.
Section 4.06 SIMULTANEOUS EXECUTION. All proceedings to be taken and
all Closing Documents to be executed and delivered by the Parties at Closing
shall be deemed to have been taken and executed simultaneously and no
proceedings shall be deemed taken nor any Closing Documents executed or
delivered until all Closing Documents have been taken, executed and delivered.
Section 4.07 FURTHER ASSURANCES. If, at any time prior to or subsequent
to the Closing Date, Purchaser shall reasonably consider or be advised that
further assignments, conveyances or assurances in law are necessary or desirable
to vest, perfect or confirm of record the respective interests of Purchaser to
any of the Assets as provided in this Agreement, free and clear of any liens,
claims, and encumbrances or otherwise to carry out the provisions hereof, the
proper officers,
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<PAGE> 8
directors and/or agents of Seller, as the case may be, shall execute and deliver
any and all proper assignments, endorsements, documents, powers of, attorney and
assurances in law, and do all things reasonably necessary or proper to vest,
perfect or confirm the interest in question or otherwise to carry out the
provisions and intent of this Agreement; provided, however, such officers,
directors and/or agents of Seller shall not be required to institute any legal
proceedings or incur any significant costs in the accomplishment of such acts
after the Closing Date.
Section 4.08 FAILURE TO CLOSE. If the Closing shall not occur pursuant
to the terms of this Agreement for any reason other than a breach hereof by
Purchaser, then the Bid Deposit and all other sums deposited by Purchaser shall
be refunded promptly to Purchaser.
ARTICLE V
COVENANTS OF SELLER AND PURCHASER
---------------------------------
Section 5.01 COVENANTS OF SELLER.
(a) NEGATIVE COVENANTS. From and after the date hereof until the
Closing Date, except with the prior written approval of Purchaser (which
Purchaser agrees to use its best efforts to give promptly to Seller) and subject
to the supervision of the Bankruptcy Court, Seller shall not: (i) sell, assign,
transfer, donate, dividend, exchange, pledge or encumber any of the Assets
(other than (x) pledges and encumbrances which will not survive the Closing and
(y) sales of Inventory in the ordinary course); (ii) permit through any action
or inaction any ownership or other rights to the Assets to lapse or become void
or unenforceable; (iii) enter into contracts, commitments or agreements
adversely affecting the value of the Assets; or (iv) engage in any other conduct
or course of conduct intended to or reasonably expected to adversely affect the
value of the assets including specifically, but without limitation, the value of
the business of the Divisions as a going concern and the goodwill pertaining
thereto.
(b) AFFIRMATIVE COVENANTS. From and after the date hereof and until the
Closing Date, except with the prior written approval of Purchaser (which
Purchaser agrees to use its best efforts to respond promptly to Seller) and
subject to the supervision of the Bankruptcy Court, Seller shall, except to the
extent prohibited by Section 5.01(a):
(i) Conduct the business of the Divisions and operate the
Assets in a prudent and businesslike manner consistent with maintaining
the going concern value of the Divisions and take all actions which are
reasonably necessary to preserve the value of the Assets;
(ii) Use its reasonable best efforts (which shall not include
the expenditure by Seller of amounts in excess of amounts ordinarily or
customarily expended with respect to such matters plus normal and
customary increases in such amounts) to preserve the Divisions'
business organization intact and retain the services of the Divisions'
officers and key employees and to maintain its existing relationships
with suppliers, customers and others so that they will be preserved for
Purchaser on and after the Closing Date;
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<PAGE> 9
(iii) Maintain in full force and effect the policies of
insurance now in effect as to any Assets;
(iv) Permit Purchaser and its representatives and agents
access during regular business hours to all facilities of Seller and
the Divisions and to all records relating to Seller and the businesses
conducted by the Divisions; and
(v) Use its best efforts to retain the services of The
Recovery Group up to the Closing Date.
(c) CONSENTS. Seller shall take all necessary corporate action and use
its reasonable best efforts to obtain the issuance of the Bankruptcy Court order
and to obtain all other consents, approvals and amendments of agreements, and
waivers of preferential rights of third parties to acquire any of the Assets, if
any, which are necessary to enable Seller to carry out the transactions
contemplated by this Agreement.
(d) SCHEDULE OF ASSETS IN THE POSSESSION OF OTHERS. No later than ten
business days prior to the Closing Date, Seller shall deliver to Purchaser
Schedule 5.01(d) which schedule shall comprise a full and complete list of all
Assets in the possession or name of any Entity other than Seller, including
without limitation any Patents and Technologies held in the name of SMI. On or
before the Closing Date, Seller shall make arrangements for the transfer of the
Assets listed on Schedule 5.01(d) to Purchaser.
(e) NOTICE OF LITIGATION. From the date hereof through the Closing
Date, Seller shall notify Purchaser promptly of any action or proceeding pending
or threatened against Seller which could impair its ability to perform its
obligations under this Agreement and any requests for additional information or
documentary materials by any governmental or regulatory body in connection with
the transactions contemplated hereby.
(f) CONFIDENTIALITY. Seller agrees from the date hereof not to divulge,
communicate, use to the detriment of Purchaser for the benefit of itself, its
Affiliates or any other person or persons, or misuse in any way any confidential
information or trade secrets of Purchaser (which shall include from and after
the Closing Date any confidential information or trade secrets included in the
Assets) in connection with Seller's business, including personnel information,
secret processes, know-how, customer lists, formulas, or other technical data;
provided, however, Seller shall not be liable hereunder for the disclosure of
such information (i) in the ordinary course of business prior to the Closing
Date, (ii) to professional consultants and advisors that need to know such
information (it being understood that such professional consultants and advisors
shall be informed of the confidential nature of such information and shall be
directed by Seller to treat such information confidentially) or (iii) that is
(a) required by law, (b) pursuant to a proper subpoena from a court or
administrative agency of competent jurisdiction or (c) made upon the written
demand of an official involved in the regulation of either Party, provided that
the other Party is notified orally by the most immediate means of communication
and in writing within five (5) business days of its receipt.
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<PAGE> 10
(g) NAME CHANGE. Seller agrees that from and after the Closing Date
Purchaser shall have the right to use the names "Sanborn," "Sanborn
Technologies," "Process Equipment Division," "Sanborn Process Equipment",
"SanTech" and "Separation Methods, Inc." in Purchaser's trade or business.
Effective on the Closing Date, Seller shall change its name and the names of its
subsidiaries to names not containing "Sanborn Technologies," "Process Equipment
Divisions," "SanTech," "Sanborn", "Sanborn Process Equipment" and "Separation
Methods, Inc." and which are sufficiently dissimilar such that they will not be
confused with such names; provided however, that Seller and its successors shall
have the non-exclusive right to use the names "Sanborn Technologies," 'Process
Equipment Division," "SanTech," "Sanborn" and "Separation Methods, Inc." as may
be necessary to prosecute any litigation related to the Chapter 11 Case, in
connection with the liquidation or disposition of any assets (other than the
Assets) or for any other non-competitive purchase necessary to conclude the
Chapter 11 Case.
(h) ACCESS TO PREMISES. Seller shall use its best efforts to ensure
Purchaser's unrestricted access to the Seller's premises in Wrentham,
Massachusetts for a period of at least ninety days after Closing, with monthly
payment for such access at the same rates as Seller currently pays.
Section 5.02 COVENANTS OF PURCHASER.
(a) BEST EFFORTS. Purchaser agrees that from the date hereof to the
Closing Date, it will use its best efforts to satisfy the conditions precedent
to the Closing, to the extent that such conditions are to be performed by
Purchaser, and to respond promptly to requests by Seller for approval under
Section 5.01(a) and (b) hereof.
(b) CONFIDENTIALITY. Purchaser agrees from the date hereof not to
divulge, communicate, use to the detriment of Seller for the benefit of itself,
its affiliates or any other person or persons, or misuse in any way, any
confidential information or trade secrets of Seller (except, from and after the
Closing Date, any such confidential information or trade secrets included in the
Assets) in connection with Purchaser's business, including personnel
information, secret processes, know-how, customer lists, formulas, or other
technical data; provided, however, Purchaser shall not be liable hereunder for
the disclosure of such information (i) in the ordinary course of business after
the Closing Date, (ii) to professional consultants and advisors that need to
know such information (it being understood that such professional consultants
and advisors shall be informed of the confidential nature of such information
and shall be directed by Purchaser to treat such information confidentially) or
(iii) that is (a) required by law, (b) pursuant to a proper subpoena from a
court or administrative agency of competent jurisdiction or (c) made upon the
written demand of an official involved in the regulation of either Party,
provided that the other Party is notified orally by the most immediate means of
communication and in writing within five (5) business days of its receipt.
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<PAGE> 11
ARTICLE VI
CONDITIONS OF CLOSING
---------------------
Section 6.01 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. In
addition to the Bankruptcy Court Order required by Article III of this
Agreement, the obligation of Purchaser to consummate any transaction provided
for in this Agreement shall, at the option of Purchaser, be subject to the
satisfaction of the following conditions as of the Closing Date:
(a) PERFORMANCE AND COMPLIANCE. All of the covenants and provisions of
this Agreement to be complied with by Seller on or before the Closing Date shall
have been complied with and performed in all respects.
(b) NO LITIGATION. No order of any court shall have been entered which
enjoins or restrains the sale of any of the Assets to Purchaser, nor shall any
court have determined that the acquisition by Purchaser of the Assets or the
effectuation, consummation or implementation of this Agreement constitutes a
violation of applicable law or would be in contravention of the rights of any
Entity.
(c) CERTIFICATE. Purchaser shall have received a certificate to the
effect set forth in subparagraphs (a) and (b) of this Section 6.01 dated the
Closing Date and signed by the President of Seller.
(d) CLOSING DOCUMENTS. Seller shall have delivered to Purchaser the
Closing Documents (including, without limitation, the evidence of right of
access provided for in Section 6.01(h)(vi)), and all of such Closing Documents
shall be approved, in form and content, by Purchaser in its reasonable
discretion.
(e) TRANSFER OF ASSETS. Arrangements, reasonably satisfactory to
Purchaser, shall have been made to transfer the Assets to Purchaser free and
clear of any claims by any taxing authority for taxes (including, without
limitation, income, sales, and use) incurred as a consequence of the use of the
Assets by Seller or sale of any Assets hereunder, whether such claims are
asserted either directly against Purchaser as transferee of any Assets, by means
of a lien or claim against any Assets, or otherwise.
(f) NO ADVERSE EFFECT. No event shall have occurred and Purchaser
shall not have become aware of any event which has or will have a material
adverse effect on the Assets or the ongoing business of the Divisions.
(g) PATENTS AND TECHNOLOGY. Arrangements, reasonably satisfactory to
Purchaser, have been made to Purchaser, have been made to transfer the Patents
and Technology to Purchaser; and Purchaser shall be satisfied that the Patents
and Technologies transferred to it hereby are all of the Patents and
Technologies used, useful or necessary to the business and operations of the
Divisions.
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<PAGE> 12
(h) DELIVERIES. Seller shall have delivered, or cause to be delivered,
to Purchaser, at Closing, the following:
(i) the Bill of Sale;
(ii) the Patent Assignment;
(iii) the Non-Competition Agreement;
(iv) the Seller's Closing Certificate;
(v) the Closing Statement;
(vi) evidence of Seller's agreement to use its best
efforts to ensure Purchaser's right to have the
access to Seller's premises as described in Section
5.01(h):
(vii) evidence reasonably satisfactory to Purchaser that
Seller is authorized to consummate the transactions
contemplated by this Agreement and that the persons
executing this Agreement and the Closing Documents on
behalf of Seller are authorized to do so; and
(viii) such other documents and instruments as in the
opinion of Purchaser may be necessary to vest in
Purchaser good and marketable title to the Purchased
Assets, free and clear of all liens, claims,
encumbrances and other interests, as provided in
Section 1.01, and as may be reasonably necessary to
effectuate, consummate and implement the terms of
this Agreement.
