United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period ended September 30, 1998
Commission File Number 333-34323
HYDROCHEM INDUSTRIAL SERVICES, INC. (*)
(Exact name of registrant as specified in its charter)
Delaware 75-2503906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
900 Georgia Avenue
Deer Park, Texas 77536
(Address of principal executive offices) (Zip Code)
(713) 393-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock of the Registrant, par value of $.01 per
per share, outstanding on November 1, 1998 was 100 shares. The Registrant's
Common Stock is not registered under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended.
- - ------------------------------------------------------------------------------
* HydroChem International, Inc., a direct and wholly owned subsidiary of
HydroChem Industrial Services, Inc., is a Co-Registrant. It is incorporated
under the laws of the State of Delaware and its I.R.S. Employer Identification
Number is 75-2512100.
1
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998 (unaudited)........................ 3
Consolidated Statements of Operations for each of the three and nine
month periods ended September 30, 1997 and 1998 (unaudited)4
Consolidated Statement of Stockholder's Equity for the nine
month period ended September 30, 1998 (unaudited)..... 5
Consolidated Statements of Cash Flows for each of the nine month
periods ended September 30, 1997 and 1998 (unaudited)6
Notes to Consolidated Financial Statements (unaudited)... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................... 16
Signatures........................................................... 19
Exhibit Index........................................................ 20
2
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HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 33,862 $29,358
Restricted cash (Note 2).................... 2,858 273
Receivables, less allowance of
$1,280 and $1,074, respectively......... 24,341 25,435
Inventories................................. 3,863 4,514
Prepaid expenses and other current assets... 1,791 2,637
Income taxes receivable..................... 407 312
Deferred income taxes ...................... 1,835 1,620
Total current assets..................... 68,957 64,149
Property and equipment, at cost ............... 63,210 77,886
Accumulated depreciation.................... (24,872) (31,184)
------- -------
38,338 46,702
Intangible assets, net ........................ 44,798 43,568
------- -------
Total assets............................. $152,093 $154,419
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................ $ 4,823 $ 5,975
Income taxes payable........................ 40 -
Accrued liabilities......................... 11,770 9,942
------- -------
Total current liabilities................ 16,633 15,917
Long-term debt (Note 3)........................ 110,000 115,014
Deferred income taxes ......................... 8,753 8,291
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, $.01 par value:
1,000 shares authorized, 100 shares
outstanding............................. 1 1
Additional paid-in capital.................. 16,558 16,558
Retained earnings (deficit)................. 148 (1,362)
------- -------
Total stockholder's equity............... 16,707 15,197
------- -------
Total liabilities and stockholder's equity $152,093 $154,419
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.......................... $40,030 $40,509 $120,744 $126,464
Cost of revenue.................. 23,687 25,632 71,477 78,702
------ ------ ------- -------
Gross profit.................. 16,343 14,877 49,267 47,762
Selling, general and administrative
expense.................... 11,128 11,799 32,289 33,547
Depreciation..................... 2,094 2,296 5,983 6,728
------ ------ ------- -------
Operating income.............. 3,121 782 10,995 7,487
Other (income) expense:
Interest expense, net......... 2,374 2,626 6,161 7,742
Special charge (Note 5)....... - - - 300
Other (income) expense, net... (17) (142) 6 (126)
Amortization of intangibles... 376 375 1,155 1,125
------- ------ ------- -------
Income (loss) before taxes and
extraordinary item............ 388 (2,077) 3,673 (1,554)
Income tax provision (benefit) (Note 4) 347 (356) 1,885 (44)
------ ------ ------- -------
Income (loss) before extraordinary item 41 (1,721) 1,788 (1,510)
Extraordinary loss on early
extinguishment of debt,
net of taxes (Note 3)...... 2,342 - 2,342 -
------ ------ ------- -------
Net loss ........................ $ (2,301) $(1,721) $ (554) $ (1,510)
====== ====== ======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
------- ---------- --------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997..... $ 1 $16,558 $ 148 $16,707
Net loss...................... - - (1,510) (1,510)
------ ------ ------ ------
Balance at September 30, 1998 ... $ 1 $16,558 $(1,362) $15,197
====== ====== ====== ======
</TABLE>
See accompanying notes.
5
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30
--------------------------
1997 1998
--------- --------
<S> <C> <C>
Operating activities:
Net loss..................................... $ (554) $(1,510)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation.............................. 5,983 6,728
Amortization.............................. 1,155 1,125
Amortization of deferred financing costs.. 395 230
Write-off of deferred financing costs..... 3,178 -
Deferred income tax expense............... (72) (247)
Loss (gain) on sale of property and equipment 26 (58)
Changes in operating assets and liabilities:
Restricted cash........................... - 2,585
Receivables, net.......................... (2,062) (1,094)
Inventories............................... (306) (651)
Prepaid expenses and other current assets. (852) (846)
Income taxes receivable................... - 95
Accounts payable.......................... (155) 1,152
Income taxes payable...................... (12) (40)
Accrued liabilities....................... 649 (1,828)
------- ------
Net cash provided by operating activities 7,373 5,641
------- ------
Investing activities:
Expenditures for property and equipment...... (7,429) (15,278)
Proceeds from sale of property and equipment. 238 244
------- ------
Net cash used in investing activities.. (7,191) (15,034)
Financing activities:
Proceeds from issuance of senior subordinated notes,
net of offering costs..................... 106,832 -
Proceeds from (repayments of) long-term
debt, net................................. (68,325) 4,889
Dividend to parent........................... (8,540) -
------- ------
Net cash provided by financing activities 29,967 4,889
------- ------
Net increase (decrease) in cash................. 30,149 (4,504)
Cash at beginning of period..................... 671 33,862
------- ------
Cash at end of period........................... $ 30,820 $ 29,358
======= ======
</TABLE>
See accompanying notes.
6
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
1. Organization and Basis of Presentation
The consolidated financial statements include the accounts of
HydroChem Industrial Services, Inc. ("HydroChem") and its wholly-owned
subsidiary, HydroChem International, Inc. ("International"). HydroChem
generally conducts business outside the United States through
International. (HydroChem and International collectively are referred to as
the "Company.") HydroChem is a wholly-owned subsidiary of HydroChem
Holding, Inc. ("Holding").
The Company is engaged in the business of providing industrial cleaning
services to a wide range of processing industries, including petrochemical
plants, oil refineries, electric utilities, pulp and paper mills, rubber
plants, and aluminum plants. This type of work is typically recurring
maintenance to improve or sustain the operating efficiencies and extend the
useful lives of process equipment and facilities. Services provided include
high-pressure water cleaning (hydroblasting), chemical cleaning, industrial
vacuuming, waste minimization, and commissioning and other specialized
services.
The accompanying unaudited consolidated financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all
of the information and disclosures required by generally accepted accounting
principles for complete financial statements. Certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
In the opinion of management, the accompanying unaudited interim financial
statements include all adjustments, consisting of only normal recurring
accruals, necessary for a fair presentation of the results of the interim
periods. Operating results for the three and nine month interim periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. These unaudited consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements included in the Company's Form 10-K for the
year ended December 31, 1997 filed with the Securities and Exchange
Commission on March 30, 1998.
2. Restricted Cash
At December 31, 1997, restricted cash represented security for letters of
credit which principally were issued in connection with the Company's
property and casualty insurance program. These letters of credit now are
secured by the Credit Facility (as defined in Note 3). At September 30, 1998,
restricted cash represented security for a letter of credit issued in
connection with an international project.
3. Long-term Debt
On August 4, 1997, HydroChem issued $110,000,000 of its 10 3/8% Senior
Subordinated Notes due 2007 (the "Series A Notes") in a private offering
pursuant to Rule 144A under the Securities Act of 1933. HydroChem registered
a substantially identical series of notes (the "Series B Notes") with the
Securities and Exchange Commission and on November 7, 1997 completed an
exchange of the Series B Notes for the Series A Notes. The Series B Notes
mature on August 1, 2007 and bear interest at 10 3/8% per annum which is
payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on February 1, 1998. The Series B Notes are
7
<PAGE>
redeemable at the option of HydroChem, in whole or in part, on or after
August 1, 2002 at specified redemption prices. In addition, until August 4,
2000, up to 35% of the Series B Notes are redeemable at the option of
HydroChem with the proceeds from one or more equity offerings at a redemption
price of 109.375% of the principal amount thereof. International is a
guarantor of the Series B Notes.
A portion of the net proceeds from the sale of the Series A Notes was used
to repay HydroChem's senior debt and subordinated debt and to fund a dividend
to Holding which Holding used to discharge accrued interest on its
indebtedness and accrued dividends on its preferred stock. As a result of the
early repayment of HydroChem's prior debt, an extraordinary loss was
recognized in the amount of $2,342,000 (net of a related tax benefit of
$1,435,000). The extraordinary loss consisted of the write-off of associated
deferred financing costs in the amount of $3,178,000 before related tax
benefit, as well as a prepayment premium and other related fees and expenses.
On December 31, 1997, HydroChem entered into a participating credit
agreement with a financial institution for a credit facility (the "Credit
Facility") which provides for unsecured borrowings of up to $25,000,000,
subject to borrowing base limitations. The term of the Credit Facility is
three years and any borrowings thereunder bear interest at rates adjusted
quarterly. Interest rates are based on (i) a range from LIBOR plus 1.50% to
LIBOR plus 2.50%, or, at the discretion of HydroChem, (ii) a range from the
prime rate to the prime rate plus 0.75%. In addition, a commitment fee of
0.25% to 0.50% per annum is payable quarterly on the unborrowed portion of
the Credit Facility. The specific rate within each range depends upon the
Company's operating performance. The Credit Facility requires the Company to
meet certain customary financial ratios and covenants, and generally
restricts the Company from pledging its assets. Effective September 30, 1998,
the credit agreement was amended to modify, among other things, certain of
these ratios and covenants. As of September 30, 1998, HydroChem's borrowing
base under the Credit Facility was $18,561,000 of which $3,250,000 had been
drawn in the form of standby letters of credit, principally issued in
connection with the Company's property and casualty insurance program. At
September 30, 1998, there were no other borrowings under the Credit Facility
and HydroChem had available unused borrowings of $15,311,000.
In connection with the Company's new headquarters and operating facilities
in the Houston, Texas area, HydroChem entered into a loan agreement with a
financial institution (the "Construction Loan Agreement") on July 17, 1998.
The Construction Loan Agreement provides for an interim financing
construction loan of up to $7,500,000 which, under certain conditions and at
the option of HydroChem, is convertible to a term loan. The loans are
collateralized by first priority liens on the land and improvements. The
construction loan matures on the earlier of July 14, 1999 or, if converted,
on the date of conversion to the term loan and requires quarterly payments of
interest. Interest rates on the construction loan are at the lender's
commercial loan rate less 0.50%. If converted, the resulting term loan
matures on September 30, 2006 and requires quarterly payments of principal
and interest. Interest rates on the term loan will be at LIBOR plus 1.75%
adjusted quarterly. On July 17, 1998, HydroChem also entered into an interest
rate protection agreement with the same financial institution (the "Interest
Rate Swap"). Under the Interest Rate Swap, HydroChem's effective fixed
borrowing rate for the term loan will be 7.79%. The Construction Loan
Agreement requires the Company to meet certain customary financial ratios and
covenants and generally restricts the Company from transferring or pledging
the facility's assets. At September 30, 1998, HydroChem had borrowed
$5,014,000 under the Construction Loan Agreement.
4. Income Taxes
The Company files a consolidated tax return with Holding. The Company's
effective income tax rate differs from the federal statutory income tax rate
primarily due to nondeductible permanent differences, state income taxes and
a change in deferred tax asset valuation.
5. Special Charge
On March 20, 1998, HydroChem signed a letter of intent to acquire all the
outstanding capital stock of an industrial cleaning company for a purchase
price of approximately $34,000,000 ($30,000,000 in cash and
$4,000,000 in promissory notes). The parties were unable to agree on the
terms of a definitive agreement and, as a result, terminated negotiations.
HydroChem incurred $300,000 of expenses consisting of legal, accounting and
other services which were provided in connection with related negotiation and
due diligence efforts. These expenses were recorded as a special charge for
the three months ended June 30, 1998.
6. Summary Financial Information
Summary financial information for International as consolidated with
HydroChem is as follows (in thousands):
<TABLE>
<CAPTION>
As of As of
December 31, September 30,
1997 1998
------------- ---------------
<S> <C> <C>
Current assets................... $ 1,623 $ 1,456
Noncurrent assets................ 127 108
Current liabilities.............. 131 148
Noncurrent liabilities........... - -
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue.............. $ 567 $1,075 $2,116 $2,693
Gross profit......... 208 296 900 833
Net loss............. (61) (2) (78) (206)
</TABLE>
7. Commitments and Contingencies
HydroChem is a defendant in various lawsuits arising in the normal course
of business. Substantially all of these suits are being defended by
HydroChem's insurance carriers. While the results of litigation cannot be
predicted with certainty, management believes adequate provision has been
made for such claims and the final outcome of such litigation will not have a
material adverse effect on the Company's consolidated financial position.
The Company has started to consolidate certain facilities into one
facility in the Houston, Texas area. Estimated land acquisition and
construction costs for this facility are approximately $9,400,000. HydroChem
has entered into the Construction Loan Agreement for $7,500,000 of this
amount (see Note 3).
8. Pending Acquisition
HydroChem entered into an Amended and Restated Asset Purchase Agreement
dated as of September 8, 1998 to acquire all of the operating assets of
Valley Systems of Ohio, Inc. and Valley Systems, Inc. (collectively "Valley")
for approximately $29,801,000 plus the assumption of Valley's bank debt and
certain other liabilities. The transaction is subject to (i) completing
schedules to the definitive agreement, (ii) completing due diligence, and
(iii) obtaining regulatory and Valley stockholder approval. HydroChem intends
to fund the purchase price through a combination of its available cash and
additional borrowings under the Credit Facility. It is anticipated that the
acquisition, if successful, will be completed early in the first quarter of
1999.
9. Subsequent Event
Subsequent to September 30, 1998, the Company began to implement a cost
reduction program which includes, among other things, a reduction in work
force. The Company expects to incur severance and other costs in the amount
of $400,000 to $500,000 related to these actions. These expenses will be
recorded as a special charge for the three months ending December 31, 1998.
The Company does not expect to realize the favorable financial effects that
these cost reduction actions will have upon cost of revenue and selling,
general and administrative expense earlier than the first quarter of 1999.
9
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statement Regarding Forward-Looking Information
This Form 10-Q contains forward-looking statements and information that are
based on management's beliefs, as well as assumptions made by, and information
currently available to, management. When used in this document, the words
"believe," "anticipate," "estimate," "expect," "intend," and similar expressions
are intended to identify forwardlooking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated. The Company undertakes no obligation to
release publicly the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
For supplemental information, it is suggested that "Management's Discussion
and Analysis of Financial Condition and Results of Operations" be read in
conjunction with the corresponding sections included in the Company's Form 10-K
for the year ended December 31, 1997 filed with the Securities and Exchange
Commission on March 30, 1998. The Form 10-K also includes the Company's
Consolidated Financial Statements and the Notes thereto for certain prior
periods, as well as other relevant financial and operating information.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of operations, expressed as a
percentage of revenue. There can be no assurance that the trends in operating
results will continue in the future.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------- ---------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue.................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............ 59.2 63.3 59.2 62.2
------ ------ ------ ------
Gross profit............ 40.8 36.7 40.8 37.8
SG&A expense............... 27.8 29.1 26.7 26.5
Depreciation............... 5.2 5.7 5.0 5.3
------ ------ ------ ------
Operating income........ 7.8 1.9 9.1 6.0
Other (income) expense:
Interest expense, net... 5.9 6.5 5.1 6.1
Special charge.......... - - - 0.2
Other expense, net...... - (0.3) - -
Amortization of intangibles 0.9 0.9 1.0 0.9
------ ------ ------ ------
Income (loss) before taxes and
Extraordinary item...... 1.0 (5.2) 3.0 (1.2)
Income tax provision (benefit) 0.9 (0.9) 1.5 -
------ ------ ------ ------
Income (loss) before extraordinary
item ................... 0.1% (4.3)% 1.5% ( 1.2)%
====== ====== ====== ======
EBITDA(1).................. 13.0% 7.6% 14.1% 11.3 %
====== ======= ====== ======
</TABLE>
- - ------------
(1) EBITDA for any relevant period presented above represents income before
taxes plus interest expense, depreciation, amortization, and other income and
expense (including a special charge of $300,000 for the nine months ended
September 30, 1998.) EBITDA should not be construed as a substitute for
operating income, as an indicator of liquidity or as a substitute for net cash
provided by operating activities, which are determined in accordance with
generally accepted accounting principals. EBITDA is included because management
believes it to be a useful tool for analyzing operating performance; leverage,
liquidity, and a company's ability to service debt.
10
<PAGE>
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Revenue. Revenue increased $479,000, or 1.2%, to $40.5 million for the three
months ended September 30, 1998 from $40.0 million in the prior year period. The
increase principally resulted from an increase in industrial vacuuming revenue
of $2.3 million, or 51.8%, from $4.5 million to $6.8 million and an increase in
other services revenue of $1.4 million, or 53.2%, from $2.6 million to $3.9
million. These increases were partially offset by a decrease in hydroblasting
revenue of $2.7 million, or 12.5%, from $21.3 million to $18.7 million, and a
decrease in chemical cleaning revenue of $531,000, or 4.6%, from $11.6 million
to $11.1 million. The increase in industrial vacuuming revenue resulted from
additional vacuum trucks placed in service by HydroChem in 1997 and 1998. The
increase in other services revenue principally resulted from mechanical services
projects, which the Company began performing in April 1998. Hydroblasting
revenue decreased primarily as a result of certain large projects in the prior
year which did not recur.
Gross profit. Gross profit decreased $1.5 million, or 9.0%, to $14.9 million
in 1998 from $16.3 million in the prior year period. Gross profit margins
decreased from 40.8% to 36.7%. Cost of revenue increased $1.9 million, or 8.2%,
to $25.6 million for 1998 from $23.7 million in the prior year period primarily
due to the revenue increases described above and increased direct compensation
costs. Subsequent to September 30, 1998, the Company began to implement a cost
reduction program which includes, among other things, a reduction in work force.
(See Note 9 of Notes to Consolidated Financial Statements.)
SG&A expense. SG&A expense increased $671,000, or 6.0%, to $11.8 million in
1998 from $11.1 million in the prior year period. SG&A expense as a percentage
of revenue increased to 29.1% in 1998 from 27.8% in the prior year period. This
increase primarily resulted from increases in compensation expense and bad debt
expense which was partially offset by decreased insurance expense. (See Note 9
of Notes to Consolidated Financial Statements.)
EBITDA. Decreased gross profit and increased SG&A expense resulted in a $2.1
million, or 41.0% decrease in EBITDA to $3.1 million in 1998 from $5.2 million
in the prior year period. As a percentage of revenue, EBITDA decreased to 7.6%
in 1998, compared to 13.0% in the prior year period.
Depreciation. Depreciation expense increased $202,000, or 9.6%, to $2.3
million in 1998 from $2.1 million in the prior year period and was 5.7% and 5.2%
of revenue, respectively. The increase in depreciation expense principally
resulted from increased capital expenditures for vacuum trucks and other
operating equipment.
Operating income. Decreased gross profit and increased SG&A and depreciation
expense resulted in a decrease in operating income of $2.3 million, or 74.9%, to
$782,000 in 1998 from $3.1 million in the prior year period. As a percentage of
revenue, operating income decreased to 1.9% in 1998, compared to 7.8% in the
prior year period.
Interest expense, net. Net interest expense increased $252,000, or 10.6%, to
$2.6 million in 1998 from $2.4 million in the prior year period. Increased
interest expense resulted from an increase in debt due to the issuance in August
1997 of $110.0 million of HydroChem's 10 3/8% Senior Subordinated Notes due
2007, which was partially offset by increased interest income earned on higher
invested cash balances.
Amortization. Amortization expense of $375,000 in 1998 was relatively
unchanged from $376,000 in the prior year period.
Income (loss) before taxes and extraordinary item. For the reasons described
above, the Company incurred a loss before taxes and extraordinary item of $2.1
million in 1998 as compared to income of $388,000 in the prior year period. This
represented a decrease of $2.5 million. As a percentage of revenue, income
(loss) before taxes and extraordinary item was (5.2)% in 1998, compared to 1.0%
in the prior year period.
Income tax provision (benefit). The effective tax (benefit) rate decreased to
(17.1)% of loss before taxes in 1998 from 89.4% of income before taxes in the
prior year period. This decrease principally resulted from a change in deferred
tax asset valuation.
Extraordinary item. In 1997, as a result of the early repayment of the
Company's debt, an extraordinary loss was recognized in the amount of $2.3
million (net of the related tax benefit of $1.4 million). The extraordinary loss
consisted of the write-off of associated deferred financing costs in the amount
of $3.2 million before related tax benefit, as well as a prepayment premium and
other related fees and expenses.
11
<PAGE>
Net loss. For the reasons described above, the Company's net loss decreased
$580,000, or 25.2%, to a loss of $1.7 million in 1998 from a loss of $2.3
million in the prior year period.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Revenue. Revenue increased $5.7 million, or 4.7%, to $126.5 million for the
nine months ended September 30, 1998 from $120.7 million in the prior year
period. The increase principally resulted from an increase in industrial
vacuuming revenue of $5.0 million, or 41.2%, from $12.2 million to $17.2
million; and an increase in hydroblasting revenue of $1.8 million, or 2.9%, from
$60.5 million to $62.3 million. These increases were partially offset by a
decrease in chemical cleaning revenue of $868,000, or 2.2%, from $40.1 million
to $39.3 million; and a decrease in revenue from all other services of $221,000,
or 2.8%, from $7.9 million to $7.7 million. Hydroblasting revenue increased
primarily due to the implementation of sole source provider arrangements with
certain existing customers. The increase in industrial vacuuming revenue
resulted from additional vacuum trucks placed in service by HydroChem in 1997
and 1998. The decrease in chemical cleaning revenue primarily was caused by a
small number of projects in the prior year period which did not recur, while the
decrease in other services revenue primarily resulted from decreased pipeline
cleaning offset by increased mechanical services, which the Company began
performing in April 1998..
Gross profit. Gross profit decreased $1.5 million, or 3.0%, to $47.8 million
in 1998 from $49.3 million in the prior year period. Gross profit margins
decreased from 40.8% to 37.8%. Cost of revenue increased $7.2 million, or 10.1%,
to $78.7 million for 1998 from $71.5 million in the prior year period primarily
due to the revenue increases described above and increased direct compensation
costs. Subsequent to September 30, 1998, the Company began to implement a cost
reduction program which includes, among other things, a reduction in work force.
(See Note 9 of Notes to Consolidated Financial Statements.)
SG&A expense. SG&A expense increased $1.3 million, or 3.9%, to $33.5 million
in 1998 from $32.3 million in the prior year period. This increase primarily
resulted from increases in compensation expense which were partially offset by
decreased insurance expense. SG&A expense as a percentage of revenue decreased
to 26.5% in 1998 from 26.7% in the prior year period. (See Note 9 of Notes to
Consolidated Financial Statements.)
EBITDA. Decreased gross profit and increased SG&A expense resulted in a $2.8
million, or 16.3% decrease in EBITDA to $14.2 million in 1998 from $17.0 million
in the prior year period. As a percentage of revenue, EBITDA decreased to 11.2%
in 1998, compared to 14.1% in the prior year period.
Depreciation. Depreciation expense increased $745,000, or 12.5%, to $6.7
million in 1998 from $6.0 million in the prior year period and was 5.3% and 5.0%
of revenue, respectively. The increase in depreciation expense principally
resulted from increased capital expenditures for vacuum trucks and other
operating equipment.
Operating income. Decreased gross profit and increased SG&A and depreciation
expense, resulted in a decrease in operating income of $3.5 million, or 31.9%,
to $7.5 million in 1998 from $11.0 million in the prior year period. As a
percentage of revenue, operating income decreased to 6.0% in 1998, compared to
9.1% in the prior year period.
Interest expense, net. Net interest expense increased $1.6 million, or 25.7%,
to $7.7 million in 1998 from $6.2 million in the prior year period. Increased
interest expense resulted from an increase in debt due to the issuance in August
1997 of $110.0 million of HydroChem's 10 3/8% Senior Subordinated Notes due 2007
which was partially offset by increased interest income earned on higher
invested cash balances.
Special charge. The Company incurred $300,000 of expense related to a
terminated acquisition. (See Note 5 of Notes to Consolidated Financial
Statements.)
Amortization. Amortization expense of $1.1 million in 1998 was relatively
unchanged from $1.2 million in the prioryear period.
Income (loss) before taxes and extraordinary item. For the reasons described
above, the Company incurred a loss before taxes and extraordinary item of $1.5
million in 1998 as compared to income of $3.7 million in the prior year period.
This represented a decrease of $5.2 million. As a percentage of revenue, income
(loss) before taxes and extraordinary item was (1.2)% in 1998, compared to 3.0%
in the prior year period.
12
<PAGE>
Income tax provision (benefit). The effective tax (benefit) rate decreased to
(2.8)% of loss before taxes in 1998 from 51.3% of income before taxes in the
prior year period. This decrease principally resulted from a change in deferred
tax asset valuation.
Extraordinary item. In 1997, as a result of the early repayment of the
Company's debt, an extraordinary loss was recognized in the amount of $2.3
million (net of the related tax benefit of $1.4 million). The extraordinary loss
consisted of the write-off of associated deferred financing costs in the amount
of $3.2 million before related tax benefit, as well as a prepayment premium and
other related fees and expenses.
Net loss. For the reasons described above, net loss increased $956,000, or
172.6% to a loss of $1.5 million in 1998 from a loss of $554,000 in the prior
year period.
Liquidity and Capital Resources
The Company principally has financed its operations through net cash provided
by operating activities, existing cash balances, available credit facilities and
capital contributions from Holding. In August 1997, HydroChem issued $110.0
million of Series A Notes in a private offering pursuant to Rule 144A under the
Securities Act of 1933. HydroChem registered the substantially identical Series
B Notes with the Securities and Exchange Commission and on November 7, 1997,
completed an exchange of the Series B Notes for the Series A Notes. The Series B
Notes mature on August 1, 2007 and bear interest at 10 3/8% per annum which is
payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on February 1, 1998. The Series B Notes are redeemable at the option
of HydroChem, in whole or in part, on or after August 1, 2002 at specified
redemption prices. In addition, until August 4, 2000, up to 35% of the Series B
Notes are redeemable at the option of HydroChem with the proceeds from one or
more equity offerings at a redemption price of 109.375% of the principal amount
thereof. A portion of the net proceeds from the sale of the Series A Notes was
used to repay indebtedness, accrued interest and fees under HydroChem's existing
senior debt and subordinated debt, and to fund a dividend to Holding which
Holding used to discharge accrued interest on its indebtedness and accrued
dividends on its preferred stock. The remaining proceeds were invested in
commercial paper and other interest bearing deposits with short-term maturities
and have been or are intended to be used for general corporate purposes and
funding potential acquisitions.
