<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DENALI INCORPORATED
(Exact name of registrant as specified in its charter)
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DELAWARE 7389 76-0454639
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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1360 POST OAK BLVD., SUITE 2470
HOUSTON, TEXAS 77056
(713) 627-0933
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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STEPHEN T. HARCROW
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DENALI INCORPORATED
1360 POST OAK BLVD., SUITE 2470
HOUSTON, TEXAS 77056
(713) 627-0933
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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ALLEN B. CRAIG, III ALAN P. BADEN
E. SCOTT LINEBERRY T. MARK KELLY
HUTCHESON & GRUNDY, L.L.P. VINSON & ELKINS L.L.P.
3300 TWO ALLEN CENTER 2300 FIRST CITY TOWER
1200 SMITH STREET 1001 FANNIN STREET
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 951-2800 (713) 758-2222
FAX: (713) 951-2925 FAX: (713) 758-2346
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1)(2) FEE
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Common Stock, $.01 par value................................ $32,775,000 $9,932.00
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(1) Includes $4,275,000 to cover the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION OCTOBER , 1997
PROSPECTUS
SHARES
[LOGO]
DENALI INCORPORATED
COMMON STOCK
All of the shares of Common Stock, par value $.01 per share ("Common
Stock"), of Denali Incorporated, a Delaware corporation ("Denali" or the
"Company"), offered hereby are being sold by the Company. Prior to this offering
(the "Offering"), there has been no public market for the Common Stock of the
Company. It is currently anticipated that the initial public offering price will
be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
Application will be made to have the Common Stock approved for listing on
the Nasdaq National Market under the symbol "DNLI".
SEE "RISK FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
IN THE COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share......................... $ $ $
Total(3).......................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated offering expenses of $ payable by the
Company.
(3) The Company has granted the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
shares of Common Stock from the Company, solely to cover
over-allotments. If all such shares are purchased by the Underwriters, the
total Price to Public will be $ , the total Underwriting Discount
will be $ and the total Proceeds to Company will be $ .
See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the Underwriters' right to withdraw, cancel or modify such offer and reject any
order in whole or in part. It is expected that delivery of the shares of the
Common Stock will be made on or about , 1997.
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MORGAN KEEGAN & COMPANY, INC. RAUSCHER PIERCE REFSNES, INC.
The date of this Prospectus is , 1997.
<PAGE> 3
[PICTURE]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS
AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including Notes thereto,
appearing elsewhere in this Prospectus. References to pro forma financial
information should be read in conjunction with the Pro Forma Condensed
Consolidated Financial Statements included elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option. As used in this Prospectus, all
references to the "Company" or to "Denali" refer to Denali Incorporated, its
predecessors and subsidiaries.
THE COMPANY
Denali Incorporated is a rapidly growing provider of products and services
for handling critical fluids, which are fluids that are economically valuable or
potentially hazardous to the environment. The Company is a leading manufacturer
of fiberglass composite underground storage tanks ("USTs"), steel rectangular
aboveground storage tanks ("ASTs") and engineered fiberglass reinforced
composites for handling corrosive fluids. Critical fluids handling products and
services are used in a wide variety of applications, including in retail
petroleum marketing and in petroleum, chemical, pulp and paper, electric power
and other industrial process plants.
BACKGROUND
The Company was formed in 1994 to acquire the fiberglass composite UST
business of Owens Corning. Initially, the Company focused its efforts on
improving profitability, improving responsiveness to customers and developing
new products. The Company's management also realized that the critical fluids
handling industry was highly fragmented and that there would be significant
opportunities to consolidate the industry.
In October 1995, the Company acquired Hoover Containment, Inc. ("Hoover"),
a leading manufacturer of steel rectangular ASTs, and, in February 1997, the
Company acquired Ershigs, Inc. ("Ershigs"), a leading manufacturer of engineered
fiberglass reinforced plastic ("FRP") products for handling corrosive fluids.
In September 1997, the Company agreed to acquire GL&V LaValley
Construction, Inc. ("LaValley"), another manufacturer of engineered FRP
products, and SEFCO, Inc. ("SEFCO"), a fabricator of engineered field-erected
steel tanks. Both of these acquisitions are anticipated to be completed by
October 31, 1997.
Prior to forming the Company, the Company's Chairman and Chief Executive
Officer, Stephen T. Harcrow, was President of EnviroTech, a business unit of
Baker Hughes Incorporated, from 1988 to 1993. EnviroTech was a manufacturer of
equipment for process industries. During Mr. Harcrow's tenure as President,
EnviroTech grew through the acquisition of manufacturers of fluid separation,
pumping and measurement products, with annual revenues increasing from
approximately $365 million up to $680 million. Since the Company's formation,
five other former employees of EnviroTech have joined the Company as executive
officers.
PRODUCTS AND SERVICES
Containment Products. The Company's Containment Products Group specializes
in the manufacture of fiberglass composite USTs and steel rectangular ASTs. The
Company's fiberglass composite USTs, manhole products and oil/water separators
are marketed under the Fluid Containment tradename and its steel rectangular
ASTs are marketed under the Hoover and LubeCube(R) tradenames.
Engineered Products. The Company's Engineered Products Group specializes in
providing custom engineered FRP products and engineered metal products for the
pulp and paper, power, chemical, water and wastewater and other process
industries. The Company markets its engineered FRP products under the Ershigs
tradename and is a leading domestic provider of engineered FRP products for
corrosion resistant applications. SEFCO is an integrated manufacturer of
engineered field-erected steel tanks and accessories for use in the water and
wastewater, agrochemical and petroleum industries. This group focuses its
operations on complex projects, where custom engineering and special
manufacturing expertise are critical.
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BUSINESS STRATEGY
The Company's objective is to become the leading provider of a broad range
of products and services for handling critical fluids through strategic
acquisitions and internal growth. The Company believes that the fragmented
nature of the critical fluids handling industry, which is comprised of many
companies with limited product ranges or serving limited geographic areas, will
provide continued acquisition and internal growth opportunities. The Company
also believes that these opportunities provide the Company with the ability to
offer a comprehensive range of specialized solutions for meeting its customers'
critical fluids handling needs.
Acquisition Strategy. Since its founding in 1994, the Company has completed
three acquisitions and has agreed to acquire two other companies, both of which
acquisitions are expected to be completed by October 31, 1997. The Company's net
sales have grown from approximately $17.8 million for fiscal 1995 (a 28-week
period ended July 1, 1995) to $71.1 million for fiscal 1997. Pro forma net sales
for fiscal 1997 were approximately $104.9 million, including approximately $17.9
million with respect to the pending acquisitions of SEFCO and LaValley. In
addition, EBITDA (as defined) increased from $981,000 for fiscal 1995 to
approximately $3.9 million for fiscal 1997 and $6.1 million for pro forma fiscal
1997. Key elements of the Company's acquisition strategy include:
- Develop a Comprehensive Range of Products and Services. The Company's
existing products offer a variety of containment and engineered materials
solutions for handling critical fluids. The Company intends to broaden
its product lines to introduce additional critical fluid separation and
measurement products. The Company believes that the ability to offer a
comprehensive range of critical fluids handling products and services
will be a competitive advantage.
- Expand Within Existing Markets. The Company intends to expand its product
offerings within the geographic markets it currently serves. For example,
the pending SEFCO acquisition is expected to expand the Company's
engineered product capabilities into the field fabrication of tanks.
- Penetrate New Geographic Markets, Including International Markets. The
Company believes that it can expand its operations that are regional in
nature throughout the United States and internationally. For example, the
pending acquisition of LaValley is expected to strengthen the Company's
market position in the Gulf Coast region for the Company's engineered
products. In addition, the Company recently entered into license
agreements for the international manufacture of certain products.
Internal Growth Strategy. The Company is also focused on expanding the
scope and profitability of each of the businesses it acquires. Key elements of
this growth strategy are:
- Promote Internal Growth through a Decentralized Structure. The Company
employs a decentralized management and operational structure to
capitalize on market knowledge, product expertise, name recognition and
customer relationships.
- Reduce Product and Administrative Costs. The Company's consolidation
effort has led to raw materials purchasing economies, manufacturing
efficiencies, increased sales coverage and product transportation cost
reductions. In addition, the Company has improved operating margins by
consolidating administrative functions such as finance, insurance and
employee benefits.
- Develop New Products. The Company utilizes the technological expertise,
market knowledge and customer relationships of the businesses it acquires
to develop new products. For example, as a result of the Company's
development efforts, sales of oil/water separators and FRP manhole
products have increased from approximately $500,000 for fiscal 1995 to
more than $2.3 million for fiscal 1997.
- Utilize Available Manufacturing Capacity. The Company also believes new
products, acquired businesses and growth of current product net sales
will increase manufacturing and facility utilization, contributing to
further increases in profitability.
The Company's principal offices are located at 1360 Post Oak Boulevard,
Suite 2470, Houston, Texas 77056, and its telephone number is (713) 627-0933.
4
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THE OFFERING
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Common Stock offered by the Company(1)....... shares
Common Stock to be outstanding after the
Offering(1)(2)............................. shares
Use of proceeds.............................. To repay outstanding indebtedness, to redeem
shares of preferred stock and to provide
working capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... DNLI
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(1) Does not include up to shares of Common Stock which may be sold by
the Company on the exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
(2) Does not include 538,863 shares of Common Stock issuable upon exercise of
outstanding options under the Company's stock option plans.
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the factors as set forth under the caption "Risk Factors."
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The summary consolidated financial data for the period December 19, 1994
(date of inception) to July 1, 1995, and the years ended June 29, 1996 and June
28, 1997, have been derived from the Company's Consolidated Financial
Statements, which have been audited by Ernst & Young LLP. The Company operates
on a 52/53 week fiscal year ending on the Saturday closest to June 30.
References to fiscal years by date refer to the fiscal year ending in that
calendar year; for example, "fiscal 1997" refers to the fiscal year ended June
28, 1997.
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HISTORICAL PRO FORMA(1)
---------------------------------------- ------------
FOR THE PERIOD
DECEMBER 19,
1994
(DATE OF
INCEPTION) TO YEAR ENDED YEAR ENDED YEAR ENDED
JULY 1, JUNE 29, JUNE 28, JUNE 28,
1995 1996 1997 1997
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STATEMENT OF OPERATIONS DATA:
Net sales............................................... $17,799 $53,354 $71,101 $104,928
Cost of sales........................................... 13,473 43,518 57,268 85,269
------- ------- ------- --------
Gross profit............................................ 4,326 9,836 13,833 19,659
Selling, general and administrative expenses............ 3,771 9,604 11,874 16,293
------- ------- ------- --------
Operating income........................................ 555 232 1,959 3,366
Interest expense........................................ 671 1,783 2,058 3,277
Interest income......................................... -- (65) (111) (111)
Other income, net....................................... (72) (206) (598) (544)
------- ------- ------- --------
Income (loss) before income taxes....................... (44) (1,280) 610 744
Income tax provision (benefit).......................... (1) (446) 293 298
------- ------- ------- --------
Net income (loss)....................................... $ (43) $ (834) $ 317 $ 446
======= ======= ======= ========
Net income (loss) per common share(2)..................... $ (0.05) $ (0.44) $ 0.09 $ 0.15
======= ======= ======= ========
Weighted average common shares outstanding(2)............. 2,078 2,185 2,198 2,198
======= ======= ======= ========
OTHER DATA:
Depreciation and amortization........................... $ 354 $ 913 $ 1,221 $ 2,053
EBITDA(3)............................................... $ 981 $ 1,416 $ 3,889 $ 6,074
</TABLE>
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JUNE 28, 1997
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PRO FORMA
HISTORICAL PRO FORMA(4) AS ADJUSTED(4)(5)
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BALANCE SHEET DATA:
Working capital........................................... $ 8,569 $ 8,959
Total assets.............................................. 41,084 51,813
Total debt................................................ 24,024 32,724
Series A Preferred Stock (redeemable)..................... 1,200 1,200
Stockholders' equity...................................... (541) (541)
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(1) Gives effect to the acquisition of Ershigs and the pending acquisitions of
LaValley and SEFCO, as if such acquisitions had been consummated as of June
30, 1996, the beginning of the period presented, and should be read in
conjunction with the Pro Forma Condensed Consolidated Financial Statements
included elsewhere in this Prospectus. The pro forma results of operations
are not necessarily indicative of the results that would have occurred had
the acquisitions been consummated as of the beginning of the period.
(2) Supplemental earnings per common share, which give effect to this Offering
as if it had occurred on June 30, 1996, were $0.40 for the year ended June
28, 1997. See Notes 2 and 18 to Consolidated Financial Statements.
(3) EBITDA represents earnings before interest expense, income tax and
depreciation and amortization. The Company believes that EBITDA is a
meaningful measure of its operating performance; however, EBITDA should not
be considered as an alternative performance measure prescribed by generally
accepted accounting principles.
(4) Gives effect to the pending acquisitions of LaValley and SEFCO as if such
acquisitions had been completed on June 28, 1997.
(5) Gives effect to the Offering and the application of the estimated net
proceeds therefrom as set forth under "Use of Proceeds." See
"Capitalization."
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RISK FACTORS
Prospective investors should carefully consider the following factors, as
well as the other information contained in this Prospectus.
DEPENDENCE ON INDUSTRY SPENDING
The prospects for the Company depend upon the level of capital and
maintenance expenditures by its industrial customers. These industries
historically have been cyclical in nature and vulnerable to general downturns in
the economy. No assurance can be given that the Company will be able to increase
or maintain its level of sales in periods of economic stagnation or downturn.
Decreases in industry spending could have a significant adverse effect upon the
demand for the Company's products and services and the Company's results of
operations.
LIMITED OPERATING HISTORY
The Company commenced operations in December 1994 and has only a limited
operating history upon which investors may base an evaluation of its
performance. The likelihood of success of the Company must be considered in
light of the risks, expenses, difficulties and delays frequently encountered in
connection with the operation and development of new and expanding businesses.
ABILITY TO MANAGE GROWTH AND ACHIEVE BUSINESS STRATEGY
Since 1994, the Company has completed three acquisitions of businesses in
pursuit of its strategic objectives and has recently entered into agreements to
purchase two additional businesses. The Company plans to continue to pursue
acquisitions that complement its existing products and services. The Company
expects to face competition for acquisition candidates, which may limit the
number of acquisition opportunities and may lead to higher acquisition prices.
There can be no assurance that the Company will be able to identify, acquire or
manage profitably additional businesses or to integrate successfully any
acquired businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Further, acquisitions involve a number of
special risks, including failure of the acquired business to achieve expected
results, diversion of management's attention, failure to retain key personnel of
the acquired business and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the businesses the Company has acquired or may
acquire in the future will achieve anticipated net sales and earnings. See
"Business -- Strategy."
NEED FOR ADDITIONAL CAPITAL; LEVERAGE AND LIQUIDITY
The Company has experienced and expects to continue to experience
substantial working capital needs to fund it operations. Although the Company
believes that based on its current operations it will be able to meet the
interest and principal obligations on its indebtedness and to fund its capital
expenditures and other operating expenses out of cash flow from operations and
available borrowings under its principal credit facility over the next 12
months, there can be no assurance that the Company's business will continue to
generate cash flow at levels sufficient to meet these requirements. Further, the
Company plans to effect future acquisitions to pursue its business strategy
which may require additional financing. No assurance can be given as to the
availability or terms of any such additional financing that may be required.
At June 28, 1997, after giving effect to the issuance of the Common Stock
offered hereby and the application of the net proceeds therefrom to repay
indebtedness and to redeem certain shares of the Company's Series A Preferred
Stock, the Company would have had total indebtedness of approximately $9.4
million and debt as a percentage of total capitalization of 29.1%. Although the
Company's current amount of indebtedness, as adjusted, is relatively low, the
Company has been highly leveraged in the past and may increase the level of its
indebtedness in the future to fund its current operations or to finance
additional acquisitions. The degree to which the Company will be leveraged could
have important consequences, including the following: (i) the possible
impairment of the Company's ability to obtain financing in the future
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for potential acquisitions, working capital, capital expenditures and general
corporate purposes; (ii) the necessity for a substantial portion of the
Company's cash flow from operations to be dedicated to the payment of principal
and interest on its indebtedness; and (iii) the potential for increased
vulnerability of the Company to economic downturns and possible limitation of
its ability to withstand competitive pressures. The Company's ability to meet
its debt service obligations will be dependent upon the Company's future
performance, which will be subject to general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control.
RISKS RELATED TO INTERNAL GROWTH STRATEGY
Key elements of the Company's strategy are to improve the profitability of
its businesses and any businesses it may subsequently acquire and to continue to
expand the net sales of such businesses. Although the Company intends to seek to
improve the profitability of such businesses by various means, including
reducing administrative and other costs, there can be no assurance that the
Company will be able to do so. The Company's ability to increase the net sales
of such businesses will be affected by various factors, including demand for
products, the Company's ability to expand the range of products and services
offered by each of such businesses and the Company's ability to successfully
enter new markets. Many of these factors are beyond the control of the Company,
and there can be no assurance that the Company's strategies will be successful
or that it will be able to generate cash flow adequate for its operations and to
support internal growth. See "Business -- Business Strategy."
COMPETITION
The markets for the Company's products are fragmented and highly
competitive. Although none of the Company's competitors is considered dominant,
there are competitors that have significantly greater resources than the
Company, which, among other things, could be a competitive disadvantage to the
Company in securing certain projects. See "Business -- Competition."
INTERNATIONAL EXPANSION
The Company's successful expansion into global markets will depend on
numerous factors, many of which are beyond its control. In addition, global
expansion may increase the Company's exposure to certain risks inherent in doing
business outside the United States, including currency fluctuations,
restrictions on the repatriation of profits, compliance with foreign laws and
standards and political risks. Although the majority of the Company's contracts
with respect to international sales to date have been denominated in United
States dollars, no assurance can be made that future contracts will be
denominated in United States dollars; therefore, the Company may be subject to
foreign exchange risks in the future. The Company does not presently hedge
exchange rate fluctuations, but, in the future, may hedge economic exposures.
POTENTIAL FOR PRODUCT LIABILITY CLAIMS
Certain of the Company's products are used in handling potentially
hazardous materials. The Company carries insurance in amounts that it considers
adequate. However, catastrophic occurrences at locations where the Company's
products are used could in the future result in significant product liability
claims against the Company. In addition, a number of the Company's products are
used to store regulated substances such as petroleum. The release or leakage of
such substances from these products could also result in liability claims
against the Company.
GOVERNMENTAL REGULATION
The Company is subject to various foreign, federal, state and local laws
and regulations relating to the protection of health, safety and the
environment. The Company's business involves environmental and health and safety
management issues typically associated with manufacturing operations. Since
formation of the Company, the Company's cost of complying with such laws and
regulations has not been material. However,
8
<PAGE> 10
future laws and regulations may become more stringent and may require the
Company to incur significant additional costs. See "Business -- Governmental
Regulation."
SEASONALITY
The Company's operations are subject to seasonal variations in weather
conditions. Because most of the Company's customers' construction activities
take place outdoors, the number of projects generally declines in the winter
months due to an increase in rainy and cold conditions. In addition, its
customers often schedule the completion of their projects during the summer
months in order to take advantage of the milder weather for the installation of
their equipment and systems. As a result, a disproportionate amount of the
Company's net income, net sales and gross profit has historically been earned
during the first and fourth quarters of the fiscal year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON PRINCIPAL SUPPLIER
The principal raw materials used by the Company in its manufacture of
fiberglass composite USTs are fiberglass and resin. Although resin is available
in adequate supply from a variety of sources, substantial manufacturers of
fiberglass are more limited in number. Because of this limited market supply,
the Company has entered into a supply contract with Owens Corning pursuant to
which the Company has agreed to purchase, and Owens Corning has agreed to
supply, at least 80% of the Company's fiberglass composite UST requirements.
This supply contract expires in December 1999; however, the Company and Owens
Corning are currently negotiating an extension and increase in scope of the
supply contract and the addition of certain pricing stabilization terms tied to
a consumer price index. As a result of this arrangement, the Company remains
significantly dependent upon Owens Corning to deliver quality product in
accordance with and, as required by, the Company's needs.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon a limited number of key management, technical
and sales personnel. The Company's future success will depend, in part, upon its
ability to attract and retain highly qualified personnel. The Company faces
competition for such personnel from other companies and organizations, and there
can be no assurance that the Company will be successful in hiring or retaining
qualified personnel. The Company does not have written employment agreements
with its officers providing for specific terms of employment, and officers and
other key personnel could leave the Company's employ with little or no prior
notice. The Company's loss of key personnel, especially if the loss is without
advance notice, or the Company's inability to hire or retain key personnel,
could have a material adverse effect on the Company's business, financial
condition or results of operations. The Company does not carry any key man life
insurance.
CONTINUED CONTROL BY CURRENT OFFICERS, DIRECTORS AND AFFILIATED ENTITIES
Upon completion of this Offering, the Company's current executive officers,
directors and entities affiliated with them will beneficially own, in the
aggregate, approximately % ( % if the Underwriters' over-allotment
option is exercised in full) of the Company's outstanding Common Stock. If they
were to act together, these stockholders would be able to control substantially
all matters requiring approval by the Company's stockholders, including the
election of directors, the adoption or amendment of provisions in the Company's
Certificate of Incorporation or Bylaws and the approval of mergers or other
business combination transactions. Such ownership of Common Stock may have the
effect of delaying, deferring or preventing a change in control of the Company
and may affect the outcome of the voting and other rights of the other
stockholders. See "Principal Stockholders."
REDEMPTION OF PREFERRED STOCK HELD BY COMPANY DIRECTORS
The Company intends to use a portion of the net proceeds from the Offering
to redeem in full the Company's Series A Preferred Stock. As of September 30,
1997, such redemption amount totaled $1,410,000 (including $210,000 in accrued
and unpaid dividends). Approximately 75% of the Series A Preferred Stock is
9
<PAGE> 11
beneficially owned by members of the Company's Board of Directors. See "Certain
Transactions" and "Use of Proceeds."
ABSENCE OF DIVIDENDS
The Company anticipates that earnings will be retained for the development
of the Company's business and that no cash dividends will be declared on the
Common Stock in the foreseeable future. See "Dividend Policy."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or, if one develops, that it will be sustained. The initial
public offering price for the shares of Common Stock offered hereby has been
determined by negotiation between the Company and the representatives of the
Underwriters based upon several factors and may not be indicative of the market
price of the Common Stock after this Offering. See "Underwriting." The market
price of the Common Stock may be volatile and could be adversely affected by
fluctuations in the Company's operating results or the operating results of the
Company's competitors, the failure of the Company's operating results to meet
the expectations of market analysts and investors, changes in environmental or
other laws and regulations, actions by regulatory authorities, developments in
respect of patents or proprietary rights, changes in market analyst
recommendations, general market conditions or other events and factors.
EFFECT OF ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company has not elected to be excluded from the provisions of Section
203 of the Delaware General Corporation Law, which imposes certain restrictions
on transactions between a corporation and "interested stockholders" (as defined
in Section 203). These restrictions could operate to delay or prevent a change
in control of the Company and to discourage, impede or prevent a merger, tender
offer or proxy contest involving the Company. See "Description of Capital
Stock -- Anti-Takeover Provisions of Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. The 2,184,910 shares of Common Stock outstanding prior to the Offering
are not registered under the Securities Act of 1933, as amended (the "Securities
Act"), and, therefore, are not freely tradable unless subsequently registered
under the Securities Act or exempted from such registration. All of such shares
may be sold pursuant to the requirements of Rule 144 promulgated under the
Securities Act, subject to certain holding period requirements and volume
limitations relating to the sale of securities. In addition, the Company has
adopted a 1996 Incentive Stock Option Plan (the "1996 Plan") and a 1997
Incentive Stock Option Plan (the "1997 Plan") pursuant to which the Company may
grant options to its officers and employees, and shares of Common Stock issuable
upon exercise of options granted under such plans will become available for
future sale in the public market. As of June 28, 1997, there were outstanding
options to acquire 113,190 shares granted under the 1996 Plan, all of which are
currently exercisable. In connection with a merger of Containment Solutions,
Inc., a wholly-owned subsidiary of the Company ("CSI"), with and into the
Company in September 1997, options to acquire an additional 254,643 shares of
Common Stock under the 1996 Plan were issued in exchange for options to acquire
1,400 shares of common stock of CSI, all of which options are immediately
exercisable. Pursuant to the 1997 Plan, the Company has granted, effective as of
the date of this Prospectus, options to acquire 171,030 shares of Common Stock,
of which options to acquire 56,845 shares shall be immediately exercisable. The
Company, all of its executive officers and directors, and certain stockholders
and their affiliates have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any right to purchase or
acquire Common Stock without the prior written consent of the Underwriters for a
period of 180 days after the date of this Prospectus. See "Shares Eligible for
Future Sale" and "Underwriting."
10
<PAGE> 12
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. New investors purchasing Common
Stock in this Offering accordingly will experience immediate and substantial
dilution in net tangible book value per share. See "Dilution."
POSSIBLE ISSUANCE OF PREFERRED STOCK
In addition to the Common Stock, the Company's Certificate of Incorporation
authorizes the issuance of up to 1,000,000 shares of preferred stock.
Immediately following redemption of all of the shares of the Company's Series A
Preferred Stock with a portion of the net proceeds of the Offering, no shares of
preferred stock of the Company will be outstanding, and the Company has no
current plans to issue any shares of preferred stock. However, because the
rights and preferences for any series of preferred stock may be set by the Board
of Directors in its sole discretion, those rights and preferences may be
superior to the rights of holders of the Common Stock and thus may adversely
affect the rights of holders of Common Stock. See "Description of Capital
Stock -- Preferred Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby are estimated to be $ million ($ million if the over-allotment
option is exercised in full), at an assumed public offering price of $ per
share and after deducting the estimated underwriting discount and offering
expenses payable by the Company.
Approximately $14.8 million of the net proceeds to the Company will be used
to repay all or a portion of (i) the borrowings of the Company to be incurred
under a new credit facility (the "New Credit Facility") or (ii) the borrowings
of the Company incurred under its existing credit facility (the "Credit
Facility"). The New Credit Facility is expected to be used to finance an
aggregate of $ million for the Company's acquisitions of LaValley and SEFCO,
with the remainder of the acquisition costs to be funded out of the Company's
existing Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." An
additional $6.7 million of the net proceeds will be used to repay the Company's
outstanding indebtedness to Owens Corning, which indebtedness was incurred in
connection with the Company's acquisition of the fiberglass composite UST
business of Owens Corning. The indebtedness to Owens Corning bears interest at
10.0% per annum and is scheduled to mature on December 31, 1999. Approximately
$1.1 million (including accrued interest) of the net proceeds will be used to
repay the Company's outstanding indebtedness to Praxair, Inc., which
indebtedness was incurred in connection with the acquisition of Ershigs. The
indebtedness to Praxair, Inc. bears interest at a rate of 10.0% per annum and is
scheduled to mature in February 1998. A portion of the proceeds equal to
approximately $1.4 million will be used to redeem all of the shares of the
Company's Series A Preferred Stock (including accrued and unpaid dividends
through the date of redemption). The Company's Directors beneficially own
approximately 75% of the Series A Preferred Stock. The remaining net proceeds,
if any, are intended to be used by the Company for general working capital
purposes. See "Business -- Business Strategy."
11
<PAGE> 13
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently expects that it will retain future earnings for use in the operation
and expansion of its business and does not anticipate paying any cash dividends
in the foreseeable future. With respect to dividends for the Company's Series A
Preferred Stock, see "Use of Proceeds."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
28, 1997, on a (i) historical basis, (ii) pro forma basis to give effect to the
pending acquisitions of LaValley and SEFCO, and (iii) pro forma as adjusted
basis to give effect to the sale of Common Stock offered hereby and application
of the net proceeds therefrom. See "Use of Proceeds." This information is
qualified in its entirety by, and should be read in conjunction with, the
Consolidated Financial Statements and Pro Forma Condensed Consolidated Financial
Statements of the Company appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 28, 1997
-------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt....................... $ 828 $ 1,328 $
Long-term debt, net of current portion.................. 21,736 29,936
Series A Preferred Stock, redeemable at $250 per share,
$.01 par value, authorized 16,000, issued and
outstanding 4,800 shares.............................. 1,200 1,200 --
Stockholders' equity
Common stock, $.01 par value; authorized 30,000,000
shares, issued and outstanding 2,184,910 shares;
issued and outstanding shares, as
adjusted(1)........................................ 22 22
Additional paid-in capital............................ 297 297
Retained deficit...................................... (860) (860)
------- ------- -------
Total stockholders' equity (deficit).......... (541) (541)
------- ------- -------
Total capitalization.......................... $23,223 $31,923 $
======= ======= =======
</TABLE>
- ---------------
(1) Excludes shares of Common Stock issuable upon exercise of outstanding
options under the Company's stock option plans. See "Management -- Stock
Option Plans."
12
<PAGE> 14
DILUTION
Dilution is the reduction in the value of a purchaser's investment in
Common Stock measured by the difference between the purchase price per share and
the net tangible book value per share of the Common Stock after the purchase.
The net tangible book value per share of the Common Stock represents the net
tangible book value of the Company, its total assets less its total liabilities
and intangible assets (consisting primarily of goodwill), divided by the number
of shares of Common Stock outstanding. At June 28, 1997, the net tangible book
value of the Common Stock before giving effect to the Offering was $(1.45) per
share. After giving effect to the sale of the shares of Common Stock offered in
the Offering and after deducting estimated underwriting discounts and offering
expenses of approximately $ , the net tangible book value of the
Company at June 28, 1997 would have been approximately $ per share.
This represents an immediate dilution of $ per share to new investors
and an increase in the net tangible book value of approximately $ per
share to existing stockholders, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Net tangible book value per share at June 28, 1997.......... $(1.45)
Increase per share attributable to new stockholders......... $
Adjusted net tangible book value per share after the Offering....... $
Dilution of net tangible book value per share to new stockholders... $
</TABLE>
The following table sets forth, as of June 28, 1997, the number of shares
of Common Stock purchased or to be purchased from the Company, the total
consideration paid or to be paid and the average price per share paid or to be
paid by existing stockholders and the new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PURCHASE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 2,184,910 % $ 318,500 % $ .15
New investors............... % %
--------- ---- ---------- ----
Total............. 100% $ 100% $
========= ==== ========== ====
</TABLE>
The foregoing information does not include 538,863 shares of Common Stock
issuable upon the exercise of stock options currently granted or expected to be
offered at the time of the Offering under the Company's 1996 and 1997 Incentive
Stock Option Plans. See "Management -- Incentive Stock Option Plans."
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the period December 19, 1994
(date of inception) to July 1, 1995 and the fiscal years ended June 29, 1996 and
June 28, 1997 have been derived from the Company's Consolidated Financial
Statements, which have been audited by Ernst & Young LLP, independent auditors.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 19,
1994 (DATE OF
INCEPTION) TO YEAR ENDED YEAR ENDED
JULY 1, JUNE 29, JUNE 28,
1995 1996 1997
-------------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $17,799 $53,354 $71,101
Cost of sales.......................................... 13,473 43,518 57,268
------- ------- -------
Gross profit........................................... 4,326 9,836 13,833
Selling, general and administrative expenses........... 3,771 9,604 11,874
------- ------- -------
Operating income....................................... 555 232 1,959
Interest expense....................................... 671 1,783 2,058
Interest income........................................ -- (65) (111)
Other income, net...................................... (72) (206) (598)
------- ------- -------
Income (loss) before income taxes...................... (44) (1,280) 610
Income tax provision (benefit)......................... (1) (446) 293
------- ------- -------
Net income (loss)...................................... $ (43) $ (834) $ 317
======= ======= =======
Net income (loss) per common share(1).................. $ (0.05) $ (0.44) $ 0.09
------- ------- -------
Weighted average common shares outstanding(1).......... 2,078 2,185 2,198
======= ======= =======
OTHER DATA:
Depreciation and amortization.......................... $ 354 $ 913 $ 1,221
EBITDA(2).............................................. 981 1,416 3,889
</TABLE>
<TABLE>
<CAPTION>
AS OF
-----------------------------------------
JULY 1, JUNE 29, JUNE 28,
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 3,192 $ 5,649 $ 8,569
Total assets........................................... 21,814 30,318 41,084
Total debt............................................. 13,810 18,611 24,024
Series A Preferred Stock (redeemable).................. 1,200 1,200 1,200
Stockholders' equity (deficit)......................... $ 216 $ (738) $ (541)
</TABLE>
- ---------------
(1) Supplemental earnings per common share, which give effect to this Offering
as if it had occurred on June 30, 1996, were $0.40 for the year ended June
28, 1997. See Notes 2 and 18 to Consolidated Financial Statements.
(2) EBITDA represents earnings before consolidated net income, interest expense,
income tax and depreciation and amortization. The company believes that
EBITDA is a meaningful measure of its operating performance; however, EBITDA
should not be considered as an alternative performance measure prescribed by
generally accepted accounting principles.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's Consolidated Financial Statements
included elsewhere in this document.
OVERVIEW
Since inception in 1994, the Company has acquired three businesses and
recently entered into agreements to acquire two additional businesses. Due to
the magnitude of these acquisitions and the integration of the acquired
operations with the Company's existing businesses, results of operations for
prior periods are not necessarily comparable with or indicative of current or
future periods. Each of the acquisitions has been accounted for under the
purchase method of accounting. Accordingly, the acquired businesses have been
included in the Company's results of operations from the date of acquisition.
The Company was formed in December 1994 to acquire certain assets and
assume certain liabilities of the fiberglass composite UST business of Owens
Corning, including five manufacturing facilities. The purchase price was $16.6
million, consisting of $5.6 million in cash, $9.3 million in notes payable and
approximately $1.7 million in acquisition costs. The Company significantly
restructured the operations of this business at the time of purchase. Two of the
five manufacturing facilities of the business were closed, resulting in a
significant reduction in fixed manufacturing overhead. Operating costs were
significantly reduced throughout the Company, in part through the elimination of
approximately 20 management positions. The Company sold the two closed and idle
manufacturing facilities in fiscal 1996 for $1.5 million in cash (before selling
expenses) and an $850,000 note receivable.
In October 1995, the Company acquired certain assets and assumed certain
liabilities of Hoover, a manufacturer of steel rectangular ASTs. The purchase
price of $5.5 million consisted of $5.4 million in cash and acquisition costs of
approximately $100,000. The Company eliminated certain operating costs through
the sharing of certain general and administrative functions within the acquired
businesses. The addition of the steel rectangular AST product line enabled the
Company to offer a broader line of containment products and to expand its
customer base. These two businesses form the Company's Containment Products
Group.
The Company has significantly restructured its steel rectangular AST
business. The Company has modernized and expanded its manufacturing capabilities
through construction of a new, built-for-purpose facility, consolidating three
manufacturing and administrative office locations in Maryland. One-time expenses
associated with this consolidation adversely impacted fiscal 1997 results;
however, the Company believes this move has positioned the Company to more
effectively and efficiently meet market demand beyond fiscal 1997.
In February 1997, the Company acquired Ershigs, a manufacturer of
engineered FRP products, as the first of the Company's Engineered Products
Group. The $6.1 million purchase price consisted of $5.0 million in cash, $1.0
million in a note payable and acquisition costs of approximately $80,000.
Substantial operational changes were made upon the purchase of Ershigs,
including the closing of one of Ershigs' three manufacturing plants and the
restructuring most of Ershig's sales, general and administrative functions,
which enabled the Company to enhance profitability.
In September 1997, the Company entered into a definitive agreement to
purchase SEFCO for approximately $4.7 million in net cash. SEFCO is a
manufacturer of engineered field-erected aboveground steel tanks. In September
1997, the Company entered into a definitive agreement to purchase LaValley for
$3.9 million in cash. LaValley manufactures engineered FRP products. LaValley
and SEFCO, if the transactions are completed, will become part of the Company's
Engineered Products Group.
The pending acquisitions of LaValley and SEFCO accounted for $17.9 million
of the Company's pro forma 1997 net sales of $104.9 million.
15
<PAGE> 17
The following table indicates the Company's net sales by product line for
fiscal 1995, 1996 and 1997, and pro forma results for fiscal 1997:
<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA(4)
---------------------------------------- ----------
FOR THE PERIOD
DECEMBER 19,
1994
(DATE OF
INCEPTION) TO YEAR ENDED YEAR ENDED YEAR ENDED
JULY 1, JUNE 29, JUNE 28, JUNE 28,
1995 1996 1997 1997
-------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales by Product Line:
CONTAINMENT PRODUCTS:
Fiberglass composite USTs(1)........... $17.8 $38.2 $39.7 $ 39.7
Steel rectangular ASTs(2).............. -- 15.2 25.1 25.1
ENGINEERED PRODUCTS:
Engineered FRP products(3)(4).......... -- -- 6.3 30.1
Engineered field-erected steel
tanks(4)............................ -- -- -- 10.0
----- ----- ----- ------
Total net sales................ $17.8 $53.4 $71.1 $104.9
===== ===== ===== ======
</TABLE>
- ---------------
(1) Reflects 28 weeks of results in fiscal 1995 and 52 weeks of results in
fiscal 1996 and fiscal 1997.
(2) Reflects 35 weeks of results in fiscal 1996 and 52 weeks of results in
fiscal 1997.
(3) Reflects 17 weeks of results in fiscal 1997.
(4) See footnotes to the Pro Forma Condensed Consolidated Financial Statements
for a description of the LaValley and SEFCO pending acquisitions. The pro
forma results of operations are not necessarily indicative of the results
that would have occurred had the acquisitions been completed as of the
beginning of the period.
RESULTS OF OPERATIONS
The following table sets forth for fiscal 1995, 1996 and 1997, the
percentage relationship to net sales of certain expenses and earnings:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
NET SALES
----------------------------------------
FOR THE PERIOD
DECEMBER 19,
1994
(DATE OF
INCEPTION) TO YEAR ENDED YEAR ENDED
JULY 1, JUNE 29, JUNE 28,
1995 1996 1997
-------------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ 100.0% 100.0% 100.0%
Cost of sales.................................... 75.7 81.6 80.5
------ ------ ------
Gross profit..................................... 24.3 18.4 19.5
------ ------ ------
Selling, general and administrative expenses..... 21.2 18.0 16.7
------ ------ ------
Operating income................................. 3.1 0.4 2.8
Interest expense................................. 3.8 3.3 2.9
Interest income.................................. -- (0.1) (0.2)
Other income, net................................ (0.4) (0.4) (0.8)
------ ------ ------
Income (loss) before income taxes................ (0.3) (2.4) 0.9
Income tax provision (benefit)................... -- (0.8) 0.4
------ ------ ------
Net income (loss)................................ (0.3)% (1.6)% 0.5%
====== ====== ======
</TABLE>
16
<PAGE> 18
FISCAL 1997 COMPARED WITH FISCAL 1996
The Company's results of operations for fiscal 1997 were greatly impacted
by the inclusion of 17 weeks of results of Ershigs, which was acquired in
February 1997, and the inclusion of the results of Hoover, which was acquired in
October 1995, for a full fiscal year as compared to 35 weeks reflected in fiscal
1996.
Net sales for fiscal 1997 increased $17.7 million, or 33%, to $71.1
million, from $53.4 million in fiscal 1996. This increase resulted primarily
from the acquisition of Ershigs and Hoover described above.
Gross profit increased $4.0 million, or 41%, to $13.8 million in fiscal
1997 from $9.8 million in fiscal 1996. Gross profit margins were 19.5% and 18.4%
for fiscal 1997 and 1996, respectively. The Containment Products Group's gross
profit margin improved to 19.6% in fiscal 1997 as compared to 18.4% in fiscal
1996. This improvement resulted primarily from a lower cost of raw materials
used in the manufacture of fiberglass composite USTs. The gross profit margin
for the Company's Engineered Products Group was 18.2% in fiscal 1997.
Selling, general and administrative expenses increased $2.3 million, or
24%, to $11.9 million in fiscal 1997 from $9.6 million in fiscal 1996. This
increase was attributable to the inclusion of the Ershigs business and a full 12
months of the Hoover business as discussed above. This increase was partially
offset by savings resulting from a reduction and consolidation of workforce for
the Company's fiberglass composite UST business. Selling, general and
administrative expenses decreased as a percentage of net sales from 18.0% in
fiscal 1996 to 16.7% in fiscal 1997.
Interest expense in fiscal 1997 was $2.1 million compared to $1.8 million
in fiscal 1996. The increase was primarily a result of increased borrowings
required to finance the purchase of Ershigs and a full year of interest for
borrowings in connection with the acquisition of Hoover.
Other income increased $392,000 to $598,000 in fiscal 1997 from $206,000 in
fiscal 1996. This increase resulted primarily from a gain on the sale of idle
equipment to international licensees for the manufacture of fiberglass composite
USTs.
The increase in income tax expense for fiscal 1997 compared to fiscal 1996
resulted from higher pre-tax earnings related to increased profitability of the
Containment Products Group.
FISCAL 1996 COMPARED WITH FISCAL 1995
The Company was incorporated on December 19, 1994. Consequently, fiscal
1995 represented the results of operations for the 28-week period from December
19, 1994 through July 1, 1995.
Net sales increased $35.6 million, or 200%, to $53.4 million in fiscal 1996
from $17.8 million in fiscal 1995. The increase in net sales was directly
attributable to the increased reporting period from 28 weeks to 52 weeks for the
fiberglass composite UST business acquired from Owens Corning in December 1994,
and to the inclusion of 35 weeks for the Hoover business, acquired in October
1995, reflected in fiscal 1996 whereas there were none in fiscal 1995.
Gross profit increased $5.5 million, or 128%, to $9.8 million in fiscal
1996 from $4.3 million in fiscal 1995. Gross profit margins were 18.4% and 24.3%
for fiscal 1996 and 1995, respectively. The decrease in margin was primarily
attributable to increased prices for raw materials used in the manufacture of
the fiberglass composite UST products.
Selling, general and administrative expenses increased $5.8 million, or
153%, in fiscal 1996 to $9.6 million from $3.8 million in fiscal 1995. Selling,
general and administrative expenses as a percentage of net sales decreased to
18.0% for fiscal 1996 compared to 21.2% for fiscal 1995 primarily due to the
Company's reduction and consolidation of its workforce.
Interest expense in fiscal 1996 was $1.8 million compared to $671,000 in
fiscal 1995. Approximately $300,000 of the increased interest expense in 1996
was attributable to increased borrowings arising from the acquisition of Hoover.
The remaining increase resulted from the inclusion of a full year of interest
expense for
17
<PAGE> 19
the Company. In addition, the level of borrowings for the fiberglass composite
UST business increased $1.2 million during fiscal 1996 to fund general working
capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 28, 1997, was $8.6 million, as compared to $5.6
million at June 29, 1996. Cash provided by operating activities was $625,000 for
fiscal 1997 and cash used in operating activities was $109,000 in fiscal 1996.
The improvement in cash provided by operating activities resulted primarily from
a $1.2 million improvement in net income from an $834,000 loss in fiscal 1996 to
a $317,000 profit in fiscal 1997. Capital expenditures totaled $600,000 and
$942,000 in fiscal years 1997 and 1996, respectively. The Company anticipates
that its operating cash flows and available line of credit after application of
the net proceeds of this Offering will be adequate to fund future capital
commitments and working capital requirements for the next 12 months. The Company
estimates that its capital expenditures for fiscal 1998 will be approximately
$1.2 million.
The Company's subsidiaries' existing credit facilities (together, the
"Credit Facility") with its principal lender provide for (i) revolving lines of
credit which permit the Company to borrow up to an aggregate of $23.0 million
and (ii) secured term loans aggregating $3.7 million. As of June 28, 1997, the
Company had outstanding indebtedness of $2.8 million under the term loans and
$10.5 million under the revolving lines of credit. Borrowings under this Credit
Facility are secured by liens on substantially all of the Company's assets. See
Note 7 of Notes to the Consolidated Financial Statements for certain information
regarding the Credit Facility. The Credit Facility bears interest per annum at
varying rates of LIBOR plus a margin ranging from 3.50 to 4.15% or the prime
rate plus a margin ranging from 1.00 to 1.50%. The Company was not in compliance
with certain financial covenants in the Company's existing Credit Facility. The
Company has obtained amendments or waivers of certain covenants in the Company's
existing Credit Facility which cure any non-compliance with such covenants as of
June 28, 1997. The Company expects to be in compliance with all covenants during
fiscal 1998.
In connection with its acquisition of the fiberglass composite UST business
of Owens Corning, the Company issued to Owens Corning a $7.5 million note which
bears interest at an annual rate of 10.0% and matures on December 31, 1999, and
is to be repaid with a portion of the net proceeds of this Offering. The Company
anticipates that the early repayment of this indebtedness to Owens Corning will
result in extraordinary gains, net of tax, of approximately $416,000 in the
second quarter of fiscal 1998 and $242,000 in the fourth quarter of fiscal 1998.
The Company assumed $1.0 million in Industrial Revenue Bonds ("IRBs") in
connection with its acquisition of the Owens Corning fiberglass composite UST
business. The IRBs bear interest at 9.9% per annum, mature in February 2001 and
are secured by the Company's Conroe, Texas manufacturing facility.
The Company is currently pursuing additional financing pursuant to a New
Credit Facility to fund pending acquisitions and provide funds for ongoing
working capital requirements. This New Credit Facility will supplement the
Company's existing Credit Facility and, as with the existing Credit Facility, it
is anticipated that substantially all of the Company's assets will be pledged to
secure advances under this New Credit Facility.
The Company's capital requirements primarily relate to acquisitions of
businesses in the critical fluids handling industry. The Company has made cash
payments net of cash acquired for acquisitions of approximately $17.5 million in
the aggregate since inception in December 1994. The source of this cash
primarily has been bank debt along with proceeds from the sale of idle assets
and use of net working capital. The Company's acquisition program will require
significant additional capital. The Company intends to seek additional capital
as necessary to fund such acquisitions through one or more funding sources that
may include borrowings under the existing Credit Facility, the New Credit
Facility or offerings of debt and/or equity securities of the Company. Cash
provided by operating activities may also be used to fund a portion of future
acquisitions. Although management believes that the Company will be able to
obtain sufficient capital to fund acquisitions, there can be no assurances that
such capital will be available to the Company at the time it is required or on
terms acceptable to the Company.
18
<PAGE> 20
QUARTERLY RESULTS AND SEASONALITY
The Company has experienced significant fluctuations in its quarterly
results of operations. These fluctuations have been attributable to timing of
acquisitions and seasonality. The Company's quarterly operating results are
affected by the annual construction season slowdown resulting from winter
weather especially in the period December through March. The fiberglass
composite UST business is especially impacted during the winter months. The
following table represents the Company's selected unaudited quarterly
consolidated statements of operations for each quarter in fiscal 1996 and 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 29, 1996 FISCAL YEAR ENDED JUNE 28, 1997
---------------------------------------- ----------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $10,507 $14,342 $12,377 $16,128 $17,703 $16,970 $13,906 $22,522
Operating income(loss)......... 142 2 (577) 665 968 666 (542) 867
Net income (loss).............. (175) (179) (653) 173 293 130 (487) 381
</TABLE>
19
<PAGE> 21
BUSINESS
THE COMPANY
The Company is a rapidly growing provider of products and services for
handling critical fluids, which are fluids that are economically valuable or
potentially hazardous to the environment. The Company is a leading manufacturer
of fiberglass composite USTs, steel rectangular ASTs and fiberglass reinforced
composites for handling corrosive fluids. Critical fluids handling products and
services are used in a wide variety of applications, including in retail
petroleum marketing and in petroleum, chemical, pulp and paper, electric power
and other industrial process plants.
BACKGROUND
The Company was formed in 1994 to acquire the fiberglass composite UST
business of Owens Corning. Initially, the Company focused its efforts on
improving profitability, improving responsiveness to customers and developing
new products. The Company's management also realized that the critical fluids
handling industry was highly fragmented and that there would be significant
opportunities to consolidate the industry.
In October 1995, the Company acquired Hoover, a leading manufacturer of
steel rectangular ASTs, and, in February 1997, the Company acquired Ershigs, a
leading manufacturer of engineered FRP products for handling corrosive fluids.
In September 1997, the Company agreed to acquire LaValley, another
manufacturer of FRP products and SEFCO, a fabricator of engineered field-erected
steel tanks. Both of these acquisitions are anticipated to be completed by
October 31, 1997.
Prior to forming the Company, the Company's Chairman and Chief Executive
Officer, Stephen T. Harcrow, was President of EnviroTech, a business unit of
Baker Hughes Incorporated, from 1988 to 1993. EnviroTech was a manufacturer of
equipment for process industries. During Mr. Harcrow's tenure as President,
EnviroTech successfully grew through the acquisition of manufacturers of fluid
separation, pumping and measurement products, with annual revenues increasing
from approximately $365 million up to $680 million. Since the Company's
formation, five other former employees of EnviroTech have joined the Company as
executive officers.
PRODUCTS AND SERVICES
Containment Products. The Company's Containment Products Group specializes
in the manufacture of fiberglass composite USTs and rectangular steel ASTs. The
Company's fiberglass composite USTs, manhole products and oil/water separators
are marketed under the Fluid Containment tradename and its steel rectangular
ASTs are marketed under the Hoover and LubeCube tradenames.
Engineered Products. The Company's Engineered Products Group specializes in
providing custom engineered FRP products and engineered metal products for the
pulp and paper, power, chemical, water and wastewater and other process
industries. The Company markets its engineered FRP products under the Ershigs
tradename and is a leading domestic provider of engineered FRP products for
corrosion resistant applications. SEFCO is an integrated manufacturer of
engineered field-erected steel tanks and accessories for use in the water and
wastewater, agrochemical and petroleum industries. This group focuses its
operations on complex projects, where custom engineering and special
manufacturing expertise are critical.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of a broad range
of products and services for handling critical fluids through strategic
acquisitions and internal growth. The Company believes that the fragmented
nature of the critical fluids handling industry, which is comprised of many
companies with limited product ranges or serving limited geographic areas, will
provide continued acquisition and internal growth opportunities. The Company
also believes that these opportunities provide the Company with the ability to
offer a comprehensive range of specialized solutions for meeting customers'
critical fluids handling needs.
20
<PAGE> 22
Acquisition Strategy. Since its founding in 1994, the Company has completed
three acquisitions and has agreed to acquire two other companies, both of which
acquisitions are expected to be completed by October 31, 1997. The Company's net
sales have grown from approximately $17.8 million for fiscal 1995 (a 28-week
period ended July 1, 1995) to $71.1 million for fiscal 1997. Pro forma net sales
for fiscal 1997 were approximately $104.9 million, including approximately $17.9
million with respect to the pending acquisitions of SEFCO and LaValley. In
addition, EBITDA increased from $981,000 for fiscal 1995 to approximately $3.9
million for fiscal 1997 and $6.1 million for pro forma fiscal 1997. Key elements
of the Company's acquisition strategy include:
- Develop a Comprehensive Range of Products and Services. The Company's
existing products offer a variety of containment and engineered materials
solutions for handling critical fluids. The Company intends to broaden
its product lines to introduce additional critical fluid separation and
measurement products. The Company believes that the ability to offer a
comprehensive range of critical fluids handling products and services
will be a competitive advantage.
- Expand Within Existing Markets. The Company intends to expand its product
offerings within the geographic markets it currently serves. For example,
the pending SEFCO acquisition is expected to expand the Company's
engineered product capabilities into the field fabrication of tanks.
- Penetrate New Geographic Markets, Including International Markets. The
Company believes that it can expand its operations that are regional in
nature throughout the United States and internationally. For example, the
pending acquisition of LaValley is expected to strengthen the Company's
market position in the Gulf Coast region for the Company's engineered
products. In addition, the Company recently entered into license
agreements for the international manufacture of certain products.
Internal Growth Strategy. The Company is also focused on expanding the
scope and profitability of each of the businesses it acquires. Key elements of
this growth strategy are:
- Promote Internal Growth through a Decentralized Structure. The Company
employs a decentralized management and operational structure to
capitalize on market knowledge, product expertise, name recognition and
customer relationships.
- Reduce Product and Administrative Costs. The Company's consolidation
effort has led to raw materials purchasing economies, manufacturing
efficiencies, increased sales coverage and product transportation cost
reductions. In addition, the Company has improved operating margins by
consolidating administrative functions such as finance, insurance and
employee benefits.
- Develop New Products. The Company utilizes the technological expertise,
market knowledge and customer relationships of the businesses it acquires
to develop new products. For example, as a result of the Company's
development efforts, sales of oil/water separators and FRP manhole
products have increased from approximately $500,000 for fiscal 1995 to
more than $2.3 million for fiscal 1997.
- Utilize Available Manufacturing Capacity. The Company also believes new
products, acquired businesses and growth of current product net sales
will increase manufacturing and facility utilization, contributing to
further increases in profitability.
21
<PAGE> 23
The following table sets forth certain information concerning the
businesses which the Company has acquired or is currently in the process of
acquiring:
<TABLE>
<CAPTION>
PRIMARY INDUSTRIES
COMPANY DATE ACQUIRED PRINCIPAL PRODUCT SERVED
------- ------------- ----------------- ------------------
<S> <C> <C> <C>
Fluid Containment(1).......................... December 1994 Fiberglass Composite USTs Petroleum Marketing
Hoover........................................ October 1995 Steel Rectangular ASTs Petroleum Marketing
Ershigs....................................... February 1997 Engineered FRP Products Pulp and Paper,
Power, Chemical,
Water and Wastewater
LaValley...................................... October 1997(2) Engineered FRP Products Pulp and Paper,
Chemical, Power
SEFCO......................................... October 1997(2) Field-Erected Steel Tanks Water and Wastewater,
and Agrochemical
</TABLE>
- ---------------
(1) Formerly the fiberglass composite UST business of Owens Corning.
(2) These transactions are anticipated to be completed by October 31, 1997.
As indicated above, the Company's proposed acquisitions of both LaValley
and SEFCO have not been completed as of the date of this Prospectus. A stock
purchase agreement has been executed by the Company for the purchase of LaValley
for a cash purchase price of $3.9 million. LaValley offers an array of
engineered corrosion resistant products that is similar, although more limited,
than that presently offered by the Company. In addition, the Company has entered
into an agreement to acquire the stock of SEFCO for a net cash purchase price of
$4.7 million. SEFCO is an integrated manufacturer of engineered field-erected
steel tanks and accessories for use in the water and wastewater, agrochemical
and petroleum industries. Both of these transactions are presently scheduled to
be completed by the end of October 1997, but each remains subject to the
satisfaction of customary closing conditions; accordingly, there can be no
assurance that either or both of the transactions will be consummated. A portion
of the funding for these cash acquisitions is anticipated to be obtained under
the Company's New Credit Facility, which the Company expects to pay down with a
portion of the proceeds from this Offering. The remainder of the purchase price
will be funded under the Company's existing Credit Facility, which the Company
also expects to pay down with a portion of the proceeds from this Offering. See
"Use of Proceeds."
OPERATIONS
The Company is organized to capitalize on focused core competencies and
expertise. Its operations are currently split into two groups: the Containment
Products Group and the Engineered Products Group. As part of the Company's
growth strategy, the Company also anticipates creating two additional product
groups to include critical fluid separation and measurement product lines. For a
discussion of certain industry segment data, see Note 17 of Notes to the
Consolidated Financial Statements.
CONTAINMENT PRODUCTS
The Containment Products Group of the Company focuses its operations on the
manufacture of fiberglass composite USTs and steel rectangular ASTs.
FIBERGLASS COMPOSITE UNDERGROUND STORAGE TANKS. The Company is a leading
manufacturer of fiberglass composite USTs and markets its products under the
Fluid Containment tradename. The Company manufactures and markets single wall
and double wall fiberglass composite USTs; leak detection systems; oil/water
separators; ReTank retrofit systems; storage tank anchor systems; and fiberglass
manhole and wetwell products. The Company is the successor to the fiberglass
composite UST business of Owens Corning, which invented the fiberglass composite
UST.
Prior to the Company's acquisition of the tank business of Owens Corning,
Owens Corning completed over 235,000 fiberglass composite UST installations
during a 30-year period, and helped write and maintain the Underwriters'
Laboratory ("UL") 1316 specification. Since the acquisition, the Company has
completed
22
<PAGE> 24
almost 15,000 installations of its own fiberglass composite UST products. The
Company has a comprehensive training program for installers of the Company's
products. The Company also has experienced field service groups located in
California, Texas, Indiana, Pennsylvania, Florida and South Carolina that
support both the installers and their customers.
Each fiberglass composite UST comes with a 30-year corrosion warranty and
is guaranteed not to rust. The corrosion resistant nature of fiberglass
reinforced composite is the chief advantage the Company's fiberglass composite
USTs have in the market. The Company continues to strengthen its position in the
UST industry through research and development and a continual upgrading of its
manufacturing processes and investment in its employees.
Market. The Company believes that its fiberglass composite UST business is
growing primarily because of increased geographic coverage programs by petroleum
marketers and increased scope of service station offerings by the major oil
companies. Most of these fiberglass composite UST sales are for new locations
and developments and not for replacement and rehabilitation programs. An
important market for the Company is the newer, larger stations, known as
"super-c" stores, that combine the traditional self-service station with a fast
food store and a convenience store. According to the Fiberglass Tank and Pipe
Institute, an industry organization with principal offices located in Houston,
Texas, over 90% of all major petroleum marketing companies in the United States,
which includes all of the major integrated oil companies, specify fiberglass
composite USTs at all of their new construction sites. The Company believes that
growth in this area will continue to expand.
The Environmental Protection Agency ("EPA") has established certain minimum
requirements for UST systems installed before December 22, 1988. A majority of
the USTs currently in place in the United States were installed prior to that
date. The EPA requirements call for spill protection, overfill protection and
corrosion protection. A site with a UST of this age must either (1) add spill,
overfill and corrosion protection by December 22, 1998; (2) close the existing
UST by December 22, 1998; or (3) replace the closed existing UST with a new UST
meeting current regulatory standards. The EPA has announced that it intends to
enforce these minimum requirements and that failure of UST owners to adhere to
these requirements by the specified date could result in the UST owner being
cited for violations and fined. To date, the Company's fiberglass composite UST
business does not appear to have been significantly impacted by the
implementation of these EPA requirements and there can be no assurance that
these requirements ultimately will be enforced by the EPA and, if enforced, that
the Company will realize an increase in its fiberglass composite UST net sales
as a result of such enforcement activity.
Competition. The UST market is highly competitive and fragmented, with
entrants from both steel tank suppliers and another major fiberglass composite
UST supplier. Steel tanks account for a majority of the United States UST
market, in terms of net sales. The remainder of this market is divided fairly
evenly between two fiberglass composite UST suppliers, the Company and Xerxes,
Inc., a company headquartered in Minneapolis, Minnesota that has six
manufacturing facilities in the United States. Although steel USTs are less
expensive than fiberglass composite USTs, fiberglass composite USTs are not
subject to corrosion and do not expose the customer to corrosion leaks and
related environmental problems. When determining which product to acquire, one
of these two factors will generally control the purchase decision. Although over
100 manufacturers of UL listed steel USTs are located in the United States, most
of these manufacturers are small, independent operations. Several of the UST
manufacturers, however, are divisions or subsidiaries of larger corporations
with financial resources greater than that of the Company. Transportation costs
are important in the overall cost of product for this market. As a result, local
manufacturers have a distinct advantage of shipping products to the customer.
The Company believes that its quality of manufacturing, manufacturing control,
product design, testing procedures, history of performance and reliability,
delivery capability, customer responsiveness and experienced personnel are
competitive advantages in the UST market.
Marketing and Customers. The Company takes a multifaceted approach to
marketing its fiberglass composite UST products and services. The Company's
sales staff primarily supports an extensive network of Petroleum Equipment
Industry ("PEI") distributors and contractors. For significant national
accounts, i.e. a major oil company, the Company generally sells directly to the
end user, filling orders through its distributors
23
<PAGE> 25
and contractors. The Company's largest fiberglass composite UST customers are
super-regional distribution houses and major oil companies; however, the overall
customer base is diverse, with no one customer accounting for more than 4% of
the Company's fiberglass composite UST net sales in fiscal 1997. The Company's
top eight fiberglass composite UST customers, a mix of PEI distributors and
major oil companies, accounted for 22% of the Company's fiberglass composite UST
net sales in fiscal 1997. The Company has license agreements with companies
outside the United States to produce fiberglass composite USTs using the
Company's technology and continues to expand this presence.
STEEL RECTANGULAR ABOVEGROUND STORAGE TANKS. The Company is the nation's
leading manufacturer of steel rectangular ASTs. The AST market includes both
rectangular and cylindrical configurations and is defined by the Company as
steel constructions intended for stationary aboveground storage of flammable and
combustible liquids at atmospheric pressure. Part of this market includes tanks
called vault tanks which are constructed with an insulation system that is
designed to reduce the heat transferred to the primary tank in the event the
construction were to be exposed to a hydrocarbon pool fire. The term "AST" also
refers to tanks manufactured and then transported as a completed unit to the
customer. For the purposes of this Prospectus, the term "AST" does not include
tanks certified as "large aboveground storage tanks" by the American Petroleum
Institute (tanks with a capacity in excess of 1,000 barrels). The Containment
Products Group does not manufacture these large aboveground storage tanks.
The Company sells its steel rectangular AST products under the Hoover name
and has two primary product lines: lubricant tanks (Lube Cube(R)) and vault
tanks. Lube Cube(R) tanks are designed and built to hold oil and waste oil
products in a service station-type environment, are available in standard sizes
up to 12,000 gallons and may be custom designed according to the customer's
needs. All Lube Cubes(R) meet NFPA (National Fire Protection Association)-30 for
storage of flammable and combustible liquids and are manufactured, tested and
labeled according to UL-142 as well as Underwriters' Laboratories of Canada.
The Company's vault tanks, sometimes referred to as insulated tanks, are
steel rectangular ASTs designed to hold highly combustible fuels, whether
gasoline, diesel or other. These tanks meet all national fire code requirements
for "fire rated" ASTs. Vault tanks are labeled according to UL-2085 "Protected
Secondary Containment" for ASTs containing flammable liquids. The Company's
vault tanks utilize a patented double wall tank design with insulating material
surrounding the inner tank. A pressure testable second steel tank surrounds the
insulating material, providing protection to the material and secondary leak
containment for the primary tank. In addition to the UL listed tanks, the
Company also offers factory-installed equipment packages, including steps,
platforms, pumps and electronics for fuel dispensing, standby generators, used
oil and lubricating oil.
Market. The Company believes that its base market for its steel rectangular
AST products is growing. The Lube Cube(R) tank market is tied to the growth in
number and size of quick-change oil stations and full service centers for auto
repair. The vault tank business continues to grow as the market accepts
aboveground alternatives to historically underground storage. The vault tank
product line has experienced some sales activity associated with the EPA tank
upgrade deadline described above; however, the Company believes that its steel
rectangular AST growth will be driven by factors other than regulatory
compliance.
Competition. The Company's steel rectangular ASTs are sold in highly
fragmented and competitive markets. Most AST manufacturers produce cylindrical
steel tanks that compete against the Company's steel rectangular AST products.
Over 240 steel AST manufacturers operate in North America, and over 75 of these
companies manufacture vault tanks. Several competitors of the Company are
divisions or subsidiaries of larger companies with financial and other resources
greater than those of the Company. However, the Company believes that the
majority of its competitors in this market are local, individually owned
manufacturing facilities because of the cost to transport ASTs significant
distances. The Company believes that it is the only national manufacturing
company in this market, operating facilities in Maryland and California and
having subcontracting agreements with quality manufacturing companies in
Virginia, North Carolina, Indiana, Kansas, Nebraska, Idaho, Maryland and New
York. Almost half of the Company's steel rectangular AST net sales relate to
products manufactured by its subcontractors, providing the flexibility to
cost-effectively service its customers. The Company's national presence reduces
transportation costs for products relative to single
24
<PAGE> 26
plant competitors that compete on a national basis. However, local manufacturers
have a competitive advantage in transportation costs. The Company believes that
its broad product lines, product design, delivery capability, customer
responsiveness and experienced personnel are competitive advantages in the AST
market.
Marketing and Customers. The Company uses its sales staff and outside sales
representative to market its steel rectangular AST products to the end-user
through a network of PEI distributors and contractors. The customer base for its
steel rectangular ASTs is broad, having over 900 accounts. In fiscal 1997, no
customer accounted for greater than 4% of the Company's steel rectangular AST
net sales except for the United States government, which accounted for
approximately 8% of the Company's steel rectangular AST net sales.
ENGINEERED PRODUCTS
The Company's Engineered Products Group is a leading manufacturer of
engineered FRP products for corrosion resistant applications and engineered
field-erected steel tanks for the municipal and industrial markets.
ENGINEERED COMPOSITE PRODUCTS. The Company markets its engineered FRP
products for corrosion resistant applications under the Ershigs name and is a
professional engineering, manufacturing and construction organization that has
been serving the industry since 1921. The Company acquired Ershigs in February
1997. The Company focuses its operations in corrosion resistant applications on
complex projects, where engineering and manufacturing expertise is critical. The
Company designs, manufactures and installs stacks, stack liners, scrubbers,
tanks, abrasion resistant pipe and fittings, retention towers and various types
of engineered systems. For large diameter structures, the Company employs a
proven on-site manufacturing process that eliminates most handling,
transportation and remote access concerns. The Company has produced seamless
tanks in excess of 100 feet in diameter using this method.
Market. The Company serves a variety of industries, including pulp and
paper, power, chemical, water and wastewater and other process industries. The
Company's business is affected by these industries' capital expenditures, which
are driven primarily by economic conditions as they relate to the need for new
construction, expansion or rehabilitation. Key drivers that the Company believes
will affect growth in this area are the implementation of new, more stringent
EPA emission regulations for the pulp and paper industry and for the power
industry and increasing prices of alternative materials, particularly corrosion
resistant grades of stainless steel. Certain capital expenditures in these
industries have been postponed pending the release of the new EPA regulations.
The EPA has announced that such regulations should be published by November
1998; however, there can be no assurance that such regulations will be released
by that date and, even if published by then, that the Company's corrosion
resistant engineered products net sales will experience growth as a result of
the implementation of such regulations.
Competition. The Company participates in a highly fragmented market where
it believes that most of its competitors are small regional fabrication
businesses. Field-erection capabilities and the Company's performance warranty
are believed by the Company to provide competitive advantages. RTP ("Reinforced
Thermoset Plastics")-1 certification is a competitive advantage in this market
and the Company is RTP-1 certified. RTP-1 certification is earned through
process audits administered by the American Society of Mechanical Engineers.
Such certification denotes quality manufacturing practices, adherence to
standardized procedures and a process to qualify material and tank design
according to prescribed tests of physical properties. The Company believes that
its engineering capabilities, quality reputation, history of performance and
effective customer service are competitive advantages in the engineered FRP
products market.
Marketing and Customers. The Company generally sells its engineered FRP
products through a combination of direct field sales and a sales representative
network. The scope of the work performed by the Company is large in nature and,
unless characterized as a special situation, has long lead times to order. The
experienced sales force works closely with the customer in designing the correct
solution for the customer's need. The customer base of the Company varies from
year to year due to the project-oriented nature of the Company's work in this
area. The Company has also entered into a license agreement with an
international company to provide technology, equipment and expertise.
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<PAGE> 27
ENGINEERED METAL PRODUCTS. The Company has entered into an agreement for
the purchase of SEFCO, a manufacturer of engineered field-erected steel tanks
and accessories for use in the municipal, agrochemical and petroleum industries.
The Company is vertically integrated with services ranging from engineering
design, materials procurement, fabrication, site preparation, piping, foundation
work, erection and painting, both in shop and on site. The Company also offers
tank inspection, maintenance and repair and operates primarily in Oklahoma,
Missouri, Arkansas and Kansas.
Market. The Company participates in the municipal and industrial markets.
These markets are dependent on customers' needs for new installations,
expansions and rehabilitation of existing facilities. The municipal market is
less cyclical than the industrial segment, and it historically represents
approximately 70% of the Company's engineered metal products net sales. The
Company deals with a select group of industrial customers that are primarily in
the chemical and petrochemical industries. In the region served, the Company
believes that both of these markets are growing.
Competition. The market in which the Company competes for engineered metal
products is highly competitive and characterized by numerous small competitors
in the municipal market and several large, public companies with financial
resources greater than those of the Company in the industrial market. The
Company believes that it is able to achieve differentiation by taking advantage
of the levels of service, reliability and quality control afforded by vertical
integration. Generally, the Company's competitors in the engineered metal
products industry are reliant on outside suppliers and local contractors to
fulfill the complete scope of projects. The Company believes that this
difference between the Company and its competitors provides the Company major
advantages in bidding, quality control and scheduling.
Marketing and Customers. Marketing activities in this area are limited. The
Company's engineered metal product customer focus has been the municipal water
industry. It has been the Company's experience that most municipal projects are
awarded on a price-based bid with attendant requirements for bid bonding. The
municipal customers are generally broad based with no known customers
representing over 20% of the Company's business activity in this area.
Alternatively, the Company believes that industrial client contracts are awarded
based upon a combination of bids and private negotiations. The Company believes
that it can differentiate itself in all engineered metal product markets in its
region as a result of the extensive services it offers through vertical
integration of its services.
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<PAGE> 28
FACILITIES
The Company operates facilities throughout the United States and considers
them to be in good operating condition and adequate for their present uses. The
Company believes that it has sufficient capacity to meet its current and
anticipated manufacturing requirements for its operations. The Company owns a
facility in Gatesville, Texas that is currently held for sale and is not used as
an operations base. The following table sets forth the Company's principal
manufacturing plants and offices:
<TABLE>
<CAPTION>
APPROXIMATE LEASED
AREA OR
(SQ.FT.) OWNED USES
----------- ------ ----
<S> <C> <C> <C>
Fiberglass Composite Underground Storage Tanks
Conroe, TX(1)............................... 130,000 Owned Manufacturing plant and Containment
Products Group headquarters
Mount Union, PA(2).......................... 110,000 Owned Manufacturing plant and administrative
offices
Bakersfield, CA(3).......................... 73,000 Owned Manufacturing plant and administrative
offices
Steel Rectangular Aboveground Storage Tanks
Baltimore, MD............................... 63,000 Leased(4) Manufacturing plant and administrative
offices
Mira Loma, CA............................... 54,000 Leased(5) Manufacturing plant and administrative
offices
Engineered Fiberglass Reinforced Composite
Products
Bellingham, WA.............................. 63,000 Owned Manufacturing plant and Engineered
Products Group headquarters
Wilson, NC.................................. 47,000 Owned Manufacturing plant and administrative
offices
Biloxi, MS(6)............................... 29,000 Owned Manufacturing plant and administrative
offices
Engineered Field-Erected Steel Tanks
Tulsa, OK(6)(7)............................. 33,000 Owned Manufacturing plant and administrative
offices
Denali Incorporated
Houston, TX................................. 4,600 Leased Corporate headquarters
</TABLE>
- ---------------
(1) Facility is located on 65 acres.
(2) Facility is located on 24 acres.
(3) Facility is located on 20 acres.
(4) Lease expires in 2004.
(5) Lease expires in February 1998 and the Company has no current plans to renew
the same.
(6) Purchase pending.
(7) Facility is located on 12 acres.
BACKLOG
The Company's backlog is based upon customer orders received that the
Company believes are firm. Backlog is comprised of both products to be delivered
and services to be performed. The level of backlog at any particular time is not
necessarily indicative of the future operating performance of the Company as
orders may be changed at any time and the Company is affected by seasonality.
See "Risk Factors -- Seasonality." At August 31, 1997 and August 31, 1996, the
Containment Products Group's backlog was approximately $11.9 million and $10.5
million, respectively. For any given date, the Company anticipates that 80% of
the Containment Products Group's backlog will be shipped or performed within 90
days and 90% will be shipped or performed within 180 days. At August 31, 1997,
the Engineered Products Group's backlog (including pending acquisitions) was
approximately $11.2 million. For any given date, the Company anticipates that
60% of the backlog of the Engineered Products Group will be shipped or performed
within 90 days and 80% will be shipped or performed within 180 days.
MATERIALS AND SUPPLIERS
Owens Corning and the Company are parties to a supply contract pursuant to
which the Company purchases from Owens Corning the fiberglass used in the
Company's composite products. Under this supply contract, Owens Corning is
required to supply and the Company is required to purchase at least 80% of the
Company's Containment Products group fiberglass requirements. The contract will
expire December 31, 1999;
27
<PAGE> 29
however, the Company and Owens Corning are currently negotiating the terms of a
modification to the supply contract which would provide for an extension of at
least one year and certain stabilizing pricing parameters tied to a consumer
price index. In addition to Owens Corning, the Company continues to negotiate
with other vendors to ensure a continued supply of fiberglass to the Company for
its production needs.
The Company is a significant purchaser of resin. Resin is available in
adequate supply from many sources. The Company does not depend upon any single
supplier or source. The Company's ability to operate and to grow is partially
dependent upon its ability to obtain an adequate supply of resin and fiberglass.
For the Company's steel fabrication businesses, the principal materials
used are standard steel shapes, steel plate, fittings, welding gases and paint
and are all currently available in adequate supply from many sources. The
Company does not depend upon any single supplier or source.
PATENTS AND TRADEMARKS
The Company owns numerous United States patents and has a number of
trademarks registered in the United States. Although the Company regards its
patents and trademarks to be of value, it believes that in most instances its
manufacturing and technical knowledge and experience are more important to its
competitive position than are its patents and trademarks. The Company does not
consider its business to be dependent on any one or more of such patents or
trademarks.
INSURANCE
The Company maintains a comprehensive insurance program providing various
types of coverage for its operations including, without limitation, commercial
general liability, commercial automobile liability, workers' compensation and
employment practices liability, directors and officers liability, business
interruption and property and casualty insurance. All policies are subject to
deductibles and other coverage limitations and are at limits and amounts of
insurance that the Company believes are consistent with customary practices and
standards of companies engaged in similar businesses. Although the Company's
management believes that the Company's insurance is adequate, there can be no
assurance that the Company will be able to maintain adequate insurance at rates
which management considers commercially reasonable, nor can there be any
assurance such coverage will be adequate to cover all claims that may arise.
GOVERNMENT REGULATION
The Company is subject to numerous foreign, federal, state and local laws
and regulations relating to the protection of health, safety and the
environment, including the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the Clean Water Act, the Clean Air Act (including
the 1990 Amendments), the Resource Conservation and Recovery Act ("RCRA"), and
the Occupational Safety and Health Act ("OSHA"). Each of these statutes provides
for the imposition of substantial civil and criminal penalties, as well as the
possibility of permit revocation and corrective action orders, for violations of
its requirements. These laws may also provide for retroactive, strict liability,
rendering a party liable for environmental damage without regard to its
negligence or fault. The Company believes that it is in substantial compliance
with such laws. Nevertheless, risks of substantial costs and liabilities are
inherent in certain of its operations, and in certain products produced by the
Company, as they are with other enterprises engaged in similar businesses. Since
its formation, however, the Company's cost of complying with environmental and
health and safety laws and regulations has not been material, but the fact that
such laws or regulations are changed frequently makes predicting the cost or
impact of such laws and regulations on its future operations uncertain.
Modification of existing laws or regulations or the adoption of new laws or
regulations affecting the Company's operations could adversely affect the
Company.
Wastewater
Certain of the Company's facilities discharge process wastewater and storm
water and are subject to the requirements of the federal Clean Water Act and
comparable state statutes. Many of such requirements are embodied in permits
issued to the plants by state and federal environmental agencies. The Company
believes
28
<PAGE> 30
its facilities are generally in compliance with such requirements. However, both
federal and state authorities continue to develop legislation and regulations to
control the discharge of water pollutants. Passage of more restrictive
legislation or regulations could necessitate additional capital expenditures to
reduce discharges of such substances into the environment due to routine or
episodic events.
Air Emissions
Certain of the Company's facilities are subject to the requirements of the
federal Clean Air Act and comparable state statutes. Many of such requirements
are embodied in permits issued to these facilities by governmental agencies. The
Company believes that its operations are in substantial compliance with such
statutes and permits in all states. Amendments to the federal Clean Air Act were
adopted in 1990 (the "1990 Amendments") and contain provisions that may result
in the imposition of certain pollution control requirements with respect to air
emissions from the Company's operations. These amendments direct the EPA to
establish technology-based standards for hazardous air pollutants based on the
use of "maximum achievable control technology" or MACT. By November 15, 1997,
the EPA is scheduled to promulgate MACT standards for the reinforced plastic
composites industry category. These standards may result in tighter emissions
control requirements affecting the Company's fiberglass tank manufacturing
operations. The Company is working with other industry members to assist the EPA
in the development of MACT standards that will be acceptable to the industry.
The 1990 Amendments may also require the Company to obtain new operating permits
for various of its facilities. The Company is currently in the process of
procuring such permits. The adoption of MACT standards applicable to the
Company's operations may result in increased operating or capital expenditures.
At this time, however, the Company does not believe that it will be materially
adversely affected by any emissions control or permit requirements resulting
from the 1990 Amendments.
Superfund
CERCLA, also known as "Superfund," and comparable state laws impose
liability, without regard to fault or the legality of the original act, on
certain classes of persons that contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
a site and companies that disposed or arranged for the disposal of the hazardous
substances found at a site. Those statutes also authorize governmental
environmental authorities such as the EPA and, in some instances, third parties
to take action in response to threats to the public health and the environment
and to seek to recover from the responsible classes of persons the costs
incurred in cleaning up the hazardous substances that have been released into
the environment and for damages to natural resources. It is also not uncommon
for neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment. In the course of its ordinary operations, the Company
generates waste, some of which may fall within the statutory definition of a
"hazardous substance" and some of which may have been disposed of at sites that
may require clean up under Superfund. The Company has been named as a
potentially responsible party ("PRP") under CERCLA or similar state Superfund
laws at four sites: the Seaboard Chemical Company site in Jamestown, North
Carolina; the Diaz Refinery site in Diaz, Arizona; the Bay Drum site in Tampa,
Florida; and the Western Processing site in Kent, Washington. In all such cases,
however, the Company has entered into consent orders resolving its liabilities
as a de minimis or de micromis party and the Company believes that any future
liabilities related to these four sites will not have a material adverse affect
on the financial condition of the Company. The Company's Bellingham, Washington
plant is located adjacent to a wood treatment facility that has been proposed
for listing on the EPA's National Priorities List of Superfund sites (the Oeser
Company site). In addition, contamination has been discovered in Little
Squalicum Creek, which is in proximity to the site. Both sites are listed on the
Washington State Priorities List as awaiting remedial action. It is unknown by
the Company what the magnitude of potential cleanup costs may be for such sites.
To date, the Company has not been named a PRP relative to either site. The
Company believes that any liability relating to its historical disposal
practices will not have a material adverse affect on the financial condition of
the Company.
29
<PAGE> 31
Solid and Hazardous Wastes
The Company generates hazardous and non-hazardous solid wastes which are
subject to the requirements of RCRA and comparable state statutes. The Company
believes that it is in general compliance with such requirements. The RCRA
regulations generally impose requirements on the handling of currently generated
hazardous waste, such regulations may also require "corrective action" with
respect to contamination at facilities caused by the past handling of various
substances. For example, spills and releases of materials from facility
operations might require clean up pursuant to such orders or other remedial
statutes. Though no assurances can be given in this regard, the Company does not
believe that any such clean up activities will have a material adverse affect on
its financial condition.
Safety Regulation
The Company is also subject to the requirements of OSHA and comparable
state statutes. The Company believes that it has operated in substantial
compliance with OSHA requirements, including general industry standards, record
keeping and hazard communicational requirements. The nature of the Company's
business may result from time to time in industrial accidents. On September 10,
1996, an employee died in an accident involving a Hoover tank at the Mira Loma,
California facility. In connection with the accident, criminal charges have been
filed against two of the Company's employees. The Company has engaged counsel to
represent the employees and to vigorously defend them against the charges. The
Company has not been charged. Though no assurances can be given regarding this
accident, the Company does not believe that liabilities associated with this
accident will have a material adverse effect on its financial condition. It is
possible that changes in safety and health regulations or a finding of
non-compliance of current regulations could result in additional capital
expenditures or operating expenses.
Present and Future Environmental Capital Expenditures.
Although it is the Company's policy to comply with all applicable
environmental, health and safety laws and regulations, in many instances the
implementing regulations have not been finalized. Even where regulations or
standards have been adopted, they are subject to varying and conflicting
interpretations and implementation. In many cases, compliance with environmental
regulations or standards can only be achieved by capital expenditures, some of
which may be significant. The Company has no current plans for substantial
capital expenditures with respect to compliance with environmental, health and
safety laws. To the extent estimates are available, capital expenditures for
environmental control facilities are expected to be less than $200,000 for each
of fiscal 1998 and 1999.
EMPLOYEES
At August 31, 1997, the Company employed 612 persons. Four collective
bargaining agreements cover 245 employees in California, Pennsylvania, Texas and
Washington. All of these agreements expire between December 1997 and October
1998. The Company considers its employee relations to be good.
LaValley and SEFCO collectively employed 141 persons, including 16
temporary employees, at August 31, 1997. No collective bargaining agreement
exists with these employees.
LEGAL MATTERS
From time to time the Company is a party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary course
of its business. Except as described above, the Company is not aware of any
current or pending litigation or proceedings that could have a material adverse
effect on the Company's operations, financial condition or cash flow.
30
<PAGE> 32
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen T. Harcrow............... 50 Chairman of the Board and Chief Executive Officer
Ed de Boer....................... 54 Chief Operating Officer
R. Kevin Andrews................. 32 Chief Financial Officer
Melford S. Carter, Jr............ 35 Vice President of Business Development
Robert B. Bennett................ 55 Vice President (Containment Products Group)
Lee W. Orr....................... 39 Vice President (Engineered Products Group)
Cathy L. Smith................... 36 General Counsel
Ernest H. Cockrell............... 52 Director
Thomas D. Simmons, Jr............ 53 Director
J. Taft Symonds.................. 58 Director
Stephen M. Youts................. 49 Director
</TABLE>
Mr. Harcrow has been Chairman of the Board and Chief Executive Officer of
the Company since its inception in December 1994. Mr. Harcrow was employed with
Baker Hughes Incorporated ("BHI") for over 20 years until August 1993,
ultimately serving as Senior Vice President of BHI and President of its
EnviroTech operating group. Mr. Harcrow is also a director of Tetra
Technologies, Inc., a specialty inorganic chemical company. Mr. Harcrow has a BA
from the University of Houston.
Mr. de Boer was appointed Chief Operating Officer of the Company to be
effective November 1, 1997. Prior to joining the Company as a consultant in
January 1997, Mr. de Boer served as President and Chief Executive Officer of
EnviroTech Pumpsystems, Inc., a wholly owned subsidiary of the Weir Group of
Glasgow, Scotland from September 1994 to February 1996. Mr. de Boer was
President of the BHI EnviroTech Pump Group from 1990 to 1994, and President of
BGA International from 1988 to 1990. Mr. de Boer has a BS in Mechanical
Engineering from the Institute of Technology in the Netherlands and an MBA from
The University of British Columbia.
Mr. Andrews is Chief Financial Officer and has been with the Company since
August 1995. Prior to joining the Company, Mr. Andrews served as a Corporate
Development and Financial Manager for Moorco International, a supplier of fluid
measurement and pressure control products, from November 1993 until June 1995,
and the Financial Manager for BHI EnviroTech operating group from 1991 to 1993.
Mr. Andrews received his MBA and BA from The University of Tulsa and is a
certified public accountant.
Mr. Carter is Vice President of Business Development and has been with the
Company since August 1995. Prior to joining the Company, Mr. Carter served as
Corporate Marketing Manager for National-Oilwell, Inc., a supplier of oilfield
drilling equipment and consumables, from June 1994 to August 1995, and the
Marketing Manager for the BHI EnviroTech operating group from 1992 until 1994.
Mr. Carter earned his MBA in finance and international business and BS in
Mechanical Engineering from The University of Texas at Austin.
Mr. Bennett is Vice President of the Company and Chief Operating Officer of
the Containment Products Group and has served in that capacity since April 1996.
Prior to his association with the Company, he served as Vice President of the
Asia Pacific/Middle East Business Units of Baker Hughes INTEQ, Singapore from
1992 to 1995. He also served as Vice President, Milpark Drilling Fluids (a
division of BHI) from 1989 to 1992 and was President of Densitech, a drilling
fluids company, prior to its acquisition by BHI. Mr. Bennett has a BS in
Chemistry from Sam Houston State University.
Mr. Orr is Vice President of the Company and Chief Operating Officer of the
Engineered Products Group and has served in that capacity since May 1997. Prior
to joining the Company, Mr. Orr was Vice President and General Manager of
EnviroTech Molded Products from 1995 to 1997; General Manager of
31
<PAGE> 33
EnviroTech Rubber Engineering from 1993 until 1995; and Vice
President -- Finance for BGA International from 1991 until 1993. Mr. Orr has an
MBA from The University of Texas at Austin and a BBA from Abilene Christian
University.
Ms. Smith is General Counsel and has been with the Company since January
1996. Ms. Smith was employed more than six years at BHI from August 1989 to July
1995, most recently as General Counsel of EnviroTech. Prior to joining BHI, Ms.
Smith worked for the law firm of Thelen, Marrin, Johnson & Bridges from June
1986 to August 1989. Ms. Smith received her J.D. from The University of Houston.
Mr. Cockrell has been a director of the Company since its inception in
December 1994. Since 1970, Mr. Cockrell has served in various capacities at
Cockrell Oil Corporation and has been its Chairman and Chief Executive Officer
since 1996. Mr. Cockrell currently serves as a Director of Pennzoil Company and
Southwest Bank of Texas.
Mr. Simmons has been a director of the Company since its inception in
December 1994. Mr. Simmons serves as Chairman of Simmons, Vedder & Co., a real
estate development and investment firm which he cofounded in 1992. Prior to
founding Simmons, Vedder & Co., Mr. Simmons spent more than 20 years with the
Trammel Crow organization, most recently serving as Group Managing Partner.
Mr. Symonds has been a director of the Company since its inception in
December 1994. Since 1978, Mr. Symonds has served as Chairman of Maurice
Pincoffs Company, an international marketing company, and, since 1978, as
President of Symonds Trust Co., Ltd., an investment firm. Mr. Symonds currently
serves as Chairman of Tetra Technologies, Inc., and Director of Plains
Resources, Inc.
Mr. Youts has been a director of the Company since its inception in
December 1994. Since 1992, Mr. Youts has served as Managing Director and
Chairman of Avondale Partners, an investment banking firm.
DIRECTOR COMPENSATION
None of the Company's directors received any compensation for their
services as a director during fiscal 1997. After completion of the Offering, the
Company intends to pay each director who is not an employee of the Company an
annual director's fee of $12,000 plus a fee of $500 for each Board or committee
meeting attended. Members of the Board of Directors who are employees of the
Company do not receive any fees. The Company reimburses all directors for
reasonable expenses incurred in connection with attending meetings of the Board.
Officers serve at the discretion of the Board of Directors and are elected
annually. There are no family relationships between the directors or executive
officers of the Company. No director is selected or serves pursuant to any
special arrangement or contract.
The Board of Directors will be divided into three relatively equal classes
with up to four directors in each class, with each class serving for a term of
three years. At each annual meeting of stockholders, directors will be elected
by the holders of the Common Stock to succeed those directors whose terms are
expiring. See "Description of Capital Stock -- Common Stock."
Upon completion of the Offering, the Board of Directors intends to
establish a Compensation Committee and an Audit Committee. The Compensation
Committee will make recommendations to the Board concerning salaries and
incentive compensation for the Company's officers and employees. The Audit
Committee will aid management in the establishment and supervision of the
Company's financial controls, evaluate the scope of the annual audit, review
audit results, consult with management and the Company's independent auditors
prior to the presentation of financial statements to shareholders and, as
appropriate, initiate inquiries into aspects of the Company's financial affairs.
32
<PAGE> 34
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company during
fiscal 1997 to the Company's Chief Executive Officer and each other executive
officer whose compensation for such fiscal year was in excess of $100,000
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
NAME AND FISCAL ----------------------- ALL OTHER(3)
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($)
------------------ ------ --------- ----------- ---------------
<S> <C> <C> <C> <C>
Stephen T. Harcrow.............................
Chief Executive Officer 1997 240,000 60,000 3,837
Robert B. Bennett..............................
Vice President of Containment 1997 150,000 37,500 3,057
Products Group
R. Kevin Andrews...............................
Chief Financial Officer 1997 80,004 28,000 2,275
Melford S. Carter, Jr. ........................
Vice President of Business Development 1997 80,004 28,000 1,798
Cathy L. Smith.................................
General Counsel 1997 80,004 28,000 2,275
</TABLE>
- ---------------
(1) Information with respect to certain perquisites and other personal benefits
has been omitted because the aggregate value of such items does not meet the
minimum amount required for disclosure under SEC regulations.
(2) Bonus amounts were earned during the fiscal year indicated, but paid in the
first quarter of the following fiscal year.
(3) Each of the amounts in this column is a combination of (a) matching
contributions to the executive officer's account in the Company's Retirement
(401K) Plan and (b) premium payments by the Company for life insurance for
the benefit of the executive officer.
OPTION VALUES
The following table sets forth certain information with respect to the
value of the stock options held by the Named Executive Officers at June 28,
1997. No Named Executive Officer exercised any stock options during fiscal 1997.
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL YEAR END(#) OPTIONS($)(1)
---------------------- --------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---- ---------------------- --------------------
<S> <C> <C>
R. Kevin Andrews....................................... 37,730/0
Melford S. Carter, Jr.................................. 37,730/0
Cathy L. Smith......................................... 37,730/0
</TABLE>
- ---------------
(1) Reflects the difference between the exercise price of options and the
Offering price.
33
<PAGE> 35
STOCK OPTION PLANS
1996 Incentive Stock Option Plan
The Company's 1996 Incentive Stock Option Plan (the "1996 Plan") was
adopted by the Board of Directors and the stockholders of the Company in
February 1996 and subsequently amended effective September 1997. The purpose of
the 1996 Plan is to promote the long-term growth and profitability of the
Company. The 1996 Plan is intended to grant incentive stock option awards to all
employees of the Company; provided, however, that such awards shall be
non-qualified options if they do not meet the requirements for being considered
as incentive stock options. No further options may be granted pursuant to the
1996 Plan.
The 1996 Plan is administered by the Company's Board of Directors. The
Board selects the employees who will receive awards, determines the terms of the
awards to be granted and interprets and administers the 1996 Plan. The Board of
Directors of the Company may terminate or amend the 1996 Plan without
stockholder approval, except to the extent that stockholder approval is required
by the Internal Revenue Code or other applicable law.
Awards granted under the 1996 Plan are subject to such terms and conditions
as the Board of Directors may establish. If a recipient of an award under the
1996 Plan ceases to be an employee of the Company by reason of death or
disability, all options theretofore granted to such recipient which are
exercisable at the date of such death or disability may be exercised by such
recipient's estate or the recipient at any time within three months after the
date of such death or disability. Except as provided below, if a recipient of an
award ceases to be an employee of the Company by reason of termination with or
without cause, resignation, retirement, or any reason other than death or
disability, all options awarded to such participant shall automatically
terminate, effective as of such cessation of employment, to the extent not
theretofore exercised. Notwithstanding the foregoing, with respect to options
under the 1996 Plan granted to Mr. Andrews, Mr. Carter and Ms. Smith, if Stephen
T. Harcrow does not hold the office at the Company of President, Chief Executive
Officer or a similar office with responsibility and authority comparable to that
of President or Chief Executive Officer, a recipient of an award who ceases to
be an employee of the Company by reason other than death or disability may
exercise all options theretofore granted and not previously exercised within
three months after the date upon which such recipient's employment is
terminated. Pursuant to the 1996 Plan, the payment of an optionee's exercise
price shall be made in cash. In connection with the merger of CSI with and into
the Company in September 1997, the Company issued options to acquire 254,643
shares of its Common Stock under the 1996 Plan in exchange for options to
acquire 1,400 shares of the common stock of CSI. As part of this transaction,
Mr. Bennett will receive options to acquire 72,750 shares of the Common Stock in
exchange for his CSI stock options.