(j) AFFIDAVIT OF COUNSEL TO SELLER. Seller shall have caused to be
delivered to Purchaser an affidavit of bankruptcy counsel to Seller, to the
effect that all known secured creditors of Seller shall have been delivered
proper service of the notice of the proposed sale of assets contemplated by this
Agreement, which affidavit shall be in form satisfactory to Purchaser's counsel.
(k) TERMINATION OPTION. In the event that the Closing has not occurred
on or prior to April 7, 1995 and Purchaser is not in default hereunder, then in
such event Purchaser, at its sole option, may declare this Agreement terminated
by serving written notice thereof to Seller upon receipt of which Purchaser
shall be relieved of and have no remaining obligations or liabilities to Seller
hereunder.
Section 6.02 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. In addition
to the Bankruptcy Court approval required by Article III of this Agreement, the
obligations of Seller to consummate this Agreement are, at the option of Seller,
subject to the satisfaction of the following conditions as of the Closing Date:
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<PAGE> 13
(a) PERFORMANCE AND COMPLIANCE. All of the material covenants and
provisions of this Agreement to be complied with by Purchaser on or before the
Closing Date shall have been complied with and performed in all respects.
(b) CERTIFICATE. Seller shall have received a certificate, to the
effect set forth in subparagraphs (a) and (b) of this Section 6.02 dated the
Closing Date and signed by an officer of Purchaser.
(c) CLOSING DOCUMENTS. Purchaser shall have delivered to Seller the
Closing Documents, required to be delivered by Purchaser, which documents
reasonably comply with Purchaser's obligations hereunder and all of such Closing
Documents shall be approved in form and content, by Seller in its reasonable
discretion.
(d) DELIVERIES. Purchaser shall have delivered, or caused to be
delivered, to Seller as required by the Bankruptcy Court order at Closing or as
otherwise set forth herein, the following:
(i) the Purchase Price due at Closing pursuant to Section
2.01 hereof;
(ii) the Purchaser's Closing Certificate;
(iii) such other documents or instrument as may be
reasonably necessary to consummate, effectuate and
implement the terms of the Agreement.
ARTICLE VII
DEFINITIONS
-----------
For purposes of this Agreement, the following terms shall be defined
and have the respective meanings hereinafter set forth:
7.01 "Affiliates" shall mean any subsidiary of Seller or any other
Entity in which Seller holds a controlling interest or which holds any equity
interest in Seller.
7.02 "Agreement" shall mean this Purchase and Sale Agreement, together
with the Schedules and Exhibits hereto, as any or all thereof may hereafter be
amended from time to time in accordance with the terms hereof and thereof.
7.03 "Allocated Value" shall mean the dollar amount, if any, set forth
opposite the description of any Asset on any Schedule to this Agreement. If a
value is not set forth opposite the description of any Asset, Purchaser and
Seller shall mutually determine the Allocated Value of such Asset for purposes
of this Agreement at least two (2) court days (as determined pursuant to
Bankruptcy Rule 9006) prior to Closing. If the Parties are unable to agree as to
the Allocated Value of any Asset pursuant to the preceding sentence, the matter
shall be reserved by the Bankruptcy Court judge and set forth in an amendment to
the Bankruptcy Court order.
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<PAGE> 14
7.04 "Bankruptcy Code" shall mean 11 USC Section 101, et seq. and any
amendments thereto.
7.05 "Bankruptcy Court" shall mean the United States Bankruptcy Court
for the District of Massachusetts presiding for the Chapter 11 Case.
7.06 "Bankruptcy Court Order" shall mean the final, nonappealable Order
substantially in the form of Exhibit A hereto entered by the Bankruptcy Court
pursuant to the Bankruptcy Code approving and authorizing the Seller's
execution, consummation and implementation of this Agreement. The "Date of
Bankruptcy Order" shall be the date when the aforementioned Order entered by the
Bankruptcy Court becomes final and non-appealable.
7.07 "Bill of Sale" shall mean a Bill of Sale and Assignment in the
form of Exhibit B attached hereto by which Seller shall convey to Purchaser, and
Purchaser shall accept title to, the Assets.
7.08 "Chapter 11 Case" shall mean the proceedings under Chapter 11 of
the Bankruptcy Code which is presently pending in Bankruptcy Court, as Case No.
94-40207-HJB.
7.09 "Closing" shall mean the consummation of the transactions
contemplated by this Agreement on the terms and conditions set forth herein.
7.10 "Closing Date" shall be as defined in Section 4.01 hereof, or such
other date as may be mutually agreed to in writing by the Parties.
7.11 "Closing Documents" shall mean the documents, pleadings, bills of
sale, assignments, releases and other writings referred to herein and/or
necessary to effectuate, consummate and implement this Agreement.
7.12 "Closing Statement" shall mean a written statement, delivered at
the Closing, and signed by both Purchaser and Seller, which shall show the
calculation of the Purchase Price required to be made by Purchaser at the
Closing.
7.13 "Date of this Agreement" shall mean March 14, 1995.
7.14 "Divisions" shall mean the business of the Seller engaged in the
design, fabrication and distribution of industrial separation systems, which
Seller operates through its Sanborn Technologies Division and Process Equipment
Division, together with licenses of certain patents and technology, if any, from
SMI.
7.15 "Effective Time of Closing" shall mean 12:01 A.M. on the Closing
Date.
7.16 "Entity or Entities" shall mean an individual, a partnership, a
corporation, an estate, a trust, or a governmental unit, or the plural thereof.
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<PAGE> 15
7.17 "Inspection Date" shall mean the date of the Physical Inventory or
as otherwise agreed to in writing by the Parties.
7.18 "Inventory" shall mean all inventories relating to the Divisions
listed and described on Seller's Stock Status Report generated by its MicroVAX
Computer System, whether such Inventory is located at Seller's premises, is in
transit thereto or elsewhere as of the Effective Time of Closing.
7.19 "Inventory Base Price" shall mean the value of the Inventory shown
on the December 31, 1994, Stock Status Report, which is estimated to be
approximately $601,000.
7.20 "Inventory List" shall mean the listing of the items or general
classes of Inventory which results from the Physical Inventory and shall include
the calculation of the cost of the Inventory to Seller, as adjusted from the
Inspection Date to the Closing Date based on the Seller's records of receipts
and shipments during said period.
7.21 "Net WIP" shall mean a positive or negative amount calculated as
follows: All direct costs incurred by Seller in fabricating and assembling its
Products that remain unfinished as of the Closing Date, including all direct
labor and materials, payments to subcontractors and all other direct costs
(exclusive of all indirect costs such as general overhead, capitalized design
costs and similar indirect costs), minus all deposits, advances and prepayments
by purchasers of Products.
7.22 "Non-Competition Agreement" shall mean a noncompetition agreement
in the form of Exhibit C attached hereto.
7.23 "Parties" shall mean Purchaser and Seller.
7.24 "Party" shall mean any one of the Parties.
7.25 "Patent Assignment" shall mean the assignment of Patents and
Technology in the form of Exhibit D attached hereto together with such
applications to assign trade-names or trade marks or service-marks and the
goodwill associated therewith which Purchaser and its counsel may deem necessary
to carry out the effect of this Agreement.
7.26 "Patents and Technology" shall have the meaning set forth in
Section 1.01(f) hereof.
7.27 "Physical Inventory" shall mean an actual physical count of the
Inventory which shall be taken by the Purchaser and its representatives and
observed by the Seller in accordance with the terms of this Agreement, which
shall include a valuation of the Inventory based on Seller's cost.
7.28 "Products" shall mean all finished goods associated with the
Divisions held for sale to customers.
7.29 "Purchaser" shall have the meaning set forth in the preambles to
this Agreement.
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<PAGE> 16
7.30 "Purchase Orders" shall mean those customer order for Products
existing as of the Closing Date.
7.31 "Purchaser's Closing Certificate" shall mean the certificate of
Purchaser contemplated by Section 6.02(c) of this Agreement.
7.32 "Retained Equipment" shall mean any Asset retained by Seller
pursuant to Section 1.02(a) of this Agreement.
7.33 "SMI" shall mean Separation Methods, Inc., a wholly-owned
subsidiary of Seller.
7.34 "Seller" shall have the meaning set forth in the preambles to this
Agreement.
7.35 "Seller's Closing Certificate" shall mean the certificate of the
Seller contemplated by Section 6.01(c) of this Agreement.
7.36 "Stock Status Report" shall mean a report generated by Seller from
the MicroVax computer system that reflects Seller's Inventory and the value
thereof.
7.37 "Third Party Equipment" shall meany [sic] any Asset retained by
Seller pursuant to Section 1.03 of this Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
------------------------
8.01 NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given or
made when personally delivered or when mailed by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
(a) Seller: Sanborn, Inc.
25 Commercial Drive
Wrentham, Massachusetts 02093
Attention: Stephen S. Gray
with copy to counsel:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109-2891
Attention: Paul D. Moore, Esq.
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<PAGE> 17
(b) Purchaser: Waterlink, Inc.
115 DeWalt Avenues, N.W. Suite 500
Canton, Ohio 44702
Attention: Theodore F. Savastano
with copy to counsel:
Baker & Hostetler
1900 East 9th Street
3200 National City Center
Cleveland, Ohio 44114-3485
Attention: James Griswold, Esq.
Such addresses may be changed only by giving written notice of such change of
address to the other Party in the manner set forth herein. Notices shall be
deemed received on the fifth business day after the date of mailing in the
manner set forth herein, except as otherwise set forth in this Agreement.
8.02 ASSIGNMENT. Neither Party shall have the right to assign this
Agreement or delegate any of its duties hereunder without the other Party's
written consent.
8.03 SUCCESSORS. This Agreement shall be binding upon and shall inure
to the benefit of the Parties and their respective successors and assigns.
8.04 CLOSING DOCUMENTS AND CLOSING EXPENSES. Each Party shall pay its
own expenses incident to this Agreement and the other agreements and instruments
to be delivered pursuant thereto, including legal and accounting fees and
disbursements. The Seller and its counsel shall prepare the Bankruptcy Court
pleadings necessary to obtain the Bankruptcy Court Order, subject to approval in
form and substance to counsel for Purchaser.
8.05 PARAGRAPH HEADINGS. The paragraph heading contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement. Wherever any gender is used, it
shall include any other gender, masculine, feminine or neuter, as the context
may require. Any exhibit or schedule referred to herein shall be deemed
incorporated herein and made a part hereof. Unless otherwise indicated,
"herein", "hereto" and similar phrases refer to this Agreement as a whole
(including exhibits attached hereto and documents delivered pursuant hereto) and
not to any particular paragraph or other subdivision.
8.06 APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
8.07 NO WAIVER. No waiver by either Party of any term or condition of
this Agreement shall constitute or be construed as a waiver of any other term or
condition of this Agreement. No waiver by either Party of any default or breach
of this Agreement by the other Party shall constitute or be construed as a
waiver of any other default or breach of this Agreement.