On December 31, 1997, HydroChem entered into the Credit Facility which
provides for unsecured borrowings of up to $25 million, subject to borrowing
base limitations. The term of the Credit Facility is three years, and any
borrowings thereunder bear interest at rates adjusted quarterly. Interest rates
are based on (i) a range from LIBOR plus 1.50% to LIBOR plus 2.50%, or, at the
discretion of HydroChem, (ii) a range from the prime rate to the prime rate plus
0.75%. In addition, a commitment fee of 0.25% to 0.50% per annum is payable
quarterly on the unborrowed portion of the Credit Facility. The specific rate
within each range depends on the Company's operating performance. The Credit
Facility requires the Company to meet certain customary financial ratios and
covenants and generally restricts the Company from pledging its assets.
Effective September 30, 1998, the credit agreement was amended to modify, among
other things, certain of these ratios and covenants. As of September 30, 1998,
HydroChem's borrowing base under the Credit Facility was $18.6 million, of which
$3.3 million had been drawn in the form of standby letters of credit principally
issued in connection with the Company's property and casualty insurance program.
At September 30, 1998, there were no other borrowings under the Credit Facility
and HydroChem had available unused borrowings of $15.3 million.
In connection with the Company's new headquarters and operating facilities in
the Houston, Texas area, HydroChem entered into the Construction Loan Agreement
on July 17, 1998. The Construction Loan Agreement provides for an interim
financing construction loan of up to $7.5 million which, under certain
conditions and at the option of HydroChem, is convertible to a term loan. The
loans are collateralized by first priority liens on the land and improvements.
The construction loan requires quarterly payments of interest, and matures on
the earlier of July 14, 1999 or, if converted, on the date of conversion to the
term loan. Interest rates on the construction loan are at the lender's
commercial loan rate less 0.50%. If converted, the resulting term loan matures
on September 30, 2006 and requires quarterly payments of principal and interest.
Interest rates on the term loan will be at LIBOR plus 1.75% adjusted quarterly.
On July 17, 1998, HydroChem also entered into the Interest Rate Swap. Under the
Interest Rate Swap, the Company's effective fixed borrowing rate for the term
loan will be 7.79%. The Construction Loan Agreement requires the Company to meet
certain customary financial ratios and covenants and generally restricts the
Company from
13
<PAGE>
transferring or pledging the facility's assets. At September 30, 1998, the
Company has borrowed $5.0 million under the Construction Loan Agreement.
For the nine months ended September 30, 1998, the Company used net cash of
$9.4 million for operating and investing activities, which consisted of $5.6
million provided by operating activities and $15.0 million used in investing
activities. For the nine months ended September 30, 1997, $182,000 of net cash
was provided by operating and investing activities, which consisted of $7.4
million provided by operating activities and $7.2 million used in investing
activities. Investing activities for both periods consisted primarily of
expenditures for property and equipment.
Expenditures for property and equipment for the nine months ended September
30, 1998 were $15.3 million. Of this amount, $3.0 million was used for vacuum
truck purchases, $4.0 million for purchases of other operating property, $1.5
million to implement new field and corporate information software and hardware
systems, and $6.8 million for land and construction costs for a new headquarters
and operating facility in the Houston, Texas area. Funds expended for the new
headquarters and operating facility consisted of $1.1 million for the purchase
of land and $5.7 million for related construction costs. Total construction
costs for the new facility are projected to be approximately $8.3 million.
HydroChem has entered into a construction loan, convertible under certain
conditions to a term loan, with a financial institution for $7.5 million of this
amount.
Management believes that cash and cash equivalents at September 30, 1998, net
cash expected to be provided by operating activities and funds available from
its existing credit facilities will be sufficient to meet its cash requirements
for operations and expenditures for property and equipment for the next twelve
months and the foreseeable future thereafter and to fund the pending acquisition
described below. (See Notes 2 and 3 of Notes to the Consolidated Financial
Statements.)
Pending Acquisition
HydroChem entered into an Amended and Restated Asset Purchase Agreement dated
as of September 8, 1998 to acquire all of the operating assets of Valley for
approximately $29.8 million plus the assumption of Valley's bank debt and
certain other liabilities. The transaction is subject to (i) completing
schedules to the definitive agreement, (ii) completing due diligence, and (iii)
obtaining regulatory and Valley stockholder approval. HydroChem intends to fund
the purchase price through a combination of its available cash and additional
borrowings under the Credit Facility. It is anticipated that the acquisition, if
successful, will be completed early in the first quarter of 1999.
Terminated Acquisition
On March 20, 1998, HydroChem signed a letter of intent to acquire all the
outstanding capital stock of an industrial cleaning company for a purchase price
of approximately $34.0 million ($30.0 million in cash and $4.0 million in
promissory notes). The parties were unable to agree on the terms of a definitive
agreement and, as a result, terminated negotiations. HydroChem incurred $300,000
of expenses relating to legal, accounting and other related services which were
provided in connection with related negotiation and due diligence efforts. These
expenses were recorded as a special charge in the three months ended June 30,
1998. (See Note 5 of Notes to the Consolidated Financial Statements.)
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. This could
result in a system failure or miscalculation if a computer program recognizes a
date of "00" as the year 1900 instead of 2000. The Company has assessed the Year
2000 issue with regard to its internal financial and operating systems as well
as certain third parties with which the Company has material relationships.
With regard to the Company's internal financial and operating systems,
HydroChem has acquired new software and hardware and is currently in the
implementation phase to resolve this issue by March 31, 1999. The Company is
14
<PAGE>
currently evaluating the need for various contingency plans. Costs of the new
software and hardware are estimated to be approximately $1.7 million.
The Company has identified certain third parties with which it has material
relationships to address the Year 2000 issue. These parties are primarily large
financial, telecommunication and information processing entities, customers,
vendors, and other third party suppliers. Certain of these third parties have
reported to the Company that they are on schedule with their projects to
remediate Year 2000 issues, and that they anticipate being Year 2000 compliant
on a timely basis. The Company intends to continue to monitor the progress of
these third parties and will develop contingency plans during 1999 in the event
one or more of these third parties fail to remediate their Year 2000 issues in
such a way as to materially affect the operations of the Company. Although there
can be no assurance, the Company has no reason to believe that the risk of such
third party failures having a material impact on the Company's operations is
anything other than remote.
15
<PAGE>
Part II. Other Information
Item 6Exhibits and Reports on Form 8-K
(a)Exhibits
Exhibit
Number Description
3.1 Certificate of Incorporation of HydroChem Industrial
Services, Inc., as amended through December 15, 1993.
(Exhibit 3.1 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
3.2 Certificate of Incorporation of HydroChem International,
Inc., as amended through October 4, 1994. (Exhibit 3.2 to
the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.3 By-Laws of HydroChem Industrial Services, Inc. (Exhibit 3.3
to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.4 By-Laws of HydroChem International, Inc. (Exhibit 3.4 to
the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
4.1 Purchase Agreement, dated as of July 30, 1997, by and among
HydroChem Industrial Services, Inc., HydroChem
International, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as Initial Purchaser, relating to
the 103/8% Series A Senior Subordinated Notes due 2007.
(Exhibit 4.1 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
4.2 Indenture, dated as of August 1, 1997, among HydroChem
Industrial Services, Inc., HydroChem International, Inc.,
as Guarantor, and Norwest Bank, Minnesota, N.A., as
Trustee. (Exhibit 4.2 to the Company's Registration
Statement on Form S-4, filed August 25, 1997, is hereby
incorporated by referenc .)
4.3 Registration Rights Agreement dated August 4, 1997, by and
among HydroChem Industrial Services, Inc., HydroChem
International, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as Initial Purchaser. (Exhibit 4.3
to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
10.1 HydroChem Holding, Inc. 1994 Stock Option Plan. (Exhibit
10.1 to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by
reference.)
10.2 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and J. Pat DeBusk.
(Exhibit 10.2 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
10.3 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and Gary Noto. (Exhibit
10.3 to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by
reference.)
16
<PAGE>
10.4 Employment Agreement dated November 1, 1992 between
HydroChem Industrial Services, Inc. and Craig Kaple.
(Exhibit 10.4 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
10.5 Employment Offer Letter dated June 3, 1996 from HydroChem
Industrial Services, Inc. to Selby F. Little, III. (Exhibit
10.6 to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by
reference.)
10.6 Letter Agreement regarding severance compensation dated
October 31, 1997 between HydroChem Industrial Services,
Inc. and Pelham H. A. Smith. (Exhibit 10.7 to the Company's
Form 10-Q, filed November 14, 1997, is hereby incorporated
by reference.)
10.7 Employment Agreement dated December 15, 1993 by and among
HydroChem Holding, Inc., HydroChem Industrial Services,
Inc. and B. Tom Carter, Jr., as amended through December 9,
1996. (Exhibit 10.5 to the Company's Registration Statement
on Form S- 4, filed August 25, 1997, is hereby incorporated
by reference.)
10.8 Fourth Amendment to Employment Agreement dated April 9,
1998 by and among HydroChem Holding, Inc., HydroChem
Industrial Services, Inc. and B. Tom Carter, Jr. (Exhibit
10.8 to the Company's Form 10-Q, filed May 14, 1998, is
hereby incorporated by reference.)
10.9 Secured Promissory Note dated April 9, 1998 from B. Tom
Carter, Jr. to HydroChem Industrial Services, Inc. (Exhibit
10.9 to the Company's Form 10-Q, filed May 14, 1998, is
hereby incorporated by reference.)
10.10 Pledge Agreement dated April 9, 1998 between HydroChem
Industrial Services, Inc. and B. Tom Carter, Jr. (Exhibit
10.10 to the Company's Form 10-Q, filed May 14, 1998, is
hereby incorporated by reference.)
10.11 Lease Agreement dated December 4, 1979 between HydroChem
Industrial Services, Inc. and Gracey Corporation, as
amended through May 29, 1996. (Exhibit 10.7 to the
Company's Registration Statement on Form S-4, filed August
25, 1997, is hereby incorporated by reference.)
10.12 Form of Indemnification Agreement entered into with
directors and officers. (Exhibit 10.8 to the Company's
Amendment No. 1 to the Registration Statement on Form S-4,
filed October 3, 1997, is hereby incorporated by
reference.)
10.13 Credit Agreement dated December 31, 1997 among HydroChem
Industrial Services, Inc. and NationsBank, N. A. and
financial institutions named in the Credit Agreement.
(Exhibit 10.10 to the Company's Form 10-K, filed March 30,
1998, is hereby incorporated by reference.)
10.14 Letter Agreement dated March 6, 1998 regarding Credit
Agreement dated December 31, 1997 between HydroChem
Industrial Services, Inc. and NationsBank, N.A. (Exhibit
10.11 to the Company's Form 10-K, filed March 30, 1998, is
hereby incorporated by reference.)
10.15 Letter Agreement dated August 14, 1998 regarding Credit
Agreement dated December 31, 1997 between HydroChem
Industrial Services, Inc. and NationsBank, N.A. (Filed
herewith.)
10.16 Amendment No. 1 dated as of September 30, 1998 to Credit
Agreement dated as of December 31, 1997 between HydroChem
Industrial Services, Inc., NationsBank, N.A. and financial
institutions named in the Credit Agreement. (Filed
herewith.)
17
<PAGE>
10.17 Loan Agreement dated July 17, 1998 between HydroChem
Industrial Services, Inc. and Bank One, Texas, National
Association. (Exhibit 10.15 to the Company's Form 10-Q,
filed August 14, 1998, is hereby incorporated by
reference.)
10.18 International Swap Dealers Association, Inc. Master
Agreement and Schedule dated July 17, 1998 between
HydroChem Industrial Services, Inc. and Bank One, Texas,
National Association. (Exhibit 10.16 to the Company's Form
10-Q, filed August 14, 1998, is hereby incorporated by
reference.)
10.19 Amended and Restated Asset Purchase Agreement by and among
HydroChem Industrial Services, Inc., Valley Systems of
Ohio, Inc. and Valley Systems, Inc. dated as of
September 8, 1998. (Filed herewith.)
10.20 Letter agreement dated September 8, 1998 from the principal
stockholders of Valley Systems, Inc. (Filed herewith.)
27.1 Financial Data Schedule. (Filed herewith.)
99.1 Press Release dated September 9, 1998 regarding agreement
to acquire the operating assets and certain liabilities of
Valley Systems, Inc. (Filed herewith)
(b)Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDROCHEM INDUSTRIAL SERVICES, INC.
Date: November 16, 1998 By: /s/ Selby F. Little, III
--------------------------------------
Selby F. Little, III, Executive Vice
President and Chief Financial Officer
HYDROCHEM INTERNATIONAL, INC.
Date: November 16, 1998 By: /s/ Selby F. Little, III
--------------------------------------
Selby F. Little, III, Executive Vice
President and Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
10.15 Letter Agreement dated August 14, 1998 regarding Credit Agreement dated
December 31, 1997 between HydroChem Industrial Services, Inc. and
NationsBank, N.A.
10.16 Amendment No. 1 dated as of September 30, 1998 to Credit Agreement dated
as of December 31, 1997 between HydroChem Industrial Services, Inc.,
NationsBank, N.A. and financial institutions named in the Credit
Agreement.
10.19 Amended and Restated Asset Purchase Agreement by and among HydroChem
Industrial Services, Inc., Valley Systems of Ohio, Inc. and Valley
Systems, Inc. dated as of September 8, 1998.
10.20 Letter agreement dated September 8, 1998 from the principal stockholders
of Valley Systems, Inc.
27.1 Financial Data Schedule
99.1 Press Release dated September 9, 1998 regarding agreement to acquire the
operating assets and certain liabilities of Valley Systems, Inc.
20
August 14, 1998
Mr. Selby F. Little, III
Chief Financial Officer
HydroChem Industrial Services, Inc.
6210 Rothway
Houston, TX 77040
Re: Credit Agreement dated as of December 31, 1997 ("Agreement") among
HydroChem Industrial Services, Inc. ("Borrower") and NationsBank, N.A., as
successor in interest by merger to NationsBank of Texas, N.A. (as "Agent"
and "Bank")
Dear Mr. Little:
This letter agreement ("Letter Agreement") references the Agreement defined
above. Any capitalized terms used herein shall have the same meanings assigned
to them in the Agreement unless otherwise defined herein.
In your letter dated January 14, 1998 (the "Vacuum Truck Letter"), you described
the Borrower's plan to invest approximately $5 million to purchase vacuum
trucks. It is agreed that, for the purpose of calculating Capital Expenditures,
the Borrower may exclude the lesser of (i) $3,000,000 and (ii) the actual
expenditures made during 1998 which are described in the Vacuum Truck Letter.
Also, the Borrower may exclude the lesser of (i) $10,500,000 and (ii) the actual
expenditures made prior to December 31, 1998 relating to the purchase and
construction of land, plant, equipment and furnishings for the Borrower's new
headquarters facility in Deer Park, Texas. In order to make these exclusions,
the Borrower should detail the above expenditures in an attachment to the
Borrowing Base and Compliance Certificate as incurred.
Except as specifically described herein, the Agreement and the other Credit
Documents remain in full force and effect as originally executed. Nothing herein
shall act as a waiver of any of the Bank's rights under the Credit Documents as
amended, including the waiver of any Default, however denominated. The Borrower
must continue to comply with the terms of the Credit Documents, as amended.
THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
<PAGE>
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
HYDROCHEM INDUSTRIAL SERVICES,
INC.
By: /s/ Selby F. Little, III
Name: Selby F. Little, III
Title: Executive Vice President & Chief
Financial Officer
AGENT:
NATIONSBANK, N.A., as Agent
By: /s/ William T. Griffin
William T. Griffin
Vice President
BANKS:
NATIONSBANK, N.A.
By: /s/ William T. Griffin
William T. Griffin
Vice President
AMENDMENT NO. 1
This Amendment No. 1 dated as of September 30, 1998 ("Agreement") is
among HydroChem Industrial Services, Inc., a Delaware corporation ("Borrower"),
the banks party to the Credit Agreement described below ("Banks"), and
NationsBank, N.A. (successor in interest by merger to NationsBank of Texas,
N.A.), as Agent for the Banks ("Agent").
INTRODUCTION
A. The Borrower, the Agent and the Banks are parties to the Credit
Agreement dated as of December 31, 1997, as amended by the Letter Agreement
dated as of March 6, 1998 and the Letter Agreement dated as of August 14, 1998
(as so amended, the "Credit Agreement").
B. The Borrower has requested that the Banks agree to make certain
amendments to the Credit Agreement.
THEREFORE, the Borrower, the Agent and the Banks hereby agree as
follows:
Section 1. Definitions; References. Unless otherwise defined in this
Agreement, terms used in this Agreement which are defined in the Credit
Agreement shall have the meanings assigned to such terms in the Credit
Agreement.
Section 2. Amendments.
(a) Section 1.1. Section 1.1 is amended by (i) deleting the
definition of "EBIT", (ii) adding the new definition "Currency Hedge Agreement",
and (iii) deleting the definitions of "Applicable Margin", "EBITDA" and
"Permitted Debt" replacing them with the following new definitions in
alphabetical order:
"Applicable Margin" means, with respect to interest rates, commitment
fees, and letter of credit fees and as of any date of its determination, an
amount equal to the percentage amount per annum set forth in the table below
opposite the applicable ratio of (a) the consolidated EBITDA of the Borrower as
of the end of the fiscal quarter then most recently ended for the four fiscal
quarters then most recently ended to (b) the consolidated Interest Charges of
the Borrower as of the end of the fiscal quarter then most recently ended for
the four fiscal quarters then most recently ended, as determined below:
-1-
<PAGE>
<TABLE>
<CAPTION>
EBITDA to Applicable Applicable Applicable Applicable
Interest Margin for Margin for Letter of Margin for
Charges LIBOR Tranches Prime Rate Credit Fees Commitment
Ratio -------------- Tranches ----------- Fees
- - ----- -------- ----
<S> <C> <C> <C> <C>
<=1.75 2.50% .75% 2.25% .50%
<=2.00 but >1.75 2.00% .25% 1.75% .375%
<=2.50 but >2.00 1.75% 0.00% 1.50% .30%
>2.50 1.50% 0.00% 1.25% .25%
</TABLE>
The Agent shall periodically determine the Applicable Margin based upon the most
recent financial statements of the Borrower dated as of the end of a fiscal
quarter (including the fourth fiscal quarter) delivered to the Agent pursuant to
Section 5.2(b) (and in the case of the fourth fiscal quarter of each fiscal year
of the Borrower, subject to additional adjustment in accordance with the
following paragraph based upon audited financial statements delivered pursuant
to Section 5.2(a)). In addition, the Applicable Margins for LIBOR Tranches and
Prime Rate Tranches set forth above for periods in which the EBITDA to Interest
Charges Ratio is less than or equal to 1.75 shall be reduced by .25% if the
Covenant Reduction Date shall have occurred.
Any such adjustments to the Applicable Margin (other than adjustments resulting
from the occurrence of the Covenant Reduction Date, which adjustments shall be
effective concurrent with the Covenant Reduction Date) shall become effective on
the 45th day following the last day of each fiscal quarter (including the fourth
fiscal quarter); provided that; any additional adjustments to the Applicable
Margin shall be made on the 90th day following the last day of the fourth fiscal
quarter of the Borrower; provided, further, that if such financial statements
are not delivered when required hereunder, the Applicable Margin shall increase
to the maximum percentage amount set forth in the table above from such 45th day
following the last day of the applicable quarter until such financial statements
are received by the Agent. Upon any change in the Applicable Margin, the Agent
shall promptly notify the Borrower and the Banks of the new Applicable Margin.
"Covenant Reduction Date" means the date that is the earlier to occur of
(a) the date that the Valley Systems Acquisition is consummated and (b) June 30,
1999.
"Currency Hedge Agreements" means any swap, hedge, cap, collar, or
similar arrangement between the Borrower and any Bank (or any Affiliate of any
Bank or such other Person that has been approved by the Agent) providing for the
exchange of risks related to price changes in the foreign currency exposure or
liabilities.
-2-
<PAGE>
"EBITDA" means, with respect to any Person and for any period of its
determination, (a) the sum of (i) the consolidated net income of such Person for
such period plus (ii) the consolidated interest expense of such Person for such
period plus (iii) the income taxes of such Person accrued during such period
plus (iv) the consolidated depreciation and amortization of such Person for such
period minus (b) any interest income and extraordinary gains of such Person for
such period and included in the calculation of consolidated net income; provided
that, EBITDA for periods occurring prior to December 31, 1998 shall exclude
certain non-recurring expenditures in an aggregate amount not to exceed
$1,000,000.
"Permitted Debt" means all of the following Debt:
(a) Debt in the form of the Credit Obligations;
(b) Debt existing at the date of this Agreement as set forth on Schedule
II;
(c) the Senior Subordinated Notes (and guaranties executed by the
Borrower's Subsidiaries with respect to such Senior Subordinated Notes);
(d) intercompany Debt between the Borrower and (i) any of the Guarantors
or (ii) any Subsidiary that has had at least 66-2/3% of its capital stock
pledged to the Agent for the benefit of the Banks pursuant to Section 5.19, in
each case subordinated on terms acceptable to the Agent and Majority Banks;
(e) Debt constituting purchase money debt incurred with respect to the
purchase and construction of real property in an aggregate outstanding principal
amount not to exceed $8,500,000; and
(f) Debt constituting purchase money debt incurred with respect to the
purchase of equipment and obligations under Capital Leases in an aggregate
outstanding principal amount for all such Debt under this clause (e) not to
exceed $5,000,000.
(g) Debt under any Interest Hedge Agreement or Currency Hedge Agreement.
"Valley Systems Acquisition" means the acquisition by the Borrower or any
of its wholly- owned Subsidiaries of either (a) all or substantially all of the
assets of Valley Systems, Inc. and Valley Systems of Ohio, Inc. or (b) all of
the capital stock of Valley Systems, Inc. and Valley Systems of Ohio, Inc., in
either case on terms and conditions, and subject to documentation, acceptable to
the Agent and the Majority Banks in their sole reasonable discretion.
-3-
<PAGE>
(b) Section 2.3. Section 2.3 is amended by deleting the
percentage .25% and replacing it with the phrase "the Applicable Margin for
Commitment Fees".
(c) Section 5.5. Clauses (a), (b) and (d) of Section 5.5 are
hereby deleted and replaced in their entirety with the following new clauses
(a), (b) and (d):
(a) Net Worth. The Borrower shall not permit the
consolidated Net Worth of the Borrower as of the last day of each
fiscal quarter to be less than the sum of (i) $13,500,000, plus
(ii) 50% of the cumulative quarterly consolidated net income of
the Borrower since December 31, 1998 for each fiscal quarter
ending after that date during which the Borrower has positive
consolidated net income plus (iii) 80% of the net proceeds
resulting from any sale or issuance of any stock of the Borrower
or its Subsidiaries since December 31, 1998.
(b) Maximum Funded Debt to Proforma EBITDA Ratio.
As of the last day of each fiscal quarter of the Borrower, the
Borrower shall not permit the ratio of (i) the consolidated
Funded Debt of the Borrower as of the end of such fiscal quarter
to (ii) the consolidated EBITDA of the Borrower for the preceding
four fiscal quarters then ended, to be greater than the minimum
ratio set forth in the table below for the applicable quarter end
period set forth in the table below (provided that in calculating
the foregoing, the financial results and balance sheet effects of
any Acquisitions may, if requested by the Borrower and approved
by the Majority Banks (including approval of any pro forma
financial statements), be included in such calculations on a
proforma basis for the full period and on the relevant dates.
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
Prior to and including
December 31, 1998 6.50 to 1.00
March 31, 1999 6.25 to 1.00
June 30, 1999 6.00 to 1.00
September 30, 1999
and thereafter 5.50 to 1.00
</TABLE>
Notwithstanding the foregoing, if the Covenant Reduction Date shall occur before
June 30, 1999, the Maximum Ratio shall be 6.00 to 1.00 until the quarter period
ending September 30, 1999, at
-4-
<PAGE>
which time (and all subsequent quarter end periods) the Maximum Ratio in effect
shall be 5.50 to 1.00
(c) Minimum Interest Charge Coverage Ratio. As of
the last day of each fiscal quarter, the Borrower shall not
permit the ratio of (i) the consolidated EBITDA of the Borrower
for the preceding four fiscal quarters then ended to (ii)
Interest Charges for the preceding four fiscal quarters then
ended to be less than the minimum ratio set forth in the table
below for the applicable quarter end periods set forth in the
table below.
<TABLE>
<CAPTION>
Period Minimum Ratio
------ -------------
<S> <C>
Prior to and including
June 30, 1999 1.50 to 1.00
September 30, 1999 1.75 to 1.00
Thereafter 2.00 to 1.00
</TABLE>
(d) Section 5.9. The phrases currently contained in clause
(ii)(B) of Section 5.9 are hereby deleted and replaced in their entirety with
the phrase "the Agent and Majority Banks have granted prior approval in writing
for such Acquisition;".
(e) Exhibits. Exhibit A to the Credit Agreement is deleted and
replaced with Exhibit A hereto.
Section 3. Representations and Warranties. The Borrower represents and
warrants to the Agent and the Banks that:
(a) The representations and warranties set forth in the Credit
Agreement and in the other Credit Documents are true and correct in all material
respects as of the date of this Agreement;
(b) The execution, delivery and performance of this Agreement are
within the corporate power and authority of the Borrower and have been duly
authorized by appropriate proceedings and (ii) this Agreement constitutes a
legal, valid, and binding obligation of the Borrower enforceable in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of creditors
generally and general principles of equity;
(c) As of the effectiveness of this Agreement, no Default or
Event of Default has occurred and is continuing; and
-5-
<PAGE>
(d) The Borrower estimates that the non-recurring expenditures
deducted in calculating its EBITDA shall consist of (i) approximately $200,000
in costs and expenses incurred by the Borrower and its Subsidiaries in
connection with the relocation of its corporate headquarters to Deer Park,
Texas, (ii) approximately $350,000 in costs and expenses incurred by the
Borrower and its Subsidiaries as a result of the due diligence performed in
connection with certain acquisitions that did not close, and (iii) approximately
$450,000 in severance costs and expenses accrued prior to December 31, 1998 as a
result of personnel reductions.
Section 4. Effectiveness. This Agreement shall become effective and the
Credit Agreement shall be amended as provided in this Agreement upon the
occurrence of the following conditions precedent:
(a) The Borrower, the Agent, and the Banks shall have delivered
duly and validly executed originals of this Agreement to the Agent;
(b) the representations and warranties in this Agreement shall be
true and correct in all material respects;
(c) the Borrower shall have delivered a certificate of its
Secretary or Assistant Secretary certifying its certificate of incorporation,
bylaws, resolutions and incumbency and in form and substance satisfactory to the
Agent and the Banks; and
(d) the Borrower shall have paid (i) an amendment fee to the
Banks in an aggregate amount equal to $15,000 and (ii) all amounts and expenses
required to be paid in connection with this Agreement and the amendments
evidenced hereby.
Section 5. Consent of Guarantor. The Guarantor hereby consents to the
amendments and modifications contained in this Amendment (and the consummation
of the transactions contemplated thereby) and confirms that the Guaranty shall
continue to guarantee the "Guaranteed Debt" (as defined in such Guaranty) as
modified hereby.