1997 Incentive Stock Option Plan
The Company's 1997 Incentive Stock Option Plan (the "1997 Plan") was
adopted by the Board of Directors and the stockholders of the Company in
September 1997. The purpose of the 1997 Plan is to promote the long-term growth
and profitability of the Company. The 1997 Plan is intended to grant incentive
stock option awards to all employees of the Company; provided, however, that
such awards shall be non-qualified options if they do not meet the requirements
for being considered as incentive stock options. Awards of options to acquire up
to an aggregate of 362,873 shares may be granted pursuant to the 1997 Plan.
The 1997 Plan is administered by the Company's Board of Directors. The
Board selects the employees who will receive awards, determines the type and
terms of the awards to be granted and interprets and administers the 1997 Plan.
The Board of Directors of the Company may terminate or amend the 1997 Plan
without stockholder approval, except to the extent that stockholder approval is
required by the Internal Revenue Code or other applicable law.
Awards granted under the 1997 Plan are subject to such terms and conditions
as the Board of Directors may establish. If a recipient of an award under the
1997 Plan ceases to be an employee of the Company by reason of termination
without cause, resignation, retirement, death or disability, all options
theretofore granted to such recipient which are exercisable at the date of such
event may be exercised by such recipient or such recipient's estate if
applicable, at any time within three months after the date of such event. If a
recipient of an
34
<PAGE> 36
award ceases to be an employee of the Company by reason of termination with
cause, all options awarded to such participant shall automatically terminate,
effective as of such cessation of employment, to the extent not theretofore
exercised.
In September 1997, the Company awarded options effective as of the date of
this Prospectus to acquire 171,030 shares of the Company's Common Stock to
certain executive officers, including options to acquire 94,742 shares granted
to Mr. de Boer, 47,371 shares granted to Mr. Orr, and 9,639 shares each granted
to Mr. Andrews, Mr. Carter and Ms. Smith. Forty percent of the options granted
to Messrs. de Boer and Orr will vest immediately and the remaining options will
vest in equal amounts on the first, second, third and fourth anniversaries of
the date of grant. The options granted to Mr. Andrews, Mr. Carter and Ms. Smith
will vest in equal amounts on each of the first four anniversaries of the date
of grant. All such options will be exercisable at a price per share equal to the
price to the public reflected on the front cover of this Prospectus and must be
exercised within five years of the date of the grant.
SALARY CONTINUATION AGREEMENT
Mr. Harcrow is a party to a Salary Continuation Agreement entered into with
the Company in September 1997 which provides for certain payments to his wife in
the event of his death or disability. Upon the occurrence of such event, the
Company shall (i) pay to his wife in monthly installments an annual sum equal to
his annual salary for a period of three years thereafter and (ii) provide and
pay for health insurance for Mr. Harcrow's wife and family for such three year
period. The Salary Continuation Agreement will terminate in the event that Mr.
Harcrow terminates his employment with the Company for any reason other than
death or disability. In addition, the Company's obligations under the agreement
will terminate (i) upon the death of Mr. Harcrow's wife or (ii) upon Mr.
Harcrow's death or disability, if his wife is not then living. The Salary
Continuation Agreement will expire on August 31, 1999. On termination of the
agreement, the benefits described above shall remain in force and effect
thereafter; however, the three-year period for benefits will provide for
benefits only from the date of disability or death of Mr. Harcrow until
September 1, 2002.
CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS
Each of Mr. Andrews, Mr. Carter and Ms. Smith has entered into a
Confidentiality and Non-Competition Agreement with the Company. Each agreement
contains a covenant-not-to-compete with the Company during such employee's
period of employment with the Company and for a period of one year following
termination of employment.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware law, the Company's directors will not be liable for
monetary damages for breach of a director's duty of care to the Company and its
stockholders. This provision does not eliminate a director's duty of care, and
in appropriate circumstances, equitable remedies such as an injunction or other
forms of non-monetary relief will remain available under Delaware law. Each
director continues to remain liable for a breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of the law, for improper
distributions to stockholders and for any transaction from which the director
derives an improper personal benefit. This provision also does not affect a
director's liability under other laws, such as the federal securities laws.
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by the Delaware General Corporation
Law. Prior to consummation of this Offering, the Company will enter into
indemnification agreements with each of its directors that provide for
indemnification and expense advancement to the fullest extent permitted under
the Delaware General Corporation Law. Such indemnification agreements include
related provisions intended to facilitate the indemnitee's receipt of such
benefits, including certain provisions applicable to constituent corporations in
the event of certain mergers or acquisitions.
35
<PAGE> 37
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
J. Taft Symonds, a member of the Company's Board of Directors, is chairman
of the board of Tetra Technologies, Inc. ("Tetra"). Stephen T. Harcrow, Chairman
and Chief Executive Officer of the Company, serves on the Board of Directors and
Compensation Committee of Tetra. Since the Company does not presently have a
compensation committee, the entire Board of Directors of the Company is
responsible for review of executive compensation.
CERTAIN TRANSACTIONS
TETRA TECHNOLOGIES, INC.
During the fiscal year ended June 28, 1997, the Company purchased
approximately $82,000 of calcium carbonate ("brine") from Tetra, a specialty
inorganic chemical company. J. Taft Symonds, a director of the Company, is the
Chairman of the Board of Tetra, and Stephen T. Harcrow, the Company's Chairman
and Chief Executive Officer, is also on the Board of Directors of Tetra. All of
the brine purchases were made on a spot basis without the benefit of a contract.
In addition, the Company's is currently bidding on several jobs with Tetra,
including a scrubber and multiple tank project. The combined pending projects
are expected to be awarded in November 1997, with construction to begin in
Spring 1998, and if such projects were awarded to the Company, it would receive
payments from Tetra totaling approximately $320,000.
REDEMPTION OF SERIES A PREFERRED STOCK
A portion of the proceeds from this Offering will be used to redeem all of
the currently issued and outstanding Series A Preferred Stock of the Company.
Approximately 75% of the Series A Preferred Stock is currently beneficially
owned by the Company's directors or their affiliates. Upon redemption of the
Series A Preferred Stock, each of Messrs. Harcrow, Cockrell, Symonds and Youts
(including affiliates) will receive approximately $235,000 (including accrued
and unpaid dividends through the redemption date), and Mr. Simmons (including
affiliates) will receive approximately $117,500 (including accrued and unpaid
dividends through the redemption date). In addition, National Investment
Management, Inc., a corporation wholly-owned by Mr. Richard D. Robins, a
beneficial owner of in excess of 5% of the Common Stock, will receive
approximately $235,000 (including accrued and unpaid dividends through the
redemption date) upon such redemption. See "Use of Proceeds."
36
<PAGE> 38
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of June 28, 1997 and as adjusted to
reflect the sale of the Common Stock offered hereby, by: (i) each person known
by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock; (ii) each of the Company's directors; (iii) each of the Named
Executive Officers and (iv) all directors and executive officers of the Company
as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
PERCENT(2)
----------------------------
PRIOR TO AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
------------------------ --------- --------- ---------
<S> <C> <C> <C> <C>
(i) Directors
Stephen T. Harcrow(3)(4)....................... 375,910 17.2%
Ernest H. Cockrell(5).......................... 343,000 15.7%
Cockrell Oil Corporation
1600 Smith, Suite 4600
Houston, Texas 77002
Thomas D. Simmons, Jr.(6)...................... 171,500 7.8%
Simmons Vedder Investment Partnership
1800 West Loop South, Suite 1575
Houston, Texas 77027
J. Taft Symonds(7)............................. 343,000 15.7%
Symonds Trust Co., Ltd.
2040 North Loop West, Suite 200
Houston, Texas 77018
Stephen M. Youts(8)............................ 343,000 15.7%
Avondale Partners, Inc.
Two Post Oak Central
1980 Post Oak Blvd., Suite 1910
Houston, Texas 77056
(ii) Non-Directors, Named Executive Officers
R. Kevin Andrews(4)(9)......................... 37,730 1.7%
Melford S. Carter, Jr.(4)(9)................... 37,730 1.7%
Cathy L. Smith(4)(9)........................... 37,730 1.7%
(iii) Non-Directors, 5% Beneficial Owners
Richard D. Robins(10).......................... 343,000 15.7%
National Investment Management, Inc.
23133 Hawthorne Blvd., Third Floor
Torrance, CA 90505
Wolfram Vedder(11)............................. 171,500 7.8%
Deidre L. Vedder(11)
1800 West Loop South
Suite 1575
Houston, TX 77027
(iv) All Executive Officers and Directors as a Group
(9 persons).................................. 1,689,600 73.5%
</TABLE>
- ---------------
(1) Unless otherwise indicated, all shares of Common Stock are held directly
with sole voting and investment powers.
(2) Except for the percentages of certain parties that are based on presently
exercisable options which are indicated in the following footnotes to the
table, the percentages indicated are based on 2,184,910
37
<PAGE> 39
shares of Common Stock issued and outstanding on June 28, 1997 and shares
issued and outstanding subsequent to the completion of the Offering. In
the case of parties holding presently exercisable options, the percentage
ownership is calculated on the assumption that the shares purchasable
within the next 60 days underlying such options are outstanding.
(3) Mr. Harcrow is also an executive officer of the Company.
(4) All officers of the Company have the following address: 1360 Post Oak
Blvd., Suite 2470, Houston, Texas 77056.
(5) Includes 343,000 shares owned by Cockrell Investment Partners, L.P., a
Texas limited partnership, of which Mr. Cockrell is the Chairman of Texas
Production Company, its general partner.
(6) Includes 58,310 shares owned by Simmons Family Trust of which Mr. Simmons
is Co-Trustee, and 56,595 shares owned by The Estate of Candace U.
Simmons, of which Mr. Simmons is the independent executor.
(7) Includes 343,000 shares owned by Symonds Trust Co., Ltd., a Texas
corporation, of which Mr. Symonds is the President.
(8) Includes 343,000 shares owned by Avondale CSI Holdings LP, a Delaware
limited partnership; Mr. Youts is the President of Avondale Partners,
Inc., its general partner.
(9) Includes 37,730 shares of Common Stock currently issuable upon the
exercise of options.
(10) Includes 343,000 shares owned by National Investment Management, Inc., a
California corporation of which Mr. Robins is the President and sole
stockholder.
(11) Although each disclaims beneficial ownership of the other's stock,
includes 85,750 shares owned directly by Mr. Wolfram Vedder and 85,750
shares owned directly by Mrs. Deidre L. Vedder, his wife.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $.01 per share, 1,000,000 shares of Preferred Stock, par
value $.01 per share (the "Preferred Stock") and 4,800 shares of Series A
Preferred Stock, par value $.01 per share. The discussions of the Common Stock
and Preferred Stock here and elsewhere in this Prospectus are qualified in their
entirety by reference to: (i) the Certificate of Incorporation of the Company,
as amended, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and (ii) the applicable Delaware
law.
The Company has issued and has outstanding 4,800 shares of its Series A
Preferred Stock, par value $.01 per share. All of such shares are issued to the
founders of the Company, including the Company's current directors who
collectively own approximately 75% of the issued and outstanding shares of
Series A Preferred Stock. The Company intends to use a portion of the proceeds
from this Offering to redeem all of the issued and outstanding shares of the
Series A Preferred Stock for a total aggregate purchase price of approximately
$1,410,000 (including $210,000 for accrued and unpaid dividends through
September 30, 1997).
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to cumulative voting
rights. The Board of Directors is classified into three classes of directors,
with each class of directors consisting of a number of directors as equal in
number as possible, with the term of each class of directors expiring on a
staggered basis. See "Management -- Board of Directors." The classification of
the Board of Directors may make it more difficult to change the composition of
the Board of Directors and thereby may discourage or make more difficult an
attempt by a person or group to obtain control of the Company.
Subject to the terms of any outstanding series of Preferred Stock, the
holders of Common Stock are entitled to dividends in such amounts and at such
times as may be declared by the Company's board of directors out of funds
legally available therefor. The Common Stock is not subject to any calls or
assessments. Upon liquidation or dissolution, holders of Common Stock are
entitled to share ratably in all net assets
38
<PAGE> 40
available for distribution to stockholders after payment of any liquidation
preferences to holders of Preferred Stock. Holders of Common Stock have no
redemption, conversion or preemptive rights.
PREFERRED STOCK
Shares of Preferred Stock may be issued without stockholder approval. The
board of directors is authorized to issue up to 1,000,000 shares of Preferred
Stock in one or more series and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series, including, without
limitation (i) the number of shares and the name of the series, (ii) the rate
and times at which dividends will be payable on the shares of the series, and
the status of such dividends as cumulative or non-cumulative and as
participating or non-participating, (iii) the prices, times and terms, if any,
at or upon which shares of the series will be subject to redemption, (iv) the
rights, if any, to convert such shares into, or to exchange such shares for,
shares of any other class of stock of the Company, (v) the terms of the sinking
fund or redemption or purchase account, if any, to be provided for shares of the
series, (vi) the rights and preferences, if any, of shares of the series upon
any liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Company, (vii) the limitations, if any,
applicable while the series is outstanding, on the payment of dividends or
making of distributions on, or the acquisition of, the Common Stock or any other
class of stock which does not rank senior to the shares of the series. The
Company has no current plans for issuance of any shares of Preferred Stock. Any
issuance of shares of Preferred Stock may adversely affect the voting powers or
rights of the holders of Common Stock.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. Section 203 prevents certain Delaware
corporations, including those whose securities are listed on the NASDAQ National
Market, from engaging in any "business combination" with any "interested
stockholder" for a period of three years following the date that the stockholder
became an interested stockholder, with three exceptions: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon the consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time that the transaction commenced, excluding for purposes
of determining the number of shares outstanding the shares owned by persons who
are both directors and officers of the corporation and the shares owned by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to the date
that the stockholder became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at an
annual or special meeting of stockholders, and not pursuant to written consent,
by the affirmative vote of at least 66 2/3% of the outstanding voting stock of
the corporation, excluding voting stock owned by the interested stockholder. The
restrictions in Section 203 also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation (for
example, a proposed tender or exchange offer for 50% or more of the
corporation's outstanding voting stock) which is approved or not opposed by a
majority of the corporation's directors then in office and which is with or by a
person who had not been an interested stockholder during the preceding three
years or who became an interested stockholder with the approval of the
corporation's board of directors.
Section 203 defines a "business combination" as, in general: (i) any merger
or consolidation involving the corporation and the interested stockholder; (ii)
any sale lease, transfer, pledge or other disposition to the interested
stockholder of 10% or more of the corporation's assets; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation to the interested stockholder of any stock of the corporation; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series, or of securities
convertible into the stock of any class or series, which is beneficially owned
by the interested stockholder; or (v) the receipt by the interested stockholder
of the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or
39
<PAGE> 41
through the corporation. Section 203 defines an "interested stockholder" as, in
general, any person or entity who or which directly or indirectly beneficially
owns 15% or more of the outstanding voting stock of the corporation and any
person or entity affiliated or associated with or controlling or controlled by
that person or entity.
The provisions of Section 203 could operate to delay or prevent the removal
of incumbent directors of the Company or a change in control of the Company.
They also could discourage, impede or prevent a merger, tender offer or proxy
contest involving the Company, even if such an event would be favorable to the
interests of the Company's stockholders generally. By adopting an amendment to
the Company's certificate of incorporation or by-laws, the Company's
stockholders may elect not to have Section 203 apply to the Company effective 12
months after the adoption of the amendment. Neither the Company's Certificate of
Incorporation nor its By-Laws currently exclude the Company from the
restrictions imposed by Section 203.
TRANSFER AGENT
The Transfer Agent for the Common Stock is . Its telephone
number is .
40
<PAGE> 42
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of Common Stock. Aside
from the shares sold in this Offering, only a limited number of shares
will be available for sale immediately following completion of this Offering
because of certain contractual and legal restrictions on resale (as described
below). Accordingly, sales of substantial amounts of Common Stock of the Company
in the public market after these restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon the completion of this Offering, the Company will have outstanding an
aggregate of shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding stock options
and warrants. Of these outstanding shares of Common Stock, the shares
sold in this Offering will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by an "affiliate" of the
Company as that term is defined in Rule 144 under the Securities Act.
The remaining 2,184,910 shares of Common Stock held by existing
stockholders (the "Restricted Shares") will be "restricted securities" as that
term is defined in Rule 144 under the Securities Act. The Restricted Shares may
be sold in the public market only if they are registered under the Securities
Act or if they qualify for an exemption from registration under Rule 144 under
the Securities Act (which is summarized below). Sales of the Restricted Shares
in the public market, or the availability of the Restricted Shares for sale,
could adversely affect the market price of the Common Stock.
Certain stockholders of the Company, including all executive officers and
directors and the individuals and entities named in the table under "Principal
Stockholders," who will beneficially own in the aggregate 2,184,910 Restricted
Shares after the Offering, have entered into "lock-up" agreements with the
Underwriters, represented by Morgan Keegan & Company, Inc. and Rauscher Pierce
Refsnes, Inc. (the "Representatives"), pursuant to which they have agreed not to
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of, directly or indirectly, any of their Restricted Shares, or any shares of
Common Stock that they may acquire through the exercise of stock options, for a
period of 180 days from the date of this Prospectus without the prior written
consent of the Representatives. As a result of these contractual restrictions,
shares of Common Stock subject to the lock-up agreements are restricted from
sale until the lock-up agreements expire, notwithstanding that they otherwise
may be eligible for sale under Rule 144. Upon the expiration of the lock-up
agreements, shares will be eligible for sale pursuant to Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are required to
be aggregated) who has beneficially owned Restricted Shares for at least one
year (including the holding period of any prior beneficial owner except an
affiliate of the Company) would be entitled to sell during any three-month
period a number of Restricted Shares that does not exceed the greater of (i) 1%
of the number of shares of Common Stock then outstanding or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of the required notice of sale on Form 144. Sales of
Restricted Shares under Rule 144 are also subject to compliance with certain
conditions relating to the manner of sale, the requirement to file notice of the
sale with the Securities and Exchange Commission on Form 144 and the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the
Restricted Shares proposed to be sold for at least two years (including the
holding period of any prior owner except an affiliate), may sell the Restricted
Shares under Rule 144 without regard to any volume limitation or other
conditions or requirements of the rule. Accordingly, unless otherwise
restricted, holders of Restricted Shares who are eligible to use Rule 144(k) may
sell their shares immediately upon completion of this Offering.
As of June 28, 1997, there were outstanding options under the 1996 Stock
Plan to purchase 113,190 shares of Common Stock, all of which were exercisable
within 60 days of June 28, 1997, and no options granted pursuant to the 1997
Plan. In connection with a merger of CSI with and into the Company in September
1997, options to acquire an additional 254,643 shares of Common Stock under the
1996 Plan were
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<PAGE> 43
exchanged for CSI stock options, and all of such options are presently
exercisable. Of such options, options for 185,940 shares were held by officers
and directors of the Company subject to the lock-up agreements described above.
With respect to the 1997 Plan, effective as of the date of this Prospectus,
options to acquire 171,030 shares of Common Stock have been awarded to certain
executive officers of the Company. Of these options, 56,845 will be immediately
exercisable per completion of the Offering. Shortly after completion of this
Offering, the Company intends to file registration statements on Form S-8 to
register the 367,833 shares of Common Stock issued or issuable under the 1996
Plan and the 362,873 shares of Common Stock issued or issuable under the 1997
Plan. Holders of all of the options granted under the 1997 Plan prior to this
Offering will be subject to lock-up agreements with the Underwriters with
respect to the shares of Common Stock obtainable thereunder. These registration
statements will become effective automatically upon filing. Accordingly, shares
registered under these registration statements will be available for sale in the
public market, subject to the volume limitations under Rule 144 in the case of
sales by affiliates of the Company, except to the extent that the shares are
subject to contractual restrictions on sale under the lock-up agreements
described above.
UNDERWRITING
The Underwriters named below, represented by Morgan Keegan & Company, Inc.
and Rauscher Pierce Refsnes, Inc. (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
indicated below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Morgan Keegan & Company, Inc................................
Rauscher Pierce Refsnes, Inc................................
Total.....................................................
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
purchased. The Company has been advised that the Underwriters propose to offer
the Common Stock to the public at the initial public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share of Common Stock. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share to other dealers. The initial public offering price and the concessions
and discount to dealers may be changed by the Underwriters after the public
offering.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase on a pro rata basis up to
additional shares of Common Stock from the Company at the initial public
offering price, less underwriting discounts, as shown on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose of
covering over-allotments incurred in the sale of the shares of Common Stock
offered hereby.
The Company has agreed to indemnify the Underwriters or to contribute to
losses arising out of certain liabilities, including liabilities under the
Securities Act.
The Company, the Company's officers and directors, and certain of the
Company's shareholders (in the aggregate, representing % of the shares
outstanding after the Offering assuming the Underwriters' over-
42
<PAGE> 44
allotment option is not exercised) have agreed that, for a period of 180 days
from the date of this Prospectus, they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase, or
otherwise dispose (or announce any offer, sale, grant of any option to purchase,
or other disposition) of any additional shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock, without the prior written consent of the Underwriters.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the shares of
Common Stock. Consequently, the initial public offering price will be determined
through negotiations among the Company and the Representatives. Among the
factors considered in making such determination will be the prevailing market
conditions, the Company's financial and operating history and conditions, the
Company's prospects and the prospects for its industry in general, the
management of the Company, and the market prices of securities for companies in
business related to that of the Company.
The Company intends to make an application to list the Common Stock on the
Nasdaq National Market under the symbol "DNLI." The Company has been advised by
the Representatives that each of the Representatives presently intends to make a
market in the Common Stock offered hereby; the Representatives are not obligated
to do so, however, and any market making activity may be discontinued at any
time. There can be no assurance that an active public market for the Common
Stock will develop and continue after the Offering.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Such transactions may include stabilization transactions
pursuant to which the Representatives may bid for or purchase Common Stock for
the purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with the Offering that they are committed to purchase from the
Company, and in such case the Representatives may purchase Common Stock in the
open market following completion of the Offering to cover all or a portion of
such short position. The Underwriters may also cover all or a portion of such
short position by exercising the Underwriters' over-allotment option referred to
above. In addition, the Representatives, on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the Underwriters
whereby they may reclaim from an Underwriter (or dealer participating in the
Offering) for the account of other Underwriters, the selling concession with
respect to Common Stock that is distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. The imposition of a penalty bid might also affect the price of
the Common Stock to the extent that it could discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
At the request of the Company, the Underwriters have reserved up to
shares of Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby.
43
<PAGE> 45
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Hutcheson & Grundy, L.L.P., Houston, Texas. Certain legal matters
will be passed upon for the Underwriters by Vinson & Elkins L.L.P., Houston,
Texas.
EXPERTS
The consolidated financial statements of the Company as of June 29, 1996
and June 28, 1997 and the period from December 19, 1994 (date of inception) to
July 1, 1995, the year ended June 29, 1996, and the year ended June 28, 1997,
the financial statements of Hoover Containment Systems, Inc., as of and for the
year ended December 31, 1994 and the period from January 1, 1995 to October 27,
1995, the financial statements of Ershigs, Inc., as of December 31, 1996 and for
the period from October 1, 1994 to December 31, 1994 and for the years ended
December 31, 1995 and 1996 and the period from January 1, 1997 to February 27,
1997, the financial statements of GL & V/LaValley Construction, Inc., as of
August 16, 1997 and the period from August 23, 1996 to August 16, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The financial statements of SEFCO, as of December 31, 1995 and for each of
two years in the period ended December 31, 1995 included in this Prospectus and
Registration Statement have been audited by Gaynor and Fawcett, Inc.,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of SEFCO, as of and for the year ended December
31, 1996 included in this Prospectus and Registration Statement have been
audited by Leming, Schallner & Co., independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
This Prospectus forms part of a Registration Statement on Form S-1 (the
"Registration Statement") which the Company has filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act. In accordance
with the Commission's rules and regulations, this Prospectus omits certain of
the information in the Registration Statement and all of its exhibits, and
reference is made to the Registration Statement and its exhibits for further
information relating to the Company and the Common Stock offered hereby. Copies
of the Registration Statement and its exhibits may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of this material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Commission maintains a Web site on the World Wide Web, and copies of the
Registration Statement and its exhibits may be accessed at this Web site
(http://www.sec.gov). Statements in this Prospectus concerning any provisions of
any contract or document are not necessarily complete, and each such statement
is qualified in its entirety by reference to the copy of the relevant contract
or document filed as an exhibit to the Registration Statement.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent public
accountants.
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<PAGE> 46
DENALI INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DENALI INCORPORATED AND SUBSIDIARIES
Pro Forma Condensed Consolidated Financial Statements
(Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of
June 28, 1997......................................... F-3
Pro Forma Condensed Consolidated Statement of
Operations:
Year ended June 28, 1997............................. F-4
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.................................. F-5
Consolidated Financial Statements:
Report of Independent Auditors......................... F-7
Consolidated Balance Sheets as of June 29, 1996 and
June 28, 1997......................................... F-8
Consolidated Statements of Operations for the Period
from December 19, 1994 (Date of Inception) to July 1,
1995 and the Years Ended June 29, 1996 and June 28,
1997.................................................. F-9
Consolidated Statements of Stockholders' Equity
(Deficit) for the Period from December 19, 1994 (Date
of Inception) to July 1, 1995 and the Years Ended June
29, 1996 and June 28, 1997............................ F-10
Consolidated Statements of Cash Flows for the Period
from December 19, 1994 (Date of Inception) to July 1,
1995 and the Years Ended June 29, 1996 and June 28,
1997.................................................. F-11
Notes to Consolidated Financial Statements............. F-12
HOOVER CONTAINMENT SYSTEMS, INC.
Report of Independent Auditors............................ F-26
Balance Sheet as of December 31, 1994..................... F-27
Statements of Operations for the Year Ended December 31,
1994 and the Period from January 1, 1995 to October 27,
1995................................................... F-28
Statements of Stockholders' Equity for the Year Ended
December 31, 1994 and the Period from January 1, 1995
to October 27, 1995.................................... F-29
Statements of Cash Flows for the Year Ended December 31,
1994 and the Period from January 1, 1995 to October 27,
1995................................................... F-30
Notes to Financial Statements............................. F-31
ERSHIGS, INC.
Report of Independent Auditors............................ F-36
Balance Sheet as of December 31, 1996..................... F-37
Statements of Operations for the Period from October 1,
1994 to December 31, 1994 and for the Years Ended
December 31, 1995 and 1996 and the Period from January
1, 1997 to February 27, 1997........................... F-38
Statements of Stockholders' Equity for the Period from
October 1, 1994 to December 31, 1994 and for the Years
Ended December 31, 1995 and 1996 and the Period from
January 1, 1997 to February 27, 1997................... F-39
Statements of Cash Flows for the Period from October 1,
1994 to December 31, 1994 and for the Years Ended
December 31, 1995 and 1996 and the Period from January
1, 1997 to February 27, 1997........................... F-40
Notes to Financial Statements............................. F-41
GL & V/LA VALLEY CONSTRUCTION, INC.
Report of Independent Auditors............................ F-46
Balance Sheet as of August 16, 1997....................... F-47
Statement of Operations for the Period from August 23,
1996 (Date of Acquisition) to August 16, 1997.......... F-48
Statement of Stockholders' Equity for the Period from
August 23, 1996 (Date of Acquisition) to August 16,
1997................................................... F-49
</TABLE>
F-1
<PAGE> 47
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Cash Flow for the Period from August 23, 1996
(Date of Acquisition) to August 16, 1997............... F-50
Notes to Financial Statements............................. F-51
SEFCO, INC.
Report of Independent Auditors............................ F-55
Balance Sheets as of December 31, 1995, and 1996.......... F-57
Statements of Operations for the Years Ended December
1994, 1995, and 1996................................... F-58
Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1995, and 1996...................... F-59
Statements of Cash Flows for the Years Ended December 31,
1994, 1995, and 1996................................... F-60
Notes to the Financial Statements......................... F-61
Balance Sheet as of June 30, 1997 (Unaudited)............. F-65
Statement of Operations for the Six Months Ended June 30,
1996 and Six Months ended June 30, 1997 (Unaudited).... F-66
Statement of Cash Flow for the Six Months Ended June 30,
1996 and Six Months ended June 30, 1997 (Unaudited).... F-67
Notes to Unaudited Financial Statements................... F-68
</TABLE>
F-2
<PAGE> 48
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DENALI INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
DENALI
INCORPORATED LAVALLEY(1) SEFCO(2) ADJUSTMENTS PRO FORMA
------------ ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 330 $ 8 $ 856 $ (864)(a) $ 330
Accounts receivable, net................. 17,376 1,002 900 -- 19,278
Cost and estimated earnings in excess of
billings............................... -- 455 199 -- 654
Inventories.............................. 6,686 126 14 -- 6,826
Income tax receivable.................... 40 -- -- -- 40
Advances to parent....................... -- 1,392 -- (1,392)(b) --
Prepaid expenses......................... 913 22 51 -- 986
Deferred tax assets...................... 934 81 -- (81)(c) 934
------- ------ ------ ------- -------
Total current assets.............. 26,279 3,086 2,020 (2,337) 29,048
Property, plant, and equipment, net........ 7,695 1,591 1,442 1,340(c) 12,068
Assets held for sale....................... 1,520 -- -- -- 1,520
Notes receivable........................... 907 -- -- -- 907
Goodwill, net.............................. 1,620 -- -- 3,587(b) 5,207
Deferred tax assets........................ 1,953 -- -- -- 1,953
Other assets............................... 1,110 -- 152 (152)(b) 1,110
Investments................................ -- -- 549 (549)(a) --
------- ------ ------ ------- -------
Total assets...................... $41,084 $4,677 $4,163 $ 1,889 $51,813
======= ====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................... $10,173 $ 563 $ 503 $ -- $11,239
Accrued liabilities...................... 5,249 95 227 -- 5,571
Billings in excess of costs and estimated
earnings............................... -- -- 331 -- 331
Income tax payable....................... -- 24 112 (136)(b) --
Deferred tax liability................... -- -- 160 -- 160
Notes payable............................ 1,460 1,643 -- (1,643)(b) 1,460
Current maturities of long-term debt..... 828 -- -- 500(a) 1,328
------- ------ ------ ------- -------
Total current liabilities......... 17,710 2,325 1,333 (1,279) 20,089
Long-term debt, less current maturities.... 21,736 -- -- 8,200(a) 29,936
Deferred tax liability..................... -- 49 55 46(c) 150
Other long-term liabilities................ 979 -- -- -- 979
Series A redeemable Preferred Stock........ 1,200 -- -- -- 1,200
Stockholders' equity (deficit)
Common stock............................. 22 300 1 (301)(b) 22
Additional paid-in capital............... 297 1912 46 (1958)(b) 297
Retained earnings (deficit).............. (860) 91 2,728 (2,819)(b) (860)
------- ------ ------ ------- -------
Total stockholders' equity
(deficit)....................... (541) 2,303 2,775 (5,078) (541)
------- ------ ------ ------- -------
Total liabilities and
stockholders' equity
(deficit)....................... $41,084 $4,677 $4,163 $ 1,889 $51,813
======= ====== ====== ======= =======
</TABLE>
- ---------------
(1) Balance sheet as of August 16, 1997.
(2) Unaudited balance sheet as of June 30, 1997.
See notes to unaudited pro forma condensed consolidated financial statements
F-3
<PAGE> 49
DENALI INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------
DENALI
INCORPORATED ERSHIGS(1) LAVALLEY(2) SEFCO(3) ADJUSTMENTS PRO FORMA
------------ ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $71,101 $ 15,918 $7,877 $10,032 $ -- $104,928
Cost of sales........................ 57,268 14,889 6,353 7,602 (521)(d)
(162)(e)
(146)(f)
192(g)
(206)(h) 85,269
------- -------- ------ ------- ----- --------
Gross profit......................... 13,833 1,029 1,524 2,430 843 19,659
Selling, general and administrative
expenses........................... 11,874 3,184 1,157 1,485 162(e)
(17)(f)
(838)(i)
(324)(j)
(480)(k)
90(l) 16,293
------- -------- ------ ------- ----- --------
Operating income (loss).............. 1,959 (2,155) 367 945 2,250 3,366
Interest expense..................... 2,058 329 174 -- 716(m) 3,277
Interest income...................... (111) -- -- (45) 45 (111)
Other (income) expense, net.......... (598) 47 23 (16) -- (544)
------- -------- ------ ------- ----- --------
Income (loss) before income taxes.... 610 (2,531) 170 1,006 1,489 744
Provision (benefit) for income
taxes.............................. 293 (962) 79 362 526(n) 298
------- -------- ------ ------- ----- --------
Net income (loss).................... $ 317 $ (1,569) $ 91 $ 644 $ 963 $ 446
======= ======== ====== ======= ===== ========
Net income per common share.......... $ 0.09 $ 0.15
======= ========
Number of shares used to compute net
income per share................... 2,198 2,198
======= ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
- ---------------
(1) Reflects results of Ershigs' operations for the period from July 1, 1996 to
February 27, 1997, the date of its acquisition by the Company. Ershigs'
results of operations subsequent to February 27, 1997 are reflected in the
Denali Incorporated historical results.
(2) Reflects results of LaValley's operations for the period from August 23,
1996 to August 16, 1997.
(3) Reflects results of SEFCO's operations for the period from July 1, 1996 to
June 28, 1997 (unaudited).
F-4
<PAGE> 50
DENALI INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on adjustments to
the historical consolidated financial statements of Denali Incorporated (the
"Company") to give effect to the acquisitions described in Note 3 (the
"Acquisitions"). The pro forma condensed consolidated balance sheet assumes the
probable acquisitions were closed on June 28, 1997. The pro forma condensed
consolidated statement of operations assumes all acquisitions described in Note
3 were consummated as of the beginning of the period presented. The pro forma
condensed consolidated statements of operations are not necessarily indicative
of results that would have occurred had the acquisitions been consummated as of
the beginning of the period presented or that might be attained in the future.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Pro Forma Financial Statements should be read in conjunction
with the historical consolidated financial statements of the Company, the
historical financial statements of the probable acquisitions and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
(2) EARNINGS PER SHARE
Pro forma earnings per share were computed by dividing net income
applicable to common stock by the weighted average number of shares of common
stock, common stock equivalents outstanding during the period and the dilutive
effect of common stock equivalents issued within one year prior to the Offering.
The number of shares of common stock and common stock equivalents has been
retroactively adjusted for the 1715-for-1 stock split. Common stock equivalents
consisted of the number of shares issuable on exercise of the outstanding stock
options less the number of shares that could have been purchased with the
proceeds from the exercise of the options based on the average price of the
common stock during the period. The dilutive effect of common stock issued
within one year prior to the Offering for the periods prior to issuance was
determined in the same manner except that the Offering price of $14 per share
was used for the repurchase price.
(3) ACQUISITIONS
The acquisitions by the Company have been accounted for as purchases and,
accordingly, the results of operations of the acquired companies have been
included in the consolidated results of operations of the Company from the date
of acquisition.
In December 1994, the Company acquired certain assets and assumed certain
liabilities of the fiberglass composite underground storage tank business of
Owens Corning, including five manufacturing facilities. The purchase price
totaled $16.6 million, consisting of $5.6 million in cash, $9.3 million in notes
payable and approximately $1.7 million in acquisition costs.
On October 27, 1995, the Company acquired certain assets and assumed
certain liabilities of Hoover Containment Systems, Inc., a manufacturer of steel
rectangular ASTs. The purchase price totaled $5.5 million consisting of $5.4
million in cash and acquisition costs of approximately $100,000.
On February 28, 1997, the Company acquired Ershigs, Inc. ("Ershigs"), a
manufacturer of engineered fiberglass reinforced plastic ("FRP"). The $6.1
million purchase price consisted of $5.0 million cash, $1.0 million in a note
payable and acquisition costs of approximately $80,000.
In September 1997, the Company entered into a definitive agreement to
purchase SEFCO, Inc. ("SEFCO") for approximately $4.7 million in net cash. SEFCO
is a manufacturer of engineered field-erected aboveground steel tanks.
F-5
<PAGE> 51
DENALI INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1997, the Company entered into a definitive agreement to
purchase LaValley Construction, Inc. ("LaValley") for $3.9 million in cash.
LaValley manufactures engineered FRP products.
(4) ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated balance sheet of the Company to give effect to the
acquisition of LaValley and SEFCO described in Note 3 as if they had occurred as
of June 28, 1997 and to the historical condensed statements of operations as if
all the acquisitions described in Note 3 were consummated as of the beginning of
the period presented:
(a) To reflect the pending acquisitions of LaValley and SEFCO and the
borrowings under the Company's senior credit agreement to fund those
acquisitions, net of cash to be acquired at SEFCO.
(b) To reflect, in connection with the acquisition of LaValley and
SEFCO, the purchase price allocation and the elimination of assets not
acquired or liabilities not assumed by the Company.
(c) To reflect, in connection with the acquisition of LaValley and
SEFCO, the estimated fair market value of assets purchased and liabilities
assumed and the related deferred taxes.
(d) To reflect the elimination of direct costs from the closure of one
manufacturing plant (completed in May) resulting from the acquisition of
Ershigs.
(e) To reclass certain expenses to conform with the presentation used
by the Company.
(f) To reflect lower depreciation expense resulting from the
write-down of fixed assets as part of purchase accounting for an
acquisition.
(g) To reflect additional depreciation expense from the purchase
accounting step-up of the pending acquisition of LaValley.
(h) To reduce expenses for certain lease expenses incurred by seller
for assets to be purchased by the Company.
(i) To reflect the elimination of costs as a result of terminating 18
employees at Ershigs at the time of acquisition.
(j) To reduce expenses to reflect lower corporate charges than those
allocated by the sellers.
(k) To reduce expenses including the difference between compensation
of certain sellers prior to consummation of the acquisitions and their
compensation following the acquisitions as stipulated in the respective
employment agreements with the Company.
(l) To reflect amortization of goodwill related to the purchase of
LaValley and SEFCO, which is being amortized on a straight-line basis over
40 years.
(m) To reflect interest expense on the borrowings to fund the
purchases of Ershigs, LaValley and SEFCO in excess of historical interest
expense.
(n) To reflect the change in income taxes related to pro forma
adjustments.
F-6
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Denali Incorporated
We have audited the accompanying consolidated balance sheets of Denali
Incorporated and subsidiaries (the "Company") as of June 29, 1996, and June 28,
1997, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the period from December 19, 1994 (date of
inception) to July 1, 1995 and the years ended June 29, 1996 and June 28, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Denali Incorporated, and subsidiaries at June 29, 1996 and June 28, 1997, and
the consolidated results of its operations and its cash flows for the period
from December 19, 1994 (date of inception) to July 1, 1995, and the years ended
June 29, 1996 and June 28, 1997 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Houston, TX
August 27, 1997
except for Note 18
as to which the date
is September 29, 1997
F-7
<PAGE> 53
DENALI INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 29 JUNE 28
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 124 $ 330
Investment in equity securities........................... 505 --
Accounts and notes receivable, net of allowances of
$114,000 in 1996 and $605,000 in 1997.................. 9,490 17,376
Inventories............................................... 5,660 6,686
Income tax receivable..................................... 509 40
Prepaid expenses.......................................... 898 913
Deferred tax assets....................................... 243 934
------- -------
Total current assets........................................ 17,429 26,279
Property, plant, and equipment, net......................... 7,923 7,695
Assets held for sale........................................ 1,120 1,520
Notes receivable............................................ 810 907
Goodwill, net............................................... 1,663 1,620
Deferred tax assets......................................... 336 1,953
Other assets................................................ 1,037 1,110
------- -------
Total assets................................................ $30,318 $41,084
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 8,483 $10,173
Accrued liabilities....................................... 2,712 5,249
Notes payable............................................. -- 1,460
Current maturities of long-term debt...................... 585 828
------- -------
Total current liabilities................................... 11,780 17,710
Long-term debt, less current maturities..................... 18,076 21,736
Other long-term liabilities................................. -- 979
Series A Preferred Stock, redeemable at $250 per share, $.01
par value:
Authorized shares -- 16,000
Issued and outstanding shares -- 4,800.................... 1,200 1,200
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value
Authorized shares -- 30,000,000
Issued and outstanding shares -- 2,184,910............. 22 22
Additional paid-in capital................................ 297 297
Retained deficit.......................................... (1,057) (860)
------- -------
Total stockholders' deficit................................. (738) (541)
------- -------
Total liabilities and stockholders' deficit................. $30,318 $41,084
======= =======
</TABLE>
See accompanying notes.
F-8
<PAGE> 54
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
DECEMBER 19,
1994 (DATE OF YEAR ENDED
INCEPTION) TO -------------------
JULY 1, JUNE 29 JUNE 28
1995 1996 1997
------------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................. $17,799 $53,354 $71,101
Cost of sales.............................................. 13,473 43,518 57,268
------- ------- -------
Gross profit............................................... 4,326 9,836 13,833
Selling, general, and administrative expenses.............. 3,771 9,604 11,874
------- ------- -------
Operating income........................................... 555 232 1,959
Interest expense........................................... 671 1,783 2,058
Interest income............................................ -- (65) (111)
Other income, net.......................................... (72) (206) (598)
------- ------- -------
Income (loss) before income taxes.......................... (44) (1,280) 610
Income tax expense (benefit)............................... (1) (446) 293
------- ------- -------
Net income (loss).......................................... $ (43) $ (834) $ 317
======= ======= =======
Net income (loss) per share of common stock................ $ (0.05) $ (0.44) $ 0.09
======= ======= =======
Weighted average common shares outstanding................. 2,078 2,185 2,198
======= ======= =======
</TABLE>
See accompanying notes.
F-9
<PAGE> 55
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Common stock issued at December 19, 1994
(date of inception)........................ 2,058 $21 $279 $ -- $ 300
Issuance of common stock................ 127 1 18 -- 19
Dividends declared...................... -- -- -- (60) (60)
Net loss................................ -- -- -- (43) (43)
----- --- ---- ----- -----
Balance at July 1, 1995...................... 2,185 22 297 (103) 216
Dividends declared......................... -- -- -- (120) (120)
Net loss................................... -- -- -- (834) (834)
----- --- ---- ----- -----
Balance at June 29, 1996..................... 2,185 22 297 (1,057) (738)
Dividends declared......................... -- -- -- (120) (120)
Net income................................. -- -- -- 317 317
----- --- ---- ----- -----
Balance at June 28, 1997..................... 2,185 $22 $297 $(860) $(541)
===== === ==== ===== =====
</TABLE>
See accompanying notes.
F-10
<PAGE> 56
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 19, 1994 YEARS ENDED
(DATE OF INCEPTION) -----------------
TO JULY 1, JUNE 29 JUNE 28
1995 1996 1997
------------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ (43) $ (834) $ 317
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation......................................... 325 790 1,043
Amortization......................................... 29 123 178
Provision for losses on accounts receivable.......... 89 55 81
Deferred tax expense (benefit)....................... (583) 4 25
(Gain) loss on disposal of property, plant and
equipment and assets held for sale................ -- 210 (447)
Changes in operating assets and liabilities:
Accounts receivable............................... 902 22 (3,282)
Inventories....................................... 301 (1,250) 1,238
Prepaid expenses.................................. (403) (372) (90)
Other assets...................................... (24) (43) (57)
Accounts payable.................................. 2,209 1,323 886
Accrued liabilities............................... 688 671 264
Income tax receivable/payable..................... 299 (808) 469
------- ------- -------
Net cash provided by (used in) operating activities.... 3,789 (109) 625
INVESTING ACTIVITIES
Acquisitions net of cash acquired...................... (7,210) (5,427) (4,825)
Purchases of property, plant and equipment............. (333) (942) (600)
Proceeds from sale of property, plant, and equipment
and assets held for sale............................. 84 1,363 208
Payments on notes receivable........................... -- 13 81
Purchases of equity securities......................... (68) (437) (593)
Proceeds from sale of equity securities................ -- -- 1,098
------- ------- -------
Net cash used in investing activities.................. (7,527) (5,430) (4,631)
FINANCING ACTIVITIES
Proceeds from common stock issuance.................... 319 -- --
Proceeds from preferred stock issuance................. 1,200 -- --
Dividends paid......................................... -- (90) --
Net borrowings under revolving lines of credit......... 3,552 4,065 2,848
Proceeds from term notes and other long-term debt...... 1,375 2,019 2,200
Principal payments on term notes and other long-term
debt................................................. (1,461) (1,233) (685)
Debt origination cost.................................. (248) (97) (151)
------- ------- -------
Net cash provided by financing activities.............. 4,737 4,664 4,212
------- ------- -------
Increase (decrease) in cash............................ 999 (875) 206
Cash at beginning of period............................ -- 999 124
------- ------- -------
Cash at end of period.................................. $ 999 $ 124 $ 330
======= ======= =======
</TABLE>
See accompanying notes.
F-11
<PAGE> 57
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997
1. THE COMPANY
ORGANIZATION AND BASIS OF PRESENTATION
Denali Incorporated ("Denali" or the "Company"), a Delaware corporation,
was incorporated on December 19, 1994, and through its wholly owned subsidiaries
is primarily engaged in the manufacture and sale of fiberglass composite
underground storage tanks, steel rectangular aboveground storage tanks, and
engineered fiberglass reinforced plastic products for corrosion resistant
applications.
The Company uses a 52 or 53 week year ending on the Saturday closest to
June 30.
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The Consolidated Financial Statements include the accounts of Denali and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by management.
Actual results could differ from those estimates.
INVESTMENTS IN EQUITY SECURITIES
The Company determines the appropriate classification of investments in
equity securities at the time of purchase and confirms such designation as of
the balance sheet date. Marketable equity securities are classified as
available-for-sale securities and are stated at fair value, with any unrealized
gains and losses, net of tax, reported as a separate component of stockholder's
equity. Realized gains and losses are recognized based on the
specific-identification method for equity securities sold. The Company's
investments are in a mutual fund that holds U.S. Treasury bills. As of June 29,
1996, the fair value of investments in equity securities, using quoted market
prices, approximates their carrying value.
CASH AND CASH EQUIVALENTS
The Company considers all cash accounts and money market accounts to be
cash and cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, prepaid expenses, accounts receivable, and
other current assets and accounts payable approximate fair values due to the
short-term maturities of these instruments. The carrying value of the Company's
revolving lines of credit and notes payable approximates fair value because the
rates on such lines are variable, based on current market.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees.
INVENTORIES
Inventories are determined using actual cost or a standard cost method
based on a first-in, first-out ("FIFO") basis. FIFO inventory is stated at the
lower of cost or market.
F-12
<PAGE> 58
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
by the straight-line method using rates based on the estimated useful lives of
the related assets. Estimated useful lives used for depreciation purposes are as
follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20 years
Machinery and equipment..................................... 3 to 10 years
</TABLE>
ACCOUNTING FOR LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement No.
121 in the first quarter of fiscal 1997 and the effect of adoption was not
material.
GOODWILL
Goodwill represents the excess cost of companies acquired over the fair
value of their tangible assets. Goodwill is being amortized on a straight-line
basis over 40 years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the estimated
shortfall of the undiscounted cash flows. Accumulated amortization was $27,000
and $69,000 for the years ended June 29, 1996 and June 28, 1997, respectively.
Amortization expense was $-0-, $27,000, and $42,000 for the period December 19,
1994 (date of inception) to July 1, 1995, and for the years ended June 29, 1996,
and June 28, 1997.
REVENUES FROM LICENSE ARRANGEMENTS
The Company recognizes the income from license agreements in the period of
the licensee's sales. The Company has certain license agreements whereby it
receives royalties equal to the greater of a certain percentage of the
licensee's sales for products based on the Company's proprietary technology and
processes or a guaranteed amount as specified in the agreements. The agreements
expire between 1998 and 2011.
REVENUE RECOGNITION
Revenues from sales of products fabricated at plant locations are
recognized using the units-of-delivery method of accounting. Revenues from
certain long-term construction contracts, usually performed on job sites, are
recognized on the percentage-of-completion method. Earned revenue is based on
the percentage that incurred costs to date are to total estimated costs after
giving effect to the most recent estimates of total cost. The cumulative impact
of revisions in total cost estimates during the progress of work is reflected in
the year in which these changes become known. Earned revenue reflects the
original contract price adjusted for agreed-upon claim and change order revenue,
if any.
Losses expected to be incurred on jobs in process, after consideration of
estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known. Selling and administrative expenses are
charged to income in the year incurred and are not allocated to contracts in
progress.
F-13
<PAGE> 59
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING
The Company expenses all advertising costs as incurred. Advertising costs
incurred were $193,000, $330,000, and $402,000 for the period December 19, 1994
(date of inception) to July 1, 1995 and for the years ended June 29, 1996 and
June 28, 1997, respectively.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
reverse.
RESEARCH AND DEVELOPMENT COSTS
The costs of materials and equipment that are acquired for research and
development activities, and which have alternative future uses, are capitalized
and depreciated over the period of future benefit. All other research and
development costs are charged against earnings in the period incurred. Research
and development costs expensed were $242,000, $492,000, and $319,000 for the
period December 19, 1994 (date of inception) to July 1, 1995, and for the years
ended June 29, 1996 and June 28, 1997, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that could potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company continuously
evaluates the creditworthiness of its customers and generally does not require
collateral. The Company's customer base consists of major commercial
organizations and independent sub-contractors. No customer accounted for 10% or
more of revenues for the period December 19, 1994 (date of inception) to July 1,
1995, and for the years ended June 29, 1996 and June 28, 1997.
PER SHARE INFORMATION
Per share amounts have been computed by dividing net income (or loss)
applicable to common stock (net income or loss, less preferred stock dividends)
by the weighted average number of common shares and common stock equivalents
outstanding during the respective periods. Common stock equivalent shares
consist of the incremental shares issuable upon the exercise of stock options
(using the treasury stock method where applicable). Shares for which stock
options were granted within a 12-month period prior to an initial public
offering are treated as outstanding for all periods presented. Therefore, shares
for which options were granted subsequent to September 1996 have been considered
as having been outstanding for purposes of the calculation (using the treasury
stock method with the offering price used for fair market value) for all periods
presented. Common stock equivalent shares from stock options granted prior to
September 1996 are excluded from computations if their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted by the Company in
the second quarter of fiscal 1998. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of common stock equivalents will be excluded. The
impact of Statement No. 128 on primary and fully diluted net income (loss) per
share is not expected to be material for the period December 19, 1994 (date of
inception) to July 1, 1995, and for the years ended June 29, 1996 and June 28,
1997.
CAPTIVE INSURANCE PROGRAM
In January 1996, the Company entered into a captive insurance program for
its workers' compensation, auto, and general liability coverages. The program
provides for certain reinsurance on claims over $250,000
F-14
<PAGE> 60
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and certain other claims. The Company uses actuarial determined information
provided by the captive insurance company to determine its estimated liability.
ACCOUNTING CHANGES
In 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income,
and Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information. These statements, which are effective for periods beginning after
December 15, 1997, expand and modify disclosures and, accordingly, will have no
impact on the Company's reported financial position, results of operations, or
cash flows.
3. ACQUISITIONS
Effective December 31, 1994, the Company purchased certain assets and
assumed certain liabilities of the Owens-Corning Fiberglass(R) underground tank
group (the "tank group"). The acquisition was accounted for under the purchase
method of accounting, whereby the assets and liabilities of the tank group
acquired through the Company's subsidiaries were adjusted to their estimated
fair values at the acquisition date, which exceeded the purchase price by
approximately $4.1 million. Accordingly, the excess amount was allocated to
reduce the basis of property, plant, and equipment (except assets held for sale
as discussed below).
Under the purchase agreement, the Company acquired net assets of $16.6
million, including five manufacturing facilities, two of which were closed by
the Company after acquisition, in exchange for $5.6 million in cash, $1.8
million in notes payable, and $7.5 million in a subordinated unsecured note
payable. The Company incurred approximately $1.7 million in acquisition costs.
The consolidated financial statements reflect all operations for the acquired
company since January 1, 1995.
Effective October 27, 1995, the Company purchased certain assets and
assumed certain liabilities of Hoover Containment Systems, Inc., a manufacturer
of above-ground storage tanks made of steel. The acquisition was accounted for
under the purchase method of accounting whereby the assets and liabilities of
the acquired company were adjusted to their estimated fair values at the
acquisition date.
Under the purchase agreement, the Company acquired net assets of $3.8
million in exchange for $5.4 million in cash and incurred approximately $100,000
in acquisition costs resulting in the recording of goodwill of approximately
$1.7 million. The consolidated financial statements reflect all operations for
the acquired company since the date of acquisition.
Effective February 28, 1997, the Company acquired all of the issued and
outstanding stock of Ershigs, a manufacturer of fiberglass-reinforced plastic
composites for corrosion-resistant applications. The acquisition was accounted
for under the purchase method of accounting whereby the assets and liabilities
of Ershigs were adjusted to their estimated fair values at the acquisition date,
which exceeded the purchase price by approximately $1.3 million. Accordingly,
the excess amount was allocated to reduce the basis of property, plant, and
equipment (except for assets held for sale as discussed below).
Under the purchase agreement, the Company acquired net assets of $7.4
million in exchange for $5.0 million in cash and $1.0 million in a subordinated
unsecured note payable. The Company incurred approximately $80,000 in
acquisition costs. The consolidated financial statements reflect all operations
for the acquired company since the date of acquisition.
F-15
<PAGE> 61
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited results of operations have been prepared assuming
the acquisitions had occurred as of the beginning of the periods presented.
Those results are not necessarily indicative of results of future operations nor
of results that would have occurred had the acquisitions been consummated as of
the beginning of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
JUNE 29 JUNE 28
1996 1997
----------- ----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net sales................................................... $ 61,728 $87,019
Net income (loss)........................................... $ (709) $ (286)
Earnings (loss) per common share............................ $ (0.32) $ (0.13)
</TABLE>
ASSETS HELD FOR SALE
Assets held for sale are recorded on the balance sheet at amounts equal to
estimated net realizable values adjusted for anticipated earnings or losses,
interest and other carrying costs until sale.
The assets held for sale of $3.6 million identified at the date of
acquisition of the tank group consisted primarily of two manufacturing
facilities and related manufacturing equipment. The two manufacturing facilities
were closed in early 1995 and had insignificant operations after the date of
acquisition. One manufacturing facility was sold in December 1995 at its
previously recorded net realizable value. The other manufacturing facility was
sold in June 1996, with the Company recognizing a loss of $208,000 due to a
decline in the market value of the property during 1996. Certain of the
manufacturing equipment was sold during the year ended June 28, 1997 under
licensing arrangements with the Company recognizing a gain on the sale of the
equipment of $312,000. At June 28, 1997, the remaining assets held for sale of
$700,000 consist of certain manufacturing equipment which the Company primarily
expects to sell under similar license arrangements or through an international
joint venture.
The assets held for sale of $820,000 identified at the date of acquisition
of Ershigs consisted primarily of a manufacturing facility and related
manufacturing equipment. The manufacturing facility was closed in May 1997 with
operating losses of $68,000 eliminated from the Company's results of operations
for the year ended June 28, 1997. The assets are anticipated to be sold with in
a year from the acquisition date.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 29 JUNE 28
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $ 2,544 $ 2,147
Raw materials............................................... 2,100 2,805
Work in process............................................. 1,016 1,734
-------- -------
$ 5,660 $ 6,686
======== =======
</TABLE>
F-16
<PAGE> 62
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 29 JUNE 28
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,089 $ 1,089
Buildings and improvements.................................. 3,580 3,685
Machinery and equipment..................................... 4,371 5,062
Construction in progress.................................... 3 22
-------- -------
9,043 9,858
Less accumulated depreciation............................... (1,120) (2,163)
-------- -------
Property, plant, and equipment, net......................... $ 7,923 $ 7,695
======== =======
</TABLE>
6. NOTES RECEIVABLE
Notes receivable consist of certain notes received as part of the sale of
certain assets held for sale. During the year ended June 29, 1996, the Company
received a note receivable for an original amount of $850,000 payable over five
years with interest at 10%. During the year ended June 28, 1997, the Company
received a note receivable for an original amount of $339,000 payable over three
years with interest imputed at 10%. The current portion of the notes receivable
is approximately $172,000 which is included in accounts and notes
receivable-current.
7. LONG-TERM DEBT
Long-term debt is summarized below:
<TABLE>
<CAPTION>
JUNE 29 JUNE 28
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit note with a financial institution, interest
payable monthly at prime plus 1.50% (10% at June 28,
1997), due December 20, 1999, secured by all assets of its
subsidiary, Fluid Containment, Inc. ("FCI")............... $ 4,579 $ 4,830
Term note with a financial institution, due in monthly
installments of $17,000 plus interest at prime plus 2%
(10.5% at June 28, 1997) through December 20, 1999,
secured by all assets of FCI.............................. 700 500
</TABLE>
Industrial Revenue Bonds with Montgomery County Industrial
Development Corporation, interest payable semiannually on
February 1 and August 1 at 9.875%, principal due February
1, 2001, secured by FCI's Conroe, Texas, manufacturing
facility.................................................. 1,000 1,000
Revolving credit note with a financial institution, interest
payable monthly at 30-day LIBOR plus 3.5% (9.1875% at June
28, 1997), due October 27, 2000, secured by all assets of
its subsidiary, Hoover Containment, Inc. ("Hoover")....... 3,038 3,663
Term note with a financial institution, due in monthly
installments of $7,000 plus interest at 30-day LIBOR plus
3.75% (9.4375% at June 28, 1997) through October 1, 2000,
secured by all assets
of Hoover................................................. 375 290
F-17
<PAGE> 63
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 29 JUNE 28
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Term note with a financial institution, due in monthly
installments of $25,000 plus interest at 30-day LIBOR plus
4.15% (9.8375% at June 28, 1997) through October 1, 1999,
secured by all assets
of Hoover................................................. 700 400
Revolving credit note with a financial institution, interest
payable monthly at 30-day LIBOR plus 3.75% or at prime
plus 1% (9.4375% at June 28, 1997), due February 28, 2002,
secured by all assets of its subsidiary Ershigs Inc.
(Ershigs)................................................. -- 1,972
Term note with a financial institution, due in monthly
installments of $7,000 plus interest at 30-day LIBOR plus
4% or at prime plus 1.25% (9.6875% at June 28, 1997)
through February 28, 2002, secured by all assets of
Ershigs................................................... -- 579
Term note with a financial institution, due in monthly
installments of $13,000 plus interest at 30-day LIBOR rate
4% or at prime plus 1.25% (9.6875% at June 28, 1997)
through February 28, 2002, secured by all assets of
Ershigs................................................... -- 1,061
Subordinated to FCI revolving credit note and term note,
unsecured note payable to a seller, interest at 10%
payable semi-annually on June 30 and December 31,
principal due
December 31, 1999......................................... 8,269 8,269
------- -------
18,661 22,564
Less current maturities..................................... 585 828
------- -------
Long-term debt due after one year........................... $18,076 $21,736
======= =======
</TABLE>
FCI's long-term debt agreement provides for a revolving credit note not to
exceed the lesser of $10 million or an amount (the borrowing base) based on
accounts receivable and inventories as specified in the agreement's borrowing
base formula. Borrowings under the revolving credit note totaled $4.6 million
and $4.8 million at June 29, 1996 and June 28, 1997, respectively. The borrowing
base formula yielded a maximum borrowing base of $8.1 million at June 28, 1997.
The debt agreement provides, among other things, for the maintenance of certain
minimums, as defined, for net income, working capital, tangible net worth,
interest coverage, debt coverage, capital expenditures, and average
availability.
HCI's long-term debt agreement provides for a revolving credit note not to
exceed the lesser of $6.5 million less the outstanding term note balance or an
amount (the borrowing base) based on accounts receivable and inventories as
specified in the agreement's borrowing base formula. Borrowings under the
revolving credit facility totaled $3.0 million and $3.7 million at June 29, 1996
and June 28, 1997, respectively. The borrowing base formula yielded a maximum
borrowing base of $4.7 million at June 28, 1997. The debt agreement provides,
among other things, for the maintenance of certain minimums, as defined, for net
income, working capital, tangible net worth, interest coverage, debt coverage,
and average availability.
Ershigs' long-term debt agreement provides for a revolving credit note not
to exceed the lesser of $6.5 million less the outstanding term note balance or
an amount (the borrowing base) based on accounts receivable and inventories as
specified in the agreement's borrowing base formula. Borrowings under the
revolving credit facility totaled $2 million at June 28, 1997. The borrowing
base formula yielded a maximum borrowing base of $4.9 million at June 28, 1997.
The debt agreement provides, among other things, for the maintenance of certain
minimums, as defined, for net income, working capital, tangible net worth,
interest coverage, debt coverage, and average availability.
F-18
<PAGE> 64
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unsecured note payable is subordinated to FCI's revolving credit note
and term note. However, payment of interest on the subordinated note is
permitted under FCI's senior debt agreement. The unsecured note payable allowed
FCI to make two in-kind interest payments whereby accrued interest is added to
the outstanding principal balance. FCI made in-kind interest payments of
$375,000 and $394,000 during the period December 19, 1994 (date of inception) to
July 1, 1995, and the year ended June 29, 1996, respectively. FCI paid interest
of $827,000 during the year ended June 28, 1997.
Scheduled maturities of long-term debt at June 28, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
Fiscal year:
1998........................................................ $ 828
1999........................................................ 628
2000........................................................ 13,562
2001........................................................ 4,906
2002........................................................ 2,640
-------
Total............................................. $22,564
=======
</TABLE>
The Company was not in compliance with certain financial covenants in
FCI's, HCI's, and Ershigs' long-term agreements with a financial institution.
The Company has obtained amendments or waivers of certain covenants in FCI's,
HCI's and Ershigs' loan agreements which cure any non-compliance with such
covenants as of June 28, 1997. The Company expects to be in compliance with all
covenants during fiscal 1998.
The Company paid interest of $166,000, $904,000, and $1,181,000 for the
period December 19, 1994 (date of inception) to July 1, 1995, and for the years
ended June 29, 1996 and June 28, 1997, respectively.
8. NOTES PAYABLE
Notes payable are summarized below:
<TABLE>
<CAPTION>
JUNE 29 JUNE 28
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
One-year unsecured note payable to a seller, principal and
interest at 10% due February 28, 1998..................... $ -- $1,000
Note payable with a financial institution, due in quarterly
installments of $27,500 plus interest at prime plus 1%
(9.5% at June 28, 1997) with an additional principal
payment of $250,000 on August 31, 1997, due December 31,
1997 secured by a note receivable......................... -- 460
------ ------
$ -- $1,460
====== ======
</TABLE>
The Company paid interest of $48,000, $82,000, and $15,000 for the period
December 19, 1994 (date of inception) to July 1, 1995 and during the years ended
June 29, 1996 and June 28, 1997, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company utilizes fiberglass, resin and steel as the primary raw
materials in its production processes. Fiberglass is occasionally in short
supply and subject to price fluctuations in response to market demands. The
Company entered into a supply agreement with a major supplier, which requires
that the supplier provide and the Company purchase at least 80% of the Company's
fiberglass requirements from the supplier. The contract expired on December 31,
1999. The Company and supplier are currently negotiating the terms of a
modification to the supply contract which would provide for an extension of at
least one year and certain
F-19
<PAGE> 65
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stabilizing pricing parameters tied to a consumer price index. In addition, the
Company continues to negotiate with other vendors to ensure a continued supply
of fiberglass to meet the Company's production needs. The Company is also a
significant purchaser of resin and steel. The Company does not depend upon any
single supplier or source for steel or resin requirements.
The Company has not encountered any significant difficulty to date in
obtaining raw materials in sufficient quantities to support its operations at
current or expected near-term future levels. However, any disruption in raw
material supply or abrupt increases in raw material prices could have an adverse
effect on the Company's operations.
The Company and its subsidiaries are, from time to time, subject to various
lawsuits and claims and other actions arising out of the normal course of
business. The Company is also subject to contingencies pursuant to environmental
laws and regulations that in the future may require the Company to take action
to correct the effects on the environment of prior manufacturing and waste
disposal practices. Accrued environmental liabilities at June 28, 1997 were
$575,000 and, in management's opinion, such accruals are appropriate based on
existing facts and circumstances. Under more adverse circumstances, however,
this potential liability could be higher. Current year expenditures were not
material.
While the effect on future results of these items is not subject to
reasonable estimation because considerable uncertainty exists, in the opinion of
management and Company counsel, the ultimate liabilities resulting from such
claims will not materially affect the consolidated financial position, results
of operations or cash flows of the Company.
10. LEASES
The Company leases certain manufacturing facilities, machinery and
equipment, and office space under operating leases. Future minimum payments on
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year:
1998........................................................ $ 826
1999........................................................ 617
2000........................................................ 453
2001........................................................ 364
2002 and thereafter......................................... 354
------
Total............................................. $2,614
======
</TABLE>
Total rental expense was $199,000, $725,000, and $1,028,000 for the period
December 19, 1994 (date of inception) to July 1, 1995 and for the years ended
June 29, 1996 and June 28, 1997, respectively.
F-20
<PAGE> 66
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 29 JUNE 28
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax over financial reporting basis of net book value of
property, plant, and equipment......................... $351 $1,886
Expenses accrued for financial reporting not yet
deductible for tax..................................... 339 1,518
Net operating loss and other carryforwards................ 124 663
Other..................................................... 74 203
---- ------
Total deferred tax assets................................... 888 4,270
Deferred tax liabilities:
Expenses deductible for tax which are capitalizable for
financial reporting.................................... 203 121
Other..................................................... 106 164
---- ------
Total deferred tax liabilities.............................. 309 285
---- ------
Valuation allowance......................................... -- (1,098)
==== ======
Net deferred tax assets..................................... $579 $2,887
==== ======
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 19, YEAR ENDED
1994 (DATE OF -----------------
INCEPTION) TO JUNE 29 JUNE 28
JULY 1, 1995 1996 1997
-------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal.............................................. $ 521 $(474) $231
State................................................ 61 24 38
----- ----- ----
Total current income tax expense (benefit)............. 582 (450) 269
----- ----- ----
Deferred income tax expense (benefit):
Federal.............................................. (522) 72 (3)
State................................................ (61) (68) 27
----- ----- ----
Total deferred income tax expense (benefit)............ (583) 4 24
----- ----- ----
Total income tax expense (benefit)..................... $ (1) $(446) $293
===== ===== ====
</TABLE>
F-21
<PAGE> 67
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax expense computed at U.S. federal statutory
tax rates to the reported tax expense is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD YEAR ENDED
DECEMBER 19, 1994 ------------------
(DATE OF INCEPTION) TO JUNE 29 JUNE 28
JULY 1, 1995 1996 1997
---------------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected income tax (benefit) expense at 34%.... $(15) $(435) $207
State income taxes, net of federal benefit...... (2) (48) 48
Meals and entertainment......................... 16 40 33
Other, net...................................... -- (3) 5
------ ----- ----
Reported total income tax expense (benefit)..... $ (1) $(446) $293
====== ===== ====
</TABLE>
The Company paid $284,000, $329,000, and $236,000 of income taxes for the
period December 19, 1994 (date of inception) to July 1, 1995 and for the years
ended June 29, 1996 and June 28, 1997, respectively.
12. EQUITY
In December 1994, the Company issued 4,800 shares of Series A redeemable
non-voting preferred stock for $250 per share. The holders of the preferred
stock are entitled to receive cumulative dividends at 10%. The preferred stock
is redeemable beginning December 20, 1995 at $250 per share, plus any and all
accrued but unpaid dividends. Dividends of $60,000, $120,000, and $120,000 were
declared by the Board of Directors during the period December 19, 1994 (date of
inception) to July 1, 1995 and for the years ended June 29, 1996 and June 28,
1997, respectively. The Company made dividend payments of $90,000 during the
year ended June 29, 1996 with dividends of $90,000 and $210,000 accrued as of
June 29, 1996 and June 28, 1997.
The Company has entered into a Stockholders Agreement (the "Agreement")
with the holders of its outstanding shares of common and preferred stock. The
Agreement provides the Company and its stockholders the right of first refusal
to purchase the selling stockholder's shares.
13. INCENTIVE STOCK OPTION PLAN
Effective February 14, 1996, the Company adopted an incentive stock option
plan (the "Plan") for certain key employees. Denali has reserved 367,833 shares
of common stock for purposes of the Plan.
The weighted average grant date fair value per option granted in the period
December 19, 1994 (date of inception) to July 1, 1995, and for the years ending
June 29, 1996 and June 28, 1997 was $250, $3,806, and $-0- respectively. All
options have five year terms and are fully exercisable upon date of grant. The
weighted average remaining contractual life at June 28, 1997 was 3.67 years.
A summary of Denali's stock option activity and related information for the
period December 19, 1994 (date of inception) to July 1, 1995 and for the years
ended June 29, 1996 and June 28, 1997 follows:
<TABLE>
<CAPTION>
FISCAL WEIGHTED FISCAL WEIGHTED FISCAL WEIGHTED
YEAR AVERAGE YEAR AVERAGE YEAR AVERAGE
1995 EXERCISE 1996 EXERCISE 1997 EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year......................... -- $ -- -- $ -- 113,190 $2.22
Granted...................... 126,910 .15 113,190 2.22 -- --
Exercised.................... 126,910 .15 -- -- -- --
Canceled..................... -- -- -- -- -- --
------- ---- ------- ----- ------- -----
Outstanding -- end of year..... -- $ -- 113,190 2.22 113,190 $2.22
======= ==== ======= ===== ======= =====
</TABLE>
F-22
<PAGE> 68
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (ABP 25), and related
interpretations in accounting for its employee stock options.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS
123), which also requires that the information be determined as if the Company
had accounted for its employee stock options granted subsequent to July 1, 1995
under the fair value method of FAS 123. The fair value for these options was
estimated at the date of grant using a minimum value option pricing model. The
minimum value method calculated a fair value that is approximately the same as
recorded by the Company according to APB 25; therefore, pro forma presentation
has not been included.
14. GAIN SHARING PLAN
During fiscal year 1995, the Company adopted a gain sharing plan that
covers all employees of the Containment Products Group who have satisfied
minimum employment standards. During the period December 19, 1994 (date of
inception) to July 1, 1995, and for the years ended June 29, 1996 and June 28,
1997 the Company made a gain sharing contribution equally to all eligible
employees totaling $80,000, $111,000 and $144,000, respectively based on a
distribution of 10% of quarterly earnings before taxes and gain sharing expense.
15. RETIREMENT PLANS
During fiscal year 1995, the Company adopted a defined-contribution
retirement plan, Fluid Containment 401(k) Retirement Plan (the "Plan"), that
covers all eligible employees of the Company. Effective July 1, 1997, the Plan
was amended to include all eligible employees of Ershigs. The Plan allows
employees to defer up to 15% of their compensation, with the Company matching
50% of the first 6% of the participant's contribution. Participants are
immediately and fully vested in employer contributions. The Company's matching
contribution was $52,000, $236,000, and $277,000 for the period December 19,
1994 (date of inception) to July 1, 1995 and for the years ended June 29, 1996
and June 28, 1997, respectively.
16. SEASONALITY AND INFLATION
The Company's operating results are affected by the annual construction
season slowdown resulting from winter weather especially in the period December
through March. The underground fiberglass tank products are especially impacted
during the winter months. The Company believes that the effects of seasonality
will be less severe in the future, as the Company continues to expand and
diversify its product offerings.
The effect of inflation on the Company's operations were not significant
during the periods presented in the consolidated financial statements.
17. SEGMENT DATA
The Company operates in two industry segments: Containment Products and
Engineered Products. The Containment Products segment, which provides
containment solutions for critical fluids, specializes in the manufacture of
fiberglass underground storage tanks and steel reinforced aboveground storage
tanks. The Engineered Products segment, which provides engineered solutions for
the containment of critical fluids, specializes in fiberglass reinforced plastic
products for corrosion resistant applications and engineered metal products for
the municipal and industrial markets. Except for certain revenues with respect
to license agreements with manufacturers located outside of the United States,
which revenues are not material as considered in relation to the Company's total
net sales, the Company operates in only one geographic segment,
F-23
<PAGE> 69
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the United States. The following is a summary of the industry segment data for
the period December 19, 1994 (date of inception) to July 1, 1995 and for the
years ended June 29, 1996 and June 28, 1997:
<TABLE>
<CAPTION>
DEPRECIATION
NET OPERATING IDENTIFIABLE CAPITAL AND
SALES INCOME ASSETS EXPENDITURES AMORTIZATION
------- --------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Period December 19, 1994 (date of
inception) to July 1, 1995:
Containment Products.................... $17,799 $ 645 $18,455 $333 $ 354
Engineered Products..................... -- -- -- -- --
Corporate............................... -- (90) 3,369 -- --
------- ------ ------- ---- ------
Consolidated............................ $17,799 $ 555 $21,814 $333 $ 354
======= ====== ======= ==== ======
Year ended June 29, 1996:
Containment Products.................... $53,354 $ 430 $28,350 $912 $ 908
Engineered Products..................... -- -- -- --
Corporate............................... -- (198) 1,968 30 5
------- ------ ------- ---- ------
Consolidated............................ $53,354 $ 232 $30,318 $942 $ 913
======= ====== ======= ==== ======
Year ended June 28, 1997:
Containment Products.................... $64,817 $2,080 $29,934 $523 $1,199
Engineered Products..................... 6,284 81 9,791 33 13
Corporate............................... -- (202) 1,359 44 9
------- ------ ------- ---- ------
Consolidated............................ $71,101 $1,959 $41,084 $600 $1,221
======= ====== ======= ==== ======
</TABLE>
18. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
The Company filed a registration statement with the Securities and Exchange
Commission ("SEC") in September 1997 to register the sale of shares of its
common stock. The Company intends to use the net proceeds of the sale to repay a
portion of the outstanding indebtedness under its credit facilities, to repay
$6.7 million of a subordinated unsecured note payable to a supplier, to repay
the $1.1 million unsecured note payable (including interest) to a seller, to
redeem the outstanding shares of preferred stock totaling approximately $1.4
million, including accrued and unpaid dividends, and to fund general working
capital purposes.
Supplemental net income per share is $0.40 for the year ended June 28, 1997
and is determined by adding back to net income used for the calculation of net
income per share the interest expense, net of taxes associated with the debt
which will be retired by the proceeds of the offering and adding the dividends
paid or accrued associated with the preferred stock which will be redeemed by
the proceeds of the offering. The number of shares outstanding used in
calculating supplemental net income per share was the weighted average common
shares outstanding after giving effect to the estimated number of shares that
would be required to be sold in the offering to repay the debt and redeem the
preferred stock.
COMMON STOCK
On September 23, 1997, the Company effected a 1,715-for-1 stock split. All
stockholders' equity balances and disclosures in the accompanying financial
statements have been retroactively restated for the stock split. The effect of
the stock split was to transfer an amount equal to the par value of the new
shares issued from additional paid-in capital to common stock.
F-24
<PAGE> 70
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENDING ACQUISITIONS
In September 1997, the Company signed a stock purchase agreement to acquire
all of the issued and outstanding stock of SEFCO, Inc., a manufacturer of
aboveground steel storage tanks for approximately $4.7 million in cash, which is
net of cash to be acquired of approximately $1.6 million. The acquisition is
anticipated to close by October 31, 1997. The purchase price will be adjusted
within 30 days of closing by the amount of the net change in working capital
from July 31, 1997 to the closing date.
In September 1997, the Company signed a stock purchase agreement to acquire
all of the issued and outstanding stock of GL&V/LaValley Construction, Inc., a
company engaged in the installation of underground storage tanks for $3.9
million in cash and direct acquisition costs of $100,000, with a two-year non-
compete agreement. The acquisition is anticipated to close by October 31, 1997.
1997 STOCK OPTION PLAN
In September 1997, the Company adopted an incentive stock option plan (the
"1997 Plan"). The 1997 Plan permits the granting of both incentive stock options
and non-qualified stock option awards to all employees of the Company. Awards to
acquire up to an aggregate of 362,873 shares may be granted pursuant to the 1997
Plan. The Board of Directors selects the employees who will receive the awards,
determines the type and terms of the awards to be granted and interprets and
administers the 1997 Plan.
In September 1997, the Company awarded options to acquire 171,030 shares of
the Company's common stock. 142,113 of the options vest 40% immediately and the
remainder over a four year period. The remaining 28,917 options vest ratably
over four years. All of the options were granted at fair market value which
equaled the public offering price.
REORGANIZATION OF SUBSIDIARIES AND EXCHANGE OF STOCK OPTIONS.
Effective September 1997, the Company completed a reorganization of it
subsidiaries. As part of the reorganization one of the Company's subsidiaries,
Containment Solutions, Inc. ("CSI") was merged into Denali. As a result, the
outstanding options to purchase common stock of CSI were exchanged for options
to purchase common stock of the Company. At June 28, 1997 the CSI stock option
plan has 1,400 options outstanding at an exercise price of $259. In September
1997, the Company exchanged the CSI options to a total of 254,643 options to
purchase the Company's common stock at an exercise price of $1.42. In connection
with the exchange, the Company will recognize a compensation charge in the
quarter ended September 27, 1997 of approximately $2.3 million.
A summary of CSI's stock option activity and related information prior to
the exchange for the years ended June 29, 1996 and June 28, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
1996 EXERCISE 1997 EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding -- beginning of year...................... -- $ -- 1,475 $259
Granted............................................. 1,475 259 300 --
Canceled............................................ -- -- 375 259
------ ---- ------ ----
Outstanding -- end of year............................ 1,475 $259 1,400 $259
====== ==== ====== ====
</TABLE>
F-25
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
Denali Incorporated
We have audited the accompanying balance sheet of Hoover Containment
Systems, Inc. (the "Company"), a wholly owned subsidiary of Hoover Group, Inc.
as of December 31, 1994 and the related statements of operations, stockholder's
equity, and cash flows for the year ended December 31, 1994, and the period from
January 1, 1995 to October 27, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hoover Containment Systems,
Inc. at December 31, 1994, and the results of its operations and its cash flows
for the year then ended and the period from January 1, 1995 to October 27, 1995,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
September 12, 1997
F-26
<PAGE> 72
HOOVER CONTAINMENT SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance of $96.............. $3,784
Inventories............................................... 2,233
Prepaid expenses.......................................... 67
Deferred tax asset........................................ 101
------
Total current assets.............................. 6,185
Property, plant, and equipment, net......................... 805
Goodwill, net............................................... 313
Patents, net................................................ 802
Other assets, net........................................... 116
------
Total assets...................................... $8,221
======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Cash overdrafts........................................... $ 397
Accounts payable.......................................... 2,050
Accrued liabilities....................................... 457
Payable to affiliates..................................... 4,664
Current maturities of long-term debt...................... 100
------
Total current liabilities......................... 7,668
Long-term debt, net of current maturities................... 100
Commitments and contingencies
Stockholder's equity:
Common stock, , no par value:
Authorized, issued, and outstanding shares -- 1,000.... --
Paid-in-capital........................................... 300
Retained earnings......................................... 153
------
Total stockholder's equity........................ 453
------
Total liabilities and stockholder's equity........ $8,221
======
</TABLE>
See accompanying notes.
F-27
<PAGE> 73
HOOVER CONTAINMENT SYSTEMS, INC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED FROM JANUARY 1,
DECEMBER 31, 1995 TO
1994 OCTOBER 27, 1995
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $18,875 $19,500
Cost of sales............................................... 15,116 15,612
------- -------
Gross profit................................................ 3,759 3,888
Selling, general, and administrative expenses............... 3,126 3,154
------- -------
Operating income............................................ 633 734
Interest expense............................................ 370 386
Other expenses.............................................. 6 98
------- -------
Income before income taxes.................................. 257 250
Provision for income taxes.................................. 104 95
------- -------
Net income.................................................. $ 153 $ 155
======= =======
</TABLE>
See accompanying notes.
F-28
<PAGE> 74
HOOVER CONTAINMENT SYSTEMS, INC
STATEMENTS OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1994 AND THE PERIOD
FROM JANUARY 1, 1995 TO OCTOBER 27, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK PAID-IN RETAINED STOCKHOLDER'S
SHARES CAPITAL EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
Common stock issued at January 7, 1994.............. 1,000 $300 $ -- $300
Net income.......................................... -- -- 153 153
----- ---- ---- ----
Balance at December 31, 1994........................ 1,000 300 153 453
Net income.......................................... -- -- 155 155
----- ---- ---- ----
Balance at October 27, 1995......................... 1,000 $300 $308 $608
===== ==== ==== ====
</TABLE>
See accompanying notes.
F-29
<PAGE> 75
HOOVER CONTAINMENT SYSTEMS, INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1,
YEAR ENDED 1995 TO
DECEMBER 31, OCTOBER 27,
1994 1995
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 153 $ 155
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 209 160
Amortization of goodwill.................................. 9 7
Amortization of other assets.............................. 60 50
Amortization of patents................................... 7 53
Loss on disposal of assets................................ 6 24
Deferred tax asset........................................ (101) (67)
Changes in operating assets and liabilities:
Accounts receivables................................... (1,103) 34
Inventories............................................ (1,029) 755
Prepaid expenses....................................... (31) (11)
Other assets........................................... (13) (8)
Cash overdrafts........................................ 287 (397)
Accounts payable....................................... 367 943
Accrued liabilities.................................... 107 289
Payable to affiliates.................................. 2,123 (1,525)
Deferred revenue....................................... (227) --
------- -------
Net cash provided by operating activities................... 824 462
INVESTING ACTIVITIES
Purchase of patents......................................... (609) --
Purchases of property and equipment......................... (215) (142)
------- -------
Net cash used by investing activities....................... (824) (142)
FINANCING ACTIVITIES
Principal payments on term note and other long-term debt.... -- (100)
------- -------
Net cash used by financing activities....................... -- (100)
------- -------
Decrease in cash............................................ -- 220
Cash at beginning of period................................. -- --
------- -------
Cash at end of period....................................... $ -- $ 220
======= =======
</TABLE>
See accompanying notes.
F-30
<PAGE> 76
HOOVER CONTAINMENT SYSTEMS, INC
NOTES TO FINANCIAL STATEMENTS
OCTOBER 27, 1995
1. THE COMPANY
ORGANIZATION AND BASIS OF PRESENTATION
The Hoover Containment Systems, Inc. (the "Company") is a manufacturer of
above-ground steel tanks in the domestic U.S. market. The Company was
incorporated on January 7, 1994 as a wholly owned subsidiary of Hoover Group,
Inc. through a contribution to the Company of $300,000. Prior to its
incorporation, the Company was a division of Hoover Group, Inc. On October 27,
1995 the net assets of the Company were acquired by Denali, Inc. for $5.4
million in cash.
2. SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are determined using actual cost based on a first-in, first-out
("FIFO") basis. FIFO inventory is stated a the lower of cost or market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
by the straight-line method using rates based on the estimated useful lives of
the related assets. Estimated useful lives used for depreciation purposes are as
follows:
<TABLE>
<S> <C>
Buildings and improvements........................... 20 years
Machinery and equipment.............................. 3 to 10 years
</TABLE>
GOODWILL
Goodwill represents the excess cost of companies acquired over the fair
value of their tangible assets. Goodwill is being amortized on a straight-line
basis over 40 years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the estimated
shortfall of the undiscounted cashflows. Goodwill amortization expense was
$8,600 and $7,100 for the year ended December 31, 1994 and the period from
January 1, 1995 through October 27, 1995, respectively. Accumulated amortization
was $30,000 at December 31, 1994.
PATENTS
Patents, including costs to acquire the patents of $129,000, are being
amortized on a straight basis over fifteen years. The Company periodically
evaluates the recoverability of patents by assessing whether the unamortized
balance can be recovered over its remaining life through cash flows generated by
the underlying assets. Patent amortization expense was $7,500 and $53,900 for
the year ended December 31, 1994 and the period from January 1, 1995 through
October 27, 1995, respectively. Accumulated amortization was $7,500 at December
31, 1994.
OTHER ASSETS
Included in other assets are non-compete agreements that total $472,500.
The agreements were recorded at costs when the agreements were signed and are
being amortized over the life of the agreement. Amortization expense was $60,000
and $50,000 for the year ended December 31, 1994 and the period from January 1,
1995 through October 27, 1995, respectively. Accumulated amortization was
$397,500 at December 31, 1994.
F-31
<PAGE> 77
HOOVER CONTAINMENT SYSTEMS, INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company's taxable income is included in the consolidated federal income
tax return of the Parent. The federal tax provision is substantially the same
provision as if the Company was required to file its own federal income tax
return on a separate company basis.
The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
reverse.
RESEARCH AND DEVELOPMENT COSTS
The costs of materials and equipment that are acquired for research and
development activities, and which have alternative future uses, are capitalized
and depreciated over the period of future benefit. All other research and
development costs are charged against earnings in the period incurred. Research
and development costs expensed were $38,000 and $35,000 for the year ended
December 31, 1994 and during the period from January 1, 1995 to October 27,
1995, respectively.
ADVERTISING COSTS
All advertising costs are expensed when incurred. Costs which are included
in selling, general and administrative expense were $99,000 and $23,000 for the
year ended December 31, 1994 and during the period from January 1, 1995 to
October 27, 1995, respectively.
REVENUE RECOGNITION
Revenues from sales of products fabricated at plant locations are
recognized using the units-of-delivery method of accounting.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, accounts payable and
short-term debts approximate fair values due to the short-term maturities of
these instruments. The carrying value of the Company's long-term debt
approximates fair value because the rate on such debt is not significantly
different from the current market rate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company's trade customers are geographically dispersed throughout the
United States and are concentrated in the petrochemical industry. The Company
had one customer individually exceeding 5% of accounts receivable, accounting
for approximately 6% of total accounts receivable at December 31, 1994.
F-32
<PAGE> 78
HOOVER CONTAINMENT SYSTEMS, INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PURCHASE OF ASSETS
In 1994, the Company purchased certain patents, inventory, and fixed assets
from a manufacturer of above-ground steel storage tanks for approximately
$860,000 including a note payable for $200,000 and acquisition costs of
$130,000. The assets were recorded at their fair values at the acquisition date.
4. INVENTORIES
Inventories consisted of the following at December 31, 1994 (In thousands):
<TABLE>
<S> <C>
Raw materials............................................. $ 739
Work in process........................................... 570
Finished goods............................................ 924
------
$2,233
======
</TABLE>
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31,
1994 (In thousands):
<TABLE>
<S> <C>
Buildings and improvements.................................. $ 208
Machinery and equipment..................................... 987
Furniture and fixtures...................................... 20
Office equipment............................................ 50
Automobiles................................................. 16
Construction in progress.................................... 23
======
1,304
Less accumulated depreciation............................... 499
------
Property, plant, and equipment, net......................... $ 805
======
</TABLE>
6. LONG-TERM DEBT
Long-term at December 31, 1994 is summarized below (In thousands):
<TABLE>
<S> <C>
Note Payable, unsecured note payable to the former owner,
interest at 6%, payable annually on August 31, due August
31, 1996.................................................. $200
----
Less current maturities..................................... 100
----
Total note payable................................ $100
====
</TABLE>
F-33
<PAGE> 79
HOOVER CONTAINMENT SYSTEMS, INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The components of the income tax expense(benefit) were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1995 TO
DECEMBER 31, OCTOBER 27,
1994 1995
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................. $182 $144
State................................... 23 18
---- ----
205 162
---- ----
Deferred:
Federal................................. (90) (60)
State................................... (11) (7)
---- ----
(101) (67)
---- ----
Total.............................. $104 $ 95
==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows at December 31, 1994 (in
thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Bonus accrual............................................. (74)
Allowance for bad debts................................... (27)
-----
$(101)
=====
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1995 TO
DECEMBER 31, OCTOBER 27,
1994 1995
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Tax at federal statutory rate..................... $ 89 $85
State income taxes net of federal benefit......... 7 7
Non-deductible meals and entertainment............ 4 3
Other............................................. 4 --
---- ---
Total............................................. $104 $95
==== ===
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are, from time to time, subject to
litigation and claims arising in the ordinary course of business. In the opinion
of management, the ultimate outcome of these litigation and claims is not
expected to have a material adverse effect on the consolidated financial
statements.
F-34
<PAGE> 80
HOOVER CONTAINMENT SYSTEMS, INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASES
The Company leases certain manufacturing facilities, machinery and
equipment and office space under operating leases. Future minimum payments on
operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1995......................................... $ 466
1996......................................... 427
1997......................................... 304
1998......................................... 58
1999 and thereafter.......................... 29
------
Total................................. $1,284
======
</TABLE>
Total rent expense was $384,000 and $381,000 for the year ended December
31, 1994 and for the period from January 1, 1995 to October 27, 1995,
respectively.
10. RELATED PARTY TRANSACTIONS
The Company was allocated certain general and administrative expenses from
Hoover Group, Inc. totaling $526,000 and $543,000 for the year ended December
31, 1994 and the period from January 1, 1995 through October 27, 1995,
respectively.
11. RETIREMENT PLANS
The Company has a defined-contribution retirement plan that covers all
eligible employees. The plan allows employees to defer up to 15% of their
compensation, with the Company matching 50% of the first 6% of the participant's
contributions. Participants are immediately and fully vested in employee
contributions.
Contribution expense was $15,000 and $32,000 for the year ended December
31, 1994 and the period from January 1, 1995 through October 27, 1995,
respectively.
F-35
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
Denali Incorporated
We have audited the accompanying balance sheet of Ershigs, Inc., (the
"Company"), as of December 31, 1996, and the related statements of operations,
stockholder's equity, and cash flows for the period from January 1, 1997 to
February 27, 1997, for each of the two years in the period ended December 31,
1996, and for the period from October 1, 1994 to December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ershigs, Inc. at December
31, 1996, and the results of its operations and its cash flows for the period
from January 1, 1997 to February 27, 1997, for each of the two years in the
period ended December 31, 1996, and for the period from October 1, 1994 to
December 31, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
September 22, 1997
F-36
<PAGE> 82
ERSHIGS, INC.
BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance of $525,000......... $ 3,754
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 494
Inventory:
Raw material........................................... 945
Work-in-process........................................ 1,454
-------
Total Inventory........................................... 2,399
Deferred tax assets....................................... 661
-------
Total current assets.............................. 7,308
Property, plant and equipment:
Land and improvements..................................... 340
Buildings................................................. 1,203
Shop equipment............................................ 539
Furniture and other equipment............................. 202
Construction in progress.................................. 31
-------
2,315
Less accumulated depreciation............................... (196)
-------
2,119
Deferred tax assets......................................... 1,691
Other assets................................................ 15
-------
Total assets...................................... $11,133
=======
LIABILITIES
Current liabilities:
Bank overdraft............................................ $ 235
Accounts payable.......................................... 436
Accrued expenses.......................................... 1,110
Billings in excess of cost and estimated earnings on
uncompleted contracts.................................. 181
Current portion of long-term debt......................... 400
-------
Total current liabilities......................... 2,362
Long-term debt, net of current portion...................... 300
Advances from parent........................................ 2,330
Other long-term liabilities................................. 911
-------
Total liabilities................................. 5,903
Commitments and contingencies
Stockholder's equity:
Voting common stock, 25,000 no par value shares
Authorized, 8,250 shares issued and outstanding........ --
Non-voting common stock, 25,000 no par value shares
Authorized, 8,250 shares issued and outstanding........