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<PAGE> 18
8.08 SURVIVAL; ENTIRE AGREEMENT. Except as specifically set forth
herein, all covenants, promises, warranties, representations, understandings and
agreements herein contained shall survive the Closing. This Agreement integrates
all negotiations and agreements of the Parties, supersedes all prior agreements
and understandings, whether oral or written, and contains the entire
understanding and agreement between the Parties, and no Party is bound by any
agreements, understandings or conditions, except as stipulated and set forth
herein. This Agreement cannot be modified or discharged except by written
instrument duly executed by the Party against whom enforcement of such
modification or discharge is sought. Subsequent to the date of the Bankruptcy
Court Order, the Parties may consent to technical and non-material modifications
and/or amendments to this Agreement reasonably necessary to effectuate this
Agreement without further approval by the Bankruptcy Court.
8.09 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
8.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
WITNESSES: Seller:
SANBORN, INC.
/s/ By: /s/ Steven R. Friedman
- --------------------------- ---------------------------
Name: Steven R. Friedman
/s/ Title: President
- ---------------------------
Purchaser:
WATERLINK, INC.
/s/ David B. Hathaway By: /s/ Nancy A. Hamerly, Cfo
- -------------------------- ---------------------------
Authorized Officer
/s/ James D. West
- ---------------------------
19
<PAGE> 20
ACKNOWLEDGMENT
--------------
STATE OF OHIO
COUNTY OF CUYAHOGA
BE IT KNOWN, that on this 11th day of March, 1995, before me, the
undersigned authority, duly commissioned, qualified and sworn within and for the
State and County aforesaid, personally came and appeared Nancy Hamerly appearing
in her capacity as the Chief Financial officer of WATERLINK, INC., to me
personally known to be the identical person whose name is subscribed to the
foregoing instrument; who declared and acknowledged to me, Notary, in the
presence of the undersigned competent witnesses, that she executed the same with
full authority and that the said instrument is the free act and deed of the said
corporation and was executed for the uses, purposes and benefits therein
expressed.
WITNESSES:
/s/ David Hathaway /s/ Nancy A. Hamerly, Cfo
- ----------------------- -------------------------------
- -----------------------
/s/ Phillip M. Callesen
---------------------------
NOTARY PUBLIC
PHILLIP M. CALLESEN, Attorney
NOTARY PUBLIC - STATE OF OHIO
My commission has no expiration date.
Section 147.03 R.C.
20
<PAGE> 21
LIST OF SCHEDULES
-----------------
Schedule 1.01(i) Demonstration Equipment
Schedule 1.01(j) Furniture and Office Equipment
Schedule 1.01(k) Laboratory Equipment
Schedule 1.01(l) Computer Equipment
Schedule 1.01(m) Shop Equipment
Schedule 1.01(n) Toshiba Perception Telephone System
Schedule 1.01(o) MicroVax Computer System
Schedule 1.01(p) MicroVAX Computer Enhancements
Schedule 1.01(q) Additional Demonstration Equipment
Schedule 1.01(r) Machines and Raw Materials
Schedule 1.01(s) Finished Goods
Schedule 5.01(d) Assets in Possession of Third Parties
LIST OF EXHIBITS
----------------
Exhibit A Bankruptcy Court Order
Exhibit B Bill of Sale
Exhibit C Non-Competition Agreement
Exhibit D Patent Assignment
21
<PAGE> 1
Exhibit 10.21
ASSET PURCHASE AGREEMENT
among
WATERLINK, INC.,
as "BUYER"
GREAT LAKES ENVIRONMENTAL, INC.,
as "SELLER"
LAWRENCE FIELD
and
DAVID FIELD
August 28, 1995
<PAGE> 2
TABLE OF CONTENTS
Omitted
<PAGE> 3
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made effective
August 31, 1995, among WATERLINK, INC., a Delaware corporation ("Buyer"), GREAT
LAKES ENVIRONMENTAL, INC., an Illinois corporation ("Seller"), LAWRENCE FIELD,
and DAVID FIELD (each a "Shareholder" and, collectively, the "Shareholders"),
who together own a majority of the shares of Seller.
BACKGROUND INFORMATION
----------------------
A. Seller and the Shareholders are engaged in the development,
manufacture, distribution and sale of water treatment systems (the "Great Lakes
Environmental Business"); and
B. Seller and the Shareholders desire to sell, and Buyer desires to
purchase, on the terms and conditions set forth in this Agreement, substantially
all the assets and properties of Seller used in connection with and relating to
the Great Lakes Environmental Business.
STATEMENT OF AGREEMENT
----------------------
The parties to this Agreement (the "Parties") hereby acknowledge the
accuracy of the above Background Information and agree as follows:
ARTICLE I
---------
ASSETS TO BE PURCHASED
----------------------
Section 1.1 SALE AND PURCHASE OF ASSETS. Upon the terms and subject to
the conditions set forth in this Agreement, at the Closing (as defined in
Section 1.6), Seller shall convey, sell, transfer, assign and deliver to Buyer,
and Buyer shall purchase from Seller, all right, title and interest of Seller at
the Closing in and to the following assets, properties, and rights of Seller:
(a) All leases of real property and improvements entered into by
Seller listed on Schedule 1.1(a), along with all appurtenant rights, easements
and privileges appertaining or relating thereto, and all buildings, fixtures and
improvements located thereon and therein (the "Real Property Leases");
(b) All good and usable inventory and work-in-progress of Seller that
has not been written off by Seller, all machinery, equipment, tooling, parts,
molds, jigs, dies, furniture, office supplies, magnetic tapes, software
materials, discs and other programming and computer materials and other tangible
personal property used or usable in connection with the conduct of Seller's
business, including, without limitation, the items listed on Schedule 1.1(b)
(the "Personal Property");
(c) All automobiles and other vehicles listed on Schedule 1.1(c) (the
"Vehicles");
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(d) All franchises, licenses, permits, consents and certificates of
any regulatory, administrative or other government agency or body issued to or
held by Seller necessary or incidental to the conduct of Seller's business (to
the extent the same are transferable), including, without limitation, the items
listed on Schedule 1.1(d) (the "Permits");
(e) All inventions, trade secrets, proprietary rights, proprietary
knowledge, know-how, software, trademarks, names, trade names, marks, symbols,
advertising materials, packaging, service marks, logos, and copyrights, and all
applications therefor, registrations thereof and licenses in respect thereof,
including, without limitation, all rights in and to the name "Great Lakes
Environmental, Inc." and any substantially similar names and marks and further
including, without limitation, the patents and trademarks listed on Schedule
1.1(e) (collectively, the "Proprietary Rights");
(f) All leases of equipment, vehicles or other tangible personal
property used at or in connection with Seller's business, including, without
limitation, the leases of equipment and vehicles listed on Schedule 1.1(f) (the
"Equipment Leases");
(g) All contracts, agreements, contract rights, license agreements,
franchise rights and agreements, insurance policies, and purchase and sales
orders; and report on current backlog and open quotation listing, whether oral
or written, listed on Schedule 1.1(g) (the "Contracts");
(h) All books of account, customer lists, files, papers and records
relating to Seller's business, which shall be subject to Seller's right to
reasonably inspect and copy;
(i) All deposits related to Seller's business and listed on Schedule
1.1(i);
(j) All goodwill of Seller's business; and
(k) All telephone and facsimile numbers for Seller's offices and
facilities, including, without limitation, the telephone numbers listed on
Schedule 1.1(k).
All of the assets, properties and business to be conveyed, sold, transferred,
assigned and delivered to Buyer pursuant to this Section 1.l are hereinafter
collectively referred to as the "Property."
Section 1.2 EXCLUDED ASSETS. There shall be excluded from the assets,
properties, rights and business of Seller to be conveyed, sold, transferred, and
assigned to Buyer under this Agreement, all accounts receivable, notes
receivable and investments, including cash, all causes of action, judgments and
claims or demands arising out of or relating to the Property prior to the
Closing, all corporate minute books, stock records, corporate seals, treasury
shares and tax returns and supporting schedules of Seller (which shall be
subject to Buyer's right to inspect and copy) and those items listed on Schedule
1.2. All of the assets which shall be retained by the Seller pursuant to this
Section 1.2 are hereinafter collectively referred to as the "Excluded Property."
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Section 1.3 NON-ASSIGNMENT OF CERTAIN CONTRACTS. Notwithstanding
anything to the contrary in this Agreement, to the extent that the assignment
hereunder of any item listed on Schedule 1.3 of this Agreement shall require the
consent of any other party (or in the event that any of the same shall be
non-assignable), neither this Agreement nor any action taken pursuant to its
provisions shall constitute an assignment or an agreement to assign if such
assignment or attempted assignment would constitute a breach thereof or result
in the loss or diminution thereof; provided, however, that in each such case,
Seller shall use its best efforts to obtain the consent of such other party to
an assignment to Buyer. If such consent is not obtained, Seller shall cooperate
with Buyer in any reasonable arrangement designed to provide for Buyer the
benefits under any such lease, agreement, contract, contractual right, claim,
cause of action or the like, as the case may be, including enforcement, for the
account and benefit of Buyer, of any and all rights of Seller against any other
person arising out of the breach or cancellation by such other person or
otherwise.
Section 1.4 PURCHASE PRICE. Upon the terms and subject to the
conditions contained in this Agreement, in consideration for the Property and in
full payment therefor (a) Buyer shall assume the Assumed Liabilities as provided
in Section 2.1 at the Closing, (b) Buyer shall remit to Seller a cash payment
(the "Cash Payment") at the Closing in immediately available funds in the amount
of Five Million Dollars ($5,000,000.00), plus an amount equal to the value at
the Closing of the good and usable inventory and work-in-progress of Seller that
has not been written off by Seller, valued in accordance with past practice; (b)
a promissory note at the Closing in the amount of One Million Five Hundred
Thousand Dollars ($1,500,000.00) in the form attached to this Agreement as
Exhibit A (the "Buyer Note") payable to the Seller in accordance with its terms;
and (c) such number of shares of common stock in Waterlink, Inc., a Delaware
corporation ("Waterlink") and the sole shareholder of Buyer (the "Waterlink
Shares") as will, when valued per share at the price at which the most recent
equity investment in Waterlink by Brantley Venture Partners, LLP, was made, be
valued at Five Hundred Thousand Dollars ($500,000).
Section 1.5 PURCHASE PRICE ALLOCATION. Seller and Buyer hereby agree
that the aggregate purchase price for the Property shall be allocated for
purposes of this Agreement and for federal, state and local tax purposes as set
forth on Schedule 1.5. Buyer and Seller covenant and agree to file all federal,
state, local and foreign tax returns in accordance with the foregoing
allocation.
Section 1.6 CLOSING. The "Closing" shall mean the deliveries to be
made by Buyer, Seller and the Shareholders, respectively, in accordance with
this Agreement and shall take place at 10:00 a.m., local time on August 31,
1995, at the offices of Baker & Hostetler, 3200 National City Center, 1900 East
Ninth Street, Cleveland, Ohio 44114, or at such other place or date as may be
agreed upon from time to time in writing by Buyer and the Seller (the "Closing
Date").
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ARTICLE II
ASSUMPTION OF OBLIGATIONS
-------------------------
Section 2.1 ASSUMPTION OF CERTAIN OBLIGATIONS. Subject to the
provisions of this Agreement, from and after the Closing, Buyer shall assume the
following obligations of Seller, to the extent the same have not been discharged
or satisfied prior to the Closing: (i) all liabilities and obligations arising
out of or relating to the Real Property Leases, the Permits, the Contracts, and
the Equipment Leases to the extent such liabilities and obligations arise or are
first required to be performed after the Closing, (ii) all liabilities and
obligations arising out of those matters listed on Schedule 2.1 hereto to the
extent such liabilities and obligations arise or are first required to be
performed after the Closing, and (iii) all policies of insurance currently
maintained by Seller, which shall insure against loss, damage or diminution in
value to the Great Lakes Environmental Business. All of the liabilities to be
assumed by Buyer pursuant to this Section 2.1 are hereinafter collectively
referred to as the "Assumed Liabilities."