Section 6. Valley Systems, Inc. Each of the Agent and the Majority Banks
hereby consents to the acquisition by the Borrower or any of its wholly-owned
Subsidiaries of either (a) all or substantially all of the assets of Valley
Systems, Inc. and Valley Systems of Ohio, Inc. or (b) all of the capital stock
of Valley Systems, Inc. and Valley Systems of Ohio, Inc.; provided that, such
consent is only effective if, in either case, such acquisition is on terms and
conditions, and subject to documentation, acceptable to the Agent and the
Majority Banks in their sole reasonable discretion.
-6-
<PAGE>
Section 7. Choice of Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.
Section 8. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original.
PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, A
LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE LOAN AGREEMENT EXCEEDS
$50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE LOAN AGREEMENT IS IN WRITING AND
SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY'S AUTHORIZED REPRESENTATIVE.
THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE
PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT,
AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED
INTO THE LOAN AGREEMENT. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS
DEFINED IN THE CREDIT AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the 30th day of September, 1998.
BORROWER:
HYDROCHEM INDUSTRIAL SERVICES, INC.
By: /s/ Selby F. Little, III
Name:Selby F. Little, III
Title:Executive Vice President &
Chief Financial Officer
-7-
<PAGE>
AGENT:
NATIONSBANK, N.A.
By: /s/ William T. Griffin
Name:William T. Griffin
Title:Vice President
BANKS:
NATIONSBANK, N.A.
By: /s/ William T. Griffin
Name:William T. Griffin
Title:Vice President
Agreed to and Accepted as of the
30th day of September, 1998
HYDROCHEM INTERNATIONAL, INC.
By: /s/ Selby F. Little, III
Name:Selby F. Little, III
Title:Executive Vice President &
Chief Financial Officer
-8-
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
By and Among
HYDROCHEM INDUSTRIAL SERVICES, INC.
as Buyer
and
VALLEY SYSTEMS OF OHIO, INC.
as a Seller
and
VALLEY SYSTEMS, INC.
as a Seller and Sole Stockholder of Valley Systems of Ohio, Inc.
<PAGE>
TABLE OF CONTENTS
Definitions................................................................. 1
affiliate............................................................. 1
Agreement............................................................. 1
Assets................................................................ 1
Bill of Sale, Assignment and Assumption Agreement..................... 1
Board ................................................................ 1
Business Property Rights.............................................. 1
Buyer ................................................................ 1
Buyer Indemnitees..................................................... 2
Buyer's Ceiling Amount................................................ 2
CERCLA................................................................ 2
Claim ................................................................ 2
Closing............................................................... 2
Closing Balance Sheet................................................. 2
Closing Date.......................................................... 2
Closing Financial Statements.......................................... 2
Closing Schedules..................................................... 2
Code ................................................................ 2
control............................................................... 2
Customer.............................................................. 2
Delivery Date......................................................... 2
Employee.............................................................. 2
Encumbrances.......................................................... 2
Environment........................................................... 2
Environmental Contamination........................................... 2
Environmental Due Diligence Review.................................... 2
Environmental Law..................................................... 3
Environmental Liabilities............................................. 3
Environmental Remediation............................................. 3
ERISA ................................................................ 3
Escrow Agent.......................................................... 3
Escrow Agreement...................................................... 3
Escrow Fund........................................................... 3
Exchange Act.......................................................... 3
Expenses.............................................................. 3
Facilities............................................................ 3
Former Facilities..................................................... 3
Financial Statements.................................................. 3
Floor Amount.......................................................... 3
fraud ................................................................ 3
i
<PAGE>
GAAP ................................................................ 3
Governmental Body..................................................... 3
Hazardous Materials................................................... 4
HSR Act............................................................... 4
Indemnified Party..................................................... 4
Indemnifying Party.................................................... 4
knowledge............................................................. 4
Leases................................................................ 4
Legal Requirement..................................................... 4
Losses................................................................ 4
material.............................................................. 4
Order ................................................................ 4
Person................................................................ 5
Preliminary Schedules................................................. 5
Proceeding............................................................ 5
Proxy Materials....................................................... 5
Purchase Price........................................................ 5
Receivables Guaranty.................................................. 5
Release............................................................... 5
Rules ................................................................ 5
Schedules............................................................. 5
SEC ................................................................ 5
SEC Reports........................................................... 5
Securities Act........................................................ 5
Seller................................................................ 5
Seller's Ceiling Amount............................................... 5
Stockholders.......................................................... 5
Superior Takeover Proposal............................................ 5
Termination Date...................................................... 5
Third Party........................................................... 5
Third Party Claim..................................................... 6
Threatened............................................................ 6
VSI ................................................................ 6
WARN ................................................................ 6
1. Purchase and Sale of Assets; Assumption of Specified Liabilities...... 6
1.1 Agreement to Purchase and Sell.................................. 6
1.2 Purchase Price; Payment. ...................................... 9
1.3 Assumption of Specified Liabilities............................ 10
1.4 Non-Assumption of Certain Liabilities.......................... 10
1.5 Stockholder Approval; Voting................................... 11
1.6 Closing. ..................................................... 12
1.7 Delivery of Schedules.......................................... 12
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<PAGE>
1.8 Allocation of Purchase Price................................... 12
1.9 Closing Balance Sheet Adjustment............................... 12
2. Representations and Warranties of Seller and VSI..................... 13
2.1 Existence; Good Standing; Corporate Authority;
Compliance With Law............................................ 13
2.2 Authorization, Validity and Effect of Agreements............... 14
2.4 Affiliated Entities............................................ 15
2.5 Jurisdictions.................................................. 15
2.6 Records........................................................ 15
2.7 Bank Accounts.................................................. 15
2.8 Financial Statements. ........................................ 16
2.9 Undisclosed Liabilities........................................ 17
2.10 Absence of Certain Changes or Events........................... 17
2.11 Taxes.......................................................... 18
2.12 Real Property.................................................. 18
2.13 Personal Property.............................................. 19
2.14 Title to Property; Encumbrances................................ 19
2.15 Insurance...................................................... 19
2.16 Business Property Rights....................................... 20
2.17 Collective Bargaining Agreements............................... 21
2.18 Employees...................................................... 21
2.19 Other Contracts................................................ 22
2.20 No Breach or Default........................................... 22
2.21 Litigation..................................................... 22
2.22 Accounts Receivable............................................ 23
2.23 Inventories and Supplies....................................... 23
2.24 Environmental Matters.......................................... 23
2.25 Customers and Suppliers........................................ 24
2.26 No Brokers..................................................... 25
2.27 Indemnities and Guaranties..................................... 25
2.28 No Misrepresentation or Omission............................... 25
2.29 Survival of Representations and Warranties..................... 25
3. Representations and Warranties of Buyer.............................. 25
3.1 Existence; Good Standing; Corporate Authority;
Compliance With Law............................................ 25
3.2 Authorization, Validity and Effect of Agreements. ............ 26
3.3 Survival of Representations and Warranties..................... 26
4. Indemnification...................................................... 27
4.1 Indemnification by Seller and VSI.............................. 27
4.2 Indemnification by Buyer. .................................... 28
iii
<PAGE>
4.3 Conditions of Indemnification.................................. 29
4.4 Monetary Limits of Indemnification............................. 30
4.5 Environmental Remediation...................................... 31
5. Other Covenants and Agreements....................................... 32
5.1 Guaranty of Receivables........................................ 32
5.2 Restrictive Covenants.......................................... 33
5.3 Escrow......................................................... 35
5.4 Conduct of the Business........................................ 37
5.5 Due Diligence; Access to Information and Customers............. 39
5.6 Acquisition Proposals.......................................... 40
5.7 Public Announcements........................................... 41
5.8 Notification of Certain Matters................................ 41
5.9 Best Efforts................................................... 41
5.10 Execution of Additional Documents.............................. 42
5.11 Fees and Expenses.............................................. 42
5.12 Limitation of Liability........................................ 42
5.13 HSR Act Filings................................................ 42
5.14 Employees...................................................... 43
5.15 Dispute Resolution............................................. 43
6. Conditions of Closing................................................ 44
6.1 Buyer's Conditions to Closing.................................. 44
6.2 Seller's and VSI's Conditions to Closing....................... 46
7. Termination and Abandonment.......................................... 48
7.1 Reasons for Termination........................................ 48
7.2 Procedure Upon and Effect of Termination....................... 49
8. Miscellaneous........................................................ 49
8.1 Notices. ..................................................... 49
8.2 Binding Effect; Benefits....................................... 50
8.3 Entire Agreement............................................... 50
8.4 Governing Law.................................................. 51
8.5 Survival....................................................... 51
8.6 Counterparts................................................... 51
8.7 Headings....................................................... 51
8.8 Waivers........................................................ 51
8.9 Incorporation of Exhibits and Schedules........................ 52
8.10 Severability................................................... 52
8.11 Assignability.................................................. 52
8.12 Drafting....................................................... 52
8.13 References..................................................... 52
iv
<PAGE>
8.14 Calendar Days, Weeks and Months................................ 53
8.15 Gender; Plural and Singular.................................... 53
8.16 Cumulative Rights.............................................. 53
8.17 No Implied Covenants........................................... 53
8.18 Attorneys' Fees................................................ 53
8.19 Indirect Action................................................ 53
SCHEDULES...................................................................55
EXHIBITS....................................................................56
EXHIBIT "A"
BILL OF SALE, ASSIGNMENT
ANDASSUMPTION AGREEMENT............................................A - 1
EXHIBIT "B"
GUARANTY AGREEMENT.................................................B - 1
EXHIBIT "C"
ESCROW AGREEMENT...................................................C - 1
EXHIBIT "D"
SELLER'S OPINION...................................................D - 1
EXHIBIT "E"
BUYER'S OPINION....................................................E - 1
v
<PAGE>
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
This Amended and Restated Asset Purchase Agreement is entered into as of
the 8th day of September 1998, by and among HydroChem Industrial Services, Inc.,
a Delaware corporation ("Buyer"), Valley Systems, Inc., a Delaware corporation
("VSI") and Valley Systems of Ohio, Inc. an Ohio corporation and wholly-owned
subsidiary of VSI ("Seller").
WHEREAS, Buyer and VSI have entered into that certain Asset Purchase
Agreement dated September 8, 1998 (the "Purchase Agreement"); and
WHEREAS, the assets intended to be purchased pursuant to the Purchase
Agreement (other than certain assets which are owned by VSI) are the assets of
Seller and the obligations and liabilities intended to be assumed by Buyer
pursuant to the Purchase Agreement are the obligations and liabilities of Seller
as well as VSI; and
WHEREAS, VSI is willing to be jointly and severally responsible with
Seller for any obligations of Seller which have arisen or may arise under the
Purchase Agreement; and
WHEREAS, the parties hereto desire to amend and restate the Purchase
Agreement in light of the foregoing and to make such other modifications as are
provided for herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
Definitions
For purposes of this Agreement, the following terms have the following
meanings.
"affiliate"--as defined in Section 4.1.
"Agreement"--this Asset Purchase Agreement.
"Assets"--as defined in Section 1.1.1.
"Bill of Sale, Assignment and Assumption Agreement"--as defined in Section
1.1.3.
"Board"--as defined in Section 1.5.
"Business Property Rights"--as defined in Section 2.16.2.
1
<PAGE>
"Buyer"--HydroChem Industrial Services, Inc., a Delaware corporation.
"Buyer Indemnitees"--as defined in Section 4.1.
"Buyer's Ceiling Amount"--as defined in Section 4.4.2.
"CERCLA"--the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
"Claim"--as defined in Section 4.3.
"Closing"--as defined in Section 1.6.
"Closing Balance Sheet"--as defined in Section 2.8.5.
"Closing Date"--as defined in Section 1.6.
"Closing Financial Statements"--as defined in Section 2.8.5.
"Closing Schedules"--as defined in Section 1.7.
.
"Code"--the Internal Revenue Code of 1986, as amended, and the regulations
and rules issued pursuant thereto, as amended.
"control"--as defined in Section 4.1.
"Customer"--as defined in Section 5.2.1.
"Delivery Date"--as defined in Section 1.7.
"Employee"--any employee of VSI or Seller.
"Encumbrances"--options, indentures, mortgages, leases, licenses,
restrictions (other than restrictions under applicable securities laws), liens,
charges, assessments, pledges, security interests, adverse claims, equities,
limitations, community property interests, conditions, equitable interests,
rights of first refusal, easements, servitudes or other encumbrances of any
kind, including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable water, ocean waters, streams, ponds, drainage basins, and
wetlands), ground water, sediments, ambient air and natural resources.
2
<PAGE>
"Environmental Contamination"--as defined in Section 4.5.1.
"Environmental Due Diligence Review"--as defined in Section 5.5.2.
"Environmental Law"--any federal, state, or local law that governs
protection of the Environment, including, without limitation, those laws
relating to the Release, storage or handling of Hazardous Materials; those
relating to the treatment, storage, transport, disposal, or other management of
waste materials of any kind, and those relating to the protection of
Environmentally sensitive areas.
"Environmental Liabilities"--any costs, damages, expense, fine, penalty,
costs of investigation and remediation or any other liability arising from or
under any Environmental Law.
"Environmental Remediation"--as defined in Section 4.5.2.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Agent"--as defined in Section 5.3.1
"Escrow Agreement"--as defined in Section 5.3.1.
"Escrow Fund"--as defined in Section 1.2.
"Exchange Act"--as defined in Section 2.8.1.
"Expenses"--as defined in Section 5.11.
"Facilities"--any real property, leaseholds, or other interests currently
owned or operated by VSI or Seller and any buildings, plants or structures
currently owned or operated by VSI or Seller.
"Former Facilities"--any real property, leaseholds, or other interests
formerly owned or operated by VSI or Seller and any buildings, plants or
structures formerly owned or operated by VSI or Seller.
"Financial Statements"--as defined in Section 2.8.4.
"Floor Amount"--as defined in Section 4.4.
"fraud"--fraud perpetrated or alleged to have been perpetrated by an
Indemnifying Party against an Indemnified Party.
3
<PAGE>
"GAAP"--United States generally accepted accounting principles, applied on
a consistent basis.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental authority of any nature (including any governmental
agency, branch, department, or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Hazardous Materials"--any "hazardous substance," "pollutant or
contaminant," and "petroleum" and "natural gas liquids," as those terms are
defined or used in Section 101 of CERCLA, and any other substances regulated
because of their effect or potential effect on public health and/or the
Environment including, without limitation, PCB's, lead paint, asbestos, and
radioactive materials.
"HSR Act"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Indemnified Party"--as defined in Section 4.3.
"Indemnifying Party"--as defined in Section 4.3.
"knowledge"--the actual knowledge of any director, officer, regional
manager, or branch manager of VSI or Seller.
"Leases"--as defined in Section 2.12.2.
"Legal Requirement"--any applicable federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"Losses"--as defined in Section 4.1.
"material"--an item is "material" if its presence or absence, as required
by the context, would have a material adverse effect upon the assets, financial
condition, results of operations, business or
4
<PAGE>
affairs of a Person and any affiliates of such Person with whom such Person, in
accordance with GAAP, consolidates financial statements, taken as a whole.
"Order"--any award, decision, injunction, judgment, order, ruling, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Preliminary Schedules"--as defined in Section 1.7.
.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
inquiry, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Proxy Materials"--as defined in Section 1.5.
"Purchase Price"--as defined in Section 1.2.
"Receivables Guaranty"--as defined in Section 5.1.
"Release"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, pumping, pouring, emptying, or injecting into the
Environment, whether intentional or unintentional.
"Rules"--as defined in Section 5.15.
"Schedules"--all Schedules to this Agreement, including the Preliminary
Schedules and the Closing Schedules.
"SEC"--as defined in Section 2.8.2.
.
"SEC Reports"--as defined in Section 2.8.2.
"Securities Act"--as defined in Section 2.8.1.
"Seller"--Valley Systems of Ohio, Inc., an Ohio corporation (including all
prior subsidiaries).
"Seller's Ceiling Amount"--as defined in Section 4.4.1.
5
<PAGE>
"Stockholders"--Rollins Investment Fund; Rollins Holding Company, Inc.;and
their respective affiliates.
"Superior Takeover Proposal"--as defined in Section 5.6.
"Termination Date"--as defined in Section 5.4.1.
"Third Party"--as defined in Section 5.6.
"Third Party Claim"--as defined in Section 4.3.
"Threatened"--a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand, notice or statement has been
made (orally, to the knowledge of Seller, or in writing).
"VSI"--Valley Systems, Inc., a Delaware corporation (including all prior
subsidiaries).
"WARN"--as defined in Section 2.18.7.
1. Purchase and Sale of Assets; Assumption of Specified Liabilities.
1.1 Agreement to Purchase and Sell.
1.1.1 Upon the terms and subject to the conditions set forth
herein and upon the representations and warranties made herein by
each of the parties hereto, at the Closing (as such term is
hereinafter defined), each of VSI and Seller respectively shall
sell, grant, convey, assign, transfer and deliver to Buyer, and
Buyer shall purchase and acquire from each of VSI and Seller
respectively, all of the respective assets and properties of each of
VSI and Seller of every kind, nature and description (wherever
located), as the same shall exist on the Closing Date, except those
assets and properties specifically excluded pursuant to Section
1.1.2 hereof (said assets and properties so to be sold, granted,
conveyed, transferred, assigned and delivered to Buyer being
hereinafter collectively referred to as the "Assets"). Without
limiting the generality of the foregoing, the Assets shall include,
but shall not be limited to, the following respective assets and
properties of each of VSI and Seller:
(i) all real property, interests in real property
(including, without limitation, leases), and structures and
improvements located on real property, and all the easements
and uses which benefit any such real property;
(ii) all notes and accounts receivable;
6
<PAGE>
(iii) all machinery, inventories, inventories of parts,
computers, furniture, furnishings, fixtures, office supplies
and equipment, automobiles, trucks, vehicles, returnable
containers, tools and parts, and work in process;
(iv) all technology, know-how, designs, devices,
processes, methods, inventions, drawings, schematics,
specifications, standards, trade secrets and other proprietary
information, and all patents and applications therefor and all
trademarks and trade names, trademark and trade name
registrations, service marks and service mark registrations,
copyrights and copyright registrations, the applications
therefor and the licenses thereto, together with the goodwill
and the business appurtenant thereto;
(v) all drawings, blueprints, specifications, designs
and data of Seller (including drawings, blueprints,
specifications, designs and data of Seller used by or in the
possession of any Third Party);
(vi) all catalogues, brochures, sales literature,
promotional material and other selling material of Seller;
(vii) all books and records and all files, documents,
papers, agreements, books of account and other records
pertaining to the Assets or to the business of Seller which
are located at the offices, plants, warehouses or other
locations used in connection with the Assets;
(viii)all rights, title and interest of Seller under all
contracts, agreements, licenses, leases, sales orders,
purchase orders and other commitments Buyer will assume
pursuant to Section 1.3 hereof;
(ix) all laboratory equipment (including laboratory
notes and supplies) and chemical inventories;
(x) all lists of past, present and qualified prospective
customers of the business of Seller;
(xi) all goodwill relating to the business of Seller as
a going concern, together with the right to represent oneself
to third parties as the new owner of such business;
(xii) all governmental and product licenses and permits,
approvals, license and permit applications and license and
permit amendment applications;
7
<PAGE>
(xiii)all claims against third parties, whether or not
asserted and whether now existing or hereafter arising,
related to the business of Seller or the Assets (including,
without limitation, all claims based on any indemnities or
warranties in favor of Seller relating to any of the Assets);
(xiv) all other assets and rights of every kind and
nature, real or personal, tangible or intangible, of Seller;
(xv) all cash on hand, including bank accounts (other
than the Purchase Price depository account) and temporary cash
investments;
(xvi) all claims for refunds of taxes and other
governmental charges for periods ending on or prior to the
Closing Date; and
(xvii) all safe deposit boxes and lockboxes, as well as
the contents thereof.
Without limiting the generality of the foregoing, the Assets
shall, except as set forth in Section 1.1.2 hereof, include all
assets set forth in a detailed list of fixed assets as of June 30,
1998, prepared from the accounting records of VSI and Seller,
indicating the respective assets of VSI and Seller, and attached
hereto as Schedule 1.1.1, and all such assets as may have been
acquired by VSI or Seller which would be included on a list prepared
in like manner from such accounting records as of the Closing Date,
except any such assets which may have been disposed of since June
30, 1998, in the ordinary course of business on a basis consistent
with past practice.
1.1.2 Anything herein contained to the contrary
notwithstanding, the following respective assets and properties of
each of VSI and Seller are specifically excluded from the Assets and
shall be retained respectively by VSI or Seller:
(i) claims or rights against third parties relating to
liabilities or obligations which are not expressly assumed by
Buyer pursuant to Section 1.3 hereof;
(ii) rights under insurance policies, including rights to
any cancellation value on the Closing Date, except that VSI and
Seller shall assign, to the extent such assignment is
enforceable, to Buyer rights under policies (or make the
proceeds available) with respect to claims arising out of
transactions prior to the Closing Date which Buyer shall have
agreed to assume pursuant to Section 1.3 below; in the event
that such an assignment is not enforceable and in order that
the full value of all rights of the character described in this
clause (ii) of this Section 1.1.2 and all claims on such
policies may be realized, each of VSI and Seller shall, by
itself or by its agents, at the request and expense and
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under the direction of Buyer, until the entire Escrow Fund has
been released pursuant to Section 5.3 hereof, in the name of
VSI or Seller or otherwise as Buyer shall specify and as shall
be permitted by law, take all such action and do or cause to be
done all such things as shall in the reasonable opinion of
Buyer be necessary or proper (x) in order that the rights of
each of VSI and Seller under such policies shall be preserved
and (y) for, and to facilitate, the collection of the monies
due and payable, and to become due and payable, to each of VSI
and Seller in and under every such policy in respect of every
such claim, and each of VSI and Seller shall hold the same for
the benefit of and pay the same over promptly to Buyer;
(iii) the stock books, minute books and other corporate
and financial books and records of each of VSI and Seller (but
each of VSI and Seller shall, upon request by Buyer and, after
Closing, at Buyer's expense, provide copies of such financial
books and records to Buyer);
(iv) all shares of capital stock of Seller; and
(v) funds held in respect of the VSI 401(k) plan.
1.1.3 Subject to Section 1.1.4 hereof, at the Closing, each of
VSI and Seller shall execute and deliver to Buyer (i) a Bill of Sale,
Assignment and Assumption Agreement, in the form attached hereto as
Exhibit "A" (the "Bill of Sale, Assignment and Assumption
Agreement"), under the terms of which each of VSI and Seller shall
sell, grant, convey, assign, transfer and deliver their respective
portions of the Assets to Buyer, and (ii) such other bills of sale,
deeds, instruments of assignment and other appropriate documents as
may be reasonably requested by Buyer in order to carry out the
intentions and purposes hereof.
1.1.4 Nothing in this Agreement shall be construed as an
attempt or agreement to assign (i) any contract, agreement, license,
lease, sales order, purchase order or other commitment which is
nonassignable without the consent of the other party or parties
thereto unless such consent shall have been given or (ii) any
contract or claim as to which all the remedies for the enforcement
thereof enjoyed by VSI or Seller would not pass to Buyer as an
incident of the assignments provided for hereby. In order, however,
that the full value of every contract and claim of the character
described in clauses (i) and (ii) of this Section 1.1.4 and all
claims and demands on such contracts may be realized, each of VSI and
Seller shall, by itself or by its agents, at the request and expense
and under the direction of Buyer, until the entire Escrow Fund has
been released pursuant to Section 5.3 hereof, in the name of VSI or
Seller or otherwise as Buyer shall specify and as shall be permitted
by law, take all such action and do or cause to be done all such
things as shall in the reasonable opinion of Buyer be necessary or
proper (x) in order that the rights and obligations of each of VSI
and Seller under
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such contracts shall be preserved and (y) for, and to facilitate, the
collection of the monies due and payable, and to become due and
payable, to VSI or Seller in and under every such contract and claim
and in respect of every such claim and demand, and each of VSI and
Seller shall hold the same for the benefit of and pay the same over
promptly to Buyer.
1.2 Purchase Price; Payment. Upon the terms and subject to the
conditions set forth herein, in reliance upon the representations,
warranties, covenants and agreements of each of VSI and Seller contained
herein, and in exchange for the sale, grant, conveyance, assignment,
transfer and delivery of the Assets, Buyer agrees, subject to Section 1.9
hereof, to pay to VSI and Seller the sum of $29,800,771 (the "Purchase
Price"), payable at the Closing as follows: (i) by wire transfer of
$25,800,771 in immediately available funds to VSI and Seller in such bank
accounts as designated by Seller in writing to Buyer at least 24 hours
prior to the Closing; and (ii) by depositing $4,000,000 (the "Escrow Fund")
with the Escrow Agent to be held and disposed of pursuant to the Escrow
Agreement.
1.3 Assumption of Specified Liabilities. At the Closing, and as
additional consideration for the sale, grant, conveyance, assignment,
transfer and delivery of the Assets, subject, however, to Sections 1.1.4
and 1.4 hereof, Buyer shall assume and agree to pay, perform and discharge
when due only the following:
(i) those liabilities or obligations of Seller which are listed
on Schedule 1.3A hereof (which shall be the detail of the liabilities
reflected in the balance sheet included in the Financial Statements
dated June 30, 1998 as updated to the Closing Date pursuant to
Section 1.9 hereof) which updated Schedule 1.3A shall prevail in the
event of a conflict between the Closing Balance Sheet and such
updated Schedule 1.3A (depending upon the category of the liability
being assumed by Buyer, the parties shall mutually agree (as denoted
in Schedule 1.3A) whether (i) Seller will pay the accrued liability
to the obligee and Buyer will reimburse Seller for such payments (ii)
Buyer will pay the amount of the accrued liability directly to Seller
and Seller will pay the liability to the obligee, or (iii) Buyer will
pay the liability directly to the obligee up to the amount of the
accrued liability); and
(ii) those liabilities and obligations of either of VSI or
Seller which arise under the terms of a contract, agreement, license,
lease, sales order, purchase order or other commitment which is
listed on Schedule 1.3B hereof (as updated to the Closing Date
pursuant to Section 1.9 hereof) or is not required by the last
sentence of this Section 1.3(ii) to be so listed. Schedule 1.3B shall
only list (x) master service agreements of Seller assumed by Buyer
(y) agreements under which either VSI or Seller have indemnified or
provided a guaranty to any Person and (z) contracts, agreements,
licenses, leases, sales orders, purchase orders or other commitments
of Seller assumed by Buyer which involve services or annual payments
to or from either of VSI or Seller in excess of $10,000.
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Subject to Sections 1.1.4 and 1.4 hereof, at the Closing, Buyer shall
execute and deliver to Seller the Bill of Sale, Assignment and Assumption
Agreement assuming the liabilities and obligations of Seller referred to in
this Section 1.3.