Paid-in capital........................................... 6,000
Retained deficit.......................................... (770)
-------
Total stockholder's equity........................ 5,230
-------
Total liabilities and stockholder's equity........ $11,133
=======
</TABLE>
See accompanying notes.
F-37
<PAGE> 83
ERSHIGS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM OCTOBER 1, YEAR ENDED FROM JANUARY 1,
1994 TO DECEMBER 31 1997 TO
DECEMBER 31 ----------------- FEBRUARY 27
1994 1995 1996 1997
--------------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net sales..................................... $ 5,121 $21,833 $24,484 $3,188
Cost of sales................................. 4,905 19,657 20,496 3,134
------- ------- ------- ------
Gross profit.................................. 216 2,176 3,988 54
Selling, general and administrative
expenses.................................... 1,258 4,088 4,589 748
------- ------- ------- ------
Operating loss................................ (1,042) (1,912) (601) (694)
Other income (expense):
Interest expense............................ (35) (130) (526) (79)
Interest income............................. 2 3 --
Other, net.................................. 2 31 (98) 16
------- ------- ------- ------
Other expense, net............................ (31) (99) (621) (63)
------- ------- ------- ------
Loss before income taxes...................... (1,073) (2,011) (1,222) (757)
Income tax benefit............................ 379 648 452 288
------- ------- ------- ------
Net loss............................ $ (694) $(1,363) $ (770) $ (469)
======= ======= ======= ======
</TABLE>
See accompanying notes.
F-38
<PAGE> 84
ERSHIGS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK PAID-IN RETAINED STOCKHOLDER'S
SHARES CAPITAL DEFICIT EQUITY
------ ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at September 30, 1994................... 16,500 $ 7,947 $(1,378) $ 6,569
Net loss........................................ -- -- (694) (694)
------ ------- ------- -------
Balance at December 31, 1994.................... 16,500 $ 7,947 $(2,072) $ 5,875
Net loss........................................ -- -- (1,363) (1,363)
------ ------- ------- -------
Balance at December 31, 1995.................... 16,500 $ 7,947 $(3,435) $ 4,512
New basis in accounting adjustment (Note 1)..... -- (1,947) 3,435 1,488
Net loss........................................ -- -- (770) (770)
------ ------- ------- -------
Balance at December 31, 1996.................... 16,500 $ 6,000 $ (770) $ 5,230
Net loss........................................ -- (469) (469)
------ ------- ------- -------
Balance at February 27, 1997.................... 16,500 $ 6,000 $(1,239) $ 4,761
====== ======= ======= =======
</TABLE>
See accompanying notes.
F-39
<PAGE> 85
ERSHIGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM OCTOBER 1, FROM JANUARY 1,
1994 TO YEAR ENDED DECEMBER 31 1997 TO
DECEMBER 31, ----------------------- FEBRUARY 27,
1994 1995 1996 1997
--------------- --------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $ (694) $(1,363) $ (770) $ (469)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation....................... 237 813 215 30
Amortization....................... 70 279 -- --
Provision for losses on accounts
receivable....................... 79 95 351 --
Deferred tax provision (benefit)... (64) (141) (216) 13
Gain on sale of assets............. 1 (27) (4) --
Change in operating assets and
liabilities:
Accounts receivable.............. (1,593) (454) 400 (8)
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... (108) (174) (195) (4)
Inventory........................ 575 (664) (689) 134
Other assets..................... -- -- (15) --
Bank overdraft................... 375 (222) (43) (235)
Accounts payable................. 20 (143) (435) 369
Accrued expenses................. 223 (141) 229 (265)
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 33 361 (322) (103)
Other long-term liabilities...... 64 (8) 2 (18)
------- ------- ------- ------
Net cash used in operating
activities.................. (782) (1,789) (1,492) (556)
------- ------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment.......................... (426) (465) (445) (13)
Proceeds from sale of property, plant
and equipment...................... 3 41 7 --
------- ------- ------- ------
Net cash used in investing
activities.................. (423) (424) (438) (13)
------- ------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from parent.............. 1,328 2,613 2,330 1,525
Repayment of long-term debt........... (123) (400) (400) (700)
------- ------- ------- ------
Net cash provided by financing
activities.................. 1,205 2,213 1,930 825
------- ------- ------- ------
Net change in cash...................... -- -- -- 256
Cash at beginning of period............. -- -- -- --
------- ------- ------- ------
Cash at end of period................... $ -- $ -- $ -- $ 256
======= ======= ======= ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................ $ 35 $ 132 $ 109 $ 14
======= ======= ======= ======
</TABLE>
See accompanying notes.
F-40
<PAGE> 86
ERSHIGS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF ACCOUNTING
Ershigs, Inc. (the Company) is a contract designer and manufacturer of
fiberglass reinforced plastic composites for corrosion resistant applications in
the domestic U.S. market. The Company operates fabrication plants located in
Washington, North Carolina and Texas.
The Company was acquired by CBI Industries, Inc. (CBI) on May 21, 1993 and
became a wholly-owned subsidiary of CBI. As a result of the acquisition of the
Company by CBI, the Company recorded goodwill of $5.1 million.
On January 12, 1996, pursuant to the merger agreement dated December 22,
1995, CBI became a subsidiary of Praxair, Inc. (Praxair). As a result of the
acquisition of CBI by Praxair and Praxair's intent to sell the Company, the
financial statements reflect a new basis of accounting as of January 12, 1996.
The new basis of accounting resulted in the Company's assets and liabilities
being adjusted to their estimated net realizable value based on the ultimate
disposition value in February 1997, adjusted for the operating losses of the
Company. The new basis of accounting adjustments, primarily related to the
adjustment of the Company's assets and liabilities to net realizable values, has
a significant effect on the Company's future results of operations for the
periods subsequent to December 31, 1995. The more significant adjustments relate
to the write-off of unamortized goodwill, a reduction in the basis of fixed
assets and recognition of the related deferred tax asset, which significantly
reduces depreciation and amortization expense. The results of operations from
January 1, 1996 to January 11, 1996 are not considered significant to the
financial statements and are included in the accompanying statement of
operations for the year ended December 31, 1996.
On February 28, 1997, the Company was acquired by Denali Incorporated
(Denali) in a stock purchase for $6 million. In connection with the acquisition
of the Company by Denali, the fabrication plant in Texas was closed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable and accounts payable
approximate fair values due to the short-term maturities of these instruments.
The carrying value of the Company's long-term debt approximates fair value
because the rate on such debt is variable, based on current market.
INVENTORY
Inventory of raw materials and work-in-process is stated at the lower of
cost (determined by the first-in, first-out method) or market. Work-in-process
includes capitalization of labor and overhead costs.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Improvements which
increase the useful life of property and replacements of major components of
property are capitalized, while maintenance, repairs and minor replacements are
expensed as incurred.
F-41
<PAGE> 87
ERSHIGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is provided on a straight-line basis over the estimated useful
lives of the related assets. The estimated useful lives range from 3 to 10 years
for equipment and from 10 to 50 years for buildings and land improvements.
INCOME TAXES
The Company's results are included in the consolidated federal income tax
return filed by its parent company. The Company uses the liability method of
accounting for income taxes. Under the liability method, deferred income taxes
are determined based on differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates
that will be in effect when the differences reverse.
The policy of the parent company is for each U.S. subsidiary to currently
recognize any federal income tax expense, as computed on a separate subsidiary
basis. Any resulting tax liability or receivable is remitted to or received from
the parent through the advances from parent account.
GOODWILL
Prior to the acquisition of the Company's parent by Praxair, goodwill
represented the excess cost of the purchase of the Company by CBI over the fair
value of the Company's tangible assets at the date of acquisition. Goodwill was
being amortized on a straight-line basis over 20 years. The goodwill was
eliminated in the new basis of accounting adjustments as a result of the January
1996 acquisition of the Company by Praxair.
RESEARCH AND DEVELOPMENT COSTS
The costs of materials and equipment that are acquired for research and
development activities, and which have alternative uses, are capitalized and
depreciated over the period of future benefit. All research and development
costs are charged against earnings in the period incurred. Research and
development costs expensed were $-0-, $27,000, $104,000, and $10,000 during the
period from October 1, 1994 to December 31, 1994, the years ended December 31,
1995 and 1996 and the period from January 1, 1997 to February 27, 1997,
respectively.
REVENUE RECOGNITION
Revenues from sales of products fabricated at plant locations are
recognized using the units-of-delivery method of accounting. Revenues from
certain long-term construction contracts, usually performed on job sites, are
recognized on the percentage-of-completion method. Earned revenue is based on
the percentage that incurred costs to date bear to total estimated costs after
giving effect to the most recent estimates of total cost. The cumulative impact
of revisions in total cost estimates during the progress of work is reflected in
the year in which these changes become known. Earned revenue reflects the
original contract price adjusted for agree-upon claim and change order revenue,
if any.
Losses expected to be incurred on jobs in process, after consideration of
estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known. Selling and administrative expenses are
charged to income in the year incurred and are not allocated to contracts in
progress.
3. LONG-TERM DEBT
The balance of long-term debt at December 31, 1996 consists of a note
payable due in monthly installments of $33,333, plus interest at the bank's
prime rate plus 1% (9.5% at December 31, 1996). This note is collateralized by
virtually all the assets of the Company. The note payable requires the Company
to comply
F-42
<PAGE> 88
ERSHIGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
with certain financial covenants, the most restrictive of which includes the
maintenance of liability and leverage ratios as well as limitations on
dividends, additional borrowings and advances to affiliates. The Company was in
compliance with all covenants as of December 31, 1996. The note matures $400,000
and $300,000 in the year ended December 31, 1997 and 1998, respectively. In
February, 1997, the note payable was repaid in full by the parent company
through the advances from parent account.
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts are summarized as
follows (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Costs incurred on uncompleted contracts..................... $4,829
Estimated earnings.......................................... 785
------
5,614
Less billings to date....................................... 5,302
------
$ 312
Included in the accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. $ 493
Billings in excess of cost and estimated earnings on
uncompleted contracts.................................. 181
------
$ 312
======
</TABLE>
5. CONCENTRATION OF CREDIT RISK
The Company's trade customers are geographically dispersed throughout the
United States and are concentrated in the power utilities, pulp and paper and
chemical industries. The Company continuously evaluates the creditworthiness of
its customers and generally does not require collateral. The Company had 8
customers individually exceeding 5% of accounts receivable, accounting for
approximately 68% of total accounts receivable at December 31, 1996.
6. COMMITMENTS AND CONTINGENCIES
The Company is subject to various lawsuits and claims and other actions
arising in the normal course of business. The Company is also subject to
contingencies pursuant to environmental laws and regulations that in the future
may require the Company to take action to correct the effects on the environment
of prior manufacturing and waste disposal practices. Accrued environmental
liabilities at December 31, 1996 were $411,000 and, in management's opinion,
such accruals are appropriate based on existing facts and circumstances. Under
more adverse circumstances, however, this potential liability could be higher.
Current expenditures have not been material.
While the effect on future results of these items is not subject to
reasonable estimation because considerable uncertainty exists, in the opinion of
management and Company counsel, the ultimate liabilities resulting from such
claims will not materially affect the financial position, results of operations
or cash flows of the Company.
Due to the nature of the contracting business, lawsuits occasionally arise.
It is not possible to predict the results of specific lawsuits; however, the
Company's management believes that there are no issues or incidents that would
be material to its financial position, results of operations or cash flows. In
addition, the Company has given certain guarantees in connection with the
performance of contracts.
F-43
<PAGE> 89
ERSHIGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (In thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Deferred tax assets:
Tax over book basis of net book value of property, plant,
and equipment.......................................... $1,346
Expense accrued for books not yet deductible for tax...... 1,006
------
Total deferred tax assets................................... 2,352
Total deferred tax liabilities.............................. --
------
Net deferred tax assets..................................... $2,352
======
</TABLE>
The components of income tax benefit are as follows (In thousands):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, YEAR ENDED PERIOD FROM
1994 TO DECEMBER 31, JANUARY 1, 1997
DECEMBER 31, ------------ TO FEBRUARY 27,
1994 1995 1996 1997
------------ ---- ---- ---------------
<S> <C> <C> <C> <C>
Current income tax benefit:
Federal................................ $281 $454 $211 $269
State.................................. 33 53 25 32
---- ---- ---- ----
Total current income tax benefit......... 314 507 236 301
Deferred income tax benefit (expense):
Federal................................ 58 126 193 (12)
State.................................. 7 15 23 (1)
---- ---- ---- ----
Total deferred income tax benefit
(expense).............................. 65 141 216 (13)
---- ---- ---- ----
Total income tax benefit................. $379 $648 $452 $288
==== ==== ==== ====
</TABLE>
The reconciliation of income tax benefit computed at U.S. federal statutory
tax rates to the reported tax benefit is as follows (In thousands):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, YEAR ENDED PERIOD FROM
1994 TO DECEMBER 31, JANUARY 1, 1997
DECEMBER 31, ------------ TO FEBRUARY 27,
1994 1995 1996 1997
------------ ---- ---- ---------------
<S> <C> <C> <C> <C>
Expected income tax benefit at 34%....... $365 $684 $416 $258
State income taxes, net of federal
benefit................................ 40 68 48 30
Goodwill................................. (24) (95) -- --
Other.................................... (2) (9) (12) --
---- ---- ---- ----
Reported total income tax benefit........ $379 $648 $452 $288
==== ==== ==== ====
</TABLE>
8. RELATED-PARTY TRANSACTIONS
The Company was allocated certain general and administrative expenses,
including administration of the Company's workers' compensation insurance, from
its parent company totaling $58,000, $281,000, $296,000,
F-44
<PAGE> 90
ERSHIGS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and $9,000 during the period from October 1, 1994 to December 31, 1994, the
years ended December 31, 1995 and 1996 and the period from January 1, 1997 to
February 27, 1997, respectively.
The Company was allocated interest costs from Praxair of $420,000 and
$70,000 for the year ended December 31, 1996 and for the period January 1, 1997
to February 27, 1997, respectively, related to Praxair carrying its investment
in Ershigs as an asset held for sale.
9. PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing and 401(k) plan
for substantially all nonunion employees. The plan allows employees to defer up
to 15% of their compensation. Discretionary contributions to the profit sharing
plan are determined by the Board of Directors and funded annually. A profit
sharing contribution of $32,000 was made during the period from October 1, 1994
to December 31, 1994. No profit sharing contribution was made for the years
ended December 31, 1995 and 1996, or the period from January 1, 1997 to February
27, 1997.
F-45
<PAGE> 91
REPORT OF INDEPENDENT AUDITORS
Denali Incorporated
We have audited the accompanying balance sheet of GL&V/LaValley
Construction, Inc. (the "Company"), as of August 16, 1997, and the related
statements of operations, stockholder's equity, and cash flows for the period
from August 23, 1996 (date of acquisition) to August 16, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GL&V/LaValley Construction,
Inc., at August 16, 1997, and the results of its operations and its cash flows
for the period from August 23, 1996 (date of acquisition) to August 16, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
September 9, 1997
F-46
<PAGE> 92
GL&V/LAVALLEY CONSTRUCTION, INC.
BALANCE SHEET
AUGUST 16, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 7,962
Trade accounts receivable, net of allowance for doubtful
accounts of $55,000.................................... 1,001,987
Inventories............................................... 125,850
Costs and estimated earnings on uncompleted contracts in
excess of related billings............................. 454,625
Due from parent........................................... 1,392,198
Prepaid expenses and other................................ 21,826
Deferred tax asset........................................ 80,948
Total current assets.............................. 3,085,396
Property, plant, and equipment, net......................... 1,591,397
----------
$4,676,793
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 562,894
Warranty reserve.......................................... 95,000
Income taxes payable...................................... 24,083
Note payable to parent.................................... 1,643,000
----------
Total current liabilities......................... 2,324,977
Deferred tax liability...................................... 49,240
Stockholder's equity:
Common stock, $10 par value:
Authorized shares -- 30,000
Issued and outstanding shares -- 30,000................ 300,000
Additional paid-in capital................................ 1,911,853
Retained earnings......................................... 90,723
----------
2,302,576
----------
Total liabilities and stockholder's equity........ $4,676,793
==========
</TABLE>
See accompanying notes.
F-47
<PAGE> 93
GL&V/LAVALLEY CONSTRUCTION, INC.
STATEMENT OF OPERATIONS
PERIOD FROM AUGUST 23, 1996 (DATE OF ACQUISITION) TO AUGUST 16, 1997
<TABLE>
<S> <C>
Revenues.................................................... $7,876,830
Direct costs................................................ 6,352,975
----------
Gross margin................................................ 1,523,855
Selling expenses............................................ 210,012
Administrative expenses..................................... 947,160
----------
1,157,172
Operating profit............................................ 366,683
Other expense:
Interest expense............................................ (174,338)
Other, net.................................................. (23,036)
----------
Earnings before income taxes................................ 169,309
Income taxes................................................ 78,586
----------
Net earnings................................................ $ 90,723
==========
</TABLE>
See accompanying notes.
F-48
<PAGE> 94
GL&V/LAVALLEY CONSTRUCTION, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
PERIOD FROM AUGUST 23, 1996 (DATE OF ACQUISITION) TO AUGUST 16, 1997
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Balance, August 23, 1996....................... $300,000 $ 4,811,853 $ -- $ 5,111,853
Dividends to parent.......................... -- (2,900,000) (2,900,000)
Net earnings for the period.................. -- -- 90,723 90,723
-------- ----------- ------- -----------
Balance, August 16, 1997....................... $300,000 $ 1,911,853 $90,723 $ 2,302,576
======== =========== ======= ===========
</TABLE>
See accompanying notes.
F-49
<PAGE> 95
GL&V/LAVALLEY CONSTRUCTION, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM AUGUST 23, 1996 (DATE OF ACQUISITION) TO AUGUST 16, 1997
<TABLE>
<S> <C>
Operating activities:
Net earnings.............................................. $ 90,723
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation expense................................... 204,622
Loss on sale of property, plant, and equipment......... 7,608
Deferred income tax expense............................ 13,063
Changes in operating assets and liabilities:
Trade accounts receivable............................ 867,475
Inventories.......................................... 50,296
Costs and estimated earnings on uncompleted contracts
in excess of related billings....................... 214,632
Income taxes payable................................. 24,083
Prepaid expenses and other current assets............ (14,879)
Accounts payable and accrued expenses................ (689,608)
Warranty reserve..................................... (93,852)
Unearned income...................................... (83,514)
-----------
Net cash provided by operating activities................... 590,649
-----------
Investing activities:
Due from Parent........................................... 139,991
Purchases of property, plant, and equipment............... (175,678)
-----------
Net cash used in investing activities....................... (35,687)
-----------
Financing activities:
Proceeds from issuance of notes payable to Parent......... 1,643,000
Payments on notes payable to Parent....................... (2,190,000)
-----------
Net cash used in financing activities....................... (547,000)
-----------
Increase in cash............................................ 7,962
Cash at beginning of period................................. --
-----------
Cash at end of period....................................... $ 7,962
===========
Cash paid during period for income taxes.................... $ 32,000
===========
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
The Company declared a dividend of $2,900,000 which was applied to reduce
the amount due to its Parent.
See accompanying notes.
F-50
<PAGE> 96
GL&V/LAVALLEY CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 16, 1997
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
GL&V/LaValley Construction, Inc. (the "Company" or "LCI"), a Mississippi
corporation, is wholly owned by GL&V/LaValley Industries, Inc. (the "Parent" or
"LII"), a Washington corporation. LCI markets and installs equipment and parts
primarily for the paper pulp industry throughout North America. On August 23,
1996, LII became a wholly owned subsidiary through a stock purchase of GL&V
Holdings, Inc., a Washington corporation which is wholly owned by Groupe
Laperriere & Verreault Inc., a Canadian corporation. The stock purchase of the
Parent was accounted for under the purchase method and the amount of the
purchase price allocated to the Company was allocated based on the fair value of
the assets acquired and liabilities assumed, which approximated the net book
value of the Company.
REVENUE AND COST RECOGNITION
Revenues from contracts with customers for manufacture, repair, or
installation of equipment are recognized on the percentage-of-completion method,
measured by the percentage of construction costs incurred to date to estimated
total costs for each contract. Expended construction costs are considered by
management to be the best available measure of progress on these contracts.
Construction costs include all direct material, equipment, labor, subcontractor,
and indirect costs related to contract performance. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period such losses are determined. Changes
in job performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions and final contract settlements may
result in revisions to costs and income and are recognized in the period the
revisions are determined.
The asset, "Costs and estimated earnings on uncompleted contracts in excess
of related billings," represents revenues recognized in excess of amounts
billed.
Contracts other than those described above are generally accounted for on a
time-and-material basis. Revenues and accounts receivable from such jobs are
recorded at the amount billable based on the costs incurred.
INVENTORIES
Inventories consist of raw materials and are valued at the lower of average
cost or market, with cost determined by the moving average method, which
approximates the first-in/first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is charged
to income over the estimated useful lives of the respective assets using the
straight-line method, over lives of 31.5 years for building and improvements and
5 to 7 years for machinery and equipment, furniture and fixtures, and vehicles.
INCOME TAXES
The Company's taxable income is included in the consolidated federal income
tax return of the Parent. The federal tax provision is substantially the same
provision as if the Company were required to file its own federal income tax
return on a separate company basis.
The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates that will be in effect when the differences
reverse.
F-51
<PAGE> 97
GL&V/LAVALLEY CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, prepaid expenses, accounts receivable,
accounts payable, and accrued expenses approximate fair values due to the
short-term maturities of these instruments. The book values of cash, trade
receivables, and trade payables are considered to be representative of their
respective fair values because of their short-term nature.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts at August 16, 1997
are summarized as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts..................... $1,370,424
Estimated earnings.......................................... 254,654
----------
1,625,078
Less billings to date....................................... 1,170,453
----------
Uncompleted contracts with costs and estimated earnings in
excess of related billings................................ $ 454,625
==========
</TABLE>
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at August 16,
1997:
<TABLE>
<CAPTION>
COST
----------
<S> <C>
Land........................................................ $ 31,360
Building and improvements................................... 1,504,162
Machinery and equipment..................................... 1,162,726
Furniture and fixtures...................................... 124,421
Vehicles.................................................... 104,108
----------
2,926,777
Less accumulated depreciation............................... 1,335,380
----------
Property, plant, and equipment.............................. $1,591,397
==========
</TABLE>
4. NOTE PAYABLE AND CREDIT FACILITY
The Company has a note payable to its Parent in the amount of $1,643,000
which is due on demand. The note bears interest at the bank prime.
The Company is party to a revolving line of credit and a term loan on a
joint and several basis with its Parent. As of August 16, 1997, the Company had
no outstanding balance. As of August 16, 1997, the Parent had $2,202,381
outstanding from the term loan facility. This credit facility is collateralized
by the accounts receivable, inventory, machinery and equipment, fixtures,
documents, instruments, general intangibles and proceeds thereof, and real
property of the Company and its Parent.
F-52
<PAGE> 98
GL&V/LAVALLEY CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. DEFINED-CONTRIBUTION 401(K) SAVINGS PLAN
The Company participates in the Parent's defined-contribution 401(k)
savings plan, which is available to substantially all of the Company's
employees, whereby the Company will match 100% of the participant's contribution
up to 1.5% of compensation. The Company made contributions to the plan of
$13,058 during the period.
6. INCOME TAXES
For the period August 23, 1996 (date of acquisition) to August 16, 1997,
the income tax provision consisted of the following components:
<TABLE>
<S> <C>
Current
Federal................................................... $62,523
State..................................................... 3,000
-------
65,523
Deferred.................................................... 13,063
-------
Total............................................. $78,586
=======
</TABLE>
The income tax provision reconciled to the tax computed at the federal
statutory rate:
<TABLE>
<S> <C>
Tax at federal statutory rate............................... $ 57,565
State income taxes net of federal benefit................... 5,926
Decrease in valuation allowance............................. (15,222)
Nondeductible meals and entertainment....................... 20,810
Nondeductible penalties..................................... 7,103
Other....................................................... 2,404
--------
$ 78,586
========
</TABLE>
The deferred tax asset and liability at August 16, 1997 consists of the
following:
<TABLE>
<S> <C>
Deferred tax asset:
Expenses deducted for book not deductible for tax in the
period................................................. $80,948
Deferred tax liability:
Depreciation of property and equipment.................... 49,240
-------
Net deferred tax asset...................................... $31,708
=======
</TABLE>
The valuation allowance was decreased by $15,222 to $0 during the period
August 24, 1996 through August 16, 1997, based on management's reevaluation of
the likelihood of realization of the net deferred tax assets.
7. LEASES AND COMMITMENTS
The Company has various equipment under noncancelable operating leases
expiring through 2000. Rent expense under all such leases approximates $8,557
for the period August 23, 1996 to August 16, 1997.
Future minimum lease payments under operating leases for personal property
with noncancelable terms in excess of one year, at August 16, 1997, total
$12,264 and are payable as follows: 1998 -- $8,557; 1999 -- $3,707; and
2000 -- $-0-.
F-53
<PAGE> 99
GL&V/LAVALLEY CONSTRUCTION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
The Parent provides certain administrative functions on behalf of the
Company that are allocated to the Company for separate financial reporting
purposes. The costs allocated of $430,000 for the period from August 23, 1996 to
August 16, 1997 have been recorded in administrative expenses.
The Company is covered through the Parent company's business insurance
program. For the period August 23, 1996 to August 16, 1997, the Parent charged
the Company $27,744 for its proportionate share of the insurance coverage.
The Company also pays the Parent a management fee equal to 1.25% of
revenues. For the period from August 23, 1996 to August 16, 1997, the Company
paid LII $101,478.
The advance to the Parent represents cash transferred to the Parent
company.
The Company has provided goods and services to the Parent totaling $572,308
for the period August 23, 1996 to August 16, 1997 which include a profit margin
of 18%.
9. CONCENTRATION OF CREDIT RISK
The Company has one significant customer that accounted for approximately
17% of all sales for the period from August 23, 1996 to August 16, 1997.
10. SUBSEQUENT EVENTS
In August 1997, the Company signed a letter of intent to sell all of its
common stock to Denali Incorporated for $3.9 million. The sale of the Company is
anticipated to close by October 31, 1997.
F-54
<PAGE> 100
REPORTS OF INDEPENDENT AUDITORS
The Board of Directors
SEFCO, Inc.
We have audited the accompanying balance sheet of SEFCO, Inc., as of
December 31, 1996, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SEFCO, Inc. at December 31,
1996, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
LEMING, SCHALLNER & CO.
Tulsa, Oklahoma
January 22, 1997
F-55
<PAGE> 101
REPORTS OF INDEPENDENT AUDITORS
Board of Directors
SEFCO, Inc.
We have audited the accompanying balance sheet SEFCO, Inc. as of December
31, 1995, and the related statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SEFCO, Inc., at December 31,
1995, and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
GAYNOR AND FAWCETT, INC.
Tulsa, Oklahoma
February 5, 1996
F-56
<PAGE> 102
SEFCO, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 475,931 $ 339,804
Certificates of deposit................................... 35,630 1,100,000
Accounts receivable -- contracts.......................... 1,158,140 806,104
Accounts receivable -- other.............................. 3,165 3,765
Costs and estimated earnings on incomplete contracts in
excess of billings..................................... 199,178 118,737
Inventory................................................. 210,498 18,117
Prepaid expenses.......................................... 88,348 24,099
---------- ----------
Total current assets.............................. 2,170,890 2,410,626
Property and equipment:
Machinery and equipment................................... 1,617,431 1,837,913
Automotive equipment...................................... 228,218 511,350
Furniture and fixtures.................................... 46,018 61,118
Leasehold improvements.................................... 453,992 380,708
Land...................................................... 15,000 129,351
---------- ----------
2,360,659 2,920,440
Less accumulated depreciation............................. 1,155,677 1,439,966
---------- ----------
Net property and equipment.................................. 1,204,982 1,480,474
Other assets:
Cash value of life insurance.............................. 83,118 129,085
Deposits.................................................. 1,840 840
---------- ----------
Total other assets................................ 84,958 129,925
Total assets...................................... $3,460,830 $4,021,025
========== ==========
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 624,338 $ 385,361
Accrued expenses.......................................... 213,951 212,786
Warranty reserve.......................................... 40,000 50,000
Income taxes payable...................................... 160,318 265,914
Billings in excess of costs and estimated earnings on
incomplete contracts................................... 358,858 355,497
Current deferred income taxes............................. 171,038 113,649
---------- ----------
Total current liabilities......................... 1,568,503 1,383,207
Deferred income taxes....................................... 58,731 75,082
Stockholders' equity:
Common stock, $1 par value, 10,000 shares authorized; 500
and 1,000 shares issued at December 31, 1995 and 1996,
respectively........................................... 500 1,000
Additional paid-in capital.................................. 46,058 46,058
Retained earnings........................................... 1,787,038 2,515,678
---------- ----------
Total stockholders' equity........................ 1,833,596 2,562,736
Total liabilities and stockholders' equity........ $3,460,830 $4,021,025
========== ==========
</TABLE>
See accompanying notes.
F-57
<PAGE> 103
SEFCO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenues............................................. $6,675,574 $8,445,324 $10,121,541
Cost of revenues:
Direct contract costs.............................. 5,001,174 5,947,929 6,685,831
Indirect overhead.................................. 472,298 604,730 744,580
---------- ---------- -----------
Total cost of revenue................................ 5,473,472 6,552,659 7,430,411
---------- ---------- -----------
Gross profit......................................... 1,202,102 1,892,665 2,691,130
General and administrative expenses.................. 980,285 1,174,358 1,530,824
---------- ---------- -----------
Income from operations............................... 221,817 718,307 1,160,306
Other income (expenses):
Interest income.................................... 13,179 20,089 32,833
Net gain (loss) on sale of assets.................. (10,510) 4,630 (3,338)
Interest expense................................... (3,749) (1,256) --
Other income....................................... -- 7,268 20,055
---------- ---------- -----------
Total other income (expenses)........................ (1,080) 30,731 49,550
---------- ---------- -----------
Income before provision for taxes.................... 220,737 749,038 1,209,856
Provision for income taxes:
Current............................................ 70,330 226,499 496,754
Deferred........................................... 13,203 56,954 (41,038)
---------- ---------- -----------
Total provision for taxes............................ 83,533 283,453 455,716
---------- ---------- -----------
Net income........................................... $ 137,204 $ 465,585 $ 754,140
========== ========== ===========
</TABLE>
See accompanying notes.
F-58
<PAGE> 104
SEFCO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993................ 500 $ 500 $46,058 $1,189,249 $1,235,807
Dividends declared........................ -- -- -- (2,000) (2,000)
Net income................................ -- -- -- 137,204 137,204
----- ------ ------- ---------- ----------
Balance at December 31, 1994................ 500 500 46,058 1,324,453 1,371,011
Dividends declared........................ -- -- -- (3,000) (3,000)
Net income................................ -- -- -- 465,585 465,585
----- ------ ------- ---------- ----------
Balance at December 31, 1995................ 500 500 46,058 1,787,038 1,833,596
Stock Dividends declared.................. 500 500 -- (500) --
Dividend declared......................... -- -- -- (25,000) (25,000)
Net income................................ -- -- -- 754,140 754,140
----- ------ ------- ---------- ----------
Balance at December 31, 1996................ 1,000 $1,000 $46,058 $2,515,678 $2,562,736
===== ====== ======= ========== ==========
</TABLE>
See accompanying notes.
F-59
<PAGE> 105
SEFCO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Operating activities
Net income.............................................. $137,204 $465,585 $ 754,140
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 228,701 233,970 369,153
Deferred income taxes................................. 13,203 56,954 (41,038)
Gain (loss) on sale of assets......................... 10,510 (4,630) 3,338
Cash value of life insurance.......................... (43,231) (39,740) (45,967)
Changes in operating assets and liabilities:
Accounts receivable................................... (693,918) (112,756) 351,436
Other accounts receivable............................. (1,187) 585 -
Deposits.............................................. - (1,040) 1,000
Costs and estimated earnings in excess of billings.... 15,891 (41,487) 80,441
Inventory............................................. (8,409) (196,141) 192,381
Prepaid income taxes.................................. (67,390) 67,390 -
Prepaid expenses...................................... 35,805 (2,675) 64,249
Accounts payable...................................... 237,678 186,851 (238,977)
Accrued expenses...................................... 75,504 97,809 (1,165)
Warranty reserve...................................... - - 10,000
Income taxes payable.................................. (44,839) 160,318 105,596
Billings in excess of costs and estimated earnings.... 110,017 173,819 (3,361)
-------- -------- ----------
5,539 1,044,812 1,601,226
Investing activities
Proceeds from sale of fixed assets...................... 32,522 8,200 58,920
Purchase of fixed assets................................ (134,109) (715,673) (706,903)
Sale (purchase) of certificates of deposit.............. 17,500 (35,630) (1,064,370)
-------- -------- ----------
(84,087) (743,103) (1,712,353)
Financing activities
Payment of dividends.................................... (2,000) (2,000) (25,000)
Retirement of notes payable............................. (234,080) (26,169) -
Proceeds from cash value of life insurance.............. 72,114 - -
-------- -------- ----------
(163,966) (28,169) (25,000)
Total increase (decrease) in cash....................... (242,514) 273,540 (136,127)
Beginning cash balance.................................. 444,905 202,391 475,931
-------- -------- ----------
Ending cash balance..................................... $202,391 $475,931 $ 339,804
Supplemental schedule of cash flow information:
Cash paid during the year for interest.................. $ 3,749 $ 1,256 $ -
Cash paid during the year for income taxes.............. $182,559 $ 17,861 $ 388,454
</TABLE>
In non-cash transactions during fiscal year 1994, the Company purchased
fixed assets for notes payable in the amount of $35,076, and financed the annual
insurance renewal for $16,125.
See accompanying notes.
F-60
<PAGE> 106
SEFCO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY'S ACTIVITIES
SEFCO, Inc. (the "Company"), is engaged in the business of the fabrication
and erection of above-ground steel storage tanks for municipalities and the
petroleum and grain industries. Work is performed primarily under fixed-price
contracts.
SUBSIDIARY COMPANIES
The Company holds 100% of the stock of two subsidiary companies, Marvel
Painting and Construction, Inc., and SEFCO of Arkansas, Inc. Both subsidiaries
are inactive shells, thus the financial statements reflect only the financial
position, operations and cash flows of SEFCO, Inc.
REVENUE AND COST RECOGNITION
Revenues from fixed-price contracts are recognized on the
percentage-of-completion method. No revenue is recognized on a contract until
substantial costs have been incurred. The percentage of completion is measured
by the ratio of costs incurred to date to estimated total costs on the contract.
Contract costs include all direct materials, labor and subcontract costs,
and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs, and equipment costs. Selling, general, and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
The asset, "Costs and estimated earnings on incomplete contracts in excess
of billings," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on incomplete
contracts," represents amounts billed in excess of revenues recognized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all highly liquid investments with a
maturity of three months or less when purchased.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
DEPOSITS HELD IN FINANCIAL INSTITUTIONS
The Company had demand deposits on hand in financial institutions which
exceeded depositor's insurance provided by the applicable guaranty agency by
$90,817, $361,287, and $1,339,804 at December 31, 1994, 1995, and 1996,
respectively.
PROPERTY, EQUIPMENT, AND DEPRECIATION
Property and equipment are recorded at cost. Depreciation is computed on
the straight-line method based on the estimated useful lives of the related
assets. Construction machinery and furniture are being depreciated
F-61
<PAGE> 107
SEFCO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
over periods of five to ten years. Autos and trucks have estimated useful lives
of three to five years. Leasehold costs have estimated useful lives of 27 to 39
years.
Maintenance, repairs, and minor renewals are charged to operations as
incurred. Improvements and major renewals are capitalized. Upon sale or
disposition of properties, the asset account is relieved of the cost, and the
accumulated depreciation account is charged with depreciation taken prior to the
sale; any resultant gain or loss is credited or charged to earnings.
INCOME TAXES
Deferred income taxes are provided for differences in timing of reporting
income for financial statement and tax purposes arising from differences in the
methods of accounting for construction contracts, depreciation, and warranty
reserves. Construction contracts are reported for tax purposes on the completed
contract method and for financial statement purposes on the
percentage-of-completion method. Accelerated depreciation is used for tax
reporting, and straight-line depreciation is used for financial statement
reporting. The Company has established a reserve fund for warranties which is
not currently deductible for tax purposes.
2. ACCOUNTS RECEIVABLE -- CONTRACTS
Accounts receivable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1996
---------- --------
<S> <C> <C>
Completed contracts........................................ $ 306,321 $166,935
Contracts in progress...................................... 851,819 639,169
---------- --------
Total accounts receivable.................................. $1,158,140 $806,104
========== ========
</TABLE>
There were no accounts written-off during the years ended December 31,
1994, 1995, and 1996.
3. CONTRACTS IN PROGRESS
Information with respect to contracts in progress is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Expenditures on incomplete contracts...................... $2,043,906 $1,845,755
Estimated earnings........................................ 501,823 353,361
---------- ----------
2,545,729 2,199,116
Less billings to date..................................... 2,705,409 2,435,876
---------- ----------
$ (159,680) $ (236,760)
========== ==========
</TABLE>
The information above is included in the accompanying balance sheets under
the following captions:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Current assets - costs and estimated earnings on incomplete
contracts in excess of billings.......................... $ 199,178 $ 118,737
Current liabilities - billings in excess of costs and
estimated earnings on incomplete contracts............... (358,858) (355,497)
--------- ---------
$(159,680) $(236,760)
========= =========
</TABLE>
F-62
<PAGE> 108
SEFCO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Expense accrued for books not yet deductible for tax...... $ 14,976 $ 18,868
Other..................................................... 1,872 -
-------- --------
Total deferred tax assets................................... 16,848 18,868
Deferred tax liabilities:
Book over tax basis of net book value of property, plant,
and equipment.......................................... 58,731 75,082
Contract revenue on percent completion for book and
completed contract for tax............................. 187,886 132,517
-------- --------
Total deferred tax liabilities.............................. 246,617 207,599
-------- --------
Net deferred tax liabilities................................ $229,769 $188,731
======== ========
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Current income tax expense:
Federal........................................... $56,263 $198,053 $422,246
State............................................. 14,067 28,446 74,508
------- -------- --------
Total current income tax expense:................... 70,330 226,499 496,754
Deferred income tax expense (benefit):
Federal........................................... 9,759 49,024 (34,882)
State............................................. 3,444 7,930 (6,156)
------- -------- --------
Total deferred income tax expense (benefit)......... 13,203 56,954 (41,038)
------- -------- --------
Total income tax expense............................ $83,533 $283,453 $455,716
======= ======== ========
</TABLE>
The reconciliation of income tax expense computed at U.S. federal statutory
tax rates to the reported tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Expected income tax expense at 34%.................. $75,050 $254,673 $411,351
State income taxes, net of federal benefit.......... 4,824 23,867 45,188
Meals and entertainment............................. 800 2,115 1,185
Other, net.......................................... 2,859 2,798 (2,008)
------- -------- --------
Reported total income tax expense................... $83,533 $283,453 $455,716
======= ======== ========
</TABLE>
For the years ended December 31, 1994, 1995, and 1996, the federal income
tax provision was less than the amount of taxes computed at the 34% statutory
federal income tax rate because of permanent differences related to expenses
which were not deductible for tax purposes and the federal benefit of state
income taxes.
F-63
<PAGE> 109
SEFCO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PENSION
During 1994 the Company had a profit sharing plan which covered
substantially all employees of the Company. Employees become eligible for
participation after two years of service.
In 1995, the Company converted its profit sharing plan to a 401(k)
retirement plan (the "Plan") which covers substantially all of the employees of
the Company. The Plan allows employees to defer up to 15% of their compensation,
with the Company matching 100% of the first 6% of the participant's
contribution. Participants are immediately and fully vested in employer
contributions. The Company accrued contributions to the pension plan of $-0-,
$65,425, and $89,723 for the years ended December 31, 1994, 1995, and 1996,
respectively.
6. RELATED PARTY TRANSACTIONS
The Company rents land and facilities owned by the stockholders of the
Company and pays insurance, maintenance, and utility bills incurred at the
premises in addition to rent. The Company paid $36,000 in rent payments in 1994,
1995, and 1996.
The stockholders own certain construction equipment which they lease to the
Company on a month-to-month basis. Rental rates are equivalent to rates
available in the marketplace. The Company paid $144,000, $144,000, and $228,000
in the years ended December 31, 1994, 1995, and 1996, respectively, for the use
of this equipment.
7. REVOLVING LINE OF CREDIT
In April 1996, the Company entered into a $450,000 revolving line of credit
with interest at 1% above the New York prime rate to provide operating capital.
The line is collateralized by all accounts, contracts, contract rights, and
general intangibles and by all inventory, equipment, and leasehold improvements.
The line expires April 22, 1997. At December 31, 1996, the Company had not
borrowed funds against the line.
8. CONTINGENT LIABILITY
The Company has the normal contingencies inherent to construction
activities and a general commitment to correct certain deficiencies in
construction for a period of one year after completion of a construction
contract. Such contingencies and commitments have not been material in prior
years, and in the opinion of management, the Company has adequate insurance
coverage and no material contingencies will result from present or future
claims.
9. CONCENTRATION OF CREDIT RISK
The company extends credit to customers as a normal course of business. At
December 31, 1996, the Company had extended credit to two customers totaling
$246,000 or 30% of accounts receivable-contracts.
F-64
<PAGE> 110
SEFCO, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 856,339
Accounts receivable -- contracts.......................... 864,937
Accounts receivable -- other.............................. 34,777
Costs and estimated earnings in excess of billings on
incomplete contracts................................... 199,031
Inventory................................................. 13,685
Prepaid expenses.......................................... 51,211
----------
Total current assets.............................. 2,019,980
----------
Property and equipment:
Machinery and equipment................................... 1,898,349
Automotive equipment...................................... 511,351
Furniture and fixture..................................... 75,181
Leasehold improvements.................................... 439,883
Land...................................................... 129,351
----------
3,054,115
Less accumulated depreciation............................. 1,612,529
----------
Net property and equipment.................................. 1,441,586
----------
Other assets:
Investments............................................... 549,466
Cash value of life insurance.............................. 151,274
Deposits.................................................. 840
----------
Total other assets.......................................... 701,580
----------
Total assets................................................ $4,163,146
==========
</TABLE>
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 503,228
Accrued expenses.......................................... 181,908
Warranty reserve.......................................... 45,887
Income taxes payable...................................... 112,363
Billings in excess of costs and estimated earnings on
incomplete contracts................................... 330,559
Current deferred income taxes............................. 159,672
----------
Total current liabilities......................... 1,333,617
----------
Deferred income taxes....................................... 54,680
----------
Stockholders' equity:
Common stock -- $1 par value, 10,000 shares authorized,
1,000 shares issued.................................... 1,000
Additional paid-in-capital................................ 46,058
Retained earnings......................................... 2,727,791
----------
Total stockholders' equity........................ 2,774,849
----------
Total liabilities and stockholder's equity........ $4,163,146
==========
See notes to unaudited financial statements.
F-65
<PAGE> 111
SEFCO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $5,083,885 $4,993,741
Cost of revenues:
Direct contract costs..................................... 3,455,776 3,666,487
Indirect overhead......................................... 362,461 323,081
---------- ----------
Total cost of revenues...................................... 3,818,237 3,989,568
---------- ----------
Gross profit................................................ 1,265,648 1,004,173
General and administrative expenses......................... 740,674 694,760
---------- ----------
Income from operations...................................... 524,974 309,413
---------- ----------
Other income (expense):
Gain on sale of assets.................................... 5,259 3,391
Interest income........................................... 11,700 23,666
Other income.............................................. 16,302 21,202
Other expense............................................. (3,221) (7,873)
---------- ----------
Total other income (expense)................................ 30,040 40,386
---------- ----------
Net income before provision for income taxes................ 555,014 349,799
---------- ----------
Provision (benefit) for income taxes:
Current................................................... 279,708 112,065
Deferred............................................... (47,412) 25,621
---------- ----------
Total provision for income taxes.................. 232,296 137,686
---------- ----------
Net income........................................ $ 322,718 $ 212,113
========== ==========
</TABLE>
See notes to unaudited financial statements.
F-66
<PAGE> 112
SEFCO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net income.................................................. $ 322,718 $ 212,113
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 180,987 185,791
Deferred income taxes..................................... (47,412) 25,621
Cash value of life insurance.............................. (23,786) (22,189)
Gain on sale of assets.................................... (5,259) (3,391)
Changes in operating assets and liabilities:
Accounts receivable....................................... (210,701) (89,845)
Costs and estimated earnings in excess of billings........ 70,990 (80,294)
Deposits.................................................. 1,000 --
Inventory................................................. 30,608 4,432
Prepaid expenses.......................................... (79,155) (27,112)
Accounts payable.......................................... (142,581) 117,867
Accrued expenses.......................................... 256,005 (30,878)
Warranty reserve.......................................... 10,000 (4,113)
Accrued income taxes...................................... 119,390 (153,551)
Billings in excess of costs and estimated earnings........ 141,588 (24,938)
--------- ----------
Net cash provided by operating activities................... 624,392 109,513
--------- ----------
Investing Activities
Proceeds from sale of property and equipment................ 44,714 --
Acquisition of property and equipment....................... (497,141) (143,512)
Decrease in certificates of deposit......................... 35,630 1,100,000
Purchase of investments..................................... -- (549,466)
--------- ----------
Net cash provided by investing activities................... (416,797) 407,022
--------- ----------
Net increase in cash........................................ 207,595 516,535
Cash at beginning of period................................. 475,931 339,804
--------- ----------
Cash at end of period....................................... $ 683,526 $ 856,339
========= ==========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest.................................................. $ -- $ --
Income taxes.............................................. $ 279,634 $ 295,516
</TABLE>
See notes to unaudited financial statements.
F-67
<PAGE> 113
SEFCO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
1. GENERAL
The financial statements of SEFCO, Inc. (the "Company"), included herein
have been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. The
Company believes that the presentations and disclosures herein are adequate to
make the information not misleading.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
financial statements should be read in conjunction with the Company's audited
financial statements and notes included elsewhere in the Prospectus.
2. INVESTMENTS
The Company invests in United States Treasury bills, commercial paper and
various mutual funds. At June 30, 1997 the fair market value of the various
investments totaled $546,912, resulting in a combined unrealized loss of $2,554.
3. INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The Company's interim provisions for
income taxes were computed using its estimated effective tax rate for the year.
4. CONCENTRATION OF CREDIT RISK
The Company extends credit to customers as a normal course of business. At
June 30, 1997, the Company had extended credit to two customers totaling
$240,750 or 27.8% of all outstanding accounts receivable-contracts.
F-68
<PAGE> 114
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Dividend Policy....................... 12
Capitalization........................ 12
Dilution.............................. 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 20
Management............................ 31
Certain Transactions.................. 36
Principal Stockholders................ 37
Description of Capital Stock.......... 38
Shares Eligible for Future Sale....... 41
Underwriting.......................... 42
Legal Matters......................... 44
Experts............................... 44
Additional Information................ 44
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
SHARES
[LOGO]
DENALI INCORPORATED
COMMON STOCK
--------------------
PROSPECTUS
--------------------
MORGAN KEEGAN & COMPANY, INC.
RAUSCHER PIERCE REFSNES, INC.
, 1997
======================================================
<PAGE> 115
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of all estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the Common Stock
offered hereby, other than underwriting discounts and commissions:
<TABLE>
<CAPTION>
TOTAL
------
<S> <C>
Securities and Exchange Commission registration fee......... $9,932
Printing and engraving costs................................ *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses, including fees of counsel....... *
Transfer agent's fees....................................... *
NASD filing fees............................................ 3,778
NASDAQ listing fee.......................................... *
Other....................................................... *
------
Total....................................................... $ *
======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, the Company's Certificate of Incorporation
limits the personal liability of directors. The Certificate of Incorporation
provides that a director of the Company will not be personally liable to the
Company or its shareholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) payment of an improper dividend or improper repurchase of the
Company's stock under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived any improper personal
benefit. The Company's Certificate of Incorporation further provides that in the
event the Delaware General Corporation Law is amended to allow the further
elimination or limitation of the liability of directors, then the liability of
the Company's directors shall be limited or eliminated to the fullest extent
permitted by the amended Delaware General Corporation Law. This provision is
intended to afford directors additional protection from, and limit their
potential liability for, suits alleging a breach of the duty of care by a
director. The Company believes that this provision will assist it in securing
the services of directors who are not employees of the Company. While
stockholders may be unable to recover monetary damages against directors for
actions that are in violation of their fiduciary duties, it may be possible to
obtain injunctive or other equitable relief with respect to such actions.
Under Article 6 of the Company's Bylaws as currently in effect, each person
who is or was a director or officer of the Company or a subsidiary of the
Company, or who serves or served any other enterprise or organization at the
request of the Company or a subsidiary of the Company, shall be indemnified by
the Company to the full extent permitted by the Delaware General Corporation
Law.
Under such law, to the extent that such person is successful on the merits
in defense of a suit or proceeding brought against him by reason of the fact
that he is or was a director or officer of the Company, or serves or served any
other enterprise or organization at the request of the Company, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred in connection with such action.
Under such law, if unsuccessful in defense of a third party civil suit or a
criminal suit, or if such suit is settled, such a person shall be indemnified
against both (i) expenses, including attorneys' fees, and (ii) judgments, fines
and amounts paid in settlement if he acted in good faith and in a manner he
reasonably
II-1
<PAGE> 116
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action, had no reasonable cause to believe his
conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Company, where such suit is settled, such a person shall be indemnified under
such law only against expenses (including attorneys' fees) actually and
reasonably incurred in the defense or settlement of such suit if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Company, except that if such person is adjudged to be
liable in such a suit for negligence or misconduct in the performance of his
duty to the Company, he cannot be made whole even for expenses unless the court
determines that he is fully and reasonably entitled to indemnity for such
expenses.
Prior to consummation of this Offering, the Company will enter into
indemnification agreements with each of its directors that provide for
indemnification and expense advancement to the fullest extent permitted under
the Delaware General Corporation Law. Such indemnification agreements include
related provisions intended to facilitate the indemnitee's receipt of such
benefits, including certain provisions applicable to constituent corporations in
the event of certain mergers or acquisitions.
Delaware corporations also are authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. The Company
has purchased and maintains a directors' and officers' liability policy for such
purposes.
Reference is made to the form of Underwriting Agreement filed as Exhibit
1.01 to this Registration Statement for certain provisions regarding the
indemnification of the Company, its officers and directors and any controlling
persons by the Underwriters against certain liabilities for information
furnished by the Underwriters.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and therefore is unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years, the Company has not issued any of its securities
that were not registered under the Securities Act of 1933 (the "Securities Act")
except as follows:
(a) On December 19, 1994, the Company issued 1,500,000 shares of
Common Stock, $.01 par value (the "Common Stock") to certain individuals
and entities in connection with the organization and initial capitalization
of the Company for an aggregate purchase price of $1,500,000.
(b) On April 12, 1995, the Company granted to Stephen T. Harcrow an
option to purchase 126,910 shares of Common Stock. No consideration was
paid in this transaction.
(c) On May 31, 1995, the Company issued 126,910 shares of Common Stock
to Stephen T. Harcrow upon his exercise of his stock option. Consideration
of $18,500 was paid to the Company in connection with this transaction.
(d) On April 2, 1996, the Company granted to R. Kevin Andrews, Melford
S. Carter, Jr. and Cathy L. Smith options to purchase in the aggregate
113,190 shares (37,730 shares each) of Common Stock pursuant to the
Company's 1996 Incentive Stock Option Plan. No consideration was paid in
this transaction.
(e) On September 18, 1997, the Company granted to certain employees of
the Company, effective as of effective date of this Registered Statement,
options to purchase in the aggregate 171,030 shares of Common Stock
pursuant to the Company's 1997 Incentive Stock Option Plan. No
consideration was paid in this transaction.
(f) On September 25, 1997, the Company issued options to acquire
254,643 shares of its Common Stock to holders of options to acquire 1,400
shares of the common stock of Containment Solutions, Inc.
II-2
<PAGE> 117
("CSI"), a wholly-owned subsidiary of the Company, in connection with a
merger of CSI with and into the Company.
Except for (a) above, the number of shares of Common Stock set forth above
have been adjusted to reflect (i) an 0.0008-for-one split effected in April 1995
and (ii) a 1,715-for-one split effected in September 1997. The transactions
described in paragraphs (a), (c) and (f) above were exempt from the registration
requirement of the Securities Act pursuant to Section 4(2) thereof as
transactions by an issuer not involving a public offering. The transactions
described in paragraphs (b), (d) and (e) above were exempt from the registration
requirement of the Securities Act pursuant to Section 2(3) thereof as
transactions not involving a "sale."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.01* -- Form of Underwriting Agreement.
3.01 -- Second Restated Certificate of Incorporation of the
Company.
3.02 -- Bylaws of the Company.
4.01* -- Specimen of Common Stock certificate.
4.02 -- See Exhibits 3.01 and 3.02 for provisions of the
Certificate of Incorporation and Bylaws of the Company
defining the rights of holders of Common Stock.
4.03 -- Loan and Security Agreement dated December 21, 1994, by
and between the Company and Fleet Capital Corporation
(successor in interest to Barclay Business Credit, Inc.)
regarding $11,000,000 credit facility.
4.04 -- Loan and Security Agreement dated October 27, 1995, by
and between the Company and Fleet Capital Corporation
(successor in interest to Shawmut Capital Corporation)
regarding $6,500,000 credit facility.
4.05 -- Loan and Security Agreement dated February 28, 1997, by
and between the Company and Fleet Capital Corporation
regarding $6,500,000 credit facility.
4.06 -- Junior Subordinated Note of the Company dated December
23, 1994, in the original principal amount of $7.5
million, payable to Owens Corning.
5.01* -- Legal Opinion of Hutcheson & Grundy, L.L.P., counsel to
the Company.
10.01 -- The Company's 1996 Incentive Stock Option Plan, as
amended.
10.02 -- The Company's 1997 Incentive Stock Option Plan.
10.03 -- Stock Purchase and Sale Agreement dated as of February
14, 1997, by and between the Company and Praxair, Inc.
10.04 -- Asset Purchase Agreement dated October 12, 1995, by and
between the Company, Hoover Group, Inc., Hoover
Containment Systems, Inc. and Hoover Containment, Inc.
10.05 -- Glass Fiber Reinforcement Products Purchase Agreement
dated December 23, 1994, by and between the Company and
Owens Corning.
10.06 -- Lease dated November 22, 1996, by and between the Company
and Baymeadow Limited Partnership (the "Baltimore
Lease").
10.07 -- First Amendment of Lease dated August 19, 1997, by and
between the Company and Baymeadow Limited Partnership
regarding the Baltimore Lease.
</TABLE>
II-3
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.08 -- Salary Continuation Agreement dated September 5, 1997, by
and between the Company and Stephen T. Harcrow.
10.09 -- Letter to Lee W. Orr dated March 31, 1997, confirming
offer of employment.
10.10 -- Consulting Agreement dated effective as of April 1, 1997,
by and between the Company and Edward de Boer.
10.11 -- Confidentiality and Non-Competition Agreement dated
September 5, 1997, by and between the Company and R.
Kevin Andrews.
10.12 -- Confidentiality and Non-Competition Agreement dated
September 5, 1997, by and between the Company and Melford
S. Carter, Jr.
10.13 -- Confidentiality and Non-Competition Agreement dated
September 5, 1997, by and between the Company and Cathy
L. Smith.
10.14 -- Stock Purchase Agreement dated September 22, 1997, by and
between the Company and GL&V/LaValley Industries, Inc.
and GL&V LaValley Construction, Inc.
10.15 -- Stock Purchase Agreement dated September 19, 1997, by and
between the Company and SEFCO, Inc., Craig T. Sutton
Revocable Trust, Cedric I. Sutton and Charlotte A.
Shnurman.
11.01 -- Computation of Per Share Earnings.
21.01 -- Subsidiaries of the Company.
23.01 -- Consent of Ernst & Young LLP, independent auditors.
23.02 -- Consent of Gaynor and Fawcett, Inc., independent
auditors.
23.03 -- Consent of Leming, Schallner & Co., independent auditors.
23.04* -- Consent of Hutcheson & Grundy, L.L.P. (Reference is made
to Exhibit 5.01).
24.01 -- Power of attorney (included on the signature page
hereto).
27.01 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
(b) Consolidated Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 119
The Registrant hereby undertakes to provide to the Underwriters, at the
closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on September 30, 1997.
DENALI INCORPORATED
By: /s/ STEPHEN T. HARCROW
----------------------------------
Stephen T. Harcrow
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN T. HARCROW Chairman of the Board, September 30, 1997
- ----------------------------------------------------- Chief Executive Officer and
Stephen T. Harcrow Director (Principal
Executive Officer)
/s/ R. KEVIN ANDREWS* Chief Financial Officer September 30, 1997
- ----------------------------------------------------- (Principal Financial
R. Kevin Andrews Officer and Principal
Accounting Officer)
/s/ ERNEST H. COCKRELL* Director September 30, 1997
- -----------------------------------------------------
Ernest H. Cockrell
/s/ THOMAS D. SIMMONS, JR.* Director September 30, 1997
- -----------------------------------------------------
Thomas D. Simmons, Jr.
/s/ J. TAFT SYMONDS* Director September 30, 1997
- -----------------------------------------------------
J. Taft Symonds
/s/ STEPHEN M. YOUTS* Director September 30, 1997
- -----------------------------------------------------
Stephen M. Youts
*By: /s/ STEPHEN T. HARCROW
------------------------------------------------
Stephen T. Harcrow
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.01* -- Form of Underwriting Agreement.
3.01 -- Second Restated Certificate of Incorporation of the
Company.
3.02 -- Bylaws of the Company.
4.01* -- Specimen of Common Stock certificate.
4.03 -- Loan and Security Agreement dated December 21, 1994, by
and between the Company and Fleet Capital Corporation
(successor in interest to Barclay Business Credit, Inc.)
regarding $11,000,000 credit facility.
4.04 -- Loan and Security Agreement dated October 27, 1995, by
and between the Company and Fleet Capital Corporation
(successor in interest to Shawmut Capital Corporation)
regarding $6,500,000 credit facility.
4.05 -- Loan and Security Agreement dated February 28, 1997, by
and between the Company and Fleet Capital Corporation
regarding $6,500,000 credit facility.
4.06 -- Junior Subordinated Note of the Company dated December
23, 1994, in the original principal amount of $7.5
million, payable to Owens Corning.
5.01* -- Legal Opinion of Hutcheson & Grundy, L.L.P., counsel to
the Company.
10.01 -- The Company's 1996 Incentive Stock Option Plan, as
amended.
10.02 -- The Company's 1997 Incentive Stock Option Plan.
10.03 -- Stock Purchase and Sale Agreement dated as of February
14, 1997, by and between the Company and Praxair, Inc.
10.04 -- Asset Purchase Agreement dated October 12, 1995, by and
between the Company, Hoover Group, Inc., Hoover
Containment Systems, Inc. and Hoover Containment, Inc.
10.05 -- Glass Fiber Reinforcement Products Purchase Agreement
dated December 23, 1994, by and between the Company and
Owens Corning.
10.06 -- Lease dated November 22, 1996, by and between the Company
and Baymeadow Limited Partnership (the "Baltimore
Lease").
10.07 -- First Amendment of Lease dated August 19, 1997, by and
between the Company and Baymeadow Limited Partnership
regarding the Baltimore Lease.
10.08 -- Salary Continuation Agreement dated September 5, 1997, by
and between the Company and Stephen T. Harcrow.
10.09 -- Letter to Lee W. Orr dated March 31, 1997, confirming
offer of employment.
10.10 -- Consulting Agreement dated effective as of April 1, 1997,
by and between the Company and Edward de Boer.
10.11 -- Confidentiality and Non-Competition Agreement dated
September 5, 1997, by and between the Company and R.
Kevin Andrews.
10.12 -- Confidentiality and Non-Competition Agreement dated
September 5, 1997, by and between the Company and Melford
S. Carter, Jr.
10.13 -- Confidentiality and Non-Competition Agreement dated
September 5, 1997, by and between the Company and Cathy
L. Smith.
10.14 -- Stock Purchase Agreement dated September 22, 1997, by and
between the Company and GL&V/LaValley Industries, Inc.
and GL&V LaValley Construction, Inc.
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.15 -- Stock Purchase Agreement dated September 19, 1997, by and
between the Company and SEFCO, Inc., Craig T. Sutton
Revocable Trust, Cedric I. Sutton and Charlotte A.
Shnurman.
11.01 -- Computation of Per Share Earnings.
21.01 -- Subsidiaries of the Company.
23.01 -- Consent of Ernst & Young LLP, independent auditors.
23.02 -- Consent of Gaynor and Fawcett, Inc., independent
auditors.
23.03 -- Consent of Leming, Schallner & Co., independent auditors.
23.04* -- Consent of Hutcheson & Grundy, L.L.P. (Reference is made
to Exhibit 5.01).
24.01 -- Power of attorney
27.01 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
(b) Consolidated Financial Statement Schedules
<PAGE> 1
EXHIBIT 3.01
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
DENALI INCORPORATED
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
Denali Incorporated, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation
Law")
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Denali Incorporated and
that this corporation was originally incorporated on December 13, 1994 as
Containment Solutions, Inc., pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Restated Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in
the best interests of this corporation and its stockholders, and authorizing
the appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment
and restatement is as follows:
"RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Denali Incorporated.
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two
classes of stock, to
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<PAGE> 2
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that this corporation is authorized to issue is thirty-one
million, four thousand eight hundred (31,004,800). The number of shares of
Preferred Stock authorized to be issued is one million, four thousand eight
hundred (1,004,800), of which shares four thousand eight hundred (4,800) have
been designated Series A Preferred Stock, par value $.01 per share (the "Series
A Preferred Stock"). The number of shares of Common Stock authorized to be
issued is thirty million (30,000,000), par value $.01 per share (the "Common
Stock").
(B) Preferred Stock. The Board of Directors is authorized to
provide for the issuance of shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof. The rights, preferences, privileges and restrictions granted to and
imposed on the Series A Preferred Stock, which series shall consist of 4,800
shares, are as set forth below in Article IV(C). Subject to compliance with
applicable protective voting rights which have been or may be granted to the
Preferred Stock or series thereof in Certificates of Determination or the
corporation's Second Restated Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or
any series thereof, the rights, preferences, privileges and restrictions of any
such additional series may be subordinated to, pari passu with (including,
without limitation, inclusion in provisions with respect to liquidation and
acquisition preferences, redemption and/or approval of matters by vote or
written consent), or senior to any of those of any present or future class or
series of Preferred or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series (other than the Series A Preferred
Stock), prior or subsequent to the issue of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
(C) Series A Preferred Stock.
1. Dividend Provisions. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A Preferred Stock shall be entitled to receive cumulative
dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Common Stock of this corporation, at the
annual rate of $25.00 per share (10%), payable quarterly on March 31, June 30,
September 30 and December 31, with the first payment due June 30, 1995, for the
Series A Preferred Stock, when, as, and if declared by the Board of Directors.
Such cumulative dividends shall accrue from the date of issuance whether or not
earned so that no dividends or other distributions shall be made with respect
to the Common Stock and no Common Stock shall be purchased until cumulative
dividends on the Preferred Stock for all past dividend periods and for the then
current three-month dividend period shall have been declared
-2-
<PAGE> 3
and paid or set apart. After cumulative dividends on the Preferred Stock for
all past dividend periods and for the then current three-month dividend period
shall have been declared and paid or set apart, if the Board of Directors shall
elect to declare additional dividends out of funds legally available therefor,
such additional dividends shall be declared in equal amounts per share on all
shares of Preferred Stock and Common Stock.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (A) $250.00 for each outstanding share of Series A
Preferred Stock, and (B) an amount equal to declared but unpaid dividends on
such share (the "Liquidation Price"). If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A Preferred
Stock shall be insufficient to permit the payment to such holders of the
Liquidation Price, then, subject to the rights of series of Preferred Stock
that may from time to time come into existence, the entire assets and funds of
this corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock in proportion to the
amount of such stock owned by each such holder.
(b) After the distributions described in subsection (a) above have
been paid, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the remaining assets of the corporation
available for distribution to stockholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
(c)(i) For purposes of this Section 2, a liquidation, dissolution, or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, but excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on
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<PAGE> 4
free marketability covered by (B) below:
(1) If traded on a securities exchange or through
the NASDAQ National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty-day period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate
fair market value thereof, as mutually determined by the corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c) are not
complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the
final approval of such transaction. The first of such notices shall describe
the material terms and conditions of the impending transaction and the
provisions of this Section 2, and the corporation shall thereafter give such
holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the corporation has given
the first notice provided for herein or sooner than ten (10) days after the
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting
power
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of all then outstanding shares of such Preferred Stock.
3. Voting Rights. The shares of Series A Preferred Stock shall
not have any voting rights, except as set forth in Section 4 herein.
4. Protective Provisions. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, this
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of at least a majority of the then outstanding
shares of Series A Preferred Stock, voting together as a single class:
(i) sell, convey, or otherwise dispose of or encumber all
or substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly owned subsidiary corporation)
or effect any transaction or series of related transactions in which more than
50% of the voting power of this corporation is disposed of;
(ii) create any new class or series of stock or any other
securities convertible into equity securities of the corporation (i) having a
preference over, or being on a parity with, the Series A Preferred Stock with
respect to voting, dividends or upon liquidation, or (ii) having rights similar
to any of the rights of the Series A Preferred Stock under this Section 4; or
(iii) alter or change the rights, preferences or privileges
of the shares of Series A Preferred Stock so as to affect adversely such shares
of Series A Preferred Stock.
5. Redemption Rights.
(a) The Series A Preferred Stock is subject to redemption, out of
funds legally available therefor, in whole, or from time to time in part, at
the option of the Board of Directors of the corporation. If only a part of the
Series A Preferred Stock is to be redeemed, the redemption shall be carried out
pro rata. The redemption price shall be $250.00 per share plus cumulative
dividends provided in subsection 5(b) hereof accrued and unpaid to the date
fixed for redemption (the "Redemption Price").
(b) The corporation shall mail a notice of redemption to each
holder of record of shares to be redeemed addressed to the holder at the
address of such holder appearing on the books of the corporation or given by
the holder to the corporation for the purpose of notice, or if no such address
appears or is given at the place where the principal executive office of the
corporation is located, not earlier than 60 nor later than 20 days before the
date fixed for redemption. The notice of redemption shall include (i) the
number of shares of Series A Preferred Stock to be redeemed, (ii) the date
fixed for redemption, (iii) the Redemption Price, and (iv) the place at which
the stockholders may obtain payment of the Redemption Price upon surrender of
their share certificates. If funds are available on the date fixed for the
redemption, then whether or not the share certificates are surrendered for
payment of the Redemption Price, the shares shall no longer be outstanding and
the holders thereof shall cease to be stockholders of the corporation with
respect to the shares redeemed on and after the date fixed for redemption
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and shall be entitled only to receive the Redemption Price without interest
upon surrender of the share certificate. If less than all the shares
represented by one share certificate are to be redeemed, the corporation shall
issue a new share certificate for the shares not redeemed.
(c) If, on or prior to the date fixed for redemption (the
"Redemption Date"), the corporation deposits with any bank or trust company in
the State of Texas having aggregate capital and surplus in excess of
$100,000,000, as a trust fund, a sum sufficient to redeem on the Redemption
Date the shares called for redemption, with irrevocable instructions and
authority to the bank or trust company to give the notice of redemption thereof
(or to complete the giving of such notice if theretofore commenced) and to pay,
on or after the Redemption Date or prior thereto, the Redemption Price of the
shares of Series A Preferred Stock to their respective holders upon the
surrender of their share certificates, then from and after the date of the
deposit (although prior to the Redemption Date), the shares so called shall be
redeemed. The deposit shall constitute full payment of the shares to their
holders and from and after the date of the deposit the shares shall no longer
be outstanding, and the holders thereof shall cease to be stockholders with
respect to such shares, and shall have no rights with respect thereto except
the right to receive from the bank or trust company payment of the Redemption
Price for the Series A Preferred Stock that they hold, without interest, upon
the surrender of their certificates therefor. Any interest accrued on any funds
so deposited shall be the property of, and paid to, the corporation. If the
holders of Series A Preferred Stock so called for redemption shall not, at the
end of two (2) years after the Redemption Date, have claimed any funds so
deposited, such bank or trust company shall thereupon pay over to the
corporation such unclaimed funds, and such bank or trust company shall
thereafter be relieved of all responsibility in respect thereof to such holders
and such holders shall look only to the corporation for payment of the
Redemption Price for the Series A Preferred Stock that they hold.
6. Status of Redeemed Stock. In the event any shares of Series A
Preferred Stock shall be redeemed pursuant to Section 5 hereof, respectively,
the shares so redeemed shall be cancelled and shall not be issuable by this
corporation. This Second Restated Certificate of Incorporation shall be
appropriately amended to effect the corresponding reduction in this
corporation's authorized capital stock.
(D) Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of this
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of this corporation, the assets of this corporation shall be
distributed as provided in this Article IV.
3. Redemption. The Common Stock is not redeemable.
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4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote per share, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
A director of this corporation shall not be personally liable to this
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to this corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Article to authorize
corporation action further eliminating or limiting the personal liability of
directors, then the liability of a director of this corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of this corporation shall not adversely affect any right or
protection of a director of this corporation existing at the time of such
repeal or modification.
ARTICLE VI
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Second Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE VII
The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws; provided, however, that the stockholders may change or
repeal any Bylaw adopted by the Board of Directors; and provided, further, that
no amendment or supplement to the Bylaws adopted by the Board of Directors
shall vary or conflict with any amendment or supplement adopted by the
stockholders.
ARTICLE VIII
The number of directors of this corporation shall be fixed from time
to time by a bylaw or amendment thereof duly adopted by the Board of Directors
or by the stockholders.
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ARTICLE IX
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
* * *
THIRD: Upon the filing of this Second Restated Certificate of
Incorporation, each share of this corporation's outstanding Common Stock shall
automatically be reclassified as and changed into 1,715 shares of Common Stock,
$.01 par value, without any action by the holder thereof.
FOURTH: The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Section 228
of the General Corporation Law.
FIFTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Second Restated Certificate of Incorporation
has been executed by the Chief Executive Officer of this corporation this 18th
day of September, 1997.
-----------------------------
Stephen T. Harcrow Chief
Executive Officer
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<PAGE> 1
EXHIBIT 3.02
ADOPTED EFFECTIVE AS OF
SEPTEMBER 18, 1997
AMENDED AND RESTATED BYLAWS
OF
DENALI INCORPORATED
a Delaware Corporation
ARTICLE 1 - OFFICES
1.1 Registered Office. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.
1.2 Other Offices. The corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the corporation
may require.
ARTICLE 2 - STOCKHOLDERS
2.1 Place of Meetings. All meetings of stockholders
shall be held at such place within or without the State of Delaware as may be
designated from time to time by the Board of Directors or the President or, if
not so designated, at the registered office of the corporation.
2.2 Annual Meeting. The annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly be brought before the meeting shall be held each year at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of meeting.
2.3 Special Meetings. Special meetings of stockholders
may be called at any time by the President or by the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
2.4 Notice of Meetings. Except as otherwise provided by
law, written notice of each meeting of stockholders, whether annual or special,
shall be given not less than 10 nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notices of
all meetings shall state the place, date and hour of the meeting. The notice
of a special meeting shall state, in addition, the purpose or purposes for
which the meeting is called. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the corporation.
<PAGE> 2
2.5 Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, at a place within the city
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time of the meeting, and may
be inspected by any stockholder who is present.
2.6 Quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, the holders of a majority of the
shares of the capital stock of the corporation issued and outstanding and
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business.
2.7 Adjournments. Any meeting of stockholders may be
adjourned to another time and to any other place at which a meeting of
stockholders may be held under these Bylaws by the stockholders present or
represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as Secretary of such meeting. It shall not be necessary to notify any
stockholder of any adjournment of less than 30 days if the time and place of
the adjourned meeting are announced at the meeting at which adjournment is
taken, unless after the adjournment a new record date is fixed for the
adjourned meeting. At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting.
2.8 Voting and Proxies. Each stockholder shall have one
vote for each share of stock entitled to vote held of record by such
stockholder and a proportionate vote for each fractional share so held, unless
otherwise provided in the Certificate of Incorporation. Each stockholder of
record entitled to vote at a meeting of stockholders, or to express consent or
dissent in person or may authorize another person or persons to vote or act for
him by written proxy executed by the stockholder or his authorized agent and
delivered to the Secretary of the corporation. No such proxy shall be voted or
acted upon after three years from the date of its execution, unless the proxy
expressly provides for a longer period.
2.9 Action at Meeting. When a quorum is present at any
meeting, the holders of a majority of the stock present or represented and
entitled to vote on the subject matter (or if there are two or more classes of
stock entitled to vote as separate classes, then in the case of each such
class, the holders of a majority of the stock of that class present or
represented and entitled to vote on the subject matter) shall decide any matter
to be voted upon by the stockholders at such meeting, except when a different
vote is required by express provision of law, the Certificate of Incorporation
or these Bylaws. Any election of directors by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
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2.10 Action Without Meeting. Any action required or
permitted to be taken at any annual or special meeting of stockholders of the
corporation may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote on such action were present and voted.
Prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing. Notwithstanding anything to the contrary contained
herein, any stockholder seeking to have stockholders authorize or take
corporate action by written consent shall, by written notice to the Secretary,
request the Board of Directors to fix a record date. The Board of Directors
shall promptly, but in all events within ten days after the date on which such
a request is received, adopt a resolution fixing the record date. The record
date fixed by the Board of Directors shall not precede the date on which such
resolution is adopted nor be more than ten days after the date on which such
resolution is adopted. If the Board of Directors has not taken such action
within ten days of the date on which such request is received, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required
by applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Company by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Company having
custody of the book in which proceedings of meetings of stockholders are
recorded, to the attention of the Secretary of the Company. Delivery shall be
by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
2.11 Advance Notice of Nominations. Subject to such
rights of the holders of any class or series of preferred stock as shall be
prescribed in the Certificate of Incorporation or in the resolutions of the
Board of Directors providing for the issuance of any such class or series, only
persons who are nominated in accordance with the procedures set forth in this
Section 2.11 shall be eligible for election as, and to serve as, directors.
Nominations of persons for election to the Board of Directors may be made at a
meeting of the stockholders at which directors are to be elected (a) by or at
the direction of the Board of Directors or (b) by any stockholder or
stockholders of the Company holding, individually or in the aggregate, at least
ten percent (10%) of the shares entitled to vote at such meeting in the
election of directors who complies with the requirements of this Section 2.11.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be preceded by timely advance notice in writing to the
Secretary of the Company. To be timely, a stockholder's notice shall be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than one hundred twenty (120) days prior to the scheduled
meeting date, regardless of any postponements, deferrals or adjournments of the
meeting to a later date; provided, however, that if the scheduled meeting date
differs from the date of the next preceding annual meeting of stockholders and
if
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less than one hundred thirty (130) days' notice or prior public disclosure of
the scheduled meeting date is given or made, notice by the stockholder, to be
timely, must be so delivered or received not later than the close of business
on the tenth (10th) day following the earlier of the day on which the notice of
such meeting was mailed to stockholders or the day on which such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
(x) as to each person whom the stockholder proposes to nominate for election
or re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the number of shares of each class of capital stock of the
Company beneficially owned by such person and (iv) the written consent of such
person to having such person's name placed in nomination at the meeting and to
serve as a director if elected, and (y) as to the stockholder giving the
notice, (i) the name and address, as they appear on the Company's books, of
such stockholder and any other stockholders known by such stockholder to be
supporting such nomination and (ii) the number of shares of each class of
voting stock of the Company which are then beneficially owned by the
stockholder. The presiding officer of the meeting of stockholders shall
determine whether the requirements of this Section 2.11 have been met with
respect to any nomination or intended nomination. If the presiding officer
determines that any nomination was not made in accordance with the requirements
of this Section 2.11, he or she shall so declare at the meeting and the
defective nomination shall be disregarded.
2.12 Advance Notice of Stockholder Proposals. At an
annual meeting of stockholders, only such business shall be conducted, and only
such proposals shall be acted upon, as shall have been brought before the
annual meeting (a) by or at the direction of the Board of Directors or (b) by
any stockholder of the Company who complies with the requirements of this
Section 2.12 and as shall otherwise be proper subjects for stockholder action
and shall be properly introduced at the meeting. For a proposal to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely advance notice thereof in writing to the Secretary of the Company.
To be timely, a stockholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the Company not less than one
hundred twenty (120) days prior to the scheduled meeting date, regardless of
any postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if the scheduled meeting date differs from the date of
the next preceding annual meeting of stockholders and if less than one hundred
thirty (130) days' notice or prior public disclosure of the scheduled meeting
date is given or made, notice by the stockholder, to be timely, must be so
delivered or received not later than the close of business on the tenth (10th)
day following the earlier of the day on which the notice of such meeting was
mailed to stockholders or the day on which such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (w) a description of
the proposal desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (x) the name and address,
as they appear on the Company's books, of the stockholder proposing such
business and other stockholders known by such stockholder to be supporting such
proposal, (y) the class and number of shares of the Company's stock which are
beneficially owned by the stockholder on the date of such notice and (z) any
financial interest of the stockholder in such proposal. The presiding officer
of the annual meeting shall determine
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whether the requirements of this Section 2.12 have been met with respect to any
stockholder proposal. If the presiding officer determines that a stockholder's
proposal was not made in accordance with the terms of this Section 2.12, he or
she shall so declare at the meeting and any such proposal shall not be acted
upon at the meeting.
ARTICLE 3 - DIRECTORS
3.1 General Powers. The business and affairs of the
corporation shall be managed by or under the direction of a Board of Directors,
who may exercise all of the powers of the corporation except as otherwise
provided by law, the Certificate of Incorporation or these Bylaws. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board until
the vacancy is filled.
3.2 Number; Election; Tenure and Qualification. The
number of directors which shall constitute the whole board shall be not less
than five (5) nor more than twelve (12) and shall be fixed and determined from
time to time by resolution of the Board of Directors, provided that no decrease
shall have the effect of shortening the term of any incumbent director. The
Board shall be divided into three classes, which are hereby designated Class A,
Class B, and Class C, each class to be as nearly equal in number of directors
as possible, with no class having more than four (4) directors. The term of
office of the initial Class A directors shall expire at the next annual meeting
of stockholders; that of the initial Class B directors at the second succeeding
annual meeting of stockholders; and that of the initial Class C directors at
the third succeeding annual meeting of stockholders. At each annual meeting
after the initial classification of directors, directors to replace those whose
terms expire at such annual meeting shall be elected to hold office until the
third succeeding annual meeting. Each director shall be elected by the holders
of shares entitled to vote thereon at the annual meeting of stockholders, to
serve (subject to the provisions of Sections 3.4, 3.5 and 3.6) until his
respective successor is elected and qualified. Directors need not be residents
of Texas or shareholders of the company.
3.3 Enlargement of the Board. The number of the Board of
Directors may be increased at any time by vote of a majority of the directors
then in office.
3.4 Vacancies. Unless and until filled by the
stockholders, any vacancy in the Board of Directors, however, occurring,
including a vacancy resulting from an enlargement of the Board, may be filled
by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, or a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next annual meeting of stockholders and
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
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3.5 Resignation. Any director may resign by delivering
his written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
3.6 Removal. Any director or the entire Board of
Directors may be removed with cause, but not without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
3.7 Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, within or without
the State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination
is made shall be given notice of the determination. A regular meeting of the
Board of Directors may be held without notice immediately after and at the same
place as the annual meeting of stockholders.
3.8 Special Meetings. Special meetings of the Board of
Directors may be held at any time and place, within or without the State of
Delaware, designated in a call by the Chairman of the Board, President, two or
more directors, or by one director in the event that there is only a single
director in office.
3.9 Notice of Special Meetings. Notice of any special
meeting of directors shall be given to each director by the Secretary or by the
officer or one of the directors calling the meeting. Notice shall be given to
each director in person, by telephone, by facsimile transmission or by telegram
sent to his business or home address at least 48 hours in advance of the
meeting, or by written notice mailed to his business or home address at least
72 hours in advance of the meeting. A notice or waiver of notice of a meeting
of the Board of Directors need not specify the purposes of the meeting.
3.10 Meetings by Telephone Conference Calls. Directors or
any members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
3.11 Quorum. A majority of the number of directors fixed
pursuant to Section 2.2 shall constitute a quorum at all meetings of the Board
of Directors. In the event one or more of the directors shall be disqualified
to vote at any meeting, then the required quorum shall be reduced by one for
each such director so disqualified; provided, however, that in no case shall
less than one-third (1/3) of the number so fixed constitute a quorum. In the
absence of a quorum at any such meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
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3.12 Action at Meeting. At any meeting of the Board of
Directors at which a quorum is present, the vote of a majority of those present
shall be sufficient to take any action, unless a different vote is specified by
law, the Certificate of Incorporation or these Bylaws.
3.13 Action by Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee of the
Board of Directors may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minute of proceedings of the Board or
committee.
3.14 Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members of the committee present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board of
Directors and subject to the provisions of the General Corporation Law of the
State of Delaware, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation and may authorized the seal of the corporation to be affixed to all
papers which may require it. Each such committee shall keep minutes and make
such reports as the Board of Directors may from time to time request. Except
as the Board of Directors may otherwise determine, any committee may make rules
for the conduct of its business, but unless otherwise provided by the directors
or in such rules, its business shall be conducted as nearly as possible in the
same manner as is provided in these Bylaws for the Board of Directors.
3.15 Compensation of Directors. Directors may be paid
such compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 4 - OFFICERS
4.1 Enumeration. The officers of the corporation shall
consist of a President, a Secretary, a Treasurer and such other officers with
such other titles as the Board of Directors shall determine, including a
Chairman of the Board, a Vice Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers, and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
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4.2 Election. The President, Treasurer and Secretary
shall be elected by the Board of Directors at its first meeting following the
annual meeting of stockholders. Other officers may be appointed by the Board
of Directors at such meeting or at any other meeting.
4.3 Qualification. The President need not be a director.
No officer need be a stockholder. Any two or more offices may be held by the
same person.
4.4 Tenure. Except as otherwise provided by law, by the
Certificate of Incorporation or by these Bylaws, each officer shall hold office
until his successor is elected and qualified, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal.
4.5 Resignation and Removal. Any officer may resign by
delivering his written resignation to the corporation at its principal office
or to the President or Secretary. Such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
The Board of Directors, or a committee duly authorized to do
so, may remove any officer with or without cause. Except as the Board of
Directors may otherwise determine, no officer who resigns or is removed shall
have any right to any compensation as an officer for any period following his
resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise, unless
such compensation is expressly provided in a duly authorized written agreement
with the corporation.
4.6 Vacancies. The Board of Directors may fill any
vacancy occurring in any office for any reason and may, in its discretion,
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary. Each such successor shall hold office
for the unexpired term of his predecessor and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
4.7 Chairman of the Board and Vice Chairman of the Board.
If the Board of Directors appoints a Chairman of the Board, he shall, when
present, preside at all meetings of the Board of Directors. He shall perform
such duties and possess such powers as are usually vested in the office of the
Chairman of the Board or as may be vested in him by the Board of Directors. If
the Board of Directors appoints a Vice Chairman of the Board, he shall, in the
absence or disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the Board of Directors.
4.8 President. The President shall be the chief
operating officer of the corporation. He shall also be the chief executive
officer of the corporation unless such title is assigned to a Chairman of the
Board. The President shall, subject to the direction of the Board of
Directors, have general supervision and control of the business of the
corporation. Unless otherwise provided by the directors, he shall preside at
all meetings of the stockholders and of
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the Board of Directors (except as provided in Section 4.7 above). The
President shall perform such other duties and shall have other powers as the
Board of Directors may from time to time prescribe.
4.9 Vice Presidents. Any Vice President shall perform
such duties and possess such powers as the Board of Directors or the President
may from time to time prescribe. In the event of the absence, inability or
refusal to act of the President, the Vice President (or if there shall be more
than one, the Vice Presidents in the order determined by the Board of
Directors) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice President the title
of Executive Vice President, Senior Vice President or any other title selected
by the Board of Directors.
4.10 Secretary and Assistant Secretaries. The Secretary
shall perform such duties and shall have such powers as the Board of Directors
or the President may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on
documents.
Any Assistant Secretary shall perform such duties and possess
such powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary, (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at
any meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
4.11 Treasurer and Assistant Treasurers. The Treasurer
shall perform such duties and shall have such powers as may from time to time
be assigned to him by the Board of Directors or the President. In addition,
the Treasurer shall perform such duties and have such powers as are incident to
the office of treasurer, including without limitation the duty and power to
keep and be responsible for all funds and securities of the corporation, to
deposit funds of the corporation in depositories selected in accordance with
these Bylaws, to disburse such funds as ordered by the Board of Directors, to
make proper accounts of such funds, and to render as required by the Board of
Directors statements of all such transactions and of the financial condition of
the corporation.
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The Assistant Treasurers shall perform such duties and possess
such powers as the Board of Directors, the President or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Treasurer, the Assistant Treasurer, (or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
4.12 Bonded Officers. The Board of Directors may require
any officer to give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without limitation
a bond for the faithful performance of his duties and for the restoration to
the corporation of all property in his possession or under his control
belonging to the corporation.
4.13 Salaries. Officers of the corporation shall be
entitled to such salaries, compensation or reimbursement as shall be fixed or
allowed from time to time by the Board of Directors.
ARTICLE 5 - CAPITAL STOCK
5.1 Issuance of Stock. Unless otherwise voted by the
stockholder and subject to the provisions of the Certificate of Incorporation,
the whole or any part of any unissued balance of the authorized capital stock
of the corporation or the whole or any part of any unissued balance of the
authorized capital stock of the corporation held in its treasury may be issued,
sold, transferred or otherwise disposed of by vote of the Board of Directors in
such manner, for such consideration and on such terms as the Board of Directors
may determine.
5.2 Certificates of Stock. Every holder of stock of the
corporation shall be entitled to have a certificate, in such form as may be
prescribed by law and by the Board of Directors, certifying the number and
class of shares owned by him in the corporation. Each such certificate shall
be signed by, or in the name of the corporation by, the Chairman or Vice
Chairman, if any, of the Board of Directors, or the President or a Vice
President, and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation. Any or all of the signatures on the
certificates may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Bylaws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
5.3 Transfers. Subject to the restrictions, if any,
stated or noted on the stock certificates, shares of stock may be transferred
on the books of the corporation by the surrender to the corporation or its
transfer agent of the certificate representing such shares properly endorsed or
accompanied by a written assignment or power of attorney properly executed, and
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with such proof of authority or the authenticity of signature as the
corporation or its transfer agent may reasonably require. Except as may be
otherwise required by law, by the Certificate of Incorporation or by these
Bylaws, the corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including
the payment of dividends and the right to vote with respect to such stock,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been transferred on the books of the corporation in accordance with
the requirements of these Bylaws.
5.4 Lost, Stolen or Destroyed Certificates. The
corporation may issue a new certificate of stock in place of any previously
issued certificate alleged to have been lost, stole, or destroyed, upon such
terms and conditions as the Board of Directors may prescribe, including the
presentation of reasonable evidence of such loss, theft or destruction and the
giving of such indemnity as the Board of Directors may require for the
protection of the corporation or any transfer agent or registrar.
5.5 Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any meeting of stockholders or to express
consent (or dissent) to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights in respect of any change conversion or exchange of stock, or the
purpose of any other lawful action. Such record date shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice is
given, or, if notice is waived, at the close of business on the day before the
day on which the meeting is held. The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day
on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
ARTICLE 6 - INDEMNIFICATION
The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as that Section may be
amended and supplemented from time to time, indemnify any director or officer
which it shall have power to indemnify under the Section against any expenses,
liabilities or other matters referred to in or covered by that Section. The
indemnification provided for in this Article (i) shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any bylaw,
agreement or vote of stockholders
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or disinterested directors or otherwise, both as to action in their official
capacities an as to action in another capacity while holding such office, (ii)
shall continue as to a person who has ceased to be a director or officer and
(iii) shall inure to the benefit of the heirs, executors and administrators of
such a person. The corporation's obligation to provide indemnification under
this Article shall be offset to the extent of any other source of
indemnification or any otherwise applicable insurance coverage under a policy
maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he is or was a director of the corporation (or was serving at the
corporation's request as a director or officer of another corporation) shall be
paid by the corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized by relevant
sections of the General Corporation Law of Delaware. Notwithstanding the
foregoing, the corporation shall not be required to advance such expenses to an
agent who is a party to an action, suit or proceeding brought by the
corporation and approved by a majority of the Board of Directors of the
corporation which alleges willful misappropriation of corporate assets by such
agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the corporation or any other willful
and deliberate breach in bad faith of such agent's duty to the corporation or
its stockholders.
To assure indemnification under this Article of all such
persons who are determined by the corporation or otherwise to be or to have
been "fiduciaries" of any employee benefit plant of the corporation which may
exist from time to time, such Section 145 shall, for the purposes of this
Article, be interpreted as follows: an "other enterprise" shall be deemed to
include such an employee benefit plan, including, without limitation, any plan
of the corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a
person with respect to an employee benefit plan in the performance of such
person's duties for a purpose reasonably believed by such person to be in the
interest of the participants and beneficiaries of the plan shall be deemed to
be for a purpose which is not opposed to the best interests of the corporation.
ARTICLE 7 - GENERAL PROVISIONS
7.1 Fiscal Year. Except as from time to time otherwise
designated by the Board of Directors, the fiscal year of the corporation shall
end on the Saturday nearest to June 30th and begin on the first Sunday
thereafter.
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7.2 Corporate Seal. The corporate seal shall be in such
form as shall be approved by the Board of Directors.
7.3 Execution of Instruments. Any officer of the
corporation shall have power to execute and deliver on behalf and in the name
of the corporation any instrument requiring the signature of an officer of the
corporation, except as otherwise provided in these Bylaws, or where the
execution and delivery of such an instrument shall be expressly delegated by
the Board of Directors to some other officer or agent of the corporation.
7.4 Waiver of Notice. Whenever any notice whatsoever is
required to be given by law, by the Certificate of Incorporation or by these
Bylaws, a waiver of such notice either in writing signed by the person entitled
to such notice or such person's duly authorized attorney, or by telegraph,
cable or any other available method, whether before, at or after the time
stated in such waiver, or the appearance of such person or persons at such
meeting in person or by proxy, shall be deemed equivalent to such notice.
7.5 Voting of Securities. Except as the directors may
otherwise designate, the President, any Vice President, the Secretary or
Treasurer may waive notice of, and act as, or appoint any person or persons to
act as, proxy or attorney-in-fact for this corporation (with or without power
of substitution) at, any meeting of stockholders or shareholders of any other
corporation or organization, the securities of which may be held by this
corporation.
7.6 Evidence of Authority. A certificate by the
Secretary, or an Assistant Secretary, or a temporary Secretary, as to any
action taken by the stockholders, directors, a committee or any officer or
representative of the corporation shall as to all persons who rely on the
certificate in good faith be conclusive evidence of such action.
7.7 Certificate of Incorporation. All references in
these Bylaws to the Certificate of Incorporation shall be deemed to refer to
the Certificate of Incorporation of the corporation, as amended and in effect
from time to time. These Bylaws are subject to the provisions of the
Certificate of Incorporation and applicable law.