Section 2.2 DISCLAIMER OF CERTAIN OBLIGATIONS. With the exception of
the Assumed Liabilities, Buyer shall not by the execution and performance of
this Agreement, or otherwise, assume or otherwise be responsible for any
liability or obligation of any nature of Seller or of the Shareholders, or
claims of such liability or obligation, matured or unmatured, liquidated or
unliquidated, fixed or contingent, or known or unknown, whether arising out of
occurrences prior to, at or after the date hereof, including, by way of example
and not of limitation, all liabilities for the payment of money listed on the
balance sheet of Seller as at June 30, 1995 (the "June 30 Balance Sheet") and
for the twelve-month period ended December 31, 1994, copies of which are
attached to this Agreement as Exhibit B, and all current liabilities of Seller
for the payment of money incurred in or as a result of the conduct of Seller's
business prior to the Closing. All of the liabilities which shall be retained by
the Seller pursuant to this Section 2.2 are hereinafter collectively referred to
as the "Retained Liabilities."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller and the Shareholders
that the statements contained in this Article II [sic] are true, correct and
complete:
Section 3.1 ORGANIZATION AND STANDING. Buyer is a corporation duly
formed, validly existing and in good standing under the Laws of the State of
Delaware with full power and authority, to own, lease, use, and operate its
properties and to conduct its business as and where now owned, leased, used,
operated and conducted.
Section 3.2 POWER AND AUTHORITY. Buyer has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
under this Agreement. This Agreement and the
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transactions contemplated by this Agreement have been duly and validly
authorized by all necessary action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms.
Section 3.3 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution
and delivery of this Agreement by Buyer nor the consummation of the transactions
contemplated by this Agreement will:
(a) Violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice, the
passage of time, or both, would constitute a default) under, or entitle any
third party (with the giving of notice, the passage of time, or both) to
terminate, accelerate or call a default under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Buyer under any of the terms, conditions or provisions of the articles
of incorporation or code of regulations of Buyer, or any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease, or
other instrument or obligation which would have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated by this Agreement;
(b) Violate any order, writ, injunction, decree, statute, rule, or
regulation applicable to Buyer or its properties or assets which would have a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated by this Agreement; or
(c) Require Buyer to obtain any action or consent or approval of, or
review by, or registration with any third party, court or governmental body or
other agency, instrumentality or authority.
Section 3.4 LITIGATION. There is no suit, claim, action, proceeding,
or investigation pending or, to the best knowledge of Buyer, threatened against
Buyer which is reasonably likely to have a material adverse effect on the
ability of Buyer to consummate the transactions contemplated by this Agreement.
Section 3.5 BROKERAGE AND FINDER'S FEES. Neither Buyer nor any of its
members or employees has incurred, or will incur, on behalf Buyer, any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLER AND THE SHAREHOLDERS
------------------------------
Seller and each Shareholder hereby jointly and severally represent and
warrant to Buyer that the statements contained in this Article IV are true,
correct, and complete:
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Section 4.1 ORGANIZATION AND STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois with full power and authority (corporate and other) to own, lease, use,
and operate its properties and to conduct its business as and where now owned,
leased, used, operated, and conducted.
Section 4.2 SUBSIDIARIES. Seller has no subsidiaries. Neither
Shareholder controls any companies. As used herein, a "subsidiary" shall mean a
corporation of which Seller owns directly or indirectly more than fifty percent
(50%) of the outstanding securities entitled generally to vote for the election
of directors.
Section 4.3 CORPORATE POWER AND AUTHORITY. Seller has all requisite
corporate power and authority to enter into and perform this Agreement and to
carry out its obligations under this Agreement.
This Agreement and the transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action on the part of
Seller. This Agreement has been duly executed and delivered by Seller and
constitutes the legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms.
Section 4.4 CONSENTS AND APPROVALS. Except as set forth in Schedule
4.4, neither the execution and delivery of this Agreement by Seller or either
Shareholder nor the consummation of the transactions contemplated by this
Agreement requires or will require any action or consent or approval of, or
review by, or registration with any third party, court or governmental body or
other agency, instrumentality or authority.
Section 4.5 FINANCIAL STATEMENTS.
(a) Seller has furnished to Buyer (i) the consolidated balance
sheets of Seller as of and for the years ended December 31, 1994,
December 31, 1993, and December 31, 1992, and the related consolidated
statements of income, retained earnings, and changes in financial
position for the years then ended, which have been examined by and
accompanied by the report of Dennis D. Tysl and Company, Ltd. (the
"Audited Financial Statements"), and (ii) the consolidated balance
sheet of Seller at June 30, 1995, and the related consolidated
statements of income, retained earnings, and consolidated changes in
financial position for the six (6) month period then ended (the
"Interim 1995 Financial Statements"). As soon as practicable after the
Closing, Seller will deliver the consolidated balance sheet of Seller
as of the Closing, and the related consolidated statements of income,
retained earnings, and consolidated changes in financial position for
the eight (8) month period then ended (the "Closing Financial
Statements") (the Audited Financial Statements, the Interim 1995
Financial Statements and the Closing Financial Statements are
hereinafter sometimes collectively referred to as the "Financial
Statements"). The Financial Statements have been initialed for
identification by the president of Seller, have been prepared from and
are in accordance with the books and records of Seller, and have
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been prepared in conformity with generally accepted accounting
principles applied on a consistent basis, and fairly present the
financial condition of Seller as of the dates stated and the results
of operations of Seller for the periods then ended in accordance with
such practices.
(b) The Closing Financial Statements shall be accompanied by the
report of Dennis D. Tysl and Company, shall have been prepared from
and be in accordance with the books and records of Seller and in
accordance with generally accepted accounting principles applied on a
basis consistent with that used in the Audited Financial Statements
(including the taking and valuation of a physical inventory), and
shall fairly present the financial condition of Seller as of such date
and the results of operations of Seller for such period then ended in
accordance with such practices.
Section 4.6 INVENTORIES. Except as set forth in such Schedule 4.6: (a)
all of the inventories of Seller consist of a quality and quantity usable and
merchantable in the ordinary and usual course of business, except for obsolete,
damaged, or slow-moving items or items of below-standard quality, all of which
have been written off or written down to fair market value prior to the
Financial Statements, or, to the extent there are obsolete or damaged items or
items of below-standard quality which have not been so written off or written
down, there is a valid and fully collectible claim by Seller against the
manufacturer or supplier thereof for an amount adequate to compensate fully
Seller therefor; (b) all individual items of inventory valued in excess of
$1,000 not written off Seller's books are at the net realizable value and are
expected to be used in the ordinary course within twelve months, and have been
priced at actual cost; and (c) the quantities of each type of inventory are not
excessive, but are reasonable and warranted in the present circumstances of
Seller's business.
All manufacturer chargebacks known to Seller have been properly
claimed, accounted for and received by Seller. Neither Seller nor any
Shareholder has received from any manufacturer any notice or claim of any
non-reversals or other discrepancies with respect to any chargebacks, and all
chargeback payments received by Seller have been and will be retained by Seller.
Section 4.7 UNDISCLOSED LIABILITIES. Except as disclosed in Schedule
4.7 and Schedule 4.20, Seller has no liability or obligation of any nature
(whether liquidated, unliquidated, accrued, absolute, contingent or otherwise
and whether due or to become due) that is not being assumed by Seller as
provided in Section 2.1, except those set forth in the Financial Statements and
those arising after the date of this Agreement under agreements or other
commitments specifically identified in Schedule 4.20.
Section 4.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 4.8, since June 30, 1995, there has not been:
(a) Any material adverse change in the business, operations, assets,
properties, customer base, prospects, rights or condition (financial or
otherwise) of Seller or any occurrence,
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circumstance, or combination thereof which reasonably could be expected to
result in any such material adverse change (a "Material Adverse Effect"),
including without limitation any material adverse change relating to Seller's
relationship with any customer or supplier;
(b) Any increase in any benefits granted under any bonus, stock
option, profit-sharing, pension, retirement, severance, deferred compensation,
insurance, or other direct or indirect benefit plan, payment or arrangement made
to, with or for the benefit of any such person;
(c) Any transaction entered into or carried out by Seller other than
in the ordinary and usual course of Seller's business consistent with past
practices, or any material change in Seller's method of doing business or any
change in its accounting principles or practices or its method of application of
such principles or practices;
(d) Any borrowing or agreement to borrow funds by Seller, any
incurring by Seller of any other obligation or liability (contingent or
otherwise), except liabilities incurred in the usual and ordinary course of
Seller's business (consistent with past practices), or any endorsement,
assumption or guarantee of payment or performance of any loan or obligation of
any other person by Seller;
(e) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or with respect
to the property or assets of Seller, or any sale, lease or other disposition of,
or any agreement to sell, lease or otherwise dispose of any of the properties or
assets of Seller, other than sales of inventory in the usual and ordinary course
of business for fair equivalent value;
(f) Any purchase of or any agreement to purchase assets (other than
inventory purchased in the ordinary course of business consistent with past
practices) for an amount in excess of $5,000 for any one purchase made by Seller
or any lease or any agreement to lease, as lessee, any capital assets with
payments over the term thereof to be made by Seller exceeding an aggregate of
$5,000;
(g) Any loan or advance made by Seller to any person other than loans
made to Seller's customers in the ordinary course of business consistent with
past practices not exceeding $5,000, in the aggregate, to any customer;
(h) Any modification, waiver, change, amendment, release, rescission
or termination of, or accord and satisfaction with respect to, any material
term, condition or provision of any contract, agreement, license or other
instrument to which Seller is a party, other than any satisfaction by
performance in accordance with the terms thereof in the usual and ordinary
course of business; or
(i) Any labor dispute or disturbance adversely affecting the business
operations or condition (financial or otherwise) of Seller, including without
limitation the filing of any petition
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or charge of unfair labor practice with any governmental or regulatory
authority, efforts to effect a union representation election, actual or
threatened employee strike, work stoppage or slow down.
Section 4.9 TAXES.
(a) Seller has duly paid all taxes, assessments, fees and other
governmental charges (hereinafter, simply "taxes") payable by Seller.
Seller has duly filed all federal, state, local and foreign tax
returns and tax reports required to be filed by it, all such returns
and reports are true, correct and complete, none of such returns and
reports have been amended, and all taxes, arising under or reflected
on such returns and reports have been fully paid or shall be fully
accrued as liabilities in the Financial Statements and shall be timely
paid. No claim has been made by authorities in any jurisdiction where
Seller did not file tax returns that it is or may be subject to
taxation therein.
(b) Seller has delivered to Buyer copies of all federal, state,
local, and foreign income tax returns filed with respect to Seller for
taxable periods ended on or after December 31, 1992. Schedule 4.9
includes a list of all states, territories and jurisdictions to which
any tax is properly payable by Seller. Schedule 4.9 sets forth the
dates and results of any and all audits conducted by taxing
authorities within the last five years or otherwise with respect to
any tax year for which assessment is not barred by any applicable
statute of limitations. No waivers of any applicable statute of
limitations for the filing of any tax returns or payment of any taxes
or assessments of any deficient or unpaid taxes are outstanding. All
deficiencies proposed as a result of any audits have been paid or
settled. There is no pending or, to the best knowledge of Seller and
the Shareholders, threatened federal, state, local or foreign tax
audit or assessment of Seller and no agreement with any federal,
state, local or foreign taxing authority that may affect the
subsequent tax liabilities of Seller.