1.4 Non-Assumption of Certain Liabilities. Buyer is not assuming, and
shall not be deemed to have assumed, any liabilities or obligations of
Seller or VSI of any kind or nature whatsoever, except as expressly
provided in Section 1.3 hereof. Anything in Section 1.3 hereof or elsewhere
herein to the contrary notwithstanding and without limiting the generality
of the foregoing, it is hereby agreed that Buyer is not assuming, and shall
not be deemed to have assumed, any liability and shall not have any
obligation for or with respect to any liability or obligation of VSI or
Seller:
(i) under any employee benefit plan of VSI or Seller other than
any accrued liabilities specifically assumed by Buyer pursuant to
Section 1.3 above;
(ii) in respect of (x) any sales, use or excise taxes, income
taxes, taxes based on or measured by income or franchise taxes
attributable to periods or events prior to or ending on the Closing
Date or (y) any sales, use or excise taxes, income taxes, or any
other taxes, legal, accounting, brokerage, finder's fees, or other
expenses of whatsoever kind or nature incurred by VSI or Seller or
any affiliate, stockholder, director, Employee or officer of VSI or
Seller as a result of the consummation of the transactions
contemplated hereby (other than such taxes, fees and expenses which
are accrued in the ordinary course of business prior to Closing);
(iii) arising out of any action, condition, suit or proceeding
based upon an event occurring or a claim arising (x) prior to the
Closing Date or (y) after the Closing Date in the case of claims in
respect of products sold or services provided by VSI or Seller prior
to the Closing Date and attributable to acts performed or omitted by
VSI or Seller prior to the Closing Date, provided, however, that
Buyer shall assume any such liability or obligation to the extent it
has been reserved against on the Closing Balance Sheet;
(iv) pursuant to existing loan agreements (other than payment
obligations assumed pursuant to Section 1.3 above), and all
agreements executed in connection therewith; or
(v) to any present or former shareholder, officer, director or
Employee of VSI or Seller (including, without limitation, for
bonuses, fringe benefits, vacation or holiday pay, wages or severance
pay, but excluding any accrued liabilities specifically assumed by
Buyer pursuant to Section 1.3 above).
1.5 Stockholder Approval; Voting. Seller, acting through its board of
directors, shall, unless there exists a Superior Takeover Proposal, as soon
as practicable after the date
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hereof (i) seek the written consent of its sole stockholder, VSI, approving
this Agreement and all transactions contemplated hereby. VSI, acting
through its board of directors (the "Board"), shall, unless there exists a
Superior Takeover Proposal, as soon as practicable after the date hereof
(i) seek to obtain the written consent of stockholders owning not less than
that number of shares of VSI capital stock required under applicable law in
order to approve the transactions contemplated hereby; (ii) recommend that
such stockholders of VSI consent to the approval and adoption of this
Agreement and all transactions contemplated hereby; (iii) distribute to its
stockholders the definitive information statement materials with respect to
the sale of the Assets in accordance with Regulation 14C under the Exchange
Act, other applicable federal and state laws, (the "Proxy Materials"); (iv)
use its reasonable efforts to obtain the necessary approvals by VSI's
stockholders of this Agreement and all transactions contemplated hereby;
and (v) will, as the sole stockholder of Seller, consent in writing, with
respect to all outstanding shares of capital stock of Seller, to the
execution and delivery of, and consummation of the transactions
contemplated by, this Agreement by Seller. Contemporaneously herewith, each
of Rollins Investment Fund and Rollins Holding Company, Inc., has executed
an agreement whereby each of them has agreed to consent in writing, with
respect to all shares of capital stock of VSI respectively beneficially
owned by them, to the execution and delivery of, and consummation of the
transactions contemplated by, this Agreement by VSI unless there exists a
Superior Takeover Proposal.
1.6 Closing. The closing of the purchase and sale of the Assets
provided herein (the "Closing") shall occur (i) at the office of Haynes and
Boone, LLP, 901 Main Street, Suite 3100, Dallas, Texas 75202, at 10:00
a.m., local time, on the first business day immediately following the day
on or by which the last to be fulfilled or waived of the conditions set
forth in Section 6 hereof shall be fulfilled or waived in accordance
herewith or (ii) at such other time and place or on such other date as VSI,
Seller and Buyer may mutually agree (such date and time of Closing being
herein referred to collectively as the "Closing Date").
1.7 Delivery of Schedules and Exhibits. Within twenty business days
of the date of this Agreement, VSI and Seller shall deliver to Buyer all
schedules (other than Schedule 2.9, which shall be delivered within
twenty-five business days of the date of this Agreement) and exhibits to
this Agreement (the date of delivery of the last such schedule or exhibit,
including Schedule 2.9, being referred to herein as the "Delivery Date"),
such schedules being true and correct in all material respects at and as of
the Delivery Date (except for Schedules 1.1.1 and 1.3A, which shall be true
and correct at and as of June 30, 1998) (collectively, the "Preliminary
Schedules"). The Preliminary Schedules shall be updated as required
pursuant to Section 1.3 hereof and otherwise as necessary so as to be true
and correct at and as of the Closing Date (collectively, as so updated, the
"Closing Schedules"). The Closing Schedules shall be delivered in
accordance with Section 1.9 hereof; provided that any objection by Buyer to
any of the Closing Schedules delivered not later than five days prior to
Closing must be made by Buyer prior to Closing. Each of the Preliminary
Schedules and the Closing Schedules shall be in a form reasonably
satisfactory to Buyer.
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1.8 Allocation of Purchase Price. The consideration given by Buyer
under this Agreement (including without limitation the payment of the
Purchase Price and the assumption of liabilities pursuant to Section 1.3
hereof) shall be allocated among the Assets in accordance with section 1060
of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder. A schedule setting forth such proposed allocations shall be
prepared by Buyer and delivered to Seller within 120 days following the
Closing Date. The allocation as set forth on such schedule shall be
reasonably determined by Buyer and shall be reasonably satisfactory to
Seller. Buyer, VSI and Seller agree to make such allocation in filing their
respective tax returns or declarations for applicable United States income
tax purposes.
1.9 Closing Balance Sheet Adjustment.
1.9.1 Within 45 days following the Closing Date, VSI and
Seller, with the reasonable assistance and cooperation of Buyer
(including use of employees of Buyer who were employees of Seller
immediately prior to Closing at no cost to Seller), shall prepare and
deliver to Buyer the Closing Balance Sheet and the Closing Schedules.
The Closing Balance Sheet and the Closing Schedules shall be prepared
from the books and records of VSI and Seller concerning their
respective businesses in accordance with GAAP on a basis consistent
with that used in the preparation of the balance sheet included in
the Financial Statements dated June 30, 1998. Buyer, with the
reasonable assistance and cooperation of VSI and Seller, shall have
30 days to review the Closing Balance Sheet and the Closing Schedules
after receipt thereof from VSI and Seller. On or before the
expiration of such 30-day period, Buyer shall deliver to VSI and
Seller a written statement accepting or objecting to the Closing
Balance Sheet and the Closing Schedules. In the event that Buyer
shall object to the Closing Balance Sheet, the Closing Schedules or
both, such statement shall include a detailed itemization of Buyer's
objections and its reasons therefor. If no statement is delivered by
Buyer to VSI and Seller within such 30-day period, Buyer shall be
deemed to have accepted the Closing Balance Sheet and the Closing
Schedules.
1.9.2 In the event that Buyer shall timely object to the
Closing Balance Sheet, Buyer, VSI and Seller shall promptly meet and
in good faith attempt to resolve such objection or objections. Any of
such objections which cannot be resolved between Buyer, VSI and
Seller within 30 days following VSI's and Seller's receipt of Buyer's
statement of objections shall be submitted to binding arbitration
conducted by the independent accounting firm of Arthur Andersen LLP.
In the event that Buyer shall timely object to any of the Closing
Schedules, such objection shall be resolved in accordance with
Section 5.15 hereof.
1.9.3 In the event that the net assets reflected on the Closing
Balance Sheet, after all of Buyer's objections thereto shall have
been resolved in accordance with Section 1.9.2 hereof, are greater or
less than $5,353,593 (i.e. the amount of the net assets reflected on
the balance sheet included in the Financial Statements dated June 30,
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1998), then the amount of any such excess or deficiency shall be paid
to VSI and Seller (in the case of an excess) or Buyer (in the case of
a deficiency) by the other by wire transfer of immediately available
United States funds within three business days of such resolution,
receipt of Buyer's written acceptance of the Closing Balance Sheet or
expiration of Buyer's 30-day period for objection to the Closing
Balance Sheet.
2. Representations and Warranties of Seller and VSI. Subject to attachment
of the Schedules as provided in Section 1.7 hereof, VSI and Seller hereby
jointly and severally represent and warrant to Buyer as follows (Seller and VSI
reserving the right to attach at the Delivery Date and update at and as of the
Closing Date Schedules in addition to those called for herein and to add
references thereto in the following warranties and representations as
appropriate):
2.1 Existence; Good Standing; Corporate Authority; Compliance With
Law. Each of VSI and Seller (i) is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation; (ii) is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other
jurisdictions in which the character of the properties owned or leased by
it therein or in which the transaction of its business makes such
qualification necessary except where the failure to be so qualified would
not be material; (iii) has all requisite corporate power and authority to
own its properties and carry on its business as now conducted; (iv) is not
in material default with respect to any Order of any Governmental Body or
arbitration board; (v) is not in material violation of any Legal
Requirement to which it is subject; and (vi) has obtained all material
licenses, permits and other authorizations and has taken all actions
required by applicable laws or governmental regulations in connection with
its business as now conducted.
2.2 Authorization, Validity and Effect of Agreements.
2.2.1 The execution and delivery of this Agreement and all
agreements and documents contemplated hereby by Seller and VSI, and
the consummation by each of Seller and VSI of the transactions
contemplated hereby, have been duly authorized by the Board and the
board of directors of Seller and, except for the approval of the
stockholders of VSI and Seller, no other corporate proceedings on the
part of Seller or VSI are necessary to authorize this Agreement and
the transactions contemplated hereby.
2.2.2 This Agreement constitutes, and all agreements and
documents contemplated hereby when executed and delivered pursuant
hereto for value received will constitute, the valid and legally
binding obligations of Seller and VSI enforceable in accordance with
their terms, except that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium, bulk sales, preference, equitable subordination,
marshalling or other similar laws of general application now or
hereafter in effect relating to the enforcement of creditors' rights
generally and except that the remedies of specific performance,
injunction and other
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forms of equitable relief are subject to certain tests of equity
jurisdiction, equitable defenses and the discretion of the court
before which any proceeding therefor may be brought.
2.2.3 The execution and delivery of this Agreement by each of
Seller and VSI does not, and the consummation of the transactions
contemplated hereby by each of Seller and VSI will not, except as set
forth in Schedule 2.2 hereof (which Schedule 2.2 will include
reference to compliance with the HSR Act), (i) require the consent,
approval or authorization of, or declaration, filing or registration
with, any Governmental Body or any Third Party; (ii) result in the
breach of any term or provision of, or constitute a default under, or
result in the acceleration of or entitle any party to accelerate
(whether after the giving of notice or the lapse of time or both) any
obligation under, or result in the creation or imposition of any
Encumbrance upon any part of the property of Seller or VSI pursuant
to any provision of, any Order, indenture, mortgage, lease, license,
lien, or other agreement or instrument to which VSI or Seller is a
party or by which either of them is bound; or (iii) violate or
conflict with any provision of the bylaws or the Certificate of
Incorporation of VSI or Seller as amended to the date hereof.
2.3 Capitalization and Ownership. The authorized capital stock of VSI
consists solely of (i) 12,000,000 shares of common stock, par value $.01
per share, of which 7,906,617 shares and no more are presently issued and
outstanding and (ii) 55,000 shares of Series C preferred stock, par value
$0.10 per share, of which 55,000 shares and no more are presently issued
and outstanding. All issued and outstanding shares of capital stock of
Seller are owned beneficially and of record by VSI. All of such capital
stock of VSI and of Seller has been duly authorized and validly issued and
is fully paid and nonassessable. Except as set forth in Schedule 2.3B
hereof, there are no outstanding rights, warrants, options, subscriptions,
agreements or commitments giving anyone any right to require VSI or Seller
to sell or issue, or to require VSI or the Stockholders to sell or
otherwise transfer, any capital stock or other securities of VSI or Seller.
2.4 Affiliated Entities. Neither VSI nor Seller owns, nor has either
of them owned since September 4, 1998, directly or indirectly, a majority
or controlling interest in any corporation (other than VSI's ownership of
Seller), business trust, joint stock company, partnership or other business
organization or association relating to the business operations of Seller.
2.5 Jurisdictions. Schedule 2.5 hereof contains a list of all
jurisdictions in which each of VSI and Seller is presently licensed or
qualified to do business. To the best knowledge of VSI and Seller, VSI and
Seller has each complied in all material respects with all applicable laws
of each such jurisdiction and all applicable rules and regulations of each
regulatory agency therein. Neither VSI nor Seller (i) has been denied
admission to conduct any type of business in any jurisdiction in which it
is not presently admitted as set forth in such Schedule 2.5, (ii) has
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had its license or qualifications to conduct business in any jurisdiction
revoked or suspended, or (iii) has been involved in any Proceeding to
revoke or suspend a license or qualification.
2.6 Records. Each of VSI and Seller shall have delivered or made
available to Buyer and its counsel on or prior to the Delivery Date true
and complete copies of its respective Certificate or Articles of
Incorporation, bylaws, minutes of all meetings of directors and
shareholders and certificates reflecting all actions taken by the directors
or shareholders without a meeting, partnership agreements and certificates,
and other organizational documents, of VSI and Seller, and such documents
are in full force and effect on the date hereof.
2.7 Bank Accounts. Schedule 2.7 hereof sets forth the name of each
bank, savings institution or other Person with which VSI or Seller has an
account, lockbox or safe deposit box and the names and identification of
all Persons authorized to drawn thereon or to have access thereto.
2.8 Financial Statements.
2.8.1 Since June 30, 1996, the filings required to be made by
each of VSI and Seller under the Securities Act of 1933, as amended
(the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), have been filed with the SEC as
required by each such law or regulation, including all forms,
statements, reports, agreements and all documents, exhibits,
amendments and supplements appertaining thereto, and each of VSI and
Seller have complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations
thereunder.
2.8.2 VSI and Seller shall have made available to Buyer on or
prior to the Delivery Date a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed
by VSI or Seller with the Securities and Exchange Commission (the
"SEC") since June 30, 1996 (such documents as filed, and any and all
amendments thereto, being collectively referred to herein as the "SEC
Reports").
2.8.3 The SEC Reports, including without limitation any
financial statements or schedules included therein, at the time
filed, and all forms, reports or other documents filed by each of VSI
and Seller with the SEC after the date hereof, did not and will not
contain any 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, in light of the circumstances under which they
were made, not misleading.
2.8.4 The audited consolidated financial statements and
unaudited interim financial statements of VSI and Seller included in
the SEC Reports (collectively, the "Financial Statements") have been
prepared, and the audited consolidated financial
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statements and unaudited interim financial statements of VSI and
Seller as included in all forms, reports or other documents filed
with the SEC after the date hereof will be prepared in accordance
with GAAP (except as may be indicated therein or in the notes thereto
and except with respect to unaudited statements as permitted by Form
10-Q) and fairly present in all material respects the financial
position of VSI and Seller as of the respective dates thereof or the
results of operations and cash flows for the respective periods then
ended, as the case may be, subject, in the case of the unaudited
interim financial statements, to normal, recurring audit adjustments.
2.8.5 As soon as reasonably practical following the Closing
Date, VSI and Seller (with the reasonable assistance and cooperation
of Buyer and employees of Buyer who were employees of Seller
immediately prior to Closing, such assistance to be at no cost to VSI
or Seller) will cause to be prepared each of the following with
respect to VSI and Seller, as at and of the Closing Date: an audited
consolidated balance sheet (the "Closing Balance Sheet"), an audited
consolidated statement of operations, an audited consolidated
statement of cash flows and an audited consolidated statement of
stockholders' equity (collectively with the Closing Balance Sheet,
the "Closing Financial Statements"), which Closing Financial
Statements will be prepared in accordance with GAAP on a basis
consistent with the Financial Statements. In addition, the Closing
Balance Sheet shall be in the form of the balance sheet included in
the Financial Statements dated June 30, 1998. One half of the fees
paid to independent accounting firms incurred in connection with the
audit and preparation of the Closing Financial Statements shall be
paid by VSI and Seller and the other half shall be paid by Buyer.
2.9 Undisclosed Liabilities. Neither VSI nor Seller has any
liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected in a consolidated
balance sheet, except liabilities, obligations or contingencies (i) that
are accrued or reserved against in the audited consolidated financial
statements of VIS and Seller or reflected in the notes thereto for the year
ended June 30, 1998, (ii) have been accrued or been reserved against since
June 30, 1998, and are disclosed on Schedule 2.9 or (iii) that were
incurred after June 30, 1998, in the ordinary course of business and would
not have a material effect on VSI or Seller.
2.10 Absence of Certain Changes or Events. Since June 30, 1998,
neither VSI nor Seller has:
(i) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the ordinary
course of business and consistent with past practice, none of which
is materially adverse, and except in connection with this Agreement
and the transactions contemplated hereby;
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(ii) discharged or satisfied any Encumbrance or paid any
obligation or liability (fixed or contingent), other than in the
ordinary course of business and consistent with past practice;
(iii) mortgaged, pledged or subjected to any Encumbrance any of
its assets or properties (other than inchoate real estate tax liens
not due and payable, mechanic's, materialman's and similar statutory
liens arising in the ordinary course of business and purchase money
security interests arising as a matter of law between the date of
delivery and payment);
(iv) transferred, leased or otherwise disposed of any of its
assets or properties except for a fair consideration in the ordinary
course of business and consistent with past practice or, except in
the ordinary course of business and consistent with past practice,
acquired any assets or properties;
(v) cancelled or compromised any debt or claim, except in the
ordinary course of business and consistent with past practice;
(vi) waived or released any rights of material value;
(vii) except pursuant to those contracts listed on the
Schedules hereof, transferred or granted any rights under any
concessions, leases, licenses, agreements, patents, inventions,
trademarks, trade names, service marks or copyrights or with respect
to any know-how;
(viii)made or granted any wage or salary increase applicable to
any group or classification of Employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction of any other nature with, any officer or
Employee, except in the ordinary course of business or as listed on
the Schedules hereof;
(ix) entered into any transaction, contract or commitment,
except (a) contracts listed on the Schedules hereof and (b) this
Agreement and the transactions contemplated hereby; or
(x) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) which affects in
any material respect its ability to conduct business.
2.11 Taxes. Each of VSI and Seller (i) has duly and timely filed or
caused to be filed all federal, state, local and foreign tax returns
(including, without limitation, consolidated and/or combined tax returns)
required to be filed by it prior to the date hereof which relate to it or
with respect to which it or the Assets are liable or otherwise in any way
subject; (ii) has
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paid or fully accrued for all taxes shown to be due and payable on such
returns (which taxes are all the taxes due and payable under the laws and
regulations pursuant to which such returns were filed); and (iii) has
properly accrued for all such taxes accrued in respect of it or the Assets
for periods subsequent to the periods covered by such returns. No
deficiency in payment of taxes for any period has been asserted by any
taxing body and remains unsettled at the date hereof and no audits are in
process and no notification of audit to begin has been received for which
claims are unasserted. The consolidated tax returns of VSI and Seller for
tax year 1995 have been audited by the Internal Revenue Service. Copies of
all federal, state, local and foreign income (or franchise) tax returns of
VSI and Seller for tax years 1996 and thereafter have been made available
for inspection by Buyer.
2.12 Real Property.
2.12.1 Schedule 2.12A hereof identifies the real property
owned, either in whole or in part, by each of VSI and Seller.
2.12.2 Schedule 2.12B hereof identifies the real property
leased or subleased by each of VSI and Seller (the "Leases"). Neither
VSI nor Seller has received any written notification that it is in
default with respect to any of the Leases nor are there any disputes
between any landlord and VSI or Seller with respect to the Leases
that would affect the right of VSI or Seller, as the case may be, to
remain in possession or otherwise affect the current use of the
property leased. Except as set forth in Schedule 2.12B hereof, each
of VSI and Seller has performed all material obligations required to
be performed by it to date under, and is not in material default in
respect of, any Lease, and no event has occurred which, with due
notice or lapse of time or both, would constitute such a material
default. To the best of each of VSI's and Seller's knowledge, no
other party to any Lease is in material default in respect thereof,
and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default.
2.12.3 True and complete copies of all Leases and all title
reports, surveys and other leases relating to the real property owned
by VSI or Seller shall have been made available to Buyer or its
representatives on or prior to the Delivery Date.
2.13 Personal Property. The machinery, equipment, furniture, fixtures
and other tangible personal property owned, leased or used by each of VSI
and Seller are sufficient and adequate to carry on their respective
businesses as presently conducted and are in good operating condition and
repair and are suitable for the purposes for which they are used, normal
"wear and tear" excepted.
2.14 Title to Property; Encumbrances. Either VSI or Seller has good,
valid and, in the case of real properties, marketable title to all the
properties and assets shown on the Financial Statements or thereafter
acquired, including the Assets (except for (i) inventory
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subsequently sold or otherwise disposed of for fair value in the ordinary
course of business consistent with past practice, (ii) accounts receivable
subsequently collected in the ordinary course of business consistent with
past practice and (iii) immaterial amounts of inventory, machinery and
equipment that have been determined to be obsolete or otherwise not
necessary and have been disposed of in the ordinary course of business
consistent with past practice), in each case free and clear of all
Encumbrances except for any Encumbrance reflected in Schedule 2.14 hereof.
All buildings, structures, improvements and fixtures owned, leased or used
by VSI or Seller in the conduct of their respective businesses conform in
all material respects to all applicable codes, and rules adopted by any
applicable Governmental Body or national and local associations and boards
of insurance underwriters; and all such buildings, structures, improvements
and fixtures are in good operating condition and repair, normal "wear and
tear" excepted.
2.15 Insurance. Schedule 2.15 hereof sets forth a complete list of
all policies of or binders for fire, liability, worker's compensation and
other forms of insurance owned or held by each of VSI and Seller. All such
policies, or binders thereof, are in full force and effect, all premiums
with respect thereto covering all periods up to and including the
respective dates set forth in Schedule 2.15 hereof have been paid, and no
notice of cancellation or termination has been received with respect to any
such policy or binder. Such policies or binders (i) are sufficient for
compliance with all requirements of law currently applicable to each of VSI
and Seller and of all agreements to which each of VSI and Seller is a party
or by which any of them is bound; (ii) are in such amounts and types of
coverage as are customarily maintained by businesses of the size and type
as VSI's and Seller's; (iii) provide insurance coverage adequate for the
Assets and present operations of VSI and Seller; (iv) will remain in full
force and effect through the respective dates set forth in Schedule 2.15
hereof without the payment of additional premiums; and (v) will not in any
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Schedule 2.15 hereof also identifies all
risks which each of VSI and Seller has designated as being self-insured.
Neither VSI nor Seller has been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last five years.
2.16 Business Property Rights.
2.16.1 Schedule 2.16 hereof sets forth (i) all computer
software, patents, and registrations for trademarks, trade names,
service marks and copyrights which are unexpired as of the date
hereof and which are used in connection with the operation of each of
VSI's and Seller's business, as well as all applications pending on
said date for patents or for trademark, trade name, service mark or
copyright registrations, and all other trade secrets and proprietary
rights, owned or held by each of VSI and Seller and which are
reasonably necessary to, or used in connection with, the business of
each of VSI and Seller; and (ii) all licenses (other than shrink wrap
licenses) granted by or to VSI or Seller and all other agreements to
which VSI or Seller is a party and which
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relate, in whole or in part, to any items of the categories mentioned
in (i) above or to any trade secret or other proprietary rights of
VSI or Seller which are reasonably necessary to, or used in
connection with, the business of VSI or Seller.
2.16.2 The property referred to in Section 2.16.1 hereof,
together with (i) all designs, methods, inventions, know-how, related
thereto and (ii) all trademarks, trade names, service marks, and
copyrights claimed or used by either VSI or Seller which have not
been registered (collectively "Business Property Rights"), constitute
all such proprietary rights owned or held by either VSI or Seller and
which are reasonably necessary to, or used in the conduct of the
business of either VSI or Seller. All of those items designated as
trade secrets and all related designs, methods, inventions and
know-how constitute trade secrets of VSI or Seller within the meaning
of all applicable laws, and each of VSI and Seller has taken all
necessary steps required by law to protect these trade secrets as
such. With respect to each such trade secret, the documentation
relating to such trade secret is current, accurate, and sufficient in
detail and content to identify it and to allow its full and proper
use. No such trade secrets are part of the public knowledge or
literature, nor have they been used, divulged, or appropriated for
the benefit of any Third Party or otherwise to the detriment of VSI
or Seller.
2.16.3 Each of VSI and Seller, as the case may be, owns or has
valid rights to use all such Business Property Rights without
conflict with the rights of others. Except as set forth in Schedule
2.21 hereof, no Person or corporation has made or, to the knowledge
of each of VSI and Seller, Threatened to make any claims that the
operation of the business of VSI or Seller is in violation of or
infringes any other proprietary or trade rights of any Third Party.
To the knowledge of each of VSI and Seller, no Third Party is in
violation of or is infringing upon any Business Property Rights.
2.17 Collective Bargaining Agreements. There are no collective
bargaining agreements which relate to either VSI or Seller or to which
either VSI or Seller is a party or which cover one or more Employees.
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2.18 Employees.
2.18.1 Schedule 2.18. to this Agreement contains a complete and
accurate list of the following information for each Employee,
including each Employee on leave of absence or layoff status: (i)
name; (ii) address; (iii) telephone number; (iv) social security
number; (v) date of birth; (vi) job title; (vii) date of hire; (viii)
hourly or weekly compensation rate in effect on June 30, 1998, and a
comparison of such rate to that in effect on June 30, 1997; (ix)
vacation accrued; and (x) service credited for purposes of vesting
and eligibility to participate under any pension, retirement,
profit-sharing, thriftsavings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, or any other employee
benefit plan. To the best of each of VSI's and Seller's knowledge,
during the past four years neither VSI nor Seller has, directly or
indirectly, purchased, leased, acquired any property or obtained any
services from, or sold, leased, disposed of any property or furnished
any services to, or otherwise dealt with any Employee or any Person,
firm or corporation which, directly or indirectly, alone or together
with others, controls, is controlled by or is under common control
with any Employee, except with respect to remuneration for services
rendered as a director, officer or employee of VSI or Seller.
2.18.2 To the best of each of VSI's and Seller's knowledge, no
part of the property or assets of any Employee or any Person,
individual or organization directly or indirectly related to any
Employee is used by VSI or Seller.
2.18.3 Neither VSI nor Seller has encountered any actual or
threatened Employee strike, work stoppage, slowdown or lockout, or
had any material change in its relations with Employees, agents,
customers or suppliers for the three years prior to the date of this
Agreement. No question concerning representation has been raised or
is threatened with respect to the Employees.
2.18.4 No "leased employee", as that term is defined within the
meaning of Section 414(n) of the Code, performs services for VSI or
Seller other than temporary employees.