7.8 Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or
transaction or solely because his or their votes are counted for such purpose,
if:
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(1) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority
of the disinterested directors, even though the disinterested directors be less
than a quorum;
(2) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the Board
of Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
7.9 Severability. Any determination that any provision
of these Bylaws is for any reason inapplicable, illegal or ineffective shall
not affect or invalidate any other provision of these Bylaws.
7.10 Pronouns. All pronouns used in these Bylaws shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person or persons may require.
ARTICLE 8 - AMENDMENTS
8.1 By the Board of Directors. These Bylaws may be
altered, amended or repealed or new bylaws may be adopted by the affirmative
vote of a majority of the directors present at any regular or special meeting
of the Board of Directors at which a quorum is present.
8.2 By the Stockholders. These Bylaws may be altered,
amended or repealed or new bylaws may be adopted by the affirmative vote of the
holders of a majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at any regular meeting of
stockholders, or at any special meeting of stockholders, provided notice of
such alteration, amendment, repeal or adoption of new bylaws shall have been
stated in the notice of such special meeting.
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EXHIBIT 4.03
EXECUTION COPY
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OCTANS, INC.
LOAN AND SECURITY AGREEMENT
Dated: December 21, 1994
$11,000,000
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BARCLAYS BUSINESS CREDIT, INC.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 1. CREDIT FACILITY..................................... 1
1.1 Revolving Credit Loans................................... 1
1.2 Term Loans............................................... 2
1.3 Intentionally Omitted.................................... 2
SECTION 2. INTEREST, FEES AND CHARGES.......................... 2
2.1 Interest................................................. 2
2.2 Computation of Interest and Fees......................... 2
2.3 Closing Fee.............................................. 3
2.4 Intentionally Omitted.................................... 3
2.5 Unused Line Fee.......................................... 3
2.6 Collection Charges....................................... 3
2.7 Intentionally Omitted.................................... 3
2.8 Reimbursement of Expenses................................ 3
2.9 Bank Charges............................................. 4
SECTION 3. LOAN ADMINISTRATION................................. 4
3.1 Manner of Borrowing Revolving Credit Loans............... 4
3.2 Payments................................................. 5
3.3 Mandatory Prepayments.................................... 5
3.4 Application of Payments and Collections.................. 6
3.5 All Loans to Constitute One Obligation................... 6
3.6 Loan Account............................................. 6
3.7 Statements of Account.................................... 6
SECTION 4. TERM AND TERMINATION................................ 6
4.1 Term of Agreement........................................ 6
4.2 Termination.............................................. 6
SECTION 5. SECURITY INTERESTS.................................. 7
5.1 Security Interest in Collateral.......................... 7
5.2 Lien Perfection; Further Assurances...................... 8
5.3 Intentionally Omitted.................................... 8
SECTION 6. COLLATERAL ADMINISTRATION........................... 8
6.1 General.................................................. 8
6.2 Administration of Accounts............................... 9
6.3 Administration of Inventory.............................. 11
6.4 Administration of Equipment.............................. 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
6.5 Payment of Charges....................................... 12
SECTION 7. REPRESENTATIONS AND WARRANTIES...................... 12
7.1 General Representations and Warranties................... 12
7.2 Continuous Nature of Representations and Warranties...... 17
7.3 Survival of Representations and Warranties............... 18
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS................. 18
8.1 Affirmative Covenants.................................... 18
8.2 Negative Covenants....................................... 19
8.3 Specific Financial Covenants............................. 22
SECTION 9. CONDITIONS PRECEDENT................................ 26
9.1 Documentation............................................ 26
9.2 No Default............................................... 26
9.3 Other Loan Documents..................................... 26
9.4 Equity................................................... 26
9.5 Availability............................................. 26
9.6 No Litigation............................................ 26
9.7 Dominion Account......................................... 27
9.8 Adverse Change........................................... 27
9.10 Acquisition.............................................. 27
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT... 27
10.1 Events of Default....................................... 27
10.2 Acceleration of the Obligations......................... 29
10.3 Other Remedies.......................................... 30
10.4 Remedies Cumulative; No Waiver.......................... 31
SECTION 11. MISCELLANEOUS....................................... 31
11.1 Power of Attorney....................................... 31
11.2 Indemnity............................................... 32
11.3 Modification of Agreement; Sale of Interest............. 32
11.4 Severability............................................ 33
11.5 Successors and Assigns.................................. 33
11.6 Cumulative Effect; Conflict of Terms.................... 33
11.7 Execution in Counterparts............................... 33
11.8 Notice.................................................. 33
11.9 Lender's Consent........................................ 34
11.10 Credit Inquiries........................................ 34
11.11 Time of Essence......................................... 34
11.12 Entire Agreement........................................ 34
11.13 Interpretation.......................................... 34
11.14 GOVERNING LAW; CONSENT TO FORUM......................... 34
11.15 WAIVERS BY BORROWER..................................... 35
</TABLE>
<PAGE> 4
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 21st day of December,
1994, by and between BARCLAYS BUSINESS CREDIT, INC. ("Lender"), a Connecticut
corporation with an office at 15260 Ventura Boulevard, Suite 1200, Sherman
Oaks, California 91403; and OCTANS, INC. ("Borrower"), a Nevada corporation
with its chief executive office and principal place of business at Conroe,
Texas. Capitalized terms used in this Agreement have the meanings assigned to
them in Appendix A, General Definitions. Accounting terms not otherwise
specifically defined herein shall be construed in accordance with GAAP
consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make the Total Credit Facility available upon
Borrower's request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees,
for so long as no Default or Event of Default exists, to make Revolving Credit
Loans to Borrower from time to time, as requested by Borrower in the manner set
forth in subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time minus, without
duplication, reserves, if any. Lender shall have the right to establish
reserves in such amounts, and with respect to such matters, as Lender shall
deem necessary or appropriate, against the amount of Revolving Credit Loans
which Borrower may otherwise request under this subsection 1.1.1, including,
without limitation, with respect to (i) price adjustments, damages, unearned
discounts, returned products or other matters for which credit memoranda are
issued in the ordinary course of Borrower's business; (ii) shrinkage, spoilage
and obsolescence of Inventory; (iii) slow moving Inventory; (iv) other sums
chargeable against Borrower's Loan Account as Revolving Credit Loans under any
section of this Agreement; (v) amounts owing by Borrower to any Person to the
extent secured by a Lien on, or trust over, any Property of Borrower; and (vi)
such other matters, events, conditions or contingencies as to which Lender, in
its sole credit judgment, determines reserves should be established from time
to time hereunder.
1.1.2 Use of Proceeds. The Revolving
Credit Loans shall be used solely for the acquisition by Borrower of certain
assets constituting the Underground Tank Division from Owens-Coming Fiberglass
("OCF") pursuant to an Asset Purchase Agreement dated on or about December 23,
1994 (the "Asset Purchase Agreement"), and for Borrower's general operating
capital needs in a manner consistent with the provisions of this Agreement and
all applicable laws.
<PAGE> 5
1.2 Term Loans.
1.2.1 Term Loan. Lender agrees to make a
term loan to Borrower on the Closing Date in the principal amount of
$1,000,000, which shall be repayable in accordance with the terms of the Term
Note and shall be secured by all of the Collateral. The proceeds of the Term
Loan shall be used solely for purposes for which the proceeds of the Revolving
Credit Loans are authorized to be used.
1.3 Intentionally Omitted.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest. Interest shall accrue on the Term
Loan in accordance with the terms of the Term Note. Interest shall accrue on
the principal amount of the Revolving Credit Loans outstanding at the end of
each day at a fluctuating rate per annum equal to 1.75% plus the Base Rate.
The rate of interest shall increase or decrease by an amount equal to any
increase or decrease in the Base Rate, effective as of the opening of business
on the day that any such change in the Base Rate occurs. The foregoing rates
of interest shall be subject to up to two 0.25% reductions, effective upon
receipt by Lender of Borrower's fiscal year end December 31, 1995 and December
31, 1996 financial statements; provided in each case that (i) no Default or
Event of Default has occurred and is continuing as of such date, and (ii)
Borrower has achieved 100% of its net income as reflected on Exhibit 2.1.1 as
of the Closing Date, to be determined by Lender upon its receipt of Borrower's
fiscal year end audited financial statement as reflected by such audited
financial statements for each of such years.
2.1.2 Default Rate of Interest. Upon and after the
occurrence of an Event of Default, and during the continuation thereof,
effective upon the serving of notice by Lender to Borrower, the principal
amount of all Loans shall bear interest at a rate per annum equal to 3% above
the interest rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under the Term Note and
charged or collected pursuant to the terms of this Agreement or pursuant to the
Term Note exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable hereto.
If any provisions of this Agreement or the Term Note are in contravention of
any such law, such provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest and unused line fees
hereunder shall be calculated daily and shall be computed on the actual number
of days elapsed over a year of 360 days. For the purpose of computing interest
hereunder, all items of payment received by Lender shall be deemed applied by
Lender on account of the Obligations (subject to final
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payment of such items) on the second Business Day after receipt by Lender of
such items in Lender's account located in Chicago, Illinois.
2.3 Closing Fee. Borrower shall pay to Lender a closing fee of
$192,500, which shall be fully earned and nonrefundable on the Closing Date and
shall be paid concurrently with the initial Loan hereunder. The commitment fee
of $50,000 heretofore paid to Lender shall be credited to the Closing Fee.
2.4 Intentionally Omitted.
2.5 Unused Line Fee. Borrower shall pay to Lender a fee equal to
0.5% per annum of the average monthly amount by which the Total Credit Facility
exceeds the sum of the outstanding principal balance of the Revolving Credit
Loans and the Term Loan. The unused line fee shall be payable monthly in
arrears on the first day of each calendar month hereafter.
2.6 Collection Charges. If items of payment are received by
Lender at a time when there are no Revolving Credit Loans outstanding, such
items of payment shall be subject to a collection charge equal to two Business
Days' interest on the amount thereof at the rate then applicable to Revolving
Credit Loans, which collection charges shall be payable on the first Business
Day of each month.
2.7 Intentionally Omitted.
2.8 Reimbursement of Expenses. If, at any time or times
regardless of whether or not an Event of Default then exists, Lender or any
Participating Lender incurs legal or accounting expenses or any other costs or
out-of-pocket expenses in connection with (i) the negotiation and preparation
of this Agreement or any of the other Loan Documents, any amendment of or
modification of this Agreement or any of the other Loan Documents, or any sale
or attempted sale of any interest herein to a Participating Lender; (ii) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (iii) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by Lender, Borrower or
any other Person) in any way relating to the Collateral, this Agreement or any
of the other Loan Documents or Borrower's affairs; (iv) any attempt to enforce
any rights of Lender or any Participating Lender against Borrower or any other
Person which may be obligated to Lender by virtue of this Agreement or any of
the other Loan Documents, including, without limitation, the Account Debtors;
or (v) any attempt to inspect, verify, protect, preserve, restore, collect,
sell, liquidate or otherwise dispose of or realize upon the Collateral
including but not limited to any expenses and costs incurred by Lender in
connection with the audits and appraisals of Borrower's books, records and the
Collateral, wherever located, and in the administration of this Agreement; then
all such legal and accounting expenses, other costs and out of pocket expenses
of Lender shall be charged to Borrower. All amounts chargeable to Borrower
under this Section 2.8 shall be Obligations secured by all of the Collateral,
shall be payable on demand to Lender or to such Participating Lender, as the
case may be, and shall bear interest from the date such demand is made until
paid in full at the rate applicable to Revolving Credit Loans from time to
time. Borrower
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shall also reimburse Lender for expenses incurred by Lender in its
administration of the Collateral to the extent and in the manner provided in
Section 6 hereof.
2.9 Bank Charges. Borrower shall pay to Lender, on demand, any
and all fees, costs or expenses which Lender or any Participating Lender pays
to a bank or other similar institution (including, without limitation, any fees
paid by Lender to any Participating Lender) arising out of or in connection
with (i) the forwarding to Borrower or any other Person on behalf of Borrower,
by Lender or any Participating Lender, of proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (ii) the depositing for collection, by
Lender or any Participating Lender, of any check or item of payment received or
delivered to Lender or any Participating Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the
credit facility established pursuant to Section I hereof shall be as follows:
3.1.1 Loan Requests. On the Closing Date Lender shall make
the Term Loan. A request for a Revolving Credit Loan shall be made, or shall
be deemed to be made, in the following manner: (i) Borrower may give Lender
notice of its intention to borrow, in which notice Borrower shall specify the
amount of the proposed borrowing and the proposed borrowing date, no later than
10:00 a.m. Pacific time on the proposed borrowing date, provided, however, that
Lender, at its option, may refuse such request at a time when there exists a
Default or an Event of Default; and (ii) the becoming due of any amount
required to be paid under this Agreement or the Term Note, whether as interest
or for any other Obligation, shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount required to pay such
interest or other Obligation. As an accommodation to Borrower, Lender may
permit telephonic requests for loans and electronic transmittal of
instructions, authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to accept or act
upon telephonic or electronic communications from Borrower, Lender shall have
no liability to Borrower for any loss or damage suffered by Borrower as a
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to Lender by
Borrower and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
3.1.2 Disbursement. Borrower hereby irrevocably authorizes
Lender to disburse the proceeds of each Revolving Credit Loan requested, or
deemed to be requested, pursuant to this subsection 3.1.2 as follows: (i) the
proceeds of each Revolving Credit Loan requested under subsection 3.1.1(i) shall
be disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written direction from Borrower; and (ii) the proceeds of each Revolving
Credit Loan
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requested under subsection 3.1.1(ii) shall be disbursed by Lender by way of
direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably
authorizes Lender, in Lender's sole discretion, to advance to Borrower, and to
charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum
sufficient to pay all interest accrued on the Obligations during the
immediately preceding month and to pay all costs, fees and expenses at any time
owed by Borrower to Lender hereunder.
3.2 Payments. Except where evidenced by notes or other
instruments issued or made by Borrower to Lender specifically containing
payment provisions which are in conflict with this Section 3.2 (in which event
the conflicting provisions of said notes or other instruments shall govern and
control), the Obligation shall be payable as follows:
3.2.1 Principal. Principal payable on account of Revolving
Credit Loans shall be payable by Borrower to Lender immediately upon the
earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the
Collateral other than Equipment or real Property, to the extent of said
proceeds, (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations, or
(iii) termination of this Agreement pursuant to Section 4 hereof; provided,
however, that if an Overadvance shall exist at any time, Borrower shall, on
demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on the Revolving Credit
Loans shall be due on the earliest of (i) the first calendar day of each month
(for the immediately preceding month), computed through the last calendar day
of the preceding month, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of
the Obligations or (iii) termination of this Agreement pursuant to Section 4
hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges
payable pursuant to this Agreement shall be payable by Borrower as and when
provided in Section 2 hereof, to Lender or to any other Person designated by
Lender in writing.
3.2.4 Other Obligations. The balance of the Obligations
requiring the payment of money, if any, shall be payable by Borrower to Lender
as and when provided in this Agreement, the Other Agreements or the Security
Documents, or on demand, whichever is later.
3.3 Mandatory Prepayments.
3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of
Collateral. Except as provided in subsection 6.4.2 hereof, if Borrower sells
any of the Equipment, or if any of the Collateral is lost or destroyed or taken
by condemnation, Borrower shall pay to Lender, unless otherwise agreed by
Lender, as and when received by Borrower and as a mandatory prepayment of the
Term Loan, a sum equal to the proceeds
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(including insurance payments) received by Borrower from such sale, loss,
destruction or condemnation, which sum shall be applied to the Term Loan in the
inverse order of maturity.
3.4 Application of Payments and Collections. All items of payment
received by Lender shall be applied for purposes of computing interest (subject
to Section 2.2 hereof) on any Business Day such payment is received. Borrower
irrevocably waives the right to direct the application of any and all payments
and collections at any time or times hereafter received by Lender from or on
behalf of Borrower, and Borrower does hereby irrevocably agree that Lender
shall have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by Lender or
its agent against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as
the result of collections of Accounts as authorized by subsection 6.2.6 hereof
a credit balance exists in the Loan Account, such credit balance shall not
accrue interest in favor of Borrower, but shall be available to Borrower at any
time or times.
3.5 All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by Lender's
Lien upon all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the
Loan Account and shall also record in the Loan Account all payments made by
Borrower on any Obligations and all proceeds of Collateral which are finally
paid to Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower
monthly with a statement of Loans, charges and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower unless Lender is notified by Borrower in writing
to the contrary within 30 days of the date each accounting is mailed to
Borrower. Such notice shall only be deemed an objection to those items
specifically objected to therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making
Loans to Borrower upon or after the occurrence of any Default or Event of
Default, this Agreement shall be in effect for a period of five years from the
date hereof, through and including December 20, 1999 (the "Original Term"), and
this Agreement shall renew itself for one-year periods thereafter (the "Renewal
Terms") unless terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 days prior
written notice to Borrower, Lender may terminate this Agreement as of the last
day of the Original Term or the then current Renewal Term and Lender may
terminate this Agreement without notice upon or after the occurrence of an
Event of Default.
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4.2.2 Termination by Borrower. Upon at least 90 days prior
written notice to Lender, Borrower may, at its option, terminate this
Agreement; provided, however, no such termination shall be effective until
Borrower has paid all of the Obligations in immediately available funds. Any
notice of termination given by Borrower shall be irrevocable unless Lender
otherwise agrees in writing, and Lender shall have no obligation to make any
Loans on or after the termination date stated in such notice. Borrower may
elect to terminate this Agreement in its entirety only. No section of this
Agreement or type of Loan available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of
termination of this Agreement for any reason, Borrower shall pay to Lender (in
addition to the then outstanding principal, accrued interest and other charges
owing under the terms of this Agreement and any of the other Loan Documents) as
liquidated damages for the loss of the bargain and not as a penalty, an amount
equal to 3% of the Total Credit Facility if termination occurs during the first
twelve-month period of the Original Term (December 21, 1994 through December
20, 1995); 2% of the Total Credit Facility if termination occurs during the
second 12-month period of the Original Term (December 21, 1995 through December
20, 1996); 1% of the Total Credit Facility if termination occurs during the
third 12-month period of the Original Term (December 21, 1996 through December
20, 1997); and 0.5% of the Total Credit Facility if termination occurs during
the fourth or fifth twelve-month period of the Original Term (December 21,
1997 through December 20, 1998 or December 21, 1998 through December 20, 1999).
If termination occurs on the last day of the Original Term, no termination
charge shall be payable.
4.2.4 Effect of Termination. All of the Obligations shall
be immediately due and payable upon the termination date stated in any notice
of termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents
shall survive any such termination and Lender shall retain its Liens in the
Collateral and all of its rights and remedies under the Loan Documents
notwithstanding such termination until Borrower has paid the Obligations to
Lender, in full, in immediately available funds, together with the applicable
termination charge, if any. Notwithstanding the payment in full of the
Obligations, Lender shall not be required to terminate its security interests
in the Collateral unless, with respect to any loss or damage Lender may incur
as a result of dishonored checks or other items of payment received by Lender
from Borrower or any Account Debtor and applied to the Obligations, Lender
shall, at its option, (i) have received a written agreement, executed by
Borrower and by any Person whose loans or other advances to Borrower are used
in whole or in part to satisfy the Obligations, indemnifying Lender from any
such loss or damage; or (ii) have retained such monetary reserves and Liens on
the Collateral for such period of time as Lender, in its reasonable discretion,
may deem necessary to protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender
a continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of
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Borrower, whether now owned or existing or hereafter created, acquired or
arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) Deposit Accounts;
(vi) All monies and other Property of any kind now or at
any time or times hereafter in the possession or under the control of
Lender or a bailee or Affiliate of Lender;
(vii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through
(v) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and
(viii) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records) of Borrower pertaining to any of (i)
through (vii) above.
5.2 Lien Perfection; Further Assurances. Borrower shall execute
such UCC-1 financing statements as are required by the Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral.
Unless prohibited by applicable law, Borrower hereby authorizes Lender to
execute and file any such financing statement on Borrower's behalf. The
parties agree that a carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof. At Lender's request, Borrower shall also
promptly execute or cause to be executed and shall deliver to Lender any and
all documents, instruments and agreements deemed necessary by Lender to give
effect to or carry out the terms or intent of the Loan Documents.
5.3 Intentionally Omitted.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other than
Inventory in transit and motor vehicles, will at all times be kept by Borrower
and its
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Subsidiaries at one or more of the business locations set forth in Exhibit
6.1.1 hereto and shall not, without the prior written approval of Lender, be
moved therefrom except, prior to an Event of Default and Lender's acceleration
of the maturity of the Obligations in consequence thereof, for (i) sales of
Inventory in the ordinary course of business; (ii) removals in connection with
dispositions of Equipment that are authorized by subsection 6.4.2 hereof; and
(iii) movement of equipment and inventory from one location of Borrower that
has been reported to Lender to another location of Borrower that has been
reported to Lender, and within a jurisdiction in which Lender has taken all
necessary action in order to protect and perfect its security interest therein.
6.1.2 Insurance of Collateral. Borrower shall maintain and
pay for insurance upon all Collateral wherever located and with respect to
Borrower's business, covering casualty, hazard, public liability and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Lender. Borrower shall deliver the originals of such policies
to Lender with satisfactory lender's loss payable endorsements, naming Lender
as sole loss payee, assignee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender shall not be impaired or invalidated by any act or
neglect of Borrower or the owner of the Property or by the occupation of the
premises for purposes more hazardous than are permitted by said policy. If
Borrower fails to provide and pay for such insurance, Lender may, at its
option, but shall not be required to, procure the same and charge Borrower
therefor. Borrower agrees to deliver to Lender, promptly as rendered, true
copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral, any and all excise, property, sales, and use taxes imposed by
any state, federal, or local authority on any of the Collateral or in respect
of the sale thereof shall be borne and paid by Borrower. If Borrower fails to
promptly pay any portion thereof when due, Lender may, at its option, but shall
not be required to, pay the same and charge Borrower therefor. Lender shall
not be liable or responsible in any way for the safekeeping of any of the
Collateral or for any loss or damage thereto (except for reasonable care in the
custody thereof while any Collateral is in Lender's actual possession) or for
any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency, or other person whomsoever, but the
same shall be at Borrower's sole risk.
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts.
Borrower shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit to Lender on such periodic
basis as Lender shall request a sales and collections report for the preceding
period, in form satisfactory to Lender. On or before the fifteenth day of each
month from and after the date hereof, Borrower shall deliver to Lender, in form
acceptable to Lender, a detailed aged trial balance of all Accounts existing
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as of the last day of the preceding month, specifying the names, addresses,
face value, dates of invoices and due dates for each Account Debtor obligated
on an Account so listed ("Schedule of Accounts"), and, upon Lender's request
therefor, copies of proof of delivery and the original copy of all documents,
including, without limitation, repayment histories and present status reports
relating to the Accounts so scheduled and such other matters and information
relating to the status of then existing Accounts as Lender shall reasonably
request. In addition, Accounts in an aggregate face amount in excess of
$20,000 become ineligible because they fall within one of the specified
categories of ineligibility set forth in the definition of Eligible Accounts or
otherwise established by Lender, Borrower shall notify Lender of such
occurrence on the first Business Day following such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence. If
requested by Lender, Borrower shall execute and deliver to Lender formal
written assignments of all of its Accounts weekly or daily, which shall include
all Accounts that have been created since the date of the last assignment,
together with copies of invoices or invoice registers related thereto.
6.2.2 Discounts, Allowances, Disputes. If Borrower grants
any discounts, allowances or credits that are not shown on the face of the
invoice for the Account involved, Borrower shall report such discounts,
allowances or credits, as the case may be, to Lender as part of the next
required Schedule of Accounts. If any amounts due and owing in excess of
$20,000 are in dispute between Borrower and any Account Debtor, Borrower shall
provide Lender with written notice thereof at the time of submission of the
next Schedule of Accounts, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy. Upon and after the
occurrence of an Event of Default, Lender shall have the right to settle or
adjust all disputes and claims directly with the Account Debtor and to
compromise the amount OR extend the time for payment of the Accounts upon such
terms and conditions as Lender may deem advisable, and to charge the
deficiencies, costs and expenses thereof, including attorney's fees, to
Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax
payable to any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of Borrower and to charge Borrower therefor, provided, however that
Lender shall not be liable for any taxes to any governmental taxing authority
that may be due by Borrower.
6.2.4 Account Verification. Whether or not a Default or an
Event of Default has occurred, any of Lender's officers, employees or agents
shall have the right, at any time or times hereafter, in the name of Lender,
any designee of Lender or Borrower, to verify the validity, amount or any other
matter relating to any Accounts by mail, telephone, telegraph or otherwise.
Borrower shall cooperate fully with Lender in an effort to facilitate and
promptly conclude any such verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall
maintain a Dominion Account pursuant to a lockbox arrangement acceptable to
Lender with such banks as may be selected by Borrower and be acceptable to
Lender. Borrower shall issue to any such banks an irrevocable letter of
instruction directing such banks to deposit all
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payments or other remittances received in the lockbox to the Dominion Account
for application on account of the Obligations. All funds deposited in the
Dominion Account shall immediately become the property of Lender and Borrower
shall obtain the agreement by such banks in favor of Lender to waive any offset
rights against the funds so deposited. Lender assumes no responsibility for
such lockbox arrangement, including, without limitation, any claim of accord
and satisfaction or release with respect to deposits accepted by any bank
thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To
expedite collection, Borrower shall endeavor in the first instance to make
collection of its Accounts for Lender. All remittances received by Borrower on
account of Accounts, together with the proceeds of any other Collateral, shall
be held as Lender's property by Borrower as trustee of an express trust for
Lender's benefit and Borrower shall immediately deposit same in kind in the
Dominion Account. Lender retains the right at all times after the occurrence
of a Default or an Event of Default and during the continuance thereof, to
notify Account Debtors that Accounts have been assigned to Lender and to
collect Accounts directly in its own name and to charge the collection costs
and expenses, including attorneys' fees to Borrower.
6.2.7 Accounts in Excess of Six Months. Borrower has
acquired certain Accounts from OCF and in connection therewith Lender agrees
that Borrower may return up to $250,000 of such Accounts that remain unpaid six
months or more past the closing of the Asset Purchase Agreement for credit to
the note owing by Fluid Containment Property, Inc. to OCF.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall
keep accurate and complete records of its inventory. Borrower shall furnish to
Lender Inventory reports in form and detail satisfactory to Lender at such
times as Lender may request, but at least once each month, not later than the
twentieth day of such month. Borrower shall conduct a physical inventory no
less frequently than semi-annually for the first year of this Agreement only
and annually thereafter and shall provide to Lender a report based on each such
physical inventory promptly thereafter, together with such supporting
information as Lender shall request.
6.3.2 Returns of Inventory. If at any time or times
hereafter any Account Debtor returns any Inventory to Borrower the shipment of
which generated an Account on which such Account Debtor is obligated in excess
of $50,000, Borrower shall immediately notify Lender of the same, specifying
the reason for such return and the location, condition and intended disposition
of the returned Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall
keep accurate records itemizing and describing the kind, type, quality,
quantity and value of
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its Equipment and all dispositions made in accordance with subsection 6.6.2
hereof, and shall furnish Lender with a current schedule containing the
foregoing information on at least an annual basis and more often if requested
by Lender. Immediately on request therefor by Lender, Borrower shall deliver
to Lender any and all evidence of ownership, if any, of any of the Equipment.
6.4.2 Dispositions of Equipment. Borrower will not sell,
lease or otherwise dispose of or transfer any of the Equipment or any part
thereof without the prior written consent of Lender; provided, however, that
the foregoing restriction shall not apply, for so long as no Default or Event
of Default exists, to (i) dispositions of Equipment which, in the aggregate
during any consecutive twelve-month period, has a fair market value or book
value, whichever is less, of $50,000 or less, provided that all proceeds
thereof are remitted to Lender for application to the Loans, or (ii)
replacements of Equipment that is substantially Worn, damaged or obsolete with
Equipment of like kind, function and value, provided that the replacement
Equipment shall be acquired prior to or concurrently with any disposition of
the Equipment that is to be replaced, the replacement Equipment shall be free
and clear of Liens other than Permitted Liens that are not Purchase Money
Liens, and Borrower shall have given Lender at least 5 days prior written
notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall
be payable on demand and shall bear interest from the date such advance was
made until paid in full at the rate applicable to Revolving Credit Loans from
time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender that:
7.1.1 Organization and Qualification. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is duly qualified and
is authorized to do business and is in good standing as a foreign corporation
in each state or jurisdiction listed on Exhibit 7. 1.1 hereto and in all other
states and jurisdictions in which the failure of Borrower to be so qualified
would have a material adverse effect on the financial condition, business or
Properties of Borrower.
7.1.2 Corporate Power and Authority. Borrower is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other
Loan Documents have been duly authorized by all necessary corporate action and
do not and will not (i) require any consent or approval of the shareholders of
Borrower, (ii) contravene Borrower's charter, articles or certificate of
incorporation or by-laws; (iii) violate, or cause Borrower to be in default
under, any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree,
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determination or award in effect having applicability to Borrower; (iv) result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which Borrower is a
party or by which it or its Properties may be bound or affected; or (v) result
in, or require, the creation or imposition of any Lien (other than Permitted
Liens) upon or with respect to any of the Properties now owned or hereafter
acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement is,
and each of the other Loan Documents when delivered under this Agreement will
be, a legal, valid and binding obligation of Borrower enforceable against it in
accordance with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i)
the name of each of Borrower's corporate or joint venture Affiliates and the
nature of the affiliation, (ii) the number, nature and holder of all
outstanding Securities of Borrower and each Affiliate of Borrower and (iii) the
number of authorized, issued and treasury shares of Borrower and each Affiliate
of Borrower. All such shares have been duly issued and are fully paid and
non-assessable. Except as set forth on Exhibit 7.1.4 there are no outstanding
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of Borrower or any of its Subsidiaries. Except as set forth on Exhibit
7.1.4 there are no outstanding agreements or instruments binding upon any of
Borrower's shareholders relating to the ownership of its shares of capital
stock.
7.1.5 Corporate Names. Borrower has not been known as or
used any corporate, fictitious or trade names except those listed on Exhibit
7.1.5 hereto. Except as set forth on Exhibit 7.1.5, Borrower has not been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Borrower's
chief executive office and other places of business are as listed on Exhibit
6.1.1 hereto. During the preceding one-year period, Borrower has not had an
office, place of business or agent for service of process other than as listed
on Exhibit 6.1.1. Except as shown on Exhibit 6.1.1, no inventory is stored
with a bailee, warehouseman or similar party, nor is any Inventory consigned to
any Person.
7.1.7 Title to Properties, Priority of Liens. Borrower has
good, indefeasible and marketable title to and fee simple ownership of, or
valid and subsisting leasehold interests in, all of its real Property, and good
title to all of the Collateral and all of its other Property, in each case,
free and clear of all Liens except Permitted Liens. Borrower has paid or
discharged all lawful claims which, if unpaid, might become a Lien against any
of Borrower's Properties that is not a Permitted Lien. The Liens granted to
Lender under Section 5 hereof are first priority Liens, subject only to
Permitted Liens.
7.1.8 Accounts. Lender may rely, in determining which
Accounts are Eligible Accounts, on all statements and representations made by
Borrower with
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<PAGE> 17
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Account:
(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary
course of its business and in accordance with the terms and conditions
of all purchase orders, contracts or other documents relating thereto
and forming a part of the contract between Borrower and the Account
Debtor;
(iii) It is for a liquidated amount maturing as stated in
the duplicate invoice covering such sale or rendition of services, a
copy of which has been furnished or is available to Lender;
(iv) Such Account, and Lender's security interest therein,
is not, and to the best of Borrower's knowledge will not (by voluntary
act or omission of Borrower) be in the future, subject to any offset,
Lien, deduction, defense, dispute, counterclaim or any other adverse
condition except for disputes whether or not resulting in returned
goods and warranty claims where the amount in controversy is deemed by
Lender to be immaterial, and each such Account is absolutely owing to
Borrower and is not contingent in any respect or for any reason;
(v) Borrower has made no agreement with any Account
Debtor thereunder for any extension, compromise, settlement or
modification of any such Account or any deduction therefrom, except
discounts or allowances which are granted by Borrower in the ordinary
course of its business for prompt payment and which are reflected in
the calculation of the net amount of each respective invoice related
thereto and are reflected in the Schedules of Accounts submitted to
Lender. pursuant to subsection 6.2.1 hereof;
(vi) There are no facts, events or occurrences which in
any way materially impair the validity or enforceability of any
Accounts to reduce the amount payable thereunder from the face amount
of the invoice and statements delivered to Lender with respect
thereto;
(vii) To the best of Borrower's knowledge, the Account
Debtor thereunder (1) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed and
(2) such Account Debtor is Solvent; and
(viii) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor thereunder which might result in any material adverse
change in such Account Debtor's financial condition or the
collectibility of such Account.
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<PAGE> 18
7.1.9 Equipment. The Equipment is in good operating
condition and repair, and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the Equipment shall
be maintained and preserved, reasonable wear and tear excepted. Borrower will
not permit any of the Equipment to become affixed to any real Property leased
to Borrower so that an interest arises therein under the real estate laws of
the applicable jurisdiction unless the landlord of such real Property has
executed a landlord waiver or leasehold mortgage in favor of and in form
acceptable to Lender, and Borrower will not permit any of the Equipment to
become an accession to any personal Property other than Equipment that is
subject to FIRST priority (except for Permitted Liens) Liens in favor of
Lender.
7.1.10 Financial Statements, Fiscal Year. The opening
balance sheets of Borrower as of January 1, 1995, and the related statements of
income, changes in stockholder's equity, and changes in financial position for
the periods ended on such dates, have been prepared in accordance with GAAP,
and present fairly the financial position of Borrower at such dates. The OCF
Operating Statements have been prepared in accordance with GAAP except as set
forth on Exhibit 7.1.10, and present fairly the results of operations of the
Underground Tank Division of OCF for such periods. From the date of the OCF
Operating Statements delivered to Lender through the Closing Date, there has
been no material change in the condition, financial or otherwise, of Borrower,
and no change in the aggregate value of Equipment and real Property owned by
Borrower, except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse. The fiscal year
of Borrower ends on December 31 of each year.
7.1.11 Full Disclosure. The financial statements referred
to in subsection 7.1.10 hereof do not, nor does this Agreement or any other
written statement of Borrower to Lender, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact which Borrower
has failed to disclose to Lender in writing which materially affects adversely
or, so far as Borrower can now foresee, will materially affect adversely the
Properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or the ability of Borrower to perform this Agreement or the other
Loan Documents.
7.1.12 Solvent Financial Condition. Borrower is now and,
after giving effect to the Loans to be made, at all times will be, Solvent.
7.1.13 Surety Obligations. Borrower is not obligated as
surety or indemnitor under any surety or similar bond or other contract issued
or entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any Person, other than pursuant
to that certain Subordinated Guaranty dated on or about December 23, 1994 of
the obligations owing by Fluid Containment Property, Inc. ("FCP") to OCF.
7.1.14 Taxes. Borrower's federal tax identification number
is 76-0454639. Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid, or made provision for
the payment of, all taxes, assess-
15
<PAGE> 19
ments, fees, levies and other governmental charges upon it, its income and
Properties as and when such taxes, assessments, fees, levies and charges are
due and payable, unless and to the extent any thereof are being actively
contested in good faith and by appropriate proceedings and Borrower maintains
reasonable reserves on its books therefor. The provision for taxes on the
books of Borrower is adequate for all years not closed by applicable statutes,
and for its current fiscal year.
7.1.15 Brokers. There are no claims for brokerage
commissions, finder's fees or investment banking fees in connection with the
transactions contemplated by this Agreement, except as previously disclosed to
Lender.
7.1.16 Patents, Trademarks, Copyrights and Licenses.
Borrower owns or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary for the present and planned future
conduct of its business without any known conflict with the rights of others.
All such patents, trademarks, service marks, tradenames, copyrights, exclusive
licenses and other similar rights are listed on Exhibit 7.1.16 hereto.
7.1.17 Governmental Consents. Borrower is in good standing
with respect to all material governmental consents, approvals, licenses,
authorizations, permits, certificates, inspections and franchises necessary to
continue to conduct its business as heretofore or proposed to be conducted by
it and to own or lease and operate its Properties as now owned or leased by it.
7.1.18 Compliance with Laws. Borrower has duly complied
with, and its Properties, business operations and leaseholds are in compliance
in all material respects with, the provisions of all federal, state and local
laws, rules and regulations applicable to Borrower, its Properties or the
conduct of its business and there have been no citations, notices or orders of
noncompliance issued to Borrower under any such law, rule or regulation.
Borrower has established and maintains an adequate monitoring system to insure
that it remains in compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced in violation of
the Fair Labor Standards Act (29 U.S.C. Section 201 et M.), as amended.
7.1.19 Restrictions. Borrower is not a party nor subject to
any contract, agreement, or charter or other corporate restriction, which
materially and adversely affects its business or the use or ownership of any of
its Properties. Borrower is not a party or subject to any contract or
agreement which restricts its right or ability to incur Indebtedness, other
than as set forth on Exhibit 7.1.19 hereto, none of which prohibit the
execution of or compliance with this Agreement or the other Loan Documents by
Borrower.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20
hereto, there are no actions, suits, proceedings or investigations pending, or
to the knowledge of Borrower, threatened, against or affecting Borrower, or the
business, operations, Properties, prospects, profits or condition of Borrower.
Borrower is not in default with respect to any
16
<PAGE> 20
order, writ, injunction, judgment, decree or rule of any court, governmental
authority or arbitration board or tribunal.
7.1.21 No Defaults. No event has occurred and no condition
exists which would, upon or after the execution and delivery of this Agreement
or Borrower's performance hereunder, constitute a Default or an Event of
Default. Borrower is not in default, and no event has occurred and no
condition exists which constitutes, or which with the passage of time or the
giving of notice or both would constitute, a default in the payment of any
Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Exhibit 7.1.22(a) hereto is a complete
listing of all capitalized leases of Borrower and Exhibit 7.1.22(b) hereto is a
complete listing of all operating leases of Borrower. Borrower is in full
compliance with all of the material terms of each of its respective capitalized
and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit 7.1.23
hereto, Borrower has no Plan. Borrower is in full compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect
to each Plan. No fact or situation that could result in a material adverse
change in the financial condition of Borrower exists in connection with any
Plan. Borrower has no withdrawal liability in connection with a Multiemployer
Plan.
7.1.24 Trade Relations. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrower and any customer or any
group of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier, and there
exists no present condition or state of facts or circumstances which would
materially affect adversely Borrower or prevent Borrower from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.25 Labor Relations. Except as described on Exhibit
7.1.25 hereto, Borrower is not a party to any collective bargaining agreement.
There are no material grievances, disputes or controversies with any union or
any other organization of Borrower's employees, or threats of strikes, work
stoppages or any asserted pending demands for collective bargaining by any
union or organization.
7.1.26 Acquisition. No default has occurred under any of the
Purchase Documents.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's business or operations that would render
the information in any exhibit attached hereto either inaccurate, incomplete or
17
<PAGE> 21
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement
7.3 Survival of Representations and Warranties. All
representations and warranties of Borrower contained in this Agreement or any
of the other Loan Documents shall survive the execution, delivery and
acceptance thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the Properties of Borrower
and each of its Subsidiaries, inspect, audit and make extracts from its books
and records, and discuss with its officers, its employees and its independent
accountants, Borrower's business, assets, liabilities, financial condition,
business prospects and results of operations.
8.1.2 Notices. Promptly notify Lender in writing of the
occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete or misleading.
8.1.3 Financial Statements. Keep adequate records and
books of account with respect to its business activities in which proper
entries are made in accordance with GAAP reflecting all its financial
transactions; and cause to be prepared and furnished to Lender the following
(all to be prepared in accordance with GAAP applied on a consistent basis,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(i) not later than 90 days after the close of each fiscal
year of Borrower, unqualified audited financial statements of Borrower
as of the end of such year, certified by a firm of independent
certified public accountants of recognized standing selected by
Borrower but acceptable to Lender (except for a qualification for a
change in accounting principles with which the accountant concurs);
(ii) for the first six months only, preliminary financial
statements within 30 days after the end of each month and a final
financial statement for the same period within 45 days thereafter,
and, after the first six months, not later than 30 days after the end
of each month hereafter, including the last month of Borrower's fiscal
year, unaudited interim financial statements of Borrower as of the end
of such month and of the portion of Borrower's financial year then
elapsed, certified by the principal financial officer of Borrower as
prepared in accordance with
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<PAGE> 22
GAAP and fairly presenting the Consolidated financial position and
results of operations of Borrower for such month and period subject
only to changes from audit and year-end adjustments and except that
such statements need not contain notes;
(iii) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and
copies of any regular, periodic and special reports or registration
statements which Borrower files with the Securities and Exchange
Commission or any governmental authority which may be substituted
therefor, or any national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed with ERISA in connection with each Plan; and
(V) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's financial
condition OR results of operations.
Concurrently with the delivery of the financial statements described
in clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy
of the accountants' letter to Borrower's management that is prepared in
connection with such financial statements and also shall cause to be prepared
and shall furnish to Lender a certificate of the aforesaid certified public
accountants certifying to Lender that, based upon their examination of the
financial statements of Borrower performed in connection with their examination
of said financial statements, they are not aware of any Default or Event of
Default, or, if they are aware of such Default or Event of Default, specifying
the nature thereof, and acknowledging, in a manner satisfactory to Lender, that
they are aware that Lender is relying on such financial statements in making
its decisions with respect to the Loans. Concurrently with the delivery of the
financial statements described in clauses (i) and (ii) of this subsection
8.1.3, or more frequently if requested by Lender, Borrower shall cause to be
prepared and furnished to Lender a Compliance Certificate in the form of
Exhibit 8.1.3 hereto executed by the Chief Financial Officer of Borrower.
8.1.4 Landlord and Storage Agreements. Provide Lender with
copies of all agreements between Borrower and any landlord or warehouseman
which owns any premises at which any Inventory may, from time to time, be kept.
8.1.5 Projections. No later than 30 days prior to the end
of each fiscal year of Borrower, deliver to Lender Projections of Borrower for
the forthcoming 3 years, year by year, and for the forthcoming fiscal year,
month by month.
8.2 Negative Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless Lender has first consented thereto in writing,
it will not:
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8.2.1 Mergers; Consolidations; Acquisitions. Merge or
consolidate with any Person; nor acquire all or any substantial part of the
Properties of any Person, provided that Borrower may merge into another
corporation for purposes of effecting a reincorporation into another state and
change its name in connection therewith after Lender has notified Borrower in
writing that all steps necessary to protect the validity and perfection of
Lender's first-priority security interest in the Collateral, subject to
Permitted Liens, have been taken.
8.2.2 Loans. Make any loans or other advances of money
(other than for salary, travel advances, advances against commissions and other
similar advances in the ordinary course of business) to any Person.
8.2.3 Total Indebtedness. Create, incur, assume any
Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt;
(iii) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not aged
more than 90 days from billing date or more than 30 days from the due
date, in each case incurred in the ordinary course of business and
paid within such time period, unless the same are being actively
contested in good faith and by appropriate and lawful proceedings; and
Borrower shall have set aside such reserves, if any, with respect
thereto as are required by GAAP and deemed adequate by Borrower and
its independent accountants;
(iv) Obligations to pay Rentals permitted by subsection
8.2.13;
(V) Permitted Purchase Money Indebtedness;
(vi) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in
the ordinary course of business;
(vii) liabilities pursuant to an Industrial Development
Revenue Bond in an aggregate principal amount of up to $1,000,000;
(viii) taxes, assessments and governmental charges or levies
which are not delinquent or which are being contested in good faith
and for which, in accordance with GAAP, adequate reserves have been
set aside on the books of Borrower;
(ix) current liabilities incurred in the ordinary course of
business in connection with the obtaining of goods or services;
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(x) Indebtedness not included in paragraphs (i) through
(ix) above which does not exceed at any time, in the aggregate, the
sum of $400,000.
8.2.4 Affiliate Transactions. Except as set forth in
Exhibit 8.2.4 and except as provided below, enter into, or be a party to any
transaction with any Affiliate of Borrower or stockholder, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower.
Borrower may purchase and pay for finished goods from FCP, provided that no
such purchase or payment shall be permitted unless the terms of such purchase
require Borrower to pay for such finished goods only after Borrower has made a
bona fide sale of such goods and Borrower has collected the receivable from its
customer and that Borrower is not in default hereunder and if such be the case,
Lender has not accelerated payment of the Obligations.
8.2.5 Limitation on Liens. Create or suffer to exist any Lien
upon any of its Property, income or profits, whether now owned or hereafter
acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed pursuant
to any of the provisions of ERISA) not yet due, or being contested in
the manner described in subsection 7.1.14 hereto, but only if in
Lender's judgment such Lien does not adversely affect Lender's rights
or the priority of Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment in
respect of any such Lien is not at the time required and such Liens do
not, in the aggregate, materially detract from the value of the
Property of Borrower or materially impair the use thereof in the
operation of Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase
Money Indebtedness;
(v) such other Liens as appear on Exhibit 8.2.5 hereto;
and
(vi) such other Liens as Lender may hereafter approve in
writing.
8.2.6 Subordinated Debt. Make any payment of any part or
all of any Subordinated Debt or take any other action or omit to take any other
action in respect of any Subordinated Debt, except in accordance with the
Subordination Agreement relative thereto.
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8.2.7 Distributions. Declare or make any Distributions
except, provided no Event of Default has occurred and is continuing, the amount
of $25,000 per annum to Containment Solutions, Inc. ("CSI").
8.2.8 Capital Expenditures. Make Capital Expenditures
(including, without limitation, by way of capitalized leases) which, in the
aggregate, as to Borrower exceed $520,000 during any FISCAL year of Borrower.
8.2.9 Disposition of Assets. Sell, lease or otherwise
dispose of any of its Properties, including any disposition of Property as part
of a sale and leaseback transaction, to or in favor of any Person, except (i)
sales of Inventory in the ordinary course of business for so long as no Event
of Default exists hereunder which by reason thereof Lender has accelerated the
Obligations or (ii) dispositions expressly authorized by this Agreement.
8.2.10 Intentionally Omitted.
8.2.11 Bill-and-Hold Sales, Etc. Make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval
or consignment basis, or any sale on a repurchase or return basis.
8.2.12 Restricted Investment. Make or have any Restricted
Investment.
8.2.13 Leases. Become a lessee under any operating lease
(other than a lease under which Borrower is lessor) of Property if the
aggregate Rentals payable during any current or future period of 12 consecutive
months under the lease in question and all other leases under which Borrower is
then lessee would exceed $450,000. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms
of any lease.
8.2.14 Tax Consolidation. File or consent to the filing of
any consolidated income tax return with any Person other than FCP and CSI.
8.2.15 Real Property. Mortgage, hypothecate or in any manner
encumber any real property owned by Borrower without the prior written consent
of Lender.
8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:
8.3.1 Minimum Net Income. Achieve net income of not less
than the amount shown below as at the end of the corresponding period below, on
a non-cumulative basis:
PERIOD Net Income
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<PAGE> 26
First quarter of 1995 ($800,000)
Second quarter of 1995 (150,000)
Third quarter of 1995 470,000
Last quarter of 1995 500,000
First quarter of 1996
and each first quarter thereafter (700,000)
Second quarter of 1996
and each second quarter thereafter (50,000)
Third quarter of 1996
and each third quarter thereafter 520,000
Fourth quarter of 1996 550,000
and each fourth quarter thereafter
8.3.2 Minimum annual Net Income. Achieve Annual Net Income of
not less than the amount shown below for the corresponding period:
Period Net Income
------ ----------
Fiscal year end 1995 $470,000
Each fiscal year end thereafter 770,000
8.3.3 Minimum Working Capital. Maintain Working Capital of
not less than the amount shown below as reported at the end of each month
during the corresponding period:
Period Working Capital
------ ---------------
First quarter of 1995 ($1,350,000)
Second quarter OF 1995 (1,350,000)
Third quarter of 1995 (1,100,000)
Last quarter of 1995 150,000
First quarter of 1996
and each first quarter thereafter (1,250,000)
Second quarter of 1996
and each second quarter thereafter (1,200,000)
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<PAGE> 27
Third quarter of 1996
and each third quarter thereafter (900,000)
Fourth quarter of 1996
and each fourth quarter thereafter 300,000
8.3.4 Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities of not less than the ratio shown below as reported at the end of
each month during the corresponding period:
Period Current Ratio
------ -------------
[S]
First quarter of 1995 0.82
Second quarter of 1995 0.84
Third quarter of 1995 0.88
Last quarter of 1995 1.01
First quarter of 1996 0.83
and each first quarter thereafter
Second quarter of 1996 0.85
and each second quarter thereafter
Third quarter of 1996 0.89
and each third quarter thereafter
Fourth quarter of 1996 1.02
and each fourth quarter thereafter
8.3.5 Minimum Tangible Net Worth. Maintain Tangible Net
Worth of not less than the amount shown below as reported at the end of each
month during the corresponding period:
Tangible
Period Net Worth
------ ---------
First quarter of 1995 $4,300,000
Second quarter of 1995 4,300,000
Third quarter of 1995 4,300,000
Last quarter of 1995 5,300,000
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First quarter of 1996
and each first quarter thereafter 4,600,000
Second quarter of 1996
and each second quarter thereafter 4,600,000
Third quarter of 1996
and each third quarter thereafter 4,600,000
Fourth quarter of 1996
and each fourth quarter thereafter 5,600,000
8.3.6 Indebtedness to Tangible Net Worth. Maintain a ratio of
Indebtedness to Tangible Net Worth of not greater than the ratio shown below as
reported at the end of each month during the corresponding period:
Period Ratio
------ -----
First quarter of 1995 2.20
Second quarter of 1995 2.60
Third quarter of 1995 2.60
Last quarter of 1995 2.20
First quarter of 1996
and each first quarter thereafter 2.20
Second quarter of 1996
and each second quarter thereafter 2.60
Third quarter of 1996
and each third quarter thereafter 2.60
Fourth quarter of 1996
and each fourth quarter thereafter 2.20
8.3.7 Debt Coverage Ratio. Maintain a Debt Coverage Ratio of
not less than the ratio shown below at the end of the corresponding period:
Period Ratio
------ -----
First quarter of 1995 (13.73)
Second quarter of 1995 (1.0)
Third quarter of 1995 11.27
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<PAGE> 29
Last quarter of 1995 11.86
First quarter of 1996
and each first quarter thereafter (11.67)
Second quarter of 1996
and each second quarter thereafter 1.08
Third quarter of 1996
and each third quarter thereafter 12.25
Fourth quarter of 1996
and each fourth quarter thereafter 12.84
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any
of the other Loan Documents, and without affecting in any manner the rights of
Lender under the other sections of this Agreement, Lender shall not be required
to make any Loan under this Agreement unless and until each of the following
conditions has been and continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and
substance satisfactory to Lender and its counsel, a duly executed copy of this
Agreement and the other Loan Documents, together with such additional
documents, instruments and certificates as Lender and its counsel shall require
in connection therewith from time to time, all in form and substance
satisfactory to Lender and its counsel.
9.2 No Default. No Default or Event of Default shall exist.
9.3 Other Loan Documents. Each of the conditions precedent set
forth in the other Loan Documents shall have been satisfied.
9.4 Equity. Lender shall have received evidence satisfactory to
it that not less than $1,000,000 in cash has been contributed as equity to the
capital of Borrower.
9.5 Availability. Lender shall have determined that immediately
after Lender has made the initial Loans contemplated hereby, and paid all
closing costs incurred in connection with the transactions contemplated hereby,
Availability shall not be less than $1,250,000 and thereafter, Availability
shall at all times not be less than $500,000.
9.6 No Litigation. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain
or prohibit, or to obtain damages in respect of, or which is
26
<PAGE> 30
related to or arises out of this Agreement or the consummation of the
transactions contemplated hereby.
9.7 Dominion Account. A Dominion Account shall have been
established pursuant to an agreement in form and substance satisfactory to
Lender.
9.8 Adverse Change. No material adverse change in the condition
or operations, financial or otherwise, of the Underground Tank Division of OCF
or of Borrower shall have occurred during the period from December 8, 1994
through the Closing Date.
9.9 Financial Statements. Lender shall have received and
approved of the OCF Operating Statements, the opening balance sheets of
Borrower, and the projections of Borrower through the end of fiscal year 1997.
9.10 Acquisition. The Acquisition shall have been consummated
substantially in accordance with the terms of the Purchase Documents.
9.11 Other Conditions. To the extent not provided for above, all
Conditions Precedent to Closing set forth in the Commitment Letter dated
December 8, 1994, entered into between Borrower and Lender, shall have been
satisfied.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default":
10.1.1 Payment of Note. Borrower shall fail to pay any installment
of principal, interest or premium, if any, owing on the Term Note on or within
10 days after the due date of such installment.
10.1.2 Payment of Other Obligations. Borrower shall fail to pay any
of the Obligations that are not evidenced by the Term Note on the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).
10.1.3 Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. Borrower shall fail or neglect
to perform, keep or observe any covenant contained in Sections 5.2, 6.1.1, 6.2,
8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
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10.1.5 Breach of Other Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
10.1 hereof) and the breach of such other covenant is not cured to Lender's
satisfaction within 15 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such failure or neglect
first becomes known to any officer of Borrower.
10.1.6 Default Under Security Documents/Other
Agreements/Purchase Documents. Any event of default shall occur under, or
Borrower shall default in the performance or observance of any term, covenant,
condition or agreement contained in, any of the Security Documents, the Other
Agreements or the Purchase Documents and such default shall continue beyond any
applicable grace period, or if no grace period is specified therein, then 15
days.
10.1.7 Other Defaults. There shall occur any default or
event of default on the part of Borrower under any agreement, document or
instrument to which Borrower is a party or by which Borrower or any of its
Property is bound, creating or relating to any Indebtedness (other than the
Obligations) if the payment or maturity of such Indebtedness is accelerated in
consequence of such event of default or demand for payment of such Indebtedness
is made.
10.1.8 Uninsured Losses. Any material loss, theft, damage
or destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.9 Adverse Changes. If in the reasonable credit
judgment of Lender there shall occur any material adverse change in the
financial condition or business prospects of Borrower.
10.1.10 Insolvency and Related Proceedings. Borrower shall
cease to be Solvent or shall suffer the appointment of a receiver, trustee,
custodian or similar fiduciary, or shall make an assignment for the benefit of
creditors, or any petition for an order for relief shall be filed by or against
Borrower under the Bankruptcy Code (if against Borrower the continuation of
such proceeding for more than 30 days), or Borrower shall make any offer of
settlement, extension or composition to their respective unsecured creditors
generally.
10.1.11 Business Disruption; Condemnation. There shall occur
a cessation of a substantial part of the business of Borrower for a period
which significantly affects Borrower's capacity to continue its business, on a
profitable basis; or Borrower shall suffer the loss or revocation of any
material license or permit now held or hereafter acquired by Borrower which is
necessary to the continued or lawful operation of its business; or Borrower
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement pursuant to which Borrower leases,
uses or occupies any Property shall be canceled or terminated prior to the
expiration of its stated
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term; or any material part of the Collateral shall be taken through
condemnation or the value of such Property shall be impaired through
condemnation.
10.1.12 Change of Ownership. CSI shall cease to own and
control, beneficially and of record, all of the issued and outstanding capital
stock of Borrower.
10.1.13 ERISA. A Reportable Event shall occur which Lender,
in its sole discretion, shall determine in good faith constitutes grounds for
the termination by the Pension Benefit Guaranty Corporation of any Plan or for
the appointment by the appropriate United States district court of a trustee
for any Plan, or if any Plan shall be terminated or any such trustee shall be
requested or appointed, or if Borrower is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting
from Borrower's, complete or partial withdrawal from such Plan.
10.1.14 Challenge to Agreement. Borrower or any Affiliate of
any of them, shall challenge or contest in any action, suit or proceeding the
validity or enforceability of this Agreement, or any of the other Loan
Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Lender.
10.1.15 Change of Management. If during the first six
months of this Agreement, except in the case of his death or disability,
Stephen Harcrow shall cease to be the President and Chief Executive Officer of
Borrower or, after the first six months, Stephen Harcrow shall for any reason
cease to be President and Chief Executive Officer of Borrower and Borrower
shall fail to replace him with a person reasonably acceptable to Lender within
120 days thereof.
10.1.16 Criminal Forfeiture. Borrower or any of its senior
managers shall be criminally indicted or convicted under any law that could
lead to a forfeiture of any Property of Borrower.
10.1.17 Judgments. Any money judgment, writ of attachment or
similar process is filed against Borrower, or any of its Property in excess of
$20,000.
10.1.18 Unauthorized Payments. Borrower shall make any
payment contrary to the terms of the Subordination Agreement.
10.2 Acceleration of the Obligations. Without in any way
limiting the right of Lender to demand payment of any portion of the
Obligations payable on demand in accordance with Section 3.2 hereof, upon or at
any time after the occurrence and continuation of an Event of Default, all or
any portion of the Obligations shall, at the option of Lender and without
presentment, demand protest or further notice by Lender, become at once due and
payable and Borrower shall forthwith pay to Lender, the full amount of such
Obligations, provided, that upon the occurrence of an Event of Default
specified in subsection 10.1.10
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hereof, all of the Obligations shall become automatically due and payable
without declaration, notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence and continuation
of an Event of Default, Lender shall have and may exercise from time to time
the following rights and remedies:
10.3.1 All of the rights and remedies of a secured party
under the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative and shall be in addition to any other rights or remedies
contained in this Agreement or any of the other Loan Documents, and none of
which shall be exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
Borrower, Borrower agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender,
in its sole discretion, may deem advisable. Borrower agrees that 10 days
written notice to Borrower of any public or private sale or other disposition
of Collateral shall be reasonable notice thereof, and such sale shall be at
such locations as Lender may designate in said notice. Lender shall have the
right to conduct such sales on Borrower's premises, without charge therefor,
and such sales may be adjourned from time to time in accordance with applicable
law. Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after
allowing 2 Business Days for collection, first to the costs, expenses and
attorneys' fees incurred by Lender in collecting the Obligations, in enforcing
the rights of Lender under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling and
delivering any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If any deficiency
shall arise, Borrower shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit.
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10.3.5 Intentionally Omitted.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or in any Guaranty Agreement given to Lender or contained in
any other agreement between Lender and Borrower, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of
Borrower herein contained. The failure or delay of Lender to require strict
performance by Borrower of any provision of this Agreement or to exercise or
enforce any rights, Liens, powers, or remedies hereunder or under any of the
aforesaid agreements or other documents or security or Collateral shall not
operate as a waiver of such performance, Liens, rights, powers and remedies,
but all such requirements, Liens, rights, powers, and remedies shall continue
in full force and effect until all Loans and all other Obligations owing or to
become owing from Borrower to Lender shall have been fully satisfied. None of
the undertakings, agreements, warranties, covenants and representations of
Borrower contained in this Agreement or any of the other Loan Documents and no
Event of Default by Borrower under this Agreement or any other Loan Documents
shall be deemed to have been suspended or waived by Lender, unless such
suspension or waiver is by an instrument in writing specifying such suspension
or waiver and is signed by a duly authorized representative of Lender and
directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender)
as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or
Lender's agent, may, without notice to Borrower and in either Borrower's or
Lender's name, but at the cost and expense of Borrower:
11.1.1 At such time or times as Lender or said agent, in its sole
discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which come into the possession of Lender or under Lender's
control.
11.1.2 At such time or times upon or after the occurrence and
continuation of an Event of Default as Lender or its agent in its sole
discretion may determine: (i) demand payment of the Accounts from the Account
Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and
generally exercise all of Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings
brought to collect any of the Accounts or other Collateral; (iii) sell or
assign any of the Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable; (iv) take control,
in any manner, of any item of payment or proceeds relating to any Collateral;
(v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or
similar document against any Account Debtor or to any notice of lien,
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<PAGE> 35
assignment or satisfaction of lien or similar document in connection with any
of the Collateral; (vi) receive, open and dispose of all mail addressed to
Borrower and to notify postal authorities to change the address for delivery
thereof to such address as Lender may designate; (vii) endorse the name of
Borrower upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Lender on account of the
Obligations; (viii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Accounts, Inventory and any other Collateral; (ix)
use Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to Account Debtors; (x) use the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Accounts, Inventory, Equipment and any other
Collateral; (xi) make and adjust claims under policies of insurance; and (xii)
do all other acts and things necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and
hold Lender harmless from and against any liability, loss, damage, suit, action
or proceeding ever suffered or incurred by Lender (including reasonable
attorneys fees and legal expenses) as the result of Borrower's failure to
observe, perform or discharge Borrower's duties hereunder. In addition,
Borrower shall defend Lender against and save it harmless from all claims of
any Person with respect to the Collateral. Without limiting the generality of
the foregoing, these indemnities shall extend to any claims asserted against
Lender by any Person under any Environmental Laws or similar laws by reason of
Borrower's or any other Person's failure to comply with laws applicable to
solid or hazardous waste materials or other toxic substances. Notwithstanding
any contrary provision in this Agreement, the obligation of Borrower under this
Section 11.2 shall survive the payment in full of the Obligations and the
termination of this Agreement. The indemnity contained in this Section 11.2
shall not apply in the case of Lender's gross negligence or wilful misconduct.
11.3 Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may not sell, assign or transfer any
interest in this Agreement, any of the other Loan Documents, or any of the
Obligations, or any portion thereof, including, without limitation, Borrower's
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
Borrower hereby consents to Lender's participation, sale, assignment, transfer
or other disposition, at any time or times hereafter, of this Agreement and any
of the other Loan Documents, or of any portion hereof or thereof, including,
without limitation, Lender's rights, title, interests, remedies, powers, and
duties hereunder or thereunder. In the case of an assignment, the assignee
shall have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were "Lender" hereunder and Lender shall be
relieved of all obligations hereunder upon any such assignments. Borrower
agrees that it will use its best efforts to assist and cooperate with Lender in
any manner reasonably requested by Lender to effect the sale of participations
in or assignments of any of the Loan Documents or any portion thereof or
interest therein, including, without limitation, assisting in the preparation
of appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower to any potential participant or
assignee.
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11.4 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements
and the Security Documents shall be binding upon and inure to the benefit of
the successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.6 Cumulative Effect, Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2
hereof and except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
11.8 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given or delivered immediately when delivered against
receipt, one Business Day after deposit in the mail, postage prepaid, or with
an overnight courier or, in the case of facsimile notice, when sent, addressed
as follows:
If to Lender: Barclays Business Credit, Inc.
15260 Ventura Boulevard
Suite 1200
Sherman Oaks, California 91403
Attention: Loan Administration Manager
Facsimile No.: 818/905-5927
With a copy to: Orrick, Herrington & Sutcliffe
777 South Figueroa Street - 32nd Floor
Los Angeles, California 90017
Attention: Earl A. Glick, Esq.
Facsimile No.: (213) 612-2499
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If to Borrower: Octans, Inc.
Jefferson Chemical Road
Route 20
Box 1380
Conroe, Texas 77301
Attention: President
Facsimile No.: (409) 756-7665
With a copy to: Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, California 90071
Attention: V. Joseph Stubbs, Esq.
Facsimile No.: (213) 734-3345
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2
hereof shall not be effective until received by Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits
Lender to respond to usual and customary credit inquiries from third parties
concerning Borrower.
11.11 Time of Essence. Time is of the essence of this Agreement,
the Other Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan
Documents, together with all other instruments, agreements and certificates
executed by the parties in connection therewith or with reference thereto,
embody the entire understanding and agreement between the parties hereto and
thereto with respect to the subject matter hereof and thereof and supersede all
prior agreements, understandings and inducements, whether express or implied,
oral or written.
11.13 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL
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BE DEEMED TO HAVE BEEN MADE IN LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA: PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED
IN ANY JURISDICTION OTHER THAN CALIFORNIA, THE LAWS OF SUCH JURISDICTION SHALL
GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON
SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF
SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT
FROM OR INCONSISTENT WITH THE LAWS OF CALIFORNIA. AS PART OF THE CONSIDERATION
FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR
PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND
AGREES THAT THE SUPERIOR COURT OF LOS ANGELES COUNTY, OR, AT LENDER'S OPTION,
THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND
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ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR
THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT
PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT
RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY
LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND
CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING
POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S
REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS;
AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND
THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH
BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
IN WITNESS WHEREOF, this Agreement has been duly executed in Los
Angeles, California, on the day and year specified at the beginning of this
Agreement.
OCTANS, INC.
("Borrower")
By /s/ STEPHEN T. HARCROW
-------------------------------------
Title President
----------------------------------
Accepted in Los Angeles, California
BARCLAYS BUSINESS CREDIT, INC.
("Lender")
By /s/ LAURENCE F. AUSBORN
-------------------------------------
Title Senior Vice President
----------------------------------
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APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of December 21,
1994, by and between Barclays Business Credit, Inc. and Octans, Inc., the
following terms shall have the following meanings (terms defined in the
singular to have the same meaning when used in the plural and vice versa):
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter
acquired any interest.
Affiliate - a Person (other than a Subsidiary): (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, a Person; (ii)
which beneficially owns or holds 5% or more of any class of the Voting
Stock of a Person; or (iii) 5% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 5% or more of the equity
interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the
first sentence of this Appendix A, all Exhibits thereto and this
Appendix A.
Acquisition - the purchase by Borrower of the Tank Division
from OCF pursuant to the Purchase Documents.
Availability - the amount of money which Borrower is entitled
to borrow from time to time as Revolving Credit Loans, such amount
being the difference derived when the sum of the principal amount of
Revolving Credit Loans then outstanding (including any amounts which
Lender may have paid for the account of Borrower pursuant to any of
the Loan Documents and which have not been reimbursed by Borrower).
If the amount outstanding is equal to or greater than the Borrowing
Base, Availability is 0.
Bank - Shawmut Bank Connecticut, N.A. or its successor and
assigns.
Base Rate - the rate of interest generally announced or quoted
by Bank from time to time as its base rate for commercial loans,
whether or not such rate is the lowest rate charged by Bank to its
most preferred borrowers; and if such base rate for commercial loans
is discontinued by Bank as a standard, a comparable reference rate
designated by Bank as a substitute therefor shall be the Base Rate.
<PAGE> 41
Borrowing Base - as at any date of determination thereof, an
amount equal to:
(a) the lesser of (1) $8,750,000 or (2) 85% of the net
amount of Eligible Accounts outstanding at such date;
PLUS
(b) the lesser of (1) $1,250,000 or (2) 60% of the value
of Eligible Inventory at such date calculated on the basis of the
lower of cost or market with the cost of raw materials calculated on a
first-in, first-out basis.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts (which may, at Lender's option, be calculated on shortest
terms), credits, allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or payable in
connection with such Accounts at such time.
Business Day - any day excluding Saturday, Sunday and any day which is
a legal holiday under the laws of the State of California or the State of
Illinois or is a day on which banking institutions located in either of such
states are closed.
Capital Expenditures - expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Cash Flow - net income plus depreciation and amortization less capital
expenditures.
Closing Date - the date on which all of the conditions precedent in
Section 9 of the Agreement are satisfied and the initial Loan is made under the
Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State
of California as from time to time in effect.
Collateral - all of the Property and interests in Property described
in Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
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Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets shown
on a balance sheet at such date in accordance with GAAP except that amounts due
from Affiliates and investments in Affiliates shall be excluded therefrom.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities shown on a balance sheet at such date in accordance with GAAP.
Debt Coverage Ratio - for any period, equals Cash Flow for such period
divided by the current portion of long term debt payable during such period.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds
of the sale of Securities.
Dominion Account - a special account of Lender established by Borrower
pursuant to the Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.
EBIT - with respect to any fiscal period, the sum of Borrower's
Consolidated net earnings (or loss) before interest expense and taxes for said
period as determined in accordance with GAAP.
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services which
Lender, in its sole credit judgment, deems to be an Eligible Account. Without
limiting the generality of the foregoing, no Account shall be an Eligible
Account if:
(i) it arises out of a sale made by Borrower to a
Subsidiary or an Affiliate of Borrower or to a Person controlled by an
Affiliate of Borrower; or
(ii) it is due or unpaid more than 90 days after the
original invoice date; or
(iii) 50% or more of the Accounts from the Account Debtor
are not deemed Eligible Accounts hereunder; or
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(iv) the total unpaid Accounts of the Account Debtor
exceed 10% of the net amount of all Eligible Accounts, to the extent
of such excess; or
(v) any covenant, representation or warranty contained in
the Agreement with respect to such Account has been breached; or
(vi) the Account Debtor is also Borrower's creditor or
supplier, or the Account Debtor has disputed liability with respect to
such Account, or the Account Debtor has made any claim with respect to
any other Account due from such Account Debtor to Borrower, or the
Account otherwise is or may become subject to any right of setoff by
the Account Debtor; or
(vii) the Account Debtor has commenced a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an
involuntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or any other petition or other application for
relief under the federal bankruptcy laws has been filed against the
Account Debtor, or if the Account Debtor has failed, suspended
business, ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or
for all or a significant portion of its assets or affairs; or
(viii) it arises from a sale to an Account Debtor outside
the United States, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Lender in its sole
discretion; or
(ix) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
(x) the Account Debtor is the United States of America or
any department, agency or instrumentality thereof, unless Borrower
assigns its right to payment of such Account to Lender, in a manner
satisfactory to Lender, so as to comply with the Assignment of Claims
Act of 1940 (31 U.S.C. Section 203 et seq., as amended); or
(xi) the Account is subject to a Lien other than a
Permitted Lien; or
(xii) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower and accepted
by the Account Debtor or the Account otherwise does not represent a
final sale; or
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(xiii) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; or
(xiv) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or allowances
which are made in the ordinary course of business for prompt payment
and which discounts or allowances are reflected in the calculation of
the face value of each invoice related to such Account; or
(xv) Borrower has made an agreement with the Account Debtor to
extend the time of payment thereof.
Eligible Inventory - such Inventory of Borrower (other than packaging
materials and supplies) which Lender, in its sole credit judgment, deems to be
Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:
(i) it is not raw materials inventory that is, in Lender's
opinion, readily marketable in its current form; or
(ii) it is not in good, new and saleable condition; or
(iii) it is slow-moving, obsolete or unmerchantable; or
(iv) it does not meet all standards imposed by any
governmental agency or authority; or
(v) it does not conform in all respects to the warranties
and representations set forth in the Agreement,
(vi) it is not at all times subject to Lender's duly
perfected, first priority security interest and no
other Lien except a Permitted Lien; or
(vii) it is not situated at a location in compliance with
the Agreement or is in transit.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or
hereafter acquired by Borrower and wherever located, and all parts, accessories
and special tools and all increases and accessions thereto and substitutions
and replacements therefor.
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<PAGE> 45
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
GAAP - generally accepted account principles in the United States of
America in effect from time to time.
General Intangibles - all personal property of Borrower (including
things in action) other than goods, Accounts, chattel paper, documents,
instruments and money, whether now owned or hereafter created or acquired by
Borrower.
Indebtedness - as applied to a Person means, without duplication:
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person
has guaranteed,
(iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the
account of such Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods intended for sale or lease by
Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or
otherwise used or consumed in Borrower's business; and all documents evidencing
and General Intangibles relating to any of the foregoing, whether now owned or
hereafter acquired by Borrower.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
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<PAGE> 46
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the
Security Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any such
case arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures, notes
or similar instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or partial
payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbursement obligations with respect to letters of credit or
guaranties of letters of credit and (v) Indebtedness of Borrower under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (i) through (iii) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
of ERISA.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or
to become due, now existing or hereafter arising and however acquired.
OCF Operating Statements - operating statements of the Underground Tank
Division of OCF for the month of November 1994 and the year to date through the
end of November 1994.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), including but not
limited to the Commitment Letter dated December 8, 1994, heretofore, now or
hereafter executed by Borrower or any other third party and delivered to Lender
in respect of the transactions contemplated by the Agreement
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<PAGE> 47
Overadvance - the amount, if any, by which the outstanding principal
amount of Revolving Credit Loans exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in the Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrower incurred after the date hereof which is secured by a Purchase Money
Lien and which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of Borrower at the time
outstanding, does not exceed $1,250,000. For the purposes of this definition,
the principal amount of any Purchase Money Indebtedness consisting of
capitalized leases shall be computed as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted (a) balance sheets, (b) profit and
loss statements, (c) cash flow statements, and (d) capitalization statements,
all prepared on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Purchase Documents - the Asset Purchase Agreement by and among FCP,
the Borrower and Owens-Corning Fiberglass Corporation to be dated December _,
1994 pursuant to which Owens-Corning Fiberglass Corporation will agree to sell
certain assets, and all documents and instruments to be executed or delivered
in connection therewith.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Indebtedness (other than the Obligations)
incurred at the time of or within 10 days prior to or after the acquisition of
any fixed assets for the purpose of financing all or any part of the purchase
price thereof, and (iii) any renewals, extensions or refinancings thereof, but
not any increases in the principal amounts thereof outstanding at the time.
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Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien.
Rentals - as defined in subsection 8.2.12 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) Property to be used in the ordinary course of
business;
(ii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower;
(iii) investments in direct obligations of the United
States of America, OR any agency thereof or obligations guaranteed by
the United States of America, provided that such obligations mature
within one year from the date of acquisition thereof;
(iv) investments in certificates of deposit maturing
within one year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital surplus and undivided profits aggregating at
least $100,000,000; and
(v) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than
270 days from the date of creation thereof.
Revolving Credit Loan - a Loan made by Lender as provided in Section
3.1 of the Agreement.
Schedule of Accounts - as defined in subsection 6.2.1 of the
Agreement.
Security - shall have the same meaning as in Section 2(l) of the
Securities Act of 1933, as amended.
Security Documents - all instruments and agreements now or at any time
hereafter securing the whole or any part of the Obligations.
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Solvent - as to any Person, such Person (i) owns Property
whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent debts), (ii)
is able to pay all of its Indebtedness as such Indebtedness matures
and (iii) has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to
engage.
Subordinated Debt - Indebtedness of Borrower that is
subordinated to the Obligations in a manner satisfactory to Lender.
Subordination Agreement - the Subordination Agreement to be
dated on or about the Closing Date among Borrower, Lender and OCF,
wherein an aggregate amount of not less than $7,500,000 (subject to
downward adjustment as necessary on account of closing expenses)
payable by Borrower to OCF pursuant to an unsecured promissory note
shall be subordinated, in form and substance satisfactory to Lender,
to the payment and performance of the Obligations.
Tangible Net Worth - equity plus Subordinated Debt minus other
current assets, other non current assets (excluding leasehold
improvements), prepayments, intangibles (excluding patents) and notes
receivable.
Term Loan - the Loan described in subsection 1.2.1 of the
Agreement.
Term Note - the Secured Promissory Note to be executed by
Borrower on or about the Closing Date in favor of Lender to evidence
the Term Loan, which shall be in the form of Exhibit 1.2.1 to the
Agreement.
Total Credit Facility - $11,000,000.
Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors
(or Persons performing similar functions).
Working Capital - Current Assets minus Current Liabilities.
OTHER TERMS. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents
and list of exhibits appear as a matter of convenience only and shall not
affect the interpretation of the Agreement. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references to any of the Loan Documents shall
include any and all modifications thereto and any and all extensions or
renewals thereof.
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<PAGE> 1
EXHIBIT 4.04
-----------------------------------------------------------
HOOVER CONTAINMENT, INC.
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==============================================================
LOAN AND SECURITY AGREEMENT
Dated: October 27, 1995
$6,500,000
===============================================================
---------------------------------------------------------------
SHAWMUT CAPITAL CORPORATION
---------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . 1
1.1 Revolving Credit Loans . . . . . . . . . . . . . . . . . 1
1.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. INTEREST, FEES AND CHARGES . . . . . . . . . . . . . . . 2
2.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Computation of Interest and Fees . . . . . . . . . . . . 3
2.3 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Intentionally Omitted . . . . . . . . . . . . . . . . . 3
2.5 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . 3
2.6 Collection Charges . . . . . . . . . . . . . . . . . . . 3
2.7 Intentionally Omitted . . . . . . . . . . . . . . . . . . 3
2.8 Reimbursement of Expenses . . . . . . . . . . . . . . . . 3
2.9 Bank Charges . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3. LOAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . 4
3.1 Manner of Borrowing Revolving Credit Loans . . . . . . . 4
3.2 Payments . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Mandatory Prepayments . . . . . . . . . . . . . . . . . . 6
3.4 Application of Payments and Collections . . . . . . . . . 6
3.5 All Loans to Constitute One Obligation . . . . . . . . . 6
3.6 Loan Account . . . . . . . . . . . . . . . . . . . . . . 6
3.7 Statements of Account . . . . . . . . . . . . . . . . . . 6
SECTION 4. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . 7
4.1 Term of Agreement . . . . . . . . . . . . . . . . . . . . 7
4.2 Termination . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 5. SECURITY INTERESTS . . . . . . . . . . . . . . . . . . . 8
5.1 Security Interest in Collateral . . . . . . . . . . . . . 8
5.2 Lien Perfection; Further Assurances . . . . . . . . . . . 9
SECTION 6. COLLATERAL ADMINISTRATION . . . . . . . . . . . . . . . . 9
6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Administration of Accounts . . . . . . . . . . . . . . . 10
6.3 Administration of Inventory . . . . . . . . . . . . . . . 11
6.4 Administration of Equipment . . . . . . . . . . . . . . . 12
6.5 Payment of Charges . . . . . . . . . . . . . . . . . . . 12
SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 12
7.1 General Representations and Warranties . . . . . . . . . 12
7.2 Continuous Nature of Representations and Warranties . . . 18
7.3 Survival of Representations and Warranties . . . . . . . 18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS . . . . . . . . . . . 18
8.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . 18
8.2 Negative Covenants . . . . . . . . . . . . . . . . . . . 20
8.3 Specific Financial Covenants . . . . . . . . . . . . . . 22
SECTION 9. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . 24
9.1 Documentation . . . . . . . . . . . . . . . . . . . . . . 24
9.2 No Default . . . . . . . . . . . . . . . . . . . . . . . 24
9.3 Other Loan Documents . . . . . . . . . . . . . . . . . . 24
9.4 Equity . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.5 Availability . . . . . . . . . . . . . . . . . . . . . . 24
9.6 No Litigation . . . . . . . . . . . . . . . . . . . . . . 24
9.7 Dominion Account . . . . . . . . . . . . . . . . . . . . 24
9.8 Adverse Change . . . . . . . . . . . . . . . . . . . . . 25
9.9 Financial Statements . . . . . . . . . . . . . . . . . . 25
9.10 Acquisition . . . . . . . . . . . . . . . . . . . . . . . 25
9.11 Other Conditions . . . . . . . . . . . . . . . . . . . . 25
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT . . . . 25
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . 25
10.2 Acceleration of the Obligations . . . . . . . . . . . . . 27
10.3 Other Remedies . . . . . . . . . . . . . . . . . . . . . 27
10.4 Remedies Cumulative; No Waiver . . . . . . . . . . . . . 28
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 29
11.1 Power of Attorney . . . . . . . . . . . . . . . . . . . . 29
11.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 30
11.3 Modification of Agreement; Sale of Interest . . . . . . . 30
11.4 Severability . . . . . . . . . . . . . . . . . . . . . . 30
11.5 Successors and Assigns . . . . . . . . . . . . . . . . . 30
11.6 Cumulative Effect; Conflict of Terms . . . . . . . . . . 31
11.7 Execution in Counterparts . . . . . . . . . . . . . . . . 31
11.8 Notice . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.9 Lender's Consent . . . . . . . . . . . . . . . . . . . . 32
11.10 Credit Inquiries . . . . . . . . . . . . . . . . . . . . 32
11.11 Time of Essence . . . . . . . . . . . . . . . . . . . . . 32
11.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . 32
11.13 Interpretation . . . . . . . . . . . . . . . . . . . . . 32
11.14 GOVERNING LAW; CONSENT TO FORUM . . . . . . . . . . . . . 32
11.15 WAIVERS BY BORROWER . . . . . . . . . . . . . . . . . . . 33
</TABLE>
<PAGE> 4
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 27th day of October,
1995, by and between SHAWMUT CAPITAL CORPORATION ("Lender"), a Connecticut
corporation with an office at 15260 Ventura Boulevard, Suite 1200, Sherman
Oaks, California 91403; and HOOVER CONTAINMENT, INC. ("Borrower"), a Delaware
corporation with its chief executive office and principal place of business at
1360 Post Oak Boulevard, Suite 2470, Houston, Texas 77056. Capitalized terms
used in this Agreement have the meanings assigned to them in Appendix A,
General Definitions. Accounting terms not otherwise specifically defined herein
shall be construed in accordance with GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $6,500,000
available upon Borrower's request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long
as no Default or Event of Default exists, to make Revolving Credit Loans to
Borrower from time to time, as requested by Borrower in the manner set forth in
subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time minus, without
duplication, reserves, if any. Lender shall have the right to establish reserves
in such amounts, and with respect to such matters, as Lender shall deem
necessary or appropriate, against the amount of Revolving Credit Loans which
Borrower may otherwise request under this subsection 1.1.1, including, without
limitation, with respect to (i) price adjustments, damages, unearned discounts,
returned products or other matters for which credit memoranda are issued in the
ordinary course of Borrower's business; (ii) shrinkage, spoilage and
obsolescence of Inventory; (iii) slow moving Inventory; (iv) other sums
chargeable against Borrower's Loan Account as Revolving Credit Loans under any
section of this Agreement; (v) amounts owing by Borrower to any Person to the
extent secured by a Lien on, or trust over, any Property of Borrower; and (vi)
such other matters, events, conditions or contingencies as to which Lender, in
its sole credit judgment, determines reserves should be established from time
to time hereunder.
1.1.2 Use of Proceeds. The Revolving Credit Loans
shall be used solely for the acquisition by Borrower of certain assets of
Hoover Containment Systems, Inc. ("Systems") pursuant to an Asset Purchase
Agreement dated on or about October 12, 1995 (the "Asset Purchase Agreement")
and for Borrower's general operating capital needs in a manner consistent with
the provisions of this Agreement and all applicable laws.
<PAGE> 5
1.2 Term Loans.
1.2.1 Term Loan A. Lender agrees to make a term
loan to Borrower on the Closing Date in the principal amount of $425,000, which
shall be repayable in accordance with the terms of the Term Note A and shall be
secured by all of the Collateral. The proceeds of the Term Loan A shall be used
solely for purposes for which the proceeds of the Revolving Credit Loans are
authorized to be used and shall be a subline thereof.
1.2.2 Term Loan B. Lender agrees to make a further
term loan to Borrower on the Closing Date in the principal amount of
$1,200,000, which shall be repayable in accordance with the terms of the Term
Note B and shall be secured by all of the Collateral. The proceeds of the Term
Loan B shall be used solely for purposes for which the proceeds of the
Revolving Credit Loans are authorized to be used and shall be a subline
thereof.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest. Interest shall accrue on
Term Loan A and Term Loan B in accordance with the terms of the respective Term
Notes. Interest shall accrue on the principal amount of the Revolving Credit
Loans outstanding at the end of each day at a fluctuating rate per annum equal
to LIBOR plus 375 basis points. LIBOR interest rates shall be based on a
thirty-day reserve adjusted LIBOR. The rate of interest shall increase or
decrease by an amount equal to any increase or decrease in the LIBOR rate,
effective as of the opening of business on the day that any such change in
LIBOR occurs. The foregoing rates of interest shall be subject to a one-time
only 25 basis point reduction effective upon receipt by Lender of Borrower's
audited financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") for the fiscal year ending on or after June 30,
1996, provided that (i) no Default or Event of Default has occurred and is
continuing as of such date, and (ii) Borrower has achieved the Interest Rate
Reduction Test.
2.1.2 Default Rate of Interest. Upon and after the
occurrence of an Event of Default, and during the continuation thereof,
effective upon the serving of notice by Lender to Borrower, (i) the principal
amount of all Revolving Credit Loans shall bear interest at a fluctuating rate
per annum equal to 4% plus the Base Rate, (ii) the principal amount of Term
Loan "A" shall bear interest at a fluctuating rate per annum equal to 4.25%
plus the Base Rate, and (iii) the principal amount of Term Loan "B" shall bear
interest at a fluctuating rate per annum equal to 4.5% plus the Base Rate (as
applicable to each Loan, the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever
shall the aggregate of all amounts deemed interest hereunder or under the Term
Notes and charged or collected pursuant to the terms of this Agreement or
pursuant to the Term Notes exceed the
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highest rate permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. If any provisions of
this Agreement, the Term Notes are in contravention of any such law, such
provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest and unused line
fees hereunder shall be calculated daily and shall be computed on the actual
number of days elapsed over a year of 360 days. For the purpose of computing
interest hereunder, all items of payment received by Lender shall be deemed
applied by Lender on account of the Obligations (subject to final payment of
such items) on the second Business Day after receipt by Lender of such items in
Lender's account located in Chicago, Illinois.
2.3 Closing Fee. Borrower shall pay to Lender a closing fee of
$65,000, which shall be fully earned and nonrefundable on the Closing Date and
shall be paid concurrently with the initial Loan hereunder. The commitment fee
of $30,000 heretofore paid to Lender shall be credited to the Closing Fee.
2.4 Intentionally Omitted.
2.5 Unused Line Fee. Borrower shall pay to Lender a fee equal to
0.5% per annum of the average monthly amount by which the Total Credit Facility
exceeds the sum of the outstanding principal balance of the Revolving Credit
Loans and the Term Loans. The unused line fee shall be payable monthly in
arrears on the first day of each calendar month hereafter.
2.6 Collection Charges. If items of payment are received by Lender
at a time when there are no Revolving Credit Loans outstanding, such items of
payment shall be subject to a collection charge equal to two Business Days'
interest on the amount thereof at the rate then applicable to Revolving Credit
Loans, which collection charges shall be payable on the first Business Day of
each month.
2.7 Intentionally Omitted.
2.8 Reimbursement of Expenses. If, at any time or times regardless
of whether or not an Event of Default then exists, Lender or any Participating
Lender incurs legal or accounting expenses or any other costs or out-of-pocket
expenses in connection with (i) the negotiation and preparation of this
Agreement or any of the other Loan Documents, any amendment of or modification
of this Agreement or any of the other Loan Documents, or any sale or attempted
sale of any interest herein to a Participating Lender; (ii) the administration
of this Agreement or any of the other Loan Documents and the transactions
contemplated hereby and thereby; (iii) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (iv) any attempt to enforce any
rights of Lender or any Participating Lender against Borrower or any other
Person which may be obligated to Lender by virtue of this Agreement or any of
the other Loan Documents, including, without limitation, the Account Debtors;
or (v) any attempt to inspect, verify, protect, preserve, restore, collect,
sell, liquidate or
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<PAGE> 7
otherwise dispose of or realize upon the Collateral, including but not limited
to any expenses and costs incurred by Lender in connection with the audits and
appraisals of Borrower's books, records and the Collateral, wherever located,
and in the administration of this Agreement; then all such legal and accounting
expenses, other costs and out of pocket expenses of Lender shall be charged to
Borrower. All amounts chargeable to Borrower under this Section 2.8 shall be
Obligations secured by all of the Collateral, shall be payable on demand to
Lender or to such Participating Lender, as the case may be, and shall bear
interest from the date such demand is made until paid in full at the rate
applicable to Revolving Credit Loans from time to time. Borrower shall also
reimburse Lender for expenses incurred by Lender in its administration of the
Collateral to the extent and in the manner provided in Section 6 hereof.
2.9 Bank Charges. Borrower shall pay to Lender, on demand, any and
all fees, costs or expenses which Lender or any Participating Lender pays to a
bank or other similar institution (including, without limitation, any fees paid
by Lender to any Participating Lender) arising out of or in connection with (i)
the forwarding to Borrower or any other Person on behalf of Borrower, by Lender
or any Participating Lender, of proceeds of loans made by Lender to Borrower
pursuant to this Agreement and (ii) the depositing for collection, by Lender or
any Participating Lender, of any check or item of payment received or delivered
to Lender or any Participating Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under
the credit facility established pursuant to Section 1 hereof shall be as
follows:
3.1.1 Loan Requests. On the Closing Date Lender
shall make the Term Loans. A request for a Revolving Credit Loan shall be made,
or shall be deemed to be made, in the following manner: (i) Borrower may give
Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date,
no later than 10:00 a.m. Pacific time on the proposed borrowing date, provided,
however, that Lender, at its option, may refuse such request at a time when
there exists a Default or an Event of Default; and (ii) the becoming due of any
amount required to be paid under this Agreement or the Term Notes, whether as
interest or for any other Obligation, shall be deemed irrevocably to be a
request for a Revolving Credit Loan on the due date in the amount required to
pay such interest or other Obligation. As an accommodation to Borrower, Lender
may permit telephonic requests for loans and electronic transmittal of
instructions, authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to accept or act
upon telephonic or electronic communications from Borrower, Lender shall have
no liability to Borrower for any loss or damage suffered by Borrower as a
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to Lender by
Borrower and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
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3.1.2 Disbursement. Borrower hereby irrevocably
authorizes Lender to disburse the proceeds of each Revolving Credit Loan
requested, or deemed to be requested, pursuant to this subsection 3.1.2 as
follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 3.1.1 (i) shall be disbursed by Lender in lawful money of the United
States of America in immediately available funds, in the case of the initial
borrowing, in accordance with the terms of the written disbursement letter from
Borrower, and in the case of each subsequent borrowing, by wire transfer to
such bank account as may be agreed upon by Borrower and Lender from time to time
or elsewhere if pursuant to a written direction from Borrower; and (ii) the
proceeds of each Revolving Credit Loan requested under subsection 3.1.1 (ii)
shall be disbursed by Lender by way of direct payment of the relevant interest
or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably
authorizes Lender, in Lender's sole discretion, to advance to Borrower, and to
charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum
sufficient to pay all interest accrued on the Obligations during the
immediately preceding month and to pay all costs, fees and expenses at any time
owed by Borrower to Lender hereunder.
3.2 Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 3.2 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
Obligation shall be payable as follows:
3.2.1 Principal. Principal payable on account of
Revolving Credit Loans shall be payable by Borrower to Lender immediately upon
the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of
the Collateral other than Equipment or real Property, to the extent of said
proceeds, (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations, or
(iii) termination of this Agreement pursuant to Section 4 hereof; provided,
however, that if an Overadvance shall exist at any time, Borrower shall, on
demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on the Revolving
Credit Loans shall be due on the earliest of (i) the first calendar day of each
month (for the immediately preceding month), computed through the last calendar
day of the preceding month, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of
the Obligations or (iii) termination of this Agreement pursuant to Section 4
hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and
charges payable pursuant to this Agreement shall be payable by Borrower as and
when provided in Section 2 hereof, to Lender or to any other Person designated
by Lender in writing.
3.2.4 Other Obligations. The balance of the
Obligations requiring the payment of money, if any, shall be payable by
Borrower to Lender as and when provided in this Agreement, the Other Agreements
or the Security Documents, or on demand, whichever is later.
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3.3 Mandatory Prepayments.
3.3.1 Proceeds of Sale, Loss, Destruction or
Condemnation of Collateral. Except as provided in subsection 6.4.2 hereof, if
Borrower sells any of the Equipment or real Property, or if any of the
Collateral is lost or destroyed or taken by condemnation, Borrower shall pay to
Lender, unless otherwise agreed by Lender, as and when received by Borrower and
as a mandatory prepayment of the Term Loans, a sum equal to the proceeds
(including insurance payments) received by Borrower from such sale, loss,
destruction or condemnation, which sum shall be applied among the Term Loans,
at Lender's sole discretion, in the inverse order of maturity.