(c) All taxes attributable to the existence or operation of
Seller as at or through the Closing Date shall, to the extent not
already paid, be paid by Seller and the Shareholders, as the case may
be.
(d) Except as set forth in Schedule 4.9, there exists no
tax-sharing agreement or arrangement pursuant to which Seller is
obligated to pay the tax liability of any other person, or to
indemnify any other person with respect to any tax.
(e) Seller is a duly-qualified subchapter "S" corporation under
the Internal Revenue Code of 1986, as amended.
Section 4.10 COMPLIANCE WITH LAW. Seller has complied and is in
compliance in all material respects with all laws, statutes, ordinances, orders,
rules, regulations, policies and guidelines promulgated, and all judgments,
decisions and orders entered, by any federal, state, local or
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foreign court or governmental authority or instrumentality which are applicable
or relate to Seller or its business or properties and relate directly or
indirectly to the protection, preservation, conservation, restoration, or
quality of the environment (collectively, the "Applicable Environmental Laws"),
and Seller has complied and is in compliance in all material respects with all
other laws, statutes, ordinances, orders, rules, regulations, policies, and
guidelines promulgated, and all judgments, decisions and orders entered, by any
federal, state, local or foreign court or governmental authority or
instrumentality which are applicable or relate to Seller or its business or
properties (collectively, with the Applicable Environmental Laws, the
"Applicable Laws"). Seller has all franchises, licenses, permits, covenants,
authorizations, approvals and certifications necessary or appropriate for the
operation of its business or the ownership of its properties. Schedule 4.10
includes a list of all material franchises, licenses, permits, consents,
authorizations, approvals and certificates owned by Seller (collectively, the
"Permits"), each of which is currently valid and in full force and effect.
Except as set forth in Schedule 4.10, Seller is not in violation of any of the
Permits, and there is no pending nor, to the best knowledge of Seller and the
Shareholders, any threatened proceeding which could result in the revocation,
cancellation or inability of Seller to renew any Permit. Seller has not been
charged with or given notice of any violation of any of the Applicable Laws
which violation has not been remedied in full (without any remaining liability
of Seller).
Section 4.11 PROPRIETARY RIGHTS. Except as set forth in Schedule
1.1(e), Seller is the sole and exclusive owner of all right, title and interest
in and to all Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances and restrictions whatsoever, and there is
not pending or, to the best knowledge of Seller and the Shareholders, threatened
any investigation, proceeding, inquiry or other review by any federal, state,
local or foreign regulatory, administrative or governmental office or offices
with respect to Seller's right, title or interest in any Proprietary Right.
Other than those Proprietary Rights listed in Schedule 1.1(e), no
name, patent, invention, trade secret, customer list, proprietary right,
computer software, trademark, trade name, service mark, logo, copyright,
franchise, license, sublicense, or other such right is necessary for the
operation of the business of Seller in substantially the same manner as such
business is presently conducted. The business of Seller has not been and are not
being conducted in material contravention of any trademark, copyright or other
proprietary right of any person.
Except as set forth in Schedule 1.1(e), none of the Proprietary
Rights: has been hypothecated, sold, assigned or licensed by Seller, or to the
best knowledge of Seller and the Shareholders, any person; infringe upon or
violate the rights of any person; are subject to challenge, claims of
infringement, unfair competition or other claims; or are being infringed upon or
violated by any person. Except as set forth in Schedule 1.1(e), Seller has not
given any indemnification against patent, trademark or copyright infringement as
to any equipment, materials, products, services or supplies, which Seller uses,
licenses or sells; no product, process, method or operation presently sold,
engaged in or employed by Seller infringes upon any rights owned by any other
person; and there is no pending or, to the best knowledge of Seller and the
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Shareholders, threatened any claim or litigation against Seller contesting the
right of Seller to sell, engage in or employ any such product, process, method,
or operation.
Section 4.12 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the
matters listed in Schedule 4.12, Seller is not a party to or bound under any
mortgage, lien, lease, agreement, contract, instrument, law, order, judgment or
decree, or any similar restriction not of general application which materially
and adversely affects, or reasonably could be expected to so affect (a) the
business, operations, assets, properties, prospects, rights, or condition
(financial or otherwise) of Seller; (b) the continued operation by Buyer of
Seller's business after the Closing Date on substantially the same basis as such
business is currently operated; or (c) the consummation of the transactions
contemplated by this Agreement.
Section 4.13 CONTRACTS AND COMMITMENTS. There are no contracts,
commitments, leases, permits, and other instruments (written or oral) binding
upon Seller with respect to the Property or the business or operations of Seller
except as set forth in Schedules 1.1(f ) and (g). Prior to Closing, Seller shall
have delivered to Buyer true and complete copies of all items listed on
Schedules 1.1(f) and (g) and any amendments thereof. All of such contracts,
commitments, leases, permits and instruments are in full force and effect and
are valid, binding and enforceable with their respective provisions, and Seller
is not in default nor has there occurred an event or condition which, with the
passage of time or giving of notice (or both), would constitute a default with
respect to the payment or performance of any obligation thereunder; and no claim
of such a default has been asserted and there is no basis upon which such a
claim could validly be made. No notice has been received by Seller claiming any
such default by Seller or indicating the desire or intention of any other party
thereto to amend, modify, rescind or terminate the same.
Section 4.14 PERSONAL PROPERTY. Schedules 1.1(b), (c) and (f) hereto
contain a complete list of all tangible personal property owned by Seller and
used in connection with the operation of Seller's business.
Section 4.15 REAL PROPERTY. Neither the Seller nor any Subsidiary of
the Seller owns any interest in any real property.
Section 4.16 TITLE TO THE PROPERTY. Seller has good and marketable
title to the Property, free and clear of all mortgages, pledges, liens,
encumbrances, security interests, equities, charges, clouds and restrictions of
any nature whatsoever, except those securing liabilities assumed by Buyer
pursuant to this Agreement, those permitted under Section 6.2(a), those set
forth on Schedule 4.16 or those approved in writing by Buyer prior to the
Closing. Except as set forth in Schedule 4.16, no financing statement under the
Uniform Commercial Code or similar law naming Seller or any of its predecessors
has been filed in any jurisdiction, and Seller is not a party to or bound under
any agreement or legal obligation authorizing any party to file any such
financing statement. By virtue of the deliveries made at the Closing, Buyer will
obtain good and marketable title to the Property, free and clear of all liens,
mortgages, pledges, encumbrances, security interests, charges and equities of
any nature whatsoever, except as set forth above.
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Except as set forth in Schedule 4.16, all real property, plants and
structures and all machinery and equipment and tangible personal property owned,
leased or used by Seller and material to the operation of its business are
suitable for the purpose or purposes for which they are being used and are in
good condition and repair, ordinary wear and tear excepted. To the best of
Seller's knowledge, there are no material structural defects in the exterior
walls or the interior bearing walls, the foundation or the roof of any plant,
building, garage or other such structure owned, leased, or used by Seller, and
the electrical, plumbing, heating systems, and air conditioning systems, of any
such structure are in good operating condition, ordinary wear and tear excepted.
The utilities servicing the real properties owned, leased, or used by Seller are
adequate to permit the continued operation of its business and there are no
pending or, to the best knowledge of Seller and the Shareholders, threatened
zoning, condemnation or eminent domain proceedings, building, utility or other
moratoria, or injunctions or court orders which would materially affect such
continued operation. Schedule 4.16 lists, and Seller and the Shareholders have
furnished or made available to Buyer, copies of all engineering, geologic and
environmental reports prepared by or for Seller, or with respect to the real
property owned, leased or used by Seller, if any.
Except as set forth in Schedule 4.16, to the best of Seller's
knowledge, no real or personal property owned, leased, or used by Seller has
been used to produce, process, store, handle, or transport any hazardous or
toxic substance or waste (as those terms are defined or described in the
Applicable Environmental Laws), except to the extent immaterial quantities of
hazardous substances are used as an incidental aspect of the operation of
Seller's business. No hazardous or toxic substance or waste has been
disposed of or discharged on, leaked from, or has otherwise contaminated any
real property owned, leased or used by Seller. No asbestos or substances
containing material quantities of asbestos have, been installed in any such
property. There are no oil or gas wells capped or uncapped or piping,
structures, fixtures or other appliances relating thereto an or about any such
property and no such property has been used as a landfill.
Section 4.17 BROKERS, FINDERS. There is no investment banker, broker,
finder, or other intermediary which has been retained by or is authorized to act
on behalf of Seller or either Shareholder, or which has submitted the
transactions contemplated by this Agreement to Seller or either Shareholder, and
which is or might be entitled to any fee, commission, or other payment from
Seller as a direct or indirect result of the transactions contemplated by this
Agreement or any other transaction for the contemplated sale of any assets of
Seller or any capital stock in Seller.
Section 4.18 LEGAL PROCEEDINGS, ETC. Except as described in Schedule
4.18: (a) there are no (and over the last five years there have been no) claims,
proceedings, suits, or investigations (collectively, "actions") pending or, to
the best knowledge of Seller and the Shareholders, threatened against or
relating to Seller (or any of its officers or directors in connection with the
business or affairs of Seller), before any federal, state, local or foreign
court or governmental body; and (b) to the best knowledge of Seller and the
Shareholders, there exist no disputes, conflicts, or circumstances providing the
basis for a dispute or conflict which could result in
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any such action. There are no actions pending or to the best knowledge of Seller
and the Shareholders, threatened for the purpose of enjoining or preventing this
Agreement of any other transaction contemplated by this Agreement or otherwise
challenging the validity or propriety of the transactions contemplated by this
Agreement. Except as disclosed in such Schedule 4.18, Seller is not subject to
any judgment, order or decree, or any governmental restriction, which has a
reasonable probability of having a Material Adverse Effect or which may
materially adversely affect the ability of Seller to acquire any property or
conduct business in any area.
Section 4.19 ERISA.
(a) Schedule 4.19 identifies each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA") which (i) is subject to any provision of ERISA and
(ii) is or was at any time during the last 5 years maintained,
administered or contributed to by Seller or any affiliate (as defined
below) and covers any employee or former employee of Seller or any
affiliate or under which Seller or any affiliate has any liability.
Copies of such plans (and, if applicable, related trust agreements),
and all amendments thereto and written interpretations thereof have
been furnished to Buyer together with the three most recent annual
reports (Form 5500 and all related schedules) and actuarial valuation
reports, if any, prepared in connection with any such plan. Such plans
are referred to collectively herein as the "Employee Plans." For
purposes of this section, "affiliate" of any person or entity means
any other person or entity which, together with such person or entity,
would be treated as a single employer under Section 414 of the Code or
is an "affiliate," whether or not incorporated, as defined in Section
407(d) (7) of ERISA of such person or entity. The only Employee Plans
which individually or collectively would constitute an "employee
pension benefit plan" as defined in section 3(2) of ERISA (the
"Pension Plans") are identified as such on Schedule 4.19.
(b) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust forming a
part thereof is exempt from tax pursuant to Sectior 501(a) of the
Code. Seller has furnished to Buyer copies of the most recent Internal
Revenue Service determination letters with respect to each such Plan.
Each Employee Plan has been maintained in compliance with its terms
and the requirements prescribed by any and all statutes, orders, rules
and regulations, including but not limited to ERISA and the Code,
which are applicable to such Plan.
(c) There is no contract, agreement, plan or arrangement covering
any employee or former employee of Seller or any affiliate that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to the terms of the Code.