2.18.5 The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former Employee or
current or former officer or director of VSI or Seller to severance
pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement; (ii) accelerate the time or
payment or vesting, or increase the amount of compensation due any
such Employee, officer or director; or (iii) result in any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the
Code for which an exemption is not available.
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2.18.6 Each of VSI and Seller is currently and has always been
in compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and conditions
of wages and hours, and is not engaged in any unfair labor practice.
2.18.7 Neither VSI nor Seller (i) has taken any action which,
alone or in conjunction with actions committed by VSI or Seller prior
to the Closing Date to be taken in the future, would constitute a
"plant closing" or "mass layoff" within the meaning of the Worker
Adjustment and Retraining Notification Act ("WARN") or applicable
state law; or (ii) has issued any notification of a "plant closing"
or "mass layoff" required by WARN or by applicable state law.
2.19 Other Contracts. Schedule 2.19 hereof sets forth all contracts,
understandings and commitments (including, without limitation, mortgages,
indentures and loan agreements) to which either VSI or Seller is a party,
or to which either of them or any of their respective assets or properties
are subject, and which are not specifically referred to in the other
Schedules hereof other than those which are exempted by the terms of
Section 1.3(ii) hereof from being listed on Schedule 1.3B. True and
complete copies of all documents and complete descriptions of all oral
understandings, if any, referred to in the Schedules will be provided or
made available to Buyer and its counsel on or prior to the Delivery Date.
2.20 No Breach or Default. Neither VSI nor Seller is in material
default under any contract to which it is a party or by which it is bound,
nor has any event occurred which, after the giving of notice or the passage
of time or both, would constitute a material default under any such
contract. Neither VSI nor Seller has any reason to believe that the parties
to such contracts will not fulfill their obligations under such contracts
in all material respects or are threatened with insolvency.
2.21 Litigation.
2.21.1 Schedule 2.21 hereof sets forth a list and a summary
description of all pending or Threatened Proceedings in respect of
each of VSI and Seller, setting forth, with respect to each action or
suit, (i) the reserves reflected in the most recent Financial
Statements and (ii) the existence and extent of insurance coverage.
2.21.2 Except as set forth in Schedule 2.21 hereof, there are
no claims or Proceedings pending or Threatened before any
Governmental Body or before any arbitrator of any nature, brought by
or against VSI or Seller or any of their respective officers,
directors, Employees, agents or affiliates involving, affecting or
relating to any assets, properties or operations of VSI or Seller or
the transactions contemplated by this Agreement, nor does there exist
any fact which might reasonably be expected to give rise to any such
suit, Proceeding, dispute or investigation.
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2.21.3 Neither VSI nor Seller nor any of their respective
assets or properties is subject to any Order of any Governmental Body
or arbitrator, which adversely affects or might reasonably be
expected to affect their respective assets, properties, business
operation, prospects, net income or financial condition or which
would or might reasonably be expected to interfere with the
transactions contemplated hereby.
2.21.4 Other than as provided in Section 1.4(iii), Buyer is not
assuming any liabilities or obligations of VSI or Seller set forth on
Schedule 2.21. Schedule 2.21 is provided to Buyer solely for
informational purposes. Buyer does, however, agree to cooperate, at
Seller's expense, with the reasonable requests of Seller to make
available certain witnesses and other evidence during the pendency of
the matters set forth in Schedule 2.21.
2.22 Accounts Receivable. All trade accounts receivable of each of
VSI and Seller reflected in the Financial Statements and all trade accounts
receivable of each of VSI and Seller arising between June 30, 1998 and the
Closing Date have arisen in the ordinary course of business and represent
bona fide, undisputed indebtedness (subject to no counterclaim, right of
setoff or warranty claim other than as will be reserved against in the
Closing Balance Sheet) incurred by the applicable account debtor for goods
held subject to delivery instructions or shipped or delivered pursuant to a
contract of sale or for services performed by VSI or Seller.
2.23 Inventories and Supplies. The inventories and supplies of each
of VSI and Seller reflected in the Financial Statements, or acquired by VSI
or Seller between June 30, 1998, and the date hereof, are carried at not in
excess of the lower of cost or fair market value, and do not include any
inventory which is not usable or saleable in the ordinary course of
business of VSI and Seller as heretofore conducted, in each case net of
reserves provided therefor in such Financial Statements in accordance with
GAAP.
2.24 Environmental Matters. Except as set forth in Schedule 2.24
hereof,
2.24.1 Each of VSI and Seller is in compliance with and neither
is liable under any Environmental Law. Neither VSI nor Seller has
received any Order or written notice from any Governmental Body or
other Person alleging any violation of or failure to comply with any
Environmental Law, or any actual or Threatened obligation to
undertake or bear the cost of any Environmental Liabilities with
respect to any of the Facilities, or with respect to any property at,
to, or from which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used, processed, transported,
treated, stored, handled, disposed, recycled, or received by VSI or
Seller or any of their respective Employees.
2.24.2 There are no Claims resulting from any Environmental
Liabilities that have been asserted with respect to or affecting any
of the Facilities or that relate to ownership or operation by VSI or
Seller.
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2.24.3 There are no Hazardous Materials present on or in the
Environment at the Facilities, including any Hazardous Materials
contained in barrels, above or underground storage tanks, landfills,
land deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or located
in land, water, sumps, or any other part of the Facilities, or
incorporated into any structure therein or thereon except in
compliance with Environmental Laws and with regard to which no
remedial action would be required if brought to the attention of a
Governmental Body with jurisdiction.
2.24.4 Either VSI or Seller has delivered or made available to
Buyer true and complete copies and results of any reports, studies,
analyses, tests, or monitoring possessed by VSI or Seller pertaining
to Hazardous Materials in, on, or under, or to Environmental issues
relating to, the Facilities or Former Facilities.
2.25 Customers and Suppliers. Except as set forth in Schedule 2.25
hereof,
(i) neither VSI nor Seller has received notice that, nor does
VSI or Seller have any knowledge that, any customer of VSI or Seller
has, will or plans to discontinue doing business with VSI or Seller;
(ii) neither VSI nor Seller has any outstanding purchase
contracts or commitments or unaccepted purchase orders which are in
excess of the normal, ordinary and usual requirements;
(iii) no supplier or subcontractor to VSI or Seller has reduced
its shipments of orders issued by VSI or Seller, or threatened to
discontinue, supplying such items or services to VSI or Seller on
reasonable terms; and
(iv) neither VSI nor Seller has received notice that, nor does
VSI nor Seller have any knowledge that, any such supplier or
subcontractor has, will or plans to discontinue doing business with
VSI or Seller on substantially the same terms as are consistent with
its past practices.
2.26 No Brokers. Neither VSI nor Seller has entered into any
contract, arrangement or understanding with any Person or firm which may
result in the obligation of Buyer, VSI or Seller to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, and neither VSI nor Seller is aware of
any claim or basis for any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
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2.27 Indemnities and Guaranties. Neither VSI nor Seller has
indemnified or provided a guaranty to any Person except (i) as set forth
and described in Schedule 1.3B hereof and (ii) to customers of either in
the ordinary course of business.
2.28 No Misrepresentation or Omission. No representation or warranty
by VSI or Seller in this Section 2 or in any other Section of this
Agreement, or in any certificate or other document furnished or to be
furnished by VSI or Seller pursuant hereto, contains or will contain any
untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained therein not
misleading or will omit to state a material fact necessary in order to
provide Buyer with accurate information as to VSI and Seller.
2.29 Survival of Representations and Warranties. All representations
and warranties by each of VSI and Seller in this Section 2 or in any other
Section hereof, or in any certificate or other document furnished or to be
furnished by VSI or Seller pursuant hereto, shall survive delivery by Buyer
of the consideration to be given by it hereunder and delivery by each of
VSI and Seller of the consideration to be given by each hereunder, and
shall survive the execution hereof, the Closing hereunder and the Closing
Date; provided, however, that no claim based on any breach of any such
warranty or any misrepresentation may be made by any Buyer Indemnitee
unless written notice with respect thereto is given on or before the third
anniversary of the Closing Date.
3. Representations and Warranties of Buyer. Buyer hereby represents and
warrants to Seller and VSI as follows (Buyer reserving the right to attach at
the Delivery Date and update at and as of the Closing Date Schedules in addition
to those called for herein and to add references thereto in the following
warranties and representations as appropriate):
3.1 Existence; Good Standing; Corporate Authority; Compliance With
Law. Buyer (i) is a corporation duly incorporated, validly existing in good
standing under the laws of its jurisdiction of incorporation; (ii) is duly
licensed or qualified to do business as a foreign corporation and is in
good standing under the laws of all other jurisdictions in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary except where
the failure to be so qualified would not be material; (iii) has all
requisite corporate power and authority to own its properties and carry on
its business as now conducted; (iv) is not in material default with respect
to any Order of any Governmental Body or arbitration board to which Buyer
is a party or is subject; (v) is not in material violation of any laws,
ordinances, governmental rules or regulations to which it is subject; and
(vi) has obtained all material licenses, permits and other authorizations
and has taken all actions required by applicable laws or governmental
regulations in connection with its business as now conducted.
3.2 Authorization, Validity and Effect of Agreements.
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3.2.1 The execution and delivery of this Agreement and all
agreements and documents contemplated hereby by Buyer, and the
consummation by it of the transactions contemplated hereby, have been
duly authorized by all requisite corporate action.
3.2.2 This Agreement constitutes, and all agreements and
documents contemplated hereby when executed and delivered pursuant
hereto for value received will constitute, the valid and legally
binding obligations of Buyer enforceable in accordance with their
terms, except that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium, bulk sales, preference, equitable subordination,
marshalling or other similar laws of general application now or
hereafter in effect relating to the enforcement of creditors' rights
generally and except that the remedies of specific performance,
injunction and other forms of equitable relief are subject to certain
tests of equity jurisdiction, equitable defenses and the discretion
of the court before which any proceeding therefor may be brought.
3.2.3 The execution and delivery of this Agreement by Buyer
does not, and the consummation of the transactions contemplated
hereby will not, (i) except as set forth on Schedule 3.2 hereof,
require the consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Body or any Third
Party, (ii) result in the breach of any term or provision of, or
constitute a default under, or result in the acceleration of or
entitle any party to accelerate (whether after the giving of notice
or the lapse of time or both) any obligation under, or result in the
creation or imposition of any Encumbrance upon any part of the
property of Buyer pursuant to any provision of, any Order, indenture,
mortgage, lease, license, lien, or other agreement or instrument to
which Buyer is a party or by which it is bound, and (iii) violate or
conflict with any provision of the bylaws or Certificate of
Incorporation of Buyer as amended to the date hereof.
3.3 Survival of Representations and Warranties. All representations
and warranties by Buyer in this Section 3 or in any other Section hereof,
or in any certificate or other document furnished or to be furnished by
Buyer pursuant hereto, shall survive delivery by Buyer of the consideration
to be given by it hereunder and delivery by each of VSI and Seller of the
consideration to be given by each hereunder, and shall survive the
execution hereof, the Closing hereunder and the Closing Date; provided,
however, that, other than as set forth in Section 4.2 hereof, no claim
based on any breach of any such warranty or any misrepresentation may be
made by VSI or Seller unless written notice with respect thereto is given
on or before the third anniversary of the Closing Date.
4. Indemnification.
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4.1 Indemnification by Seller and VSI. Subject to the provisions of
Section 5.15 below and upon the terms and subject to the conditions set
forth in Sections 4.3 and 4.5 hereof and this Section 4.1, Seller and VSI,
jointly and severally, agree to indemnify, defend, protect, save and hold
harmless the Buyer Indemnitees (or any Buyer Indemnitee) against, and will
reimburse the Buyer Indemnitees (or any Buyer Indemnitee) for, any and all
Losses made or incurred by or asserted against the Buyer Indemnitees (or
any Buyer Indemnitee), at any time after the Closing Date, directly or
indirectly, arising out of, related to, caused by, or resulting from any of
the following (in each case regardless of by whom asserted):
4.1.1 any and all liabilities or obligations of Seller or VSI
or claims against or imposed on the Buyer Indemnitees (or any Buyer
Indemnitee), of any nature, including, without limitation, those
relating to the respective business activities of Seller or VSI or to
conditions existing on any of the Facilities prior to the Closing
Date (whether accrued, absolute, contingent or otherwise and whether
a contractual, tax, statutory or other type of liability, obligation
or claim) not specifically assumed by Buyer pursuant hereto
(including, without limitation, those liabilities or obligations of
VSI or Seller specifically referred to in Section 1.4 hereof);
4.1.2 any inaccuracy, omission, misrepresentation, breach of
warranty or representation, or nonfulfillment of any term, provision,
covenant or agreement on the part of Seller or VSI contained herein,
or any inaccuracy or misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished by
Seller or VSI to Buyer pursuant hereto;
4.1.3 Seller's or VSI's failure to comply with any bulk
transfer provisions which may be in effect in the state or states in
which the Assets are located;
4.1.4 (i) any Breach by Seller or VSI of Seller's or VSI's
environmental representation and warranty contained herein; (this
indemnity is intended to allocate responsibility between VSI, Seller
and Buyer and any other Indemnified Party as contemplated by Section
107(e)(1) of CERCLA or similar law);
4.1.5 any and all items listed on the Schedules delivered
subsequent to the Closing, objected to by Buyer and determined in
accordance with Section 5.15 hereof not to be items assumed by Buyer
pursuant hereto.
As used herein, the term "Losses" shall mean, with respect to any
Person or party, any payment, loss, liability, obligation, damage
(including, without limitation, consequential, punitive, special or
otherwise), deficiency, lien, claim, suit, cause of action, judgment, cost
or expense (including, without limitation, reasonable attorneys' fees and
court costs and costs of cleanup, containment, or other remediation of the
Environment) of any kind, nature or description.
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As used herein, the term "Buyer Indemnitees" shall mean Buyer and any
affiliate of Buyer;
As used herein, the term "affiliate" shall mean, with respect to any
Person or party, (i) any Person or party controlling, controlled by or
under common control with any such Person or party or (ii) any director or
executive officer of any such Person or party or of any Person or party
referred to in clause (i) of this paragraph. As used herein, the term
"control" 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 party, whether through the ownership of voting securities or voting
interests, by contract or otherwise.
Notwithstanding anything to the contrary contained herein, the
parties agree that any Buyer Indemnitee's sole remedy for any claim for
damages (excluding equitable remedies and those resulting from fraud)
arising under this Agreement (including the Schedules) or any other
agreement between Buyer and VSI or Seller entered into in connection
herewith (including any claim based upon Seller's warranties,
representations and covenants contained herein) shall be limited to the
remedies provided in the indemnification provisions of this Section 4 and
the Escrow Agreement. Further, Buyer waives all other statutory or common
law rights to recover against VSI or Seller for any matter relating to
Environmental Contamination, Environmental Liabilities or Hazardous
Materials. There shall be no limit on Seller's or VSI's obligation to
indemnify and hold harmless any Buyer Indemnitee from or against Losses
resulting from fraud.
4.2 Indemnification by Buyer. Upon the terms and subject to the
conditions set forth in Section 4.3 hereof and this Section 4.2, Buyer
agrees to indemnify, defend, protect, save and hold harmless Seller and VSI
against, and will reimburse Seller and VSI on demand for, any and all
Losses made or incurred by or asserted against Seller, at any time after
the Closing Date, directly or indirectly, arising out of, related to,
caused by, or resulting from (i) any inaccuracy, omission,
misrepresentation, breach of warranty, or nonfulfillment of any term,
provision, covenant or agreement on the part of Buyer contained herein,
(ii) any inaccuracy or misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished by Buyer to
Seller pursuant hereto or (iii) operation of business activities of Buyer
after the Closing Date involving the Assets. Within 45 days following the
first anniversary of the Closing Date, Buyer shall deliver to VSI and
Seller a certificate of Buyer certifying which of those liabilities and
obligations of Buyer assumed from VSI or Seller pursuant to this Agreement
and listed on Schedule 1.3A or Schedule 1.3B (each as updated to Closing)
had become due and payable but had not been paid in full or resolved as of
the first anniversary of the Closing Date. With respect to the liabilities
and obligations listed in such certificate (or which were erroneously
omitted from such certificate), Buyer's obligations pursuant to this
Section 4.2 shall terminate upon the payment or resolution of such
liability or obligation. With respect to those liabilities and obligations
of Buyer assumed from VSI or Seller pursuant to this Agreement and listed
on Schedule 1.3A or Schedule 1.3B (each as updated to Closing) which by
their respective terms in effect at Closing will become due and payable
later than the first anniversary of the Closing Date, Buyer's obligations
pursuant to this Section 4.2 shall terminate
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upon the payment or resolution of such liability or obligation. In the
event the certificate is not timely delivered, Buyer's obligation pursuant
to this Section 4.2 shall terminate upon the payment or resolution of all
liabilities assumed pursuant to Section 1.3. With respect to all other
liabilities and obligations of Buyer assumed from VSI or Seller pursuant to
this Agreement, Buyer's obligations pursuant to this Section 4.2 shall
terminate upon the third anniversary of the Closing Date. There shall be no
limit on Buyer's obligation to indemnify and hold harmless Seller and VSI
from or against Losses resulting from fraud.
4.3 Conditions of Indemnification. With respect to any actual or
potential claim, any written demand, the commencement of any action, or the
occurrence of any other event which involves any matter or related series
of matters (a "Claim") against which a party hereto is indemnified (the
"Indemnified Party") by any other party (the "Indemnifying Party") under
Section 4.1 or 4.2 hereof:
4.3.1 Promptly after the Indemnified Party first receives
written documents pertaining to the Claim, or if such Claim does not
involve a Third Party Claim (a "Third Party Claim"), promptly after
the Indemnified Party first has actual knowledge of such Claim, the
Indemnified Party shall give notice to the Indemnifying Party of such
Claim in reasonable detail and stating the amount involved, if known,
together with copies of any such written documents.
4.3.2 The obligation of the Indemnifying Party to indemnify the
Indemnified Party with respect to any Claim shall not be affected by
the failure of the Indemnified Party to give the notice with respect
thereto in accordance with Section 4.3.1 hereof unless the
Indemnifying Party shall establish that it has been materially
prejudiced thereby.
4.3.3 If the Claim involves a Third Party Claim, then the
Indemnifying Party shall, at its sole cost, expense and ultimate
liability regardless of the outcome, and through counsel of its
choice (which counsel shall be reasonably satisfactory to the
Indemnified Party), litigate, defend, settle or otherwise attempt to
resolve such Third Party Claim; provided, however, that if in the
Indemnified Party's reasonable judgment a conflict of interest may
exist with respect to the Third Party Claim, then the Indemnified
Party shall be entitled to select counsel of its own choosing,
reasonably satisfactory to the Indemnifying Party, in which event the
Indemnifying Party shall be obligated to pay the fees and expenses of
such counsel. Notwithstanding the preceding sentence, the Indemnified
Party may elect, at any time and at the Indemnified Party's sole
cost, expense and ultimate liability, regardless of the outcome (in
the case of reasons other than the Indemnifying Party's failure or
refusal to provide a defense to such Third Party Claim), and through
counsel of its choice, to litigate, defend, settle or otherwise
attempt to resolve such Third Party Claim. If the Indemnified Party
so elects (for reasons other than the Indemnifying Party's failure or
refusal to provide a defense to such Third Party Claim), then the
Indemnifying Party shall have no obligation to
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indemnify the Indemnified Party with respect to such Third Party
Claim, but such disposition will be without prejudice to any other
right the Indemnified Party may have to indemnification under Section
4.1 or 4.2 hereof, regardless of the outcome of such Third Party
Claim. If the Indemnifying Party fails or refuses to provide a
defense to any Third Party Claim, then the Indemnified Party shall
have the right to undertake the defense, compromise or settlement of
such Third Party Claim, through counsel of its choice, on behalf of
and for the account and at the risk of the Indemnifying Party, and
the Indemnifying Party shall be obligated to pay the costs, expenses
and attorney's fees incurred by the Indemnified Party in connection
with such Third Party Claim. In any event, Seller and the Buyer
Indemnitees shall fully cooperate with each other and their
respective counsel in connection with any such litigation, defense,
settlement or other attempted resolution.
4.4 Monetary Limits of Indemnification.
4.4.1 Notwithstanding the provisions of Section 4.1 hereof,
Seller and VSI will not be obligated to indemnify or hold harmless
any Buyer Indemnitee from or against Losses arising out of or
resulting from matters described in Section 4.1, (other than Losses
directly or indirectly arising out of, related to, caused by, or
resulting from any inaccuracy, omission or misrepresentation
contained in, or breach of warranty or representation respecting,
Section 2.22), until the amount of such Losses individually or in the
aggregate exceed the amount of $200,000 (the "Floor Amount"), it
being understood and agreed that the Floor Amount shall be deemed to
have been reached as to each of VSI and Seller when Buyer's Losses
exceed the amount of $200,000. Upon reaching the Floor Amount, Seller
and VSI shall be required to indemnify the applicable Buyer
Indemnitee for Losses comprising the Floor Amount as well as all
Losses occurring thereafter only from the Escrow Fund and only up to
(except in the cases of Losses resulting from fraud) an aggregate
amount equal to the amount of the Escrow Fund then outstanding (the
"Seller's Ceiling Amount"). Seller and VSI will be obligated to
indemnify and hold harmless any Buyer Indemnitee from or against
Losses directly or indirectly arising out of, related to, caused by,
or resulting from any inaccuracy, omission or misrepresentation
contained in, or breach of warranty or representation respecting,
Section 2.22 up to the Seller's Ceiling Amount without regard to the
Floor Amount. Seller and VSI will be obligated to indemnify and hold
harmless any Buyer Indemnitee from or against Losses directly or
indirectly arising out of, related to, caused by, or resulting from
any inaccuracy, omission or misrepresentation contained in, or breach
of warranty or representation respecting, Sections 2.12.2 or 2.20
without regard to the materiality of such inaccuracy, omission,
misrepresentation, or breach of warranty or representation.
Notwithstanding the provisions of Section 4.1 hereof and except in
the cases of Losses resulting from fraud, Seller and VSI will not be
obligated to indemnify or hold harmless any Buyer Indemnitee from or
against Losses to the extent such Losses are in excess of the
Seller's Ceiling Amount. There shall be no monetary limit on Seller's
or VSI's
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obligation to indemnify and hold harmless any Buyer Indemnitee from
or against Losses resulting from fraud.
4.4.2 Notwithstanding the provisions of Section 4.2 hereof,
Buyer will not be obligated to indemnify or hold harmless Seller or
VSI from or against Losses arising out of or resulting from matters
described in Section 4.2, (other than Losses directly or indirectly
arising out of, related to, caused by, or resulting from any
nonfulfillment of any covenant on the part of Buyer contained in
Section 1.3 hereof or any certificate related thereto), until the
amount of such Losses individually or in the aggregate exceed the
Floor Amount. Upon reaching the Floor Amount, Buyer shall be required
to indemnify Seller and VSI for Losses comprising the Floor Amount as
well as all Losses occurring thereafter only up to (except in the
cases of Losses resulting from fraud) an aggregate amount equal to
$12,000,000 (the "Buyer's Ceiling Amount"). Buyer will be obligated
to indemnify and hold harmless Seller and VSI from or against Losses
directly or indirectly arising out of, related to, caused by, or
resulting from any nonfulfillment of any covenant on the part of
Buyer contained in Section 1.3 hereof up to the Buyer's Ceiling
Amount without regard to the Floor Amount. Notwithstanding the
provisions of Section 4.2 hereof and except in the cases of Losses
resulting from fraud, Buyer will not be obligated to indemnify or
hold harmless Seller or VSI from or against Losses to the extent such
Losses are in excess of the Buyer's Ceiling Amount. There shall be no
monetary limit on Buyer's obligation to indemnify and hold harmless
Seller or VSI from or against Losses resulting from fraud.
4.5 Environmental Remediation.
4.5.1.The term "Environmental Contamination" shall mean the
presence of Hazardous Materials at any of the Facilities.
Environmental Contamination is indemnifiable as a Loss under Section
4.1 hereof if it has resulted in the issuance of a final Order or
legally enforceable directive by a Governmental Body or if it
triggers a Legal Requirement that imposes an obligation to act, or,
for Facilities on leased property, when brought to the attention of
the landlord as a result of a legal requirement or a requirement
under the lease to so notify, results in a legally enforceable demand
by the landlord for remediation.
4.5.2 The addressing of Environmental Contamination, (whether
by assessment, negotiation, compromise, risk assessment, cleanup or
otherwise) (hereafter "Environmental Remediation") identified by the
Environmental Due Diligence Review shall be performed by VSI and
Seller, to the extent the cost of the Environmental Remediation of
such contamination does not exceed the funds available in the Escrow
Fund. If and when funds from the Escrow fund are exhausted, VSI and
Seller shall have no obligation to perform any Environmental
Remediation or otherwise address any Environmental Contamination. The
remediation of Environmental Contamination identified after the
Closing shall be the responsibility of Buyer unless Buyer can
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establish that such contamination arose prior to the Closing. Buyer
acknowledges that VSI and Seller shall have no obligation to perform
Environmental Remediation unless Environmental Contamination is
discovered (i) during the Environmental Due Diligence review set
forth in Section 5.5.2; or (ii) by, or as a result of a third party
claim or demand; or (iii) due to a Legal Requirement under any
Environmental Law. Notwithstanding any other provision of this
Section 4.5.2, if, after the Closing Date, Buyer is informed of, or
inadvertently discovers Environmental Contamination that does not
require the giving of notice to either a Governmental Body or to the
landlord pursuant to the applicable lease, Buyer shall give notice of
same to VSI and Seller and VSI and Seller shall perform Environmental
Remediation to the standards set forth in Section 4.5.4.
4.5.3 Seller and VSI have the right to undertake any
Environmental Remediation for which they are responsible subject to
reasonable agreement of Buyer and VSI regarding access to, and
non-interference with activities of Buyer on, the Facilities. Seller
and VSI shall be entitled to receive monthly reimbursement from the
Escrow Fund for the costs of that Environmental Remediation to the
extent funds are available.
4.5.4 The extent to which Environmental Contamination must be
remediated, if at all, shall be to the highest levels allowed by law
that do not require the imposition of institutional controls unless
those controls would not impair the value, or interfere with the
reasonable use, of the property, and, if the Facility is on leased
property, to whatever level the landlord ultimately agrees; provided
however, institutional controls that impair value may be allowed if
VSI or Seller pays Buyer for the diminution in value attributable to
that impairment.