3.3.2 Excess Cash Flow Recapture. Borrower shall
prepay Term Note B in amounts equal to Borrower's Excess Cash Flow with respect
to each fiscal year of Borrower during the Original Term hereof, such
prepayments to be made within 2 Business Days following the due date for
delivery by Borrower to Lender of the annual financial statements required by
subsection 8.1.3(i) hereof and each such prepayment shall be applied to the
installments of principal due under Term Note B in the inverse order of
maturity until payment thereof in full.
3.4 Application of Payments and Collections. All items of payment
received by Lender shall be applied for purposes of computing interest
(subject to Section 2.2 hereof) on any Business Day such payment is received.
Borrower irrevocably waives the right to direct the application of any and all
payments and collections at any time or times hereafter received by Lender from
or on behalf of Borrower, and Borrower does hereby irrevocably agree that
Lender shall have the continuing exclusive right to apply and reapply any and
all such payments and collections received at any time or times hereafter by
Lender or its agent against the Obligations, in such manner as Lender may deem
advisable, notwithstanding any entry by Lender upon any of its books and
records. If as the result of collections of Accounts as authorized by
subsection 6.2.6 hereof a credit balance exists in the Loan Account, such
credit balance shall not accrue interest in favor of Borrower, but shall be
available to Borrower at any time or times.
3.5 All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by Lender's
Lien upon all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the
Loan Account and shall also record in the Loan Account all payments made by
Borrower on any Obligations and all proceeds of Collateral which are finally
paid to Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower monthly
with a statement of Loans, charges and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower unless Lender is notified by Borrower in writing
to the contrary within 30 days of the date
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<PAGE> 10
each accounting is mailed to Borrower. Such notice shall only be deemed an
objection to those items specifically objected to therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making
Loans to Borrower upon or after the occurrence of any Default or Event of
Default, this Agreement shall be in effect for a period of five years from the
date hereof, through and including October 27, 2000 (the "Original Term"), and
this Agreement shall automatically renew itself for one-year periods thereafter
(the "Renewal Term"), unless terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 days
prior written notice to Borrower, Lender may terminate this Agreement as of the
last day of the Original Term or the then current Renewal Term and Lender may
terminate this Agreement without notice upon or after the occurrence of an
Event of Default.
4.2.2 Termination by Borrower. Upon at least 90
days prior written notice to Lender, Borrower may, at its option, terminate
this Agreement; provided, however, no such termination shall be effective until
Borrower has paid all of the Obligations in immediately available funds. Any
notice of termination given by Borrower shall be irrevocable unless Lender
otherwise agrees in writing, and Lender shall have no obligation to make any
Loans on or after the termination date stated in such notice. Borrower may
elect to terminate this Agreement in its entirety only. No section of this
Agreement or type of Loan available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date
of termination of this Agreement by Lender (after an Event of Default) or by
Borrower for any reason, Borrower shall pay to Lender (in addition to the then
outstanding principal, accrued interest and other charges owing under the terms
of this Agreement and any of the other Loan Documents) as liquidated damages
for the loss of the bargain and not as a penalty, an amount equal to 3% of the
Total Credit Facility if termination occurs during the first twelve-month
period of the Original Term (October 27, 1995 through October 26, 1996); 2% of
the Total Credit Facility if termination occurs during the second 12-month
period of the Original Term (October 27, 1996 through October 26, 1997); 1% of
the Total Credit Facility if termination occurs during the third 12-month
period of the Original Term (October 27, 1997 through October 26, 1998); and
1/2 of 1% of the Total Credit Facility if termination occurs during the fourth
twelve-month period of the Original Term (October 27, 1998 through October 26,
1999); and 1/2 of 1% of the Total Credit Facility if termination occurs during
the fifth twelve-month period of the Original Term (October 27, 1999 through
October 26, 2000). If termination occurs on the last day of the Original Term,
no termination charge shall be payable.
4.2.4 Effect of Termination. All of the Obligations
shall be immediately due and payable upon the termination date stated in any
notice of termination of
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this Agreement. All undertakings, agreements, covenants, warranties and
representations of Borrower contained in the Loan Documents shall survive any
such termination and Lender shall retain its Liens in the Collateral and all of
its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable termination charge,
if any. Notwithstanding the payment in full of the Obligations, Lender shall
not be required to terminate its security interests in the Collateral unless,
with respect to any loss or damage Lender may incur as a result of dishonored
checks or other items of payment received by Lender from Borrower or any
Account Debtor and applied to the Obligations, Lender shall, at its option, (i)
have received a written agreement, executed by Borrower and by any Person whose
loans or other advances to Borrower are used in whole or in part to satisfy the
Obligations, indemnifying Lender from any such loss or damage; or (ii) have
retained such monetary reserves and Liens on the Collateral for such period of
time as Lender, in its reasonable discretion, may deem necessary to protect
Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender
a continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of Borrower, whether now owned or existing
or hereafter created, acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles, including without limitation,
all patents, trademarks and trade names;
(v) Deposit Accounts;
(vi) All monies and other Property of any kind now or at
any time or times hereafter in the possession or under the control of
Lender or a bailee or Affiliate of Lender;
(vii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through
(v) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and
(viii) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records) of Borrower pertaining to any of (i)
through (vii) above.
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5.2 Lien Perfection; Further Assurances. Borrower shall execute
such UCC-1 financing statements as are required by the Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral.
Unless prohibited by applicable law, Borrower hereby authorizes Lender to file
any such financing statement on Borrower's behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in any appropriate office
in lieu thereof. At Lender's request, Borrower shall also promptly execute or
cause to be executed and shall deliver to Lender any and all documents,
instruments and agreements deemed necessary by Lender to give effect to or
carry out the terms or intent of the Loan Documents.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other
than Inventory in transit and motor vehicles, will at all times be kept by
Borrower at one or more of the business locations set forth in Exhibit 6.1.1
hereto and shall not, without the prior written approval of Lender, be moved
therefrom except, prior to an Event of Default and Lender's acceleration of the
maturity of the Obligations in consequence thereof, for (i) sales of Inventory
in the ordinary course of business; and (ii) removals in connection with
dispositions of Equipment that are authorized by subsection 6.4.2 hereof; and
(iii) movement of equipment and inventory from one location of Borrower that
has been reported to Lender to another location of Borrower that has been
reported to Lender, and within a jurisdiction in which Lender has taken all
necessary action in order to protect and perfect its security interest therein.
6.1.2 Insurance of Collateral. Borrower shall
maintain and pay for insurance upon all Collateral wherever located and with
respect to Borrower's business, covering casualty, hazard, public liability and
such other risks in such amounts and with such insurance companies as are
reasonably satisfactory to Lender. Borrower shall deliver the originals of such
policies to Lender with satisfactory lender's loss payable endorsements, naming
Lender as sole loss payee, assignee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender shall not be impaired or invalidated by any act or
neglect of Borrower or the owner of the Property or by the occupation of the
premises for purposes more hazardous than are permitted by said policy. If
Borrower fails to provide and pay for such insurance, Lender may, at its
option, but shall not be required to, procure the same and charge Borrower
therefor. Borrower agrees to deliver to Lender, promptly as rendered, true
copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral, any and all
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excise, property, sales, and use taxes imposed by any state, federal, or local
authority on any of the Collateral or in respect of the sale thereof shall be
borne and paid by Borrower. If Borrower fails to promptly pay any portion
thereof when due, Lender may, at its option, but shall not be required to, pay
the same and charge Borrower therefor. Lender shall not be liable or
responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto (except for reasonable care in the custody thereof while
any Collateral is in Lender's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of
Accounts. Borrower shall keep accurate and complete records of its Accounts and
all payments and collections thereon and shall submit to Lender on such
periodic basis as Lender shall request a sales and collections report for the
preceding period, in form satisfactory to Lender. On or before the fifteenth
day of each month from and after the date hereof, Borrower shall deliver to
Lender, in form acceptable to Lender, a detailed aged trial balance of all
Accounts existing as of the last day of the preceding month, specifying the
names, addresses, face value, dates of invoices and due dates for each Account
Debtor obligated on an Account so listed ("Schedule of Accounts"), and, upon
Lender's request therefor, copies of proof of delivery and the original copy of
all documents, including, without limitation, repayment histories and present
status reports relating to the Accounts so scheduled and such other matters and
information relating to the status of then existing Accounts as Lender shall
reasonably request. In addition, if Accounts in an aggregate face amount in
excess of $20,000 become ineligible because they fall within one of the
specified categories of ineligibility set forth in the definition of Eligible
Accounts or otherwise established by Lender, Borrower shall notify Lender of
such occurrence on the first Business Day following such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence. If
requested by Lender, Borrower shall execute and deliver to Lender formal
written assignments of all of its Accounts weekly or daily, which shall include
all Accounts that have been created since the date of the last assignment,
together with copies of invoices or invoice registers related thereto.
6.2.2 Discounts, Allowances, Disputes. If Borrower
grants any discounts, allowances or credits that are not shown on the face of
the invoice for the Account involved, Borrower shall report such discounts,
allowances or credits, as the case may be, to Lender as part of the next
required Schedule of Accounts. If any amounts due and owing in excess of
$20,000 are in dispute between Borrower and any Account Debtor, Borrower shall
provide Lender with written notice thereof at the time of submission of the
next Schedule of Accounts, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy. Upon and after the
occurrence of an Event of Default, Lender shall have the right to settle or
adjust all disputes and claims directly with the Account Debtor and to
compromise the amount or extend the time for payment of the Accounts upon such
terms and conditions as Lender may deem advisable, and to charge the
deficiencies, costs and expenses thereof, including attorney's fees, to
Borrower.
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6.2.3 Taxes. If an Account includes a charge for
any tax payable to any governmental taxing authority, Lender is authorized, in
its sole discretion, to pay the amount thereof to the proper taxing authority
for the account of Borrower and to charge Borrower therefor, provided, however
that Lender shall not be liable for any taxes to any governmental taxing
authority that may be due by Borrower.
6.2.4 Account Verification. Whether or not a
Default or an Event of Default has occurred, any of Lender's officers,
employees or agents shall have the right, at any time or times hereafter, in
the name of Lender, any designee of Lender or Borrower, to verify the validity,
amount or any other matter relating to any Accounts by mail, telephone,
telegraph or otherwise. Borrower shall cooperate fully with Lender in an effort
to facilitate and promptly conclude any such verification process.
6.2.5 Maintenance of Dominion Account. Borrower
shall maintain a Dominion Account pursuant to a lockbox arrangement acceptable
to Lender with such banks as may be selected by Borrower and be acceptable to
Lender. Borrower shall issue to any such banks an irrevocable letter of
instruction directing such banks to deposit all payments or other remittances
received in the lockbox to the Dominion Account for application on account of
the Obligations. All funds deposited in the Dominion Account shall immediately
become the property of Lender and Borrower shall obtain the agreement by such
banks in favor of Lender to waive any offset rights against the funds so
deposited. Lender assumes no responsibility for such lockbox arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of
Collateral. To expedite collection, Borrower shall endeavor in the first
instance to make collection of its Accounts for Lender. All remittances
received by Borrower on account of Accounts, together with the proceeds of any
other Collateral, shall be held as Lender's property by Borrower as trustee of
an express trust for Lender's benefit and Borrower shall immediately deposit
same in kind in the Dominion Account. Lender retains the right at all times
after the occurrence of a Default or an Event of Default and during the
continuance thereof, to notify Account Debtors that Accounts have been assigned
to Lender and to collect Accounts directly in its own name and to charge the
collection costs and expenses, including attorneys' fees to Borrower.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower
shall keep accurate and complete records of its inventory. Borrower shall
furnish to Lender Inventory reports in form and detail satisfactory to Lender
at such times as Lender may request, but at least once each month, not later
than the twentieth day of such month. Borrower shall conduct a physical
inventory no less frequently than monthly and shall provide to Lender a report
based on each such physical inventory promptly thereafter, together with such
supporting information as Lender shall request. Lender may adjust the frequency
of required physical inventories upon implementation by Borrower of a perpetual
inventory system acceptable to Lender.
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6.3.2 Returns of Inventory. If at any time or times
hereafter any Account Debtor returns any Inventory to Borrower the shipment of
which generated an Account on which such Account Debtor is obligated in excess
of $50,000, Borrower shall immediately notify Lender of the same, specifying
the reason for such return and the location, condition and intended disposition
of the returned Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower
shall keep accurate records itemizing and describing the kind, type, quality,
quantity and value of its Equipment and all dispositions made in accordance
with subsection 6.6.2 hereof, and shall furnish Lender with a current schedule
containing the foregoing information on at least an annual basis and more often
if requested by Lender. Immediately on request therefor by Lender, Borrower
shall deliver to Lender any and all evidence of ownership, if any, of any of
the Equipment.
6.4.2 Dispositions of Equipment. Borrower will not
sell, lease or otherwise dispose of or transfer any of the Equipment or any
part thereof without the prior written consent of Lender; provided, however,
that the foregoing restriction shall not apply, for so long as no Default or
Event of Default exists, to (i) dispositions of Equipment which, in the
aggregate during any consecutive twelve-month period, has a fair market value
or book value, whichever is less, of $50,000 or less, provided that all
proceeds thereof are remitted to Lender for application to the Loans, or (ii)
replacements of Equipment that is substantially worn, damaged or obsolete with
Equipment of like kind, function and value, provided that the replacement
Equipment shall be acquired prior to or concurrently with any disposition of
the Equipment that is to be replaced, the replacement Equipment shall be free
and clear of Liens other than Permitted Liens that are not Purchase Money
Liens, and Borrower shall have given Lender at least 5 days prior written
notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall
be payable on demand and shall bear interest from the date such advance was
made until paid in full at the rate applicable to Revolving Credit Loans from
time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender that:
7.1.1 Organization and Qualification. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is duly qualified and
is authorized to do business and is in good standing as a foreign corporation
in each state or jurisdiction listed on Exhibit 7.1.1 hereto and in all other
states and jurisdictions in which the failure of Borrower to be so qualified
would have a material adverse effect on the financial condition, business or
Properties of Borrower.
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7.1.2 Corporate Power and Authority. Borrower is
duly authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other
Loan Documents have been duly authorized by all necessary corporate action and
do not and will not (i) require any consent or approval of the shareholders of
Borrower; (ii) contravene Borrower's charter, articles or certificate of
incorporation or by-laws; (iii) violate, or cause Borrower to be in default
under, any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award in effect having applicability to
Borrower; (iv) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which it or its Properties may be
bound or affected; or (v) result in, or require, the creation or imposition of
any Lien (other than Permitted Liens) upon or with respect to any of the
Properties now owned or hereafter acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement
is, and each of the other Loan Documents when delivered under this Agreement
will be, a legal, valid and binding obligation of Borrower enforceable against
it in accordance with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto
states (i) the name of each of Borrower's corporate or joint venture Affiliates
and the nature of the affiliation, (ii) the number, nature and holder of all
outstanding Securities of Borrower and each Affiliate of Borrower and (iii) the
number of authorized, issued and treasury shares of Borrower and each Affiliate
of Borrower. All such shares have been duly issued and are fully paid and
non-assessable. Except as set forth on Exhibit 7.1.4, there are no outstanding
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of Borrower. Except as set forth on Exhibit 7.1.4, there are no
outstanding agreements or instruments binding upon any of Borrower's
shareholders relating to the ownership of its shares of capital stock.
7.1.5 Corporate Names. Borrower has not been known
as or used any corporate, fictitious or trade names except those listed on
Exhibit 7.1.5 hereto. Except as set forth on Exhibit 7.1.5, Borrower has not
been the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
7.1.6 Business Locations. Agent for Process.
Borrower's chief executive office and other places of business are as listed on
Exhibit 6.1.1 hereto. During the preceding one-year period, Borrower has not
had an office, place of business or agent for service of process other than as
listed on Exhibit 6.1.1. Except as shown on Exhibit 6.1.1, no inventory is
stored with a bailee, warehouseman or similar party, nor is any Inventory
consigned to any Person.
7.1.7 Title to Properties: Priority of Liens.
Borrower has good, indefeasible and marketable title to and fee simple
ownership of, or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of the Collateral
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<PAGE> 17
and all of its other Property, in each case, free and clear of all Liens except
Permitted Liens. Borrower has paid or discharged all lawful claims which, if
unpaid, might become a Lien against any of Borrower's Properties that is not a
Permitted Lien. The Liens granted to Lender under Section 5 hereof are first
priority Liens, subject only to Permitted Liens.
7.1.8 Accounts. Lender may rely, in determining
which Accounts are Eligible Accounts, on all statements and representations
made by Borrower with respect to any Account or Accounts. Unless otherwise
indicated in writing to Lender, with respect to each Account:
(i) It is genuine and in all respects what it
purports to be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale
and delivery of goods or rendition of services by Borrower in the
ordinary course of its business and in accordance with the terms and
conditions of all purchase orders, contracts or other documents
relating thereto and forming a part of the contract between Borrower
and the Account Debtor;
(iii) It is for a liquidated amount maturing as
stated in the duplicate invoice covering such sale or rendition of
services, a copy of which has been furnished or is available to
Lender;
(iv) Such Account, and Lender's security interest
therein, is not, and to the best of Borrower's knowledge will not (by
voluntary act or omission of Borrower) be in the future, subject to
any offset, Lien, deduction, defense, dispute, counterclaim or any
other adverse condition except for disputes whether or not resulting
in returned goods and warranty claims where the amount in controversy
is deemed by Lender to be immaterial and, to the best of Borrower's
knowledge, each such Account is absolutely owing to Borrower and is
not contingent in any respect or for any reason;
(v) Borrower has made no agreement with any
Account Debtor thereunder for any extension, compromise, settlement or
modification of any such Account or any deduction therefrom, except
discounts or allowances which are granted by Borrower in the ordinary
course of its business for prompt payment and which are reflected in
the calculation of the net amount of each respective invoice related
thereto and are reflected in the Schedules of Accounts submitted to
Lender pursuant to subsection 6.2.1 hereof;
(vi) To the best of Borrower's knowledge, there
are no facts, events or occurrences which in any way materially impair
the validity or enforceability of any Accounts to reduce the amount
payable thereunder from the face amount of the invoice and statements
delivered to Lender with respect thereto;
(vii) To the best of Borrower's knowledge, the
Account Debtor thereunder (1) had the capacity to contract at the time
any contract or other
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<PAGE> 18
document giving rise to the Account was executed and (2) such Account
Debtor is Solvent; and
(viii) To the best of Borrower's knowledge, there
are no proceedings or actions which are threatened or pending against
any Account Debtor thereunder which might result in any material
adverse change in such Account Debtor's financial condition or the
collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating
condition and repair, and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the Equipment shall
be maintained and preserved, reasonable wear and tear excepted. Borrower will
not permit any of the Equipment to become affixed to any real Property leased
to Borrower so that an interest arises therein under the real estate laws of
the applicable jurisdiction unless the landlord of such real Property has
executed a landlord waiver or leasehold mortgage in favor of and in form
acceptable to Lender, and Borrower will not permit any of the Equipment to
become an accession to any personal Property other than Equipment that is
subject to first priority (except for Permitted Liens) Liens in favor of
Lender.
7.1.10 Financial Statements: Fiscal Year. The
opening balance sheets of Borrower as of September 30, 1995, and the related
statements of income, changes in stockholder's equity, and changes in financial
position for the periods ended on such dates, have been prepared in accordance
with GAAP, and present fairly the financial position of Borrower at such date.
To the best of Borrower's knowledge, the Systems Operating Statements have been
prepared in accordance with GAAP except as set forth on Exhibit 7.1.1O, and
present fairly the results of operations of Systems for such periods. From the
date of the Systems Operating Statements delivered to Lender through the
Closing Date, there has been no material change in the condition, financial or
otherwise, of Borrower and no change in the aggregate value of Equipment and
real Property owned by Borrower, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The fiscal year of Borrower ends on December 31 of each year.
7.1.11 Full Disclosure. The financial statements
referred to in subsection 7.1.10 hereof do not, nor does this Agreement or any
other written statement of Borrower to Lender, contain any untrue statement of
a material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact which Borrower has
failed to disclose to Lender in writing which materially affects adversely or,
so far as Borrower can now foresee, will materially affect adversely the
Properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or the ability of Borrower to perform this Agreement or the other
Loan Documents.
7.1.12 Solvent Financial Condition. Borrower is now
and, after giving effect to the Loans to be made hereunder, at all times will
be, Solvent.
7.1.13 Surety Obligations. Borrower is obligated as
surety or indemnitor under any surety or similar bond or other contract issued
or entered into
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<PAGE> 19
any agreement to assure payment, performance or completion of performance of
any undertaking or obligation of any Person.
7.1.14 Taxes. Borrower's federal tax identification
number is 52-1944663. Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid, or made
provision for the payment of, all taxes, assessments, fees, levies and other
governmental charges upon it, its income and Properties as and when such taxes,
assessments, fees, levies and charges are due and payable, unless and to the
extent any thereof are being actively contested in good faith and by
appropriate proceedings and Borrower maintains reasonable reserves on its books
therefor. The provision for taxes on the books of Borrower is adequate for all
years not closed by applicable statutes, and for its current fiscal year.
7.1.15 Brokers. There are no claims for brokerage
commissions, finder's fees or investment banking fees in connection with the
transactions contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and
Licenses. Borrower owns or possesses all the patents, trademarks, service
marks, trade names, copyrights and licenses necessary, to the best of
Borrower's knowledge, for the conduct of its business without any known
conflict with the rights of others. All such patents, trademarks, service marks,
tradenames, copyrights, licenses and other similar rights are listed on Exhibit
7.1.16 hereto.
7.1.17 Governmental Consents. As of the date hereof,
Borrower has, and is in good standing with respect to all material governmental
consents, approvals, licenses, authorizations, permits, certificates,
inspections and franchises necessary to continue to conduct its business as
heretofore or proposed to be conducted by it and to own or lease and operate
its Properties as now owned or leased by it. Within 60 days of the date hereof,
Borrower will have, and will be in good standing with respect to all
governmental consents, approvals, licenses, authorizations, permits,
certificates, inspections and franchises necessary to continue to conduct its
business as heretofore or proposed to be conducted by it and to own or lease
and operate its Properties as now owned or leased by it.
7.1.18 Compliance with Laws. Borrower has duly
complied with, and its Properties, business operations and leaseholds are in
compliance in all material respects with, the provisions of all federal, state
and local laws, rules and regulations applicable to Borrower, its Properties or
the conduct of its business and there have been no citations, notices or orders
of noncompliance issued to Borrower under any such law, rule or regulation.
Borrower has established and maintains an adequate monitoring system to insure
that it remains in compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced in violation of
the Fair Labor Standards Act (29 U.S.C. Section 201 et seq.), as amended.
7.1.19 Restrictions. Borrower is not a party or
subject to any contract, agreement, or charter or other corporate restriction,
which materially and
16
<PAGE> 20
adversely affects its business or the use or ownership of any of its
Properties. Borrower is not a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit 7.1.19 hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by Borrower.
7.1.20 Litigation. Except as set forth on Exhibit
7.1.20 hereto, there are no actions, suits, proceedings or investigations
pending, or to the knowledge of Borrower, threatened, against or affecting
Borrower, or the business, operations, Properties, prospects, profits or
condition of Borrower. Borrower is not in default with respect to any order,
writ, injunction, judgment, decree or rule of any court, governmental authority
or arbitration board or tribunal.
7.1.21 No Defaults. No event has occurred and no
condition exists which would, upon or after the execution and delivery of this
Agreement or Borrower's performance hereunder, constitute a Default or an Event
of Default. Borrower is not in default, and no event has occurred and no
condition exists which constitutes, or which with the passage of time or the
giving of notice or both would constitute, a default in the payment of any
Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Exhibit 7.1-22(a) hereto is a
complete listing of all capitalized leases of Borrower and Exhibit 7.1.22(b)
hereto is a complete listing of all operating leases of Borrower. Borrower is
in full compliance with all of the material terms of each of its respective
capitalized and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit
7.1.23 hereto, Borrower has no Plan. Borrower is in full compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect
to each Plan. There is no fact or situation in connection with any Plan that
could result in a material adverse change in the financial condition of
Borrower. Borrower has no withdrawal liability in connection with a
Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrower and any customer or any
group of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier, and there
exists no present condition or state of facts or circumstances which would
materially affect adversely Borrower or prevent Borrower from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.25 Labor Relations. Except as described on
Exhibit 7.1.25 hereto, Borrower is not a party to any collective bargaining
agreement. There are no material grievances, disputes or controversies with any
union or any other organization of Borrower's employees, or threats of strikes,
work stoppages or any asserted pending demands for collective bargaining by any
union or organization.
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7.1.26 Acquisition. No default has occurred under
any of the Purchase Documents.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's business or operations that would render
the information in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.
7.3 Survival of Representations and Warranties. All representations
and warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by
Lender and the parties thereto and the closing of the transactions described
therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit
representatives of Lender, from time to time, as often as may be reasonably
requested, but only during normal business hours, to visit and inspect the
Properties of Borrower, inspect, audit and make extracts from its books and
records, and discuss with its officers, its employees and its independent
accountants, Borrower's business, assets, liabilities, financial condition,
business prospects and results of operations.
8.1.2 Notices. Promptly notify Lender in writing of
the occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete or misleading.
8.1.3 Financial Statements. Keep adequate records
and books of account with respect to its business activities in which proper
entries are made in accordance with GAAP reflecting all its financial
transactions; and cause to be prepared and furnished to Lender the following
(all to be prepared in accordance with GAAP applied on a consistent basis,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(i) not later than 90 days after the close of
each fiscal year of Borrower, unqualified audited financial statements
of Borrower as of the end of such year, certified by a firm of
independent certified public accountants of recognized standing
selected by Borrower but acceptable to Lender (except for a
qualification for a change in accounting principles with which the
accountant concurs);
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(ii) not later than 30 days after the end of each
month hereafter, including the last month of Borrower's fiscal year,
unaudited interim financial statements of Borrower as of the end of
such month and of the portion of Borrower's financial year then
elapsed, certified by the principal financial officer of Borrower as
prepared in accordance with GAAP and fairly presenting the financial
position and results of operations of Borrower for such month and
period subject only to changes from audit and year-end adjustments and
except that such statements need not contain notes;
(iii) promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial
statements or reports which Borrower has made available to its
shareholders and copies of any regular, periodic and special reports
or registration statements which Borrower files with the Securities
and Exchange Commission or any governmental authority which may be
substituted therefor, or any national securities exchange;
(iv) promptly after the filing thereof, copies of
any annual report to be filed with ERISA in connection with each Plan;
and
(v) such other data and information (financial
and otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's financial
condition or results of operations.
Concurrently with the delivery of the financial statements
described in clause (i) of this subsection 8.1.3, Borrower shall forward to
Lender a copy of the accountants' letter to Borrower's management that is
prepared in connection with such financial statements and also shall cause to
be prepared and shall furnish to Lender a certificate of the aforesaid
certified public accountants certifying to Lender that, based upon their
examination of the financial statements of Borrower performed in connection
with their examination of said financial statements, they are not aware of any
Default or Event of Default, or, if they are aware of such Default or Event of
Default, specifying the nature thereof, and acknowledging, in a manner
satisfactory to Lender, that they are aware that Lender is relying on such
financial statements in making its decisions with respect to the Loans.
Concurrently with the delivery of the financial statements described in clauses
(i) and (ii) of this subsection 8.1.3, or more frequently requested by Lender,
Borrower shall cause to be prepared and furnished to Lender a Compliance
Certificate in the form of Exhibit 8.1.3 hereto executed by the Chief Financial
Officer of Borrower.
8.1.4 Landlord and Storage Agreements. Provide
Lender with copies of all agreements between Borrower and any landlord or
warehouseman which owns any premises at which any Inventory may, from time to
time, be kept.
8.1.5 Projections. No later than 30 days prior to
the end of each fiscal year of Borrower, deliver to Lender Projections of
Borrower for the forthcoming 3 years, year by year, and for the forthcoming
fiscal year, month by month.
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8.1.6 Guaranty Agreement. Borrower agrees to cause
Guarantor to grant to Lender, within 30 days of the Closing Date and in
accordance with the terms of the Guaranty, a first lien on the real property
owned by Guarantor in Valparaiso, Indiana, as security for the Guaranty.
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
8.2.1 Mergers; Consolidation; Acquisitions. Merge or
consolidate with any Person; nor acquire all or any substantial part of the
Properties of any Person, provided that Borrower may merge into an Affiliate or
another corporation for purposes of effecting a restructuring or
reincorporation into another state and change its name in connection therewith
after Lender has notified Borrower in writing that all steps necessary to
protect the validity and perfection of Lender's first priority security
interest in the Collateral, subject to Permitted Liens, have been taken.
8.2.2 Loans. Make any loans or other advances of
money (other than for salary, travel advances, advances against commissions and
other similar advances in the ordinary course of business) to any Person.
8.2.3 Total Indebtedness. Create, incur, assume, or
suffer to exist any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt;
(iii) accounts payable to trade creditors and
current operating expenses (other than for Money Borrowed) which are
not aged more than 90 days from billing date or more than 30 days from
the due date, in each case incurred in the ordinary course of business
and paid within such time period, unless the same are being actively
contested in good faith and by appropriate and lawful proceedings; and
Borrower shall have set aside such reserves, if any, with respect
thereto as are required by GAAP and deemed adequate by Borrower and
its independent accountants;
(iv) Obligations to pay Rentals permitted by
subsection 8.2.13;
(v) Permitted Purchase Money Indebtedness;
(vi) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business;
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(vii) taxes, assessments and governmental charges
or levies which are not delinquent or which are being contested in
good faith and for which, in accordance with GAAP, adequate reserves
have been set aside on the books of Borrower; and
(viii) Indebtedness not included in paragraphs (i)
through (vii) above which does not exceed at any time, in the
aggregate, the sum of $150,000.
8.2.4 Affiliate Transactions. Except as set forth
in Exhibit 8.2.4 and except as provided below, enter into, or be a party to,
any transaction with any Affiliate of Borrower or stockholder, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower.
8.2.5 Limitation on Liens. Create or suffer to
exist any Lien upon any of its Property, income or profits, whether now owned
or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due, or being
contested in the manner described in subsection 7.1.14 hereto, but
only if in Lender's judgment such Lien does not adversely affect
Lender's rights or the priority of Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of
Borrower's business by operation of law or regulation, but only if
payment in respect of any such Lien is not at the time required and
such Liens do not, in the aggregate, materially detract from the value
of the Property of Borrower or materially impair the use thereof in
the operation of Borrower's business;
(iv) Purchase Money Liens securing Permitted
Purchase Money Indebtedness;
(v) such other Liens as appear on Exhibit 8.2.5
hereto; and
(vi) such other Liens as Lender may hereafter
approve in writing.
8.2.6 Subordinated Debt. Make any payment of any
pan or all of any Subordinated Debt or take any other action or omit to take
any other action in respect of any Subordinated Debt, except in accordance with
the Subordination Agreement relative thereto.
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8.2.7 Distributions. Declare or make any
Distributions except, (i) management fees to Containment Solutions, Inc.
("CSI") not in excess of 1% of Borrower's net revenue (exclusive of revenue
from Affiliate transactions), provided no Event of Default has occurred and is
continuing, (ii) permitted redemptions of redeemable preferred stock of
Borrower, not to exceed 20% of Borrower's Voting Stock, provided (a) no Event
of Default has occurred and is continuing, (b) Term Loan "B" has been paid in
full, and (c) Borrower's Availability is in excess of $400,000 immediately
before and immediately after any such redemption, and (iii) stock options
described in Exhibit 8.2 4 for employees and other individuals, in accordance
with a plan approved by Lender in its reasonable credit judgment, provided (a)
no Event of Default has occurred and is continuing, (b) Term Loan "B" has been
paid in full, and (c) Borrower's Availability is in excess of $400,000
immediately before and immediately after any such option is exercised.
8.2.8 Capital Expenditures. Make Capital
Expenditures (including, without limitation, by way of capitalized leases)
which, in the aggregate, as to Borrower, exceed $300,000 during any fiscal year
of Borrower.
8.2.9 Disposition of Assets. Sell, lease or
otherwise dispose of any of its Properties, including any disposition of
Property as part of a sale and leaseback transaction, to or in favor of any
Person, except (i) sales of Inventory in the ordinary course of business for so
long as no Event of Default exists hereunder which by reason thereof Lender has
accelerated the Obligation or (ii) dispositions expressly authorized by this
Agreement.
8.2.10 Intentionally Omitted.
8.2.11 Bill-and-Hold Sales, Etc. Make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval
or consignment basis, or any sale on a repurchase or return basis.
8.2.12 Restricted Investment. Make or have any
Restricted Investment.
8.2.13 Leases. Become a lessee under any operating
lease (other than a lease under which Borrower is lessor) of Property if the
aggregate Rentals payable during any current or future period of 12 consecutive
months under the lease in question and all other leases under which Borrower is
then lessee would exceed $ ____________. The term "Rentals" means, as of the
date of determination, all payments which the lessee is required to make by the
terms of any lease.
8.2.14 Tax Consolidation. File or consent to the
filing of any consolidated income tax return with any Person other than CSI.
8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:
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8.3.1. Net Income, Maintain net income (as
determined in accordance with GAAP) of not less than the amount set forth below
for the corresponding fiscal period, determined as of the last day of such
period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Fiscal quarter ended December 31, 1995 $100,000
Fiscal quarter ended March 31, 1996 230,000
Fiscal quarter ended June 30, 1996 240,000
Fiscal quarter ended September 30, 1996 250,000
and each fiscal quarter thereafter
</TABLE>
8.3.2 Working Capital. Maintain Working Capital of
not less than the amount set forth below as of the end of the corresponding
fiscal period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Fiscal quarter ended December 31, 1995 $130,000
Fiscal quarter ended March 31, 1996 275,000
Fiscal quarter ended June 30, 1996 400,000
Fiscal quarter ended September 30, 1996 720,000
and each fiscal quarter thereafter
</TABLE>
8.3.3 Minimum Book Net Worth. Maintain book net
worth of not less than the amount set forth below as of the end of the
corresponding fiscal period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Fiscal quarter ended December 31, 1995 $1,050,000
Fiscal quarter ended March 31, 1996 1,180,000
Fiscal quarter ended June 30, 1996 1,190,000
Fiscal quarter ended September 30, 1996 1,950,000
and each fiscal quarter thereafter
</TABLE>
8.3.4 Interest Coverage Ratio. Maintain an Interest
Coverage Ratio of not less than the ratio shown below as of the end of the
corresponding fiscal period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Fiscal quarter ended December 31, 1995 2.8:1
Fiscal quarter ended March 31, 1996 3.0:1
Fiscal quarter ended June 30, 1996 3.0:1
Fiscal quarter ended September 30, 1996 3.0:1
and each fiscal quarter thereafter
</TABLE>
8.3.5 Debt-Coverage Ratio. Maintain a Debt Coverage
Ratio of not less than that set forth below as of the end of the corresponding
fiscal period:
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<PAGE> 27
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Fiscal quarter ended December 31, 1995 1.05:1
Fiscal quarter ended March 31, 1996 1.30:1
Fiscal quarter ended June 30, 1996 1.30:1
Fiscal quarter ended September 30, 1996 1.30:1
and each fiscal quarter thereafter
</TABLE>
8.3.6 Availability. Maintain average Availability
each month, measured at the end of each month, of not less than $400,000.
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any
of the other Loan Documents, and without affecting in any manner the rights of
Lender under the other sections of this Agreement, Lender shall not be required
to make any Loan under this Agreement unless and until each of the following
conditions has been and continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and
substance satisfactory to Lender and its counsel, a duly executed copy of this
Agreement and the other Loan Documents, together with such additional
documents, instruments and certificates as Lender and its counsel shall require
in connection therewith from time to time, all in form and substance
satisfactory to Lender and its counsel.
9.2 No Default. No Default or Event of Default shall exist.
9.3 Other Loan Documents. Each of the conditions precedent set
forth in the other Loan Documents shall have been satisfied.
9.4 Equity. Lender shall have received evidence satisfactory to it
that not less than $950,000 in cash has been contributed as equity to the
capital of Borrower.
9.5 Availability. Lender shall have determined that immediately
after Lender has made the initial Loans contemplated hereby, and paid all
closing costs incurred in connection with the transactions contemplated hereby,
Availability shall not be less than $500,000.
9.6 No Litigation. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain
or prohibit, or to obtain damages in respect of, or which is related to or
arises out of this Agreement or the consummation of the transactions
contemplated hereby.
9.7 Dominion Account. Within 30 days after the Closing Date, a
Dominion Account shall have been established pursuant to an agreement in form
and substance satisfactory to Lender.
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<PAGE> 28
9.8 Adverse Change. No material adverse change in the condition or
operations, financial or otherwise, of Systems or of Borrower shall have
occurred during the period from September 30, 1995 through the Closing Date.
9.9 Financial Statements. Lender shall have received and approved
the Systems Operating Statements, the opening balance sheets of Borrower, and
the projections of Borrower through the end of fiscal year 1998.
9.10 Acquisition. The Acquisition shall have been consummated
substantially in accordance with the terms of the Purchase Documents.
9.11 Other Conditions. To the extent not provided for above, all
Conditions Precedent to Closing set forth in the Commitment Letter dated
October 17, 1995, entered into between Borrower and Lender, shall have been
satisfied.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default":
10.1.1 Payment of Notes. Borrower shall fail to pay
any installment of principal, interest or premium, if any, owing on the Term
Notes on or within 10 days after the due date of such installment.
10.1.2 Payment of Other Obligations. Borrower shall
fail to pay any of the Obligations that are not evidenced by the Term Note on
or within 10 days after the due date thereof (whether due at stated maturity,
on demand, upon acceleration or otherwise).
10.1.3 Misrepresentations. Any representation,
warranty or other statement made or furnished to Lender by or on behalf of
Borrower in this Agreement, any of the other Loan Documents or any instrument,
certificate or financial statement furnished in compliance with or in reference
thereto proves to have been false or misleading in any material respect when
made or furnished or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. Borrower shall
fail or neglect to perform, keep or observe any covenant contained in Sections
5.2, 6.1.1, 6.2, 8.1.1, 8.1.3, 8.1.6, 8.2 or 8.3 hereof on the date that
Borrower is required to perform, keep or observe such covenant.
10.1.5 Breach of Other Covenants. Borrower shall
fail or neglect to perform, keep or observe any covenant contained in this
Agreement (other than a covenant which is dealt with specifically elsewhere in
Section 10.1 hereof) and the breach of such other covenant is not cured to
Lender's satisfaction within 15 days after the sooner to
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<PAGE> 29
occur of Borrower's receipt of notice of such breach from Lender or the date on
which such failure or neglect first becomes known to any officer of Borrower.
10.1.6 Default Under Security Documents/Other
Agreements/Purchase Documents. Any event of default shall occur under, or
Borrower shall default in the performance or observance of any term, covenant,
condition or agreement contained in, any of the Security Documents, or the
Other Agreements or the Purchase Documents and such default shall continue
beyond any applicable grace period, or if no grace period is specified therein,
then 15 days.
10.1.7 Other Defaults. There shall occur any default
or event of default on the part of Borrower under any agreement, document or
instrument to which Borrower is a party or by which Borrower or any of its
Property is bound, creating or relating to any Indebtedness (other than the
Obligations) if the payment or maturity of such Indebtedness is accelerated in
consequence of such event of default or demand for payment of such Indebtedness
is made.
10.1.8 Uninsured Losses. Any material loss, theft,
damage or destruction of any of the Collateral not fully covered (subject to
such deductibles as Lender shall have permitted) by insurance.
10.1.9 Intentionally Omitted.
10.1.10 Insolvency and Related Proceedings. Borrower
shall suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or any
petition for an order for relief shall be filed by or against Borrower under
the Bankruptcy Code (if against Borrower, the continuation of such proceeding
for more than 30 days), or Borrower shall make any offer of settlement,
extension or composition to their respective unsecured creditors generally.
10.1.11 Business Disruption; Condemnation. There
shall occur a cessation of a substantial part of the business of Borrower for a
period which significantly affects Borrower's capacity to continue its
business, on a profitable basis; or Borrower shall suffer the loss or
revocation of any material license or permit now held or hereafter acquired by
Borrower which is necessary to the continued or lawful operation of its
business; or Borrower shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any material
part of its business affairs; or any material lease or agreement pursuant to
which Borrower leases, uses or occupies any Property shall be canceled or
terminated prior to the expiration of its stated term; or any material part of
the Collateral shall be taken through condemnation or the value of such
Property shall be impaired through condemnation.
10.1.12 Change of Ownership. CSI shall cease to own
and control, beneficially and of record, all (or in the event stock is issued
in accordance with subsection 8.2.7(iii), 80%) of the issued and outstanding
capital stock of Borrower.
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<PAGE> 30
10.1.13 ERISA. A Reportable Event shall occur which
Lender, in its sole discretion, shall determine in good faith constitutes
grounds for the termination by the Pension Benefit Guaranty Corporation of any
Plan or for the appointment by the appropriate United States district court of
a trustee for any Plan, or if any Plan shall be terminated or any such trustee
shall be requested or appointed, or if Borrower is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from Borrower's complete or partial withdrawal from such Plan.
10.1.14 Challenge to Agreement. Borrower or any
Affiliate shall challenge or contest in any action, suit or proceeding the
validity or enforceability of this Agreement, or any of the other Loan
Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Lender.
10.1.15 Change of Management. If during the first 2
years of this Agreement, except in the case of death or disability, David
McGarvey as manager of operations or Darleen Bauer as vice president of sales
shall cease to hold their respective offices and perform the duties attendant
thereto and Borrower shall fail to replace such person with a person reasonably
acceptable to Lender within 120 days thereof, which acceptance shall not be
unreasonably withheld.
1O.1.16 Criminal Forfeiture. Borrower or any of its
senior managers shall be criminally indicted or convicted under any law that
could lead to a forfeiture of any Property of Borrower.
10.1.17 Judgements. Any money judgment, writ of
attachment or similar process is filed against Borrower, or any of its
respective Property in excess of $50,000.
10.2 Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the Obligations payable
on demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence and continuation of an Event of Default, all or any portion of the
Obligations shall, at the option of Lender and without presentment, demand
protest or further notice by Lender, become at once due and payable and
Borrower shall forthwith pay to Lender, the full amount of such Obligations,
provided, that upon the occurrence of an Event of Default specified in
subsection 10.1.10 hereof, all of the Obligations shall become automatically
due and payable without declaration, notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
10.3.1 All of the rights and remedies of a secured
party under the Code or under other applicable law, and all other legal and
equitable rights to which Lender may be entitled, all of which rights and
remedies shall be cumulative and shall
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<PAGE> 31
be in addition to any other rights or remedies contained in this Agreement or
any of the other Loan Documents, and none of which shall be exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
Borrower, Borrower agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all
or any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender,
in its sole discretion, may deem advisable. Borrower agrees that 10 days
written notice to Borrower of any public or private sale or other disposition
of Collateral shall be reasonable notice thereof, and such sale shall be at
such locations as Lender may designate in said notice. Lender shall have the
right to conduct such sales on Borrower's premises, without charge therefor,
and such sales may be adjourned from time to time in accordance with applicable
law. Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after
allowing 2 Business Days for collection, first to the costs, expenses and
attorneys' fees incurred by Lender in collecting the Obligations, in enforcing
the rights of Lender under the Loan Documents and in collecting, retaking,
completing, protecting, removing, storing, advertising for sale, selling and
delivering any Collateral, second to the interest due upon any of the
Obligations; and third, to the principal of the Obligations. If any deficiency
shall arise, Borrower shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other
right to use, without charge, Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, tradenames, trademarks and advertising matter,
or any Property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Lender's benefit.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or in any Guaranty Agreement given to Lender or contained in
any other agreement between Lender and Borrower, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of
Borrower herein contained. The failure or delay of Lender to require strict
performance by Borrower of any provision of this Agreement or to exercise or
enforce any
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<PAGE> 32
rights, Liens, powers, or remedies hereunder or under any of the aforesaid
agreements or other documents or security or Collateral shall not operate as a
waiver of such performance, Liens, rights, powers and remedies, but all such
requirements, Liens, rights, powers, and remedies shall continue in full force
and effect until all Loans and all other Obligations owing or to become owing
from Borrower to Lender shall have been fully satisfied. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Loan Documents and no Event of
Default by Borrower under this Agreement or any other Loan Documents shall be
deemed to have been suspended or waived by Lender, unless such suspension or
waiver is by an instrument in writing specifying such suspension or waiver and
is signed by a duly authorized representative of Lender and directed to
Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender)
as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or
Lender's agent, may, without notice to Borrower and in either Borrower's or
Lender's name, but at the cost and expense of Borrower:
11.1.1 At such time or times as Lender or said agent, in its
sole discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which come into the possession of Lender or under Lender's
control.
11.1.2 At such time or times upon or after the occurrence
and continuation of an Event of Default as Lender or its agent in its sole
discretion may determine: (i) demand payment of the Accounts from the Account
Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and
generally exercise all of Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings
brought to collect any of the Accounts or other Collateral; (iii) sell or
assign any of the Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable; (iv) take control,
in any manner, of any item of payment or proceeds relating to any Collateral;
(v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or
similar document against any Account Debtor or to any notice of lien, assignment
or satisfaction of lien or similar document in connection with any of the
Collateral; (vi) receive, open and dispose of all mail addressed to Borrower
and to notify postal authorities to change the address for delivery thereof to
such address as Lender may designate; (vii) endorse the name of Borrower upon
any of the items of payment or proceeds relating to any Collateral and deposit
the same to the account of Lender on account of the Obligations; (viii) endorse
the name of Borrower upon any chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement relating to the
Accounts, Inventory and any other Collateral; (ix) use Borrower's stationery
and sign the name of Borrower to verifications of the Accounts and notices
thereof to Account Debtors; (x) use the information recorded on or contained in
any data processing equipment and computer hardware and software relating to
the Accounts, Inventory, Equipment and any
29
<PAGE> 33
other Collateral; (xi) make and adjust claims under policies of insurance; and
(xii) do all other acts and things necessary, in Lender's determination, to
fulfill Borrower's obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including reasonable attorneys
fees and legal expenses) as the result of Borrower's failure to observe,
perform or discharge Borrower's duties hereunder. In addition, Borrower shall
defend Lender against and save it harmless from all claims of any Person with
respect to the Collateral. Without limiting the generality of the foregoing,
these indemnities shall extend to any claims asserted against Lender by any
Person under any Environmental Laws or similar laws by reason of Borrower's or
any other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. Notwithstanding any contrary
provision in this Agreement, the obligation of Borrower under this Section 11.2
shall survive the payment in full of the Obligations and the termination of
this Agreement. The indemnity contained in this Section 11.2 shall not apply in
the case of Lender's gross negligence or willful misconduct.
11.3 Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may not sell, assign or transfer any
interest in this Agreement, any of the other Loan Documents, or any of the
Obligations, or any portion thereof, including, without limitation, Borrower's
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
Borrower hereby consents to Lender's participation, sale, assignment, transfer
or other disposition, at any time or times hereafter, of this Agreement and any
of the other Loan Documents, or of any portion hereof or thereof, including,
without limitation, Lender's rights, title, interests, remedies, powers, and
duties hereunder or thereunder. In the case of an assignment, the assignee
shall have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were "Lender" hereunder and Lender shall be
relieved of all obligations hereunder upon any such assignments. Borrower
agrees that it will use its best efforts to assist and cooperate with Lender in
any manner reasonably requested by Lender to effect the sale of participations
in or assignments of any of the Loan Documents or any portion thereof or
interest therein, including, without limitation, assisting in the preparation
of appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower to any potential participant or
assignee.
11.4 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements
and the Security Documents shall be binding upon and inure to the benefit of
the successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
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<PAGE> 34
11.6 Cumulative Effect: Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2
hereof and except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
11.8 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given or delivered immediately when delivered against
receipt, one Business Day after deposit in the mail, postage prepaid, or with
an overnight courier or, in the case of facsimile notice, when sent, addressed
as follows:
If to Lender: Shawmut Capital Corporation
15260 Ventura Boulevard
Suite 1200
Sherman Oaks, California 91403
Attention: Loan Administration Manager
Facsimile No.: (818) 905-5927
With a copy to: Orrick, Herrington & Sutcliffe
777 South Figueroa Street - 32nd Floor
Los Angeles, California 90017
Attention: Earl A. Glick, Esq.
Facsimile No.: (213) 612-2499
If to Borrower: Hoover Containment, Inc.
c/o Containment Solutions, Inc.
1360 Post Oak Boulevard, Suite 2470
Houston, Texas 77056
Attention: Stephen T. Harcrow
Facsimile No.: (713) 627-0937
With a copy to: Hutcheson & Grundy, L.L.P.
Citicorp Center
1200 Smith, Suite 1200
Houston, Texas 77002-4579
Attention: Allen B. Craig, Esq.
Facsimile No: (713) 951-2925
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<PAGE> 35
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2
hereof shall not be effective until received by Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits
Lender to respond to usual and customary credit inquiries from third parties
concerning Borrower, provided that, under such circumstances, Lender shall
preserve in confidence the specific terms of this transaction and financial
information given by Borrower to Lender in confidence.
11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by
the parties in connection therewith or with reference thereto, embody the
entire understanding and agreement between the parties hereto and thereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and inducements, whether express or implied, oral or
written.
11.13 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA; THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR
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<PAGE> 36
INCONSISTENT WITH THE LAWS OF CALIFORNIA. AS PART OF THE CONSIDERATION FOR NEW
VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL
PLACE OF BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES
THAT THE SUPERIOR COURT OF LOS ANGELES COUNTY, OR, AT LENDER'S OPTION, THE
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT
OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED
OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY
JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER
THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL
BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT,
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EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD: (iii) NOTICE PRIOR TO TAKING POSSESSION
OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (IV)
THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE
OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A
MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER.
BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS
WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS THEREOF, this Agreement has been duly executed in Los
Angeles, California, on the day and year specified at the beginning of this
Agreement.
HOOVER CONTAINMENT, INC.
("Borrower")
By: /s/ STEPHEN T. HARCROW
---------------------------------
Title: President
------------------------------
Accepted in Los Angeles, California:
SHAWMUT CAPITAL CORPORATION
("Lender")
By: /s/ LAURENCE F. AUSBORN
--------------------------------
Title: Sr. Vice President
------------------------------
34
<PAGE> 38
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as Of
October __, 1995, by and between Shawmut Capital Corporation and Hoover
Containment, Inc., the following terms shall have the following meanings
(terms defined in the singular to have the same meaning when used in the plural
and vice versa):
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter
acquired any interest.
Affiliate - a Person (other than a Subsidiary); (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, a Person; (ii)
which beneficially owns or holds 5% or more of any class of the Voting
Stock of a Person; or (iii) 5% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 5% or more of the equity
interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in
the first sentence of this Appendix A, all Exhibits thereto and this
Appendix A.
Acquisition - the purchase by Borrower of substantially all of
the assets of Hoover Containment Systems, Inc. pursuant to the
Purchase Documents.
Availability - the amount of money which Borrower is entitled
to borrow from time to time as Revolving Credit Loans, such amount
being the difference derived when the sum of the principal amount of
Revolving Credit Loans then outstanding (including any amounts which
Lender may have paid for the account of Borrower pursuant to any of
the Loan Documents and which have not been reimbursed by Borrower) and
the Term Notes are subtracted from the Borrowing Base. If the amount
outstanding is equal to or greater than the Borrowing Base,
Availability is 0.
Bank - Shawmut Bank Connecticut, N.A. or its successors and
assigns.
Base Rate - the rate of interest generally announced or quoted
by Bank from time to time as its base rate for commercial loans,
whether or not such rate is the lowest rate charged by Bank to its
most preferred borrowers; and if such base rate for commercial loans
is discontinued by Bank as a standard, a comparable reference rate
designated by Bank as a substitute therefor shall be the Base Rate.
<PAGE> 39
Borrowing Base - as at any date of determination thereof, an
amount equal to the lesser of:
(i) $6,500,000 minus the unpaid principal balance
of the Term Loans at such date; or
(ii) an amount equal to:
(a) 85% of the net amount of
Eligible Accounts outstanding at such date;
PLUS
(b) the lesser of (1) $1,500,000
or (2) 100% of the value of Eligible
Inventory consisting of raw materials, 100%
of the value of Eligible Inventory consisting
of vault tank finished goods, 100% of the
value of Eligible Inventory consisting of
vault tank work in process (limited in the
case of vault tank work in process inventory
to $200,000), and 65% of Eligible Inventory
consisting of lube cube finished goods, all
at such date calculated on the basis of the
lower of cost or market with the cost of raw
materials and finished goods calculated on a
first-in, first-out basis.
For purposes hereof, the net amount of Eligible Accounts at
any time shall be the face amount of such Eligible Accounts less any
and all returns, rebates, discounts (which may, at Lender's option, be
calculated on shortest terms), credits, allowances or excise taxes of
any nature at any time issued, owing, claimed by Account Debtors,
granted, outstanding or payable in connection with such Accounts at
such time.
Business Day - any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of California or
the State of Illinois or is a day on which banking institutions
located in either of such states are closed.
Capital Expenditures - expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a useful
life of more than one year, including the total principal portion of
Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented
by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
Cash Flow - Net income plus depreciation and amortization less
capital expenditures.
Closing Date - the date on which all of the conditions
precedent in Section 9 of the Agreement are satisfied and the initial
Loan is made under the Agreement.
2
<PAGE> 40
Code - the Uniform Commercial Code as adopted and in force in
the State of California as from time to time in effect.
Collateral - all of the Property and interests in Property
described in Section 5 of the Agreement, and all other Property and
interests in Property that now or hereafter secure the payment and
performance of any of the Obligations.
Consolidated - the consolidation in accordance with GAAP of
the accounts or other items as to which such term applies.
Current Assets - at any date means the amount at which all of
the current assets of a Person would be properly classified as current
assets shown on a balance sheet at such date in accordance with GAAP
except that amounts due from Affiliates and investments in Affiliates
shall be excluded therefrom.
Current Liabilities - at any date means the amount at which
all of the current liabilities of a Person would be properly
classified as current liabilities shown on a balance sheet at such
date in accordance with GAAP.
Debt Coverage Ratio - for any period, equals Cash Flow for
such period divided by the current portion of long-term debt payable
during such period.
Default - an event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, become
an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Distribution - in respect of any corporation means and
includes: (i) the payment of any dividends or other distributions on
capital stock of the corporation (except distributions in such
stock) and (ii) the redemption or acquisition of Securities unless made
contemporaneously from the net proceeds of the sale of Securities.
Dominion Account - a special account of Lender established by
Borrower pursuant to the Agreement at a bank selected by Borrower, but
acceptable to Lender in its reasonable discretion, and over which
Lender shall have sole and exclusive access and control for withdrawal
purposes.
EBIT - with respect to any fiscal period, the sum of
Borrower's Consolidated net earnings (or loss) before interest expense
and taxes for said period as determined in accordance with GAAP.
Eligible Account - an Account arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services
which Lender, in its sole credit judgment, deems to be an Eligible
Account. Without limiting the generality of the foregoing, no Account
shall be an Eligible Account if:
3
<PAGE> 41
(i) it arises out of a sale made by Borrower to
an Affiliate of Borrower or to a Person controlled by an Affiliate of
Borrower; or
(ii) it is due or unpaid for more than 90 days
after the original invoice date; or
(iii) 50% or more of the Accounts from the Account
Debtor are not deemed Eligible Accounts hereunder; or
(iv) the total unpaid Accounts of the Account
Debtor exceed 10% of the net amount of all Eligible Accounts, to the
extent of such excess; or
(v) any covenant, representation or warranty
contained in the Agreement with respect to such Account has been
breached; or
(vi) the Account Debtor is also Borrower's
creditor or supplier, or the Account Debtor has disputed liability
with respect to such Account, or the Account Debtor has made any claim
with respect to any other Account due from such Account Debtor to
Borrower, or the Account otherwise is or may become subject to any
right of setoff by the Account Debtor; or
(vii) the Account Debtor has commenced a voluntary
case under the federal bankruptcy laws, as now constituted or
hereafter amended, or made an assignment for the benefit of creditors,
or a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an
involuntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or any other petition or other application for
relief under the federal bankruptcy laws has been filed against the
Account Debtor, or if the Account Debtor has failed, suspended
business, ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or
for all or a significant portion of its assets or affairs; or
(viii) it arises from a sale to an Account Debtor
outside the United States, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case acceptable to Lender in its
sole discretion; or
(ix) it arises from a sale to the Account Debtor
on a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or return basis;
or
(x) the Account Debtor is the United States of
America or any department, agency or instrumentality thereof, unless
Borrower assigns its right to payment of such Account to Lender, in a
manner satisfactory to Lender, so as to comply with the Assignment of
Claims Act of 1940 (31 U.S.C. Section 203 et seq., as amended); or
4
<PAGE> 42
(xi) the Account is subject to a Lien other than a
Permitted Lien; or
(xii) the goods giving rise to such Account have
not been delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been performed by
Borrower and accepted by the Account Debtor or the Account otherwise
does not represent a final sale; or
(xiii) the Account is evidenced by chattel paper or
an instrument of any kind, or has been reduced to judgment; or
(xiv) Borrower has made any agreement with the
Account Debtor for any deduction therefrom, except for discounts or
allowances which are made in the ordinary course of business for
prompt payment and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such Account;
or
(xv) Borrower has made an agreement with the
Account Debtor to extend the time of payment thereof.
Eligible Inventory - such Inventory of Borrower (other than packaging
materials and supplies) which Lender, in its sole credit judgment, deems to be
Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:
(i) it is not raw materials or finished goods, or
work-in-process that is, in Lender's opinion, readily marketable in
its current form; or
(ii) it is not in good, new and saleable condition;
or
(iii) it is slow-moving, obsolete or unmerchantable;
or
(iv) it does not meet all standards imposed by any
governmental agency or authority; or
(v) it does not conform in all respects to the
warranties and representations set forth in the Agreement,
(vi) it is not at all times subject to Lender's
duly perfected, first priority security interest and no other Lien
except a Permitted Lien; or
(vii) it is not situated at a location in
compliance with the Agreement or is in transit.
5
<PAGE> 43
Environmental Laws - all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders
and consent decrees relating to health, safety and environmental
matters.
Equipment - all machinery, apparatus, equipment, fittings,
furniture, fixtures, motor vehicles and other tangible personal
Property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower or in which Borrower has an
interest, whether now owned or hereafter acquired by Borrower and
wherever located, and all parts, accessories and special tools and all
increases and accessions thereto and substitutions and replacements
therefor.
ERISA - the Employee Retirement Income Security Act of 1974,
as amended, and all rules and regulations from time to time
promulgated thereunder.
Eurodollar Business Day - means any Business Day on which
commercial lending institutions are open for international business
(including dealings in United States Dollar deposits) in London.
Event of Default - as defined in Section 10.1 of the
Agreement.
Excess Cash Flow - with respect to any fiscal period of
Borrower, 50% of the amount derived by adding to EBIT for such fiscal
period depreciation, amortization and deferred taxes for such fiscal
period and subtracting from such sum regularly scheduled payments of
principal on Indebtedness for Money Borrowed and Capital Expenditures
which are not financed for such fiscal period.
GAAP - generally accepted account principles in the United
States of America in effect from time to time.
General Intangibles - all personal property of Borrower
(including things in action) other than goods, Accounts, chattel
paper, documents, instruments and money, whether now owned or
hereafter created or acquired by Borrower.
Guarantor - Fluid Containment Property Company and any other
Person who may hereafter guarantee payment or performance of the whole
or any part of the Obligations.
Guaranty Agreement - The Continuing Guaranty Agreement which
is to be executed by Guarantor in form and substance satisfactory to
Lender and which shall be released, provided no Event of Default then
exists, upon the payment of Term Loan "B" down to $700,000.
Indebtedness - as applied to a Person means, without
duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the
liability side of a
6
<PAGE> 44
balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without
limitation, Capitalized Lease Obligations,
(ii) all obligations of other Persons which such
Person has guaranteed,
(iii) all reimbursement obligations in connection
with letters of credit or letter of credit guaranties issued
for the account of such Person, and
(iv) in the case of Borrower (without duplication),
the Obligations.
Interest Coverage Ratio - earnings before interest, taxes,
depreciation and amortization divided by interest expense.
Interest Rate Reduction Test - at any time, as it applies to
subsection 2.1.1 hereof, (i) there shall be no Default or Event of
Default, (ii) Lender shall have timely received Borrower's fiscal year
end audited financial statements and determined from such financial
statements that Borrower's net income (as determined in accordance
with GAAP) for the subject fiscal year was not less than $725,000, and
(iii) Borrower shall have established a perpetual inventory system
acceptable to Lender in its discretion.
Inventory - all of Borrower's inventory, whether now owned or
hereafter acquired including, but not limited to, all goods intended
for sale or lease by Borrower, or for display or demonstration; all
work in process; all raw materials and other materials and supplies of
every nature and description used or which might be used in connection
with the manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or
consumed in Borrower's business; and all documents evidencing and
General Intangibles relating to any of the foregoing, whether now
owned or hereafter acquired by Borrower.
LIBOR - means the rate per annum offered by Bank at 11:00
a.m. (London time) in the London interbank market, for Eurodollar
deposits for a period of one (1) month, as quoted on the Reuters
Screen LIBO Page on the second full Eurodollar Business Day (as
defined below) preceding the date with respect to which such
calculation is being made (or if such rate is no longer being quoted
on the Reuters Screen LIBO Page, as quoted in such other publications
as may be designated by Lender), rounded upwards, if necessary to the
nearest one-sixteenth of one percent (0.0625%).
Lien - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on common law, statute or contract. The
term "Lien" shall also include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, Borrower shall
be deemed to be the owner of any
7
<PAGE> 45
Property which it has acquired or holds subject to a conditional sale
agreement or other arrangement pursuant to which title to the Property
has been retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established on the books of
Lender pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the
Security Documents.
Loans - all loans and advances of any kind made by Lender
pursuant to the Agreement.
Money Borrowed - means (i) Indebtedness arising from the
lending of money by any Person to Borrower; (ii) Indebtedness, whether
or not in any such case arising from the lending by any Person of
money to Borrower, (A) which is represented by notes payable or drafts
accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar
instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or
partial payment for Property; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations with
respect to letters of credit or guaranties of letters of credit and
(v) Indebtedness of Borrower under any guaranty of obligations that
would constitute Indebtedness for Money Borrowed under clauses (i)
through (iii) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
Obligations - all Loans and all other advances, debts,
liabilities, obligations, covenants and duties, together with all
interest, fees and other charges thereon, owing, arising, due or
payable from Borrower to Lender of any kind or nature, present or
future, whether or not evidenced by any note, guaranty or other
instrument, whether arising under the Agreement or any of the other
Loan Documents or otherwise whether direct or indirect (including
those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising and
however acquired.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and
documents (other than the Agreement and the Security Documents),
including but not limited to the Commitment Letter dated October 17,
1995 heretofore, now or hereafter executed by Borrower, or any other
third party and delivered to Lender in respect of the transactions
contemplated by the Agreement.
8
<PAGE> 46
Overadvance - the amount, if any, by which the outstanding
principal amount of Revolving Credit Loans exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the
right by Lender to participate in any of the Loans described in the
Agreement and who shall have entered into a participation agreement in
form and substance satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subsection
8.2.5 of the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money
Indebtedness of Borrower incurred after the date hereof which is
secured by a Purchase Money Lien and which, when aggregated with the
principal amount of all other such Indebtedness and Capitalized Lease
Obligations of Borrower at the time outstanding, does not exceed
$100,000. For the purposes of this definition, the principal amount of
any Purchase Money Indebtedness consisting of capitalized leases shall
be computed as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited
liability company, joint stock company, land trust, business trust, or
unincorporated organization, or a government or agency or political
subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained
for employees of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted (a) balance sheets, (b)
profit and loss statements, (c) cash flow statements, and (d)
capitalization statements, all prepared on a consistent basis with
Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
Property - any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
Purchase Documents - the Asset Purchase Agreement dated
October 12, 1995, by and between Hoover Group, Inc. and Hoover
Containment Systems, Inc., as sellers, and Borrower, as purchaser, and
all documents and instruments to be executed or delivered in
connection therewith.
Purchase Money Indebtedness - means and includes (i)
Indebtedness (other than the Obligations) for the payment of all or
any part of the purchase price of any fixed assets, (ii) any
Indebtedness (other than the Obligations) incurred at the time of or
within 10 days prior to or after the acquisition of any fixed assets
for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof,
but not any increases in the principal amounts thereof outstanding at
the time.
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<PAGE> 47
Purchase Money Lien - a Lien upon fixed assets which secures
Purchase Money Indebtedness, but only if such Lien shall at all times
be confined solely to the fixed assets the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness
secured by such Lien.
Rentals - as defined in subsection 8.2.12 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section
4043(b) of ERISA.
Restricted Investment - any investment made in cash or by
delivery of Property to any Person, whether by acquisition of stock,
Indebtedness or other obligation or Security, or by loan, advance or
capital contribution, or otherwise, or in any Property except the
following:
(i) Property to be used in the ordinary course of
business;
(ii) Current Assets arising from the sale of goods
and services in the ordinary course of business of Borrower;
(iii) investments in direct obligations of the
United States of America, or any agency thereof or
obligations guaranteed by the United States of America,
provided that such obligations mature within one year from
the date of acquisition thereof;
(iv) investments in certificates of deposit maturing
within one year from the date of acquisition issued by a bank
or trust company organized under the laws of the United
States or any state thereof having capital surplus and
undivided profits aggregating at least $100,000,000; and
(v) investments in commercial paper given the
highest rating by a national credit rating agency and
maturing not more than 270 days from the date of creation
thereof.
Revolving Credit Loan - a Loan made by Lender as provided in
Section 3.1 of the Agreement.
Schedule of Accounts - as defined in subsection 6.2.1 of the
Agreement.
Security - shall have the same meaning as in Section 2(l) of
the Securities Act of 1933, as amended.
Security Documents - the Guaranty Agreement and all other
instruments and agreements now or at any time hereafter securing the
whole or any part of the Obligations.
10
<PAGE> 48
Solvent - as to any Person, such Person (i) owns Property
whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent debts), (ii)
is able to pay all of its Indebtedness as such Indebtedness matures
and (iii) has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to
engage.
Subordinated Debt - Indebtedness of Borrower that is
subordinated to the Obligations in a manner satisfactory to Lender.
Subsidiary - any corporation of which a Person owns, directly
or indirectly through one or more intermediaries, more than 50% of the
Voting Stock at the time of determination.
Systems Operating Statements - operating statements of
Systems for fiscal years 1993 and 1994 and the year to date through
the end of September 1995.
Tangible Net Worth - equity plus Subordinated Debt minus
other current assets minus other noncurrent assets (excluding
leasehold improvements) prepayments intangibles (excluding patents)
and notes receivable.
Term Loans - the Loans described in subsections 1.2.1 and
1.2.2 of the Agreement.
Term Notes - the Secured Promissory Notes to be executed by
Borrower on or about the Closing Date in favor of Lender to evidence
the Term Loans, which shall be in the form of Exhibit 1.2.1 to the
Agreement.
Total Credit Facility - $6,500,000.
Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors
(or Persons performing similar functions).
Working Capital - Current Assets minus Current Liabilities.
Other Terms. All other terms contained in the Agreement shall
have, when the context so indicates, the meanings provided for by the
Code to the extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to the
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders.
The section titles, table of contents and list of exhibits appear as a
matter of convenience only and shall not affect the interpretation of
the Agreement. All references to statutes and related regulations
shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include
any and all modifications thereto and any and all extensions or
renewals thereof.
11
<PAGE> 49
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Term Note-A
Exhibit B Term Note-B
Exhibit 6.1.1 Borrower's Business Locations
Exhibit 7.1.1 Jurisdictions in which Borrower is Authorized to do Business
Exhibit 7.1.4 Capital Structure of Borrower
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(a) Capitalized Leases
Exhibit 7.1.22(b) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.5 Permitted Liens
</TABLE>
12
<PAGE> 1
EXHIBIT 4.05
- --------------------------------------------------------------------------------
ERSHIGS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
Dated: February 28, 1997
$6,500,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEET CAPITAL CORPORATION
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. CREDIT FACILITY ......................................................... 1
1.1 Revolving Credit Loans................................................... 1
1.2 Term..................................................................... 2
SECTION 2. INTEREST, FEES AND CHARGES............................................... 4
2.1 Interest................................................................. 4
2.2 Computation of Interest and Fees......................................... 6
2.3 Closing Fee.............................................................. 6
2.4 Unused Line Fee.......................................................... 7
2.5 Collection Charges....................................................... 7
2.6 Reimbursement of Expenses................................................ 7
2.7 Bank Charges............................................................. 8
SECTION 3. LOAN ADMINISTRATION...................................................... 9
3.1 Manner of Borrowing Revolving Credit Loans............................... 9
3.2 Payments................................................................. 10
3.3 Mandatory Prepayments.................................................... 12
3.4 Application of Payments and Collections.................................. 13
3.5 All Loans to Constitute One Obligation................................... 14
3.6 Loan Account............................................................. 14
3.7 Statements of Account.................................................... 14
SECTION 4. TERM AND TERMINATION..................................................... 15
4.1 Term of Agreement........................................................ 15
4.2 Termination.............................................................. 15
SECTION 5. SECURITY INTERESTS....................................................... 20
5.1 Security Interest in Collateral.......................................... 20
5.2 Lien Perfection; Further Assurances...................................... 21
SECTION 6. COLLATERAL ADMINISTRATION................................................ 22
6.1 General.................................................................. 22
6.2 Administration of Accounts............................................... 23
6.3 Administration of Inventory.............................................. 26
6.4 Administration of Equipment.............................................. 27
6.5 Payment of Charges....................................................... 28
SECTION 7. REPRESENTATIONS AND WARRANTIES........................................... 28
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
7.1 General Representations and Warranties................................... 28
7.2 Continuous Nature of Representations and Warranties...................... 38
7.3 Survival of Representations and Warranties............................... 39
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS...................................... 39
8.1 Affirmation Covenants.................................................... 39
8.2 Negative Covenants....................................................... 43
8.3 Specific Financial Covenants............................................. 48
SECTION 9. CONDITIONS PRECEDENT..................................................... 51
9.1 ......................................................................... 51
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT........................ 56
10.1 Events of Default........................................................ 56
10.2 Acceleration of the Obligations.......................................... 60
10.3 Other Remedies........................................................... 61
10.4 Remedies Cumulative; No Waiver........................................... 63
SECTION 11. MISCELLANEOUS............................................................ 64
11.1 Power of Attorney........................................................ 64
11.2 Indemnity................................................................ 65
11.3 Modification of Agreement; Sale of interest.............................. 66
11.4 Severability............................................................. 67
11.5 Successors and Assigns................................................... 67
11.6 Cumulative Effect; Conflict of Terms..................................... 67
11.7 Execution in Counterparts................................................ 67
11.8 Notice................................................................... 68
11.9 Lender's Consent......................................................... 69
11.10 Credit Inquiries......................................................... 70
11.11 Time of Essence.......................................................... 70
11.12 Entire Agreement......................................................... 70
11.13 Interpretation........................................................... 70
11.14 GOVERNING LAW; CONSENT TO FORUM.......................................... 70
11.15 WAIVERS BY BORROWER...................................................... 72
</TABLE>
<PAGE> 4
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 28th day of February,
1997, by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island
corporation with an office at 15260 Ventura Boulevard, Suite 1200, Sherman
Oaks, California 91403; and ERSHIGS, INC. ("Borrower"), a Washington
corporation with its chief executive office and principal place of business at
742 Marine Drive, Bellingham, Washington 98225. Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General
Definitions. Accounting terms not otherwise specifically defined herein shall
be construed in accordance with GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $6,500,000
available upon Borrower's request therefor, as follows:
1.1 REVOLVING CREDIT LOANS.
1.1.1 Loans and Reserves. Lender agrees, for so
long as no Default or Event of Default exists, to make Revolving Credit Loans
to Borrower from time to time, as requested by Borrower in the manner set forth
in subsection 3.1.1 hereof, up to a maximum principal amount at any time
outstanding equal to the Borrowing Base at such time
<PAGE> 5
minus, without duplication, reserves, if any. Lender shall have the right to
establish reserves in such amounts, and with respect to such matters, as Lender
shall deem necessary or appropriate, against the amount of Revolving Credit
Loans which Borrower may otherwise request under this subsection 1.1.1,
including, without limitation, with respect to (i) price adjustments, damages,
unearned discounts, returned products or other matters for which credit
memoranda are issued in the ordinary course of Borrower's business; (ii)
shrinkage, spoilage and obsolescence of Inventory; (iii) slow moving Inventory;
(iv) other sums chargeable against Borrower's Loan Account as Revolving Credit
Loans under any section of this Agreement; (v) amounts owing by Borrower to any
Person to the extent secured by a Lien on, or trust over, any property of
Borrower; and (vi) such other matters, events, conditions or contingencies as
to which Lender, in its sole credit judgment, determines reserves should be
established from time to time hereunder.
1.1.2 Use of Proceeds. The Revolving Credit Loans
shall be used solely for the acquisition by Borrower of the stock of Borrower
by Specialty Solutions, Inc. ("SSI") pursuant to a Stock Purchase and Sale
Agreement dated on February 14, 1997 (the "Stock Purchase Agreement") and for
Borrower's general operating capital needs in a manner consistent with the
provisions of this Agreement and all applicable laws.
1.2 Term Loans.
1.2.1 Term Loan A. Lender agrees to make a term
loan to Borrower on the Closing Date in a principal amount equal to the lesser
of up to (i) $600,000
<PAGE> 6
and (ii) 100% of the liquidation value of unencumbered machinery and equipment,
as determined by Lender in the exercise of its reasonable credit judgment,
which shall be repayable in accordance with the terms of the Term Note A and
shall be secured by all of the Collateral. The proceeds of the Term Loan A
shall be used solely for purposes for which the proceeds of the Revolving
Credit Loans are authorized to be used and shall be a subline thereof.
1.2.2 Term Loan B. Lender agrees to make a further
term loan to Borrower on the Closing Date in a principal amount equal to the
lesser of up to (i) $ 1,100,000 and (ii) 99% of the fair market value of
unencumbered real estate, as determined by Lender in the exercise of its
reasonable credit judgment, which shall be repayable in accordance with the
terms of the Term Note B and shall be secured by all of the Collateral. The
proceeds of the Term Loan B shall be used solely for purposes for which the
proceeds of the Revolving Credit Loans are authorized to be used and shall be a
subline thereof.
1.2.3 Intentionally Omitted.
1.2.4 Letter Of Credit. Lender shall provide a
standby Letter of Credit Facility of up to $1,000,000. A reserve of 100% shall
be charged against Availability. The Letter of Credit Facility is a subline of
the Revolving Credit Loans.
1.2.5 Capital Expenditure Facility. Lender shall
provide a five year capital expenditure facility (the "Capex Facility") to fund
the acquisition of new or used
<PAGE> 7
equipment of up to the lesser of (i) $1,500,000 and (ii) 80% of the purchase
price for such new or used equipment, exclusive of taxes, licenses, delivery
and installation expenses. The valuation of the equipment shall be determined
by Lender in the exercise of its reasonable credit judgment. The Capex
Facility is a subline of the Revolving Credit Loans. At the end of each ninety
day period, the then outstanding balance of the Capex Facility shall be
converted to a promissory note (each a "Capex Note" and collectively, "Capex
Notes"), substantially in the form of Exhibit 1.2.5 hereto, payable in equal
monthly installments of principal, amortized over a period of eighty four
months.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest. Interest shall accrue on
each of Term Loan A, Term Loan B and the Capex Facility at a fluctuation rate
per annum equal to (at Borrower's election) either (i) the Base Rate plus 1.25%
or (ii) LIBOR plus 400 basis points and otherwise in accordance with the terms
of the respective Term Notes and Capex Notes. Interest shall accrue on the
principal amount of the Revolving Credit Loans outstanding at the end of each
day at a fluctuating rate per annum equal to (at Borrower's election) either
(i) the Base Rate plus 1% or (ii) LIBOR plus 375 basis points. LIBOR interest
rates shall be based on a thirty-day reserve adjusted LIBOR. The rate of
interest shall increase or decrease by an amount equal to any increase or
decrease in the LIBOR rate, effective as of the opening of
<PAGE> 8
business on the day that any such change in LIBOR occurs.
The foregoing rates of interest shall be subject to up to two 0.25%
reductions, if a Base Rate interest rate is in effect and of up to two 25 basis
points reduction if a LIBOR interest rate is in effect, effective upon receipt
by Lender of Borrower's audited June 30, 1997 and June 30, 1998 fiscal year end
financial statements which reflect, provided in each case that (i) no Default
or Event of Default has occurred and is continuing as of such date, (ii) that
for fiscal year end June 30, 1997 Borrower has achieved EBIT of $163,000 and/or
for fiscal year end June 30, 1998 Borrower has achieved EBIT of $1,091,000 or
(iii) for any succeeding June 30 fiscal year end has achieved EBIT of
$1,699,000.
The standy Letter of Credit Facility shall be subject to a charge of 2
1/2% per annum of the face amount of such letter of credit as issued or
amended, inclusive of any indemnity fee charged to Lender by the issuer, with a
minimum payment of $500 to Lender, payable upon issuance. In addition,
Borrower shall pay to Lender the following fees, payable as indicated: (i) $150
upon issuance of a letter of credit, (ii) $150 upon any amendment to the letter
of credit, (iii) 1/4 of 1%, with a minimum payment of $150, of the face amount
of the letter of credit upon its negotiation or payment, (iv) $35 for each wire
transfer of funds, and (v) all out of pocket expenses of Lender such as telex
charges, postage, courier service and the like.
2.1.2 Default Rate of Interest. Upon and after the
occurrence of an Event of Default, and during the continuation thereof,
effective upon the serving of notice by Lender to Borrower, (i) the principal
amount of all Revolving Credit Loans shall
<PAGE> 9
bear interest at a fluctuating rate per annum equal to 4% plus the Base Rate
and the principal amount of Term Loan "A", Term Loan "B", Term Loan "C" and the
Capex Facility shall each bear interest at a fluctuating rate per annum equal
to 4.25% plus the Base Rate, (the "Default Rate"). While the Default Rate is
in effect, the LIBOR option shall not be applicable.
2.1.3 Maximum Interest. In no event whatsoever
shall the aggregate of all amounts deemed interest hereunder or under the Term
Notes and Capex Notes and charged or collected pursuant to the terms of this
Agreement or pursuant to the Term Notes and Capex Notes exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. If any provisions of this
Agreement, the Term Notes and Capex Notes are in contravention of any such law,
such provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest, letter of credit
charges and unused line fees hereunder shall be calculated daily and shall be
computed on the actual number of days elapsed over a year of 360 days. For the
purpose of computing interest hereunder, all items of payment received by
Lender shall be deemed applied by Lender on account of the Obligations (subject
to final payment of such items) on the second Business Day after receipt by
Lender of such items in Lender's account located in Chicago, Illinois.
2.3 Closing Fee. Borrower shall pay to Lender a closing fee of
$65,000, which shall be fully earned and nonrefundable on the Closing Date and
shall be paid concurrently with the initial Loan hereunder. The deposit of
$45,000 heretofore paid to Lender shall be
<PAGE> 10
credited, net of Lender's Costs, to the Closing Fee.
2.4 Unused Line Fee. Borrower shall pay to Lender a fee equal to
0.5% per annum of the average monthly amount by which the Total Credit Facility
exceeds the sum of the outstanding principal balance of the Revolving Credit
Loans and the Term Loans. The unused line fee shall be payable monthly in
arrears on the first day of each calendar month hereafter.
2.5 Collection Charges. If items of payment are received by
Lender at a time when there are no Revolving Credit Loans outstanding, such
items of payment shall be subject to a collection charge equal to two Business
Days' interest on the amount thereof at the rate then applicable to Revolving
Credit Loans, which collection charges shall be payable on the first Business
Day of each month.
2.6 Reimbursement of Expenses. If, at any time or times
regardless of whether or not an Event of Default then exists, Lender or any
Participating Lender incurs legal or accounting expenses or any other costs or
out-of-pocket expenses in connection with (i) the negotiation and preparation
of this Agreement or any of the other Loan Documents, including all search,
recording, filing real property title searches and policies and the like, any
amendment of or modification of this Agreement or any of the other Loan
Documents, or any sale or attempted sale of any interest herein to a
Participating Lender; (ii) the administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby;
(iii) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Lender, Borrower or any other Person, and if, as between Lender
and Borrower, only in
<PAGE> 11
the context of litigation, if Lender is the prevailing party) in any way
relating to the Collateral, this Agreement or any of the other Loan Documents
or Borrower's affairs; (iv) any attempt to enforce any rights of Lender or any
Participating Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (v) any
attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral, including but
not limited to any expenses and costs incurred by Lender in connection with the
audits and appraisals of Borrower's books, records and the Collateral, wherever
located, and in the administration of this Agreement; then all such legal and
accounting expenses, other costs and out of pocket expenses of Lender
("Lender's Costs") shall be charged to Borrower. All amounts chargeable to
Borrower under this Section 2.8 shall be Obligations secured by all of the
Collateral, shall be payable on demand to Lender or to such Participating
Lender, as the case may be, and shall bear interest from the date such demand
is made until paid in full at the rate applicable to Revolving Credit Loans
from time to time. Borrower shall also reimburse Lender for expenses incurred
by Lender in its administration of the Collateral to the extent and in the
manner provided in Section 6 hereof.
2.7 Bank Charges. Borrower shall pay to Lender, on demand, any
and all fees, costs or expenses which Lender or any Participating Lender pays
to a bank or other similar institution (including, without limitation, any fees
paid by Lender to any Participating Lender) arising out of or in connection
with (i) the forwarding to Borrower or any other Person on behalf of Borrower,
by Lender or any Participating Lender, of proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (ii) the depositing for collection, by
<PAGE> 12
Lender or any Participating Lender, of any check or item of payment received or
delivered to Lender or any Participating Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under
the credit facility established pursuant to Section 1 hereof shall be as
follows:
3.1.1 Loan Requests. On the Closing Date Lender
shall make the Term Loans. A request for a Revolving Credit Loan shall be
made, or shall be deemed to be made, in the following manner: (i) Borrower may
give Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date,
no later than 10:00 a.m. Pacific time on the proposed borrowing date, provided,
however, that Lender, at its option, may refuse such request at a time when
there exists a Default or an Event of Default; and (ii) the becoming due of any
amount required to be paid under this Agreement, the Term Notes or any note
issued pursuant to the Capital Expenditure Facility, whether as interest or for
any other Obligation, shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount required to pay such
interest or other Obligation. As an accommodation to Borrower, Lender may
permit telephonic requests for loans and electronic transmittal of
instructions, authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to accept or act
upon telephonic or electronic communications from Borrower, Lender shall have
no liability to Borrower for any loss or damage suffered by Borrower as a
<PAGE> 13
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to Lender by
Borrower and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
3.1.2 Disbursement. Borrower hereby irrevocably
authorizes Lender to disburse the proceeds of each Revolving Credit Loan
requested, or deemed to be requested, pursuant to this subsection 3.1.2 as
follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 3.1.1(i) shall be disbursed by Lender in lawful money of the
United States of America in immediately available funds, in the ease of the
initial borrowing, in accordance with the terms of the written disbursement
letter from Borrower, and in the case of each subsequent borrowing, by wire
transfer to such bank account as may be agreed upon by Borrower and Lender from
time to time or elsewhere if pursuant to a written direction from Borrower; and
(ii) the proceeds of each Revolving Credit Loan requested under subsection
3.1.1(ii) shall be disbursed by Lender by way of direct payment of the relevant
interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably
authorizes Lender, in Lender's sole discretion, to advance to Borrower, and to
charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum
sufficient to pay all interest accrued on the Obligations during the
immediately preceding month and to pay all costs, fees and expenses at any time
owed by Borrower to Lender hereunder.
<PAGE> 14
3.2 Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 3.2 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
Obligation shall be payable as follows:
3.2.1 Principal. Principal payable on account of
Revolving Credit Loans shall be payable by Borrower to Lender immediately upon
the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of
the Collateral other than Equipment or real property, to the extent of said
proceeds, (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations, or
(iii) termination of this Agreement pursuant to Section 4 hereof; provided,
however, that if an Overadvance shall exist at any time, Borrower shall, on
demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on the Revolving Credit
Loans shall be due on the earliest of (i) the first calendar day of each month
(for the immediately preceding month), computed through the last calendar day
of the preceding month, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of
the Obligations or (iii) termination of this Agreement pursuant to Section 4
hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges
payable pursuant to this Agreement shall be payable by Borrower as and when
provided in Section 2 hereof, to Lender or to any other Person designated by
Lender in writing.
<PAGE> 15
3.2.4 Other Obligations. The balance of the Obligations
requiring the payment of money, if any, shall be payable by Borrower to Lender
as and when provided in this Agreement, the Other Agreements or the Security
Documents, or on demand, whichever is later.
3.3 Mandatory Prepayments.
3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation
of Collateral. Except as provided in subsection 6.4.2 hereof, if Borrower
sells any of the Equipment or real property, or if any of the Collateral is
lost or destroyed or taken by condemnation, Borrower shall pay to Lender,
unless otherwise agreed by Lender, as and when received by Borrower and as a
mandatory prepayment of the Term Loans and Capex Note(s), a sum equal to the
proceeds (including insurance payments) received by Borrower from such sale,
loss, destruction or condemnation, which sum shall be applied among the Term
Loans and the Capex Note(s), at Lender's sole discretion, in the inverse order
of maturity.
Notwithstanding anything to the contrary contained herein, Lender
agrees that Borrower may dispose of the real and personal property listed
below, provided that Borrower is not then in default under the Agreement and
with respect to the machinery and equipment, substantially all thereof is
disposed of in a single sale, by payment to Lender of an amount not less than
as indicated for each such item of property:
<PAGE> 16
<TABLE>
<CAPTION>
Location Release amount
-------- --------------
<S> <C>
Machinery and Equipment
Wilson, North Carolina $110,000
Bellingham, Washington 250,000
Gatesville, Texas 180,000
Real Estate
Wilson, North Carolina $550,000
Bellingham, Washington 500,000
Gatesville, Texas 700,000
</TABLE>
Release prices for individual items of machinery and equipment,
including those at outside locations, shall be determined on a case by case
basis as Borrower and Lender shall mutually agree.
3.3.2 Excess Cash Flow Recapture. Borrower shall pay to
Lender an amount equal to 50% of Excess Cash Flow to be applied in inverse
order of maturity to or among Term Note "A", Term Note "B" and the Capex
Note(s) as Lender shall determine in its sole discretion with respect to each
fiscal year of Borrower during the Original Term hereof. Borrower's payments
to Lender of 50% of Excess Cash Flow shall begin eighteen months after the
Closing Date. Payments of Excess Cash Flow to Lender shall be made within two
Business Days following the due date for delivery by Borrower to Lender of the
annual financial statements required by subsection 8.1.3(i) hereof.
3.4 Application of Payments and Collections. All items of payment
received by
<PAGE> 17
Lender shall be applied for purposes of computing interest (subject to Section
2.2 hereof) on the second Business Day such payment is received. Borrower
irrevocably waives the right to direct the application of any and all payments
and collections at any time or times hereafter received by Lender from or on
behalf of Borrower, and Borrower does hereby irrevocably agree that Lender
shall have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by Lender or
its agent against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as
the result of collections of Accounts as authorized by subsection 6.2.6 hereof
a credit balance exists in the Loan Account, such credit balance shall not
accrue interest in favor of Borrower, but shall be available to Borrower at any
time or times.
3.5 All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrower, and shall be secured by Lender's
Lien upon all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower monthly
with a statement of Loans, charges and payments made pursuant to this
Agreement, and such account
<PAGE> 18
rendered by Lender shall be deemed final, binding and conclusive upon Borrower
unless Lender is notified by Borrower in writing to the contrary within 30 days
of the date each accounting is mailed to Borrower. Such notice shall only be
deemed an objection to those items specifically objected to therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making
Loans to Borrower upon or after the occurrence of any Default or Event of
Default, this Agreement shall be in effect for a period of five years from the
date hereof, through and including February 27, 2002 (the "Original Term"), and
this Agreement shall automatically renew itself for one-year periods thereafter
(the "Renewal Term"), unless terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 days prior
written notice to Borrower, Lender may terminate this Agreement as of the last
day of the Original Term or the then current Renewal Term and Lender may
terminate this Agreement without notice upon or after the occurrence of an
Event of Default.
4.2.2 Termination by Borrower. Upon at least 90 days
prior written notice to Lender, Borrower may, at its option, terminate this
Agreement; provided,
<PAGE> 19
however, no such termination shall be effective until Borrower has paid all of
the Obligations in immediately available funds. Any notice of termination,
given by Borrower shall be irrevocable unless Lender otherwise agrees in
writing, and Lender shall have no obligation to make any Loans on or after the
termination date stated in such notice. Borrower may elect to terminate this
Agreement in its entirety only. No section of this Agreement or type of Loan
available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of
termination of this Agreement by Lender (after an Event of Default) or by
Borrower for any reason, Borrower shall pay to Lender (in addition to the then
outstanding principal, accrued interest and other charges owing under the terms
of this Agreement and any of the other Loan Documents) as liquidated damages
for the loss of the bargain and not as a penalty, an amount equal to 3% of the
original Total Credit Facility, minus the then balance owing under Term Notes A
and B and the Capex Facility ("Net Credit Facility") if termination occurs
during the first twelve-month period of the Original Term (February 28, 1997
through February 27, 1998); 2% of the Net Credit Facility if termination occurs
during the second 12-month period of the Original Term (February 28, 1998
through February 27, 1999); 1% of the Net Credit Facility if termination
occurs during the third 12-month period of the Original Term (February 28, 1999
through February 27, 2000); and 1/2 of 1% of the Net Credit Facility if
termination occurs during the fourth twelve-month period of the Original Term
February 28, 2000 through February 27, 2001); and 1/2 of 1% of the Net Credit
Facility if termination occurs during the fifth twelve-month period of the
Original Term (February 28, 2001 through February 27, 2002). If termination
occurs on the last day of the Original Term, no
<PAGE> 20
termination charge shall be payable.
Notwithstanding anything contained in this Subsection 4.2.3, no
prepayment charge shall be payable by Borrower if the Total Credit Facility and
all Obligations owing thereunder have been paid by refinancing provided by
another asset based lender upon terms, structure and conditions first presented
to Lender ("Financing Conditions") where Lender notifies Borrower within five
Business Days ("Lender's Response Time") of its unwillingness to continue to
extend financial accommodations to Borrower on such Financing Conditions. If
Lender elects to extend financial accommodations to Borrower within the
Lender's Response Time in accordance with the Financing Conditions, Lender
shall commence financing Borrower in accordance therewith within forty-five
Business Days of Lender's Response Time. If Lender shall fail to commence
financing within such forty-five Business Days, Borrower may pay all
Obligations owing to Lender without the imposition of any prepayment charge.