(d) Schedule 4.19 identifies each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing
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for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, severance benefits,
supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation or other forms of incentive compensation
or post-retirement insurance, compensation or benefits which (i) is
not an Employee Plan, (ii) is entered into, maintained or contributed
to, as the case may be, by Seller or any of its affiliates, and (iii)
covers any employee or former employee of Seller or any of its
affiliates. Such contracts, plans and arrangements as are described
above, copies or descriptions of all of which have been furnished
previously to Buyer, are referred to collectively herein as the
"Benefit Arrangements." Each Benefit Arrangement has been maintained
in substantial compliance with its terms and with requirements
prescribed by any and all statutes, orders, rules and regulations that
are applicable to such Benefit Arrangement.
(e) Except as set forth in Schedule 4.19, there is no liability
in respect of post-retirement health and medical benefits for retired
employees of Seller or any of its affiliates, determined using
assumptions that are reasonable in the aggregate, over the fair market
value of any fund, reserve or other assets segregated for the purpose
of satisfying such liability (including for such purposes any fund
established pursuant to Section 401(h) of the Code). Seller has
reserved its right to amend or terminate any Employee Plan or Benefit
Arrangement providing health or medical benefits in respect of any
active employee of Seller under the terms of any such plan and
descriptions thereof given to employees. With respect to any of
Seller's Employee Plans which are "group health plans" under Section
4980B of the Code and Section 607(l) of ERISA, there has been timely
compliance in all material respects with all requirements imposed
thereunder so that Seller and its affiliates have no (and will not
incur any) loss, assessment, tax penalty, or other sanction with
respect to any such plan.
(f) Except as set forth in Schedule 4.19, there has been no
amendment to, written interpretation or announcement (whether or not
written) by Seller or any of its affiliates relating to any Employee
Plan or Benefit Arrangement which would increase the expense of
maintaining such Employee Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the fiscal year ended
immediately prior to the Closing Date.
(g) Except as set forth in Schedule 4.19, Seller is not a party
or subject to any union contract or any material employment contract
or arrangement providing for annual future compensation to any
officer, consultant, director or employee.
(h) The execution and consummation of the transactions
contemplated by this Agreement do not constitute a triggering event
under any Employee Plan, whether or not legally enforceable, which
(either alone or upon the occurrence of any additional or subsequent
event) will or may result in any payment (of severance pay or
otherwise), acceleration, increase in vesting, or increase in benefits
to any current or former
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participant, employee or director of Seller that has not been
specifically disclosed on Schedule 4.19 or which is not material to
the financial condition or business of Seller.
(i) Any reference to ERISA or the Code or any Section thereof
shall be construed to include all amendments thereto and applicable
regulations and administrative rulings issued thereunder.
Section 4.20 NO CONFLICT OR DEFAULT. Neither the execution and
delivery of this Agreement by Seller or either Shareholder, nor compliance by
Seller and the Shareholders with the terms and provisions of this Agreement,
including without limitation the consummation of the transactions contemplated
by this Agreement, will violate in any material manner any Applicable Laws or
Permits or conflict with or result in the breach of any term, condition or
provision of the articles of incorporation, bylaws, or other organizational
document of Seller, or of any material agreement, deed, contract, undertaking,
mortgage, indenture, writ, order, decree, restriction, legal obligation or
instrument to which Seller or either Shareholder is a party or by which Seller
or either Shareholder or any of their respective assets or properties are or may
be bound or affected, or constitute a default (or an event which, with the
giving of notice, the passage of time, or both, would constitute a default)
thereunder, or result in the creation or imposition of any lien, security
interest, charge or encumbrance, or restriction of any nature whatsoever with
respect to any material properties or assets of Seller or either Shareholder, or
give to others any interest or rights, including rights of termination,
acceleration or cancellation in or with respect to any of the material
properties, assets, contracts or business of Seller.
Section 4.21 BOOKS OF ACCOUNT; RECORDS. Seller's general ledgers,
stock record books, minute books and other material records relating to the
assets, properties, contracts and outstanding legal obligations of Seller are,
in all material respects, complete and correct, and have been maintained in
accordance with good business practices and the matters contained therein are
appropriate and accurately reflected in the Financial Statements.
Section 4.22 OFFICERS, EMPLOYEES, REPRESENTATIVES AND COMPENSATION.
Schedule 4.22 sets forth the names of all directors and officers of Seller, the
total salary, bonus, fringe benefits and perquisites each received in the fiscal
year ended December 31, 1994, and any changes to the foregoing which have
occurred subsequent to such fiscal year. Schedule 4.22 also lists and describes
the current compensation of the 10 most highly compensated managers of Seller
and any other employee of Seller whose total current salary and bonus exceeds
$50,000. Schedule 4.22 sets forth the names, addresses and phone numbers of the
top ten manufacturer's representatives used by Seller, ranked by commissions
earned in 1994 and separately by commissions earned to date in 1995, and the
amount of commissions earned and the region of the country represented by each
such representative in each such period, and includes an additional list of such
representatives that have terminated their relationships with Seller since June
30, 1995, or have notified Seller or either Shareholder since June 30, 1995,
that they intend to terminate their relationships with Seller. No changes will
be made by Seller in the amount or kind of any of the compensation being paid or
provided to any individual or company listed in Schedule
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<PAGE> 18
4.22 from the amounts and kinds of compensation described therein prior to the
Closing without Buyer's prior written consent. Except as disclosed in Schedule
4.22, there are no other forms of compensation paid to any such director,
officer, employee or representative of Seller. Except as disclosed in Schedule
4.22, the amounts accrued on the books and records of Seller for vacation pay,
sick pay, and all commissions and other fees payable to agents, salesmen and
representatives of Seller will be adequate to cover Seller's liabilities for all
such items. Except as set forth in Schedule 4.22, Seller has not become
obligated, directly or indirectly, to any stockholder, director or officer of
Seller or any person related to such person by blood or marriage, except for
current liability for such compensation. Except as set forth in Schedule 4.22,
to the best knowledge of Seller and the Shareholders, no shareholder, director,
officer, agent or employee of Seller or any person related to such person by
blood or marriage holds any position or office with or has any material
financial interest, direct or indirect, in any supplier, customer or account of,
or other outside business which has material transactions with, Seller. Neither
Seller nor either Shareholder has any agreement or understanding with any
stockholder, director, officer, employee or representative of Seller which would
influence any such person not to become associated with Buyer from and after the
Closing or from serving Buyer after the Closing in a capacity similar to the
capacity presently held.
Section 4.23 LABOR RELATIONS. Seller has complied in all respects with
all applicable federal, state and local laws, rules, regulations and Executive
Orders relating to employment, and all applicable laws, rules and regulations
governing payment of minimum wages and overtime rates, and the withholding and
payment of taxes from compensation of employees and the payment of premiums and
benefits under applicable worker compensation laws. Except as set forth in
Schedule 4.23, there is no unfair labor practice complaint against Seller
pending before the National Labor Relations Board. There is no labor strike,
dispute, slowdown or stoppage, or any union organizing campaign, actually
pending or, to the best knowledge of Seller and the Shareholders, threatened
against or involving Seller. No labor grievance has been filed with Seller which
has had or may have a Material Adverse Effect, and no arbitration proceeding,
which has had or may have such an effect has arisen out of or under a collective
bargaining or other labor agreement and is pending and no claim therefor has
been asserted. No collective bargaining or other labor agreement is currently
being negotiated by Seller and no union or collective bargaining unit represents
any of Seller's employees.
Section 4.24 CUSTOMERS, SOURCES AND SUPPLIERS. Except as set forth in
Schedule 4.24, no supplier of Seller has indicated that it shall stop, or
decrease the rate of, or substantially increase its fees for, supplying products
or services to Seller either prior to, or following the consummation of, the
Closing. Schedule 4.24 sets forth Seller's ten top sources of revenue in 1994
and includes an additional list of such sources which have terminated their
relationships with Seller since June 30, 1995, or have notified Seller or either
Shareholder since June 30, 1995, that they intend to terminate their
relationships with Seller. Except as set forth in Schedule 4.24, neither Seller
nor either Shareholder knows of any such sources of revenue which have indicated
that they are considering or planning to (i) discontinue being associated with
Seller, (ii) discontinue being associated with Buyer or Seller after the
Closing, or (iii) substantially decrease
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the amount of their purchasing from or referrals to Seller or Buyer or
materially alter the terms of such business either before or after the Closing.
Schedule 4.24 also sets forth the terms and conditions of any credit, discount
or other terms given by any supplier to Seller outside the usual and ordinary
course of business or in excess of 45 days.
Section 4.25 SPECIAL TERMS; SERVICE OR PRODUCT WARRANTIES. Schedule
4.25 sets forth the terms and conditions of any credit, discount or other terms
given by Seller to any customer outside the usual and ordinary course of
business or in excess of 45 days. Except as set forth in Schedule 4.25, there
have been no product or service warranties or guaranties given by Seller to its
customers or others.
Section 4.26 INVESTMENT REPRESENTATIONS. The Seller represents and
warrants to Buyer that it is accepting the Waterlink Shares being delivered to
Seller pursuant to Article III for Seller's own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof. Seller further represents that it understands that (i) no
Waterlink Shares have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof, (ii) the Waterlink Shares must be held indefinitely unless
a subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Waterlink Shares will bear a legend to
such effect and (iv) Buyer will make a notation on its transfer books to such
effect. Seller further understands that the exemption from registration afforded
by Rule 144 under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 affords the basis of sales of the
Waterlink Shares in limited amounts under certain conditions. Seller (i)
acknowledges that it has had a full opportunity to request from Buyer and to
review and has received all information which it deems relevant in making a
decision to accept the Waterlink Shares being delivered to it hereunder, (ii)
will comply with the restrictions on transferability of the Waterlink Shares
contained in the Stockholders Agreement, dated as of August 30, 1995, by and
among all of the stockholders of Buyer, (iii) is an accredited investor (as
defined pursuant to the Securities Act) and has the knowledge and experience in
financial and business matters to make its own evaluation of the merits and
risks of the investment, and (iv) is able to withstand the total loss of its
investment in Buyer.
Section 4.27 COMPLETE DISCLOSURE. No representation or warranty by
Seller or the Shareholders in this Agreement or the Seller Schedules contains,
or will contain as of the Closing Date, any untrue statement of a material fact
or omits, or will omit as of the Closing Date, a material fact necessary to make
the statements contained herein or therein not misleading.
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ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Section 5.l MUTUAL COVENANTS.
(a) GENERAL. Each Party shall use all reasonable efforts to take
all actions and do all things necessary, proper or advisable to
consummate the Closing and the other transactions contemplated by this
Agreement, including without limitation using all reasonable efforts
to cause the conditions set forth in Article V of this Agreement for
which such Party is responsible to be satisfied as soon as reasonably
practicable and to prepare, execute, acknowledge or verify, deliver,
and file such additional documents, and take or cause to be taken such
additional actions, as any other Party may reasonably request to carry
out the purposes or intent of this Agreement.
(b) OTHER GOVERNMENTAL MATTERS. Each Party shall use all
reasonable efforts to take any additional action that may be
necessary, proper or advisable in connection with any other notices
to, filings with, and authorizations, consents and approvals of any
court, administrative agency or commission, or other governmental
authority or instrumentality that it may be required to give, make or
obtain.