5. Other Covenants and Agreements.
5.1 Guaranty of Receivables. At the Closing, Seller and VSI shall
execute and deliver to Buyer a Guaranty in the form set forth as Exhibit
"B" hereto (the "Receivables Guaranty"), under the terms of which Seller
and VSI, jointly and severally, shall unconditionally guarantee that all
indebtedness represented by the accounts receivable of VSI and Seller as of
the Closing Date (less the reserve for doubtful accounts not to exceed an
aggregate of $125,000) will be received by Buyer. Within 160 days following
the Closing Date, Buyer shall prepare and deliver to VSI and Seller an
accounting of collections on such receivables on or before 150 days
following the Closing Date, certified as true and correct by the Chief
Financial Officer of Buyer. In the event such net indebtedness is not
received by Buyer on or before 150 days after the Closing Date, VSI and
Seller shall within ten business days following receipt from Buyer of such
accounting giving notice to such effect cause the Escrow Agent to make
payment from the Escrow Fund to Buyer of an amount in cash equal to the
difference between such net indebtedness and the amount received by Buyer
for such accounts receivable, whereupon Buyer shall promptly assign or
cause to be assigned to VSI or Seller all rights,
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claims, actions or causes of action which Buyer may have relating to such
unpaid receivables. In the event that the amount received by Buyer for such
accounts receivable shall be in excess of such net indebtedness, the amount
of such excess will be paid by Buyer to VSI (from Buyer's own funds and not
from the Escrow Fund) within such ten business day period. During the 150
days following the Closing Date, Buyer shall use reasonable and customary
efforts to collect such receivables (but shall not be obligated to initiate
litigation) and any amounts received by Buyer in respect of such accounts
receivable shall be applied first to the oldest such account receivable of
the respective account debtor unless the account debtor specifically
directs otherwise in writing without any direction from Buyer.
5.2 Restrictive Covenants.
5.2.1 Customer Restriction. Each of Seller and VSI covenants
and agrees that it shall not, for a period of five years from and
after the Closing Date, working alone or in conjunction with one or
more other Persons or entities, for compensation or not, (i) provide
or offer to provide to any Customer (as such term is hereinafter
defined) any product or service the same or similar to that offered
by VSI or Seller prior to the Closing, or (ii) induce or attempt to
induce any Customer to withdraw, curtail or cancel its business with
Buyer or in any manner modify or fail to enter into any actual or
potential business relationship with Buyer. As used herein, the term
"Customer" means any Person or entity for whom VSI or Seller provided
services on or prior to the Closing Date or to whom VSI or Seller
provided a product on or prior to the Closing Date.
5.2.2 Non-Raid. Each Seller and VSI covenants and agrees that
it shall not, for a period of five years from and after the Closing
Date, working alone or in conjunction with one or more other Persons
or entities, for compensation or not, (i) recruit or otherwise
solicit or induce any Person or entity who is, on the Closing Date or
thereafter, an employee or vendor of VSI or Seller to terminate their
employment with, or otherwise cease their relationship with, Buyer or
any of its subsidiaries or affiliates, or (ii) hire, recruit or
otherwise solicit any Person or entity who, within the six months
immediately preceding the Closing Date, had been an employee or
vendor of VSI or Seller.
5.2.3 Noncompetition. Each of Seller and VSI covenants and
agrees that it shall not, for a period of five years from and after
the Closing Date, working alone or in conjunction with one or more
other Persons or entities, for compensation or not, permit VSI's or
Seller's name to be used by or engage in or carry on, directly or
indirectly, either for itself or as a member of a partnership or as a
stockholder, investor, agent, associate or consultant of any Person,
partnership or corporation (other than Buyer or a subsidiary or
affiliate of Buyer), any business in competition with the business as
carried on by VSI or Seller on the Closing Date, but only for as long
as such like business is carried on by (i) Buyer or any subsidiary or
affiliate of Buyer, or
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(ii) any Person, corporation, partnership, trust or other
organization or entity deriving title from Buyer to the assets and
goodwill of the business being carried on by VSI or Seller on the
Closing Date, in any county in any state of the United States in
which Buyer or any subsidiary or affiliate of Buyer conducts
business, or in any other county in any state of the United States,
or in any country or political subdivision of the world. The parties
intend that the covenants contained in this Section 5.2.3 shall be
deemed to be a series of separate covenants, one for each county in
each state of the United States and for each country and political
subdivision of the world and, except for geographic coverage, each
such separate covenant shall be identical in terms to the covenant
contained in this Section 5.2.3.
5.2.4 Tolling. The term of the covenants contained in Section
5.2.1, 5.2.2 or 5.2.3 hereof shall be tolled for the period
commencing on the date any successful action is filed for injunctive
relief or damages arising out of a breach by VSI or Seller of Section
5.2.1, 5.2.2 or 5.2.3 hereof and ending upon final adjudication
(including appeals) of such action.
5.2.5 Reformation. If, in any judicial proceeding, the court
shall refuse to enforce all of the separate covenants contained in
Section 5.2.1, 5.2.2 or 5.2.3 hereof because the time limit is too
long, it is expressly understood and agreed between the parties
hereto that for purposes of such proceeding such time limitation
shall be deemed reduced to the extent necessary to permit enforcement
of such covenants. If, in any judicial proceeding, the court shall
refuse to enforce all of the separate covenants contained in Section
5.2.1, 5.2.2 or 5.2.3 hereof because it is more extensive (whether as
to geographic area, scope of business or otherwise) than necessary to
protect the business and goodwill of Buyer, it is expressly
understood and agreed between the parties hereto that for purposes of
such proceeding the geographic area, scope of business or other
aspect shall be deemed reduced to the extent necessary to permit
enforcement of such covenants.
5.2.6 Injunctive Relief. Each of VSI and Seller acknowledges
that a breach of Section 5.2.1, 5.2.2 or 5.2.3 hereof would cause
irreparable damage to Buyer, and in the event of its actual or
threatened breach of the provisions of Section 5.2.1, 5.2.2 or 5.2.3
hereof, Buyer shall be entitled to a temporary restraining order and
an injunction restraining each of VSI and Seller from breaching such
covenants without the necessity of posting bond or proving
irreparable harm, such being conclusively admitted by VSI and Seller.
Nothing shall be construed as prohibiting Buyer from pursuing any
other available remedies for such breach or threatened breach,
including the recovery of damages from each of VSI and Seller. Each
of VSI and Seller acknowledges that the restrictions set forth in
Sections 5.2.1, 5.2.2 and 5.2.3 hereof are reasonable in scope and
duration, given the nature of the business of Buyer.
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5.2.7 Use of Name. Each of Seller and VSI shall discontinue all
use of the name "Valley Systems" and any and all derivations thereof
within 30 days after the Closing Date (other than in respect of the
name of VSI's 401(k) plan prior to its termination).
5.2.8 No Liquidation or Dissolution. Neither VSI nor Seller
shall liquidate or dissolve until the entire Escrow Fund has been
released pursuant to Section 5.3 hereof.
5.3 Escrow.
5.3.1 The Escrow Fund shall be the exclusive source of recovery
in respect of each of VSI's and Seller's indemnification obligations
pursuant to Section 4 hereof or otherwise arising under this
Agreement (including the Schedules hereto) or any other agreement
between Buyer and VSI or Seller entered into in connection herewith,
including any claim based upon each of VSI's and Seller's warranties,
representations and covenants contained herein including those
contained in Section 5.1 hereof. The Escrow Fund shall be held and
distributed, with interest, by Bank One Texas, N.A. (the "Escrow
Agent"), pursuant to an Escrow Agreement in the form set forth as
Exhibit "C" hereto (the "Escrow Agreement"), which shall be executed
and delivered by VSI, Seller and Buyer at the Closing.
5.3.2 Buyer shall be entitled to receive from the Escrow Fund a
payment equal to the amount, if any, provided for in Section 5.1
hereof without regard to the Floor Amount.
5.3.3 Subject to Sections 4.5.2 and 5.3.6 hereof, Seller and
VSI shall be entitled to receive from the Escrow Fund the costs of
Environmental Remediation at all Facilities not excluded by Buyer
from the Assets pursuant to Section 5.5.2 hereof and in accordance
with the terms of the Escrow Agreement.
5.3.4 In the event that any Buyer Indemnitee has any claim for
damages based upon VSI's and Seller's warranties, representations and
covenants contained herein or otherwise arising hereunder or any
other agreement between Buyer and VSI or Seller entered into in
connection herewith (other than VSI's and Seller's obligations under
Section 5.1 hereof), Buyer shall give written notice of same to VSI
and Seller and shall forward a copy of such notice to the Escrow
Agent. If VSI or Seller has not corrected or remedied such failure of
performance, representation, warranty or covenant within 30 days
following receipt of such notice, then VSI and Seller acknowledge,
subject to the provisions of Section 5.15 hereof, that Buyer shall be
entitled to receive from the Escrow Fund, in accordance with the
terms of the Escrow Agreement, the amount of indemnification that
Buyer is due pursuant to this Agreement.
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5.3.5 Provided no dispute or disputes in excess of an aggregate
of $3,000,000 (or $2,000,000, if that part of the Escrow Fund subject
to Section 5.3.6 hereof has been released to VSI or Seller), less the
amount of any payments theretofore made in satisfaction of Seller's
or VSI's indemnification and guaranty obligations hereunder, exist as
to any Claim or Claims by any Buyer Indemnitee against all or a
portion of the Escrow Fund on the first anniversary of the Closing
Date, then $1,000,000, less the amount of any payments in
satisfaction of VSI's or Seller's indemnification and guaranty
obligations hereunder, will be released to Seller or VSI on the first
business day following such first anniversary of the Closing Date. To
the extent such a dispute or disputes do exist as to a Claim or
Claims on the first anniversary of the Closing Date, an amount equal
to the amount of such Claim or Claims will be withheld from such
partial release of the Escrow Fund and will continue to be held in
accordance with the provisions of the Escrow Agreement until such
Claim or Claims have been fully resolved. Provided no dispute or
disputes in excess of an aggregate of $2,000,000 (or $1,000,000, if
that part of the Escrow Fund subject to Section 5.3.6 hereof has been
released to VSI or Seller), less the amount of any payments
theretofore made in satisfaction of Seller's or VSI's indemnification
and guaranty obligations hereunder, exist as to any Claim or Claims
by any Buyer Indemnitee against all or a portion of the Escrow Fund
on the second anniversary of the Closing Date, then an additional
$1,000,000, less the amount of any payments theretofore made in
satisfaction of VSI's or Seller's indemnification and guaranty
obligations hereunder, will be released to Seller or VSI on the first
business day following such second anniversary of the Closing Date.
To the extent such a dispute or disputes do exist as to a Claim or
Claims on the second anniversary of the Closing Date, an amount equal
to the amount of such Claim or Claims will be withheld from such
partial release of the Escrow Fund and will continue to be held in
accordance with the provisions of the Escrow Agreement until such
Claim or Claims have been fully resolved. Provided no dispute or
disputes exist as to any Claim or Claims by any Buyer Indemnitee
against all or a portion of the Escrow Fund on the third anniversary
of the Closing Date, then the remainder of the Escrow Fund will be
released to Seller or VSI on the first business day following such
third anniversary of the Closing Date and the Escrow Agreement shall
thereupon terminate. To the extent a dispute or disputes do exist as
to a Claim or Claims on the third anniversary of the Closing Date, an
amount equal to the amount of such Claim or Claims will be withheld
from such release of the Escrow Fund and will continue to be held in
accordance with the provisions of the Escrow Agreement until such
Claim or Claims have been fully resolved. Seller's and VSI's
obligations hereunder shall not be affected by any termination of the
Escrow Agreement.
5.3.6 On or before the first anniversary of the Closing Date,
VSI shall certify in writing to Buyer that VSI or Seller or both have
completed the Environmental Remediation of the Environmental
Contamination identified by the Environmental Due Diligence Review as
required by the terms of Section 4.5 hereof as to all Facilities not
excluded by Buyer pursuant to Section 5.5.2 hereof as well as any
Environmental
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Contamination identified during the Environmental Remediation (or, in
the event that such Environmental Remediation is not completed at the
first anniversary of the Closing Date, VSI shall deliver a
certificate of the environmental engineering and consulting firm
which is effecting such Environmental Remediation estimating the
additional time required for such completion and the additional cost
thereof ("Estimated Additional Remediation Cost"). Upon delivery to
Buyer of VSI's certificate or the certificate of such firm, as the
case may be, an amount equal to $1,000,000, less the sum of (i) the
aggregate cost of such Environmental Remediation (including the
Estimated Additional Remediation Cost) and (ii) the aggregate amount
of other Losses of all other Buyer Indemnitees subject to
indemnification pursuant to Section 4.1 hereof in excess of
$3,000,000, shall forthwith be released to VSI and Seller out of the
Escrow Fund. In the event that such Environmental Remediation was not
completed at the first anniversary of the Closing Date, VSI shall
deliver to Buyer a certificate of completion thereof upon such
completion containing a statement of the aggregate cost of the
Environmental Remediation effected following such first anniversary,
and Buyer shall immediately release to Seller or VSI out of the
Escrow Fund the amount, if any, which would have been released to
Seller or VSI under this Section 5.3.6 following such first
anniversary had such actual cost, rather than the Estimated
Additional Remediation Cost, been used in such calculation.
5.4 Conduct of the Business.
5.4.1 Affirmative Covenants. On and after the date hereof and
until the Closing Date or the date, if any, on which this Agreement
is earlier terminated and abandoned pursuant to Section 7 hereof (the
"Termination Date"), each of Seller and VSI shall:
(i) conduct its operations according to its ordinary and
usual course of business consistent with past practice; and
(ii) use its reasonable best efforts to preserve intact
its business organization and goodwill, to keep available the
services of its officers and directors, and to maintain
satisfactory relationships with suppliers, distributors,
licensors, licensees, customers, Employees and others having
business relationships with it.
5.4.2 Negative Covenants. Without limiting the generality of
the foregoing, and except for actions to be taken in connection with
any of the transactions contemplated hereby, without Buyer's prior
written consent, VSI shall not, and VSI shall cause Seller not to, on
or after the date hereof and until the earlier of the Closing Date or
the Termination Date:
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(i) other than dividends that would be paid to the
holders of the Series C Preferred Stock in the ordinary course,
declare or pay any cash dividends on its outstanding shares of
capital stock;
(ii) merge with, consolidate with, sell its assets to or
acquire substantially all the assets or capital stock of, any
other corporation or Person, or enter into any other
transaction not in the ordinary and usual course of its
business;
(iii) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others, except
that it may incur indebtedness in the ordinary course of
business consistent with prior practice;
(iv) make any direct or indirect redemption, purchase or
other acquisition of any of its capital stock;
(v) create or amend any pension or profit sharing plan,
bonus, deferred compensation, death benefit, or retirement
plan, or any other benefit plan or program;
(vi) amend its Certificate of Incorporation or Bylaws, as
amended to the date hereof, except as may be necessary to carry
out this Agreement or as required by law;
(vii) issue any shares of its capital stock, effect any
stock split or otherwise change its capitalization as it exists
on the date hereof;
(viii)grant, confer or award any options, warrants,
conversion rights or other rights, not existing on the date
hereof, to acquire any shares of its capital stock;
(ix) enter into any agreement or make any undertaking
which could be violated, or create obligations which could be
accelerated, as a result of changes or developments or the
absence of changes or developments in, the business, assets,
earnings, operations or condition, financial or otherwise, of
any other party hereto or any of its subsidiaries or
affiliates; or
(x) make any material changes in any of their respective
management employment arrangements.
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5.5 Due Diligence; Access to Information and Customers.
5.5.1 General Due Diligence Review. From and after the
date hereof and throughout the period prior to the earlier of
the Closing Date or the Termination Date, Buyer and its
officers, employees, accountants, counsel and other authorized
representatives may perform a due diligence review of VSI and
Seller relating to matters other than Environmental matters. In
the event that the results thereof are not reasonably
satisfactory to Buyer, Buyer may terminate this Agreement as
provided in Section 7.1.4 hereof.
5.5.2 Environmental Due Diligence Review. From and after
the date hereof through the Closing Date, Buyer and its
officers, employees, accountants, counsel and other authorized
representatives will perform a due diligence review of VSI and
Seller relating to Environmental matters associated with the
Facilities, and activities of VSI and Seller (collectively, the
"Environmental Due Diligence Review"). Buyer shall cause a
qualified independent environmental engineering and consulting
firm reasonably acceptable to VSI to perform such a review.
Buyer shall not provide a copy of any report resulting from the
Environmental Due Diligence to VSI, unless VSI specifically
requests otherwise. If the Environmental Due Diligence Review
reveals that one or more Facilities has one or more problems
relating to the Environment (including, but not limited to,
Environmental Liabilities) the remedying of which is or are
reasonably advisable, and the aggregate estimated cost of such
remedy as quoted to Buyer is in excess of $1,000,000, then
Buyer will have the right to exclude any one or more of such
Facilities from the Assets so that the aggregate estimated cost
of the remedying the problems at the remaining Facilities shall
be as close to $1,000,000 as practicable without exceeding
$1,000,000.
5.5.3 Reimbursement for Environmental Due Diligence
Review. If, as a result of the Environmental Due Diligence
Review, Environmental Contamination is discovered that is
indemnifiable as a Loss under Section 4.1 hereof pursuant to
Section 4.5.1 hereof, VSI shall reimburse Buyer from the Escrow
Fund for the total costs of the Environmental Due Diligence
Review of each property where such indemnifiable Environmental
Contamination is present.
5.5.4 Access. Each of VSI and Seller shall, as soon as
possible and in any event no later than the Delivery Date, (i)
afford to Buyer and to its officers, employees, accountants,
counsel and other authorized representatives reasonable access,
throughout the period prior to the earlier of the Closing Date
or the Termination Date, to each of VSI's and Seller's plants,
properties, equipment, personnel, books and records (including,
but not limited to, audit
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and tax work papers and surveys, reports, studies, evaluations
and the like pertaining to the Environment at the Facilities or
Former Facilities (during the time of ownership or operation by
VSI or Seller, or to activities of VSI or Seller); (ii) use its
reasonable best efforts to cause its representatives to furnish
to Buyer and to its authorized representatives such additional
financial and operating data and other information as to its
respective businesses and properties as Buyer or its duly
authorized representatives may from time to time reasonably
request; (iii) provide all authorizations reasonably necessary
for Buyer to review records of any Governmental Body with
jurisdiction; and (iv) afford Buyer and its representatives
reasonable access, throughout the period prior to the earlier
of the Closing Date or the Termination Date, to its present and
potential customers, and Buyer and its authorized
representatives shall have the right to contact such customers
and conduct such due diligence investigation relating to
customer relations as Buyer deems reasonably necessary or
appropriate. Buyer agrees to perform all due diligence under
this Section 5.5 using its reasonable best efforts to minimize
disruption to VSI's and Seller's business. Buyer further agrees
to indemnify, defend and hold Seller harmless for all losses
resulting from physical damages caused by Buyer or its agents
in the course of Buyer's due diligence, and to restore the
Facilities to substantially the same condition they were in
prior thereto. Buyer further agrees to dispose of any wastes or
materials it or its agents generated during the Environmental
Due Diligence Review, and to do so in accordance with all
applicable Legal Requirements.
5.5.5 Monthly Financial Statements and Reports. VSI and
Seller shall deliver to Buyer unaudited financial statements
(including a consolidated balance sheet, consolidated statement
of operations, consolidated statement of cash flows, and
consolidated statement of stockholders' equity) and other
operating reports for each month beginning with July 1998 and
ending with the month preceding the month during which the
Closing occurs. Such financial statements and operating reports
shall be delivered to Buyer no later than twenty business days
after the end of the month the subject thereof and shall be
subject to no warranty or representation of Seller or VSI.
5.6 Acquisition Proposals. Neither VSI nor Seller shall, directly or
indirectly, through any officer, director, agent, affiliate, representative
(including, without limitation, investment bankers, attorneys and
accountants) or otherwise, (i) solicit, initiate or encourage submission of
inquiries, proposals or offers from any Person, corporation, partnership or
other entity or group (as such term is used in Section 13(d)(3) of the
Exchange Act) other than Buyer (a "Third Party"), relating to any
acquisition or purchase of all or a portion of the assets of, or any equity
interest in, VSI or Seller; or (ii) unless the Board has determined that
such Third Party has made a Superior Takeover Proposal, participate in any
discussions or negotiations regarding, or furnish to any Third Party any
information with respect to, or otherwise
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cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any Third Party to do or seek any of
the foregoing. VSI and Seller shall promptly notify Buyer if any such
proposal or offer, or any inquiry or contact with any Third Party with
respect thereto, is made, and shall in any such notice set forth in
reasonable detail the identity of the Third Party and the terms and
conditions of such inquiry, proposal or offer. In the event that (a) the
Closing shall fail to occur as the result of VSI or Seller violating the
terms of this Section 5.6 or (b) VSI or Seller shall have determined that a
Superior Takeover Proposal exists, shall have elected to accept such
Superior Takeover Proposal and either the transaction contemplated thereby
is consummated or VSI or Seller terminates this Agreement as a result of
such election, VSI and Seller shall promptly, but in no event later than
one day after the first of such events shall occur, pay Buyer an aggregate
fee of $2,000,000, which amount shall be payable in same day funds, plus
all Expenses. A "Superior Takeover Proposal" means any bona fide (w) tender
or exchange offer; (x) proposal for a merger to which VSI or Seller would
be a party; (y) consolidation or other business combination involving VSI
or Seller; or (z) any other arrangement to acquire, directly or indirectly,
for consideration consisting of cash, securities or a combination thereof,
all of the common stock of VSI or Seller then outstanding or all or
substantially all of the assets of VSI or Seller on terms that the Board
determines in its good faith reasonable judgment (after consultation with a
financial advisor of nationally recognized reputation) to be more favorable
to the stockholders of VSI than the transactions contemplated by this
Agreement.
5.7 Public Announcements. On or after the date hereof, and until the
earlier of the Closing Date or the Termination Date, neither VSI nor Seller
shall furnish any written communication (other than the Proxy Materials) to
its stockholders, customers, creditors or to the public generally if the
subject matter thereof relates to the transactions contemplated hereby
without the prior approval of Buyer as to the content thereof; provided,
however, that the foregoing shall not be deemed to prohibit any disclosure
required by any applicable law or by any Governmental Body having
jurisdiction over such matters.
5.8 Notification of Certain Matters. VSI and Seller shall give prompt
notice to Buyer, and Buyer shall give prompt notice to VSI and Seller, of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty of such
party contained herein to be untrue or inaccurate in any material respect
at any time from the date hereof to the Closing Date; and (ii) any material
failure of VSI or Seller, or of Buyer, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
5.9 Best Efforts. Each of VSI and Seller agrees to use its best
efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated hereby, including, without
limitation, obtaining all authorizations, consents, waivers and approvals
as may be required in connection with the assignment of those contracts,
agreements, licenses,
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leases, sales orders, purchase orders and other commitments to be assumed
by Buyer pursuant hereto; provided that Seller shall not be obligated to
make any payments in order to obtain any such authorizations, consents,
waivers or approvals.
5.10 Execution of Additional Documents. Each party hereto will at any
time, and from time to time after the Closing Date, upon request of the
other party hereto, execute, acknowledge and deliver all such further
deeds, assignments, transfers, conveyances, powers of attorney and
assurances, and take all such further action, as may be reasonably required
to carry out the intent of this Agreement, and to transfer and vest title
to any Asset being transferred hereunder, and to protect the right, title
and interest in and enjoyment of all of the Assets sold, granted, assigned,
transferred, delivered and conveyed pursuant hereto; provided, however,
that this Agreement shall be effective regardless of whether any such
additional documents are executed.
5.11 Fees and Expenses.
5.11.1 Expense Reimbursement. If this Agreement is terminated
by VSI or Seller for any reason whatsoever other than a failure of
any condition set forth in Section 6.2 hereof and Buyer is not in
material breach of its material covenants and agreements hereunder,
then VSI or Seller shall, whether or not any payment is made pursuant
to Section 5.11.2 hereof, reimburse each of Buyer and its
stockholders and affiliates (not later than one day after submission
of statements therefor) for all reasonable out-of-pocket expenses and
fees actually incurred by it or on its behalf in connection with the
negotiation, preparation, execution and performance of this Agreement
and the transactions contemplated hereby, or reasonably and actually
incurred by banks and other financial institutions and assumed by
Buyer or its stockholders or affiliates in connection with the
negotiation, preparation, execution and performance of this
Agreement, any financing related hereto and any definitive financing
agreements relating thereto (all of the foregoing being referred to
herein collectively as the "Expenses").
5.11.2 Other Costs and Expenses. Except as otherwise provided
herein, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
5.12 Limitation of Liability. Notwithstanding any other provision
hereof, no shareholder, officer, director, employee, agent, attorney,
affiliate, servant, successor, assign or representative of either party
hereto or of any affiliate thereof shall have any personal, partnership,
corporate or other liability or obligation whatsoever in respect of or
relating to the covenants, obligations, indemnities, representations or
warranties of Buyer or VSI and Seller under or by reason hereof or in
respect of any certificate or other document delivered with respect hereto.
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5.13 HSR Act Filings. Each of VSI and Seller and Buyer shall as soon
as practicable after the date of this Agreement file their respective
notification and report forms with the Federal Trade Commission and the
United States Department of Justice as required under the HSR Act. Each of
VSI and Seller and Buyer agree to use their respective good faith efforts
to eliminate any concern on the part of any Governmental Body regarding the
legality of the transactions contemplated under this Agreement.
5.14 Employees. Buyer shall, effective as of Closing, offer
employment to all Employees of Seller (subject to satisfaction of Buyer's
standard conditions to employment) other than as otherwise reasonably
determined by Buyer (but in no event shall Buyer terminate such number of
former employees of Seller during such time periods as would require any
action on the part of Seller under WARN). VSI and Seller shall fully
cooperate with Buyer and lend all assistance reasonably requested by Buyer
for the purpose of facilitating Buyer's employment of and communication
with Employees of Seller, including, but not limited to, allowing access to
the Facilities and any Employees and payroll and other Employee records
requested by Buyer.
5.15 Dispute Resolution. Other than as provided in Section 1.9.2
hereof and notwithstanding any provision of this Agreement to the contrary,
all disputes, controversies or claims arising out of or relating to this
Agreement and the transactions contemplated hereby shall be resolved by
agreement among the parties, or, if not so resolved within forty five (45)
days following written notice of dispute given by either party hereto to
the other, and if written notice is given by either of the parties as
provided below and the matter is not otherwise resolved by the parties
hereto, by resort to arbitration in accordance with Title 9 of the United
States Code (the United States Arbitration Act) and the Commercial
Arbitration Rules, as amended from time to time (the "Rules") by the
American Arbitration Association and the following provisions; provided,
however, that the provisions of this Section shall prevail in the event of
any conflict with such Rules. Within thirty (30) days after the giving of
notice by a party to the other parties of its desire to refer the matter in
dispute to arbitration, the parties agree that the matter shall be
presented to a panel of three arbitrators at least one of whom shall have
at least ten years of industry experience relating to the subject matter of
the dispute. Such selection of arbitrators shall be made in accordance with
the Rules. Any such arbitration proceeding shall be held at a location to
be determined by the arbitrators. Any provisional remedy that would be
available from a court of law shall be available from the arbitrator to the
parties to this Agreement pending arbitration. The written decisions and
conclusions of a majority of the arbitration panel with respect to the
matters referred to them pursuant hereto shall be final and binding upon
the parties to the dispute, and confirmation and enforcement thereof may be
rendered thereon by any court having jurisdiction upon application of any
person who is a party to the arbitration proceeding. The costs and expenses
incurred in the course of such arbitration shall be borne by the party or
parties against whose favor the decisions and conclusions of the
arbitration panel are rendered; provided, however, that if the arbitration
panel determines that its decisions are not rendered wholly against the
favor of one party or parties or the other, the arbitration panel shall be
authorized to apportion such costs
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and expenses in the manner that it deems fair and just in light of the
merits of the dispute and its resolution. The arbitration panel shall have
no power or authority under this Agreement or otherwise to award or provide
for the award of punitive or consequential damages against any party. In
any arbitration relating to whether Buyer has "reasonably concluded" (for
purposes of Section 6.1.16) that there has been no material breach of the
warranties in Section 2.24, the burden of establishing reasonableness shall
be on Buyer.