Effect of Termination. All of the Obligations shall be immediately due
and payable upon the termination date stated in any notice of termination of
this Agreement. All undertakings, agreements, covenants, warranties and
representations of Borrower contained in the Loan Documents shall survive any
such termination and Lender shall retain its Liens in the Collateral and all of
its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable termination charge,
if any. Notwithstanding the payment in full of the Obligations, Lender shall
not be required to terminate its security interests in the Collateral unless,
with respect to any loss or damage Lender may incur as a
<PAGE> 21
result of dishonored checks or other items of payment received by Lender from
Borrower or any Account Debtor and applied to the Obligations, Lender shall, at
its option, (i) have received a written agreement, executed by Borrower and by
any Person whose loans or other advances to Borrower are used in whole or in
part to satisfy the Obligations, indemnifying Lender from any such loss or
damage; or (ii) have retained such monetary reserves and Liens on the
Collateral for such period of time as Lender, in its reasonable discretion, may
deem necessary to protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender
a continuing Lien upon all of Borrower's assets, including all of the following
Property and interests in Property of Borrower, whether now owned or existing
or hereafter created, acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment, including without limitation, motor
vehicles;
(iv) Investment Property
<PAGE> 22
(v) General Intangibles, including without limitation,
all patents, trademarks and trade names;
(vi) Deposit Accounts;
(vii) All monies and other Property of any kind now or at
any time or times hereafter in the possession or under the control of
Lender or a bailee or Affiliate of Lender;
(vii) All real property and interests in real property;
(iv) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through
(v) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and
(v) All books and records (including, without
limitation, customer lists, credit files, computer programs,
print-outs, and other computer materials and records) of Borrower
pertaining to any of (i) through (vii) above.
5.2 Lien Perfection; Further Assurances. Borrower shall execute such
UCC-1 financing statements as are required by the Code, such mortgages and
deeds of trust and such
<PAGE> 23
other instruments, assignments or documents as are necessary to perfect
Lender's Lien upon any of the Collateral and shall take such other action as
may be required to perfect or to continue the perfection of Lender's Lien upon
the Collateral. Unless prohibited by applicable law, Borrower hereby authorizes
Lender to file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrower shall also promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other than
Inventory in transit and motor vehicles (when not in use in the ordinary course
of Borrower's business), will at all times be kept by Borrower at one or more
of the business locations set forth in Exhibit 6.1.1 hereto and shall not,
without the prior written approval of Lender, be moved therefrom except, prior
to an Event of Default and Lender's acceleration of the maturity of the
Obligations in consequence thereof, for (i) sales of Inventory in the ordinary
course of business; and (ii) removals in connection with dispositions of
Equipment that are authorized by subsection 6.4.2 hereof; and (iii) movement of
equipment and inventory from
<PAGE> 24
one location of Borrower that has been reported to Lender to another location
of Borrower that has been reported to Lender, and within a jurisdiction in
which Lender has taken all necessary action in order to protect and perfect its
security interest therein.
6.1.2 Insurance of Collateral. Borrower shall maintain
and pay for insurance upon all Collateral wherever located and with respect to
Borrower's business, covering casualty, hazard, public liability and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Lender. Borrower shall deliver the originals of such policies
to Lender with satisfactory lender's loss payable endorsements, naming Lender
as sole loss payee, assignee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender shall not be impaired or invalidated by any act or
neglect of Borrower or the owner of the Property or by the occupation of the
premises for purposes more hazardous than are permitted by said policy. If
Borrower fails to provide and pay for such insurance, Lender may, at its
option, but shall not be required to, procure the same and charge Borrower
therefor. Borrower agrees to deliver to Lender, promptly as rendered, true
copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral, any and all excise, property, sales, and use taxes imposed by
any state, federal, or local authority on any
<PAGE> 25
of the Collateral or in respect of the sale thereof shall be borne and paid by
Borrower. If Borrower fails to promptly pay any portion thereof when due,
Lender may, at its option, but shall not be required to, pay the same and
charge Borrower therefor. Lender shall not be liable or responsible in any way
for the safekeeping of any of the Collateral or for any loss or damage thereto
(except for reasonable care in the custody thereof while any Collateral is in
Lender's actual possession) or for any diminution in the value thereof, or for
any act or default of any warehouseman, carrier, forwarding agency, or other
person whomsoever, but the same shall be at Borrower's sole risk.
<PAGE> 26
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts.
Borrower shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit to Lender on such periodic
basis as indicated herein a daily sales and collections report, in form
satisfactory to Lender. On or before the fifteenth day of each month from and
after the date hereof, Borrower shall deliver to Lender, in form acceptable to
Lender, a detailed aged trial balance of all Accounts existing as of the last
day of the preceding month, specifying the names, addresses, face value, dates
of invoices and due dates for each Account Debtor obligated on an Account so
listed ("Schedule of Accounts"), and, upon Lender's request therefor, copies of
proof of delivery and the original copy of all documents, including, without
limitation, repayment histories and present status reports for invoices in
excess of $50,000 relating to the Accounts so scheduled and such other matters
and information relating to the status of then existing Accounts as Lender
shall reasonably request. In addition, if Accounts in an aggregate face amount
in excess of $50,000 become ineligible because they fall within one of the
specified categories of ineligibility set forth in the definition of Eligible
Accounts or otherwise established by Lender, Borrower shall notify Lender of
such occurrence on the first Business Day following such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence.
Borrower shall execute and deliver to Lender formal written assignments of all
of its Accounts daily, which shall include all Accounts that have been created
since the date of the last assignment, together with copies of invoices or
invoice registers related thereto.
<PAGE> 27
6.2.2 Discounts, Allowances, Disputes. If Borrower
grants any discounts, allowances or credits that are not shown on the face of
the invoice for the Account involved, Borrower shall report such discounts,
allowances or credits, as the case may be, to Lender as part of the next
required Schedule of Accounts. If any amounts due and owing in excess of
$50,000 are in dispute between Borrower and any Account Debtor, Borrower shall
provide Lender with written notice thereof at the time of submission of the
next Schedule of Accounts, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy. Upon and after the
occurrence of an Event of Default, Lender shall have the right to settle or
adjust all disputes and claims directly with the Account Debtor and to
compromise the amount or extend the time for payment of the Accounts upon such
terms and conditions as Lender may deem advisable, and to charge the
deficiencies, costs and expenses thereof, including attorney's fees, to
Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax
payable to any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of Borrower and to charge Borrower therefor, provided, however that
Lender shall not be liable for any taxes to any governmental taxing authority
that may be due by Borrower.
6.2.4 Account Verification. Whether or not a Default or
an Event of Default has occurred, any of Lender's officers, employees or agents
shall have the right, at any time or times hereafter, in the name of Lender,
any designee of Lender or
<PAGE> 28
Borrower, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly conclude any such
verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall
maintain a Dominion Account pursuant to a lockbox arrangement acceptable to
Lender with such banks as may be selected by Borrower and be acceptable to
Lender. Borrower shall issue to any such banks an irrevocable letter of
instruction directing such banks to deposit all payments or other remittances
received in the lockbox to the Dominion Account for application on account of
the Obligations. All funds deposited in the Dominion Account shall immediately
become the property of Lender and Borrower shall obtain the agreement by such
banks in favor of Lender to waive any offset rights against the funds so
deposited. Lender assumes no responsibility for such lockbox arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To
expedite collection, Borrower shall endeavor in the first instance to make
collection of its Accounts for Lender. All remittances received by Borrower on
account of Accounts, together with the proceeds of any other Collateral, shall
be held as Lender's property by Borrower as trustee of an express trust for
Lender's benefit and Borrower shall immediately deposit same in kind in the
Dominion Account. Lender retains the right at all times after the occurrence
of a Default or an Event of Default and during the continuance thereof, to
notify Account Debtors
<PAGE> 29
that Accounts have been assigned to Lender and to collect Accounts directly in
its own name and to charge the collection costs and expenses, including
attorneys' fees to Borrower.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall
keep accurate and complete records of its inventory. Borrower shall furnish to
Lender Inventory reports in form and detail satisfactory to Lender at such
times as Lender may request, but at least once each month, not later than the
twentieth day of such month. Borrower shall conduct a physical inventory no
less frequently than monthly and shall provide to Lender a report based on each
such physical inventory promptly thereafter, together with such supporting
information as Lender shall request. Lender may adjust the frequency of
required physical inventories upon implementation by Borrower of a perpetual
inventory system acceptable to Lender.
6.3.2 Returns of Inventory. If at any time or times
hereafter any Account Debtor returns any Inventory to Borrower the shipment of
which generated an Account on which such Account Debtor is obligated in excess
of $50,000, Borrower shall immediately notify Lender of the same, specifying
the reason for such return and the location, condition and intended disposition
of the returned Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall
<PAGE> 30
keep accurate records itemizing and describing the kind, type, quality,
quantity and value of its Equipment and all dispositions made in accordance
with subsection 6.4.2 hereof, and shall furnish Lender with a current schedule
containing the foregoing information on at least an annual basis and more often
if requested by Lender. Immediately on request therefor by Lender, Borrower
shall deliver to Lender any and all evidence of ownership, if any, of any of
the Equipment.
6.4.2 Dispositions of Equipment. Borrower will not sell,
lease or otherwise dispose of or transfer any of the Equipment or any part
thereof without the prior written consent of Lender; provided, however, that
the foregoing restriction shall not apply, for so long as no Default or Event
of Default exists, to (i) dispositions of Equipment which, in the aggregate
during any consecutive twelve-month period, has a fair market value or book
value, whichever is less, of $50,000 or less, provided that all proceeds
thereof are remitted to Lender for application to the Loans, or (ii)
replacements of Equipment that is substantially worn, damaged or obsolete with
Equipment of like kind, function and value, provided that the replacement
Equipment shall be acquired prior to or concurrently with any disposition of
the Equipment that is to be replaced, the replacement Equipment shall be free
and clear of Liens other than Permitted Liens that are not Purchase Money
Liens, and Borrower shall have given Lender at least 5 days prior written
notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall
be payable on demand and shall bear interest from the date such advance was
made until paid in full at the rate applicable
<PAGE> 31
to Revolving Credit Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter
into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to
Lender that:
7.1.1 Organization and Qualification. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is duly qualified and
is authorized to do business and is in good standing as a foreign corporation
in each state or jurisdiction listed on Exhibit 7.1.1 hereto and in all other
states and jurisdictions in which the failure of Borrower to be so qualified
would have a material adverse effect on the financial condition, business or
Properties of Borrower.
7.1.2 Corporate Power and Authority. Borrower is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other
Loan Documents have been duly authorized by all necessary corporate action and
do not and will not (i) require any consent or approval of the shareholders of
Borrower; (ii) contravene Borrower's charter, articles or certificate of
incorporation or by-laws; (iii) violate, or cause Borrower to be in default
under,
<PAGE> 32
any provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award in effect having applicability to Borrower; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which Borrower
is a party or by which it or its Properties may be bound or affected; or (v)
result in, or require, the creation or imposition of any Lien (other than
Permitted Liens) upon or with respect to any of the Properties now owned or
hereafter acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement is,
and each of the other Loan Documents when delivered under this Agreement will
be, a legal, valid and binding obligation of Borrower enforceable against it in
accordance with its respective terms.
7.1.4 Capital Structure. Exhibit 7.1.4 hereto states (i)
the name of each of Borrower's corporate or joint venture Affiliates and the
nature of the affiliation, (ii) the number, nature and holder of all
outstanding Securities of Borrower and each Affiliate of Borrower and (iii) the
number of authorized, issued and treasury shares of Borrower and each Affiliate
of Borrower. All such shares have been duly issued and are fully paid and
nonassessable. Except as set forth on Exhibit 7.1.4, there are no outstanding
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of Borrower. Except as set forth on Exhibit 7.1.4, there are no
outstanding agreements or instruments binding upon any of Borrower's
shareholders relating to
<PAGE> 33
the ownership of its shares of capital stock.
7.1.5 Corporate Names. Borrower has not been known as
or used any corporate, fictitious or trade names except those listed on Exhibit
7.1.5 hereto. Except as set forth on,Exhibit 7.1.5, Borrower has not been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Borrower's
chief executive office and other places of business are as listed on Exhibit
6.1.1 hereto. During the preceding one-year period, Borrower has not had an
office, place of business or agent for service of process other than as listed
on Exhibit 6.1.1. Except as shown on Exhibit 6.1.1, no inventory is stored
with a bailee, warehouseman or similar party, nor is any Inventory consigned to
any Person.
7.1.7 Title to Properties; Priority of Liens. Borrower
has good, indefeasible and marketable title to and fee simple ownership of, or
valid and subsisting leasehold interests in, all of its real property, and good
title to all of the Collateral and all of its other Property, in each case,
free and clear of all Liens except Permitted Liens. Borrower has paid or
discharged all lawful claims which, if unpaid, might become a Lien against any
of Borrower's Properties that is not a Permitted Lien. The Liens granted to
Lender under Section 5 hereof are first priority Liens, subject only to
Permitted Liens.
7.1.8 Accounts. Lender may rely, in determining which
<PAGE> 34
Accounts are Eligible Accounts, on all statements and representations made by
Borrower with respect to any Account or Accounts. Unless otherwise indicated
in writing to Lender, with respect to each Account:
(i) It is genuine and in all respects what it purports
to be, and it is not evidenced by a judgment;
(ii) It arises Out Of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary
course of its business and in accordance with the terms and conditions
of all purchase orders, contracts or other documents relating thereto
and forming a part of the contract between Borrower and the Account
Debtor;
(iii) It is for a liquidated amount maturing as stated in
the duplicate invoice covering such sale or rendition of services, a
copy of which has been furnished or is available to Lender;
(iv) Such Account, and Lender's security interest
therein, is not, and to the best of Borrower's knowledge will not (by
voluntary act or omission of Borrower) be in the future, subject to any
offset, Lien, deduction, defense, dispute, counterclaim or any other
adverse condition except for disputes whether or not resulting in
returned goods and warranty claims where the amount in controversy is
deemed by Lender to be immaterial and, to the best of Borrower's
knowledge, each
<PAGE> 35
such Account is absolutely owing to Borrower and is not contingent in
any respect or for any reason;
(v) Borrower has made no agreement with any Account
Debtor thereunder for any extension, compromise, settlement or
modification of any such Account or any deduction therefrom, except
discounts or allowances which are granted by Borrower in the ordinary
course of its business for prompt payment and which are reflected in the
calculation of the net amount of each respective invoice related thereto
and are reflected in the Schedules of Accounts submitted to Lender
pursuant to subsection 6.2.1 hereof;
(vi) To the best of Borrower's knowledge, there are no
facts, events or occurrences which in any way materially impair the
validity or enforceability of any Accounts to reduce the amount payable
thereunder from the face amount of the invoice and statements delivered
to Lender with respect thereto;
(vii) To the best of Borrower's knowledge, the Account
Debtor thereunder (1) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed and
(2) such Account Debtor is Solvent; and
(viii) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor thereunder which might result in any material adverse
change in such Account Debtor's
<PAGE> 36
financial condition or the collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating
condition and repair, and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the Equipment shall
be maintained and preserved, reasonable wear and tear excepted. Borrower will
not permit any of the Equipment to become affixed to any real property leased
to Borrower so that an interest arises therein under the real estate laws of
the applicable jurisdiction unless the landlord of such real property has
executed a landlord waiver or leasehold mortgage in favor of and in form
acceptable to Lender, and Borrower will not permit any of the Equipment to
become an accession to any personal property other than Equipment that is
subject to first priority (except for Permitted Liens) Liens in favor of
Lender.
7.1.10 Financial Statements; Fiscal Year. The opening
balance sheets of Borrower as of March 1, 1997, will be prepared in accordance
with GAAP, and present fairly the financial position of Borrower at such date.
The fiscal year of Borrower ends on June 30th of each year.
7.1.11 Full Disclosure. The financial statements referred
to in subsection 7. 1. 10 hereof do not, nor does this Agreement or any other
written statement of Borrower to Lender, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact which Borrower
has failed to disclose to Lender in writing which materially affects adversely
<PAGE> 37
or, so far as Borrower can now foresee, will materially affect adversely the
Properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or the ability of Borrower to perform this Agreement or the other
Loan Documents.
7.1.12 Solvent Financial Condition. Borrower is now and,
after giving effect to the Loans to be made hereunder, at all times will be,
Solvent.
7.1.13 Surety Obligations. Borrower is not obligated as
surety or indemnitor under any surety or similar bond or other contract issued
or entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any Person.
7.1.14 Taxes. Borrower's federal tax identification
number is 91-0655652. Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid, or made
provision for the payment of, all taxes, assessments, fees, levies and other
governmental charges upon it, its income and Properties as and when such taxes,
assessments, fees, levies and charges are due and payable, unless and to the
extent any thereof are being actively contested in good faith and by
appropriate proceedings and Borrower maintains reasonable reserves on its books
therefor. The provision for taxes on the books of Borrower is adequate for all
years not closed by applicable statutes, and for its current fiscal year.
7.1.15 Brokers. There are no claims for brokerage
commissions,
<PAGE> 38
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses.
Borrower owns or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary, to the best of Borrower's knowledge,
for the conduct of its business without any known conflict with the rights of
others. All such patents, trademarks, service marks, tradenames, copyrights,
licenses and other similar rights are listed on Exhibit 7.1.16 hereto.
7.1.17 Governmental Consents. As of the date hereof,
Borrower has, and is in good standing with respect to all material governmental
consents, approvals, licenses, authorizations, permits, certificates,
inspections and franchises necessary to continue to conduct its business as
heretofore or proposed to be conducted by it and to own or lease and operate
its Properties as now owned or leased by it. Within 60 days of the date
hereof, Borrower will have, and will be in good standing with respect to all
governmental consents, approvals, licenses, authorizations, permits,
certificates, inspections and franchises necessary to continue to conduct its
business as heretofore or proposed to be conducted by it and to own or lease
and operate its properties as now owned or leased by it.
7.1.18 Compliance with Laws. Borrower has duly complied
with, and its Properties, business operations and leaseholds are in compliance
in all material respects with, the provisions of all federal, state and local
laws, rules and regulations
<PAGE> 39
applicable to Borrower, its Properties or the conduct of its business,
including all such Environmental laws, rules and regulations, and there have
been no citations, notices or orders of noncompliance issued to Borrower under
any such law, rule or regulation. Borrower has established and maintains an
adequate monitoring system to insure that it remains in compliance with all
federal, state and local laws, rules and regulations applicable to it. No
Inventory has been produced in violation of the Fair Labor Standards Act (29
U.S.C. Section 201 et seq.), as amended.
7.1.19 Restrictions. Borrower is not a party or subject
to any contract, agreement, or charter or other corporate restriction, which
materially and adversely affects its business or the use or ownership of any of
its Properties. Borrower is not a party or subject to any contract or
agreement which restricts its right or ability to incur Indebtedness, other
than as set forth on Exhibit 7.1.19 hereto, none of which prohibit the
execution of or compliance with this Agreement or the other Loan Documents by
Borrower.
7.1.20 Litigation. Except as set forth on Exhibit 7.1.20
hereto, there are no actions, suits, proceedings or investigations pending, or
to the knowledge of Borrower, threatened, against or affecting Borrower, or the
business, operations, Properties, prospects, profits or condition of Borrower.
Borrower is not in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
7.1.21 No Defaults. No event has occurred and no
condition
<PAGE> 40
exists which would, upon or after the execution and delivery of this Agreement
or Borrower's performance hereunder, constitute a Default or an Event of
Default. Borrower is not in default, and no event has occurred and no
condition exists which constitutes, or which with the passage of time or the
giving of notice or both would constitute, a default in the payment of any
Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Exhibit 7.1.22(a) hereto is a complete
listing of all capitalized leases of Borrower and Exhibit 7.1.22(b) hereto is a
complete listing of all operating leases of Borrower. Borrower is in full
compliance with all of the material terms of each of its respective capitalized
and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit
7.1.23 hereto, Borrower has no Plan. Borrower is in full compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect
to each Plan. There is no fact or situation in connection with any Plan that
could result in a material adverse change in the financial condition of
Borrower. Borrower has no withdrawal liability in connection with a
Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrower and any customer or any
group of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier, and there
exists no present condition or state of facts or circumstances which would
<PAGE> 41
materially affect adversely Borrower or prevent Borrower from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.25 Labor Relations. Except as described on Exhibit
7.1.25 hereto, Borrower is not a party to any collective bargaining agreement.
There are no material grievances, disputes or controversies with any union or
any other organization of Borrower's employees, or threats of strikes, work
stoppages or any asserted pending demands for collective bargaining by any
union or organization.
7.1.26 Acquisition. No default has occurred under any of
the Purchase Documents.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's business or operations that would render
the information in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.
7.3 Survival of Representations and Warranties. All representations
and warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the
<PAGE> 42
execution, delivery and acceptance thereof by Lender and the parties thereto
and the closing of the transactions described therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the Properties of Borrower,
inspect, audit and make extracts from its books and records, and discuss with
its officers, its employees and its independent accountants, Borrower's
business, assets, liabilities, financial condition, business prospects and
results of operations.
8.1.2 Notices. Promptly notify Lender in writing of the
occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete or misleading.
8.1.3 Financial Statements. Keep adequate records and
books of account with respect to its business activities in which proper
entries are made in accordance
<PAGE> 43
with GAAP reflecting all its financial transactions; and cause to be prepared
and furnished to Lender the following (all to be prepared in accordance with
GAAP applied on a consistent basis, unless Borrower's certified public
accountants concur in any change therein and such change is disclosed to Lender
and is consistent with GAAP):
(i) not later than 90 days after the close of each
fiscal year of Borrower, unqualified audited financial statements of
Borrower as of the end of such year, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower
but acceptable to Lender (except for a qualification for a change in
accounting principles with which the accountant concurs);
(ii) not later than 30 days after the end of each month
hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower as of the end of such month and
of the portion of Borrower's financial year then elapsed, certified by
the principal financial officer of Borrower as prepared in accordance
with GAAP and fairly presenting the financial position and results of
operations of Borrower for such month and period subject only to changes
from audit and year-end adjustments and except that such statements need
not contain notes;
(iii) promptly after the sending or filing thereof, as
the case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and copies
of any regular, periodic and special
<PAGE> 44
reports or registration statements which Borrower files with the
Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or any national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed with ERISA in connection with each Plan; and
(v) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing
upon or related to the Collateral or Borrower's financial condition or
results of operations.
Concurrently with the delivery of the financial statements
described in clause (i) of this subsection 8.1.3, Borrower shall forward to
Lender a copy of the accountants' letter to Borrower's management that is
prepared in connection with such financial statements and also shall cause to
be prepared and shall furnish to Lender a certificate of the aforesaid
certified public accountants certifying to Lender that, based upon their
examination of the financial statements of Borrower performed in connection
with their examination of said financial statements, they are not aware of any
Default or Event of Default, or, if they are aware of such Default or Event of
Default, specifying the nature thereof, and acknowledging, in a manner
satisfactory to Lender, that they are aware that Lender is relying on such
financial statements in making its decisions with respect to the Loans.
Concurrently with the delivery of the financial statements described in clauses
(i) and (ii) of this subsection 8.1.3, or more frequently if requested by
Lender, Borrower shall cause to be prepared and furnished to
<PAGE> 45
Lender a Compliance Certificate in the form of Exhibit 8.1.3 hereto executed by
the Chief Financial Officer of Borrower.
8.1.4 Landlord and Storage Agreements. Provide Lender
with copies of all agreements between Borrower and any landlord or warehouseman
which owns any premises at which any Inventory may, from time to time, be kept.
8.1.5 Projections. No later than 30 days prior to the
end of each fiscal year of Borrower, deliver to Lender Projections of Borrower
for the forthcoming 3 years, year by year, and for the forthcoming fiscal year,
month by month.
8.1.6 Chief Financial Officer. No later than 120 days
after the Closing Date Borrower shall employ a Chief Financial Officer and/or a
Vice President, Finance reasonably satisfactory to Lender.
8.1.7 Schedule of Equipment. No later that the fifth
Business Day of each month, provide Lender with a schedule of the location and
description of all equipment which is not located at Borrower's premises in
Bellingham, Washington, Wilson, North Carolina and Gatesville, Texas.
8.1.8 Insurance Policies. No later than thirty days
after the Closing Date furnish Lender with copies of all insurance policies
carried by Borrower for which certificates of insurance were provided pursuant
to Subsection 9.19 hereof.
<PAGE> 46
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or
consolidate with any Person; nor acquire all or any substantial part of the
Properties of any Person, provided that Borrower may merge into an Affiliate or
another corporation for purposes of effecting a restructuring or
reincorporation into another state and change its name in connection therewith
after Lender has notified Borrower in writing that all steps necessary to
protect the validity and perfection of Lender's first priority security
interest in the Collateral, subject to Permitted Liens, have been taken.
8.2.2 Loans. Make any loans or other advances of money
(other than for salary, travel advances, advances against commissions and other
similar advances in the ordinary course of business) to any Person.
8.2.3 Total Indebtedness. Create, incur, assume, or
suffer to exist any Indebtedness, except:
(i) Obligations owing to Lender;
<PAGE> 47
(ii) Subordinated Debt;
(iii) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not aged
more than 90 days from billing date or more than 30 days from the due
date, in each case incurred in the ordinary course of business and paid
within such time period, unless the same are being actively contested in
good faith and by appropriate and lawful proceedings; and Borrower shall
have set aside such reserves, if any, with respect thereto as are
required by GAAP and deemed adequate by Borrower and its independent
accountants;
(iv) Obligations to pay Rentals permitted by subsection
8.2.13;
(v) Permitted Purchase Money Indebtedness;
(vi) contingent liabilities arising out of endorsements
of checks and other negotiable instruments for deposit or collection in
the ordinary course of business;
(vii) taxes, assessments and governmental charges or
levies which are not delinquent or which are being contested in good
faith and for which, in accordance with GAAP, adequate reserves have
been set aside on the books of Borrower;
<PAGE> 48
(viii) billing in excess of costs; and
(ix) Indebtedness not included in paragraphs (i) through
(vii) above which does not exceed at any time, in the aggregate, the sum
of $200,000.
8.2.4 Affiliate Transactions. Except as set forth in
Exhibit 8.2.4 and except as provided below, enter into, or be a party to, any
transaction with any Affiliate of Borrower or stockholder, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower.
8.2.5 Limitation on Liens. Create or suffer to exist any
Lien upon any of its Property, income or profits, whether now owned or
hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due, or being
contested in the manner described in subsection 7.1.14 hereto, but only
if in Lender's judgment such Lien does not adversely affect Lender's
rights or the priority of Lender's Lien in the Collateral;
<PAGE> 49
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment in
respect of any such Lien is not at the time required and such Liens do
not, in the aggregate, materially detract from the value of the Property
of Borrower or materially impair the use thereof in the operation of
Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase
Money Indebtedness;
(v) such other Liens as appear on Exhibit 8.2.5 hereto;
and
(vi) such other Liens as Lender may hereafter approve in
writing.
8.2.6 Subordinated Debt. Make any payment of any part or
all of any Subordinated Debt or take any other action or omit to take any other
action in respect of any Subordinated Debt, except in accordance with the
Subordination Agreement relative thereto.
8.2.7 Distributions. Declare or make any Distributions
except, (i) management fees to SSI not in excess of 1% of Borrower's net
revenue plus 5% of before tax profits (exclusive of revenue from Affiliate
transactions), provided no Event of Default has
<PAGE> 50
occurred and is continuing.
8.2.8 Capital Expenditures. Make Capital Expenditures
(including, without limitation, by way of capitalized leases) which, in the
aggregate, as to Borrower, exceed $100,000 for the fiscal year end June 30,
1997 and $300,000 during any fiscal year of Borrower thereafter.
8.2.9 Disposition of Assets. Sell, lease or otherwise
dispose of any of its Properties, including any disposition of Property as part
of a sale and leaseback transaction, to or in favor of any Person, except (i)
sales of Inventory in the ordinary course of business for so long as no Event
of Default exists hereunder which by reason thereof Lender has accelerated the
Obligation or (ii) dispositions expressly authorized by this Agreement.
8.2.10 Bill-and-Hold Sales, Etc. Make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval
or consignment basis, or any sale on a repurchase or return basis.
8.2.11 Restricted Investment. Make or have any Restricted
Investment.
8.2.12 Leases. Become a lessee under any operating lease
(other than a lease under which Borrower is lessor) of property if the
aggregate Rentals payable during any current or future period of 12 consecutive
months under the lease in question and
<PAGE> 51
all other leases under which Borrower is then lessee would exceed $200,000.
The term "Rentals" means, as of the date of determination, all payments which
the lessee is required to make by the terms of any lease.
8.2.13 Tax Consolidation. File or
consent to the filing of any consolidated income tax return with any Person
other than Denali Holdings, Inc.
8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:
8.3.1 EBITDA. Achieve EBITDA of not less
than the cumulative amount set forth below as of the end of the corresponding
fiscal period:
<TABLE>
<CAPTION>
Period Amount
- ------ ---------
<S> <C>
Fiscal year end June 30, 1997 $ 108,000
Fiscal quarter ended September 30, 1997 355,000
Fiscal quarter ended December 31, 1997 613,000
Fiscal quarter ended March 31, 1998 737,000
Fiscal year end June 30, 1998 1,180,000
Fiscal quarter ended September 30, 1998 400,000
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
Fiscal quarter ended December 31, 1998 800,000
Fiscal quarter ended March 31, 1999 1,200,000
Fiscal year end June 30, 1999 1,600,000
</TABLE>
and for each fiscal quarter and year end thereafter, the same minimum EBITDA as
is set forth above for the respective quarters ended September 30, 1998 and
fiscal year end June 30, 1999.
8.3.2 Minimum Tangible Net Worth. Maintain
Tangible Net Worth of not less than the amount set forth below as of each month
and as of the end of the corresponding fiscal period:
<TABLE>
<CAPTION>
Period Amount
- ------ ---------
<S> <C>
Fiscal year end June 30, 1997 $ 800,000
Fiscal quarter ended September 30, 1997 900,000
Fiscal quarter ended December 31, 1997 1,000,000
Fiscal quarter ended March 31, 1998 1,000,000
Fiscal year end June 30 1998 1,300,000
Fiscal quarter ended September 30, 1998 1,400,000
Fiscal quarter ended December 31, 1998 1,600,000
Fiscal quarter ended March 31, 1999 1,600,000
Fiscal year end June 30, 1999 1,800,000
and each fiscal quarter thereafter 1,900,000
</TABLE>
<PAGE> 53
8.3.3 Debt Coverage Ratio. Maintain a Debt
Coverage Ratio of not less than that set forth below as of the end of the
corresponding fiscal period:
<TABLE>
<CAPTION>
Period Ratio
- ------ -------
<S> <C>
Fiscal year end June 30, 1997 0.82: 1
Fiscal quarter ended September 30, 1997 1.04: 1
Fiscal quarter December 31, 1997 0.96: 1
Fiscal quarter ended March 31, 1998 0.94: 1
Fiscal year end June 30, 1998 1.08: 1
Fiscal quarter ended September 30, 1998 1.15: 1
Fiscal quarter ended December 31, 1998 1.17: 1
Fiscal quarter ended March 31, 1999 1.18: 1
Fiscal year end June 30, 1999 1.27: 1
and each fiscal quarter thereafter 1.25: 1
</TABLE>
8.3.4 Availability. Maintain average
Availability each month, measured at the end of each month of $500,000.
SECTION 9. CONDITIONS PRECEDENT
<PAGE> 54
Notwithstanding any other provision of this Agreement or any
of the other Loan Documents, and without affecting in any manner the
rights of Lender under the other sections of this Agreement, Lender
shall not be required to make any Loan under this Agreement unless and
until each of the following conditions has been and continues to be
satisfied:
9.1 Documentation. Borrower and Lender shall have executed and
delivered a satisfactory Agreement and such other documents, instruments and
agreements as Lender shall request, including but not limited to vehicle
titles, mortgages and deeds of trust on the real property collateral.
9.2 Adverse Change. No material adverse change in the condition
or operation, financial or otherwise of Borrower shall have occurred during the
period commencing with January 31, 1997 and ending on the Closing Date
("Interim Period").
9.3 Material Commitment. Borrower shall not have entered into any
material commitment, material transaction, or transaction for borrowings during
the Interim Period which is not in the ordinary course of its business.
9.4 Accounting. Borrower shall not have made any material change
in its accounting method or principles during the Interim Period.
9.5 Consents. All consents necessary to permit the secured
financing transaction contemplated by this Agreement to be consummated pursuant
to the terms and conditions
<PAGE> 55
thereof shall have been obtained.
9.6 ERISA. Prior to the Closing Date, Borrower shall have
delivered to Lender true and correct copies of any pension or other employee
benefit plan(s) covering its employees.
9.7 Acquisition. Lender shall have approved the final terms of
the agreement for the acquisition of substantially all of the stock of Ershigs,
Inc., and such acquisition shall have been consummated.
9.8 Litigation. There shall not have been instituted or
threatened, during the Interim Period, any material litigation or proceeding in
any court or administrative forum to which the Borrower is a party.
9.9 Labor Contracts. Lender shall have received copies of all
labor contracts, if any, to which Borrower is a party and all labor contracts,
if any, necessary to the continuation of business operations of Borrower shall
be in effect on the Closing Date.
9.10 Adequate Working Capital. On the Closing Date, all of
Borrower's assets supporting the Loans shall be sufficient in value, as
determined by Lender, to provide Borrower with adequate working capital and to
enable Borrower to operate its business profitably.
<PAGE> 56
9.11 Financial Statements. On the Closing Date, Lender shall have
received and approved, in its reasonable credit judgment, Borrower's pro forma
opening balance sheet and the projections of Borrower through the end of fiscal
year 2000.
9.12 Inspection Of Books And Records. During the Interim Period,
Lender or its representatives shall have been given access at all reasonable
times to inspect and evaluate the Collateral and the books and records of
Borrower, and Borrower shall have provided Lender with all financial and other
information which Lender may have reasonably requested.
9.13 Subordinations. Lender shall have received executed
intercreditor and/or subordination agreements, each in form and substance
satisfactory to Lender from such parties as Lender reasonably deems necessary,
including, but not limited to the subordination by Praxair of that certain
promissory note in the principal sum of $1,000,000 ("Praxair Note"), wherein
SSI is the maker and that certain promissory note in the amount of $500,000
("Denali Note"), wherein Denali Holdings, Inc. is the payee and Borrower the
maker (and collectively "Notes"). The Notes shall also be in form and
substance satisfactory to Lender and shall include a provision for (i) in
respect of the Praxair Note, no payments of principal and interest for a period
of twelve months from the Closing Date, (ii) in respect of the Denali Note,
payment that is based upon the achievement of projected performance by the
Borrower for a period of a rolling six consecutive months, as measured by
Borrower achieving EBIT of not less than the amount set forth below for the
corresponding period indicated:
<TABLE>
<CAPTION>
For the six months ended EBIT
- ------------------------ ----
<S> <C>
</TABLE>
<PAGE> 57
<TABLE>
<S> <C>
March, 1997 - August, 1997 $321,000
April, 1997 - September, 1997 515,000
May, 1997 - October, 1997 552,000
June, 1997 - November, 1997 535,000
July, 1997 - December, 1997 448,000
August, 1997 - January, 1998 329,000
September, 1997 - February, 1998 273,000
October, 1997 - March, 1998 289,000
November, 1997 - April, 1998 286,000
December, 1997 - May, 1998 320,000
January, 1998 - June, 1998 420,000
February, 1998 - July, 1998
and thereafter 544,000
</TABLE>
(iii) $500,000 of Borrower Availability if the Notes have been fully repaid
or $850,000 of Borrower Availability if a balance remains owing under the
Notes, measured both before and after the making of any payment, and (iv) the
making of any payment by Borrower will not create an Event of Default. Upon an
Event of Default, there will be standstills acceptable to Lender on all
payments of subordinated principal and interest.
9.14 Intercompany Transactions. All intercompany transactions shall
be structured on an arms length basis in a manner satisfactory to Lender.
9.15 Reference Checks. Lender shall have conducted satisfactory
customer and vendor reference checks.
<PAGE> 58
9.16 Corporate Minutes. Lender to have reviewed and approved of
Borrower's corporate minutes.
9.17 Landlord Waivers. Lender shall have received executed
landlord, warehouse and/or mortgagee waivers with respect to such of Borrower's
locations as Lender shall determine. Landlord waivers will include, without
limitation, the right of Lender to remain on the premises for up to ninety (90)
days, and all waivers shall otherwise be in form and substance satisfactory to
Lender and from such parties as Lender deems necessary.
9.18 Opinions Of Counsel. Lender shall have received such opinions
of counsel for Borrower as Lender may reasonably require.
9.19 Insurance. Lender shall have received insurance certificates
and lender's loss payable endorsements confirming insurance by Borrower in
amounts, coverage, form and by insurers satisfactory to Lender in its
discretion.
9.20 No Default. No Event of Default under the Agreement shall
exist as of the Closing Date.
9.21 Priority. Lender shall have received confirmation that it has
obtained a first priority perfected security interest in the Collateral subject
only to such liens and
<PAGE> 59
encumbrances, if any, as Lender may approve in its discretion in writing.
9.22 Dominion Account. A dominion account shall have been created
in a form acceptable to Lender, providing for the collection of Borrower's
accounts and other proceeds for Lender's account.
9.23 Availability. Borrower shall have a minimum borrowing
Availability under the Revolver of not less than $500,000 after deducting the
initial advances to be made by Lender to or for the account of Borrower.
9.24 Equity. Lender shall have received evidence satisfactory to it
that not less than $1,000,000 in cash has been contributed as equity to the
capital of Borrower and Lender shall have approved Borrower's capital
structure.
9.25 Audit. Lender shall have completed an updated audit of Ershigs
with results satisfactory to Lender in the exercise of its reasonable credit
judgment.
9.26 Stock Purchase Agreement. Lender and its counsel shall have
approved the form and substance of the Stock Purchase Agreement, which shall
include an environmental indemnity in favor of Borrower with respect to the
Bellingham, Washington premises in an amount not less than $200,000.
<PAGE> 60
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
10.1.1 Payment of Notes. Borrower shall fail to pay any
installment of principal, interest or premium, if any, owing on the Term Notes
or the Capex Facility on or within 10 days after the due date of such
installment.
10.1.2 Payment of Other Obligations. Borrower shall fail to
pay any of the Obligations that are not evidenced by the Term Note on or within
10 days after the due date thereof (whether due at stated maturity, on demand,
upon acceleration or otherwise).
10.1.3 Misrepresentations. Any representation, warranty or
other statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in Sections 5.2,
6.1.1, 6.2, 8.1.1,
<PAGE> 61
8.1.3, 8.1 or 8.2 and 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
10.1.5 Breach of Other Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
10.1 hereof) and the breach of such other covenant is not cured to Lender's
satisfaction within 15 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such failure or neglect
first becomes known to any officer of Borrower.
10.1.6 Default Under Security Documents/Other
Agreements/Purchase Documents. Any Event of Default shall occur under, or
Borrower shall default in the performance or observance of any term, covenant,
condition or agreement contained in, any of the Security Documents, or the
Other Agreements or the Purchase Documents and such Default shall continue
beyond any applicable grace period, or if no grace period is specified therein,
then 15 days.
10.1.7 Other Defaults. There shall occur any default or
event of default on the part of Borrower under any agreement, document or
instrument to which Borrower is a party or by which Borrower or any of its
Property is bound, creating or relating to any Indebtedness (other than the
Obligations) if the payment or maturity of such Indebtedness is accelerated in
consequence of such event of default or demand for payment of such Indebtedness
is made.
<PAGE> 62
10.1.8 Uninsured Losses. Any material loss, theft, damage or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.9 Insolvency and Related Proceedings. Borrower shall
suffer the appointment of a receiver, trustee, custodian or similar fiduciary,
or shall make an assignment for the benefit of creditors, or any petition for
an order for relief shall be filed by or against Borrower under the Bankruptcy
Code (if against Borrower, the continuation of such proceeding for more than 30
days), or Borrower shall make any offer of settlement, extension or composition
to their respective unsecured creditors generally.
10.1.10 Business Disruption; Condemnation. There shall occur
a cessation of a substantial part of the business of Borrower for a period
which significantly affects Borrower's capacity to continue its business, on a
profitable basis; or Borrower shall suffer the loss or revocation of any
material license or permit now held or hereafter acquired by Borrower which is
necessary to the continued or lawful operation of its business; or Borrower
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement pursuant to which Borrower leases,
uses or occupies any property shall be canceled or terminated prior to the
expiration of its stated term; or any material part of the Collateral shall be
taken through condemnation or the value of such property shall be impaired
through condemnation.
<PAGE> 63
10.1.11 Change of Ownership. SSI shall cease to own and
control, beneficially and of record, all (or in the event stock is issued in
accordance with subsection 8.2.7(iii), 80%) of the issued and outstanding
capital stock of Borrower.
10.1.12 ERISA. A Reportable Event shall occur which Lender,
in its sole discretion, shall determine in good faith constitutes grounds for
the termination by the Pension Benefit Guaranty Corporation of any Plan or for
the appointment by the appropriate United States district court of a trustee
for any Plan, or if any Plan shall be terminated or any such trustee shall be
requested or appointed, or if Borrower is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting
from Borrower's complete or partial withdrawal from such Plan.
10.1.13 Challenge to Agreement. Borrower or any Affiliate
shall challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement, or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.
10.1.14 Change of Management. If during the first 2 years of
this Agreement, except in the case of death or disability, Edward de Boer as a
consultant, president or chief executive officer shall cease to hold such
respective office and perform the duties attendant thereto and Borrower shall
fail to replace such person with a person or persons
<PAGE> 64
reasonably acceptable to Lender within 120 days thereof, which acceptance shall
not be unreasonably withheld.
10.1.15 Criminal Forfeiture. Borrower or any of its senior
managers shall be criminally indicted or convicted under any law that could
lead to a forfeiture of any Property of Borrower.
10.1.16 Judgments. Any money judgment, writ of attachment or
similar process is filed against Borrower, or any of its respective Property in
excess of $50,000.
10.2 Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the Obligations payable
on demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence and continuation of an Event of Default, all or any portion of the
Obligations shall, at the option of Lender and without presentment, demand
protest or further notice by Lender, become at once due and payable and
Borrower shall forthwith pay to Lender, the full amount of such Obligations,
provided, that upon the occurrence of an Event of Default specified in
subsection 10.1.10 hereof, all of the Obligations shall become automatically
due and payable without declaration, notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
<PAGE> 65
10.3.1 All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative and shall be in addition to any other rights or remedies
contained in this Agreement or any of the other Loan Documents, and none of
which shall be exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
Borrower, Borrower agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender,
in its sole discretion, may deem advisable. Borrower agrees that 10 days
written notice to Borrower of any public or private sale or other disposition
of Collateral shall be reasonable notice thereof, and such sale shall be at
such locations as Lender may designate in said notice. Lender shall have the
right to conduct such sales on Borrower's premises, without charge therefor,
and such sales may be adjourned from time to time in accordance with applicable
law. Lender shall have the right to sell, lease or otherwise
<PAGE> 66
dispose of the Collateral, or any part thereof, for cash, credit or any
combination thereof, and Lender may purchase all or any part of the Collateral
at public or, if permitted by law, private sale and, in lieu of actual payment
of such purchase price, may set off the amount of such price against the
Obligations. The proceeds realized from the sale of any Collateral may be
applied, after allowing 2 Business Days for collection, first to the costs,
expenses and attorneys' fees incurred by Lender in collecting the Obligations,
in enforcing the rights of Lender under the Loan Documents and in collecting,
retaking, completing, protecting, removing, storing, advertising for sale,
selling and delivering any Collateral, second to the interest due upon any of
the Obligations; and third, to the principal of the Obligations. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
10.3.4 Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or in any Guaranty Agreement given to Lender or contained in
any other agreement between Lender and Borrower, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in
<PAGE> 67
derogation or substitution of any of the terms, covenants, conditions, or
agreements of Borrower herein contained. The failure or delay of Lender to
require strict performance by Borrower of any provision of this Agreement or to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such performance, Liens, rights, powers and
remedies, but all such requirements, Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other Obligations
owing or to become owing from Borrower to Lender shall have been fully
satisfied. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the other
Loan Documents and no Event of Default by Borrower under this Agreement or any
other Loan Documents shall be deemed to have been suspended or waived by
Lender, unless such suspension or waiver is by an instrument in writing
specifying such suspension or waiver and is signed by a duly authorized
representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender)
as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or
Lender's agent, may, without notice to Borrower and in either Borrower's or
Lender's name, but at the cost and expense of Borrower:
11.1.1 At such time or times as Lender or said agent, in its
sole discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances,
<PAGE> 68
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control.
11.1.2 At such time or times upon or after the occurrence and
continuation of an Event of Default as Lender or its agent in its sole
discretion may determine: (i) demand payment of the Accounts from the Account
Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and
generally exercise all of Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings
brought to collect any of the Accounts or other Collateral; (iii) sell or
assign any of the Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable; (iv) take control,
in any manner, of any item of payment or proceeds relating to any Collateral;
(v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or
similar document against any Account Debtor or to any notice of lien,
assignment or satisfaction of lien or similar document in connection with any
of the Collateral; (vi) receive, open and dispose of all mail addressed to
Borrower and to notify postal authorities to change the address for delivery
thereof to such address as Lender may designate; (vii) endorse the name of
Borrower upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Lender on account of the
Obligations; (viii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Accounts, Inventory and any other Collateral; (ix)
use Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to Account Debtors; (x) use the information
recorded on or
<PAGE> 69
contained in any data processing equipment and computer hardware and software
relating to the Accounts, Inventory, Equipment and any other Collateral; (xi)
make and adjust claims under policies of insurance; and (xii) do all other acts
and. things necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender (including reasonable attorneys
fees and legal expenses) as the result of Borrower's failure to observe,
perform or discharge Borrower's duties hereunder. In addition, Borrower shall
defend Lender against and save it harmless from all claims of any Person with
respect to the Collateral. Without limiting the generality of the foregoing,
these indemnities shall extend to any claims asserted against Lender by any
Person under any Environmental Laws or similar laws by reason of Borrower's or
any other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. Notwithstanding any contrary
provision in this Agreement, the obligation of Borrower under this Section 11.2
shall survive the payment in full of the Obligations and the termination of
this Agreement. The indemnity contained in this Section 11.2 shall not apply in
the case of Lender's gross negligence or wilful misconduct.
11.3 Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may not sell, assign or transfer any
interest in this Agreement, any of the other Loan Documents, or any of the
Obligations, or any portion thereof, including, without
<PAGE> 70
limitation, Borrower's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. Borrower hereby consents to Lender's participation,
sale, assignment, transfer or other disposition, at any time or times
hereafter, of this Agreement and any of the other Loan Documents, or of any
portion hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder. In the
case of an assignment, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were
"Lender" hereunder and Lender shall be relieved of all obligations hereunder
upon any such assignments. Borrower agrees that it will use its best efforts to
assist and cooperate with Lender in any manner reasonably requested by Lender
to effect the sale of participations in or assignments of any of the Loan
Documents or any portion thereof or interest therein, including, without
limitation, assisting in the preparation of appropriate disclosure documents.
Borrower further agrees that Lender may disclose credit information regarding
Borrower to any potential participant or assignee.
11.4 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements
and the Security Documents shall be binding upon and inure to the benefit of
the successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
<PAGE> 71
11.6 Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2
hereof and except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
11.8 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given or delivered immediately when delivered against
receipt, one Business Day after deposit in the mail, postage prepaid, or with
an overnight courier or, in the case of facsimile notice, when sent, addressed
as follows:
<PAGE> 72
If to Lender: Fleet Capital Corporation
15260 Ventura Boulevard
Suite 1200
Sherman Oaks, California 91403
Attention: Loan Administration Manager
Facsimile No.: (818) 905-5929
With a copy to: Orrick, Herrington & Sutcliffe
777 South Figueroa Street - 32nd Floor
Los Angeles, California 90017
Attention: Earl A. Glick, Esq.
Facsimile No.: (213) 612-2499
If to Borrower: Ershigs, Inc.
c/o Containment Solutions, Inc.
1360 Post Oak Boulevard, Suite 2470
Houston, Texas 77056
Attention: Stephen T. Harcrow
Facsimile No.: (713) 627-0937
<PAGE> 73
With a copy to: Cathy L. Smith, Esq.
3DM
2078 Prospector Avenue
Park City, Utah 84
Facsimile No.: (801) 645-9893
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2
hereof shall not be effective until received by Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
11.10 Credit Inquiries. Borrower hereby authorizes and permits
Lender to respond to usual and customary credit inquiries from third parties
concerning Borrower, provided that, under such circumstances, Lender shall
preserve in confidence the specific terms of this transaction and financial
information given by Borrower to Lender in confidence.
<PAGE> 74
11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by
the parties in connection therewith or with reference thereto, embody the
entire understanding and agreement between the parties hereto and thereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and inducements, whether express or implied, oral or
written.
11.13 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
LOS ANGELES, CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA: PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA, THE LAWS
<PAGE> 75
OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF
LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE
LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF
CALIFORNIA. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS
OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR
LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF LOS
ANGELES COUNTY, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR
THE CENTRAL DISTRICT OF CALIFORNIA, SHALL HAVE EXCLUSIVE JURISDICTION TO BEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO
THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
<PAGE> 76
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAILS,
PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL
PAPER,
<PAGE> 77
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND
HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii)
NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO
EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S
ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING
WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
<PAGE> 78
IN WITNESS WHEREOF, this Agreement has been duly executed in Los
Angeles, California, on the day and year specified at the beginnings of this
Agreement.
ERSHIGS, INC.
("Borrower")
By /s/ STEPHEN T. HARCROW
----------------------------
Title Chairman CEO
----------------------
Accepted in Los Angeles, California:
FLEET CAPITAL CORPORATION
("Lender")
By /s/ JOHN TOLLE
---------------------------
Title Vice President
----------------------
<PAGE> 79
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of March ___,
1997 by and between Fleet Capital Corporation and Ershigs, Inc., the following
terms shall have the following meanings (terms defined in the singular to have
the same meaning when used in the plural and vice versa):
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter
acquired any interest.
Affiliate - a Person (other than a Subsidiary): (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, a Person; (ii)
which beneficially owns or holds 5% or more of any class of the Voting
Stock of a Person; or (iii) 5% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 5% or more of the equity
interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the
first sentence of this Appendix A, all Exhibits thereto and this
Appendix A.
Acquisition - the purchase by Borrower of substantially all of
the assets of Ershigs, Inc. pursuant to the Purchase Documents.
Availability - the amount of money which Borrower is entitled
to borrow from time to time as Revolving Credit Loans, such amount
being the difference derived when the sum of the principal amount of
Revolving Credit Loans then outstanding (including any amounts which
Lender may have paid for the account of Borrower pursuant to any of
the Loan Documents and which have not been reimbursed by Borrower) and
the Term Notes are subtracted from the Borrowing Base. If the amount
outstanding is equal to or greater than the Borrowing Base,
Availability is 0.
Bank - Fleet National Bank, N.A. or its successors and
assigns.
Base Rate - the rate of interest generally announced or quoted
by Bank from time to time as its base rate for commercial loans,
whether or not such rate is the lowest rate charged by Bank to its
most preferred borrowers; and if such base rate for commercial loans
is discontinued by Bank as a standard, a comparable reference rate
designated by Bank as a substitute therefor shall be the Base Rate.
Borrowing Base - as at any date of determination thereof, an
amount equal to the lesser of up to:
<PAGE> 80
(i) $6,500,000 minus the unpaid principal balance
of the Term Loans (which includes the Capex Facility) and standby
letters of credit issued under the Letter of Credit Facility at such
date; and
(ii) an amount equal to:
(a) 85% of the net amount of Eligible
Accounts outstanding at such date;
PLUS
(b) the lesser of $1,000,000 and 40% of
accounts receivable attributable to progress billings, and
unbilled accounts receivable, and accounts calculated on a
percentage of completion method and Eligible work in process
Inventory,
PLUS
(c) an amount equal to the lesser of up
to:
(A) $2,250,000, and
(B) 55% of Eligible resin, fiberglass
and sheet metal raw material Inventory and 30% of Eligible other raw
material Inventory. For purposes hereof, inventory shall be valued on
the basis of the lower of cost or market on a first-in, first-out
basis.
PLUS
(d) Term Loan "A". A term loan equal to
the lesser of up to:
(A) $600,000, and
(B) 99% of the liquidation value of
unencumbered machinery and equipment, as determined by Lender in the
exercise of its reasonable credit judgment.
Term Loan "A" is a subline of the Revolving Credit Loans.
PLUS
(e) Term Loan "B". A term loan equal to
the lesser of up to:
(A) $1,100,000, and
<PAGE> 81
(B) 99% of the fair market value of
unencumbered real estate, as determined by Lender in the exercise of
its reasonable credit judgment.
Term Loan "B" is a subline of the Revolving Credit Loans.
PLUS
(f) Letter of Credit Facility. A standby
letter of credit facility of up to $1,000,000. A reserve of 100% of
the face amount of all letters of credit outstanding shall be charged
against Availability.
The Letter of Credit Facility is a subline of the Revolving
Credit Loans.
PLUS
(g) Capital Expenditure Facility. A five
year Capex Facility to fund the acquisition of new or used equipment
of up to the lesser of:
(A) $1,500,000, and
(B) 80% of the purchase price for such
new or used equipment, exclusive of license, delivery and installation
expenses. The valuation of equipment shall be determined by Lender
in the exercise of its reasonable credit judgment.
The Capex Facility is a subline of the Revolving Credit Loans.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts (which may, at Lender's option, be calculated on shortest
terms), credits, allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or payable in
connection with such Accounts at such time.
Business Day - any day excluding Saturday, Sunday and any day which is
a legal holiday under the laws of the State of California or the State of
Illinois or is a day on which banking institutions located in either of such
states are closed.
Capital Expenditures - expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capitalized Lease Obligations.
<PAGE> 82
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Closing Date - the date on which all of the.conditions precedent in
Section 9 of the Agreement are satisfied and the initial Loan is made under the
Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State
of California as from time to time in effect.
Collateral - all of the Property and interests in Property described
in Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets shown
on a balance sheet at such date in accordance with GAAP except that amounts due
from Affiliates and investments in Affiliates shall be excluded therefrom.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities shown on a balance sheet at such date in accordance with GAAP.
Debt Coverage Ratio - (a) EBITDA minus Capital Expenditures, divided
by (b) interest expense plus regularly scheduled principal payments and taxes.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds
of the sale of Securities.
Dominion Account - a special account of Lender established by Borrower
pursuant to the Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.
EBIT - with respect to any fiscal period, the sum of Borrower's
Consolidated net earnings (or loss) before interest expense and taxes for said
period as determined in accordance with GAAP.
<PAGE> 83
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, including
but not limited to, (i) unbilled Accounts, progress billings and/or Accounts
calculated on a percentage of completion method, which (H) together with
Eligible work-in-process Inventory, are limited to an aggregate subline of
$1,000,000, and (iii) which Lender, in its reasonable credit judgment, deems to
be an Eligible Account. Without limiting the generality of the foregoing, no
Account shall be an Eligible Account if:
(i) it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate of
Borrower; or
(ii) it is due or unpaid for more than 60 days from due
date or 90 days after the original invoice date; or
(iii) 50% or more of the Accounts from the Account Debtor
are not deemed Eligible Accounts hereunder; or
(iv) the total unpaid Accounts of the Account Debtor
exceed 10% of the net amount of all Eligible Accounts, to the extent
of such excess, provided however, that Lender, in its sole discretion,
may allow up to 20% of the net amount of all Eligible Accounts, based
upon Lender's credit review of the particular account debtor including
such account debtor's most recent financial statements; or
(v) any covenant, representation or warranty contained in
the Agreement with respect to such Account has been breached; or
(vi) the Account Debtor is also Borrower's creditor or
supplier, or the Account Debtor has disputed liability with respect to
such Account, or the Account Debtor has made any claim with respect to
any other Account due from such Account Debtor to Borrower, or the
Account otherwise is or may become subject to any right of setoff by
the Account Debtor; or
(vii) the Account Debtor has commenced a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter
amended, or made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an
involuntary case under the federal bankruptcy laws, as now constituted
or hereafter amended, or any other petition or other application for
relief under the federal bankruptcy laws has been filed against the
Account Debtor, or if the Account Debtor has failed, suspended
business, ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or
for all or a significant portion of its assets or affairs; or
<PAGE> 84
(viii) it arises from a sale to an Account Debtor outside
the United States, unless the sale is on a letter of credit, and if
issued by a foreign bank is domestically confirmed by Bank, or is on
guaranty or acceptance terms, in each case acceptable to Lender in its
sole discretion and is in any event, limited to a subline of
$1,000,000; or
(ix) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or
(x) the Account Debtor is the United States of America or
any department, agency or instrumentality thereof, unless Borrower
assigns its right to payment of such Account to Lender, in a manner
satisfactory to Lender, so as to comply with the Assignment of Claims
Act of 1940 (31 U.S.C. Section 203 et seq., as amended); or
(xi) the Account is subject to a Lien other than a
Permitted Lien; or
(xii) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower and accepted
by the Account Debtor or the Account otherwise does not represent a
final sale; or
(xiii) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; or
(xiv) Borrower has made any agreement with the Account
Debtor for any deduction therefrom, including for finance charges and
reserves for rebates and advertising, except for discounts or
allowances which are made in the ordinary course of business for
prompt payment and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such Account;
or
(xv) Borrower has made an agreement with the Account
Debtor to extend the time of payment thereof.
Eligible Inventory - such Inventory of Borrower consisting of raw
materials and certain work in process (other than packaging materials and
supplies) which are located at Borrower's premises in the United States of
America and which Lender, in its reasonable credit judgment, deems to be
Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:
(i) it is work-in-process or raw materials unless such
raw materials are in Lender's opinion readily marketable in its
current form; or
<PAGE> 85
(ii) it is not in good, new and saleable condition; or
(iii) it is slow-moving, obsolete or unmerchantable; or
(iv) it is physical inventory count variances; or
(v) it is reflected in progress billings; or
(vi) it is a result of applied fixed overhead; or
(vii) it does not meet all standards imposed by any
governmental agency or authority; or
(viii) it does not conform in all respects to the warranties
and representations set forth in the Agreement,
(ix) it is not at all times subject to Lender's duly
perfected, first priority security interest and no other Lien except a
Permitted Lien; or
(x) it is not situated at a location in compliance with
the Agreement.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or
hereafter acquired by Borrower and wherever located, and all parts, accessories
and special tools and all increases and accessions thereto and substitutions
and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.
Eurodollar Business Day - means any Business Day on which commercial
lending institutions are open for international business (including dealings in
United States Dollar deposits) in London.
Event of Default - as defined in Section 10.1 of the Agreement.
Excess Cash Flow - with respect to any fiscal period of Borrower, 50%
of the amount derived by adding to EBIT for such fiscal period depreciation,
amortization and deferred taxes for such fiscal period and subtracting from
such sum regularly scheduled
<PAGE> 86
payments of (to the extent actually paid) of principal and interest on
Indebtedness for Money Borrowed and Capital Expenditures, which are not
evidenced by a note, for such fiscal period.
GAAP - generally accepted account principles in the United States of
America in effect from time to time.
General Intangibles - all personal property of Borrower (including
things in action) other than goods, Accounts, chattel paper, documents,
instruments and money, whether now owned or hereafter created or acquired by
Borrower.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person
has guaranteed,
(iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the
account of such Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods intended for sale or lease by
Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or
otherwise used or consumed in Borrower's business; and all documents evidencing
and General Intangibles relating to any of the foregoing, whether now owned or
hereafter acquired by Borrower.
LIBOR - means the rate per annum offered by Bank at 11:00 a.m.
(London time) in the London interbank market, for Eurodollar deposits for a
period of one (1) month, as quoted on the Reuters Screen LIBO Page on the
second full Eurodollar Business Day (as defined below) preceding the date with
respect to which such calculation is being made (or if such rate is no longer
being quoted on the Reuters Screen LIBO Page, as quoted in such other
publications as may be designated by Lender), rounded upwards, if necessary to
the nearest one-sixteenth of one percent (0.0625%).
<PAGE> 87
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to Borrower; (ii) Indebtedness, whether or not in any such
case arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures,
notes or similar instruments, or (C) upon which interest charges are
customarily paid (other than accounts payable) or that was issued or assumed as
full or partial payment for Property; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations with respect to
letters of credit or guaranties of letters of credit and (v) Indebtedness of
Borrower under any guaranty of obligations that would constitute Indebtedness
for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by
Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
of ERISA.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or
to become due, now existing or hereafter arising and however acquired.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), now or hereafter
executed by
<PAGE> 88
Borrower, or any other third party and delivered to Lender in respect of the
transactions contemplated by the Agreement.
Overadvance - the amount, if any, by which the outstanding principal
amount of Revolving Credit Loans exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in the Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
Borrower incurred after the date hereof which is secured by a Purchase Money
Lien and which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of Borrower at the time
outstanding, does not exceed $100,000. For the purposes of this definition, the
principal amount of any Purchase Money Indebtedness consisting of capitalized
leases shall be computed as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted (a) balance sheets, (b) profit and
loss statements, (c) cash flow statements, and (d) capitalization statements,
all prepared on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions, all to be furnished to Lender on a monthly basis.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Purchase Documents - the Stock Purchase and Sale Agreement dated
February 14, 1997, by and between SSI as "Buyer" and Praxair "Seller", and all
documents and instruments to be executed or delivered in connection therewith.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Indebtedness (other than the Obligations)
incurred at the time of or within 10 days prior to or after the acquisition of
any fixed assets for the purpose of financing all or any part of the purchase
price thereof, and (iii) any renewals,
<PAGE> 89
extensions or refinancings thereof, but not any increases in the principal
amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien.
Rentals - as defined in subsection 8.2.12 of the Agreement.
Renewal Terms - as defined in Section 4.1 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) Property to be used in the ordinary course of
business;
(ii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower;
(iii) investments in direct obligations of the United
States of America, or any agency thereof or obligations guaranteed by
the United States of America, provided that such obligations mature
within one year from the date of acquisition thereof;
(iv) investments in certificates of deposit maturing
within one year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital surplus and undivided profits aggregating at
least $100,000,000; and
(v) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than
270 days from the date of creation thereof.
Revolving Credit Loan - a Loan made by Lender as provided in Section
3.1 of the Agreement.
Schedule of Accounts - as defined in subsection 6.2.1 of the
Agreement.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
<PAGE> 90
Security Documents - the Guaranty Agreement and all other instruments
and agreements now or at any time hereafter securing the whole or any part of
the Obligations.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Subordinated Debt - Indebtedness of Borrower that is subordinated to
the Obligations in a manner satisfactory to Lender.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Tangible NetWorth - equity minus other current assets minus other
noncurrent assets, prepayments, intangibles (excluding patents) and notes
receivable.
TermLoans - the Loans described in subsections 1.2.1, 1.2.2, and 1.2.5
of the Agreement.
TermNotes - the Secured Promissory Notes to be executed by Borrower on
or about the Closing Date in favor of Lender to evidence the Term Loans, which
shall be in the form of Exhibit 1.2.1 to the Agreement.
Total Credit Facility - $6,500,000.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Working Capital - Current Assets minus Current Liabilities.
Other Terms. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect
the interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
<PAGE> 91
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Term Note-A
Exhibit B Term Note-B
Exhibit 6.1.1 Borrower's Business Locations
Exhibit 7.1.1 Jurisdictions in which Borrower is Authorized to do
Business
Exhibit 7.1.4 Capital Structure of Borrower
Exhibit 7.1.5 Corporate Names
Exhibit 7.1.16 Patents, Trademarks, Copyrights and Licenses
Exhibit 7.1.19 Contracts Restricting Borrower's Right to Incur
Debts
Exhibit 7.1.20 Litigation
Exhibit 7.1.22(a) Capitalized Leases
Exhibit 7.1.22(b) Operating Leases
Exhibit 7.1.23 Pension Plans
Exhibit 7.1.25 Labor Contracts
Exhibit 8.1.3 Compliance Certificate
Exhibit 8.2.5 Permitted Liens
</TABLE>
<PAGE> 1
EXHIBIT 4.06
PAYMENT ON THIS JUNIOR SUBORDINATED PROMISSORY NOTE IS
SUBORDINATED TO THE CLAIMS OF THE SENIOR LENDER REFERRED
TO IN THAT INTERCREDITOR AND SUBORDINATION AGREEMENT DATED
AS OF DECEMBER 21, 1994 BETWEEN OWENS-CORNING FIBERGLAS
CORPORATION AND BARCLAYS BUSINESS CREDIT, INC.
JUNIOR SUBORDINATED PROMISSORY NOTE
in the aggregate principal amount of
$7,500,000
(Subject to Adjustment as Provided Herein)
issued on
December 23, 1994
by
OCTANS, INC.
(being renamed FLUID CONTAINMENT, INC.)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Payment Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Reports and Rights of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Quarterly Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Annual Statements; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Officers' and Accountant's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Operating Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Events of Default; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Default on Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Dissolution, Liquidation or Reorganization of the Company . . . . . . . . . . . . . . . . . . . . . 10
(c) Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Payments Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(e) Changes in Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(f) Third Party Beneficiary, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(g) Rights of Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(h) Authorization to Senior Lenders to Take Action to Effectuate Subordination . . . . . . . . . . . . . 12
(i) Rights of Holders of Senior Debt Not to be Impaired, Etc . . . . . . . . . . . . . . . . . . . . . . 12
(j) Distribution or Notice to Representative; Reliance . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 No Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2 Amendments, Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.4 Rights Confined to Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.5 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.9 Governing Law and Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.10 Agent for Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.12 Waiver of Usury Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.13 Payment and Return of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
ii
<PAGE> 4
OCTANS, INC.
(BEING RENAMED FLUID CONTAINMENT, INC.)
JUNIOR SUBORDINATED PROMISSORY NOTE
$7,500,000 December 23, 1994
New York, New York
1. Payment Obligation.
OCTANS, INC. (BEING RENAMED FLUID CONTAINMENT, INC.), a Nevada
corporation (the "COMPANY"), for value received, hereby promises (i) to pay to
Owens-Corning Fiberglas Corporation, a Delaware corporation ("HOLDER"), or its
permitted assigns, the principal amount of SEVEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($7,500,000), consisting of $7,000,000 of purchase price and $500,000
of reimbursed severance-related costs under that certain Asset Purchase
Agreement of even date herewith (the "SALE AGREEMENT") among the Company,
Holder and Fluid Containment Property, Inc., and as such amount may be adjusted
in accordance with the provisions of Sections 3.4 and 6.4(b) or offset, if
applicable, in accordance with the provisions of Section 8.5 of the Sale
Agreement, and (ii) to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid principal amount hereof at the rate of TEN
PERCENT (10%) per annum; provided, however that interest shall be payable on
any overdue principal, and, to the extent permitted by applicable law, on any
overdue interest, at the rate of FOURTEEN PERCENT (14%) per annum until the
same shall be paid. Accrued interest under this Junior Subordinated Promissory
Note (this "NOTE") shall be paid semiannually, in cash, on the last day of June
and December of each year, commencing June 30, 1995, and the principal balance
of this Note together with all accrued, unpaid interest hereunder shall be
payable on December 31, 1999. Payments of principal and interest on this Note
shall be made by wire transfer in immediately available funds to an account
designated by the Holder, in lawful money of the United States of America.
Payments herein will first be applied to interest due and then to principal.
Notwithstanding the foregoing, the Company may pay up to two installments of
interest due under this Note in-kind by adding the amount of such interest to
the principal balance due; provided the Company delivers written notice to
Holder at least 3 days prior to the date the installment of interest proposed
to be paid in-kind is due and payable hereunder that the Company wishes to pay
such installment in-kind; and provided further that such payment in-kind would
not result in the interest payable under this Note being in violation of
applicable laws.
The Company may at its election prepay this Note in whole, or in part,
without premium, but with interest accrued but unpaid thereon through the date
of prepayment.
This Note is subject to the following additional provisions, terms and
conditions:
<PAGE> 5
2. Definitions.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under common control
with the Person specified. For purposes of this definition, the term
"control" (including the terms "controlling," "controlled by" and "under
common control with") of a Person means the possession, direct or indirect,
of the power to (i) vote more than 50% of the Voting Stock of such Person
or (ii) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"AUTHORIZED OFFICER" means the President, any Vice President or the
Controller of the Company.
"BLOCKAGE PERIOD" has the meaning assigned to such term in Section
6(a).
"CLOSING" has the meaning assigned such term in the Sale Agreement.
"CLOSING DATE" means the date of the Closing.
"COMPANY" has the meaning specified in the first paragraph hereof and
shall include any successor in interest to the Company.
"DEFAULT" means any event or condition which, with due notice or lapse
of time or both, would become an Event of Default.
"DISTRIBUTION OF ASSETS" means any distribution of assets of the
Company of any kind or character, whether (a) a payment, purchase or other
acquisition or retirement for cash, property or securities, or (b) by way
of cancellation, forgiveness or offset of the Indebtedness evidenced by
this Note against any Indebtedness owed to the Company by Holder or any
subsequent holder of this Note, or (c) payable or deliverable by reason of
the payment of any other Indebtedness of the Company which is subordinated
to the payment of this Note; provided, however, that no Distribution of
Assets shall be deemed to occur in the event of a distribution of
securities of the Company or any other Person provided for by a plan of
reorganization or comparable arrangement in the case of an insolvency,
bankruptcy, receivership, dissolution, liquidation or comparable
proceeding, the payment of which is subordinated, at least to the same
extent as this Note, to the payment of all Senior Debt which may at the
time be outstanding and the principal of which securities is due no earlier
than the principal of this Note.
"EVENT(S) OF DEFAULT" has the meaning specified in Section 4.1.
2
<PAGE> 6
"GAAP" means, as of the date of any determination with respect thereto,
generally accepted accounting principles as used by the Financial
Accounting Standards Board and/or the American Institute of Certified
Public Accountants, consistently applied and maintained throughout the
periods indicated.
"HOLDER" has the meaning specified in the first paragraph hereof and
shall include any successor in interest to or permitted assigns of the
Holder.
"INDEBTEDNESS" means, with respect to any Person, (a) all
indebtedness, obligations and other liabilities (contingent or otherwise)
of such Person for borrowed money or evidenced by bonds, debentures, notes
or similar instruments (whether or not the recourse of the lender is to the
whole of the assets of such Person or to only a portion thereof); (b) all
reimbursement obligations and other liabilities (contingent or otherwise) of
such Person with respect to letters of credit or bankers' acceptances issued
for the account of such Person or with respect to interest rate protection
agreements or currency exchange agreements; (c) all obligations and other
liabilities (contingent or otherwise) of such Person with respect to any
conditional sale, installment sale or other title retention agreement,
purchase money mortgage or security interest, or otherwise to pay the
deferred purchase price of property or services (except trade accounts
payable and accrued expenses arising in the ordinary course of business) or
in respect of any sale and leaseback arrangement; (d) all obligations and
liabilities (contingent or otherwise) in respect of leases by such Person as
lessee which, in conformity with GAAP, are required to be accounted for as
capitalized lease obligations on the balance sheet of such Person; and (e)
all direct or indirect guaranties or similar agreements in respect of, and
obligations or liabilities (contingent or otherwise) to purchase or
otherwise acquire or otherwise to assure a creditor against loss in respect
of, indebtedness, obligations or liabilities of others.
"NOTE" has the meaning specified in the first paragraph hereof.
"NON-PAYMENT DEFAULT" has the meaning assigned to such term in Section
6(a).
"PAYMENT DEFAULT" has the meaning assigned to such term in Section
6(a).
"PAYMENT IN FULL" or "PAID IN FULL" means indefeasible payment in
full, in cash, cash equivalents or as otherwise may be acceptable to the
applicable creditor.
"PERSON" means and includes an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
3
<PAGE> 7
"REPLACEMENT FACILITY" means any agreements or instruments evidencing
any amendment, extension, renewal, refunding or refinancing of any Senior
Debt.
"REPRESENTATIVE" means, with respect to any issue of Senior Debt, the
trustee, agent or other representative for all or any of the Senior
Lenders, if any, designated in the indenture, agreement or other document
creating, evidencing or governing such Senior Debt or pursuant to which it
was issued, or otherwise duly designated by the holders of such Senior
Debt; provided that in any case notice of the identity of the
Representative shall have been given to Holder, and as of the date hereof
the Representative is Barclays Business Credit, Inc. which shall be the
Representative until another Representative has been designated by notice
to Holder.
"SALE AGREEMENT" has the meaning specified in the first paragraph
hereof.
"SENIOR CREDIT AGREEMENT" means that certain Loan and Security
Agreement (the "Barclays Agreement"), dated as of December 21, 1994,
entered into between the Company and Barclays Business Credit, Inc.
("Barclays"), as the same may be amended from time to time, or in the event
the Loan and Security Agreement with Barclays shall no longer be in effect,
the agreement, if any, evidencing the largest principal amount of senior
debt of the Company outstanding.
"SENIOR DEBT" means the following, whether outstanding on the date of
this Note or hereafter created, incurred or assumed by the Company:
(a) the principal of, the premium and interest on, all loans,
letters of credit and bankers' acceptances to the Company by, and other
Indebtedness for borrowed money of the Company to, any Person (other
than by an Affiliate of the Company, or by an officer, director or
shareholder of the Company, other than an institutional lender or
investor, or by any Person which is an Affiliate of any of the
foregoing other than a Person which is an institutional lender or
investor), however evidenced, and all commitment, facility and other
fees, and all expenses, reimbursements, indemnities and other amounts
payable by the Company thereunder or with respect thereto;
(b) any Replacement Facility;
(c) all interest accrued or accruing on any obligation
described in clause (a) or (b) above after the commencement of any
insolvency, bankruptcy or receivership case or proceeding in
accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the
agreement or instrument creating, evidencing or
4
<PAGE> 8
governing any such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as
a claim in such case or proceeding; and,
(d) any refundings, renewals, extensions, substitutions,
refinancings or replacements of any obligation described in clauses (a)
or (b) above (including those that increase the amount of such
obligation).
"SENIOR LENDER" or "SENIOR LENDERS" means one or more of the holders of
the Senior Debt and includes the respective Representatives of such holders.
"VOTING STOCK" means capital stock or other equity interest of any
class or classes of a corporation or other entity the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of corporate directors (or Persons performing similar functions).
3. Covenants. The Company covenants and agrees that, commencing on
the Closing Date and so long as this Note shall remain outstanding:
3.1 Reports and Rights of Inspection. The Company will keep
proper accounts of its business and affairs and furnish to Holder:
(a) Quarterly Statements. As soon as available after the end
of each fiscal quarter (except the last) of each fiscal year of the
Company, but in any case no later than 45 days after the end of such
quarter, copies of:
(1) the balance sheet of the Company as of the close of
such period, and
(2) the statements of operations and cash flows and
changes in financial position of the Company for the portion of the
fiscal year ending with such period,
in each case, setting forth in comparative form (if available) the figures
for the corresponding period of the preceding fiscal year, all in
accordance with GAAP consistently applied (except for changes disclosed
therein and concurred in by the independent public accountants referred to
in Section 3.1(b) below) and in reasonable detail and certified by the
controller of the Company as presenting fairly in all material respects
the information contained therein as of the date of such financial
statements and for the period covered thereby, subject to normal year-end
audit adjustments;
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<PAGE> 9
(b) ANNUAL STATEMENTS. As soon as available after the close
of each fiscal year of the Company, but in any case no later than 90 days
after the end of such year, copies of:
(1) the balance sheet of the Company as of the close of
such fiscal year, and
(2) the statements of operations and cash flows of the
Company for such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year (if available), all in reasonable detail and
accompanied by an opinion thereon of a firm of independent public
accountants of recognized national standing to the effect that such
financial statements have been prepared in accordance with GAAP (except for
changes in which such accountants concur), that such financial statements
present fairly in all material respects the financial condition of the
Company as of the date of the financial statements and for the period
covered thereby and that the examination of such accountants in connection
with such financial statements has been made in accordance with generally
accepted auditing standards; provided, however, that the Company shall not
be required to furnish Holder with copies of its balance sheet and
statements of operations and cash flows for its fiscal year ended December
31, 1994;
(c) OFFICERS' AND ACCOUNTANT'S CERTIFICATES. Together with the
financial statements referred to in Sections 3.l(a) and (b) above, a
certificate of the controller of the Company stating that he or she has
reviewed the provisions of this Agreement and setting forth, to the best of
his or her knowledge, in his or her capacity as an officer of the Company,
whether there existed as of the date of such financial statements and
whether there exists on the date of the certificate or existed at any time
during the period covered by such financial statements any Default or Event
of Default and, if, to the best of his or her knowledge in his or her
capacity as an officer of the Company, any such condition or event exists
on the date of the certificate, specifying the nature and period of
existence thereof and the action the Company is taking and proposes to take
with respect thereto; and, together with the financial statements referred
to in Section 3,1(b) above, a certificate of the Company's accountants
stating that in the course of their audit of the Company they have obtained
no knowledge that a Default or Event of Default has occurred and is
continuing, or if, in the opinion of such accountants, a Default or Event
of Default has occurred and is continuing, a statement as to the nature
thereof, and
(d) OPERATING BUDGET. As soon as available and in any event
no later than thirty (30) days prior to the end of each fiscal year of the
Company, an annual operating budget for the Company, projecting operating
statistics and financial reports for the following fiscal year; and
6
<PAGE> 10
(e) NOTICE OF DEFAULTS. Promptly (and in any event within 2
business days) following any Authorized Officer becoming aware of the
occurrence of any Default or Event of Default under this Note, notice in
writing to the Holder of such Default or Event of Default.
Without limiting the foregoing, the Company will permit the Holder (and its
advisors) to examine all books of account, records, reports and other
papers of the Company, to make copies and extracts therefrom, and to
discuss its affairs, finances and accounts with its officers and employees,
all during regular business hours and to the extent reasonably necessary
for Holder to verify that the Company is in compliance with the terms of
this Note; provided that prior to receiving any nonpublic, confidential or
proprietary information concerning the Company, Holder shall execute and
deliver to the Company an agreement reasonably acceptable to the Company
agreeing to keep any such information confidential.
3.2 FURTHER ASSURANCES. From time to time hereafter, the
Company will execute and deliver, or will cause to be executed and delivered,
such additional instruments and other documents consistent with the terms of
this Note, and shall take such further actions as the Holder may reasonably
request, for the purposes of effectuating, carrying out and complying with the
provisions of this Note.
4. ADDITIONAL COVENANTS. The Company covenants and agrees that,
commencing on the Closing Date, so long as this Note shall remain outstanding,
the Company shall comply with the affirmative and negative covenants set forth
in the Senior Credit Agreement, as may be in effect from time to time, except
that in the case of the Barclays Agreement the Company need not comply with the
covenants set forth in Section 8.1, 8.2.6, 8.2.8, 8.2.11, 8.2.13 or 8.3 thereof
(and such in any case the foregoing covenants as applicable shall be deemed to
be incorporated herein as if set forth herein in full, provided that if a
Senior Credit Agreement shall no longer be in effect the covenants set forth in
the Senior Credit Agreement most recently in effect shall be the covenants
deemed incorporated herein (except that any consent to be given by the lender
thereunder is to be given by Holder), so long as such covenants were not agreed
to or amended in anticipation of the termination of such Senior Credit
Agreement.
5. EVENTS OF DEFAULT.
5.1 EVENTS OF DEFAULT: REMEDIES. If, at any time that this
Note or any portion of this Note shall be outstanding, any of the following
events (herein called "EVENTS OF DEFAULT") shall have occurred and be continuing
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or by operation of law or otherwise):
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<PAGE> 11
(a) the Company shall default in the due and punctual payment
of all or any part of the principal of or interest on this Note when
and as the same shall become due and payable, whether at stated
maturity, by acceleration or otherwise and, in the case of payment of
interest, such default shall continue unremedied for a period of three
days after Holder has given written notice to the Company;
(b) the Company shall default in the performance or
observance in any material respect of any of the covenants, agreements
or conditions contained in this Note, and such default shall continue
unremedied for a period of 30 days after Holder has given written
notice to the Company;
(c) any uncured and unwaived Event of Default shall occur
with respect to any Indebtedness of the Company to any holder of Senior
Debt, the effect of which is that all or any portion of such
Indebtedness becomes immediately due and payable prior to the stated
maturity thereof and such holder of Senior Debt takes steps to effect
collection thereof;
(d) the Company shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator in respect of itself or of all or a substantial
part of its property, (ii) be generally unable to pay its debts as
such debts become due, (iii) make a general assignment for the benefit
of its creditors, (iv) commence a voluntary case under the Federal
Bankruptcy Code, (v) fail to controvert in a timely or appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Federal Bankruptcy Code, (vi) admit in
writing its inability to pay its debts generally as such debts become
due or (vii) take any action under the laws of its jurisdiction of
organization analogous to any of the foregoing, or take any requisite
corporate action for the purpose of effecting any of the foregoing;
(e) a proceeding or case shall be commenced, without the
application or consent of the Company in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution,
winding-up, or composition or readjustment of the debts of the Company,
(ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of the Company or of all or any substantial part of the assets
of the Company, or (iii) similar relief in respect of the Company,
under any law providing for the relief of debtors generally, and such
proceeding, case or appointment shall continue undismissed, or unstayed
and in effect, for a period of 60 days after notice thereof, or an
order for relief shall be entered in an involuntary case under the
Federal Bankruptcy Code against the Company and shall continue
undismissed, or unstayed and in effect, for a period of 60 days; and
(f) final judgment for the payment of money in excess of
$1,000,000 shall be rendered by a court of competent jurisdiction
against the Company, and the Company shall not discharge the same or
provide for its discharge in accordance with its terms, or procure a
stay for execution thereof, within 30 days from the date of entry
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<PAGE> 12
thereof and within said period of 30 days, or such longer period
during which execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal;
then, (x) in the case of any Event of Default described in Section 5.1 (d) or
(e) the unpaid principal amount of this Note together with the interest accrued
thereon shall automatically become immediately due and payable, or (y) in the
case of any other Event of Default, the Holder, by written notice, may declare
the unpaid principal amount of the Note at the time outstanding to be, and the
same shall forthwith become, immediately due and payable, in each case together
with the interest accrued thereon.
5.2 SUITS FOR ENFORCEMENT. If any Event of Default shall have
occurred and be continuing, (i) the Holder may, subject to the terms of
Section 6, proceed to protect and enforce its rights, either by suit in
equity or by action at law, or both, whether for the specific performance of
any covenant or agreement contained in this Note or in aid of the exercise of
any power granted in this Note, or the Holder may proceed to enforce the payment
of all sums due upon this Note or to enforce any other legal or equitable right
of the Holder and (ii) the Company will pay to the Holder such further amounts,
to the extent lawful, as shall be sufficient to pay the reasonable,
out-of-pocket costs and expenses of collection or of otherwise enforcing such
Holder's rights, including reasonable counsel fees and costs.
6. SUBORDINATION. Other than for the subordination provisions
contained in the Intercreditor and Subordination Agreement entered into
pursuant to the Barclays Agreement (which shall be applicable in respect
thereof in lieu of the provisions of this Section 6) and anything in this Note
to the contrary notwithstanding, the Company covenants and agrees, and Holder
and, by its acceptance of this Note, any subsequent holder of this Note
likewise covenants and agrees, that the Indebtedness of the Company hereunder
shall be junior and subordinate to the Senior Debt to the extent and in the
manner set forth in this Section 6. Each Subsection of this Section 6 shall be
given independent effect so that if a particular payment is prohibited by any
one of such Subsections, it shall be prohibited although it otherwise would not
be prohibited by another Subsection.
(a) DEFAULT ON SENIOR DEBT. If any default in the payment
when due (whether at maturity or upon acceleration or mandatory prepayment, or
on any principal installment payment date or interest payment date, or
otherwise) of any Senior Debt shall at any time occur (a "PAYMENT DEFAULT") or
there shall at any time exist any Event of Default (other than a Payment
Default) under any Senior Debt pursuant to which such Senior Debt may be
accelerated (a "NON-PAYMENT DEFAULT"), then at all times thereafter until
Payment in Full of all Senior Debt, such Payment Default or Non-Payment Default
shall have been cured, or such Payment Default or Non-Payment Default or the
benefits of this sentence shall have been waived in writing by or on behalf of
the Senior Lenders that hold such Senior Debt, the Company shall not, directly
or indirectly, make any payment (other than payments of interest in-kind in
accordance with Section 1 above) or Distribution of Assets with respect to this
Note. Notwithstanding the foregoing, (i) in the event of a Non-Payment Default,
unless the Senior
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<PAGE> 13
Debt with respect thereto has been accelerated within 179 days after
written notice thereof to the Company (the "Blockage Period") and that
acceleration has not been rescinded, the Company is required to pay to
Holder forthwith all sums not paid to Holder during the Blockage Period
due to the foregoing prohibitions and to resume any and all other
payments, as and when due, on the Note and in the event that all such
payments are made to Holder at or before the end of the Blockage
Period, Holder will have no right to accelerate the principal of this
Note as a result of any failure by the Company to make such payments
during the Blockage Period; (ii) the provisions of the first sentence
of this paragraph (a) shall not be applicable in the case of any
Non-Payment Default for more than 179 days during any period of 365
consecutive days; and (iii) no circumstance or event giving rise to a
Non-Payment Default existing on the date of any other Non-Payment
Default applicable pursuant to such sentence shall be the basis for a
subsequent Non-Payment Default. The Company shall give prompt notice to
Holder and any subsequent holder of this Note of any Payment Default or
Non-Payment Default, of the commencement of any Blockage Period, and
any Payment in full, cure or waiver of the benefits of the first
sentence of this paragraph (a) as referred to in such first sentence.
(b) Dissolution, Liquidation or Reorganization of the Company.
In the event of any insolvency, bankruptcy or receivership case or
proceeding, or any dissolution, winding up, liquidation, or
reorganization or other similar proceedings, relative to the Company,
its property or its operations (whether voluntary or involuntary and
whether in bankruptcy, insolvency or receivership proceedings or
otherwise) or upon an assignment for the benefit of creditors, or any
other marshalling of the assets of the Company, then all Senior Debt
shall first be Paid in Full before Holder or any subsequent holder of
this Note shall be entitled to receive or retain any payment or
Distribution of Assets with respect to this Note made after the
initiation of any such proceeding, assignment or marshalling. In any
such proceedings, any such payment or Distribution of Assets to which
Holder or any such subsequent holder would be entitled if this Note
were not subordinated to the Senior Debt shall be paid by the Company
or by the trustee or agent or other Person making such payment or
distribution, or by Holder or such subsequent holder if received by
Holder or such subsequent holder, directly to the Senior Lenders
(pro rata in accordance with the amount of the Senior Debt owing to
the Senior Lenders) to the extent necessary to make Payment in Full
of all Senior Debt, after giving effect to any concurrent payment or
distribution to or for the benefit of the Senior Lenders.
(c) Subrogation. No payment or Distribution of Assets to
which Holder or any subsequent holder of this Note would have been
entitled except for the provisions of this Section 6 and which
has been received by or paid over to the Senior Lenders or their
Representative shall, as between the Company, its creditors other
than the Senior Lenders, and Holder or any subsequent holder of this
Note, be deemed to be a payment by the Company to the Senior Lenders
or on account of the Senior Debt, and from and after the Payment in
Full of all Senior Debt, Holder or any subsequent holder of this Note
shall be subrogated to all then or thereafter existing rights of the
Senior Lenders to receive payments or Distributions of Assets made on
the Senior Debt until this Note shall be Paid in Full.
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<PAGE> 14
(d) Payments Held in Trust. If Holder or any subsequent
holder of this Note shall receive any payment or Distribution of Assets
which Holder or such subsequent holder is not entitled to retain under
the provisions of this Section 6, any such payment or Distribution of
Assets so received shall be held in trust for the Senior Lenders and
shall be paid to the Senior Lenders (pro rata) to the extent necessary
to make Payment in Full of all Senior Debt, after giving effect to any
concurrent payment or distribution to or for the benefit of the Senior
Lenders.
(e) Changes in Senior Debt. Any Senior Lender may at any time
and from time to time without the consent of or notice to Holder or any
subsequent holder of this Note: (a) extend, renew, modify, waive or
amend the terms of the Senior Debt; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (c) release any guarantor or any other Person
(except the Company) liable in any manner for the Senior Debt or amend
or waive the terms of any guaranty of the Senior Debt; (d) exercise or
refrain from exercising any rights against the Company or any other
Person; (e) apply any sums by whomever paid or however realized to
Senior Debt; and (f) take any other action which otherwise might be
deemed to impair the rights of the Senior Lenders. Any and all of such
actions may be taken by the Senior Lenders without incurring
responsibility to Holder or any subsequent holder of this Note and
without impairing or releasing the obligations of Holder or any
subsequent holder of this Note to the Senior Lenders.
(f) Third Party Beneficiary, Etc. The foregoing provisions of
this Section 6 are solely for the purpose of defining the relative
rights of the Senior Lenders on the one hand and Holder and any
subsequent holder of this Note on the other hand. Such provisions are
for the benefit of the Senior Lenders (and their successors and
assigns) and shall be enforceable by them directly against Holder and
any such subsequent holder (and their successors and assigns). This
Section 6 shall constitute a continuing offer to all Persons who become
holders of, or continue to hold, Senior Debt (whether such Senior Debt
was created or acquired before or after the issuance of this Note).
This Section 6 may not be amended without the consent of each Senior
Lender.
(g) Rights of Holder. Nothing in this Note is intended to or
shall impair, as between the Company and Holder or any subsequent
holder, the obligation of the Company, which is unconditional and
absolute, to pay to Holder or such subsequent holder the principal of
and interest on this Note as and when the same shall become due in
accordance with its terms, or is intended to or shall affect the
relative rights against the Company of Holder or such subsequent holder
and creditors of the Company other than the Senior Lenders. The failure
to make a payment on account of this Note by reason of any provision of
this Section 6 shall not be construed as preventing the occurrence of
an Event of Default, nor shall anything herein prevent Holder or any
subsequent holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject, however, to (i)
the rights under this Section 6 of the Senior Lenders to receive
payments or Distributions of Assets otherwise payable to or received by
Holder or any subsequent holder of this Note upon the exercise of any
such remedy
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<PAGE> 15
and (ii) the limitation on the ability of any holder of this Note to
accelerate the principal of this Note during any Blockage Period as
provided in Section 6(a) above.
(h) Authorization to Senior Lenders to Take Action to
Effectuate Subordination. If Holder or any subsequent holder of this
Note does not take all such action as may be necessary or appropriate
to effectuate the subordination provided in this Section 6, including,
in the event of any insolvency, bankruptcy or receivership case or
proceeding or any dissolution, winding-up, liquidation, reorganization
or other similar proceedings relative to the Company (whether voluntary
or involuntary and whether in bankruptcy, insolvency or receivership
proceedings or otherwise), the timely filing of a claim for the unpaid
balance of this Note in the form required in such proceedings and the
causing of such claim to be approved, prior to 30 days before the
expiration of the time to file such claims or proofs, then the Senior
Lenders are hereby authorized, and shall have the right (without any
duty), to demand, sue for, collect, receive and receipt for the
payments and distributions in respect of this Note which are required
to be paid or delivered to the Senior Lenders as provided in this
Section 6, and to file and prove all claims therefor and to take all
such other action in the name of Holder or any subsequent holder of
this Note, or otherwise, as any such Senior Lender or such Senior
Lender's Representative may determine to be necessary or appropriate
for the enforcement of the provisions of this Section 6.
(i) Rights of Holders of Senior Debt Not to be Impaired, Etc.
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be
prejudiced or impaired by any action or failure to act on the part of
the Company or anyone in custody of its assets or property or by any
action or failure to act on the part of any such holder or any other
holder of Senior Debt, or by any noncompliance by the Company with the
terms, provisions or covenants of this Note, regardless of any
knowledge thereof which any such holder or any other holder of Senior
Debt may have or otherwise be charged with.
(j) Distribution or Notice to Representative: Reliance.