Section 5.2 COVENANTS OF SELLER AND THE SHAREHOLDERS. Seller and each
Shareholder jointly and severally agree that:
(a) DISCLOSURES. After the date of this Agreement, neither Seller
nor either Shareholder shall: (i) disclose to any person (other than
Buyer or those designated in writing by Buyer) in any manner, directly
or indirectly, any proprietary information or data relevant to the
business of Seller, whether of a technical or commercial nature, other
than in the ordinary course of business, or (ii) use, or permit or
assist, by acquiescence or otherwise, any person (other than Buyer or
those designated in writing by Buyer) to use, in any manner, directly
or indirectly, any such information or data, excepting only (A) use of
such data or information as is at the time generally known to the
public and which did not become generally known through any breach of
any provision of this section by Seller or a Shareholder, and (B)
disclosures of information to employees of Seller who need to know
such information and use of such information by employees of Seller
who need to use such information, in each case only to the extent
necessary for the benefit of Seller or Buyer.
(b) EMPLOYEE RETENTION. Seller and the Shareholders understand
that in Buyer's view it is essential to the successful operation of
the business of Seller that Seller retain substantially unimpaired
their operating organization. At the Closing, Buyer shall enter into a
Consulting and Noncompetition Agreement in the form of Exhibit C
attached
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to this Agreement with Lawrence Field, and an Employment and
Noncompetition Agreement in the form of Exhibit D attached to this
Agreement with David Field.
(c) INJUNCTIVE RELIEF. Seller and the Shareholders acknowledge
and agree that Buyer's remedies at law for any violation of any of
Seller's and the Shareholders' obligations under this Article V would
be inadequate, and agree that in the event of any such violation,
Buyer shall be entitled to a temporary restraining order, temporary
and permanent injunctions, and other equitable relief, without the
necessity of posting any bond or proving any actual damage, in
addition to all other rights and remedies which may be available to
Buyer from time to time.
ARTICLE VI
CONDITIONS
----------
Section 6.1 MUTUAL CONDITIONS. The obligations of each of the Parties
to consummate the Closing and the other transactions contemplated by this
Agreement shall be subject to fulfillment or waiver by each Party of all of the
following conditions:
(a) NO ADVERSE PROCEEDING. No temporary restraining order,
preliminary or permanent injunction or other order or decree which
prevents the consummation of the Closing or the other transactions
contemplated by this Agreement shall have been issued and remain in
effect, and no statute, rule or regulation shall have been enacted by
any state or federal government or governmental agency which would
prevent the Closing or the other transactions contemplated by this
Agreement.
(b) GOVERNMENTAL APPROVALS. Any governmental or other approvals
or reviews of this Agreement or the transactions contemplated by this
Agreement required under any applicable laws, statutes, orders, rules,
regulations, or policies, or any guidelines promulgated thereunder,
shall have been received.
(c) CONSULTING AND EMPLOYMENT AGREEMENTS. Buyer, David Field,
Richard Brincks and Walter Jensky shall have executed and delivered
their respective Employment Agreements, and Buyer and Lawrence Field
shall have executed and delivered the Consulting Agreement.
Section 6.2 CONDITIONS TO OBLIGATIONS OF SELLER AND THE SHAREHOLDERS.
The obligations of Seller and the Shareholders to consummate the Closing and the
other transactions contemplated by this Agreement shall be subject to the
fulfillment of all of the following conditions unless waived by Seller and the
Shareholders in writing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer set forth in Article III of this Agreement shall
be true and correct in all material
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respects as of the date of this Agreement and as of the Closing as
though made at and as of the Closing.
(b) PERFORMANCE OF AGREEMENT. Buyer shall have performed and
observed in all material respects all obligations and conditions to be
performed or observed by it under this Agreement at or prior to the
Closing.
(c) CERTIFICATE. Buyer shall have furnished Seller and the
Shareholders with a certificate dated the Closing Date signed on its
behalf by its chairman, president or any vice president to the effect
that the conditions set forth in Section Section 6.2(a) and (b) have
been satisfied.
(d) OPINION OF COUNSEL. The Seller shall have received the legal
opinion, dated the Closing Date, of Baker & Hostetler, counsel to
Buyer, in substantially the form attached to this Agreement as Exhibit
E.
Section 5.3[sic] CONDITIONS TO OBLIGATIONS OF BUYER. The obligations
of Buyer to consummate the Closing and the other transactions contemplated by
this Agreement shall be subject to the fulfillment of all of the following
conditions unless waived by Buyer in writing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and the Shareholders set forth in Article IV of
this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing as though made at
and as of the closing.
(b) PERFORMANCE OF AGREEMENT. Seller and the Shareholders shall
have performed and observed in all material respects all obligations
and conditions to be performed or observed by it under this Agreement
at or prior to the Closing.
(c) CERTIFICATE. Seller shall have furnished Buyer with a
certificate dated the Closing Date signed by each Shareholder and on
Seller's behalf by its chairman, president or any vice president to
the effect that the conditions set forth in Sections 5.3(a) and
(b) have been satisfied.
(d) OPINION OF COUNSEL. Buyer shall have received the legal
opinion, dated the Closing Date, of Thrun, Tallman & Cohn, counsel to
Seller and the Shareholders, substantially in the form attached to
this Agreement as Exhibit F.
(e) MATERIAL ADVERSE CHANGES. Seller shall be free from any
agreements, restrictions, or conditions, which in the reasonable
opinion of Buyer would have a Material Adverse Effect; no agreement or
other document or restriction to which Seller is a party or is subject
shall be in default as of the Closing Date or be breached by the
transactions contemplated by this Agreement, which default or breach
would in the
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reasonable opinion of Buyer have a Material Adverse Effect; and there
shall have occurred no material adverse change in the operations,
prospects, assets, business, or condition (financial or otherwise) of
Seller.
(f) FINANCIAL STATEMENTS. Ernst & Young LLP shall have reviewed
the Financial Statements and shall have furnished Buyer with a written
report stating that there are no material inaccuracies in the
Financial Statements at least 5 days prior to the Closing (the "Ernst
& Young Report").
ARTICLE VII
INDEMNIFICATION
---------------
Section 7.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Subject to the limitations set forth in Section 7.3 of this Agreerent and
notwithstanding any investigation conducted at any time with regard thereto by
or on behalf of Buyer, all representations, warranties, covenants and agreements
of Seller and the Shareholders in this Agreement and in the Additional Documents
(as defined in Section 7.2(iii)) shall survive execution, delivery and
performance of this Agreement for a period of eighteen (18) months. All
representations and warranties of Seller and the Shareholders set forth in this
Agreement and in the Additional Documents shall be deemed to have been made
again by Seller and the Shareholders at and as of the Closing. All statements
contained in any Additional Document, Exhibit or Schedule hereto shall be deemed
representations and warranties of Seller set forth in this Agreement within the
meaning of this Article.
Section 7.2. INDEMNIFICATION.
(a) Subject to the limitations set forth in Section 7.3 of this
Agreement, Seller and the Shareholders hereby agree to jointly and
severally indemnify and hold harmless Buyer from and against any and
all losses, liabilities, damages, demands, claims, suits, actions,
judgments or causes of action, assessments, costs and expenses,
including, without limitation, interest, penalties, reasonable
attorneys' fees, any and all expenses incurred in investigating,
preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation (collectively, "Damages"),
asserted against, resulting to, imposed upon, or incurred or suffered
by Buyer, directly or indirectly, as a result of or arising from the
following (collectively, "Indemnifiable Claims"):
(i) Any inaccuracy in or breach or nonfulfillment of any of
the representations, warranties, covenants or agreements made by
Seller in this Agreement or any facts or circumstances
constituting such an inaccuracy, breach or nonfulfillment;
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(ii) Any liability imposed upon Buyer as transferee of the
business or operations of Seller or the Property, or otherwise,
except to the extent such liability may be expressly assumed by
Buyer pursuant to Section 2.1 hereof;
(iii) Any misrepresentation in or any omission from any
certificate or other document (collectively, the "Additional
Documents") furnished or to be furnished by or on behalf of
Seller under this Agreement; or
(iv) Seller's misapplication of the proceeds of the purchase
price of the Property in fraud of its creditors.
(b) For purposes of this Article, all Damages shall be computed
net of (i) any actual income tax benefit resulting therefrom to Buyer
which, and (ii) any insurance coverage with respect thereto which,
reduces the Damages that would otherwise be sustained; provided,
however, that, in all cases, the timing of the receipt or realization
of insurance proceeds or income tax benefits shall be taken into
account in determining the amount of reduction of Damages.
Section 7.3. LIMITATIONS ON INDEMNIFICATION. Except as otherwise
provided in Section 7.2(b) of this Agreement, Buyer's rights to indemnification
hereunder are subject to the limitation that Seller and the Shareholders will
not be liable to Buyer for any Damages until the aggregate amount of all Damages
equal or exceed a threshold limit of Twenty Thousand Dollars ($20,000), at which
time Buyer shall be entitled to indemnification with respect to all Damages,
including the first Twenty Thousand Dollars ($20,000) of Damages.
Section 7.4. PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD-PARTY
CLAIMS.
(a) If Buyer determines to seek indemnification under this
Article with respect to Indemnifiable Claims resulting from the
assertion of liability by third parties, it shall give notice to
Seller of any such Indemnifiable Claim or of facts upon which any such
Indemnifiable Claim will be based; the notice shall set forth such
information with respect thereto as is then reasonably available to
Buyer. In case any such liability is asserted against Buyer, and Buyer
notifies Seller thereof, Seller will be entitled, if it so elects by
written notice delivered to Buyer within twenty (20) days after
receiving Buyer's notice, to assume the defense thereof with counsel
satisfactory to Buyer. Notwithstanding the foregoing, (i) Buyer shall
also have the right to employ its own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of
Buyer, (ii) Buyer shall not have any obligation to give any notice of
any assertion of liability by a third party unless such assertion is
in writing, and (iii) the rights of Buyer to be indemnified hereunder
shall not be adversely affected by its failure to give notice pursuant
to the foregoing unless, and, if so, only to the extent that, Seller
is materially prejudiced thereby. With respect to any assertion of
liability by a third party that results in an Indemnifiable Claim,
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the parties hereto shall make available to each other all relevant
information in their possession material to any such assertion.
(b) In the event that Seller, within twenty (20) days after
receipt of the aforesaid notice of an Indemnifiable Claim, fails to
assume the defense of Buyer against such Indemnifiable Claim, Buyer
shall have the right to undertake the defense, compromise or
settlement of such action on behalf of and for the account and risk of
Seller.
(c) Notwithstanding anything in this Section to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may
materially and adversely affect Buyer, other than as a result of money
damages or other money payments, Buyer shall have the right, at its
own cost and expense, to defend, compromise or settle such
Indemnifiable Claim, and (ii) Seller shall not, without Buyer's
written consent, settle or compromise any Indemnifiable Claim or
consent to entry of any judgment in respect thereof unless such
settlement, compromise or consent includes as an unconditional term
thereof the giving by the claimant or the plaintiff to Buyer a release
from a liability in respect of such Indemnifiable Claim.
Section 7.5. PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO NON-THIRD
PARTY CLAIMS. In the event that Buyer asserts the existence of a claim giving
rise to Damages (but excluding claims resulting from the assertion of liability
by third parties), it shall give written notice to Seller specifying the nature
and amount of the claim asserted. If Seller, within twenty (20) days after the
mailing of notice by Buyer, shall not give written notice to Buyer announcing
its intent to contest such assertion of Buyer, such assertion shall be deemed
accepted and the amount of claim shall be deemed a valid claim. In the event,
however, that Seller contests the assertion of a claim by giving such written
notice to Buyer within said period, then if the parties hereto, acting in good
faith, cannot reach agreement with respect to such claim within ten (10) days
after such notice, the contested assertion of a claim shall be referred to
arbitration in Chicago, Illinois, or any other place mutually agreed upon by the
parties, in accordance with the rules then pertaining to the American
Arbitration Association. The determination made in accordance with such rules
shall be delivered in writing to the parties hereto and shall be final and
binding and conclusive upon the parties hereto and the amount of the claim, if
any, determined to exist shall be a valid claim. Each party shall pay its own
legal, auditing and other fees in connection with such a contest; provided,
however, that the fees of any arbitrator and expenses incurred by the arbitrator
shall be shared equally by the parties.