6. Conditions of Closing.
6.1 Buyer's Conditions to Closing. The obligation of Buyer to
purchase and pay for the Assets and to assume the specified liabilities and
obligations set forth herein shall be subject to and conditioned upon, at
Buyer's option, the satisfaction at the Closing of each of the following
conditions:
6.1.1 The holders of shares of the issued and outstanding
capital stock of VSI and Seller shall have duly adopted and approved
this Agreement and all transactions contemplated hereby in accordance
with the requirements of Delaware law and Ohio law, respectively, and
the Articles or Certificate of Incorporation and Bylaws, as amended
to the date of such adoption and approval, of each of VSI and Seller.
6.1.2 All representations and warranties of each of VSI and
Seller contained herein shall be true and correct in all material
respects at and as of the Closing Date (provided however that in
respect of the warranties and representations contained in Section
2.24 hereof Section 6.1.16 shall apply) and each of VSI and Seller
shall have performed all agreements and covenants in all material
respects and satisfied all conditions on its part to be performed or
satisfied by the Closing Date pursuant to the terms hereof, and Buyer
shall have received a certificate of each of VSI and Seller, signed
by its President and dated the Closing Date, to both such effects.
6.1.3 As of the Closing, there shall have been no material
change since the date of the most recent Financial Statements in VSI
or Seller, and neither VSI nor Seller shall have suffered any
material loss (whether or not insured) by reason of physical damage
caused by fire, earthquake, accident or other calamity which
substantially affects the value of their respective assets,
properties or business, and Buyer shall have received a certificate
of each of VSI and Seller, signed by its principal financial officer
and dated the Closing Date, to such effect.
6.1.4 Seller and VSI shall have executed and delivered the
Receivables Guaranty.
6.1.5 VSI shall have delivered to Buyer a Certificate of the
Secretary of State (or other authorized public official) of VSI's and
Seller's respective jurisdiction of incorporation (and each other
jurisdiction listed in Schedule 2.5 hereof) certifying as
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of a date reasonably close to the Closing Date that each of VSI and
Seller has filed all required reports, paid all required fees and
taxes, and is, as of such date, in good standing and authorized to
transact business as a domestic or foreign corporation, as the case
may be.
6.1.6 Seller and VSI shall have executed and delivered the
Escrow Agreement.
6.1.7 The Escrow Agent shall have acknowledged receipt of the
Escrow Fund and accepted the same subject to the terms and
conditions of the Escrow Agreement.
6.1.8 Buyer shall have received from Arnall Golden & Gregory,
LLP, counsel for VSI and Seller, an opinion, dated the Closing Date,
in the form attached hereto as Exhibit "D".
6.1.9 Each of VSI and Seller shall have obtained all
authorizations, consents, waivers and approvals as may be required
in connection with the assignment of those contracts, agreements,
licenses, leases, sales orders, purchase orders and other
commitments to be assigned to Buyer pursuant hereto.
6.1.10 Seller and VSI shall have executed and delivered the
Bill of Sale, Assignment and Assumption Agreement.
6.1.11 Each of Seller and VSI shall have delivered to Buyer a
certificate, dated the Closing Date, of each of VSI's and Seller's
corporate Secretary certifying:
(i) Resolutions of the Board, VSI's stockholders,
Seller's board of directors and Seller's sole stockholder
approving and adopting this Agreement and all transactions
contemplated hereby and authorizing execution of this
Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated hereby;
and
(ii) The incumbency of its officers executing this
Agreement and all agreements and documents contemplated
hereby.
6.1.12 The approval and all consents from any Third Party or
Governmental Body required to consummate the transactions
contemplated hereby shall have been obtained and the waiting period
and any statutory extension thereof applicable to the consummation
of the transactions contemplated by this Agreement under the HSR Act
shall have expired or been terminated.
6.1.13 No Proceeding shall have been instituted or threatened
which questions the validity or legality of the transactions
contemplated hereby or any governmental
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consent, approval or authorization necessary for the consummation of
the transactions of the transactions contemplated by this Agreement.
6.1.14 As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as
so provided or imposing any conditions on the consummation of the
transactions contemplated hereby, which is unduly burdensome on
Buyer.
6.1.15 Buyer shall have received from each of LOR, Inc.,
Rollins Investment Fund and Rollins Holding Company, Inc., an
executed agreement whereby each of them, on their own behalf and on
behalf of their respective affiliates, agrees to be bound by certain
restrictive covenants substantially similar to those imposed on
Seller and VSI pursuant to Section 5.2 of this Agreement; provided,
however, that no such provision shall prohibit an investment in any
publicly-traded entity that does not require the filing of a Schedule
13D nor Schedule 13G under the Exchange Act.
6.1.16 Buyer shall have reasonably concluded, following the
Environmental Due Diligence Review, that there are no material
breaches in the warranties in Section 2.24; provided, however, that
such conclusion shall not preclude the remedies of Buyer provided for
herein. For purposes of this Section 6.1.16 only, "material breaches"
shall be defined as those matters, which in the opinion of the
environmental consultant retained as provided in Section 5.5.2, are
reasonably likely to cost in the aggregate in excess of $1,000,000 to
remedy (excluding the cost of addressing any environmental issues on
Facilities that Buyer elects to exclude from the purchase pursuant to
Section 5.5.2). If Buyer's consultant so concludes, then Buyer shall
promptly so inform VSI of the consultant's opinion. At such time, VSI
may ask Buyer for the information and data upon which Buyer's
consultant bases his or her opinion. If VSI does not agree that it is
reasonably likely to cost in excess of $1,000,000 to remedy the
environmental problems, then VSI shall promptly inform Buyer of its
belief. If the parties cannot resolve this issue within fifteen days
after VSI so informs Buyer, then the matter shall be submitted to
arbitration in accordance with Section 5.15 and the Closing shall be
delayed pending the resolution of such arbitration. If the
transaction closes, then VSI's and Seller's obligation to perform any
Environmental Remediation shall be governed by the provisions and
standards set forth in Section 4.5
6.2 Seller's and VSI's Conditions to Closing. The obligation of
Seller and VSI to sell, grant, convey, assign, transfer and deliver the
Assets shall be subject to and conditioned upon, at VSI's option, the
satisfaction at the Closing of each of the following conditions:
6.2.1 The holders of shares of the issued and outstanding
capital stock of VSI shall have duly adopted and approved this
Agreement and all transactions contemplated
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hereby in accordance with the requirements of Delaware law and the
Certificate of Incorporation and Bylaws, as amended to the date of
such adoption, of VSI.
6.2.2 All representations and warranties of Buyer contained
herein shall be true and correct at and as of the Closing Date in all
material respects and Buyer shall have performed all agreements and
covenants in all material respects and satisfied all conditions on
its part to be performed or satisfied by the Closing Date pursuant to
the terms hereof, and VSI and Seller shall have received a
certificate of Buyer, signed by its Chief Executive Officer and dated
the Closing Date, to both such effects.
6.2.3 Buyer shall have effected payment of the Purchase Price
(less the Escrow Fund) in accordance with the prior written
instructions of Seller.
6.2.4 Buyer shall have executed and delivered the Escrow
Agreement.
6.2.5 Buyer shall have effected payment of the Escrow Fund.
6.2.6 The Escrow Agent shall have acknowledged receipt of the
Escrow Fund and accepted the same subject to the terms and conditions
of the Escrow Agreement.
6.2.7 Buyer shall have executed and delivered the Bill of Sale,
Assignment and Assumption Agreement.
6.2.8 Buyer shall have delivered to Seller and VSI a
certificate, dated the Closing Date, of Buyer's corporate Secretary
certifying:
(i) Resolutions of its board of directors adopting and
approving this Agreement and all transactions contemplated
hereby and authorizing execution of this Agreement and the
execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and
(ii) The incumbency of its officers executing this
Agreement and all agreements and documents contemplated hereby.
6.2.9 VSI and Seller shall have received from Haynes and Boone,
LLP, counsel for Buyer, an opinion, dated the Closing Date, in the
form attached hereto as Exhibit "E".
6.2.10 The approval and all consents from any Third Party or
Governmental Body required to consummate the transactions
contemplated hereby shall have been obtained and the waiting period
and any statutory extension thereof applicable to the consummation of
the transactions contemplated by this Agreement under the HSR Act
shall have expired or been terminated.
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6.2.11 No Proceeding shall have been instituted or threatened
which questions the validity or legality of the transactions
contemplated hereby or any governmental consent, approval or
authorization necessary for the consummation of the transactions of
the transactions contemplated by this Agreement
6.2.12 As of the Closing, there shall be no effective
injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as
so provided or imposing any conditions on the consummation of the
transactions contemplated hereby, which is unduly burdensome on VSI
or Seller.
6.2.13 VSI, Seller and all guarantors of any bank indebtedness
of VSI or Seller shall have received a written release therefrom in
form and substance satisfactory to VSI, Seller and such guarantors.
7. Termination and Abandonment.
7.1 Reasons for Termination. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and abandoned at
any time after the date hereof but not later than the Closing:
7.1.1 by the mutual consent of VSI, Seller and Buyer;
7.1.2 by Buyer at any time after December 31, 1998, if, by that
date, the conditions set forth in Section 6.1 hereof shall not have
been fulfilled or waived;
7.1.3 by VSI and Seller at any time after December 31, 1998,
if, by that date, the conditions set forth in Section 6.2 hereof
shall not have been fulfilled or waived;
7.1.4 by Buyer at any time prior to the later of (i) the
fifteenth business day after the Delivery Date and (ii) the fifteenth
business day after such later date as Buyer actually receives the
Preliminary Schedules required by Section 1.7 hereof, if the general
due diligence investigation of VSI and Seller by Buyer pursuant to
Section 5.5.1 hereof, or any Schedule hereto or any other document
delivered to Buyer as contemplated hereby, shall have revealed any
facts or circumstances which, in the reasonable judgment of Buyer and
regardless of the cause thereof, reflect in a material way on VSI or
Seller;
7.1.5 by Buyer at any time if there has been a material change
in VSI or Seller after the date hereof;
7.1.6 by Buyer or by VSI and Seller at any time if there has
been a material breach of any representation or warranty made by the
other party herein or in any
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certificate or other document delivered pursuant hereto or if there
has been any failure by the other party to perform in all material
respects all obligations or to comply with all covenants on its part
to be performed hereunder; or
7.1.7 by Buyer or by Seller and VSI if there shall have been
any statute, rule or regulation enacted or promulgated or deemed
applicable to the transactions contemplated hereby by any
Governmental Body that, in the reasonable judgment of Buyer or of VSI
and Seller, as the case may be, might (i) result in a significant
delay in the ability of the parties to consummate the transactions
contemplated hereby; (ii) render the parties unable to consummate the
transactions contemplated hereby; (iii) make such consummation
illegal; or (iv) otherwise materially adversely affect VSI or Seller.
7.1.8 by Buyer if VSI and Seller shall fail to deliver one or
more of the Preliminary Schedules to this Agreement in accordance
with Section 1.7 hereof or if one or more of the Preliminary
Schedules, as delivered, differs materially from the information
concerning VSI and Seller provided by VSI or Seller to Buyer prior to
the execution of this Agreement.
7.2 Procedure Upon and Effect of Termination. In the event of any
termination and abandonment pursuant to Section 7.1 hereof, written notice
thereof shall forthwith be given to the other party and the transactions
contemplated hereby shall thereupon be terminated and abandoned, without
further action by Buyer or by VSI and Seller (except for the provisions of
Sections 5.6, 5.11 and 5.12 hereof), and there shall be no liability on the
part of either VSI, Seller or Buyer or their respective officers, directors
or stockholders, except for the provisions of Sections 5.6, 5.11 and 5.12
hereof or except for the material breach of any representation, warranty or
covenant contained herein that is within the reasonable control of the
party in breach.
8. Miscellaneous.
8.1 Notices. Any notice, consent, approval, request, demand or other
communication required or permitted hereunder must be in writing to be
effective and shall be deemed delivered and received (i) if personally
delivered or delivered by telecopy with electronic confirmation, when
actually received by the party to whom sent, or (ii) if delivered by mail
(whether actually received or not), at the close of business on the third
business day next following the day when placed in the federal mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed as follows:
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If to Buyer:
HydroChem Industrial Services, Inc.
5956 Sherry Lane, Suite 930
Dallas, Texas 75225
Attention: Chief Executive Officer
Facsimile No.: (214) 361-4715
with a copy to:
Haynes and Boone, LLP
600 Congress Avenue, Suite 1600
Austin, Texas 78701
Attention: Dennis R. Cassell
Facsimile No.: (512) 867-8470
If to Seller or VSI:
Valley Systems, Inc.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
Attention: Chief Executive Officer
Facsimile #: (330) 854-3444
with a copy to:
Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Jonathan Golden
Facsimile #: (404) 873-8701
(or to such other address as any party shall specify by written notice so
given).
8.2 Binding Effect; Benefits. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything contained herein
to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any Person (other than the parties hereto, the Buyer
Indemnitees (but only with respect to Section 4 hereof), or their
respective successors and permitted assigns) any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
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8.3 Entire Agreement. This Agreement, together with the Exhibits,
Schedules and other documents contemplated hereby, constitute the final
written expression of all of the agreements between the parties, and is a
complete and exclusive statement of those terms. Except as specifically
included or referred to herein, this Agreement and the Exhibits, Schedules
and other documents contemplated hereby supersede all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by any party that differ in any way
from the terms of this written Agreement, and the Exhibits, Schedules and
other documents contemplated hereby, shall be given no force or effect
(except as specifically included or referred to herein). The parties
specifically represent, each to the other, that there are no additional or
supplemental agreements between them related in any way to the matters
herein contained unless specifically included or referred to herein. No
addition to or modification of any provision hereof shall be binding upon
any party unless made in writing and signed by all parties.
8.4 Governing Law. THIS AGREEMENT, AND ALL QUESTIONS RELATING TO ITS
VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT (INCLUDING, WITHOUT
LIMITATION, PROVISIONS CONCERNING LIMITATIONS OF ACTION, BUT EXCLUDING THE
PROVISIONS OF SECTION 5.2 HEREOF AND THE PROVISIONS HEREOF RELATING TO THE
CORPORATE GOVERNANCE OF SELLER), SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (EXCLUSIVE OF THE
CONFLICT OF LAW PROVISIONS THEREOF) APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE. THE PROVISIONS OF SECTION 5.2 HEREOF
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS (EXCLUSIVE OF THE CONFLICT OF LAW PROVISIONS THEREOF) APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. THE
PROVISIONS HEREOF RELATING TO THE CORPORATE GOVERNANCE OF SELLER SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
8.5 Survival. All of the terms, conditions, covenants, agreements,
warranties and representations contained herein shall survive, in
accordance with their terms, the execution hereof, the Closing hereunder
and the Closing Date.
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument; but in making proof of this
Agreement, it shall not be necessary to produce or account for more than
one such counterpart. It is not necessary that each party hereto execute
the same counterpart, so long as identical counterparts are executed by all
parties.
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8.7 Headings. Headings of the Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
8.8 Waivers. VSI and Seller may, by written notice to the Buyer, (i)
extend the time for the performance of any of the obligations or other
actions of Buyer hereunder; (ii) waive any inaccuracies in the
representations or warranties of Buyer contained herein or in any document
delivered pursuant hereto; (iii) waive compliance with any of the
conditions or covenants of Buyer contained herein; or (iv) waive
performance of any of the obligations of Buyer hereunder. Buyer may, by
written notice to VSI and Seller, (i) extend the time for the performance
of any of the obligations or other actions of each of VSI and Seller
hereunder; (ii) waive any inaccuracies in the representations or warranties
of each of VSI and Seller contained herein or in any document delivered
pursuant hereto; (iii) waive compliance with any of the conditions or
covenants of each of VSI and Seller contained herein; or (iv) waive
performance of any of the obligations of each of VSI and Seller hereunder.
Except as provided in the preceding two sentences, no action taken pursuant
hereto, including without limitation any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained herein. The waiver by any party hereto of a breach of
any provision hereunder shall not operate or be construed as a waiver of
any prior or subsequent breach of the same or any other provision
hereunder.
8.9 Incorporation of Exhibits and Schedules. All Exhibits and
Schedules attached hereto are by this reference incorporated herein and
made a part hereof for all purposes as if fully set forth herein.
8.10 Severability. If for any reason whatsoever, any one or more of
the provisions hereof shall be held or deemed to be illegal, inoperative,
unenforceable or invalid as applied to any particular case or in all cases,
such circumstances shall not have the effect of rendering such provision
illegal, inoperative, unenforceable or invalid in any other case or of
rendering any of the other provisions hereof illegal, inoperative,
unenforceable or invalid. Furthermore, in lieu of each illegal, invalid,
unenforceable or inoperative provision, there shall be added automatically,
as part of this Agreement, a provision similar in terms of such illegal,
invalid, unenforceable or inoperative provision as may be possible and as
shall be legal, valid, enforceable and operative.
8.11 Assignability. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by any party hereto without the prior
written consent of the other parties hereto; provided, however, that
Buyer's or its successors' or assigns' rights hereunder may be assigned or
otherwise transferred, in whole or in part, without any other party's
consent (i) to any successor by merger or consolidation or (ii) to any
individual, partnership, corporation or other entity deriving title from
Buyer or its successors or assigns to all or substantially all of the
assets as constituted on the date of any such transfer, provided that no
such assignment
53
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shall effect a release of Buyer or its successors or assigns from any
liabilities or obligations hereunder.
8.12 Drafting. The parties acknowledge and confirm that each of their
respective attorneys have participated jointly in the review and revision
of this Agreement and that it has not been written solely by counsel for
one party. The parties hereto therefore stipulate and agree that the rule
of construction to the effect that any ambiguities are to be or may be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement to favor any party against another.
8.13 References. The use of the words "hereof," "herein,"
"hereunder," "herewith," "hereto," "hereby," and words of similar import
shall refer to this entire Amended and Restated Asset Purchase Agreement,
and not to any particular article, section, subsection, clause, or
paragraph hereof, unless the context clearly indicates otherwise.
8.14 Calendar Days, Weeks and Months. Unless otherwise specified
herein, any reference to "day", "week", or "month" herein shall mean a
calendar day, week or month.
8.15 Gender; Plural and Singular. Where the context hereof so
requires, the masculine gender shall include the feminine or neuter, and
the singular shall include the plural and the plural the singular.
8.16 Cumulative Rights. All rights and remedies specified herein are
cumulative and are in addition to, not in limitation of, any rights or
remedies the parties may have at law or in equity, and all such rights and
remedies may be exercised singularly or concurrently.
8.17 No Implied Covenants. Each party, against the other, waives and
relinquishes any right to assert, either as a claim or as a defense, that
the other party is bound to perform or liable for the nonperformance of any
implied covenant or implied duty or implied obligation.
8.18 Attorneys' Fees. The prevailing party in any dispute between the
parties arising out of the interpretation, application or enforcement of
any provision hereof shall be entitled to recover all of its reasonable
attorney's fees and costs whether suit be filed or not, including without
limitation costs and attorneys' fees related to or arising out of any trial
or appellate proceedings.
8.19 Indirect Action. Where any provision hereof refers to action to
be taken by any Person or party, or which such Person or party is
prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such Person or party.
* * * * * *
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year hereinabove first
set forth.
SELLER:
VALLEY SYSTEMS OF OHIO, INC.
By: /s/ Ed Strickland
Ed Strickland
President and
Chief Executive Officer
VSI:
VALLEY SYSTEMS, INC.
By: /s/ Ed Strickland
Ed Strickland
President and
Chief Executive Officer
BUYER:
HYDROCHEM INDUSTRIAL SERVICES, INC.
By: /s/ B. Tom Carter, Jr.
B. Tom Carter, Jr.
Chairman of the Board and
Chief Executive Officer
55
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SCHEDULES
SCHEDULE TITLE
1.1.1.................................. Fixed Assets
1.3A................................... Assumed Liabilities
1.3B................................... Material Contacts, Leases, etc.
2.2.................................... Required Consents, Approvals, etc.
2.4.................................... Affiliated Entities, etc.
2.5.................................... Jurisdictions
2.7.................................... Officers, Directors, Banks, etc.
2.9.................................... Certain Liabilities
2.12A.................................. Owned Realty
2.12B.................................. Leases, etc.
2.14................................... Encumbrances
2.15................................... Insurance Matters
2.16................................... Intellectual Property
2.18................................... Employee Matters
2.19................................... Other Contracts
2.21................................... Litigation
2.24................................... Environmental Matters
2.25................................... Customers/Suppliers
3.2.................................... Buyer's Required Consent
======================================= ===============================
56
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EXHIBITS
EXHIBIT TITLE
"A".............................. Bill of Sale, Assignment and Assumption
Agreement
"B".............................. Receivables Guaranty .
"C".............................. Escrow Agreement .
"D".............................. Opinion of Arnall Golden & Gregory, LLP
"E".............................. Opinion of Haynes and Boone, LLP
================================= =======================================
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EXHIBIT "A"
BILL OF SALE, ASSIGNMENT
AND
ASSUMPTION AGREEMENT
This Bill of Sale, Assignment and Assumption Agreement, dated , 1998, is by
and among Valley Systems, Inc., a Delaware corporation, and Valley Systems of
Ohio, Inc., an Ohio corporation (collectively, the "Grantor") and HydroChem
Industrial Services, Inc., a Delaware corporation ("Grantee"). All capitalized
terms not defined herein shall have the meanings assigned to them in the
Purchase Agreement (defined below).
Grantor, for the consideration and upon the terms and conditions set forth
in that certain Amended and Restated Asset Purchase Agreement, dated as of
September 8, 1998, by and among Grantee, as buyer, and Grantor, as seller, (the
"Purchase Agreement"), does by these presents hereby grant, convey, bargain,
sell, assign, set over, transfer, and deliver unto Grantee, its successors, and
assigns all right, title, and interest in and to the Assets.
TO HAVE AND TO HOLD all and singular the Assets hereby conveyed,
transferred, and assigned unto the Grantee, its successors, and assigns forever.
Grantor hereby covenants and agrees with Grantee, its successors, and
assigns to execute and deliver to Grantee, its successors, and assigns such
other and further instruments of transfer, assignment, and conveyance and all
such notices, releases, acquittances, and other documents and to use its best
efforts to secure all such consents and waivers as may be necessary to more
fully transfer, assign, and convey to and vest in Grantee all and singular the
Assets hereby transferred, assigned, and conveyed or intended so to be;
provided, however, Grantor shall be under no obligation to make any payments
(except payments which are not accrued on the Closing Balance Sheet with respect
to periods prior to the Closing Date), incur any material (as defined in the
Purchase Agreement) cost or expense, or undertake any material (as defined in
the Purchase Agreement) obligation to obtain any of the foregoing.
In consideration of the conveyance of the Assets contained herein, Grantee,
for the benefit of Grantor, its successors and assigns, and obligees thereunder,
hereby expressly assumes and agrees to perform, pay, and discharge those certain
liabilities and obligations assumed by Grantee pursuant to Section 1.3 of the
Purchase Agreement.
This instrument shall be governed by and construed in accordance with the
laws of the State of Delaware exclusive of the conflict of laws provision
thereof.
A - 1
<PAGE>
This instrument may be executed in any number of counterparts, each of
which for all purposes shall be deemed to be an original and all of such
counterparts shall together constitute but one and the same instrument.
This instrument and the transfer, assignment, conveyance, and assumption
provided for in this instrument shall be effective as of 10:00 a.m., Dallas,
Texas, time on the date first written above.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed on the date first above written.
VALLEY SYSTEMS, INC. HYDROCHEM INDUSTRIAL
SERVICES, INC.
By: By:
Ed Strickland B. Tom Carter, Jr.
President and Chief Executive Chairman of the Board and
Officer Chief Executive Officer
VALLEY SYSTEMS OF OHIO, INC.
By:
Ed Strickland
President and Chief Executive
Officer
A - 2
<PAGE>
EXHIBIT "B"
GUARANTY AGREEMENT
This Guaranty Agreement is made this _______ day of __________, 1998, among
Valley Systems, Inc., a Delaware corporation, and Valley Systems of Ohio, Inc.,
(collectively, "Seller") and HydroChem Industrial Services, Inc., a Delaware
corporation ("Buyer").
Recitals
a. Pursuant to an Amended and Restated Asset Purchase Agreement, dated as of
September 8, 1998 (the "Purchase Agreement") (all capitalized terms not
defined herein shall have the meanings assigned to them in the Purchase
Agreement), Seller has sold, transferred, and assigned to Buyer the Assets.
b. Such assets include the accounts receivable set forth in the schedule
attached hereto as Annex "A" (which Annex "A" shall be updated by Seller
within 45 days of the date hereof in accordance with Section 1.9 of the
Purchase Agreement) ("Accounts").
c. Pursuant to Section 5.1 of the Purchase Agreement, Seller is required to
guarantee the payment of such Accounts.
d. If such Accounts are not paid to Buyer by the respective debtors within 150
days from the date hereof (such unpaid amounts less the reserve for
doubtful accounts not to exceed $125,000 being referred to herein as the
"Unpaid Accounts"), Seller has agreed to pay such Unpaid Accounts on the
terms herein.
NOW, THEREFORE, Seller and Buyer hereby agree as follows:
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Seller, as surety, hereby unconditionally guarantees
that all indebtedness represented by the Unpaid Accounts as of the Closing Date
will be received by Buyer. Within 160 days following the Closing Date, Buyer
shall prepare and deliver to Seller an accounting of collections on the Accounts
on or before 150 days following the Closing Date, certified as true and correct
by the Chief Financial Officer of Buyer. Seller shall within ten (10) business
days following receipt from Buyer of such accounting giving notice of any Unpaid
Accounts, cause the Escrow Agent to make payment from the Escrow Fund to Buyer
of an amount in cash equal to the Unpaid Accounts, whereupon Buyer shall
promptly assign or cause to be assigned to Seller all rights, claims, actions or
causes of action which Buyer may have relating to the Unpaid Accounts. In the
event that the amount received by Buyer for such Accounts shall be in excess of
the amount of the Accounts (less the reserve for doubtful accounts not to exceed
$125,000), the amount of such excess will be paid by Buyer to Seller (from
Buyer's own funds and not from the Escrow Fund) within such ten business day
period. During the 150 days following the Closing Date, Buyer shall use
reasonable and customary efforts to collect
B - 1
<PAGE>
such Accounts (but shall not be obligated to initiate litigation) and any
amounts received by Buyer in respect of such Accounts shall be applied first to
the oldest such Account of the respective account debtor unless the account
debtor specifically directs otherwise in writing without any direction from
Buyer.