Whenever a payment or distribution is to be made or a notice given to
Senior Lenders, the payment or distribution may be made and the notice
given to their Representative. In any such case, or in the case of any
other payment, distribution or notice to the Senior Lenders, or in the
case of any proceeding referred to in Section 6(b) above, Holder or any
subsequent holder shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such proceeding is
pending, or a certificate of the liquidating trustee or agent or other
Person making any distribution to Holder or such subsequent holder, for
the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 6.
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<PAGE> 16
7. Miscellaneous.
7.1 No Right of Set-Off. Except as provided in Section 1
above, the Company shall have no right to set-off and reduce the principal
amount of this Note by amounts to which the Company is, or claims that it is,
owed by Holder for any reason whatsoever, including but not limited to any claim
arising out of or in connection with the Sale Agreement or any agreement or
other document executed in connection therewith or referred to therein.
7.2 Amendments, Waivers, Etc. This Note may not be amended,
changed, supplemented, waived or otherwise modified except by an instrument in
writing signed by the party against whom enforcement is sought. Failure of
either party to exercise any right, power or remedy provided under this Note or
otherwise available in respect hereof at law or in equity, or to insist upon
compliance by the other party with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof, shall not constitute
a waiver by such party of its right to exercise any such or other right, power
or remedy or to demand such compliance.
7.3 Successors and Assigns. All covenants and agreements in
this Note shall be binding upon and shall inure to the benefit of and be
enforceable by the parties and their respective successors and assigns, provided
that neither the rights nor the obligations of the Company may be assigned or
delegated without the prior written consent of the Holder.
7.4 Rights Confined to Parties. Nothing expressed or
implied in this Note is intended or shall be construed to confer upon or to give
to any Person, other than the parties hereto and their respective permitted
successors and assigns, any right, remedy or claim under or by reason of this
Note or of any term, covenant or condition hereof.
7.5 Captions. The Section captions used herein are for
convenience of reference only and shall not affect the interpretation or
construction hereof.
7.6 Severability. If any term of this Note or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Note and the application of such term to the
other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law.
7.7 Notices. All notices, requests, demands or other
communications required by or otherwise with respect to this Note shall be in
writing and shall be deemed to have been duly given to any party when delivered
personally (by courier service or otherwise), when delivered by facsimile (and
confirmed by return facsimile) or five business days after being mailed by
first-class, registered or certified mail, postage prepaid and return receipt
requested, in each case to the applicable addresses set forth below; provided,
however, that delivery shall
13
<PAGE> 17
be deemed complete when delivered to the address designated below and shall not
require actual receipt by the individual to whom the communication's attention
has been marked:
If to the Holder:
Owens-Corning Fiberglas Corporation
Fiberglas Tower
Toledo, OH 43659
Attn: Treasurer
Facsimile No.: (419) 248-1720
and to:
Law Department
Owens-Corning Fiberglas Corporation
Fiberglas Tower
Toledo, OH 43659
Attn: General Counsel
Facsimile: (419) 248-1723
With copies to:
Friedman & Kaplan
875 Third Avenue
New York, NY 10022
Attn: Gary D. Friedman, Esq.
Facsimile no.: (212) 355-6401
If to the Company:
Fluid Containment, Inc.
Route 20
Box 1380
Conroe, TX 77301
Attn: President
Facsimile No.: (409) 756-7665
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<PAGE> 18
With copies to:
Brobeck, Phleger & Harrison
550 South Hope Street
Los Angeles, CA 90071
Attn: V. Joseph Stubbs, Esq.
Facsimile No.: (213) 734-3345
and
National Investment Management, Inc.
23133 Hawthorne Boulevard
Third Floor
Torrance, CA 90505
Attn: Mr. Richard D. Robins
Facsimile No.: (310) 791-2619
or to such other address as such party shall have designated by notice so given
to each other party.
7.8 Entire Agreement. This Note, together with the Sale
Agreement, embodies the entire agreement and understanding between the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. There are no representations,
warranties or covenants by the parties hereto relating to this Note or the
performance thereof other than those expressly set forth in this Note and the
Sale Agreement.
7.9 Governing law and Consent to Jurisdiction. This Note and
all disputes hereunder shall be governed by, and construed in accordance with,
the internal laws of the State of New York, without regard to principles of
conflict of laws. The Company and Holder irrevocably submit to the jurisdiction
of the federal and state courts located in New York City regarding any action,
suit or proceeding in connection with any controversies or claims arising under
this Note or any alleged breach or default hereunder and waives any objection
which they may now or hereafter have to the laying or convenience of the venue
of any such action, suit or proceeding.
7.10 Agent for Service of Process.
(a) The Company hereby irrevocably designates and
appoints CT Corporation System with an office on the date hereof in New York,
NY, as its authorized agent to accept and acknowledge on its behalf service of
any and all process which may be served in any action, suit or proceeding
referred to in Section 7.9 brought in any federal or state court in New York
City and agrees that service of process shall be
15
<PAGE> 19
deemed in every respect effective and complete upon the Company in any such
action, suit or proceeding and shall be taken and held to be valid personal
service upon the Company, only when (i) such process is personally delivered to
its designated agent at the address indicated above (or a new address as to
which notice has been given pursuant to this Section 7.10), and (ii) a copy
thereof is personally delivered in accordance with Section 7.7 to the Company
(and the other Persons designated to receive copies of notices to the Company
pursuant to Section 7.7).
(b) Nothing contained in Section 7.9 or this Section
7.10 shall be deemed to affect the right of any party to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against any other party in any other jurisdiction in an action arising
under this Note or otherwise.
(c) The Company may change the agent it has designated
for service in this Section 7.10 or the address of such agent, by delivering
notice in accordance with Section 7.7 provided any such new address is in New
York City.
7.11 Waiver of Jury Trial. The Company hereby irrevocably and
unconditionally waives trial by jury in any legal action or proceeding referred
to in Section 7.9.
7.12 Waiver of Usury Defense. To the extent permitted by
applicable law, the Company agrees that it will not assert, plead (as a defense
or otherwise) or in any manner whatsoever claim in any action, suit or
proceeding that the effective interest rate on this Note violates present or
future usury or other laws relating to the interest payable on any indebtedness
and will not otherwise avail itself of the benefits or advantages of any such
laws.
16
<PAGE> 20
7.13 Payment and Return of Note. Upon the payment of all
amounts payable under this Note, Holder shall promptly return this Note, stamped
"CANCELLED", to the Company.
OCTANS, INC. (to be renamed
FLUID CONTAINMENT, INC.),
a Nevada corporation
By: /s/ STEPHEN T. HARCROW
---------------------------------
Name: Stephen T. Harcrow
Title: President
Accepted and Agreed to:
OWENS-CORNING FIBERGLAS CORPORATION,
a Delaware corporation
By:/s/ CHARLES H. DANA
---------------------------------------
Name: Charles H. Dana
Title: Executive Vice President
<PAGE> 1
EXHIBIT 10.01
DENALI INCORPORATED
1996 INCENTIVE STOCK OPTION PLAN
(as amended through September 18, 1997)
Article I
General Provisions
1. Purpose. The purpose of this Plan is to promote the interests
of Denali Incorporated (the "Company") by providing participating key employees
of the Company the opportunity to acquire or increase their proprietary
interest in the Company and increase their personal interest in its continued
success and progress, in order to (i) induce qualified persons to become
employees of the Company; and (ii) provide an incentive for key employees to
remain in the employ of the Company and to continue their contributions and
efforts toward the Company's success.
2. Definitions. As used in this Plan, the following words and
phrases shall have the meanings indicated:
(a) "Agreement" shall mean the written document
evidencing the grant of Options under this Plan.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time and any successor legislation.
(d) "Committee" shall mean the committee appointed by the
Board in accordance with Section 3(a) of Article I of the Plan, if one is
appointed.
(e) "Common Stock" shall mean the Company's Common Stock,
except as modified pursuant to the provisions of Section 6 of Article III of
the Plan.
(f) "Company" shall mean Denali Incorporated, together
with all its present and future subsidiaries.
(g) "Disability" shall mean a Recipient's inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of
not less than 12 months.
(h) "Employee" shall mean any eligible employee of the
Company.
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(i) "Fair Market Value" as of a particular date with
respect to any share of Common Stock shall be determined by the Committee in
such manner as it may deem appropriate.
(j) "Incentive Stock Option" shall mean an Option granted
pursuant to Article II of the Plan which is intended to qualify as an Incentive
Stock Option under Section 422 of the Code.
(k) "Non-Qualified Stock Option" shall mean an Option
which is not intended to qualify as an Incentive Stock Option.
(l) "Option" shall mean the right granted under the Plan
to purchase Common Stock.
(m) "Option Price" shall mean the purchase price
established by the Committee for Common Stock to be acquired under an Option
granted pursuant to the Plan.
(n) "Plan" shall mean the Denali Incorporated 1996
Incentive Stock Option Plan.
(o) "Recipient" shall mean any Employee granted an Option
under the Plan.
3. Administration.
(a) The Plan shall be administered by the Board or a
Committee of one or more members of the Board. The Board shall appoint the
members of the Committee, who shall serve at the pleasure of the Board.
References in the Plan to the Committee shall include the Board if no Committee
is appointed.
(b) The Committee shall have the authority in its
discretion, subject to and not inconsistent with the express provisions of the
Plan, to administer the Plan and to exercise all the powers and authorities
either specifically conferred under the Plan or necessary or advisable in the
administration of the Plan, including the power and authority:
(1) to grant Options;
(2) to determine the Employees to whom, and the
time or times at which, Options shall be
granted, the number of shares to be covered
by each Option, the Option Price of the
shares of Common Stock covered by each
Option, the vesting schedule, exercise period
and other restrictions, terms and conditions,
if any, relating to Options;
(3) to determine the terms and provisions of the
Agreements (which need not be identical)
entered into in connection with Options
granted under the Plan;
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(4) to interpret the Plan and the Agreements and
to prescribe, amend and rescind rules and
regulations relating to the Plan; and
(5) to make all other determinations deemed
necessary or advisable for the administration
of the Plan.
(c) The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Agreement or
Option in the manner and to the extent that it shall deem expedient to carry
into effect the purposes of the Plan, and it shall be the sole and final judge
of such expediency. All actions or determinations of the Committee shall be by
majority vote of its members, if more than one, and the determination of the
Committee shall be conclusive. Any action taken by the Committee shall be
reported to the Board.
(d) The Committee may delegate to one or more of its
members or to one or more agents such administrative duties as it may deem
advisable, and the Committee or any person to whom it has delegated duties may
employ one or more persons to render advice with respect to any right or
responsibility the Committee or such person may have under the Plan.
(e) Options granted under the Plan shall be evidenced by
duly adopted resolutions of the Committee.
(f) The interpretation and construction of any provision
of the Plan by the Committee shall be final.
(g) No member of the Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan, an
Agreement, or any Option granted hereunder.
4. Eligibility for Participation.
(a) Subject to certain limitations hereinafter set forth,
Options may be granted to Employees. In determining the Employees to whom
Options shall be granted and the number of shares to be covered by each Option,
the Committee shall take into account the present and potential contributions
by the Employee to the success of the Company and such other factors as the
Committee shall deem relevant to accomplish the purposes of the Plan.
(b) A Recipient shall be eligible to receive more than
one grant of an Option during the term of the Plan.
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5. Number of Shares Subject to Options.
(a) The stock subject to Incentive Stock Options
hereunder shall be Common Stock. Such shares, in whole or in part, may be
authorized but unissued shares or shares that shall have been or that may be
reacquired by the Company. The aggregate number of shares of Common Stock as
to which Incentive Stock Options may be granted from time to time under the
Plan shall not exceed 367,833, subject to adjustment as provided in Section 6
of Article III below.
(b) If any outstanding Option, or any portion thereof,
for any reason expires, is cancelled pursuant to the Plan or the Agreement, or
is terminated without having been exercised in full, the shares of Common Stock
allocable to the unexercised portion of such Option shall become available for
subsequent grants of Options under the Plan unless the Plan shall have been
terminated.
Article II
Incentive Stock Options
1. Award of Incentive Stock Option. Options granted pursuant to
this Article II are intended to constitute Incentive Stock Options and shall be
subject to the following terms and conditions. The Committee may from time to
time, and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any Recipient in the Plan
one or more Options to purchase for cash the number of shares of Common Stock
allotted by the Committee. The date an Option is granted shall mean the date
selected by the Committee as of which the Committee allots a specific number of
shares of Common Stock to a Recipient pursuant to the Plan.
2. Maximum Amount of Incentive Stock Option Award. The aggregate
Fair Market Value (determined as of the date the Incentive Stock Option is
granted) of the shares of Common Stock with respect to which Incentive Stock
Options granted under this and any other plan of the Company are exercisable
for the first time by a Recipient during any calendar year may not exceed
$100,000.
3. Stock Option Agreements. The grant of an Incentive Stock
Option shall be evidenced by a written Agreement, executed by the Company and
the Recipient, stating the number of shares of Common Stock subject to the
Option. The Agreement shall be in such form, and may include such limitations,
restrictions and other provisions, as the Committee may from time to time
determine.
4. Option Price. Each Agreement shall stipulate the Option Price
as determined by the Committee, which shall be, in the case of an Incentive
Stock Option, not less than 100% of the Fair Market Value per share on the date
the Option is granted, subject to adjustment as provided in Section 6 of
Article III. Any Incentive Stock Option granted under the Plan to a
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person owning more than ten percent of the total combined voting power of the
Common Stock shall be at a price no less than 110% of the Fair Market Value per
share on the date of grant of such Option.
5. Term of Option. Each Agreement shall state the period during
and times at which the Option shall be exercisable; provided, however:
(a) The exercise period shall not exceed ten years from
the date of grant of the Option.
(b) The exercise period, in the case of an Incentive
Stock Option granted to a holder of more than 10% of the total combined voting
power of the Common Stock, shall not extend for more than a period of five
years from the date on which it first becomes exercisable, subject to the
limitation in subsection (c) of this Section 5.
(c) The Committee shall have the authority to accelerate
or extend the exercisability of any outstanding Option at such time and under
such circumstances as the Committee, in its sole discretion, deems appropriate.
No exercise period may be extended to increase the term of the Option beyond
ten years from the date of the grant, in the case of an Incentive Stock Option.
(d) The exercise period shall be subject to earlier
termination as provided in Section 8 of this Article II.
(e) Notwithstanding anything to the contrary in this
Plan, no Option shall be exercisable after the expiration of its term.
6. Exercise of Option.
(a) An Option may be exercised as to any or all whole
shares of Common Stock as to which it then is exercisable.
(b) Each exercise of an Option granted hereunder, whether
in whole or in part, shall be by written notice to the Company designating the
number of shares as to which the Option is being exercised, and shall be
accompanied by payment in full of the Option Price for the number of shares so
designated, together with any written statements reasonably requested by the
Company for purposes of compliance with any applicable securities law.
7. Manner of Payment. The Option Price shall be paid in cash.
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8. Termination.
(a) If the Recipient ceases to be an Employee by reason
of death or Disability, all Options theretofore granted to such Recipient which
are exercisable at the date of such death or Disability may be exercised by the
Recipient or by the Recipient's estate or by a person who acquired the right to
exercise such Options by bequest or inheritance or otherwise by reason of the
death or Disability of the Recipient, at any time within 3 months after the
date of death or Disability of the Recipient.
(b) Except as otherwise provided in this paragraph, if
the Recipient ceases to be an Employee by reason of termination with or without
cause, resignation, retirement, or for any other reason other than death or
Disability, all Options theretofore granted to such Recipient shall terminate
automatically, effective as of such cessation, to the extent not theretofore
exercised. Notwithstanding the foregoing, but only with respect to Options
granted under the Plan on April 2, 1996 to C. Smith, K. Andrews and M. Carter,
if Stephen T. Harcrow does not hold the office at the Company of President,
Chief Executive Officer, or a similar office with responsibility and authority
comparable to that of President or Chief Executive Officer, then any of C.
Smith, K. Andrews or M. Carter who ceases to be an Employee under this section
may exercise all Options theretofore granted and not previously exercised
within 3 months after the date on which any of C. Smith, K. Andrews or M.
Carter ceases to be an Employee by reason of termination with or without cause.
9. Construction of Provisions. Incentive Stock Options granted
under the Plan are intended to satisfy all requirements for incentive stock
options under Section 422 of the Code and the Treasury Regulations thereunder
and, notwithstanding any other provision of the Plan, the Plan and all
Incentive Stock Options granted under it shall be so construed, and all
contrary provisions shall be so limited in scope and effect and, to the extent
they cannot be so limited, they shall be void. An Option granted under the
Plan shall, if it is construed for whatever reason not to qualify as an
incentive stock option under Section 422 of the Code, be construed to be a
Non-Qualified Stock Option.
Article III
Miscellaneous Provisions
1. Gender and Number. Whenever required by the context of this
Plan, the singular includes the plural, and the masculine includes the feminine
or the neuter.
2. Transferability Restriction. Options granted under the Plan
shall not be assignable, nor shall they be transferable. The exercise of
Options may be conditioned upon the execution of a transfer restriction or
right of first refusal agreement between the Company and the Recipient covering
the Common Stock acquired pursuant to the Option. Options may be exercised
only by the Recipient.
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3. Withholding Taxes. Whenever the Company is required to issue
or transfer shares of Common Stock under this Plan, the Company shall require
the Recipient to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares. Alternatively, the Company at
its sole discretion may issue or transfer such shares of Common Stock net of
the number of shares sufficient to satisfy the withholding tax requirements.
For withholding tax purposes, the shares of Common Stock shall be valued at
their Fair Market Value on the date the withholding obligation is incurred.
4. Right to Terminate Employment. Nothing in the Plan or in any
Agreement entered into pursuant to the Plan shall confer upon any Recipient the
right to continue in the employment of the Company or affect any right which
the Company may have to terminate the employment of such Recipient with or
without cause.
5. Rights as Shareholder. The Recipient of any grant or award
under the Plan shall have no rights as a shareholder with respect to the Common
Stock covered by an Option unless and until certificates for shares of Common
Stock are issued to him.
6. Adjustments.
(a) In the event of any change in the outstanding Common
Stock by reason of a stock dividend or distribution, recapitalization,
split-up, or the like, the Committee, in its sole discretion, may appropriately
adjust the maximum number of shares of Common Stock which may be issued under
the Plan, the number of shares of Common Stock subject to outstanding Options
granted under the Plan, the option price of outstanding Options granted under
the Plan, and any and all other matters deemed appropriate by the Committee, in
its sole discretion. Fractional shares resulting from any such adjustment
shall be eliminated. Unless the Committee expressly determines otherwise, any
adjustments under this Section 6(a) shall be effective on the effective date of
the event giving rise to such adjustment.
(b) If the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
or property (including cash) of the Company or another corporation for any
reason, including by reason of reorganization, merger, sale or transfer of all
or substantially all of the Company's assets to another corporation, or
exchange of shares or consolidation, the Committee shall make appropriate
adjustments in the number and kind of shares, other securities, or property for
which options may be granted under the Plan, including the maximum number that
may be granted to any Recipient. In addition, the Committee shall make
appropriate adjustments in the number and kind of shares, other securities, or
property as to which outstanding Options shall be exercisable. If any event
giving rise to an adjustment involves an election afforded shareholders to
receive cash or some security or other property, then such adjustment shall be
made as if only cash were available to shareholders; the amount of cash used in
determining the appropriate adjustment shall be the amount of cash per share
provided by such election or such higher per share amount, if any, as the
Committee determines to be the fair market value of the security or other
property available
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<PAGE> 8
to shareholders pursuant to the election. Unless the Committee expressly
determines otherwise, any adjustment or determination made by the Committee
under this Section 6(b) shall be effective on the effective date of the event
giving rise to such adjustment or determination, and shall be conclusive when
made by the Committee.
(c) The existence of outstanding Options hereunder shall
not affect in any way the right or power of the Company or its shareholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise. In the event of
dissolution of the Company, any unexercised Options theretofore granted under
the Plan shall be deemed cancelled.
7. Amendment and Termination of the Plan.
(a) The Board at any time and from time to time may
suspend, terminate, modify or amend the Plan, provided, however, that any
amendment that would (1) require shareholder approval under Texas law, the Code
or any other applicable law, shall be subject to the approval of the
shareholders of the Company, except that any such increase or modification that
may result from adjustments authorized by Section 6 of this Article III or
which are required for compliance with the Code, the Employee Retirement Income
Security Act of 1974, related rules and regulations, or other laws or judicial
orders, shall not require such approval of shareholders.
(b) Except as provided in Section 6, no suspension,
termination, modification or amendment of the Plan may adversely affect any
Option previously granted, unless the written consent of the Recipient is
obtained.
8. Governing Law. This Plan is to be governed by and construed
in accordance with the substantive laws of the State of Texas, without regard
to principles of conflicts of law, and is performable in Montgomery County,
Texas. the Company and each Recipient hereby submits to the jurisdiction of
the courts of the State of Texas and the federal courts in and for the Southern
District of Texas in connection with any matter relating to this Plan and or
any other document executed in connection herewith.
9. Approval of Shareholders. The Plan shall take effect upon its
adoption by the Board but shall be subject to approval by the shareholders in
conformance with applicable law or the rules and regulations of any national
securities exchange upon which the Company's Common Stock is listed and traded,
each to the extent applicable.
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<PAGE> 9
10. Adoption.
(a) This Plan was initially approved by the Board on
February 14, 1996.
(b) This Plan was initially approved by the shareholders
of the Company on February 14, 1996.
(c) If this Plan is not approved by the shareholders of
the Company within 12 months of the date the Plan was approved by the Board as
required by Section 422(b)(1) of the Internal Revenue Code, this Plan and the
Options granted hereunder shall be and remain effective; but the reference to
Incentive Stock Options herein shall be deleted and all Options granted
hereunder shall be Non-Qualified Stock Options.
(d) A First Amendment to the Plan (the "First Amendment")
was approved by the Board and the shareholders of the Company effective as of
September 18, 1997, and the amendments set forth in the First Amendment have
been incorporated herein and made a part hereof.
DENALI INCORPORATED
By: /s/ Stephen T. Harcrow
-------------------------------------
Stephen T. Harcrow
Chief Executive Officer
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<PAGE> 1
Exhibit 10.02
DENALI INCORPORATED
1997 INCENTIVE STOCK OPTION PLAN
Article I
General Provisions
1. Purpose. The purpose of this Plan is to promote the interests
of Denali Incorporated (the "Company") by providing participating key employees
of the Company the opportunity to acquire or increase their proprietary
interest in the Company and increase their personal interest in its continued
success and progress, in order to (i) induce qualified persons to become
employees of the Company; and (ii) provide an incentive for key employees to
remain in the employ of the Company and to continue their contributions and
efforts toward the Company's success.
2. Definitions. As used in this Plan, the following words and
phrases shall have the meanings indicated:
(a) "Agreement" shall mean the written document
evidencing the grant of Options under this Plan.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time and any successor legislation.
(d) "Committee" shall mean the committee appointed by the
Board in accordance with Section 3(a) of Article I of the Plan, if one is
appointed.
(e) "Common Stock" shall mean the Company's Common Stock,
except as modified pursuant to the provisions of Section 6 of Article III of
the Plan.
(f) "Company" shall mean Denali Incorporated, together
with all its present and future subsidiaries.
(g) "Disability" shall mean a Recipient's inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of
not less than 12 months.
(h) "Employee" shall mean any eligible employee of the
Company.
(i) "Fair Market Value" as of a particular date with
respect to any share of Common Stock shall be determined by the Committee in
such manner as it may deem appropriate.
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(j) "Incentive Stock Option" shall mean an Option granted
pursuant to Article II of the Plan which is intended to qualify as an Incentive
Stock Option under Section 422 of the Code.
(k) "Non-Qualified Stock Option" shall mean an Option
which is not intended to qualify as an Incentive Stock Option.
(l) "Option" shall mean the right granted under the Plan
to purchase Common Stock.
(m) "Option Price" shall mean the purchase price
established by the Committee for Common Stock to be acquired under an Option
granted pursuant to the Plan.
(n) "Plan" shall mean the Denali Incorporated 1997
Incentive Stock Option Plan.
(o) "Recipient" shall mean any Employee granted an Option
under the Plan.
3. Administration.
(a) The Plan shall be administered by the Board or a
Committee of one or more members of the Board. The Board shall appoint the
members of the Committee, who shall serve at the pleasure of the Board.
References in the Plan to the Committee shall include the Board if no Committee
is appointed.
(b) The Committee shall have the authority in its
discretion, subject to and not inconsistent with the express provisions of the
Plan, to administer the Plan and to exercise all the powers and authorities
either specifically conferred under the Plan or necessary or advisable in the
administration of the Plan, including the power and authority:
(1) to grant Options;
(2) to determine the Employees to whom, and the
time or times at which, Options shall be
granted, the number of shares to be covered
by each Option, the Option Price of the
shares of Common Stock covered by each
Option, the vesting schedule, exercise period
and other restrictions, terms and conditions,
if any, relating to Options;
(3) to determine the terms and provisions of the
Agreements (which need not be identical)
entered into in connection with Options
granted under the Plan;
(4) to interpret the Plan and the Agreements and
to prescribe, amend and rescind rules and
regulations relating to the Plan; and
(5) to make all other determinations deemed
necessary or advisable for the administration
of the Plan.
(c) The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Agreement or
Option in the manner and to the extent that
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<PAGE> 3
it shall deem expedient to carry into effect the purposes of the Plan, and it
shall be the sole and final judge of such expediency. All actions or
determinations of the Committee shall be by majority vote of its members, if
more than one, and the determination of the Committee shall be conclusive. Any
action taken by the Committee shall be reported to the Board.
(d) The Committee may delegate to one or more of its
members or to one or more agents such administrative duties as it may deem
advisable, and the Committee or any person to whom it has delegated duties may
employ one or more persons to render advice with respect to any right or
responsibility the Committee or such person may have under the Plan.
(e) Options granted under the Plan shall be evidenced by
duly adopted resolutions of the Committee.
(f) The interpretation and construction of any provision
of the Plan by the Committee shall be final.
(g) No member of the Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan, an
Agreement, or any Option granted hereunder.
4. Eligibility for Participation.
(a) Subject to certain limitations hereinafter set forth,
Options may be granted to Employees. In determining the Employees to whom
Options shall be granted and the number of shares to be covered by each Option,
the Committee shall take into account the present and potential contributions
by the Employee to the success of the Company and such other factors as the
Committee shall deem relevant to accomplish the purposes of the Plan.
(b) A Recipient shall be eligible to receive more than
one grant of an Option during the term of the Plan.
5. Number of Shares Subject to Options.
(a) The stock subject to Incentive Stock Options
hereunder shall be Common Stock. Such shares, in whole or in part, may be
authorized but unissued shares or shares that shall have been or that may be
reacquired by the Company. Under the Plan, the aggregate number of shares of
Common Stock as to which Incentive Stock Options may be granted from time to
time shall not exceed 362,873, and the aggregate number of shares of Common
Stock as to which Incentive Stock Options may be granted to any one Employee
shall not exceed 100,000, both of which shall be subject to adjustment as
provided in Section 6 of Article III below.
(b) If any outstanding Option, or any portion thereof,
for any reason expires, is cancelled pursuant to the Plan or the Agreement, or
is terminated without having been exercised in full, the shares of Common Stock
allocable to the unexercised portion of such Option shall become available for
subsequent grants of Options under the Plan unless the Plan shall have been
terminated.
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Article II
Incentive Stock Options
1. Award of Incentive Stock Option. Options granted pursuant to
this Article II are intended to constitute Incentive Stock Options and shall be
subject to the following terms and conditions. The Committee may from time to
time, and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any Recipient in the Plan
one or more Options to purchase for cash the number of shares of Common Stock
allotted by the Committee. The date an Option is granted shall mean the date
selected by the Committee as of which the Committee allots a specific number of
shares of Common Stock to a Recipient pursuant to the Plan.
2. Maximum Amount of Incentive Stock Option Award. The aggregate
Fair Market Value (determined as of the date the Incentive Stock Option is
granted) of the shares of Common Stock with respect to which Incentive Stock
Options granted under this and any other plan of the Company are exercisable
for the first time by a Recipient during any calendar year may not exceed
$100,000.
3. Stock Option Agreements. The grant of an Incentive Stock
Option shall be evidenced by a written Agreement, executed by the Company and
the Recipient, stating the number of shares of Common Stock subject to the
Option. The Agreement shall be in such form, and may include such limitations,
restrictions and other provisions, as the Committee may from time to time
determine.
4. Option Price. Each Agreement shall stipulate the Option Price
as determined by the Committee, which shall be, in the case of an Incentive
Stock Option, not less than 100% of the Fair Market Value per share on the date
the Option is granted, subject to adjustment as provided in Section 6 of
Article III. Any Incentive Stock Option granted under the Plan to a person
owning more than ten percent of the total combined voting power of the Common
Stock shall be at a price no less than 110% of the Fair Market Value per share
on the date of grant of such Option.
5. Term of Option. Each Agreement shall state the period during
and times at which the Option shall be exercisable; provided, however:
(a) The exercise period shall not exceed five years from
the date of grant of the Option, and no Option shall be granted pursuant to the
Plan after the expiration of ten years from the Plan's adoption date.
(b) The Committee shall have the authority to accelerate
or extend the exercisability of any outstanding Option at such time and under
such circumstances as the Committee, in its sole discretion, deems appropriate.
(c) The exercise period shall be subject to earlier
termination as provided in Section 8 of this Article II.
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<PAGE> 5
(d) Notwithstanding anything to the contrary in this
Plan, no Option shall be exercisable after the expiration of its term.
6. Exercise of Option.
(a) An Option may be exercised as to any or all whole
shares of Common Stock as to which it then is exercisable.
(b) Each exercise of an Option granted hereunder, whether
in whole or in part, shall be by written notice to the Company designating the
number of shares as to which the Option is being exercised, and shall be
accompanied by payment in full of the Option Price for the number of shares so
designated, together with any written statements reasonably requested by the
Company for purposes of compliance with any applicable securities law.
7. Manner of Payment. The Option Price shall be paid in cash.
8. Termination.
(a) If the Recipient ceases to be an Employee by reason
of termination without cause, resignation, retirement, death, Disability, or
any other reason other than termination for cause, all Options theretofore
granted to such Recipient which are exercisable at the date of such event may
be exercised by the Recipient or by the Recipient's estate or by a person who
acquired the right to exercise such Options by bequest or inheritance or
otherwise by reason of the death or Disability of the Recipient, at any time
within 3 months after the date of such event.
(b) If the Recipient ceases to be an Employee by reason
of termination with cause, all Options theretofore granted to such Recipient
shall terminate automatically, effective as of such cessation, to the extent
not theretofore exercised. For purposes of this Plan and the Options granted
hereunder, termination with cause shall include, but not be limited to (1) the
refusal or failure of the Employee to implement, perform or adhere to
reasonable policies, directives or orders of the Company; (2) any other action
by the Employee involving willful misconduct or malfeasance or gross negligence
in the performance of the Employee's duties; (3) conduct of a criminal nature
which may have an adverse impact on the Company's reputation and standing in
the community; (4) conviction of a crime involving moral turpitude, including
fraud, theft or embezzlement; (5) conduct which is in violation of the
Employee's common law duty of loyalty to the Company; (6) fraudulent conduct in
connection with the business affairs of the Company, regardless of whether said
conduct is designed to defraud the Company or others; or (7) willful or
persistent failure to attend to the Employee's duties.
9. Construction of Provisions. Incentive Stock Options granted
under the Plan are intended to satisfy all requirements for incentive stock
options under Section 422 of the Code and the Treasury Regulations thereunder
and, notwithstanding any other provision of the Plan, the Plan and all
Incentive Stock Options granted under it shall be so construed, and all
contrary provisions shall be so limited in scope and effect and, to the extent
they cannot be so limited, they shall be void. An Option granted under the
Plan shall, if it is construed for whatever reason not to qualify as an
incentive stock option under Section 422 of the Code, be construed to be a
Non-Qualified Stock Option.
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Article III
Miscellaneous Provisions
1. Gender and Number. Whenever required by the context of this
Plan, the singular includes the plural, and the masculine includes the feminine
or the neuter.
2. Transferability Restriction. Options granted under the Plan
shall not be assignable, nor shall they be transferable. The exercise of
Options may be conditioned upon the execution of a transfer restriction or
right of first refusal agreement between the Company and the Recipient covering
the Common Stock acquired pursuant to the Option. Options may be exercised
only by the Recipient.
3. Withholding Taxes. Whenever the Company is required to issue
or transfer shares of Common Stock under this Plan, the Company shall require
the Recipient to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares. Alternatively, the Company at
its sole discretion may issue or transfer such shares of Common Stock net of
the number of shares sufficient to satisfy the withholding tax requirements.
For withholding tax purposes, the shares of Common Stock shall be valued at
their Fair Market Value on the date the withholding obligation is incurred.
4. Right to Terminate Employment. Nothing in the Plan or in any
Agreement entered into pursuant to the Plan shall confer upon any Recipient the
right to continue in the employment of the Company or affect any right which
the Company may have to terminate the employment of such Recipient with or
without cause.
5. Rights as Shareholder. The Recipient of any grant or award
under the Plan shall have no rights as a shareholder with respect to the Common
Stock covered by an Option unless and until certificates for shares of Common
Stock are issued to him.
6. Adjustments.
(a) In the event of any change in the outstanding Common
Stock by reason of a stock dividend or distribution, recapitalization,
split-up, or the like, the Committee, in its sole discretion, may appropriately
adjust the maximum number of shares of Common Stock which may be issued under
the Plan, the number of shares of Common Stock subject to outstanding Options
granted under the Plan, the option price of outstanding Options granted under
the Plan, and any and all other matters deemed appropriate by the Committee, in
its sole discretion. Fractional shares resulting from any such adjustment
shall be eliminated. Unless the Committee expressly determines otherwise, any
adjustments under this Section 6(a) shall be effective on the effective date of
the event giving rise to such adjustment.
(b) If the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
or property (including cash) of the Company or another corporation for any
reason, including by reason of reorganization, merger, sale or transfer of all
or substantially all of the Company's assets to another corporation, or
-6-
<PAGE> 7
exchange of shares or consolidation, the Committee shall make appropriate
adjustments in the number and kind of shares, other securities, or property for
which options may be granted under the Plan, including the maximum number that
may be granted to any Recipient. In addition, the Committee shall make
appropriate adjustments in the number and kind of shares, other securities, or
property as to which outstanding Options shall be exercisable. If any event
giving rise to an adjustment involves an election afforded shareholders to
receive cash or some security or other property, then such adjustment shall be
made as if only cash were available to shareholders; the amount of cash used in
determining the appropriate adjustment shall be the amount of cash per share
provided by such election or such higher per share amount, if any, as the
Committee determines to be the fair market value of the security or other
property available to shareholders pursuant to the election. Unless the
Committee expressly determines otherwise, any adjustment or determination made
by the Committee under this Section 6(b) shall be effective on the effective
date of the event giving rise to such adjustment or determination, and shall be
conclusive when made by the Committee.
(c) The existence of outstanding Options hereunder shall
not affect in any way the right or power of the Company or its shareholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise. In the event of
dissolution of the Company, any unexercised Options theretofore granted under
the Plan shall be deemed cancelled.
7. Amendment and Termination of the Plan.
(a) The Board at any time and from time to time may
suspend, terminate, modify or amend the Plan, provided, however, that any
amendment that would require shareholder approval under Texas law, the Code or
any other applicable law, shall be subject to the approval of the shareholders
of the Company, except that any such increase or modification that may result
from adjustments authorized by Section 6 of this Article III or which are
required for compliance with the Code, the Employee Retirement Income Security
Act of 1974, related rules and regulations, or other laws or judicial orders,
shall not require such approval of shareholders.
(b) Except as provided in Section 6, no suspension,
termination, modification or amendment of the Plan may adversely affect any
Option previously granted, unless the written consent of the Recipient is
obtained.
8. Governing Law. This Plan is to be governed by and construed
in accordance with the substantive laws of the State of Texas, without regard
to principles of conflicts of law, and is performable in Montgomery County,
Texas. The Company and each Recipient hereby submits to the jurisdiction of
the courts of the State of Texas and the federal courts in and for the Southern
District of Texas in connection with any matter relating to this Plan and or
any other document executed in connection herewith.
-7-
<PAGE> 8
9. Approval of Shareholders. The Plan shall take effect upon its
adoption by the Board but shall be subject to approval by the shareholders in
conformance with applicable law or the rules and regulations of any national
securities exchange upon which the Company's Common Stock is listed and traded,
each to the extent applicable.
10. Adoption.
(a) This Plan was approved by the Board on September 18,
1997.
(b) This Plan was approved by the shareholders of the
Company on September 18, 1997.
DENALI INCORPORATED
By: /s/ Stephen T. Harcrow
-------------------------------------
Stephen T. Harcrow
Chief Executive Officer
-8-
<PAGE> 1
Exhibit 10.03
PRAXAIR BUSINESS CONFIDENTIAL
Executed Copy
STOCK PURCHASE AND SALE AGREEMENT
dated as of February 14, 1997
SPECIALTY SOLUTIONS, INC.
and
PRAXAIR, INC.
<PAGE> 2
PRAXAIR BUSINESS CONFIDENTIAL
DISCLOSURE SCHEDULES
I SUBSIDIARIES AND AFFILIATES
II REALPROPERTY
III CONTRACTS
IV PATENTS & TECHNOLOGY
V TRADEMARKS & COPYRIGHTS
VI [RESERVED]
VII [RESERVED]
VIII PERMITS & LICENSES
IX EMPLOYEES
X EMPLOYEE BENEFIT PLANS
XI CONSENTS
XII FINANCIAL STATEMENTS
XIII CERTAIN TAX MATTERS
XIV BUSINESS OPERATIONS, CHANGES AND OTHER MATTERS
XV LITIGATION, CLAIMS & PROCEEDINGS
XVI ENVIRONMENTAL CONDITIONS
XVII HEALTH AND SAFETY CONDITIONS
XVIII INSURANCE
XIX [RESERVED]
<PAGE> 3
PRAXAIR BUSINESS CONFIDENTIAL
<TABLE>
<S> <C>
ARTICLE 1 - PURCHASE AND SALE OF SHARES; CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale OF Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLER AND
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Organizational Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.11 Owned Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12 Title to Owned Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.13 Contracts, Leases, Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Performance of Contracts, Leases and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.15 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.16 Permits, Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.17 Environmental Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.18 Litigation, Claims, Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.19 Patents; Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.20 Trademarks; Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.21 Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.22 Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.23 Health and Safety Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.24 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.25 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.26 Entire Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.27 Limitation on Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
<PAGE> 4
PRAXAIR BUSINESS CONFIDENTIAL
<TABLE>
<S> <C>
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.3 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.5 Purchase for Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.6 Financial Capability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 4 - PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1 Conduct By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.2 Conduct by Seller and Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3 Conduct of the Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4 Payment of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.5 Fulfillment of Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.6 Seller's Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.3 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 6 - BUYER'S CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 7 - SELLER'S CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 8 - TERMINATION; SURVIVAL OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2 Survival of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 9 - TAX MATTERS; POST-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.1 Transactional Taxes and Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.2 Records Retained by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.3 Access by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.4 Preservation of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
<PAGE> 5
PRAXAIR BUSINESS CONFIDENTIAL
<TABLE>
<S> <C>
9.5 Assumption of Certain Tax Liabilities; Indemnification by Seller . . . . . . . . . . . . . . . . . . 50
9.6 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.7 Solicitation of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.8 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 10 - EMPLOYEES AND BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.1 Maintenance OF benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.2 Termination OF employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 11 - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.1 Survival of Representations and Covenants of Buyer and
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.2 Survival of Representations and Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . 59
11.3 Indemnification by Buyer and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.4 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.5 Indemnification Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 12 - PUBLICITY; CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
12.1 Publicity . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
12.2 Confidentiality .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
12.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE 13 - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE 14 - BROKERAGE FEES; CERTAIN EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
14.1 Brokerage Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
14.2 Certain Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE 15 - GOVERNING LAW; FORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE 16 - BINDING EFFECT; ASSIGNMENT; THIRD PARTY
BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE 17 - ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE 18 - FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
<PAGE> 6
PRAXAIR BUSINESS CONFIDENTIAL
<TABLE>
<S> <C>
ARTICLE 19 - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE 20 - WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE 21 - REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE 22 - HEADINGS; INDEXES; COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE 23 - SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE 24 - CERTAIN REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
24.1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
24.2 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
24.3 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
</TABLE>
<PAGE> 7
PRAXAIR BUSINESS CONFIDENTIAL
STOCK PURCHASE AND SALE AGREEMENT. (the "Agreement") dated as of
February 14,1997 by and among SPECIALTY SOLUTIONS, INC. ("Buyer"), PRAXAIR,
INC., ("Seller") and ERSHIGS, INC. ("Company").
WHEREAS, Praxair, Inc.. a Delaware corporation, owns all of the issued
and outstanding shares of capital stock (the "Capital Stock") of the Company, a
Washington corporation;
WHEREAS, Company is engaged in the development, design, engineering,
manufacture, fabrication, marketing, sale, assembly and installation of
fiberglass reinforced products (the "Business"); and
WHEREAS, Praxair, Inc. desires to sell to Buyer, a Delaware
corporation and a wholly owned subsidiary of Denali Holdings, Inc., a Delaware
corporation, and Buyer desires to purchase from Praxair, Inc., all of the
shares of Capital Stock issued and outstanding on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, representations and
warranties and the mutual covenants and agreements contained herein and other
good, valuable and sufficient consideration, the receipt of which is hereby
acknowledged, Buyer, Company and Seller (collectively, the "Parties" and
sometimes individually, a "Party"), intending to be legally bound hereby, agree
as follows:
ARTICLE 1 - PURCHASE AND SALE OF SHARES; CLOSING
1.1 Purchase and Sale of Shares. Subject to the terms and
conditions set forth herein, at the Closing, Praxair, Inc. will sell, assign and
deliver or cause to be sold, assigned and delivered to Buyer, and Buyer will
purchase and accept all right,
1
<PAGE> 8
PRAXAIR BUSINESS CONFIDENTIAL
title and interest in and to, the Capital Stock, free and clear of all
preemptive rights, liens, claims and encumbrances (the "Acquisition").
1.2 Purchase Price and Payment. The purchase price for all the
shares of the Capital Stock shall be $6,000,000 (the "Purchase Price"). At the
Closing, Buyer shall (i) pay $5,000,000 of the Purchase Price to Seller or its
designee, by wire transfer of immediately available Federal Reserve funds to an
account maintained by Seller and to be designated in writing by Seller at least
five(5) business days prior to the Closing Date and (ii) deliver to Seller in
payment of the remainder of the Purchase Price a promissory note in the amount
of $1,000,000 payable to the order of Seller, in substantially the form of the
note as set forth in Exhibit A hereto and with no right of set-off for any
purpose including for amounts that may be asserted, claimed or adjudged payable
to Buyer or Company from Seller or any of Seller's subsidiaries or affiliates.
1.3 Closing.
The closing of the transactions contemplated hereby (the
"Closing") will take place at the offices of Seller located at 39 Old Ridgebury
Road, Danbury, Connecticut or such other place as the Buyer and Seller may
mutually agree (the "Closing Place") on February 28, 1997 or such other date as
the Buyer and Seller may mutually agree (the "Closing Date") or the date set
forth in Articles 4.6, 8.1 (ii) or 8.1 (iii), as applicable. Subject to
completion, the Closing will be deemed to have been consummated and become
effective for all purposes as of 12:01 AM Eastern Time on the Closing Date.
2
<PAGE> 9
PRAXAIR BUSINESS CONFIDENTIAL
1.4 Closing Deliveries.
(a) At the Closing, Buyer will deliver to Seller:
(i) one (1) copy of the resolutions adopted by the
Board of Directors of Buyer authorizing the transactions contemplated hereby,
certified by the Secretary or an Assistant Secretary of the Buyer;
(ii) certificates to the effect of Articles 7(ii) and
7(iii) hereof executed by appropriate authorized officers of Buyer;
(iii) $5,000,000 by wire transfer to Seller's
account; and
(iv) the promissory note as provided in Article 1.2
herein.
(b) At the Closing, Seller will deliver to Buyer:
(i) one (1) copy of the resolutions adopted by the
Board of Directors of Seller, authorizing the transactions contemplated hereby,
certified by the Secretary or an Assistant Secretary of Seller;
(ii) certificates to the effect of Articles 6(ii) and
6(iii) hereof executed by appropriate authorized officers of Seller;
(iii) the duly executed and sealed stock certificates
representing the Capital Stock registered in the name of the Buyer; and
(iv) resignations of all directors of the Company
serving in office immediately prior to the Closing except for A. Herbert
Ershigs.
(c) At the Closing, Buyer and Seller each will execute,
deliver and acknowledge, or cause to be executed, delivered and acknowledged, to
the other such
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certificates and other documents related to the consummation of the
transactions contemplated hereby, as may be reasonably requested by the other.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY
Seller and Company represent and warrant as of the date hereof as
follows:
2.1 Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of Washington. Company has all
corporate power and authority necessary to (i) execute, deliver and perform its
obligations under this Agreement and (ii) consummate the transactions
contemplated hereby. Company has all corporate power and authority necessary to
(A) own, lease or use the properties owned, leased or used by it and (B)
conduct the Business as presently conducted by it. Company is duly qualified or
licensed and in good standing as a foreign corporation authorized to do
business under the laws of the jurisdictions where the failure to be so
qualified or licensed is reasonably likely to adversely affect the ability of
Seller or Seller's subsidiaries or affilliates to consumate the transactions
contemplated to be consumated by Seller at the Closing.
2.2 Authorization. The execution and delivery of this Agreement
and all of the agreements, instruments and documents being or to be executed
and delivered by Company, the performance by Company of its other obligations
hereunder and the consummation by Company of the transactions contemplated
hereby, have been duly authorized by all necessary corporate actions on the
part of Company. This Agreement constitutes a legal, valid and binding
obligation of Company, enforceable against Company in accordance with its
terms, except insofar as enforceability may be limited
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by bankruptcy, insolvency, moratorium or other laws which may affect creditors'
rights and remedies generally and by principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
2.3 No Breach. The execution and delivery by Company of this
Agreement, the performance by Company of its obligations hereunder, as
applicable, and the consummation by Company of the transactions contemplated
hereby, as applicable, will not:
(i) conflict with, result in a violation of, or
constitute a default under the Certificate of Incorporation or Bylaws of
Company, as amended to date;
(ii) except as set forth in Schedule XI, constitute a
default under, result in a violation or breach of, result in the cancellation
or termination of, accelerate the performance required under, result in the
right of the counterparty thereto to cancel or terminate or accelerate the
performance required under or result in the creation of any lien, claim or
encumbrance (other than liens, claims or encumbrances arising under this
Agreement) upon any of the Capital Stock or the material properties of Company
pursuant to any material mortgage, guaranty, deed of trust, note, indenture,
bond, lease, agreement or other material instrument to which Company is a party
or by which any of such properties is bound; or
(iii) result in a violation of or conflict with any
law, ordinance, rule or regulation or any order, writ, judgment, award, edict or
decree of any court of competent jurisdiction or any governmental agency,
authority or instrumentality of
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competent jurisdiction applicable to Company or to any of the material
properties of Company.
2.4 Consents. Except as set forth in Schedule XI attached hereto,
no consent, approval, exemption or authorization is required to be obtained
from, no notice is required to be given to and no filing is required to be made
with any third party (including, without limitation, governmental agencies,
authorities and instrumentalities of competent jurisdiction) by Company (A) in
order (i) for this Agreement to constitute a legal, valid and binding
obligation of Company or (ii) to authorize or permit the consummation by
Company of the transactions contemplated hereby or (B) under or pursuant to any
material governmental permits, licenses, consents, authorizations or approvals
held by or issued to Company (including, without limitation, environmental,
health, safety and operating permits and licenses) by reason of this Agreement
or the consummation of the transactions contemplated hereby.
2.5 Organizational Instruments. Company, through Seller, has made
available to Buyer complete and accurate copies of the Certificate of
Incorporation and Bylaws of Company, in each case as amended to date. Company
is not in violation of any provision of its Certificate of Incorporation or
Bylaws, in each case as amended to date. Except for this Agreement, there are
no agreements or commitments which obligate or require Seller or Company to
amend or authorize an amendment of the Certificate of Incorporation or Bylaws
of the Company, in each case as amended to date. Company, through Seller, has
made available or caused to be made available to Buyer complete and accurate
copies of the minute books with respect to meetings of
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the Board of Directors and Shareholders of Company and the stock books of the
Company. Such minute books contain complete and accurate copies of all records
of all meetings and consents in lieu of meetings of the board of directors (and
any committee thereof) and shareholders of the Company.
2.6 Capital Stock. The authorized Capital Stock consists of 25,000
shares of voting common stock, no par value, and 25,000 shares of non-voting
common stock, no par value, of which 8250 shares from each series have been
duly authorized and validly issued and are outstanding, fully paid and
non-assessable. Except for this Agreement, there are no outstanding
subscriptions, options, warrants, rights, convertible or exchangeable
securities, agreements or commitments which obligate or require Seller or
Company to issue, sell or transfer any shares of Capital Stock.
(b) All of the issued and outstanding shares of Capital
Stock are owned by Praxair, Inc., free and clear of all preemptive rights,
liens, claims and encumbrances other than restrictions on transfer under
federal and state securities laws.
2.7 Subsidiaries. Company does not directly or indirectly own or
have the power to vote shares of the capital stock or other ownership interests
of any corporation or other Person such that it has voting power to elect a
majority or a specified number (by class or otherwise) of the directors of such
corporation, or other Persons performing similar functions for such Person, as
the case may be. Company is neither a partner of any partnership nor a member
of any joint venture or other
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business entity other than the partnerships and joint ventures listed on
Schedule I attached hereto.
2.8 Financial Statements.
(a) Schedule XII attached hereto sets forth a complete and
accurate copy of the unaudited proforma balance sheets of Company as of December
31st for each of 1993, 1994 and 1995 and the unaudited proforma statements of
income and of cash flows for each of the twelve (12) month periods ending on
December 31st, 1993, 1994 and 1995 (collectively, the "Unaudited Financial
Statements"). Subject to any qualifications set forth in the applicable notes
and schedules, the Unaudited Financial Statements present fairly, in all
material respects, the financial position of Company as of the foregoing dates
and the statements of income and cash flows of Company for the foregoing
periods, all in conformity with generally accepted accounting principles applied
on a consistent basis other than as disclosed therein, and subject to normal
year-end adjustments (except that footnote disclosure may be omitted therefrom).
2.9 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of
Company have been filed for all years and periods for which such Tax Returns
were due (taking into account all filing date extensions) and, to the extent
required by applicable law, all Taxes required to be paid during the period from
the date of incorporation through the Closing Date (regardless of whether shown
on a Tax Return) have been paid. Except as set forth in Schedule XIII attached
hereto, since December 31, 1995, to the knowledge of Seller or Company, Company
has not incurred any material liability with
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respect to any Tax except in the ordinary course of business. Except as set
forth in Schedule XIII attached hereto, there are no presently pending written
claims by any foreign, federal, state or local taxing authority which pertain
to Company or to any of the material properties owned, used or leased by
Company or any of such Tax Returns.
(b) Except as set forth on Schedule XIII attached hereto,
with respect to all Tax Returns, (i) the statute of limitations for the
assessment of any Tax in respect of such Tax Return has expired through the
taxable years set forth in Schedule XIII attached hereto and (ii) except as set
forth in Schedule XIII attached hereto, no audit is in progress and no waiver
or agreement is in force for the extension of time for the assessment or
payment of any Tax with respect to such Tax Returns.
(c) As used herein, the term "Tax" or "Taxes" will mean
any or all federal, state, local and foreign taxes, assessments, imposts,
duties and other similar governmental charges (including, without limitation,
income, profits, excise, sales, use, occupancy, value added, gross receipts,
franchise, ad valorem, capital, transfer, withholding, employment, payroll and
property taxes and import duties), any or all interest thereon, any or all
additions thereto or to any such interest and any or all penalties with respect
thereto.
(d) As used herein, the term "Tax Return" will mean any
return, report, declaration, estimate or information statement filed or
required to be filed with any taxing authority with respect to any Tax.
(e) Except as set forth on Schedule XIII, (i) Company has
not filed a consent under Code Section 341 (f) concerning collapsible
corporations, (ii) except as
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provided in Company's long term incentive compensation plans, Company has not
made any payments, is neither obligated to make any payments, nor is a party to
any agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G, and (iii) Company
is neither a party to, nor has any tax-related contractual liability with
respect to, any lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1986, as amended (the "Tax Code").
2.10 Real Property.
(a) Schedule II attached hereto identifies (i) all of the
real property which is owned by Company (the "Owned Real Property"), to all of
which Company have good and valid title, subject to the exceptions set forth in
Article 2.12 below, (ii) all of the real property which is leased by Company
(the "Leased Real Property" and together with the Owned Real Property, the
"Real Property"), (iii) all of the leases and subleases pertaining to the Real
Property (collectively, the "Real Property Leases"), (iv) all of the suits,
actions, proceedings, investigations and written claims presently pending or,
to the knowledge of Seller or Company, threatened in writing which (A) pertain
to the Owned Real Property or (B) pertain to the Leased Real Property or the
Real Property Leases and to which Company is a party or, to the knowledge of
Seller or Company, is threatened in writing to be made a party and (v) all of
the final orders, writs, judgments, awards, edicts and decrees of any court of
competent jurisdiction presently outstanding against Company which pertain to
the Owned Real Property and
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which materially affect the ownership or use of the Owned Real Property as
presently owned or used by Company.
(b) Except as set forth in Schedule II attached hereto,
Company does not own, hold, is neither obligated under nor a party to any
option, right of first refusal or other contractual right to purchase, acquire,
sell or dispose of the Real Property or any portion thereof or interest
therein.
(c) Except as set forth in Schedule II attached hereto, the
components of the buildings, structures and other improvements which are located
on the Owned Real Property are in reasonable working order and repair for the
conduct of the Business as presently conducted by Company. The buildings,
structures and other improvements which are located on the Owned Real Property
are supplied with all utilities necessary for the operation thereof as presently
operated by Company and all associated "hook-up" fees and other similar charges
due and payable through the date hereof have been fully paid.
(d) Except as set forth in Schedule II attached hereto,
Company has not received written notice of any presently pending, and, there is
not any pending, or, to the knowledge of Seller or Company, any threatened in
writing, (i) condemnation proceeding affecting the Real Property or any part
thereof or (ii) sale or other disposition of the Real Property or any part
thereof in lieu of condemnation.
2.11 Owned Personal Property. Except as set forth in Schedule XIV
attached hereto and except for properties sold, transferred or otherwise
disposed by Company in the ordinary course of business since December 31, 1995,
all of the
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material tangible personal property (including, without limitation,
furnishings, furniture, office equipment, vehicles, inventories, tools,
machinery, equipment, structures and movable fixtures) which is reflected in
the latest balance sheet included among the Unaudited Financial Statements is
(i) owned by Company and (ii) in reasonable working order and repair for use as
presently used by Company in connection with the Business.
2.12 Title to Owned Properties. Except as set forth in Schedule II
attached hereto with respect to the properties listed therein or in Schedule
XIX attached hereto, Company has good and valid title to all of the material
properties owned by it, free and clear of all liens, claims and encumbrances
other than:
(i) liens, claims and encumbrances reflected in the
Unaudited Financial Statements;
(ii) liens for taxes, charges and assessments
imposed by any taxing authority which are not yet due and payable or which are
being contested in good faith by appropriate proceedings listed in Schedules
XIII or XV attached hereto;
(iii) mechanics', suppliers', installment sales and
similar liens for services rendered or materials furnished, the charges for
which are not yet due and payable or which are being contested in good faith by
appropriate proceedings;
(iv) defects or imperfections in title, claims,
easements or rights, conditions, restrictions, exceptions, reservations and
encumbrances which do not materially, individually or in the aggregate,
interfere with the use of such properties as presently used by, or the conduct
of the Business as presently conducted by,Company.
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2.13 Contracts, Leases, Licenses. Except for leases and subleases
described in Article 2.10 hereof, licenses and agreements described in Articles
2.19 and 2.20 hereof, plans, policies, practices, programs, agreements,
arrangements, contracts and commitments described in Article 2.21 hereof,
consent orders described in Article 2.23 hereof and insurance policies
described in Article 2.24 hereof (collectively, the "Other Scheduled
Contracts"), Schedule III attached hereto sets forth all written contracts,
agreements and commitments (including, without limitation, leases, subleases,
licenses and installment sales contracts) having values in excess of $200,000
to which Company is a party and:
(i) which involve future expenditures with respect
to the purchase of raw materials, manufacturing supplies or utilities used in
the ordinary course of business during the remaining term of the contract,
agreement or commitment;
(ii) which involve future receipts with respect to
the sale of products in the ordinary course of business during the remaining
term of the contract, agreement or commitment;
(iii) which involve future expenditures or receipts
with respect to the purchase, sale or lease of real property or personal
property (other than raw materials, manufacturing supplies and products
described in clauses (i) and (ii) of this Article 2.13) during the remaining
term of the contract, agreement or commitment;
(iv) which involve future expenditures or receipts
with respect to the rendition of services (other than the purchase of utilities)
during the remaining term of the contract, agreement or commitment;
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(v) which contain commitments of suretyship,
guaranty or indemnification (other than guarantees, warranties and indemnities
provided in connection with the purchase, sale or lease of materials, supplies,
utilities, products or other personal property or the rendition of services in
the ordinary course of business);
(vi) which involve the handling, treatment, storage,
transportation, recycling, reclamation or disposal of Hazardous Waste;
(vii) which provide for the grant of a security
interest or the extension of credit, constitute a mortgage or lien on or pledge
of any properties or relate to the borrowing or lending of funds (other than
security interests granted and credit extended in connection with the purchase,
lease or sale of materials, supplies, utilities, products or other personal
property or the rendition of services in the ordinary course of business and
security interests, mortgages, liens and pledges described in Article 2.12
hereof);
(viii) which relate to the disposition or acquisition
of any material business or any material equity interest in any business;
(ix) to which Seller or any of its affiliates, other
than Company, is also a party;
(x) pursuant to which Company agrees not to
compete in any line of business with any Person or in any geographical area; or
(xi) to which any government or any governmental
agency, authority or instrumentality is a party.
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2.14 Performance of Contracts, Leases and Licenses. Except as set
forth in each Schedule attached hereto with respect to the contracts,
agreements and commitments listed therein, to the knowledge of Seller or
Company, (i) all of the contracts, agreements and commitments set forth in
Schedule III attached hereto and all of the Other Scheduled Contracts are
legal, valid and binding obligations of Company and are in full force and
effect in all material respects, (ii) Company is neither in default, nor has it
received written notice of any default or of any event which, with the passage
of time, the giving of further notice, or both, would constitute a default by
Company under any such contract, agreement or commitment or any of the Other
Scheduled Contracts in any material respect and (iii) none of the other parties
to any such contract, agreement or commitment or any of the Other Scheduled
Contracts is in default thereunder in any material respect.
2.15 Compliance with Laws. Except as set forth in Schedule XV
attached hereto or in any Schedule attached hereto with respect to the matters
set forth therein, to the knowledge of Seller or Company, Company is not in
default under or in violation of any foreign, federal, state or local law,
ordinance, regulation or rule or any judgment, writ, order, award, edict or
decree of any court of competent jurisdiction or any governmental agency,
authority or instrumentality of competent jurisdiction pertaining to Company or
to any of the properties owned, leased or used by Company.
2.16 Permits, Licenses. Schedule VIII attached hereto sets forth
all of the governmental consents, approvals, exemptions, permits, licenses,
franchises and other authorizations which have been issued to, or are held for
use by, Company, or for
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which Company has applied and which are material to the conduct of the Business
as presently conducted by Company. Except as described in Schedule VIII
attached hereto, to the knowledge of Seller or Company, the consummation of the
transactions contemplated hereby will not result in a violation or invalidation
of any of such consents, approvals, exemptions, permits, licenses, franchises
or other authorizations. Except as described in Schedules VIII, XV, XVI or XVII
attached hereto, to the knowledge of Seller or Company, Company has obtained
all of the material governmental consents, approvals, permits, exemptions,
licenses, franchises and other authorizations which are necessary in order to
conduct the Business as presently conducted by Company or own, lease or use the
material properties presently owned, leased or used by Company.
2.17 Environmental Conditions.
(a) Schedule XVI attached hereto:
(i) lists (A) all hazardous waste (as that term
is defined in The Resource Conservation and Recovery Act, 42 USC 6901 et seq.
such term referred to herein as "Hazardous Waste") treatment, storage and
disposal facilities and sites which are located on the Real Property and which
are presently used by Company and (B) as to each such facility or site, the
time period used and the type of Hazardous Waste treated, stored or disposed;
(ii) lists (A) all Hazardous Waste treatment,
storage and disposal facilities and sites which are not located on the Real
Property and which are
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presently used by Company and (B) as to each such facility or site, the time
period used and the type of Hazardous Waste treated, stored or disposed;
(iii) lists (A) all Hazardous Waste treatment,
storage and disposal facilities and sites which, to the knowledge of Seller or
Company, are located on the Real Property but are not presently used by Company
and (B) as to each such facility or site, the time period used and the type of
Hazardous Waste treated, stored or disposed;
(iv) lists (A) all Hazardous Waste treatment,
storage and disposal facilities and sites which are not located on the Real
Property and which, to the knowledge of Seller or Company, were used in the
conduct of the Business as conducted by Company but are not presently used by
Company and (B) as to each such facility or site, the time period used and the
type of Hazardous Waste treated, stored or disposed;
(v) lists (A) all underground storage tanks located
on or off the Real Property currently or formerly used by the Company and (B) as
to each such underground storage tank, the time period used and the type of
material treated, stored or disposed;
(vi) identifies all written internal environmental
audits conducted since January 1,
1993 relating to Company;
(vii) lists all reports of releases (including,
without limitation, continuous release reports) of hazardous substances
relating to Company furnished since January 1, 1993 to any foreign, federal,
state or local governmental agency,
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authority or instrumentality, including, without limitation, all such reports
furnished to the National Response Center, any state emergency response
commission, any local emergency planning committee or the United States
Environmental Protection Agency (the "EPA") pursuant to requirements of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986
(collectively, "CERCLA");
(viii) lists all reports made since January 1, 1993 to
the EPA or any state or local governmental agency, authority or instrumentality
pursuant to Sections 302, 311, 312 and 313 of Title III of the Superfund
Amendments and Reauthorization Act of 1986; and
(ix) describes all material events of noncompliance
relating to Company reported to or, to the knowledge of Seller or Company,
identified by any governmental agency, authority or instrumentality since
January 1, 1993 with respect to (A) applicable environmental permits, approvals,
authorizations or licenses or (B) the requirements of applicable HS&EA Laws,
including without limitation, the Clean Air Act, as amended, the Clean Water
Act, as amended, the Resource Conservation and Recovery Act, as amended, or the
Toxic Substance Control Act, as amended ("TSCA").
(b) Except as set forth in Schedules XII, II, III, VIII,
XV, XVI and XVII attached hereto, to the knowledge of Seller or Company:
(i) Company is in compliance, in all material
respects, with all HS&EA Permits held by it and all of such HS&EA Permits are
in full force and effect and no action to revoke any of such HS&EA Permits is
pending;
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(ii) neither Seller nor Company has received written
notice from any governmental authority of any event, condition, circumstance,
activity, practice, incident, action or plan (A) which may materially interfere
with or prevent current or future compliance with (1) any HS&EA Law in
connection with the conduct of the Business as presently conducted by Company or
(2) any HS&EA Permit currently held by Company in connection with the conduct of
the Business or (B) which may (1) require the amendment or transfer of any HS&EA
Permit currently held in connection with the conduct of the Business as
presently conducted by Company or (2) materially interfere with any such
amendment or transfer:
(iii) neither Seller nor Company has received written
notice that it is subject to, responsible or liable for any material current or
future HS&EA Liabilities and Costs based upon or arising out of (A) past or
present environmental conditions on, under, above or about real property, or
assets, equipment or facilities located on, under, above or about real property,
previously or presently used by Company including, without limitation, HS&EA
Liabilities and Costs arising from, related to or associated with notices given,
claims made, actions and proceedings instituted or orders issued by a federal,
state, local or foreign government or governmental agency or by any third party,
(B) the use, production, manufacture, processing, distribution, management,
handling, shipment, transport, treatment, generation, storage, or Release of any
Contaminant in connection with the conduct of the Business by Company or (C) the
failure of such real property, assets, equipment or facilities, or property
about such
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real property, to comply in full or in part with all requirements of any HS&EA
Law or any HS&EA Permit;
(iv) with respect to real property previously or
presently owned or operated in connection with the conduct of Business by
Company, neither Company nor, to the knowledge of Seller or Company, any of the
other present or prior owners or operators thereof are subject to any
outstanding written notice or order from, or agreement with, any governmental
authority or other Person in respect of which it (A) is required to incur any
material HS&EA Liabilities and Costs or (B) is subject to any investigation by
any governmental authority evaluating whether any material Remedial Action
hereof is needed to respond to a Release of a Contaminant into the Environment;
(v) Company has filed all notices required to be
filed under the HS&EA Laws indicating past and present Releases of Contaminants
used or held in connection with the conduct of the Business by Company; and
(vi) neither Seller nor Company has entered into any
written agreement with any governmental authority or other Person pursuant to
which it has assumed responsibility, either directly or as a guarantor,
indemnitor or surety, for Remedial Action, which provides for future
expenditures in excess of $10,000.
(c) As used in this Agreement, the following terms will
have the meanings set forth below:
(i) "Contaminant" will mean any waste, pollutant,
noise, hazardous substance, toxic substance, hazardous material, hazardous
waste, special
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waste, industrial substance or waste, radioactive material or waste, petroleum
or petroleum-derived substance or waste or any constituent of any such
substance or waste (including, without limitation, any such substance regulated
under or defined by any HS&EA Law or otherwise determined by a court of law to
be a basis for personal injury or property damage liability).
(ii) "Environment" will have the meanings set forth
in Section 9601(8) of Title 42 of the United States Code and "Environmental"
will have a concomitant meaning.
(iii) "HS&EA Laws" will mean foreign and domestic
laws, and any rules and regulations promulgated thereunder by any governmental
entity, relating to pollution, health and safety or protection of the
Environment (including, without limitation, laws relating to the Release or
threatened Release of Contaminants into the Environment or otherwise relating
to the presence, manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Contaminants).
(iv) "HS&EA Liabilities and Costs" will mean all
liabilities, obligations, obligations to conduct Remedial Actions,
responsibilities, losses, damages, punitive damages, consequential damages,
treble damages, costs or expenses (including, without limitation, all
reasonable fees, disbursements and expenses of counsel and experts and all
reasonable consulting fees and costs of investigations and feasibility
studies), fines, penalties, monetary sanctions and interest resulting from any
claim or demand by any person or governmental entity, domestic or foreign,
arising pursuant to the HS&EA Laws, from (A) environmental, health or safety
conditions, or
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the Release or threatened Release of a Contaminant into the Environment, as a
result of the conduct of the Business by Company and (B) conditions on, under,
above or about any real property owned or operated by Company.
(v) "HS&EA Permit" will mean any permit, license,
authorization, approval or registration required pursuant to the HS&EA Laws.
(vi) "Release" will mean any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, disbursal,
leaching or migration of any Contaminant into the Environment or into, out of
or through any structure, property, air, soil, surface water or ground water.
(vii) "Remedial Action" will mean all actions required
to (A) clean up, move, treat, mitigate or remediate Contaminants in the
Environment (including, without limitation, any structure or property), or (B)
perform pre-remedial studies and investigations and post-remedial monitoring and
care with respect to Contaminants in the Environment.
2.18 Litigation, Claims, Proceedings. Except for suits, actions,
proceedings, investigations, audits, examinations and written claims described
in Articles 2.9, 2.10, 2.12, 2.17, 2.19, 2.20, 2.21 and 2.23 hereof and orders,
judgments, writs, decrees, awards and edicts described in Articles 2.9, 2.10,
2.15, 2.19, 2.20, and 2.23 hereof, Schedule XV attached hereto sets forth all
of the civil, criminal, administrative and arbitral suits, actions,
proceedings, investigations and written claims presently pending or, to the
knowledge of Seller or Company, threatened in writing and all of the final
orders, judgments, writs, decrees, awards and edicts presently outstanding
which
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pertain to Company or to any of the material properties of Company. Company has
not received written notice of any statements, citations or decisions by any
governmental agency, authority or instrumentality stating that any product
made, or service provided by, Company is defective or unsafe or fails in any
material respect to meet any standards promulgated by such agency, authority or
instrumentality.
2.19 Patents; Technology
(a) Schedule IV attached hereto lists:
(i) all of the United States and foreign patents
and patent applications owned by or licensed or assignable to Company which are
material to the conduct of the Business as presently conducted by Company;
(ii) all of the licenses and non-assertion rights
granted to or by Company pursuant to written agreements pertaining to patents,
patent applications, proprietary technology or inventions which are material to
the conduct of the Business as presently conducted by Company;
(iii) all of the written confidentiality, secrecy,
screening, development and settlement agreements pertaining to patents, patent
applications, proprietary technology or inventions which are material to the
conduct of the Business as presently conducted by Company (other than
confidentiality or secrecy agreements made in connection with the purchase,
sale or lease of materials, supplies, products or other personal property or
the rendition of services in the ordinary course of business); and
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(iv) all of the suits, actions, proceedings
(including, without limitation, interference, opposition, revocation and
conflict proceedings) and written claims presently pending or, to the knowledge
of Seller or Company, threatened in writing and all of the orders, judgments,
writs, edicts, awards and decrees presently outstanding pertaining to patents,
patent applications, proprietary technology or inventions described in the
preceding clauses of this Article.
(b) Except as set forth in Schedule IV attached hereto,
to the knowledge of Seller or Company, all of the patents, patent applications,
trade secrets, know-how, inventions, processes, manufacturing information,
engineering information and technical information, which are material to the
conduct of the Business as presently conducted by Company and which are not
available in the public domain are owned by, licensed to or subject to non-
assertion rights granted to Company. Except as set forth in Schedule IV
attached hereto, to the knowledge of Seller or Company, Company has not
received written notice that it has infringed the patent rights of third
parties.
2.20 Trademarks; Copyrights.
(a) Schedule V attached hereto lists:
(i) all of the foreign, United States and
state trademarks, service marks, trade names and copyrights owned by or licensed
or assignable to Company which are material to the conduct of the Business as
presently conducted by Company;
(ii) all of the written licenses and all of the
rights under registered user or other written agreements granted to Company by
third parties
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pertaining to trademarks, service marks, trade names and copyrights which are
material to the conduct of the Business as presently conducted by Company;
(iii) all of the written licenses and all of the
rights under registered user or other written agreements granted to third
parties by Company pertaining to trademarks, service marks, trade names and
copyrights which are material to the conduct of the Business as presently
conducted by Company; and
(iv) all of the suits, actions, proceedings
(including, without limitation, interference, opposition and cancellation
proceedings) and written claims presently pending or, to the knowledge of Seller
or Company, threatened in writing and all of the orders, judgments, writs,
edicts, awards and decrees presently outstanding pertaining to trademarks,
service marks, trade names or copyrights described in the preceding clauses of
this Article 2.20.
(b) Except as set forth in Schedule V attached hereto, all
of the trademarks and service marks described in Article 2.20(a)(i) hereof have
been duly registered or are the subject of pending registration applications in
the jurisdictions indicated in Schedule V attached hereto. Except as set forth
in Schedule V attached hereto, to the knowledge of Seller or Company, Company
has not received written notice that it has infringed the trademark rights or
copyrights of third parties in connection with the conduct of the Business by
Company.
2.21 Human Resources.
(a) Schedule IX attached hereto sets forth a complete and
accurate list of (i) all of the collective bargaining agreements and agreements
with labor unions or
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associations representing employees to which Company is a party and (ii), as of
the dates set forth in Schedule IX attached hereto, the total number of
employees of Company and the number of such employees represented by each such
agreement. Such numbers of employees have not changed since such dates except
in the ordinary course of business. Except as set forth in Schedule IX attached
hereto, to the knowledge of Seller or Company, there are no organizing efforts,
strikes, slowdowns, picketing, work stoppages, labor troubles or other similar
events in which employees of Company are participating
(b) Except as set forth on Schedule IX attached hereto,
Company (i) is not a party to any written consulting or employment contract; and
(ii) has neither made any commitment to, nor entered into any written agreement
obligating it to, increase the wages or modify the material conditions or terms
of employment of its employees.
(c) Schedule X attached hereto sets forth all of the
employee benefit plans maintained by Company with respect to the Business and
its employees, and all of the severance, termination and similar programs either
established by Company with respect to the transactions contemplated hereby or
otherwise applicable to Company's employees ("Benefit Plans").
(d) Other than as indicated on Schedule X hereto:
(i) Seller neither maintains, sponsors nor
contributes to any program or arrangement covering employees of Company that is
an "employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and 3(37),
respectively, of the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans") or
any other incentive or benefit arrangement ("Non-ERISA Plans");
(ii) The present value of the accrued benefits under
any and all ERISA Plans which are defined benefit plans, as defined in Section
3(35) of ERISA, and which are maintained by Seller for employees and former
employees of Company (collectively a "Pension Plan") did not, as of the last
annual valuation date for such Pension Plan, exceed the value of assets of such
Pension Plan allocable to such benefits (computed on the basis of the actuarial
assumptions specified in the most recent actuarial valuation for such Pension
Plan);
(iii) No ERISA Plan (or any trust created thereunder)
has engaged in a "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code"), which could subject Buyer or Company to any tax penalty on prohibited
transactions and which has not adequately been corrected;
(iv) Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan;
(v) Determination letters have been received from
the Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401 (a), stating that such ERISA Plan is qualified
thereunder;
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(vi) No Pension Plan subject to Title IV of ERISA has
been terminated nor has there been any "reportable event" as such term is
defined in Section 4043 of ERISA with respect to any such Pension Plan;
(vii) No Pension Plan has incurred any "accumulated
funding deficiency" as such term is defined in Section 302 of ERISA and Section
412 of the Code (whether or not waived) and Seller has made all required
contributions to ERISA Plans on a timely basis;
(viii) No liability to the Pension Benefit Guaranty
Corporation (the "PBGC"), other than for premiums, has been incurred with
respect to any Pension Plan;
(ix) No proceeding or other action has been initiated
by the PBGC to terminate any Pension Plan, nor has written notice been given to
Seller of an intention to commence or seek the commencement of any such
proceeding or action;
(x) Seller has not, within the last six years before
the Closing Date, completely or partially withdrawn from a "multiemployer plan"
covering Employees; and
(xi) Copies of all documents embodying the ERISA Plans
and Non-ERISA Plans, and of the two most recent Forms 5500 for all ERISA Plans
have been delivered or made reasonably available to Buyer.
2.22 Business Operations.
(a) Except as set forth herein or in any Schedule attached
hereto:
(i) since December 31, 1995, Company has not, except
in the ordinary course of business, made any material change in practices,
operations or
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policies with respect to (A) the standard terms and conditions of sale of
products or services (including standard terms regarding returns and discounts,
but excluding price changes), (B) the method of accounting for sale of products
or services, (C) the policy regarding maintenance of inventory levels or (D)
the conduct of accounts receivable collection and accounts payable payment
activities;
(ii) since December 31, 1995, Company has not, except
in the ordinary course of business, or as specifically contemplated by this
Agreement or connection with the transactions contemplated hereby, (A) engaged
in any material transaction, (B) entered into any material agreement, (C)
incurred, paid or discharged any material obligation or liability, (D) sold or
transferred any material property, (E) waived or released any material right or
obligation, (F) incurred any indebtedness for borrowed money to do any of the
foregoing; provided, that one or more cash dividends declared and paid after
December 31, 1995 and prior to the Closing Date will not be considered a breach
of this Section 2.22; and
(iii) since December 31, 1995, there has been no
material damage to or loss of the material properties owned, leased or used by
Company (regardless of whether such damage or destruction is covered by
insurance).
(b) Except as set forth in Schedule XIV attached hereto, to
the knowledge of Seller or Company, no material supplier or customer of Company
has indicated in writing that it will cease doing business with Company as a
result of the transactions contemplated hereby.
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2.23 Health and Safety Conditions. Schedule XVII attached hereto:
(i) lists all current material safety data sheets
relating to the products currently sold by Company and the chemical substances
or mixtures currently used by Company in the conduct of the Business as
presently conducted by Company;
(ii) lists all written internal safety and health
audits conducted since January 1, 1993 by Company; and
(iii) lists all citations, notices of violations,
orders and consent orders issued and administrative or judicial enforcement
proceedings commenced by governmental or agencies, authorities and
instrumentalities (including the United States Occupational Safety and Health
Administration, any state occupational safety and health administration and,
with respect to TSCA, the EPA) with respect to safety and health matters
relating to Company since January 1, 1993.
2.24 Insurance. Schedule XVIII attached hereto lists all of the
material insurance policies (other than insurance policies relating to plans,
policies, practices, programs, contracts, agreements, arrangements and
commitments described in Article 2.21 hereof,) which cover employees,
properties, products or operations (including, without limitation, fire, public
liability, worker's compensation and vehicular insurance policies) and which
are held by or on behalf of Company for its account. To the knowledge of Seller
or Company, there is no material inaccuracy in any application for any such
policy which would form a basis for termination of any such policy.
2.25 Liabilities. Except as set forth herein or in any Schedule
attached hereto, to the knowledge of Seller or Company, there are no material
liabilities of Company
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other than liabilities incurred since December 31, 1995 in the ordinary course
of business.
2.26 Entire Business. Company owns, leases or has licenses or other
contractual rights to use all of the material tangible and intangible assets
used by it in the conduct of the Business as presently conducted by it except
for (i) assets used to provide services or goods to Company pursuant to a
contract, agreement or commitment set forth in Schedule III attached hereto or
one of the Other Scheduled Contracts, and (ii) pension or other funded employee
benefit plan assets. The contracts, agreements and commitments under which such
contractual rights have been granted are listed on Schedule III attached hereto
or included among the Other Scheduled Contracts.
2.27 Limitation on Representations. Except as set forth in this
Article 2, no representations, warranties or guarantees have been, are being or
will be made by Seller or Company as to the quality, condition, character,
size, quantity, type, earnings, revenues, expenses, suitability or value of
Company or any of the properties owned, leased or used by Company and ALL
REPRESENTATIONS, WARRANTIES OR GUARANTEES IMPLIED OR OTHERWISE CREATED UNDER
ANY APPLICABLE LAW ARE EXPRESSLY DISCLAIMED BY THE SELLER. Buyer acknowledges
that the businesses engaged in by Company are subject to various risks and
uncertainties.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants as of the date hereof as follows:
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3.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Buyer has all
corporate power and authority necessary to (i) execute, deliver and perform its
obligations under this Agreement and (ii) consummate the transactions
contemplated hereby.
3.2 Authorization. The execution and delivery of this Agreement
and all of the agreements, instruments and documents being or to be executed
and delivered by Buyer, the performance by Buyer of its obligations hereunder
and the consummation by Buyer of the transactions contemplated hereby, have
been duly authorized by all necessary corporate actions on the part Buyer and
Buyer's shareholders. This Agreement constitutes a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except insofar as enforceability may be limited by bankruptcy, insolvency,
moratorium or other laws which may affect creditors, rights and remedies
generally and by principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
3.3 No Breach. The execution and delivery by Buyer of this
Agreement, the performance by Buyer of its obligations hereunder, and the
consummation by Buyer of the transactions contemplated hereby, will not:
(i) conflict with, result in a violation of, or
constitute a default under the Articles of Incorporation or Bylaws of Buyer, as
amended to date;
(ii) constitute a default under, result in a violation
or breach of, result in the cancellation or termination of, accelerate the
performance required under or result in the creation of any lien, claim or
encumbrance upon any of the material
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properties of Buyer pursuant to any material mortgage, guaranty, deed of trust,
note, indenture, bond, lease, agreement or other material instrument to which
Buyer is a party or by which any of such properties is bound; or
(iii) result in a violation of, or conflict with, any
law, ordinance, rule or regulation or any order, writ, judgment, award, edict or
decree of any court of competent jurisdiction or any governmental agency,
authority or instrumentality of competent jurisdiction applicable to Buyer or
any material properties of Buyer.
3.4 Consents. Except as otherwise set forth in Schedule XI
attached hereto, no consent, approval, exemption or authorization is required
to be obtained from, no notice is required to be given to and no filing is
required to be made with any third party (including, without limitation,
governmental agencies, authorities and instrumentalities of competent
jurisdiction) by Buyer, in order (i) for this Agreement to constitute a legal,
valid and binding obligation of Buyer or (ii) to authorize or permit the
consummation by Buyer of the transactions contemplated hereby or thereby.
3.5 Purchase for Investment. Buyer is purchasing the Capital Stock
for its own account and investment and not with a view toward, or for, resale
in connection with any distribution thereof.
3.6. Financial Capability. Buyer has sufficient funds or loan
commitments to purchase the Capital Stock on the terms and subject to the
conditions contemplated by this Agreement.
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ARTICLE 4 - PRE-CLOSING COVENANTS
4.1 Conduct By Buyer
(a) From the date hereof until the Closing, Buyer will
refrain from taking any action which would cause any representation or warranty
contained in Article 3 hereof to be untrue or incorrect in any material respect
as of the Closing Date.
(b) If, for any reason (including, without limitation,
termination of this Agreement pursuant to Article 8 hereof), the Closing does
not take place, Buyer will, and will cause its officers, employees and other
representatives to, keep confidential and not use or disclose in any manner any
information or documents obtained from Seller, Seller's subsidiaries or Company
concerning Company's, Seller's or Seller's subsidiaries respective properties,
businesses and operations and will promptly (i) return to Company all documents,
papers, books, records and other materials (and all copies thereof) obtained by
any of them from Seller, Company, or any of their respective subsidiaries or
affiliates or any of the directors, officers, employees, agents, representatives
or consultants of Seller, Seller's subsidiaries or Company in connection with
the investigation and evaluation of the transactions contemplated hereby, and
the negotiation and preparation of this Agreement or the consummation of the
transactions contemplated hereby, (ii) destroy all copies of all analyses,
studies and other documents prepared by or for Buyer which contain or reflect
information contained in such documents, papers, books, records and other
materials or obtained in connection with visits to the facilities of Seller,
Seller's subsidiaries and Company and (iii) furnish
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to Seller a certificate signed by an appropriate authorized officer of Buyer to
the effect that such destruction has been completed.
4.2 Conduct by Seller and Company
From the date hereof until the Closing,
(a) Company will, and Seller will cause Company to (i)
refrain from taking any action which, with reasonable foresight, would be
expected to cause any representation or warranty contained in Article 2 hereof
to be untrue or incorrect in any material respect as of the Closing Date and
(ii) Seller will notify Buyer of any event, condition or circumstance occurring
from the date hereof through the Closing Date that, in Sellers judgment, would
constitute a violation or breach of any representation or warranty or cause such
representation or warranty to be untrue as of the Closing Date (assuming Seller
believes that such event, condition or circumstance will exist on, or will not
be cured by, the Closing Date);
(b) Company will not, and Seller will not permit Company,
to amend or authorize any amendment of the Certificate of Incorporation or the
Bylaws of Company prior to the Closing; and
(c) Company will not, and Seller will not permit Company,
to enter into any new, or amend any existing, Benefit Plans or any other
agreement, program, or arrangement in connection therewith (including any trust
agreement, insurance contract or credit facility) or grant any increases in
compensation, other than in the ordinary course of business or pursuant to
promotions, in each case consistent with past practice.
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4.3 Conduct of the Business.
(a) From the date hereof until the Closing, Company and Seller
will, or Seller will cause Company to:
(i) employ the properties owned, leased or used by Company and
conduct the Business only in the ordinary course;
(ii) use reasonable efforts, subject to the limitations of Article
4.2(c), to retain the Company's employees and preserve its business
relationships;
(iii) refrain from entering into any material contract except in the
ordinary course of business:
(iv) refrain from taking any action which, with reasonable
foresight, would be expected to cause any representation or warranty contained
in Article 2 hereof to be untrue or incorrect in any material respect as of the
Closing;
(v) provide reasonable access by Buyer and its officers, employees
and other representatives to the Company's books, files, papers and records
only for the purpose of Buyer's due diligence investigation related to the
transactions contemplated hereby. Such access shall be provided upon Buyer's
reasonable request with due regard to minimizing interference with the conduct
of the Business by it; provided, however, that no such access will be provided
(A) to technical, financial or operating books, files, papers or records
(including, without limitation, price and cost data on any basis other than an
aggregate basis) which, in the reasonable opinion of Seller, contain
information the disclosure of which to competitors of Seller, Seller's
subsidiaries or Company might be detrimental to Seller, Seller's subsidiaries
or
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Company (but only to the extent that the lack of access of Buyer or its
officers, employees and other representatives, including bank financing
representatives, thereto would not materially impair the ability of Buyer to
evaluate the accuracy of the representations and warranties set forth in
Article 2 hereof) or (B) to the extent that such access would (i) violate the
terms of any agreement to which Seller, Seller's subsidiaries or Company is a
party, any applicable law, ordinance, rule or regulation or any order, writ,
judgment, award, edict or decree of any court of competent jurisdiction or any
governmental agency, authority or instrumentality of competent jurisdiction or
(2) result in the loss of any attorney-client or other privilege; or
(vi) refrain from making or revoking any elections with
respect to Taxes other than in the ordinary course of business or as provided
in this Agreement.
(b) Notwithstanding anything contained herein to the contrary, no
action by Seller, Seller's subsidiaries or Company taken pursuant to the
request of the Buyer or that is necessary in connection with the consummation
of the transactions contemplated hereby (and disclosed to Buyer with reasonable
promptness) will be deemed a breach of any of the covenants contained in
Article 4.3(a) hereof.
4.4 Payment of Debts. Not later than the Closing Date, Seller will
pay, assume or cause the release of liabilities for monies borrowed from third
parties or the Seller. Buyer will assume all liabilities in the ordinary course
of business. Seller will retain all cash in the business.
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4.5 Fulfillment of Conditions. Each party will use all reasonable
efforts to fulfill or cause to be fulfilled the conditions set forth in
Articles 6 and 7 hereof.
4.6 Seller's Disclosure. Seller may from time to time prior to the
Closing, by notice in accordance with this Agreement, (x) supplement or amend
any Schedule to this Agreement to correct any representation and warranty
herein contained that was not true when made or subsequently becomes incorrect
or untrue, or (y) otherwise correct any such representation and warranty that
is not made by reference to a Schedule hereto (any such supplementation or
amendment pursuant to clause (x) or correction pursuant to clause (y) being
referred to as a "Disclosure,"); provided that, if any Disclosure is delivered
to Buyer within five (5) business days of the then scheduled Closing Date,
notwithstanding anything to the contrary stated in Article 8.1, the Closing
Date and the Termination Date shall be extended for a period of five(5)
business days after the date of such delivery. To the extent that a Disclosure
relates to a matter that occurred or existed at or prior to the date of this
Agreement, no such Disclosure shall be deemed to correct or to cure any breach
of such representation or warranty for purposes of Article 6 or 8 unless such
incorrectness or breach is not material, and Buyer shall be entitled to
terminate this Agreement pursuant to Article 8.1(ii), but Buyer shall only be
entitled to the remedy set forth in Article 8.2(a). To the extent that a
Disclosure relates to a matter which occurs after the date of this Agreement,
Buyer shall be entitled to terminate this Agreement pursuant to Section 8.1
(ii), but Buyer shall not be entitled to exercise any of its other rights and
remedies thereunder. If the Closing occurs, any such Disclosure will be
effective to cure and correct for all
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purposes any incorrectness or breach of any representation or warranty (whether
or not material) which would have existed by reason of Seller's not having made
such Disclosure.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants as of the date hereof as follows:
5.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Seller has all
corporate power and authority necessary to (i) execute, deliver and perform its
obligations under this Agreement and (ii) consummate the transactions
contemplated hereby.
5.2 Authorization. The execution and delivery of this Agreement
and all of the agreements, instruments and documents being or to be executed
and delivered by Seller, the performance by Seller of its obligations hereunder
and the consummation by Seller of the transactions contemplated hereby, have
been duly authorized by all necessary corporate actions on the part Seller.
This Agreement constitutes a legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except insofar as
enforceability may be limited by bankruptcy, insolvency, moratorium or other
laws which may affect creditors, rights and remedies generally and by
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
5.3 No Breach. The execution and delivery by Seller of this
Agreement, the performance by Seller of its obligations hereunder, and the
consummation by Seller of the transactions contemplated hereby, will not:
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(i) conflict with, result in a violation of, or constitute a
default under the Articles of Incorporation or Bylaws of Seller, as amended to
date;
(ii) constitute a default under, result in a violation or breach
of, result in the cancellation or termination of, accelerate the performance
required under or result in the creation of any lien, claim or encumbrance upon
any of the material properties of Seller pursuant to any material mortgage,
guaranty, deed of trust, note, indenture, bond, lease, agreement or other
material instrument to which Seller is a party or by which any of such
properties is bound; or
(iii) result in a violation of, or conflict with, any law,
ordinance, rule or regulation or any order, writ, judgment, award, edict or
decree of any court of competent jurisdiction or any governmental agency,
authority or instrumentality of competent jurisdiction applicable to Seller or
any material properties of Seller.
5.4 Consents. Except as otherwise set forth in Schedule XI
attached hereto, no consent, approval, exemption or authorization is required
to be obtained from, no notice is required to be given to and no filing is
required to be made with any third party (including, without limitation,
governmental agencies, authorities and instrumentalities of competent
jurisdiction) by Seller, in order (i) for this Agreement to constitute a legal,
valid and binding obligation of Seller or (ii) to authorize or permit the
consummation by Seller of the transactions contemplated hereby or thereby.
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ARTICLE 6 - BUYER'S CONDITIONS TO CLOSING
The obligations of Buyer to consummate the transactions contemplated
hereby, are, unless waived by Buyer, subject to the fulfillment, at or before
the Closing, of each of the following conditions:
(i) No statute or law, no rule or regulation of a governmental
agency, authority or instrumentality of competent jurisdiction and no
injunction or restraining order of a court of competent jurisdiction will be in
effect which prohibits, restricts or enjoins, and no suit, action or proceeding
will be pending or threatened in writing which seeks to prohibit, restrict,
enjoin, nullify, seek material damages with respect to or otherwise materially
adversely affect, the consummation of the transactions contemplated hereby.
(ii) Except for such changes as may occur in the ordinary course of
business or as may be permitted or required pursuant to the terms hereof, the
representations and warranties of Seller and Company set forth in Articles 2
and 5 hereof will be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date; provided, however, that the
foregoing provision shall not apply to any representation or warranty if Buyer,
any director or officer of Buyer or any Buyer employee, representative or agent
responsible for due diligence, negotiation or closing of the transactions
contemplated hereby was aware at any time on or prior to the date hereof that
such representation or warranty was not true or correct on the date hereof.
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(iii) Seller will have, in all material respects, performed and
complied with all covenants and agreements required to be performed or complied
with by Seller under this Agreement prior to or concurrently with the Closing.
(iv) Buyer will have received all certificates and other documents,
in form and substance reasonably satisfactory to Buyer, required to be
delivered to Buyer at or before the Closing pursuant to this Agreement duly
executed by all necessary persons (other than Buyer).
(v) Buyer will have received the stock certificates described in
Article 1.4(b)(iii) hereof.
(vi) Buyer will have received the resignation of directors
described in Article 1.4(b)(iv) hereof.
(vii) Company will be relieved of liabilities related to monies
borrowed from third parties or the Seller as set forth in Article 4.4 hereof.