Section 7.6. SETOFF. Notwithstanding any other provision contained
herein, it is understood and agreed that at any time following the Closing Buyer
may set off from the Buyer Note an amount equal to any and all Damages which are
a result of or arise from or relate to any Indemnifiable Claim.
23
<PAGE> 26
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1 NOTICES. All notices and other communications under this
Agreement to any Party shall be in writing and shall be deemed given when
delivered personally to that Party, telecopied (with electronic confirmation) to
that Party at the telecopy number for that Party set forth below, mailed by
certified mail (postage prepaid and return receipt requested) to that Party at
the address for that Party set forth below, or delivered to Federal Express or
any similar express delivery service for delivery to that Party at that address:
(a) If to Buyer:
Waterlink, Inc.
115 DeWalt Avenue, N.W., Suite 500
Canton, Ohio 44702
Attention: Theodore F. Savastano
Telecopy No.: (216) 455-8134
with a copy to:
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Attention: James B. Griswold, Esq.
Telecopy No.: (614) 696-7040
(b) If to Seller:
Great Lakes Environmental, Inc.
463 Vista Avenue
Addison, Illinois 60101
Attention: David Field
Telecopy No.: (708) 543-1169
24
<PAGE> 27
(c) If to the Shareholders, addressed to them at:
Great Lakes Environmental, Inc.
463 Vista Avenue
Addison, Illinois 60101
Attention: David Field
Telecopy No.: (708) 543-1169
in the case of (b) and (c), with a copy to:
Thrun, Tallman & Cohn
111 East Busse Avenue, Ste. 604
Mount Prospect, Illinois 60056
Attention: Bradley Cohn, Esq.
Telecopy No.: (708) 255-2615
Any Party may change its telecopy number or address for notices under this
Agreement at any time by giving the other Parties notice of such change.
Section 8.2 NON-WAIVER. No failure by any Party to insist upon strict
compliance with any term or provision of this Agreement or to seek any remedy
upon any default of any other Party shall affect, or constitute a waiver of, the
first Party's right to insist upon such strict compliance or seek that remedy
with respect to that default or any prior, contemporaneous, or subsequent
default.
Section 8.3 GENDERS AND NUMBERS. Where permitted by the context, each
pronoun used in this Agreement includes the same pronoun in other genders and
numbers, and each noun used in this Agreement includes the same noun in other
numbers.
Section 8.4 HEADINGS. The headings of the various articles and
sections of this Agreement are not part of the context of this Agreement, are
merely labels to assist in locating such articles and sections, and shall be
ignored in construing this Agreement.
Section 8.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.
Section 8.6 ENTIRE AGREEMENT. This Agreement (including all exhibits,
schedules, and other documents referred to in this Agreement (the "Incorporated
Documents"), all of which are hereby incorporated by reference) constitutes the
entire agreement, and supersedes all prior discussions, negotiations, agreements
and understandings (both written and oral) among the Parties with respect to the
subject matter of this Agreement. All obligations of any Party under any
Incorporated Document shall constitute an obligation of such Party under this
Agreement. Any
25
<PAGE> 28
capitalized terms used in any Incorporated Document which are not otherwise
defined therein shall have the respective meanings given such terms in this
Agreement.
Section 8.7 NO THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon or give to any person, firm, corporation or legal entity, other than the
Parties, any rights, remedies or other benefits under or by reason of this
Agreement.
Section 8.8 GOVERNING LAW. This Agreement shall be coverned by and
construed in accordance with the laws of the State of Ohio, without regard to
principles of conflicts of law. All rights and remedies of each Party under this
Agreement shall be cumulative and in addition to all other rights and remedies
which may be available to the Party from time to time, whether under this
Agreement or otherwise.
Section 8.9 BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by and against the
Parties and their respective heirs, personal representatives, successors, and
assigns. Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be transferred or assigned by any of the Parties
without the prior written consent of the other Parties. Notwithstanding the
foregoing, Buyer shall have the right to assign any of its rights, interests or
obligations under this Agreement, in whole or in part, to any affiliated person
or entity.
Section 8.10 EXPENSES. Subject to the following paragraph, and except
as otherwise specifically provided in this Agreement: (a) Buyer shall pay its
costs and expenses associated with the transactions contemplated by this
Agreement, including without limitation the fees and expenses of its legal
counsel, certified public accountants, and other financial advisors; and (b) the
Seller shall pay all costs and expenses of themselves and Seller and the
Shareholders associated with this Agreement or the transactions contemplated by
this Agreement, including without limitation the fees and expenses of legal
counsel, accountants, and financial advisors, including, without limitation, any
fees and expenses associated with the preparation of the Financial Statements.
Section 8.11 PUBLIC ANNOUNCEMENTS. Neither Seller, nor either of the
Shareholders shall, without the prior written consent of Buyer make any public
announcement or statement with respect to the transactions contemplated in the
Agreement, except as may be necessary to comply with applicable requirements of
the federal or state securities laws or any governmental order or regulation.
Section 8.12 SEVERABILITY. With respect to any provision of this
Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by applicable law, and
the Parties shall abide by such court's determination. In the event that any
provision of this
26
<PAGE> 29
Agreement cannot be reformed, such provision shall be deemed to be severed from
this Agreement, but every other provision of this Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective representatives as of the day and year first above
written.
WATERLINK, INC. GREAT LAKES ENVIRONMENTAL, INC.
By:/s/ Theodore F. Savastano By:/s/ David Field
------------------------------ -----------------------------
Theodore F. Savastano, David Field, President
Chairman
Attest: /s/ Nancy Hamerly Attest: /s/ Lawrence Field
------------------------------ -------------------------
SHAREHOLDERS:
/s/ Lawrence Field
--------------------------------
/s/ David Field
--------------------------------
27
<PAGE> 30
<TABLE>
<CAPTION>
INDEX OF SELLER SCHEDULES
-------------------------
<S> <C>
Schedule 1.1(a) Real Property Leases
Schedule 1.1(b) Personal Property
Schedule 1.1(c) Vehicles
Schedule 1.1(d) Permits
Schedule 1.1(e) Proprietary Rights
Schedule 1.1(f) Equipment Leases
Schedule 1.1(g) Contracts
Schedule 1.1(i) Prepaid Expenses
Schedule 1.1(k) Telephone Numbers for Seller's Offices and Facilities
Schedule 1.2 Certain Excluded Assets
Schedule 1.3 Non-Assignment of Certain Contracts
Schedule 1.5 Purchase Price Allocation
Schedule 2.1 Assumed Liabilities
Schedule 4.4 Consents and Approvals
Schedule 4.6 Inventory
Schedule 4.7 Undisclosed Liabilities
Schedule 4.8 Absence of Certain Changes
Schedule 4.9 Taxes
Schedule 4.10 Permits; Compliance with Laws
Schedule 4.12 Restrictive Documents or Laws
Schedule 4.16 Properties
Schedule 4.18 Legal Proceedings
Schedule 4.19 Employee Benefit Plans
Schedule 4.22 Officers, Employees, Representatives and
Compensation
Schedule 4.23 Labor Relations
Schedule 4.24 Customers, Sources and Suppliers
Schedule 4.25 Special Terms; Product Warranties
</TABLE>
28
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of (i) our report dated November 27, 1996 (except Notes 2 and 5, as to which
the date is March 5, 1997), with respect to the consolidated financial
statements of Waterlink, Inc.; (ii) our report dated February 28 ,1997 with
respect to the financial statements of Mass Transfer Systems, Inc.; and (iii)
our report dated March 7, 1997 with respect to the consolidated financial
statements of Water Equipment Technologies, Inc. in the Registration Statement
(Form S-1 No. 333-00000) and related Prospectus of Waterlink, Inc. for the
registration of 000,000 shares of its common stock.
ERNST & YOUNG LLP
Canton, Ohio
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon determination of
the estimated range of the per share offering price and the related share and
per share amounts in the consolidated financial statements.
ERNST & YOUNG LLP
Canton, Ohio
April 11, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 25, 1996 (except Note 9(b), which is as of April
15, 1997), with respect to the consolidated financial statements of Bioclear
Technology, Inc. included in the Registration Statement (Form S-1 No. 333-00000)
and related Prospectus of Waterlink, Inc. dated April 16, 1997.
ERNST & YOUNG
Chartered Accountants
Winnipeg, Canada
April 15, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 4, 1997 with respect to the combined financial
statements of Nordic Water Products Group included in the Registration Statement
(Form S-1 No. 333-00000) and related Prospectus of Waterlink, Inc. for the
registration of its common stock.
ERNST & YOUNG AB
Torbjorn Hanson
Stockholm, Sweden
April 11, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 23, 1997 with respect to the financial
statements of Great Lakes Environmental, Inc. included in the Registration
Statement (Form S-1 No. 333-00000) and related Prospectus of Waterlink, Inc. for
the registration of shares of its common stock.
Dennis D. Tysl & Company, Ltd.
Palatine, Illinois
April 11, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 3, 1997 with respect to the combined financial
statements of Aero-Mod, Inc. and Affiliates included in the Registration
Statement (Form S-1 No. 333-00000) and related Prospectus of Waterlink, Inc. for
the registration of shares of its common stock.
Sincerely
Sink, Gillmore & Gordon LLP
James L. Gordon, C.P.A.
Manhattan, Kansas
April 11, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 18, 1997 with respect to the financial statements
of Lanco Environmental Products, Inc. included in the Registration Statement
(Form S-1 No. 333-00000) and related Prospectus of Waterlink, Inc. for the
registration of shares of its common stock.
Plante & Moran LLP
Grand Rapids, Michigan
April 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF WATERLINK, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 119,000
<SECURITIES> 0
<RECEIVABLES> 6,178,000
<ALLOWANCES> 101,000
<INVENTORY> 3,231,000
<CURRENT-ASSETS> 11,046,000
<PP&E> 1,880,000
<DEPRECIATION> 103,000
<TOTAL-ASSETS> 28,991,000
<CURRENT-LIABILITIES> 7,608,000
<BONDS> 10,476,000
<COMMON> 2,000
8,500,000
0
<OTHER-SE> 2,405,000
<TOTAL-LIABILITY-AND-EQUITY> 28,991,000
<SALES> 19,801,000
<TOTAL-REVENUES> 19,801,000
<CGS> 11,233,000
<TOTAL-COSTS> 11,233,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (877,000)
<INCOME-PRETAX> 311,000
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 306,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF WATERLINK, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 496,000
<SECURITIES> 0
<RECEIVABLES> 7,149,000
<ALLOWANCES> 113,000
<INVENTORY> 3,779,000
<CURRENT-ASSETS> 13,538,000
<PP&E> 2,101,000
<DEPRECIATION> 160,000
<TOTAL-ASSETS> 31,569,000
<CURRENT-LIABILITIES> 8,815,000
<BONDS> 11,186,000
<COMMON> 2,000
8,500,000
0
<OTHER-SE> 3,066,000
<TOTAL-LIABILITY-AND-EQUITY> 31,569,000
<SALES> 9,869,000
<TOTAL-REVENUES> 9,869,000
<CGS> 5,914,000
<TOTAL-COSTS> 5,914,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (260,000)
<INCOME-PRETAX> 302,000
<INCOME-TAX> 75,000
<INCOME-CONTINUING> 227,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,000
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