The foregoing guaranty is an absolute, present, and continuing guarantee of
payment (and not of collectability).
Seller hereby waives notice of the acceptance of the foregoing guaranty by
Buyer and of Buyer's intention to act in reliance thereon. No act or omission
(other than as specified in Section 5.1 of the Purchase Agreement) on the part
of Buyer of any kind shall affect or impair the foregoing guaranty; provided,
however, Seller shall have no obligation to pay any Unpaid Accounts until Buyer
has delivered the written notice herein provided.
No waiver of any breach of any term of the Guaranty shall be construed as a
waiver of any subsequent breach of such terms or of any other terms of the same
or different nature.
The Guaranty is being executed and delivered pursuant to the terms of the
Purchase Agreement and is subject to all of the terms, covenants and agreements
thereof.
* * * * * *
B - 2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first written above.
VALLEY SYSTEMS, INC.
By:
Ed Strickland
President and Chief Executive Officer
VALLEY SYSTEMS OF OHIO, INC.
By:
Ed Strickland
President and Chief Executive Officer
HYDROCHEM INDUSTRIAL SERVICES, INC.
By:
B. Tom Carter
Chairman of the Board and
Chief Executive Officer
B - 3
<PAGE>
ANNEX A
List of Accounts Receivable
B - 4
<PAGE>
EXHIBIT "C"
ESCROW AGREEMENT
This Escrow Agreement, dated as of ____________, 1998 (the "Closing Date"),
among HydroChem Industrial Services, Inc., a Delaware corporation ("Buyer"),
Valley Systems, Inc., a Delaware corporation, and Valley Systems of Ohio, Inc.,
an Ohio corporation (collectively, "Seller"), and Bank One Texas, N.A., a
national banking association, as escrow agent ("Escrow Agent").
This is the Escrow Agreement referred to in the Amended and Restated Asset
Purchase Agreement, dated as of September 8, 1998, by and among Buyer and Seller
(the "Purchase Agreement"). Capitalized terms used in this agreement without
definition shall have the respective meanings given to them in the Purchase
Agreement.
The parties, intending to be legally bound, hereby agree as follows:
1. ESTABLISHMENT OF ESCROW
(a) Buyer is depositing with Escrow Agent the amount of $4,000,000 in
immediately available funds (as increased by any earnings thereon and as
reduced by any disbursements, amounts withdrawn under Section 5(j) hereof,
or losses on investments, the "Escrow Fund"). Escrow Agent acknowledges
receipt thereof.
(b) Escrow Agent hereby agrees to act as escrow agent and to hold,
safeguard, and disburse the Escrow Fund pursuant to the terms and
conditions hereof.
2. INVESTMENT OF FUNDS
Except as Buyer and Seller may from time to time jointly instruct Escrow
Agent in writing, the Escrow Fund shall be invested from time to time, to the
extent possible, in United States Treasury Bills having a remaining maturity of
90 days or less and repurchase obligations secured by such United States
Treasury Bills, with any remainder being deposited and maintained in demand
deposits with Escrow Agent, until disbursement of the entire Escrow Fund. Escrow
Agent is authorized to liquidate in accordance with its customary procedures any
portion of the Escrow Fund consisting of investments to provide for payments
required to be made under this Agreement.
3. CLAIMS
(a) From time to time on or before the third anniversary of the date
of this Agreement, Buyer may give notice (a "Notice") to Seller and Escrow
Agent specifying in reasonable detail the nature and dollar amount of any
Claim it may have under the terms of the Purchase Agreement; Buyer may make
more than one claim with respect to any underlying state of facts. If
Seller gives notice to Buyer and Escrow Agent disputing any Claim (a
C - 1
<PAGE>
"Counter Notice") within ten (10) business days following receipt by Escrow
Agent of the Notice regarding such Claim, such Claim shall be resolved as
provided in Section 3(b) hereof. If no Counter Notice is received by Escrow
Agent within such ten business day period, then the dollar amount of
damages claimed by Buyer as set forth in its Notice shall be deemed
established for purposes of this Agreement and the Purchase Agreement and,
at the end of such ten business day period, Escrow Agent shall pay to Buyer
the dollar amount claimed in the Notice from (and only to the extent of)
the Escrow Fund. Escrow Agent shall not inquire into or consider whether a
Claim complies with the requirements of the Purchase Agreement.
(b) If a Counter Notice is given with respect to a claim, Escrow
Agent shall make payment with respect thereto only in accordance with (i)
joint written instructions of Buyer and Seller or (ii) a final
non-appealable order of a court of competent jurisdiction. Any court order
shall be accompanied by a legal opinion by counsel for the presenting party
satisfactory to the Escrow Agent to the effect that the order is final and
non-appealable. Escrow Agent shall act on such court order without further
question.
4. RELEASE OF ESCROW
(a)(i)Provided no dispute or disputes in excess of an aggregate of
$3,000,000 (or $2,000,000, if that part of the Escrow Fund subject to
Section 4(b) below has been released to Seller), less the amount of any
payments theretofore made in satisfaction of Seller's indemnification and
guaranty obligations, exist as to any Claim or Claims by any Buyer
Indemnitee against all or a portion of the Escrow Fund on the first
anniversary of the Closing Date, then $1,000,000, less the amount of any
payments in satisfaction of Seller's indemnification and guaranty
obligations, will be released to Seller on the first business day following
such first anniversary of the Closing Date. To the extent such a dispute or
disputes do exist as to a Claim or Claims on the first anniversary of the
Closing Date, an amount equal to the amount of such Claim or Claims (or if
the amount of said Claims cannot be quantified, then Buyer's reasonable,
good faith estimate of the amount of the Claims) will be withheld from such
partial release of the Escrow Fund and will continue to be held in
accordance with the provisions of the Escrow Agreement until such claim or
claims have been fully resolved and the balance of the partial release will
be paid to Seller.
(ii) Provided no dispute or disputes in excess of an aggregate of
$2,000,000 (or $1,000,000, if that part of the Escrow Fund subject to
Section 4(b) below has been released to Seller), less the amount of any
payments theretofore made in satisfaction of Seller's indemnification and
guaranty obligations, exist as to any Claim or Claims by any Buyer
Indemnitee against all or a portion of the Escrow Fund on the second
anniversary of the Closing Date, then an additional $1,000,000, less the
amount of any payments theretofore made in satisfaction of Seller's
indemnification and guaranty obligations, will be released to Seller on the
first business day following such second anniversary of the Closing Date.
To the extent such a dispute or disputes do exist as to a Claim or Claims
on the second anniversary of the Closing Date, an amount equal to the
amount of such Claim or Claims (or if the precise amount
C - 2
<PAGE>
of said Claims cannot be quantified, then Buyer's reasonable, good faith
estimate of the amount of the Claims) will be withheld from such partial
release of the Escrow Fund and will continue to be held in accordance with
the provisions of the Escrow Agreement until such claim or claims have been
fully resolved and the balance of the partial release will be paid to
Seller.
(iii) Provided no dispute or disputes exist as to any Claim or Claims
by any Buyer Indemnitee against all or a portion of the Escrow Fund on the
third anniversary of the Closing Date, then the remainder of the Escrow
Fund will be released to Seller on the first business day following such
third anniversary of the Closing Date and the Escrow Agreement shall
thereupon terminate. To the extent a dispute or disputes do exist as to a
Claim or Claims on the third anniversary of the Closing Date, an amount
equal to the amount of such Claim or Claims (or if the amount of said
Claims cannot be quantified, then Buyer's reasonable, good faith estimate
of the amount of the Claims) will be withheld from such partial release of
the Escrow Fund and will continue to be held in accordance with the
provisions of the Escrow Agreement until such claim or claims have been
fully resolved and the balance of the partial release will be paid to
Seller.
(b) Upon delivery to Buyer of Seller's certificate pursuant to the
terms of Section 5.3.6 of the Purchase Agreement certifying that the
Environmental Remediation has been completed, an amount equal to
$1,000,000, less the sum of (i) the aggregate cost of such Environmental
Remediation (including the Estimated Additional Remediation Cost) and (ii)
the aggregate amount of other Losses of all other Buyer Indemnitees subject
to indemnification pursuant to Section 4.1 of the Purchase Agreement in
excess of $3,000,000, shall forthwith be released to Seller out of the
Escrow Fund. In the event that such Environmental Remediation was not
completed at the first anniversary of the Closing Date, Seller shall
deliver to Buyer a certificate of completion thereof upon such completion
containing a statement of the aggregate cost of the Environmental
Remediation effected following such first anniversary, and Buyer shall
immediately release to Seller out of the Escrow Fund the amount, if any,
which would have been released to Seller under Section 5.3.6 of the
Purchase Agreement following such first anniversary had such actual cost,
rather than the Estimated Additional Remediation Cost, been used in such
calculation.
5. DUTIES OF ESCROW AGENT
(a) Escrow Agent shall not be under any duty to give the Escrow Fund
held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds held
hereunder except as directed in this Agreement. Uninvested funds held
hereunder shall not earn or accrue interest.
(b) Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based
upon such gross negligence or willful misconduct that are successfully
asserted against the Escrow Agent, the other parties hereto shall jointly
and severally indemnify and hold harmless the Escrow Agent (and any
successor
C - 3
<PAGE>
to the Escrow Agent) from and against any and all losses, liabilities,
claims, actions, damages and expenses, including reasonable attorneys' fees
and disbursements, arising out of and in connection with this Agreement.
Without limiting the foregoing, Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash held by it
hereunder in good faith, in accordance with the terms hereof, including,
without limitation, any liability for any delays (not resulting from its
gross negligence or willful misconduct) in the investment or reinvestment
of the Escrow Fund, or any loss of interest incident to any such delays.
(c) Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person
purporting to give receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized
to do so. Escrow Agent may conclusively presume that the undersigned
representative of any party hereto which is an entity other than a natural
person has full power and authority to instruct Escrow Agent on behalf of
that party unless written notice to the contrary is delivered to Escrow
Agent.
(d) Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable
for any action taken or omitted by it in good faith in accordance with such
advice.
(e) Escrow Agent does not have any interest in the Escrow Fund
deposited hereunder but is serving as escrow holder only and having only
possession thereof. Any payments of income from this Escrow Fund shall be
subject to withholding regulations then in force with respect to United
States taxes. The parties hereto will provide Escrow Agent with appropriate
Internal Revenue Service Forms W-9 for tax identification number
certification, or non-resident alien certifications. This Section 5(e) and
Section 5(b) hereof shall survive notwithstanding any termination of this
Agreement or the resignation of Escrow Agent.
(f) Escrow Agent makes no representation as to the validity, value,
genuineness, or the collectability of any security or other document or
instrument held by or delivered to it.
(g) Escrow Agent shall not be called upon to advise any party as to
the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(h) Escrow Agent (and any successor to the Escrow Agent) may at any
time resign as such by delivering the Escrow Fund to any successor Escrow
Agent jointly designated by the other parties hereto in writing, or to any
court of competent jurisdiction, whereupon Escrow Agent shall be discharged
of and from any and all further obligations arising in
C - 4
<PAGE>
connection with this Agreement. The resignation of Escrow Agent will take
effect on the earlier of (a) the appointment of a successor escrow agent
(including a court of competent jurisdiction) or (b) the day which is 30
days after the date of delivery of its written notice of resignation to the
other parties hereto. If at that time Escrow Agent has not received a
designation of a successor Escrow Agent, Escrow Agent's sole responsibility
after that time shall be to retain and safeguard the Escrow Fund until
receipt of a designation of successor Escrow Agent or a joint written
disposition instruction by the other parties hereto or a final
non-appealable order of a court of competent jurisdiction.
(i) In the event of any disagreement between the other parties hereto
resulting in adverse claims or demands being made in connection with the
Escrow Fund or in the event that Escrow Agent is in doubt as to what action
it should take hereunder, Escrow Agent shall be entitled to retain the
Escrow Fund until Escrow Agent shall have received (i) a final
non-appealable order of a court of competent jurisdiction directing
delivery of the Escrow Fund or (ii) a written agreement executed by the
other parties hereto directing delivery of the Escrow Fund, in which event
Escrow Agent shall disburse the Escrow Fund in accordance with such order
or agreement. Any court order shall be accompanied by a legal opinion by
counsel for the presenting party satisfactory to Escrow Agent to the effect
that the order is final and non-appealable. Escrow Agent shall act on such
court order and legal opinion without further question.
(j) Buyer and Seller shall pay Escrow Agent compensation (as payment
in full) for the services to be rendered by Escrow Agent hereunder in the
amount of $_________ at the time of execution of this Agreement and
$_____________ annually thereafter and agree to reimburse Escrow Agent for
all reasonable expenses, disbursements and advances incurred or made by
Escrow Agent in performance of its duties hereunder (including reasonable
fees, expenses and disbursements of its counsel). Any such compensation and
reimbursement to which Escrow Agent is entitled shall be evenly split by
Buyer and Seller.
(k) No printed or other matter in any language (including, without
limitation, prospectuses, notices, reports and promotional material) that
mentions Escrow Agent's name or the rights, powers, or duties of Escrow
Agent shall be issued by the other parties hereto or on such parties'
behalf unless Escrow Agent shall first have given its specific written
consent thereto.
(l) The other parties hereto authorize Escrow Agent, for any
securities held hereunder, to use the services of any United States central
securities depository it reasonably deems appropriate, including, without
limitation, the Depositary Trust Company and the Federal Reserve Book Entry
System.
6. LIMITED RESPONSIBILITY
C - 5
<PAGE>
This Agreement expressly sets forth all the duties of Escrow Agent with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against Escrow Agent. Escrow Agent
shall not be bound by the provisions of any agreement among the other parties
hereto except this Agreement.
7. OWNERSHIP FOR TAX PURPOSES
Seller agrees that, for purposes of federal and other taxes based on
income, Seller will be treated as the owner of the Escrow Fund, and that Seller
will report all income, if any, that is earned on, or derived from, the Escrow
Fund as its income in the taxable year or years in which such income is properly
includible and pay any taxes attributable thereto.
8. NOTICES
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Seller:
Valley Systems, Inc.
Valley Systems of Ohio, Inc.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
Attention: Chief Executive Officer
Facsimile No.: (330) 854-3444
with a copy to:
Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Jonathan Golden
Facsimile No.: (404) 873-8701
C - 6
<PAGE>
Buyer:
HydroChem Industrial Services, Inc.
5956 Sherry Lane
Suite 930
Dallas, Texas 75225
Attention: Chief Executive Officer
Facsimile No.: (214) 361-4715
with a copy to:
Haynes and Boone, LLP
600 Congress Avenue
Suite 1600
Austin, Texas 78701
Attention: Dennis R. Cassell
Facsimile No.: (512) 867-8470
Escrow Agent:
Bank One Texas, N.A.
Attention:
Facsimile No.:
with a copy to:
Attention:
Facsimile No.:
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Texas, County of Dallas, or, if it has or
can acquire jurisdiction, in the United States District Court for the Northern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10. COUNTERPARTS
C - 7
<PAGE>
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original and all of which, when taken together, will be
deemed to constitute one and the same.
11. SECTION HEADINGS
The headings of sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation.
12. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
13. EXCLUSIVE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements among the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the Buyer, the
Seller and the Escrow Agent.
14. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Texas, without
regard to conflicts of law principles.
* * * * * *
C - 8
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
HYDROCHEM INDUSTRIAL VALLEY SYSTEMS, INC.
SERVICES, INC.
By: By:
------------------------------ -------------------------------
B. Tom Carter, Jr. Ed Strickland
Chairman of the Board and President and Chief Executive
Chief Executive Officer Officer
BANK ONE TEXAS, N.A. VALLEY SYSTEMS OF OHIO, INC.
By: By:
Ed Strickland
Name: President and Chief Executive
Officer
Title:
C - 9
<PAGE>
EXHIBIT "D"
SELLER'S OPINION
Buyer shall have received an opinion of Arnall Golden & Gregory, LLP dated the
Closing Date, in form and substance satisfactory to Buyer and its counsel, to
the effect that:
(i) VSI is a corporation validly existing and in good standing under
the laws of the State of Delaware and Seller is a corporation validly
existing and in good standing under the laws of the State of Ohio. Each of
VSI and Seller has the corporate power to own its properties and assets and
to carry on its business as now being conducted. Each of VSI and Seller is
duly qualified as a foreign corporation and is in good standing in all
jurisdictions wherein the ownership of the Assets or the operation of its
business prior to the Closing necessitated same, other than those
jurisdictions wherein the failure to so qualify will not have a material
adverse effect on VSI or Seller, respectively.
(ii) The execution, delivery, and performance of the Agreement by
each of VSI and Seller have been duly authorized by all necessary corporate
action on the part of each of VSI and Seller. The Agreement has been duly
executed and delivered by each of VSI and Seller and constitutes a legal,
valid and binding obligation of each of VSI and Seller enforceable in
accordance with its terms, except as limited by bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting the enforcement of
creditor's rights generally and except that the availability of equitable
remedies is subject to judicial discretion.
(iii) Consummation of the transactions contemplated by this Agreement
will not violate or result in a breach of or constitute a default under the
Articles or Certificate of Incorporation or the Bylaws of either VSI or
Seller or under any material agreement actually known to such counsel to
which VSI or Seller is a party or to which any of the Assets are subject.
(iv) The bills of sale and other conveyances executed and delivered
by each of VSI and Seller at the Closing are valid in accordance with their
terms and are effective to transfer and convey to Buyer all of VSI's and
Seller's respective interests in the Assets.
(v) Such counsel does not have actual knowledge of any litigation,
proceeding or governmental investigation pending against or relating to the
transactions contemplated by this Agreement or of any existing or
threatened claims against VSI or Seller.
(vi) Except for such consents as have been obtained, to the actual
knowledge of such counsel, no authorizations, consents or approvals of any
third party or governmental authority are necessary in order for the sale
and conveyance of any of the Assets to Buyer to be valid and effective.
D - 1
<PAGE>
The letter containing the opinions set forth above will contain such
assumptions, qualifications and limitations as Arnall Golden & Gregory, LLP,
deems necessary or appropriate and as are reasonably acceptable to Buyer and
Buyer's counsel. All of the opinions will be limited to the laws of the State of
Georgia, the General Corporate Law of the State of Delaware. No opinion will be
given on the laws of the State of Texas. No opinion will be given on title to
the Assets. Arnall Golden & Gregory, LLP may provide an opinion of Ohio counsel
as to matters involving Ohio General Corporation Law.
D - 2
<PAGE>
EXHIBIT "E"
BUYER'S OPINION
Seller shall have received an opinion of Haynes and Boone, LLP, in form and
substance satisfactory to Seller and its counsel, to the effect that:
(i) Buyer is a corporation validly existing in good standing under
the laws of the State of Delaware. Buyer has the corporate power to
purchase and own the Assets and pay, perform and discharge the liabilities
assumed by Buyer pursuant to this Agreement. Buyer is duly qualified as a
foreign corporation and is in good standing in all jurisdictions wherein
the ownership of its assets and the conduct of its business necessitates
same, other than those jurisdictions wherein the failure to so qualify will
not have a material adverse effect on Buyer.
(ii) The execution, delivery, and performance of this Agreement by
Buyer have been authorized by all necessary corporate action of Buyer. This
Agreement has been and will be at the Closing duly executed and delivered
by Buyer and constitutes a legal, valid, and binding obligation of Buyer
enforceable in accordance with its terms, except as limited by bankruptcy,
reorganization, insolvency, moratorium, or similar laws affecting the
enforcement of creditor's rights generally and except that the availability
of equitable remedies is subject to judicial discretion.
(iii) Consummation of the transactions contemplated by this Agreement
will not violate or result in a breach of or constitute a default under the
Certificate of Incorporation or the Bylaws of Buyer or under any material
agreement actually known to such counsel to which Buyer is a party.
(iv) Except for such consents as have been obtained, to the actual
knowledge of such counsel, no authorizations, consents or approvals of any
Governmental Body or other third party are necessary in order for the sale
and conveyance of any of the Assets to Buyer to be valid and effective.
The letter containing the opinions set forth above will contain such
assumptions, qualifications and limitations as Haynes and Boone, LLP, deems
necessary or appropriate and as are reasonably acceptable to Seller, VSI and
their counsel. All of the opinions will be limited to the laws of the State of
Texas and the General Corporate Law of the State of Delaware.
E - 1
ROLLINS INVESTMENT FUND
P.O. Box 647
ATLANTA, GA 30301
TELEPHONE (404) 888-2750
September 8, 1998
HydroChem Industrial Services, Inc.
6210 Rothway
Suite 150
Houston, Texas 77040
Valley Systems, Inc.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
Re: Voting of Capital Stock of Valley Systems, Inc.
Gentlemen:
Pursuant to Section 1.5 of the Asset Purchase Agreement entered into
September 8, 1998, by and between HydroChem Industrial Services, Inc., a
Delaware corporation ("HydroChem"), as buyer, and Valley Systems, Inc., a
Delaware corporation ("Valley"), as seller (the "Agreement"), please be advised
that each of the undersigned hereby irrevocably agrees, unless a Superior
Takeover Proposal (as defined in the Agreement) then exists, to vote or cause to
be voted at the meeting of stockholders of Valley Systems, Inc., a Delaware
corporation ("Valley"), to be held pursuant to such Section 1.5 (the "Meeting")
all of the shares of capital stock of Valley held beneficially or of record by
each of the undersigned and entitled to vote at the Meeting (including all
shares of common stock, par value $.01 per share (the "Common Shares"), and all
shares of Series C Preferred Stock, par value $.10 per share (the "Preferred
Shares")) in favor of the approval and adoption of the Agreement, the sale of
substantially all of the assets of Valley pursuant thereto, and all other
transactions contemplated thereby.
Each of the undersigned hereby grants to HydroChem a right of first offer
to purchase at any time which any of the undersigned determine, prior to the
earlier of (i) the Meeting or (ii) December 31, 1998, or sell any or all of the
Common Shares, at a price per share of $3.00 and any or all of the Preferred
Shares at a price per share of $100 (collectively the "Shares"), as follows:
(i) Any of the undersigned desiring to sell all or a portion of its Shares
(the "Offeror") shall give written notice ("Notice of Sale") to HydroChem of its
desire to sell such Shares (or a portion thereof) (the "Offered Interest").
<PAGE>
HydroChem Industrial Services, Inc.
Valley Systems, Inc.
September , 1998
Page 2
(ii) HydroChem shall have the option exercisable until immediately prior
to the Meeting (the "Option Period") to purchase all of the Offered Interest by
delivery of written notice of exercise of the option to the Offeror prior to the
expiration of the Option Period, together with delivery, by certified check or
wire transfer of immediately available funds, of the aggregate purchase price
for the Shares to be so purchased in the amount of $3.00 per Common Share plus
$100 per Preferred Share.
This letter shall not constitute a waiver of any other or further right of
the undersigned.
Each of Valley and HydroChem may specifically enforce the obligations of
the undersigned contained herein. this letter my be executed in counterparts.
This letter has been executed as of September 8, 1998, by each of the
undersigned.
ROLLINS INVESTMENT FUND ROLLINS HOLDING COMPANY, INC.
By: /s/ R. Randall Rollins By: /s/ R. Randall Rollins
R. Randall Rollins R. Randall Rollins
General Partner and as co-executor of estate
of O. Wayne Rollins and as Trustee Title: President
of the several trusts listed on Attachment A
hereto.
By: /s/ Gary W. Rollins
Gary W. Rollins
General Partner and as co-executor of estate
of O. Wayne Rollins and as Trustee of the
several trusts listed on Attachment A hereto.
<PAGE>
ATTACHMENTS
R. Randall Rollins, Trustee of the
Richard R. Rollins, Jr. Qualified
Subchapter S Trust
R. Randall Rollins, Trustee of the
Pamela Renee Rollins Qualified
Subchapter S Trust
R. Randall Rollins, Trustee of the
Robert Wayne Rollins Qualified
Subchapter S Trust
R. Randall Rollins, Trustee of the
Timothy Curtis Rollins Qualified
Subchapter S Trust
R. Randall Rollins, Trustee of the
Amy Claudine Rollins Qualified
Subchapter S Trust
Gary W. Rollins, Trustee of the
Glen William Rollins Qualified
Subchapter S Trust
Gary W. Rollins, Trustee of the
Ruth Ellen Rollins Qualified
Subchapter S Trust
Gary W. Rollins, Trustee of the
Nancy Louise Rollins Qualified
Subchapter S Trust
Gary W. Rollins, Trustee of the
O. Wayne Rollins II Qualified
Subchapter S Trust
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Sep-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 29,631
<SECURITIES> 0
<RECEIVABLES> 25,435
<ALLOWANCES> 0
<INVENTORY> 4,514
<CURRENT-ASSETS> 64,149
<PP&E> 77,886
<DEPRECIATION> 31,184
<TOTAL-ASSETS> 154,419
<CURRENT-LIABILITIES> 15,917
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 15,197
<TOTAL-LIABILITY-AND-EQUITY> 154,419
<SALES> 126,464
<TOTAL-REVENUES> 126,464
<CGS> 78,702
<TOTAL-COSTS> 78,702
<OTHER-EXPENSES> 41,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,742
<INCOME-PRETAX> (1,554)
<INCOME-TAX> (44)
<INCOME-CONTINUING> (1,510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,510)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
N E W S R E L E A S E
For immediate release For more information, contact:
Dorothy Botnick, HydroChem
713-462-2130
Dennis Sheets, Valley Systems
330-854-4526
HYDROCHEM TO ACQUIRE VALLEY SYSTEMS OPERATIONS
HOUSTON, September 9, 1998 -- HydroChem Industrial Services, Inc. and Valley
Systems, Inc. announced today that HydroChem will acquire all of Valley's
operational assets. The transaction is subject to finalizing schedules and
exhibits to the definitive agreement, completing due diligence and obtaining
regulatory and stockholder approval. The purchase price is approximately $29.8
million, plus the assumption of Valley's bank debt and certain other
liabilities. The companies expect to conclude the acquisition during the fourth
quarter of this year.
Valley Systems (NASDAQ:VALE), based in Canal Fulton, Ohio, provides
specialized industrial cleaning services, primarily ultra high pressure water
jetting, metal cutting and vacuum services, to the primary metals, power
generation, chemical, plastics, and petroleum refining industries. The company
employs approximately 350 people and services customers from 18 locations.
Revenue for the fiscal year ended June 30, 1998, was $24.4 million.
"Valley Systems' experienced people, specialized service offerings and
'blue chip' customer base complement HydroChem's growth extremely well,
<PAGE>
particularly our near-term geographic expansion plans," said Tom Carter,
HydroChem chairman and chief executive officer. "With these additional
resources, HydroChem is well positioned to remain a leading provider of
industrial cleaning services."
Ed Strickland, president of Valley Systems, said, "Customers and cemployees
of both companies will benefit greatly from the broader range of services and
greater financial resources made possible by combining HydroChem and Valley
Systems."
HydroChem, based in Houston, has almost 1,900 employees and 50 offices
throughout the U.S. and in Singapore. The company provides industrial cleaning
services, including hydroblasting, chemical cleaning and vacuum services, to the
petrochemical, oil refining, electric utility, pulp and paper and metals
industries.
#####