ARTICLE 7 - SELLER'S CONDITIONS TO CLOSING
The obligations of Seller to consummate the transactions contemplated
hereby, are, unless waived by Seller, subject to the fulfillment, at or before
the Closing, of each of the following conditions:
(i) No statute or law, no rule or regulation of a governmental
agency, authority or instrumentality of competent jurisdiction and no
injunction or restraining order of a court of competent jurisdiction will be in
effect which prohibits, restricts or enjoins, and no suit, action or proceeding
will be pending or threatened in writing which seeks to prohibit, restrict,
enjoin, nullify, seek material damages with respect to or
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otherwise materially adversely affect, the consummation of the transactions
contemplated hereby.
(ii) Except for such changes as may be permitted or required
pursuant to the terms hereof, the representations and warranties of Buyer set
forth in Article 3 hereof will be true and correct in all material respects on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date.
(iii) Buyer will have, in all material respects, performed and
complied with all covenants and agreements required to be performed or complied
with by Buyer under this Agreement prior to or concurrently with the Closing.
(iv) Seller will have received all certificates and other
documents, in form and substance reasonably satisfactory to Seller, required to
be delivered to Seller at or before the Closing pursuant to this Agreement duly
executed by all necessary persons (other than Seller).
(v) Seller will have received payment of the Purchase Price in
accordance with this Agreement.
ARTICLE 8 - TERMINATION; SURVIVAL OF AGREEMENT
8.1 Termination. Notwithstanding anything contained herein to the
contrary, this Agreement may be terminated:
(i) at the Closing or at any time prior thereto, by mutual written
agreement of Seller and Buyer;
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(ii) at the Closing, by Buyer, if any of the conditions set forth
in Article 6 hereof shall not have been fulfilled and shall not have been
waived by Buyer at or prior to the Closing; provided that, at the Closing,
Buyer shall identify to Seller all such deficiencies and shall withhold any
Buyer's termination upon Seller's request at Closing for an opportunity to cure
such deficiencies. In such event, a new Closing Date shall be established on
the earlier of, (i) thirty (30) days after the date Seller receives Buyer's
notice of deficiency, (ii) the Termination Date and (iii) the first business
day after the date that cure or waiver of all such deficiencies has been
effected.
(iii) at the Closing, by Seller, if any of the conditions set forth
in Article 7 hereof shall not have been fulfilled and shall not have been
waived by Seller at or prior to the Closing; provided that, at the Closing,
Seller shall identify to Buyer all such deficiencies and shall withhold any
Seller's termination upon Buyer's request at Closing for an opportunity to cure
such deficiencies. In such event, a new Closing Date shall be established on
the earlier of; (i) thirty (30) days after the date Buyer receives Seller's
notice of deficiency, (ii) the Termination Date and (iii) the first business
day after the date that cure or waiver of all such deficiencies has been
effected.
(iv) at any time after February 28, 1997 (the "Termination Date")
and prior to the Closing, by Buyer, if (A) the Closing will not have been
consummated on or before the Termination Date and (B) the failure to consummate
the Closing on or before the Termination Date did not result from the failure
by Buyer to perform or comply with any covenant or agreement contained in this
Agreement required to be performed or complied with by Buyer prior to the
Closing; or
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(v) at any time after the Termination Date and prior to
the Closing, by Seller if (A) the Closing will not have been consummated on or
before the Termination Date and (B) the failure to consummate the Closing on or
before the Termination Date did not result from the failure by Seller or
Company to perform or comply with any covenant or agreement contained in this
Agreement required to be performed or complied with by Seller or Company prior
to the Closing.
8.2 Survival of Agreement
(a) If this Agreement is terminated pursuant to Article
8.1(i) hereof, this Agreement, except for the provisions of Articles 4.1(b),
12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 and 24 hereof, shall become null
and void and have no further force or effect and neither the Parties nor any of
their respective shareholders, directors, officers, employees, agents,
representatives, consultants, subsidiaries or affiliates shall have any
liability with respect to such termination.
(b) If this Agreement is terminated pursuant to Article
8.1(ii) or 8.1(iv) hereof, this Agreement, except for the provisions of
Articles 4.1(b), 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 and 24 hereof,
shall become null and void and have no further force or effect and neither
Buyer nor any of its shareholders, directors, officers, employees, agents,
representatives, consultants, subsidiaries or affiliates shall have any
liability with respect to such termination.
(c) If this Agreement is terminated pursuant to Articles
8.1(iii) or 8.1(v) hereof, the Agreement, except for the provisions of Articles
4.1(b), 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 and 24 hereof, shall
become null and void and have no
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further force or effect and neither Seller, Company nor any of their respective
shareholders, directors, officers, employees, agents, representatives,
consultants, subsidiaries or affiliates shall have any liability with respect
to such termination.
ARTICLE 9 - TAX MATTERS; POST-CLOSING COVENANTS
9.1 Transactional Taxes and Costs.
(a) Buyer and Company will be responsible for all
transfer, conveyance, excise, stamp, documentary and other governmental taxes,
duties, charges, fees, imposts and assessments (other than taxes, duties,
charges, fees, imposts, and assessments on or measured by the net income of
Seller, Seller's subsidiaries or Company) and all interest and penalties
thereon, imposed at any time by any taxing authority with respect to this
Agreement, the transfer, assignment, conveyance or delivery of the Capital
Stock or the consummation of the transactions contemplated hereby (the
"Transactional Taxes"). The foregoing notwithstanding, in the event that
Seller, Seller's subsidiaries or Company will be required to pay any
Transactional Taxes for which Buyer or Company is responsible, Buyer and
Company will promptly reimburse Seller and hold Seller and Seller's
subsidiaries harmless from any Transactional Taxes paid or payable by Seller,
Seller's subsidiaries or Company prior to Closing.
(b) Buyer and Company will be responsible for all filing
fees, notarial fees and other similar fees and costs incurred with respect to
this Agreement or the transactions contemplated hereby (the "Transactional
Costs"). Buyer shall promptly pay and discharge, or cause Company to pay and
discharge, all of the Transactional Costs
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for which they are responsible as provided in the preceding sentence. In the
event that Seller, Seller's subsidiaries or Company will be required to pay any
of the Transactional Costs, Buyer and Company will promptly reimburse Seller
and hold Seller and Seller's subsidiaries harmless from any Transactional Costs
paid or payable by Seller, Seller's subsidiaries or Company prior to Closing.
9.2 Records Retained by Seller.
(a) Except as otherwise provided in this Article 9.2 or
in any other agreement to which Company and Seller or any of its affiliates
(other than Company) are parties which agreements are in each case shown on
Schedule III, Seller will deliver or cause to be delivered to Company within
sixty (60) days after the Closing Date, all books, records and files which
pertain (i) to the Business as conducted by Company, (ii) to the Company, or
(iii) to any of the properties owned, leased or used by Company, to the extent
such books and records relate solely to the Business and do not contain any
information pertaining to Seller or Seller's affiliates (other than Company)
and which are possessed by Seller, or their respective subsidiaries or their
respective directors, officers, employees, agents, representatives or nominees
(the "Business Records").
(b) All Business Records which are (i) required by Seller
or its affiliates (other than Company) or their respective directors, officers,
employees, agents, representatives or nominees in connection with any pending
or threatened claim, suit, action, proceeding or investigation or termination
or (ii) subject to any "Hold Order" may be retained by Seller or such
subsidiary, director, officer, employee, agent,
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representative or nominee until the final termination of such claim, suit,
action, proceeding or investigation or termination of such "Hold Order" as the
case may be. Prior to such termination, copies of such Business Records will be
delivered to Company. After such final termination, such Business Records will
be delivered to Company.
(c) Nothing contained herein will obligate or require
Seller to deliver or cause to be delivered to Company any Business Records
which pertain to the transactions contemplated hereby, and the photocopies of
Business Records contained in the data room for the transactions contemplated
hereby.
(d) All Business Records which contain information
relating to Seller or any of its affiliates (other than Company) may be
retained by Seller or affiliate and copies of such Business Records (from which
such information may be deleted) will be delivered to Company.
9.3 Access by Seller. At any time and from time to time after the
Closing Date, upon reasonable request by Seller, Buyer will cause Company to
(i) provide full access, during normal business hours, to Seller and its
affiliates and the officers, employees, other representatives and counsel of
Seller and its affiliates to the facilities, books, records, files, paper, data
and information relating to Company and any of its subsidiaries or any of the
properties owned, leased or used by Company or any of its subsidiaries and (ii)
make Company's employees available to Seller and its affiliates and the
officers, employees, other representatives and counsel of Seller and its
affiliates, in each case to the extent reasonably necessary and within a
reasonable time
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period in connection with any tax, pension or employee benefit matter
pertaining to Seller or any of its affiliates or any Taxes for which Seller is
responsible under this Agreement, at no charge to Seller or such affiliates,
officers, employees, other representatives or counsel; provided, however, that
Seller will reimburse Company for travel, lodging, meal and other expenses
directly and reasonably incurred by such employees in connection with such
request; and provided that such time spent for Seller shall not unreasonably
interfere with a Company's employee's job performance.
9.4 Preservation of Records. After the Closing, Buyer will cause
Company to preserve all books, records, files, papers, data and information
which is possessed by Company or its subsidiaries and which relates to Company
or its subsidiaries for (i) a period of seven (7) years after the Closing and
(ii) for such longer period as may be required (A) by an agreement, law,
ordinance, rule, regulation or any order, writ, judgment, stipulation, edict,
award or decree known to Company or any of its subsidiaries and affiliates or
(B) in connection with any pending or threatened claim, suit, action,
proceeding or investigation (including, without limitation, tax examinations
and audits) known to Company or any of its subsidiaries and affiliates. If,
upon the expiration of such period, Company desires to destroy any of such
books, records, files, papers, data or information, Buyer will cause Company to
give written notice to that effect to Seller not more than one hundred eighty
(180) and not less than ninety (90) days prior to such destruction. Seller
will have the right, at its cost and expense, to take possession of such books,
records, files, papers, data or information, provided that Seller gives written
notice to that effect to Company within ninety (90) days after
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such notice of destruction will have been given and takes such possession
within one hundred eighty (180) days after such notice of destruction. Buyer
will cause Company to cooperate with Seller in connection with taking such
possession.
9.5 Assumption of Certain Tax Liabilities: Indemnification by
Seller.
(a) Except as otherwise provided in Article 9.1 hereof,
upon, from and after the Closing, Seller shall, without any further
responsibility or liability of or recourse to Company or any of its respective
directors, shareholders, officers, employees, agents, consultants,
representatives, successors, transferees or assignees, absolutely and
irrevocably assume and become solely liable and responsible for:
(i) All United States federal income taxes of
Company, or for which Company would otherwise be responsible, for periods which
end on or before the Closing;
(ii) all United States state and local income or
franchise taxes of Company, or for which Company would otherwise be
responsible, (other than United States state and local income and franchise
taxes with respect to which Company did not or do not file combined, unitary or
consolidated tax returns with Seller or any of its subsidiaries) for periods
which end on or before the Closing; and
(iii) all interest, additions to tax and penalties
with respect to taxes described in clauses (i) and (ii) of this Article 9.5(a);
regardless of when they arose or arise or whether the facts on which they are
based occurred prior or subsequent to the Closing, and regardless of where or
against when they are asserted or determined or whether they are asserted or
determined prior or subsequent to the
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Closing, and regardless of whether they are reflected in any Schedule attached
hereto, and regardless of whether they are known or unknown, fixed or
contingent, asserted or unasserted; provided, however, that (x) in the case of
clauses (i) and (ii) of this Article 9.5(a), amounts payable to taxing
authorities with respect to periods beginning after the Closing Date shall not
be considered a "tax" or "taxes" for periods ending on or prior to the Closing
Date even if such amounts were taken into account in the calculation of
"deferred income taxes" reflected on the Unaudited Financial Statements for a
period ending on or prior to the Closing Date, and (y) in the case of clause
(iii) of this Article 9.5(a), a "tax" or "taxes" shall not include timing
differences taken into account in the calculation of deferred income taxes
reflected on any financial statements of Company as at any date or for any
period (the "Assumed Tax Liabilities"). The Assumed Tax Liabilities shall
include, without limitation, (a) any liability of Company by reason of its
being severally liable (pursuant to Treasury Regulations section 1.1502-6 or
1.1502-78 or any analogous state or local statutory or regulatory provision),
in whole or in part, for any tax of any affiliated group (as defined in Section
1504(a) of the Code or any analogous state or local statutory provision) of
which Company may be or have been an includible corporation (as defined in
Sections 1504(b) and (c) of the Code or such analogous state or local statutory
provision) for any period through and including the end of the taxable year of
such an affiliated group that includes the Closing Date, and (b) any tax
liability that arises because Company ceases on the day of the Closing to be a
member of such an affiliated group.
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(b) Except as provided in the last two sentences of this
Article 9.5(b), (i) Seller shall have the sole and exclusive right to receive,
retain and use all refunds, credits, losses, deductions and other tax items
associated with or related to the Assumed Tax Liabilities, regardless of when
or by whom they are received, regardless of when or in favor of whom they arise
or arose, regardless of whether the facts on which they are based occurred
prior or subsequent to the Closing, regardless of whether they are attributable
to carrybacks or otherwise, and regardless of whether they are determined prior
or subsequent to the Closing and (ii) if Buyer, Company or any of their
subsidiaries or affiliates receive any such refund, Buyer shall pay an amount
equal to the amount of such refund (together with all interest earned thereon)
to Seller promptly after receipt. After the Closing, Buyer shall not, and shall
not permit Company or any of their respective subsidiaries or affiliates to,
without the prior written consent of Seller, claim, use or apply any carryback
from periods beginning on or after the Closing to periods ending on or before
the Closing if such claim, use or application would, in Seller's sole judgment,
affect the Assumed Tax Liabilities or Seller's tax liabilities. If Seller gives
Buyer prior written consent to claim, use or apply any carryback from periods
beginning on or after the Closing to periods ending on or before the Closing,
Seller shall have sole control over such claim, use or application (the
"Carryback Refund Claim"). Upon Seller's receipt of any cash amount (or any
credit for overpaid taxes in lieu of a cash refund which is directly applied
against a Seller tax liability) resulting from a Carryback Refund Claim, if
any, Seller shall pay to Buyer (as a
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reduction of purchase price) such cash amount (or of the amount of such credit)
together with any interest received by Seller thereon.
(c) Seller shall prepare and file, or cause to be
prepared and filed, all consolidated, combined or unitary Tax Returns that are
required to be filed after the date hereof with respect to the Assumed Tax
Liabilities. Seller shall include in such Tax Returns the income, activities,
operations and transactions of Company for all taxable periods ending on or
before the Closing, including, without limitation, any pension contributions
made after the Closing in respect of periods ending on or before the Closing.
In connection therewith, Seller shall file a consolidated federal income tax
return and include and reflect thereon the income, activities, operations and
transactions of Seller and Seller's subsidiaries for all taxable periods ending
on or before the Closing.
(d) All Tax Returns of the Company filed after the date
hereof and on or prior to the Closing Date shall, in each case, be prepared and
filed in a manner consistent (including elections and accounting methods and
conventions) with the Tax Returns most recently filed in the relevant
jurisdiction prior to the date hereof, in a manner consistent with the
UnAudited Financial Statements, except as otherwise required by law. All such
Tax Returns (other than sales, payroll, property and similar tax returns) shall
be subject to the prior review of Buyer and shall be submitted by Seller to
Buyer for such review at least twenty (20) days prior to the filing date.
Seller shall cause Company to take into account all reasonable comments made by
Buyer with respect to such Tax Returns and shall not, without the consent of
Buyer, report any
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item in a manner different from the manner in which such item is reflected in
the proposed Tax Returns provided to Buyer for its review pursuant to the
preceding sentence.
(e) Except as otherwise provided in Articles 9.5(a) or 11
hereof, Seller shall not, in connection with the transactions contemplated
hereby, assume or become responsible or liable for any liabilities,
obligations, losses, costs, expenses, fines, taxes, levies, imposts, duties,
deficiencies, assessments or charges asserted against or incurred or sustained
by Company.
(f) After the Closing, Seller and Buyer shall cooperate,
and shall cause their respective subsidiaries to cooperate, with each other in
connection with the filing of any Tax Return which is required to be filed by
Seller, Company or their respective subsidiaries and which covers a period that
ends prior to or on the Closing Date or that includes the Closing Date;
provided, however, that the responsibility for any Taxes shall be borne as
provided in Article 9.1 hereof or this Article 9.5 and, provided further, that
information used or delivered in connection with the filing of any such Tax
Return shall be treated by the Parties as confidential Information (as defined
in Article 12.2(a) hereof).
(g) Any and all tax sharing agreements between or among
Company and Seller or any of its subsidiaries shall be terminated as of the
Closing and, from and after the Closing Date, neither Company nor any of its
subsidiaries nor Seller or any of its subsidiaries shall have any further
rights or liabilities thereunder.
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(h) At the Closing, Seller shall provide to Buyer an
affidavit of an officer of Seller, sworn to under penalties of perjury, setting
forth (in the form set forth in section 1.1 4452(b) of the Treasury Regulations
promulgated under the Code) Seller's name, address and federal tax
identification number and stating that Seller is not a 'foreign person" within
the meaning of section 1445 of the Code.
(i) No Tax Return (other than a sales, payroll, property
or similar tax return) which relates to the period prior to the Closing Date
shall be filed unless Seller has previously approved such Tax Return. Seller
shall not unreasonably withhold any such approval. All Tax Returns (other than
sales, payroll, property and similar tax returns) shall be submitted to Seller
for Seller's review and approval at least twenty (20) days prior to the filing
date of each such Tax Return.
9.6 Tax Elections.
(a) If Buyer desires to have an election made under
Section 338(h)(10) of the Code with respect to the purchase of the Company,
Seller shall make the joint election on IRS Form 8023A upon request of Buyer.
Buyer shall be responsible for the preparation and filing such election. The
allocation of purchase price among the assets of Company shall be made in
accordance with Sections 338 and 1060 of the Code and any comparable provisions
of state, local or foreign law, as appropriate, and shall be subject to
Seller's approval, prior to filing. Seller shall be responsible for, and shall
pay any income, franchise or similar taxes arising as a result of, any Section
338(h)(10) election or any comparable or resulting election under state law
filed by Seller, or by Buyer with the consent of Seller.
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(b) Seller may elect to structure the conveyance,
transfer and /or assignment of all or an applicable portion of the Company's
assets as one or more deferred like kind exchanges pursuant to Section 1031 of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder,
provided that Seller gives notice of such election to Buyer at least five (5)
days prior to the Closing. Seller shall enter into one or more exchange
agreements with one or more third party intermediaries to effect such a
deferred like kind exchange or otherwise complete said exchanges in such a
manner so as to avoid any involvement in such exchanges by Buyer, Seller shall
have the right to assign this Agreement to a third party intermediary to effect
such exchanges, and Buyer shall have no right to object to such assignment,
provided that Seller shall not be released from its obligations and liabilities
hereunder.
9.7 Solicitation of Employees. For a period of three(3) years from
the Closing Date, neither Seller nor its affiliates will solicit or encourage
any Employee(as defined in Article 10.1 herein) of the Company to leave the
employ of the Company; provided that such prohibited solicitation or
encouragement shall not include the solicitation of applications for vacant
positions through advertisements in periodicals, newspapers or other media.
9.8 Non-Competition. For a period of two(2) years from the Closing
Date, neither Seller nor its affiliates will, directly or indirectly, manage,
operate, control or otherwise carry on a business which conducts the Business
in Texas, Washington, North Carolina and the states bordering the foregoing
states. The foregoing shall not be held invalid or unenforceable because of (i)
the scope of the territory set forth
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therein, (ii) the actions restricted thereby or (iii) the period of time within
which such agreement is operative, but shall be enforceable with respect to
such territory, actions and time period as may be defined by a court of
competent jurisdiction.
ARTICLE 10 - EMPLOYEES AND BENEFITS
10.1 Maintenance of Benefits. At the Closing, those employees
wholly involved in the Business ("Employees") shall continue to be employed by
Buyer or Company at the same or greater wage rates or salaries, and as those
enjoyed by Employees immediately prior to the Closing. Schedule X hereto lists
the benefit plans and compensation policies maintained by Company ("Benefits").
Buyer or Company shall assume sponsorship of all Benefits as of the Closing
Date, and shall maintain such Benefits for Employees, or provide comparable
benefit plans and compensation policies, for at least one year from and after
the Closing Date. Buyer or Company shall accept and credit to all such
Employees, for all purposes under all Benefits, all previous service recognized
by those benefit and compensation plans in which the Employees participated
prior to the Closing Date, and shall credit and assume responsibility for all
current year, vested, or carried forward vacation accrued by each Employee but
not taken as of the Closing Date.
10.2 Termination of Employees. In the event that any Employee is
involuntarily terminated by Buyer or Company (other than for cause) within one
(1) year after the Closing Date, in lieu of any layoff allowance, Buyer or
Company shall provide
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such Employee with one week of pay for each year(pro-rated) of credited service
with Buyer or Company, including service with Seller and CBI Industries, Inc.
Article II - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
11.1 Survival of Representations and Covenants of Buyer and Company.
The representations and warranties set forth in Article 3 hereof will survive
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, for a period of eighteen (18) months
following the Closing Date. Except as otherwise provided in the next sentence,
the covenants and agreements of Buyer and Company set forth in this Agreement
will survive such execution, delivery, performance and consummation for a
period of eighteen (18) months following the Closing Date. Each covenant and
agreement of Buyer and Company set forth in this Agreement which, by its terms,
is not required to be fully performed or complied with prior to the Closing
will survive such execution, delivery, performance and consummation for a
period of eighteen (18) months following the date by which such covenant or
agreement is so required to be fully performed or complied with. No suit,
action or proceeding may be commenced by Seller with respect to any claim
arising out of or relating to such warranties, representations, covenants or
agreements after the expiration of the period for which such representations,
warranties, covenants and agreements will survive pursuant to this Article 11.1
(the "Applicable Buyer Survival Period"); provided, however, that subject to
Articles 11 and 21 hereof, Seller will have the right to commence a suit,
action or proceeding after the expiration of the Applicable Buyer Survival
Period with respect to claims arising out of or relating to such
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representations, warranties, covenants or agreements which will have been
asserted by Seller under Article 11.5 hereof before the expiration of the
Applicable Buyer Survival Period.
11.2 Survival of Representations and Covenants of Seller. The
representations and warranties of Seller set forth in Articles 2 and 5 hereof
will survive the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, for a period of eighteen
(18) months following the Closing Date, except in the case of Seller's
representations and warranties set forth in Article 2.9 as to which the period
will be three years following the Closing Date. Except as otherwise provided in
the next sentence, the covenants and agreements of Seller set forth in this
Agreement will survive such execution, delivery, performance and consummation
for a period of eighteen (18) months following the Closing Date. Each covenant
and agreement of Seller set forth in this Agreement which, by its terms, is not
required to be fully performed or complied with prior to the Closing will
survive such execution, delivery, performance and consummation for a period of
eighteen (18) months following the date by which such covenant or agreement is
so required to be fully performed or complied with. No suit, action or
proceeding may be commenced by Buyer with respect to any claim arising out of
or relating to such warranties, representations, covenants or agreements after
the expiration of the period for which such representations, warranties,
covenants and agreements will survive pursuant to this Article 11.2 (the
"Applicable Seller Survival Period"); provided, however, that, subject to
Articles 11 and Article 21 hereof, Buyer will have the right to commence a
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suit, action or proceeding after the expiration of the Applicable Seller
Survival Period with respect to claims arising out of or relating to such
representations, warranties, covenants and agreements which will have been
asserted by Buyer under Article 11.5 hereof before the expiration of the
Applicable Seller Survival Period.
11.3 Indemnification by Buyer and Company.
(a) Subject to Articles 11.1 and 21 hereof, Buyer and
Company will indemnify Seller, Seller's subsidiaries and their respective
directors, officers, employees, affiliates, successors and assigns (to the
extent that such assignment has been permitted pursuant to this Agreement) (the
foregoing persons being "Seller's Indemnitees") for, and will hold, Seller's
Indemnitees harmless from and against, any and all damages, claims, losses,
liabilities and expenses (including, without limitation, interest, penalties
and reasonable legal, accounting and other expenses) asserted against or
incurred or sustained by Seller's Indemnitees arising out of:
(i) any breach of any covenant or agreement
contained in this Agreement by any Buyer or the Company to the extent such
breach is not attributable to any action, delay in acting or failure to act
after the Closing by Seller or its subsidiaries or affiliates;
(ii) any breach of any of the warranties or
representations set forth in Article 3 hereof;
(iii) the failure, after the Closing Date, of
Buyer, Company or Buyer's other subsidiaries or affiliates to pay or otherwise
discharge when due any contractual or other obligation relating to the assets
or Business of the Company; or
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(iv) relating to, the Transactional Costs,
Transactional Taxes or Taxes for which Buyer or Company is responsible as
provided in Article 9; provided that indemnification as to Transactional Costs
shall be on an after-tax basis.
(b) From and after the Closing Date, except as expressly
provided for in this Agreement, (i) Seller and Seller's subsidiaries and
affiliates will have no obligations or liabilities whatsoever relating to the
business, properties or assets of Company as the same may exist at or prior to
the Closing Date or arise thereafter and (ii) Buyer and Company will release,
indemnify and hold Seller's Indemnitees harmless from all such obligations and
liabilities (including the costs of defense thereof (and reasonable attorneys'
fees and expenses) that are alleged against or might otherwise be imposed on
Seller or Seller's subsidiaries and affiliates. Buyer will cooperate with
Seller, both before and after the Closing Date, by taking, and by causing the
appropriate entity to take, all actions Seller will reasonably request to
effect the termination of any such Seller and Seller's subsidiary or affiliate
obligation or liability including all actions necessary to replace Seller or
Seller's subsidiaries and affiliates, as applicable, as guarantors of Company's
obligations.
(c) From and after the Closing Date, Buyer will cause
Company to indemnify Seller, Seller's subsidiaries and affiliates pursuant to
that indemnification agreement between Company and Seller and will not take, or
cause to be taken, any actions which would impair, frustrate or interfere with
Company's ability to indemnify such indemnitees to the fullest extent provided
for in said indemnification agreement.
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11.4 Indemnification by Seller.
(a) Subject to Articles 11.2, 11.3, 11.4(b), 11.4(c) and
21 hereof, Seller will indemnify Buyer, and Buyer's directors, officers,
employees, affiliates, successors and assigns (to the extent that such
assignment has been permitted pursuant to this Agreement) (the foregoing
persons being "Buyer's Indemnitees") for, and will hold Buyer's Indemnitees
harmless from and against, any and all damages, claims, losses, liabilities and
expenses (including, without limitation, interest, penalties and reasonable
legal, accounting and other expenses) asserted against or incurred or sustained
by Buyer's Indemnitees arising out of:
(i) any breach of any covenant or agreement
contained in this Agreement by Seller to the extent such breach is not
attributable to any action, delay in acting or failure to act after the Closing
by Buyer, Company or their respective subsidiaries or affiliates; or
(ii) any breach of any of the warranties or
representations set forth in Articles 2 and 5 hereof made by Seller.
(iii) any removal, and disposal, of the following
listed contaminants from, or remediation of, Company's property at 742 Marine
Drive, Bellingham, Washington, or the adjacent areas known as Little Squalicum
Creek and the Oeser facility, which removal or remediation is ordered, and
determined to be Company's responsibility, by competent government authority
before March 1, 2000; provided that such removal or remediation arises from the
presence on such properties, as of the date hereof, of PCP, ethylbenzene,
styrene, methylene chloride, acetone, dimethylphthalate, butylbenzlphthalate,
bis(2-ethylhexyl) phthalate and arsenic only to
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the extent that such presence was identified and quantified in the report by
ENSR entitled "Results of Groundwater Sampling and Review of Historical Reports
for the Ershigs facility located at 742 Marine Drive, Bellingham, Washington"
dated October 17, 1996 and addressed to Fleet Capital Corporation.
(b) Buyer's Indemnitees shall be entitled to
indemnification under Article 11.4(a) hereof only when, and only with respect
to amounts by which, the aggregate amount of all claims, damages, losses,
liabilities and expenses with respect to which Buyer's Indemnitees collectively
would otherwise be entitled to indemnification under Article 11.4(a) hereof
exceeds 3% of the Purchase Price. In no event shall the aggregate amount of
indemnification to which Buyer's Indemnitees collectively would otherwise be
entitled under Article 11.4(a) hereof exceed 50% of the Purchase Price.
Notwithstanding the foregoing, with respect to any indemnification to which
Buyer's Indemnitees may be entitled pursuant to Article 11.4(a)(iii), Buyer's
Indemnitees shall be entitled to indemnification only when, and only with
respect to amounts by which, the aggregate amount of all claims, damages,
losses, liabilities and expenses with respect to which Buyer's Indemnitees
collectively would otherwise be entitled to indemnification under Article
11.4(a)(iii) hereof exceeds $50,000; and the aggregate amount of
indemnification to which Buyer's Indemnitees collectively would otherwise be
entitled under Article 11.4(a)(iii) hereof shall not exceed $200,000.
(c) If any event will occur or circumstance will exist
which would otherwise entitle Buyer's Indemnitees to indemnification under
Articles 11.4(a), (b) or (c) hereof, no loss, damage, claim, liability or
expense will be deemed to have been
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asserted against or incurred or sustained by Buyer's Indemnitees to the extent
of any proceeds recovered or recoverable by Buyer, Company or any of their
respective subsidiaries or affiliates from any third party (including, without
limitation, any insurance company) with respect thereto. Buyer agrees (i) in
good faith, to diligently seek recovery, and to cause Company, Buyer and their
respective subsidiaries and affiliates to diligently seek to recover, at its
and their cost and expense, from all third parties (including, without
limitation, all insurance companies) for all losses, claims, damages,
liabilities and expenses with respect to which Buyer's Indemnitees make or may
make a claim for indemnification hereunder and (ii) to keep Seller fully and
promptly informed of all material matters related thereto. No insurance
recovery by Company will reduce the limits on indemnification specified in
Article 11.4(b); provided, that in no way will the foregoing be construed to
apply to any payment by Seller under this Article 11.4, including payments by
Seller using the proceeds from an insurance policy held by it or its
affiliates.
11.5 Indemnification Procedure.
(a) Upon obtaining knowledge thereof, a Person who may be
entitled to indemnification hereunder (the "Indemnitee") will promptly give the
Party who may be obligated to provide such indemnification (the "Indemnitor")
written notice (a "Notice of Claim") of any Loss (as defined in Article 11.5(b)
hereof) which the Indemnitee has reasonably determined has given or could give
rise to a claim for indemnification hereunder. A Notice of Claim will specify
in reasonable detail the nature and all known particulars related to a Loss.
The Indemnitor will make payment to Indemnitee with
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respect to a Loss described in a Notice of Claim and indemnified under Articles
11.3 or 11.4 hereof within thirty (30) days after the Indemnitor will have
received such Notice of Claim; provided, however, such obligation to make
payment will be suspended (i) so long as the Indemnitor is in good faith
performing its obligations under Article 11.5(c) hereof with respect to such
Loss and (ii), in the case of a Notice of Claim given by Buyer's Indemnitees,
until Buyer's Indemnitees will have fully performed their respective
obligations under Article 11.4(c) hereof with respect to a Loss for which
Buyer's Indemnitees may be entitled to recovery from a third party (including,
without limitation, any insurance company).
(b) As used in this Article 11.5, the term "Loss" will
mean a damage, claim, suit, notice, loss, liability, expense, cost, tax,
penalty or interest described in Articles 11.3 and 11.4, or a fee, commission,
compensation or payment described in Article 14.1 hereof, as the case may be;
provided, however, "Loss" shall not include any exemplary, punitive, special,
incidental or consequential damages.
(c) Subject to Articles 11.5(d) and 11.5(e) hereof, the
Indemnitor, as to any action or law or suit in equity by or against a third
Person, will have the sole and exclusive right and obligation in good faith and
at its own cost and expense, to cure, remediate, mitigate, remedy or otherwise
handle any event or circumstance which gives rise to a Loss involving events
and circumstances which can be cured, remediated, mitigated or remedied through
the expenditure of money and events and circumstances which give rise to a Loss
which can be measured in terms of money, regardless of whether such Loss arises
out of a breach of or default under any representation,
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warranty, covenant or agreement contained in this Agreement or otherwise. Such
right and obligation will include, without limitation, (i) the right to
investigate any such event or circumstance, (ii) the sole and exclusive right
and obligation to cure, mitigate, remediate, remedy and otherwise handle any
such event or circumstance on such terms and conditions and by such means as
the Indemnitor may determine, in its sole discretion, and (iii) the sole and
exclusive right to defend, contest or otherwise oppose any third party claim,
demand, suit, action or proceeding related to such event or circumstance with
legal counsel selected by it. The Indemnitor will promptly inform the
Indemnitee of all material developments related to any such event or
circumstance. Notwithstanding anything contained herein (other than Articles
11.5(d) and 11.5(e), hereof) to the contrary, the Indemnitee will have the
right, but not the obligation, to participate, at its own cost and expense, in
the defense, contest or other opposition of any such third party claim, demand,
suit, action or proceeding through legal counsel selected by it and will have
the right, but not the obligation, to assert any and all cross-claims or
counter claims which it may have. So long as the Indemnitor is in good faith
performing its obligations under this Article 11.5(c), the Indemnitee will, and
will cause its subsidiaries and affiliates to, (i) at all times, at its and
their own cost and expense, cooperate in all reasonable ways with, make its and
their relevant files and records available for inspection and copying by, make
its and their employees reasonably available to and otherwise render reasonable
assistance to the Indemnitor upon request and (ii) not compromise or settle any
such claim, demand, suit, action or proceeding without the prior written
consent of the Indemnitor. If the Indemnitor fails to
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perform its obligations under this Article 11.5(c), the Indemnitee will have
the right, but not the obligation, to take the actions which the Indemnitor
would have had the right to take in connection with the performance of such
obligations and, if the Indemnitee is entitled to indemnification hereunder
with respect to the event or circumstance as to which the Indemnitee takes such
actions, then the Indemnitor will also indemnify the Indemnitee for all of the
attorney, accounting and other costs, fees and expenses reasonably and actually
incurred in connection therewith. If the Indemnitor proposes to settle or
compromise any such third party action, demand, claim, suit or proceeding, the
Indemnitor will give written notice to that effect (together with a statement
in reasonable detail of the terms and conditions of such settlement or
compromise) to the Indemnitee at a reasonable time prior to effecting such
settlement or compromise. Notwithstanding anything contained herein to the
contrary, the Indemnitee will have the right (i) to object to the settlement or
compromise of any such third party action, demand, claim, suit or proceeding
whereupon (A) the Indemnitee will assume the defense, contest or other
opposition of any such third party action, demand, claim, suit or proceeding
for its own account and as if it were the Indemnitor and (B) the Indemnitor
will be released from any and all liability with respect to any such third
party action, demand, claim, suit or proceeding to the extent that such
liability exceeds the liability which the Indemnitor would have had with
respect to such a settlement or compromise; provided, however, that the
Indemnitor will not be so released if the reason for the Indemnitee's so
objecting is that, in the reasonable opinion of the Indemnitee, such settlement
or compromise would have a materially adverse effect upon the Indemnitee or on
the
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conduct of the Business as then presently conducted by Company, or (ii) to
assume, at any time by giving written notice to that effect to the Indemnitor,
the cure, mitigation, remediation, remedy or other handling of such event or
circumstance and the defense, contest or other opposition of any such third
party action, demand, claim, suit or proceeding for its own account whereupon
the Indemnitor will be released from any and all liability with respect to such
event or circumstance and such third party action, demand, claim, suit or
proceeding.
(d) Each Party will take, and will cause its subsidiaries
and affiliates to take, all actions which may be necessary to enable the
Indemnitor to exercise its rights and perform its obligations under Article
11.5(c) hereof.
(e) Notwithstanding anything contained herein to the
contrary, each Party will use, and will cause its subsidiaries and affiliates
to use, all reasonable efforts to mitigate any and all Losses for which it may
be entitled to indemnification hereunder.
ARTICLE 12 - PUBLICITY; CONFIDENTIALITY
12.1 Publicity. No Party will or will permit its affiliates or
subsidiaries to issue any publicity, release or announcement concerning the
execution and delivery of this Agreement, the provisions hereof or the
transactions contemplated hereby without the prior written approval of the
form, mode and content of such publicity, release or announcement by the other
Party hereto; provided, however, that no such approval will be required when
such publicity, release or announcement is required by (i) any applicable law,
ordinance, rule or regulation, (ii) any applicable rules or regulations of a
national or foreign stock exchange or the Automated Quotation System maintained
by
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the National Association of Securities Dealers, Inc. or (iii) any order, writ,
judgment, award, edict or decree of any court of competent jurisdiction or any
governmental agency, authority or instrumentality of competent jurisdiction
and, provided further, that, prior to issuing any publicity, release or
announcement without such prior written approval, the Party issuing, or whose
affiliate or subsidiary is issuing, such publicity, release or announcement
will have given reasonable prior notice to the other Party of such intended
issuance, will have used reasonable efforts to accommodate the comments of the
other Party as to the contents of such publicity, release or announcement and,
if requested by the other Party, will have used reasonable efforts at its own
cost and expense to obtain a protective order or similar protection for the
benefit of such requesting Party.
12.2 Confidentially.
(a) All data, reports, records and other information of
any kind received by a Party or the affiliates, subsidiaries, shareholders,
directors, partners, officers, employees, agents, representatives, consultants
or lenders of a Party (such Party being hereinafter referred to as the
"Receiving Party") from the other Party or the affiliates, subsidiaries,
shareholders, partners, directors, officers, employees, agents,
representatives, consultants or lenders of the other Party (such other Party
being hereinafter referred to as the "Delivering Party") under this Agreement
or in connection with the transactions contemplated hereby, will be treated as
confidential (collectively, "Confidential Information"). Except as otherwise
provided herein, the Receiving Party will not use (and will not permit its
affiliates, subsidiaries, shareholders, directors,
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officers, partners, employees, agents, representatives, consultants or lenders
to use) Confidential Information for its own (or their own) benefit and will
use all reasonable efforts (and will use all reasonable efforts to cause its
affiliates, subsidiaries, shareholders, partners, directors, officers,
employees, agents, representatives, consultants and lenders) to maintain the
confidentiality of Confidential Information. If the Receiving Party or any of
its affiliates, subsidiaries, shareholders, directors, officers, partners,
employees, agents, representatives, consultants or lenders is required to
disclose Confidential Information by or to any court of competent jurisdiction
or any governmental agency, authority or instrumentality of competent
jurisdiction, the Receiving Party will, prior to such disclosure, immediately
notify the Delivering Party of such requirement and all particulars related to
such requirement. The Delivering Party will have the right, at its expense, to
object to such disclosure and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it will determine.
(b) The restrictions set forth in Article 12.2(a) hereof
will not apply to the use or disclosure of Confidential Information to the
extent, but only to the extent, (i) permitted or required pursuant to any other
agreement between or among the Parties (or their respective subsidiaries and
affiliates), (ii) necessary by a Party (or its subsidiaries or affiliates) in
connection with exercising its (or their) rights or performing its (or their)
duties or obligations under this Agreement or any other agreements, instruments
and documents contemplated hereby or thereby or the other agreements described
in clause (i) of this Article 12.2(b), (iii) contemplated by the last two (2)
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sentences of Article 12.2(a) hereof or (iv) that the Receiving Party can
demonstrate Confidential Information (A) is or becomes generally available to
the public through no fault or neglect of the Receiving Party, (B) is received
in good faith on a nonconfidential basis from a third party who discloses such
Confidential Information without violating any obligations of secrecy or
confidentiality or (C) was already possessed at the time of receipt as shown by
prior dated written records. The restrictions set forth in Article 12.2(a)
hereof will not apply to the use or disclosure after Closing of Buyer or any of
its subsidiaries or affiliates of Confidential Information which consists of
data, reports, records and information relating to the Business or the
ownership, leasing or use of the properties owned, leased or used by Company or
any of its subsidiaries or affiliates and which is used or disclosed in
connection with the conduct of the Business.
(c) For the purposes of this Article 12.2, (i)
information which is specific will not be deemed to be within an exception set
forth in Article 12.2(b) hereof merely because it is embraced by general
information which is within such an exception and (ii) a combination of
information will not be deemed to be within an exception set forth in Article
12.2(b) hereof merely because individual aspects of such combination are within
such an exception unless the combination of information itself, its principle
of operation and its value or advantages are within such an exception.
12.3 Survival. This Article 12 will survive the termination of this
Agreement for any reason and the consummation of the transactions contemplated
hereby.
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ARTICLE 13 - NOTICES
All notices required or permitted to be given pursuant to this
Agreement will be given in writing in the English language, will be transmitted
by personal delivery, by registered or certified mail, return receipt
requested, postage prepaid, or by telecopier or other electronic means and will
be addressed as follows:
When Buyer or, after the Closing Date, the Company is the intended
recipient:
Denali Holdings, Inc.
1360 Post Oak Blvd, Suite 2470
Houston, TX 77056
When Seller or Seller's subsidiary is the intended recipient:
Praxair, Inc.
39 Old Ridgebury Road
Danbury, CT 06810-5113
ATTN: R.F.X. Fusaro
A Party may designate a new address to which notices required or
permitted to be given pursuant to this Agreement will thereafter be transmitted
by giving written notice to that effect to the other Party. Each notice
transmitted in the manner described in this Article 13 will be deemed to have
been given, received and become effective for all purposes at the time it will
have been (i) delivered to the addressee as indicated by the return receipt (if
transmitted by mail), the affidavit of the messenger (if transmitted by
personal delivery) or the answer back or call back (if transmitted by
telecopier or other electronic means) or (ii) presented for delivery to the
addressee as so indicated during normal business hours, if such delivery will
have been refused for any reason.
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ARTICLE 14 - BROKERAGE FEES; CERTAIN EXPENSES
14.1 Brokerage Fees. Each Party agrees to indemnify the other Party
for, and to hold the other Party harmless from, any claim or liability for any
fee, commission, compensation or other payment by any broker, finder or similar
agent who claims to have been, or who was in fact, engaged by, or on behalf of,
it in connection with the transactions contemplated hereby. Any such
indemnification will be pursued and paid in accordance with the procedures set
forth in Article 11.5 hereof.
14.2 Certain Expenses. Except as otherwise provided in this
Agreement and regardless of whether the transactions contemplated hereby are
consummated, each Party agrees to pay all expenses, fees and costs (including,
without limitation, legal, accounting and consulting expenses) incurred by it
in connection with such transactions.
ARTICLE 15 - GOVERNING LAW; FORUM
The validity, interpretation, performance and enforcement of this
Agreement will be governed by the law of the State of New York (without giving
effect to the laws, rules or principles of the State of New York regarding
conflicts of laws). Each Party agrees that any proceeding arising out of or
relating to this Agreement or the breach or threatened breach of this Agreement
will be commenced and prosecuted in a court in the State of New York. Each
Party consents and submits to the non-exclusive personal jurisdiction of any
court in the State of New York with respect to any such proceeding. Each Party
consents to service of process upon it with respect to any such proceeding by
registered mail, return receipt requested, and by any other means permitted by
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applicable laws and rules. Each Party waives any objection that it may now or
hereafter have to the laying of venue of any such proceeding in any court in
the State of New York and any claim that it may now or hereafter have that any
such proceeding in any court in the State of New York has been brought in an
inconvenient forum. Each Party waives trial by jury in any such proceeding.
ARTICLE 16 - BINDING EFFECT; ASSIGNMENT; THIRD PARTY BENEFICIARIES
This Agreement will be binding upon the Parties and their respective
successors and assigns and will inure to the benefit of the Parties and their
respective successors and permitted assigns. No Party will assign any of its
rights or delegate any of its duties under this Agreement (by operation of law
or otherwise) without the prior written consent of the other Party. Any
assignment of rights or delegation of duties under this Agreement by a Party
without the prior written consent of the other Party will be void. No Person
will be, or be deemed to be, a third party beneficiary of this Agreement.
ARTICLE 17 - ENTIRE AGREEMENT
This Agreement and the Schedules and Exhibits attached hereto
constitute the entire contract among the Parties with respect to the subject
matter hereof and cancel and supersede all of the previous or contemporaneous
contracts, representations, warranties and understandings (whether oral or
written), by or between the Parties with respect to the subject matter hereof.
Except as otherwise provided herein, all of the Schedules attached hereto will
be deemed to be dated the date hereof. Except for the representations and
warranties expressly set forth in this Agreement, Buyer disclaims
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reliance upon (i) any representations, warranties or guarantees (whether
express or implied and whether oral or written) by Seiler, Company or any of
their respective affiliates, officers, employees, agents or representatives
(including, without limitation, any projections of future sales, revenues,
expenses or earnings and any statements regarding the prospects of the
Business) or (ii) any other information with respect to the Business or Company
provided by or on behalf of them. Buyer represents and warrants that it has
relied on its own projections in connection with the transactions contemplated
hereby. Each Party agrees that the other Party has the right to rely upon the
representations, warranties, covenants and agreements of such party contained
in this Agreement. Except as otherwise provided in Articles 4.6, 19 and 20
hereof, nothing contained in any document or instrument of conveyance,
transfer, assignment or delivery executed or delivered at the Closing pursuant
to this Agreement will amend, extend, modify, renew or alter in any manner any
representation, warranty, covenant, agreement or indemnity contained herein.
Nothing contained in this Agreement or in any of the Schedules or Exhibits
attached hereto will constitute or be interpreted or construed as an admission
by any Party or any of its subsidiaries or affiliates of liability to third
parties, whether under any foreign, federal, state or local laws, rules,
regulations or ordinances or otherwise, or as an admission that any Party or
any of its subsidiaries or affiliates are in violation of or have ever violated
any such laws, rules, regulations or ordinances.
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ARTICLE 18 - FURTHER ASSURANCES
At any time and from time to time after the Closing, the Parties will
execute, deliver and acknowledge such other documents and take such further
actions as may be reasonably required in order to consummate the transactions
contemplated hereby.
ARTICLE 19 - AMENDMENTS
Except as provided in Articles 4.6 and 23 hereof, no addition to, and
no cancellation, renewal, extension, modification or amendment of, this
Agreement will be binding upon a Party unless such addition, cancellation,
renewal, extension, modification or amendment is set forth in a written
instrument which states that it adds to, amends, cancels, renews, extends or
modifies this Agreement and which is executed and delivered on behalf of such
Party by an officer of, or attorney-in-fact for, such Party.
ARTICLE 20 - WAIVERS
No waiver of any provision of this Agreement will be binding upon a
Party unless such waiver is expressly set forth in a written instrument which
is executed and delivered on behalf of such Party by an officer of, or
attorney-in-fact for, such Party. Such waiver will be effective only to the
extent specifically set forth in such written instrument. Neither the exercise
(from time to time and at any time) by a Party of, nor the delay or failure (at
any time or for any period of time) to exercise, any right, power or remedy
will constitute a waiver of the right to exercise, or impair, limit or restrict
the exercise of, such right, power or remedy or any other right, power or
remedy at any
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time and from time to time thereafter. No waiver of any right, power or remedy
of a Party will be deemed to be a waiver of any other right, power or remedy of
such Party or will, except to the extent so waived, impair, limit or restrict
the exercise of such right, power or remedy.
ARTICLE 21 - REMEDIES
The sole and exclusive rights, powers and remedies of the Parties,
other than such injunctive or other equitable remedies as may be available to a
Party for a breach of, or default under, this Agreement (including, without
limitation, a breach of or default under any of the representations,
warranties, covenants or agreements contained in this Agreement) will be
termination under Article 8 hereof and indemnification under Articles 11 and 14
hereof, in each case limited as set forth therein. None of the Parties will,
for any reason or under any legal theory, be liable for any special, indirect,
incidental or consequential damages arising out of any breach of or default
under this Agreement, even if informed of the possibility of such damages in
advance.
ARTICLE 22 - HEADINGS; INDEXES; COUNTERPARTS
The headings and Table of Contents set forth in this Agreement have
been inserted for convenience of reference only, will not be considered a part
of this Agreement and will not limit, modify or affect in any way the meaning
or interpretation of this Agreement. This Agreement may be signed in any number
of counterparts, each of which (when executed and delivered) will constitute an
original instrument, but all of which together will constitute one and the same
instrument. This Agreement will
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become effective and be deemed to have been executed and delivered by all of
the Parties at such time as counterparts will have been executed and delivered
by each of the Parties, regardless of whether each of the Parties has executed
the same counterpart. It will not be necessary when making proof of this
Agreement to account for any counterpart other than a sufficient number of
counterparts which, when taken together, contain signatures of all of the
Parties.
ARTICLE 23 - SEVERABILITY
If any provision of this Agreement will hereafter be held to be
invalid, unenforceable or illegal in whole or in part, in any jurisdiction
under any circumstances for any reason, (i) such provision will be reformed to
the minimum extent necessary to cause such provision to be valid, enforceable
and legal while preserving the intent of the Parties as expressed in, and the
benefits to the Parties provided by, this Agreement or (ii) if such provision
cannot be so reformed, such provision will be severed from this Agreement and
an equitable adjustment will be made to this Agreement (including, without
limitation, addition of necessary further provisions to this Agreement) so as
to give effect to the intent as so expressed and the benefits so provided. Such
holding will not affect or impair the validity, enforceability or legality of
such provision in any other Jurisdiction or under any other circumstances.
Neither such holding nor such reformation or severance will affect or impair
the legality, validity or enforceability of any other provision of this
Agreement.
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ARTICLE 24 - CERTAIN REFERENCES
24.1 Affiliate. As used herein, reference to an affiliate means,
with respect to any Person, any other Person controlling, controlled by or
under common control with, or the parents, spouse, lineal descendants or
beneficiaries of, such Person. The term "control (including the terms
"controlling", "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
24.2 Knowledge. As used herein, references to knowledge of Seller,
Seller's subsidiaries or Company will mean the actual knowledge, after
reasonable inquiry, of any officer or director of such entities, or any
employee, representative or agent of such entities responsible for the
negotiating or closing of the transactions contemplated hereby.
24.3 Person. As used herein, references to a person will mean an
individual or an entity, including, without limitation, a corporation, limited
liability company, partnership, limited liability partnership, joint venture,
trust, joint stock company, association, unincorporated organization or group
acting in concert.
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IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the date first above written.
PRAXAIR, INC. SPECIALTY SOLUTIONS, INC.
By: /s/ ROBERT F.X. FUSARI By: /s/ STEPHEN T. HARCROW
------------------------------ ------------------------------
Name: Name: STEPHEN T. HARCROW
---------------------------- ----------------------------
Title: Title: President
--------------------------- ---------------------------
ERSHIGS, INC.
By: /s/ FRANK H. PICKERING
------------------------------
Name: FRANK H. PICKERING
----------------------------
Title: President
---------------------------
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Exhibit 10.04
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, made and entered into on the 12th day of
October, 1995, by and between Hoover Group, Inc. ("Shareholder"), Hoover
Containment Systems, Inc. ("Company"), (hereinafter Shareholder and Company
may be referred to collectively as "Sellers") and Hoover Containment, Inc., a
Delaware corporation, (hereinafter referred to as "Purchaser"), a wholly-owned
subsidiary of Containment Solutions, Inc.;
W I T N E S S E T H
WHEREAS, the parties hereto desire that the Purchaser will acquire
substantially all of the assets of the Company in exchange for the
consideration herein described on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, the parties agree as follows:
Definitions
(a) Accounts Payable. Shall be defined as all trade accounts
payable, vouchered and unvouchered, as well as all commissions payable and
sales representative commissions and vacation time accrued to the Closing Date,
to be detailed on Schedule (a) to be provided to Purchaser in conjunction with
the Closing Date Balance Sheet. Excluded are accrued salaries/wages payable,
income tax from all jurisdictions, FICA and all other payroll taxes, all other
payroll withholdings, notes payable, sales and use taxes, unemployment taxes,
supervisor bonuses, accrued pension and 401k expenses and other employee
benefit plans, accrued interest, legal expenses incurred prior to Closing or
relating to events prior to Closing, accrued advertising expenses.
(b) Accounts Receivable. Shall be defined as those arising from
the ordinary course of business with the exception of certain accounts
identified as doubtful and listed at Exhibit 1(b) and with the exception of
royalty payments due to Company. Also excluded are accounts receivable
reserves on Company's books as of the Closing Date.
(c) Intellectual Property. Shall be defined as any and all (i)
patents (including, without limitation, design patents, industrial designs and
utility models, utility patents and plant patents) and patent applications
(including docketed patent disclosures awaiting filing, reissues, results of
reexaminations, divisions, continuations and extensions), patent disclosure
awaiting filing determination, inventions and improvements thereto; (ii)
trademarks, service marks, trade names, trade dress, logos, business and
product names, slogans and registrations and applications for registration
thereof; (iii) copyrights and registrations thereof and rights and unpublished
works to the extent such rights are not subsumed by copyright; (iv) inventions,
processes, designs, formulae, trade secrets, know-how, software, industrial
models, confidential and technical information, manufacturing, engineering and
technical drawings, product specifications and confidential business
information; and (v) intellectual property rights (including rights as a
licensee, if any) similar to any of the foregoing; in each case, that are
specific to the Subject Business.
<PAGE> 2
(d) Inventory. Shall be defined as Inventories of raw materials,
work in process, finished products, spare parts and office and other supplies,
and other items reflected as inventory in the financial statements (including
inventories of finished products held for packaging and/or shipping and all
types of Inventories with respect to the Subject Business which are in transit
to or from any of its manufacturing facilities, it being understood that any
such finished products or other inventories in respect of which customers have
made payment, or Company otherwise do not hold title as of the Closing Date, do
not constitute Company's Inventory).
(e) Liens. Shall be defined as all mortgages, deeds of trust,
liens, security interests, pledges, conditional sales contracts, claims, rights
of first refusal, options, charges, liabilities, obligations, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances
of any kind.
(f) Permitted Encumbrances. Shall mean Liens for current taxes
and assessments not yet due and payable, including, without limitation, Liens
for nondelinquent ad valorem taxes, nondelinquent statutory Liens, inchoate
liens, deposits for workman's compensation, unemployment and surety bonds
arising other than by reason of any default on the part of the Sellers.
(g) PP&E. Shall be defined as all tangible personal property and
fixtures located at the manufacturing facilities and corporate headquarters of
Company in Maryland and California including but not limited to, any machinery
and equipment tools, and furniture and furnishings as of the Closing Date, and
those items reflected in the financial statements dated as of the Closing Date.
(h) Working Capital. Shall be defined as Accounts Receivable,
Inventory, PP&E and other Assets, net of Accounts Payable and commissions
payable.
1. Transfer of Assets; Purchase Price; and Related Matters
(a) Transfer of Assets. In reliance upon the representations and
warranties of Purchaser contained herein, and on the terms and subject to the
conditions of this Agreement, the Sellers, at the Closing referred to in
Section 2 hereof, will sell, transfer, convey and deliver to Purchaser all of
the Assets as hereinafter defined:
(i) All tangible and intangible assets, including without
limitation, all personal property and fixtures wherever located, including
equipment, machinery, tools, Inventory, furniture and furnishings, all
drawings, plans, specifications, rights under contracts and agreements,
outstanding proposals, prospects/proposals/cost/process application data
bases, O & M manuals, sales rights for parts for past orders, and all
Intellectual Property, operating information, all customer information, sales
information and processes, Accounts Payable, Accounts Receivable, PP&E and
Inventory which are owned by Company and used by Company in its business of
design, manufacture and supply of aboveground storage tanks for the new and
used petroleum products market and any other market(the "Subject Business"),
except those assets being more particularly described on Exhibit "1(b)"
attached hereto ("Excluded Assets"); and
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<PAGE> 3
(ii) The covenant not to compete as stated in Paragraph 5
(f) of this Agreement.
(iii) All right, title and interest of Company in and to
the name "Hoover" as it relates to the Subject Business.
The Sellers shall transfer such Assets free and clear of all Liens,
except Permitted Encumbrances, such Liens, if any, to be released by the
Sellers at Closing (as hereinafter defined).
(b) Excluded Assets. Excluded from the Assets shall be cash and
cash equivalents on hand or on deposit, the accounts receivable listed on
Exhibit 1(b) hereto, goodwill of the Subject Business and the covenants not to
compete found in the Employment Agreements between Shareholder and Darleen
Bauer and Shareholder and Joe Allwein dated February 22, 1991 and between
Company and David McGarvey dated August 31, 1994.
(c) Purchase Price.
(i) In reliance on the representations and
warranties of the Sellers herein contained, and on the terms and subject to the
conditions of this Agreement, the Purchaser, in consideration for the transfer
and delivery to it of the Assets as herein provided, will pay (1)
$5,933,395.00, subject to any adjustments as determined pursuant to (c)(iii)
below , and (2) the assumption by Purchaser of the Assumed Liabilities
(collectively, the "Purchase Price").
(ii) Allocation of Purchase Price. Purchaser shall
prepare in good faith and deliver to Sellers by January 31, 1996 an allocation
of the consideration paid by Purchaser for the Assets, which shall be prepared
in accordance with the methodology contained in Section 1060 of the Code. Each
party hereto agrees to complete jointly and to file separately Form 8594 with
its Federal Income Tax Return consistent with such allocation for the tax year
in which the Closing Date occurs, to file, or cause to be filed, all other Tax
Returns in a manner consistent with such allocation, and not take any actions
inconsistent therewith.
(iii) Closing Date Working Capital Adjustment.
(a) As promptly as practicable, but in any
event not later than 60 days after the Closing Date, Company shall cause to be
prepared and delivered to Purchaser a balance seet as of the Closing Date (the
"Closing Date Balance Sheet"), a computation (the "Closing Date Working Capital
Computation") of the Closing Date Working Capital on which agreed upon
procedures will be performed on inventory by a national independent accounting
firm selected by Purchaser (the "Accounting Firm"). The Company shall, and
shall cause the Accounting Firm to make available to Purchaser all work papers
and related data used in connection with the agreed upon procedures report.
Within 20 days after delivery to Purchaser of the Closing Date Balance Sheet,
Company (as guaranteed by Shareholder) shall pay to Purchaser in immediately
available funds the amount, if any, by which the Working Capital as reflected
on the Closing Date
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<PAGE> 4
Balance Sheet of the Company is less than the Working Capital as reflected on
the September 30, 1995 balance sheet of the Company. Within 20 days after
delivery to Purchaser of the Closing Date Balance Sheet, the Purchaser shall
pay to the Company in immediately available funds the amount, if any, by which
the Working Capital as reflected on the Closing Date Balance Sheet is greater
than the Working Capital as reflected on the September 30, 1995 balance sheet
of the Company. Any costs incurred in preparing the Closing Date Balance Sheet
shall be shared by the parties equally.
(d) Instruments of Conveyance and Transfer. At the Closing, the
Sellers shall deliver to the Purchaser or its designee such bills of sale,
warranty deeds, endorsements, assignments, title certificates to motor
vehicles, and other good and sufficient instruments of transfer, conveyance and
assignment, in form reasonably satisfactory to the Purchaser's counsel, as
shall be effective to vest in the Purchaser good title to the Assets, free and
clear of all Liens, other than Permitted Encumbrances.
(e) Contracts, Records. At the Closing, the Sellers will deliver
to the Purchaser all contracts, commitments, and rights of the Company which
are part of the Assets, with assignment thereof, to assure the Purchaser of the
full benefit of such contracts, leases, commitments and rights. All consents,
except those from landlords of real property leases, shall be obtained by
Sellers post closing. All material contracts are listed on Exhibit 1(e). At
the Closing, the Sellers shall deliver to the Purchaser all records and other
data relating to the inventory and fixed assets acquired. Simultaneously with
such delivery, the Sellers shall take all such steps as may be reasonably
required to put the Purchaser in actual possession and control of the Assets.
(f) Employee Matters. Purchaser agrees to offer employment to all
of Company's employees except Joseph P. Allwein. Sellers agree that they
shall be solely liable for any employee obligations arising prior to or
directly related to events occurring prior to the Closing Date. Sellers agree
to retain its relocation obligations toward David McGarvey under his Employment
Agreement with Company.
(g) Accounts Receivable. Purchaser will assume all Accounts
Receivable except those listed on Exhibit 1(b). Sellers shall reimburse
Purchaser for receivables purchased by Purchaser but not collected within 120
days from Closing Date, and Purchaser shall reconvey such receivables to
Company.
(h) Further Assurances. The Sellers shall, from time to time
after the Closing at the Purchaser's request and without further consideration,
execute and deliver such instruments of transfer, conveyance and assignment in
addition to those delivered pursuant to Paragraph 1(c), and take such other
action as the Purchaser may reasonably require to more effectively transfer,
convey and assign to and vest in the Purchaser, and to put the Purchaser in
actual possession and control of, any of the Assets. To the extent that the
assignment of any license, contract, commitment, or right subject to the
Assumption Agreement shall require the consent of the other party thereto, this
Agreement shall not constitute an agreement to assign the same if any attempted
assignment would constitute a breach thereof. If any lease, license, contract
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<PAGE> 5
commitment, right or other assets or property which are part of the Assets
cannot be transferred effectively to the Purchaser without the consent of a
third party, the Sellers shall thereafter be obligated to use its best efforts
to assure the Purchaser of the benefits of such lease, license, contract,
commitment right or other asset or property.
(i) Liabilities Not Assumed by Purchaser. Except for liabilities
assumed under Exhibit 1(i), Purchaser shall not assume any of Company's
litigation, product liability obligations arising from tanks or other products
invoiced by Company or any of Company's liabilities and obligations of any and
every kind whatsoever, whether disclosed, undisclosed, direct, indirect,
absolute, contingent, secured, unsecured, accrued or otherwise, whether known
or unknown. Claims brought against Purchaser or expenses incurred by Purchaser
for these liabilities shall not be covered by Section 9(b) or 10(a); however,
with respect to warranty work provided by Purchaser under Section 6(b)(ii), the
liability limitation of Section 10(d) shall be in effect.
2. The Closing. The closing of the transactions provided for in Section
1 of this Agreement (herein called the "Closing") shall take place on
twenty-four hours prior notice on or before October 31, 1995 by mail, to be
effective at 11:59 p.m. Central Time. The date of the Closing is referred to
in this Agreement as the "Closing Date".
3. Representations and Warranties of the Sellers. The Sellers represent
and warrant to the Purchaser that:
(a) Organization and Existence. Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware and has full power and authority to carry on its business as now
conducted. Complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company as in effect on the date hereof have been delivered to
the Purchaser. The sole shareholder of the Company is the Shareholder. The
Company is qualified in Maryland, California and such other states as set forth
in Exhibit "3(a)" hereto, which states represent every jurisdiction where such
qualification is required except where failure to be so qualified would not
have a material adverse affect on the business, properties or assets of the
Company.
(b) Authority Relative to This Agreement. The transactions
contemplated by this Agreement have been duly authorized by the Board of
Directors and Shareholder of the Company, and no further corporate action is
necessary on the part of the Company to make this Agreement valid and binding
upon the Company in accordance with its terms. The execution, delivery and
performance of this Agreement by the Company will not result in a violation or
breach of any term or provision of, or constitute a default or accelerate the
performance required under the Articles and Bylaws of the Sellers, any
indenture, mortgage, deed of trust or other contract or agreement to which the
Company is a party or by which it or any of its properties is bound, or violate
any order, writ, injunction, decree of any court, administrative agency or
governmental body.
(c) Validity and Enforceability. This Agreement and all related
documents have been duly executed and delivered by Sellers and constitute
legal, valid and binding
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<PAGE> 6
obligations of Sellers enforceable in accordance with their terms, except as
the same may be limited by applicable bankruptcy, insolvency, reorganization,
or the laws affecting the enforcement of creditors' rights generally, and the
application of general principles of equity.
(d) Ownership of Assets. Except as set forth in Exhibit "3(d)"
hereto, the Company owns, has good and marketable title to, and is in
possession of all of the assets set forth on Exhibit 1(c), free and clear of
all liens, security interests and encumbrances, except for Permitted
Encumbrances.
(e) Financial Statements. The Company has delivered to Purchaser
the adjusted unaudited financial statements of the Company for the period
ending June 30, 1995. The financial statements fairly represent the financial
position of the company as of the date thereof and the results of operations
and changes in financial position for the periods then ended, provided that
such statements are subject to year-end adjustments in accordance with GAAP,
none of which are material.
(f) Absence of Certain Changes or Events. With respect to the
Subject Business, except as contemplated hereby and as listed on Exhibit 3(f)
hereto, and other than in the ordinary course of business, since June 30, 1995
the Sellers have not:
(i) Sold, transferred, or otherwise disposed of,
or agreed to sell, transfer or otherwise dispose of any of the Assets in the
ordinary course of the Subject Business;
(ii) Entered or agreed to enter into any agreement
or arrangement granting any preferential rights to purchase any of the Assets,
or requiring the consent of any party to the transfer and assignment of any of
such assets, property or rights;
(iii) Waived any rights of value with respect to
the Assets;
(iv) Made or permitted any amendment or
termination of any contract, agreement or license which they are a party or by
which they or any of the Assets is subject;
(v) To its knowledge, incurred or become subject
to any material claim or liability for any damages or alleged damages for any
actual or alleged negligence or other tort or breach of contract which might in
any fashion adversely affect the value of the Assets or the Subject Business;
(vi) Made any capital expenditure (or commitments
therefor), aggregating in excess of $5000.00 and relating to the Assets or the
Subject Business, except as shown on Exhibit 3(f)(vi); or
(vii) Entered into any other material transaction
of which Purchaser has not been formally notified in writing.
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<PAGE> 7
(g) Prepayments and Deposits. There are no prepayments or
deposits which have been received and are being held by the Company and the
Company has made no prepayment or deposit other than those prepayments and
deposits set forth in Exhibit "3(g)".
(h) Absence of Undisclosed Liabilities. Except as disclosed to
the Purchaser on Exhibit 3(h), to Seller's knowledge after due inquiry, none of
the Assets are subject to any liabilities or obligations (accrued, absolute,
contingent or otherwise), or will be subject to any such liability or
obligation arising from the actions of the Sellers on or before the Closing
Date, whether or not such liability would normally be shown or reflected on a
balance sheet prepared in a manner consistent with generally accepted
accounting principles. Except as disclosed to the Purchaser in an exhibit
hereto, there are no facts in existence on the date hereof and known by the
Sellers which might reasonably serve as the basis for any liabilities or
obligations of the Company and which would materially adversely affect the
value of the Assets or the Subject Business.
(i) Tax Matters. To the reasonable knowledge of Sellers, after
due inquiry, all federal, state, county, local and other taxes, including,
without limitation, income taxes, corporate franchise taxes, payroll taxes,
customs fees and duties, sales taxes and ad valorem taxes, due and payable by
the Company on or before the date of this Agreement have been timely paid, and
all tax returns and reports required to be filed by the Company have been
timely filed with all such taxing authorities. No assessments or deficiencies
have been made against the Company and no extensions of time are in effect for
the assessment of deficiencies.
(j) Patents, Etc. The Sellers have delivered to the Purchaser a
true and complete Exhibit (Exhibit "3(j)") setting forth all Intellectual
Property patents, inventions, trademarks, tradenames, brand names or copyrights
owned or used by or licensed to or by the Company (if any), and relating to the
Assets or the Subject Business, together with a summary description and full
information in respect of the filing, registration or issuance and the status
thereof, except for rights to intellectual property arising under common law.
Except as disclosed in Exhibit "3(j)", the Sellers have no knowledge after
reasonable inquiry that the operations of the Subject Business infringe upon
the patent, trademark or other similar rights of any other person or entity.
Except as disclosed in Exhibit "3(j)", the Company has asserted no claim that
the operations of any other entity infringe upon the Intellectual Property of
the Company.
(k) Insurance. Attached hereto as Exhibit "3(k)" is an Exhibit
setting forth a list and brief description of all policies of insurance, held
by the Company applicable to any Assets or the Subject Business.
(l) Licenses, Permits, Etc. Attached hereto as Exhibit "3(l)" is
a list and brief description of all licenses and permits held by the Company,
copies of which licenses and permits have been furnished to the Purchaser. To
the best knowledge of the Sellers after reasonable inquiry, except as noted on
Exhibit "3(l)", such licenses and permits constitute all licenses and permits
necessary to own the Assets or conduct the Subject Business, and each is in
full force and effect. Except as set forth on Exhibit "3(l)", the
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<PAGE> 8
Sellers have no knowledge of any violation that would materially adversely
affect the value of the Assets or the Subject Business; and to the best
knowledge of the Sellers after reasonable inquiry, no proceeding is pending or
threatened seeking the revocation or limitation of any such license or permit.
Except as set forth on Exhibit "3(l)", to the best knowledge of the Sellers the
licenses and permits are assignable.
(m) Litigation. Except as set forth on Exhibit "3(m)" hereto,
there are no claims, actions, suits, proceedings or investigations pending, or
to the best knowledge of the Sellers, threatened against or affecting the
Company or any of its properties, at law or in equity or before or by any court
or federal, state, municipal or other governmental department, commission,
board, agency or instrumentality. To the best knowledge of the Sellers, the
Sellers are not subject to any court or administrative order, injunction or
similar decree, the enforcement of which would materially adversely affect the
value of the Assets or the Subject Business.
(n) Compliance with Laws. Except as disclosed on Exhibit "3(n)"
hereto, the Sellers have no knowledge after reasonable inquiry that the
operations of the Subject Business, either historically or as now conducted, or
that the ownership of the Assets violate any federal, state or local law,
ordinance, rule or regulation, (including, without limitation, any laws or
regulations relating to the environment or the handling, treatment or disposal
of wastes or products of the Subject Business) the violation of which would
materially adversely affect the value of the Assets or the Subject Business.
(o) Brokers. The Sellers are not a party to or in any way
obligated under any contract or other agreement, and there are no outstanding
claims against them, for the payment of any broker's or finder's fee in
connection with the origin, negotiation, execution or performance of this
Agreement.
(p) No Default. To the Company's knowledge, the Company is not
in default in any respect of any obligation to be performed by the Company
under any material contract, lease, agreement, commitment or undertaking which
default would materially adversely affect the value of the Assets or the
Subject Business to which the Company is a party or by which the Company or the
Assets are bound, nor has Company waived any material right under any such
contract, lease, agreement, commitment or undertaking.
(q) Product Liability. Except as listed on Exhibit 3(q), the
Sellers have has no knowledge after reasonable inquiry of any state of facts or
the occurrence of any event forming the basis of any present claim against the
Company for product liability on account of any express or implied warranty.
Warranty work over the last three years has not been material to the Subject
Business.
(r) Disclosure. The representations and warranties contained in
the Articles and the Exhibits hereto, do not and shall not, when taken as a
whole, contain any untrue statement of a material fact or omit any material
fact necessary to make the statements contained therein or herein not
misleading in view of the circumstances under which they were made. To the
extent that Purchaser (or its officers or agents) has actual
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<PAGE> 9
knowledge of any discrepancy, statement or statement of facts, the applicable
representation or warranty known to be untrue or misleading shall be
unenforceable to the extent of the knowledge of such discrepancy, statement or
state of facts. In all other respects, the representations and warranties of
Sellers shall remain unaffected. Disclosures made in any of the Exhibits or
exhibits to this Agreement are hereby deemed to be made for purposes of all
other schedules or exhibits.
(s) Contracts. Exhibit 1(e) lists all material contracts of the
Company.
All exhibits delivered to the Purchaser by the Sellers pursuant to
this Section shall be delivered upon the execution of this Agreement and shall
be signed for identification by Sellers.
4. Representations and Warranties of the Purchaser. Purchaser
represents and warrants to the Sellers that:
(a) Organization and Existence. The Purchaser is a corporation
duly organized validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power to enter into and
perform this Agreement.
(b) Authority Relative to This Agreement. The transactions
contemplated by this Agreement have been duly authorized by the Board of
Directors of Purchaser, and no further corporate action is necessary on the
part of the Purchaser to make this Agreement valid and binding upon the
Purchaser in accordance with its terms. The execution, delivery and
performance of this Agreement by the Purchaser will not result in a violation
or breach of any term or provision of, or constitute a default or accelerate
the performance required under, any indenture, mortgage, deed of trust or other
contract or agreement to which the Purchaser is a party or by which it or any
of its properties is bound, or violate any order, writ, injunction or decree of
any court, administrative agency or governmental body.
(c) Validity and Enforceability. This Agreement and all related
documents have been duly executed and delivered by Purchaser and constitute
legal, valid and binding obligations of Purchaser enforceable in accordance
with their terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, or other laws affecting the enforcement of
creditors' rights generally, and the application of general principles of
equity.
(d) Brokers. The Purchaser is not a party to or in any way
obligated under any contract or other agreement and there are no outstanding
claims against it for the payment of any broker's or finder's fee in connection
with the origin, negotiation, execution or performance of this Agreement.
(e) Consents. The consummation of the transactions contemplated
herein by the Purchaser shall not require the consent, approval or
authorization of any third party.
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<PAGE> 10
(f) Compliance with Laws. Except as disclosed in an exhibit
hereto, the Purchaser has no knowledge after reasonable inquiry that its
operations, either historically or as now conducted violate any federal, state
or local law, ordinance, rule or regulation, the violation of which would
adversely affect its ability to perform under this Agreement.
(g) No Default. To the Purchaser's reasonable knowledge, it is
not in default in any respect of any obligation to be performed by the
Purchaser under any contract, lease, agreement, commitment or undertaking which
default would adversely affect its ability to perform under this Agreement.
(h) Absence of Certain Changes. Since June 30, 1995, there has
been no material change in the business, prospects or condition, financial or
otherwise, of the Purchaser except changes in the ordinary course of business
affecting the entire industry which in the aggregate have not been materially
adverse.
(i) Use of Equipment. Purchaser shall use the Assets in the
business of manufacturing.
5. Covenants of Sellers. The Sellers covenant with the Purchaser that:
(a) Conduct of Business. From the date of this Agreement to the
Closing Date, the business of the Company will be operated only in the ordinary
course, and in particular, without the prior written consent of the Purchaser,
the Sellers will not:
(i) Cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) Change the Company's Articles of Incorporation or Bylaws
or the composition of Shareholder;
(iii) Be in default under any material contract, agreement,
commitment or undertaking of any kind or under any local, state or federal
permits;
(iv) Knowingly violate or fail to comply with all laws
applicable to it or its properties or business;
(v) Commit any act or permit the occurrence of any event or
the existence of any condition of the type described in Paragraph 3(f) hereof;
or
(vii) Merge, consolidate or agree to merge or consolidate
with or into any other corporation.
(b) Access. From and after the date of this Agreement, Company
and Purchaser will provide to each other and their respective counsel,
accountants, engineers and other representatives, full and free access to the
records of the Subject Business during normal business hours upon prior
reasonable notice. Expenses of providing such access shall be paid by the
party requesting such access.
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<PAGE> 11
(c) Preservation of Business Organization. The Sellers will use
their best efforts to preserve the business organization of the Company and to
preserve for the Purchaser the Company's good relations with all customers and
others having business relations with the Company.
(d) Trade Secrets. From and after the Closing Date, Sellers will
not use or divulge to any competitor or unauthorized person any confidential
information, and it will use all reasonable and proper efforts to insure that
its agents do not use or divulge any confidential information, trade secrets,
processes, formulae or know-how relating to the Assets or the Subject Business.
(e) Consents of Third Parties. The Sellers will use their best
efforts to obtain, on a post-closing basis, where required, the consents of all
third parties to the assignment and transfer of all contracts, licenses,
registrations and commitments affecting the Assets which require such consents.
(f) Non Competition. SELLERS AGREE THAT DURING A THREE YEAR
PERIOD COMMENCING ON THE CLOSING DATE, THEY WILL NOT, DIRECTLY OR INDIRECTLY,
FOR THEIR OWN ACCOUNT OR FOR THE ACCOUNT OF OTHERS, WHETHER AS PRINCIPAL OR
AGENT OR THROUGH THE AGENCY OF ANY CORPORATION, PARTNERSHIP, ASSOCIATION OR
OTHER BUSINESS ENTITY, ENGAGE IN ANY ACTIVITY SIMILAR TO OR COMPETITIVE WITH
THE ACTIVITIES OF THE COMPANY AS PERFORMED BY THE COMPANY IN THE THREE YEAR
PERIOD ENDING ON THE CLOSING DATE IN THE ABOVE GROUND TANK INDUSTRY FOR
PETROLEUM AND PETROLEUM-BASED PRODUCTS IN THE UNITED STATES AND ALL OTHER
MARKETS WORLDWIDE (OTHER THAN THE SALE, LEASE OR OTHER ACTIVITIES INVOLVING
INTERMEDIATE BULK CONTAINERS) . THE FOREGOING AGREEMENT NOT TO COMPETE SHALL
NOT BE HELD INVALID OR UNENFORCEABLE BECAUSE OF THE SCOPE OF THE SAID TERRITORY
OR THE ACTIONS RESTRICTED THEREBY, OR THE PERIOD OF TIME WITHIN WHICH SUCH
AGREEMENT IS OPERATIVE; BUT ANY JUDGMENT OF A COURT OF COMPETENT JURISDICTION
MAY DEFINE THE MAXIMUM TERRITORY AND ACTIONS SUBJECT TO AND RESTRICTED BY THIS
PARAGRAPH AND THE PERIOD OF TIME DURING WHICH SUCH AGREEMENT IS ENFORCEABLE.
(g) Shareholders' Meeting. The Sellers will cause to be executed
before Closing, a consent of the Shareholder of the Company for the purpose of
approving the terms and conditions of this Agreement and authorizing the
transactions contemplated herein.
(h) Execution of Assumption Agreement. A duly authorized officer
of the Company shall have executed and delivered the Assumption Agreement to
Purchaser.
(i) Product Warranty and Liability. Subject to Section 6(b)(ii),
Sellers shall be responsible for all warranty and product liability obligations
on product invoiced by the Subject Business prior to the Closing Date.
(j) Transition Issues. Shareholder shall continue to
provide to Purchaser hardware and software for Accounts Payable , General
Ledger, PP&E and Payroll processing for
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<PAGE> 12
the cost of a dedicated line to Atlanta for a period of four months after
Closing Date. Joe Allwein will be compensated by Shareholder and made
available to Purchaser on a first priority basis for a period of 90 days from
Closing Date and on an as-needed basis for the 90 days thereafter. Purchaser
shall be responsible for payment of all of Allwein's travel, entertainment and
other business-related expenses incurred during the course of his work on
behalf of Purchaser. Purchaser shall provide office space, telephone and fax
availability to Allwein.
(k) Confidentiality of Information Furnished by Purchaser.
Sellers and their representatives will treat all information related to these
transactions as confidential. Sellers agrees not to use any of this
information except in connection with this Agreement. Sellers will use their
best efforts to keep such information confidential. If the transactions
contemplated by this Agreement are not consummated, Sellers will return to the
Purchaser all information relating to Purchaser (and all copies thereof) then
in their possession.
(l) Name Change. Within 5 business days after Closing, the
Sellers shall amend the name of the Company to a name that is not deceptively
similar to Hoover Containment, Inc.
(m) Return of Property. Sellers hereby agree that they will
promptly distribute to Purchaser all funds, mail and other items owned by
Purchaser that come into the possession of Sellers at any time after Closing.
6. Covenants of the Purchaser. The Purchaser covenants with the Sellers
that:
(a) Confidentiality of Information Furnished by Sellers. The
Purchaser and its representatives will treat all information furnished pursuant
to Paragraph 5(b) (including financial statements) as confidential; however, it
is understood that such information must be revealed to various employees and
agents of the Purchaser for analysis and evaluation. Purchaser agrees not to
use any of this information except in connection with this Agreement. The
Purchaser will use its best efforts to keep such information confidential. If
the transactions contemplated by this Agreement are not consummated, the
Purchaser will return to the Sellers all such information (and all copies
thereof) then in its possession.
(b) Product Warranty. (i) Purchaser shall assume warranty
obligations for products invoiced after the Closing Date; (ii) Purchaser
agrees to perform, in accordance with applicable warranties, all warranty
services to repair or replace defective parts or products sold or manufactured
by the Subject Business prior to the Closing Date. The price to Sellers shall
be the cost to Purchaser of such service.
(c) Notification of Creditors Purchaser will waive compliance
with any applicable bulk sales law.
(d) Return of Property. Purchaser hereby agrees that it will
promptly distribute to Sellers all funds, mail and other items owned by
Purchaser that come into the possession of Purchaser at any time after Closing.
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<PAGE> 13
(e) Royalty Payments. Fourth quarter 1995 royalty payments will
be prorated as of Closing Date. Sellers shall be reimbursed on or before
2/14/96 and thereafter, within ten (10) business days of receipt of such
royalty payment.
7. Conditions to Obligations of the Purchaser. The obligations of the
Purchaser under this Agreement shall be subject to the satisfaction of the
following conditions:
(a) Representations and Warranties of Sellers True at Closing.
The Purchaser shall not have discovered any material error, misstatement or
omission in the representations and warranties made by the Sellers in Section 3
hereof; the representations and warranties made by the Sellers shall be deemed
to have been made again at and as of the time of Closing and shall then be true
in all material respects, except to the extent that such representations and
warranties shall have been made as of a specified date; the Sellers shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by them at or prior to Closing; and
Sellers shall provide Purchaser with a certificate from Sellers' Presidents,
dated as of Closing that the above conditions have been fulfilled.
(b) Approval of Counsel. All actions, proceedings, instruments
and documents reasonably required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related legal matters shall
have been approved by counsel for the Purchaser, which approval shall not be
unreasonably withheld or delayed, and such counsel shall have been furnished
with such certified copies of actions and proceedings and other such
instruments and documents as such counsel shall have reasonably requested.
(c) Opinion of Counsel for the Sellers. The Purchaser shall have
received an opinion of counsel for the Sellers, dated the Closing Date, to the
effect that:
(i) The Company is a corporation duly organized
and validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to carry on its business as
now conducted;
(ii) This Agreement has been duly authorized by
all necessary action on the part of the Sellers and has been duly executed and
delivered by Sellers and constitutes a valid and binding obligation of Sellers
enforceable in accordance with its terms (with the usual creditors' rights
exceptions);
(iii) The instruments of assignment, transfer and
conveyance delivered by Sellers to Purchaser pursuant to this Agreement have
been duly authorized by all necessary action of the Sellers, executed and
delivered by Sellers;
(iv) The consummation of the transactions
contemplated by this Agreement will not result in a breach of or constitute a
default under the Certificate of Incorporation or Bylaws of the Company; and
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<PAGE> 14
(v) Such counsel does not know of any litigation
or other proceeding or governmental investigation pending or threatened against
the Company or affecting the Assets, the Subject Business or the transactions
contemplated by this Agreement which, if adversely determined would have a
materially adverse effect on the value of the Assets or the Subject Business.
Such opinion may contain such exceptions, qualifications and
explanations as shall be reasonably acceptable to Purchaser and its counsel.
(d) Changes in Business. Prior to the Closing, there shall have
been no changes in the business, properties or operations of the Sellers since
the date of this Agreement which would have a material adverse effect on the
value of the Assets or the Subject Business.
(e) Absence of Restraint. No order to restrain, enjoin or
otherwise prevent the consummation of this Agreement or transactions in
connection herewith shall have been entered and, on the Closing Date, there
shall not be any pending or threatened litigation in any court, or any
proceeding by or before any governmental commission, board or agency, seeking
to restrain or prohibit consummation of the transactions contemplated hereby or
in which divestiture, rescission or significant damages are sought in
connection with the transactions contemplated hereby, and no investigation by
any governmental agency shall be pending or threatened which might result in
any such litigation or other proceeding.
(f) Approval. The sole Shareholder of the Company shall have
approved the transactions contemplated by the Agreement and such approvals
shall not have been rescinded.
(g) Governmental Consents. Any and all necessary consents of and
filings with any governmental authority or agency relating to the consummation
of the transactions contemplated by this Agreement shall have been obtained or
accomplished, and no action, proceeding, inquiry or investigation by any
private or governmental agency shall have been brought or threatened which
questions the validity or legality of the transactions contemplated by this
Agreement.
(h) Charter; Good Standing; Incumbency. There shall have been
delivered to Purchaser (i) a certificate dated within ten (10) days of Closing
Date from the Secretary of State of Delaware with respect to the incorporation
and good standing of, and the payment of franchise taxes by Company, (ii)
copies of Articles, Bylaws and all amendments and the resolutions of the Board
of Directors of Company approving these transactions, and (iii) a certificate
dated Closing Date with respect to the incumbency and signatures of all
officers of Company signing this Agreement and any certificate, agreement or
instrument delivered on behalf of Sellers in connection with this Agreement.
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<PAGE> 15
(i) Employment. Purchaser shall have entered into Employment
Agreements under terms and conditions acceptable to Purchaser, including
agreements of non-competition, with Darleen Bauer and David McGarvey.
8. Conditions to Obligations of the Sellers. The obligations of the
Sellers under this Agreement shall be subject to the satisfaction of the
following conditions:
(a) Representations and Warranties of Purchaser True at Closing.
The Sellers have not discovered any material error, misstatement or omission in
the representations and warranties made by Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser shall be deemed to have
been made again at and as of the time of Closing and shall then be true in all
material respects, except to the extent that such representations and
warranties shall have been made as of a specified date; and the Purchaser shall
have performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it at or prior to Closing; and
Purchaser shall provide Sellers with a Certificate from Purchaser's President
dated as of Closing that the above conditions have been fulfilled.
(b) Approval of Counsel. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by this
Agreement or incidental thereto and all other related legal matters shall have
been approved by counsel for the Sellers, and such counsel shall have been
furnished with such certified copies of actions and proceedings and other such
instruments and documents as such counsel shall have reasonably requested.
(c) Absence of Restraint. No order to restrain, enjoin or
otherwise prevent the consummation of this Agreement or transactions in
connection herewith shall have been entered and, on the Closing Date, there
shall not be any pending or threatened litigation in any court, or any
proceeding by or before any governmental commission, board or agency, with a
view to seeking to restrain or prohibit consummation of the transactions
contemplated hereby or in which divestiture, rescission or significant damages
are sought in connection with the transactions contemplated hereby, and no
investigations by any governmental agency shall be pending or threatened which
might result in any such litigation or other proceeding.
(d) Opinion of Purchaser's Counsel. Sellers shall have received
an opinion of counsel for the Purchaser, dated the Closing Date, to the effect
that:
(i) Hoover Containment, Inc. is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to carry on its
business as now conducted.
(ii) This Agreement has been duly authorized by
all necessary action on the part of Purchaser and has been executed and
delivered by Purchaser and constitutes a valid and binding obligation of
Purchaser enforceable in accordance with its terms.
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<PAGE> 16
(iii) The consummation of these transactions will
not result in a breach of or constitute a default under the Articles of
Incorporation or Bylaws of Purchaser.
(e) Changes in Business. Prior to Closing, there shall have been
no changes in the business, properties or operation of Purchaser since the date
of this Agreement which would have a material affect on Purchaser's ability to
perform under this Agreement.
(f) Government Consents. Any and all necessary consents of and
filings with any governmental authority or agency relating to the consummation
of the transactions contemplated by this Agreement shall have been obtained or
accomplished, and no action, proceeding, inquiry or investigation by any
private or governmental agency shall have been brought or threatened which
questions the validity or legality of the transactions contemplated by this
Agreement.
(g) Execution of Employment Agreement. Purchaser shall have
executed the agreements described at Section 7(i).
9. Nature and Survival of Representations and Warranties.
(a) Nature of Statements. All statements contained in any
exhibit hereto or in any certificate delivered by or on behalf of any of the
Sellers or the Purchaser pursuant to this Agreement shall be deemed
representations and warranties by any of the Sellers or the Purchaser, as the
case may be.
(b) Survival of Representations and Warranties. Regardless of
any investigation at any time made by or on behalf of any party hereto or of
any information any party may have in respect thereof, but subject to the
provisions of Section 10 hereof, all covenants, agreements, representations and
warranties made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing and remain effective
for a period for two years from the Closing Date; provided, however, that any
bona fide claim shall continue in effect until such time as such claim has been
resolved or settled and the covenants in Paragraph 10(a) shall survive in
accordance with their term.
10. Indemnification.
(a) Indemnification by Sellers. Subject to the conditions
hereinafter set forth, for a 2 year period, the Sellers jointly and severally
shall indemnify and hold harmless the Purchaser against any loss, damage or
expense (including reasonable attorney's fees) incurred by the Purchaser and
caused by or arising out of (i) any claim made against the Purchaser by a third
party in respect of any liabilities or obligations of the Company not assumed
by the Purchaser; (ii) any breach or default in the performance by any of the
Sellers of any covenant or agreement of any of the Sellers contained in this
Agreement; (iii) any breach of a warranty or representation made by any of the
Sellers pursuant to Section 3 or Paragraph 7(a) hereof, or in any certificate
required to be delivered pursuant to this Agreement, or any material
misstatement or omission in any exhibit attached or to be delivered pursuant to
this Agreement; (iv) to the extent not reflected on the
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<PAGE> 17
Closing Date Balance Sheet, any claim made against the Purchaser by a creditor
of the Company pursuant to the Bulk Sales Laws of the States of Maryland or
California and such other jurisdictions applicable to Company's operations; or
(v) all costs associated with the cleanup of any contaminated soil or materials
spilled, disposed of or buried by Company or located on the property operated
by Company prior to the Closing Date. If any third party shall assert any
claim or bring any action against the Purchaser which, if successful, might
result in a right of indemnification hereunder, the Sellers shall be given
written notice thereof in accordance with the provisions of Paragraph 10(b) of
this Agreement. Thereafter, the Purchaser shall have the option to defend such
claim or action at its own expense. The Purchaser agrees, however, that if it
chooses to defend the claim, it will not compromise or settle such claim
without the consent of the Sellers, if the election of such settlement or
compromise would require indemnification by the Sellers for all or any part of
the amount of such compromise or settlement, which consent the Sellers shall
not unreasonably withhold; provided, that if the Sellers withhold approval of
settlement or compromise for any reason, the Purchaser shall have the option of
settling or compromising the action at its own expense, or of turning over the
defense, in its entirety, to the Sellers under this Paragraph, in which case
the Sellers shall indemnify and hold the Purchaser harmless against the amount
of any loss in excess of such settlement or compromise as well as any amount
the Sellers would have owed the Purchaser pursuant to this Paragraph if such
settlement or compromise had been consummated.
(b) Procedure for Making Claims. If and when the Purchaser
desires to claim indemnification by the Sellers pursuant to the provisions of
this Section, the Purchaser shall deliver to each of the Sellers within 30 days
of its receipt of a claim, a certificate signed by the President or any Vice
President of the Purchaser (the "Notice of Claim") (i) stating that the
Purchaser has paid or properly accrued or anticipated that it may be required
to accrue losses, damages or expenses to which the Purchaser is entitled to
indemnification pursuant to this Section, and (ii) specifying the individual
items of loss, damage or expense included in the amount so stated, the date
each such item was paid or properly accrued, if any, and the nature of the
misrepresentation, breach or warranty or claim to which such item is related.
If any Seller objects to such claim or needs more information, he may deliver
written notice of objection (the "Notice of Objection") to the Purchaser within
thirty (30) days after the Purchaser's delivery of the Notice of Claim to each
Seller. The Notice of Objection shall set forth the grounds upon which the
objection is based. If no Notice of Objection shall have been so delivered
within such thirty (30) day period, the Sellers shall be deemed to have
acknowledged the correctness of the claim or claims specified in the Notice of
Claim for the full amount thereof, and shall thereupon pay to the Purchaser, on
demand, in cash, an amount equal to the amount of such claim or claims.
(c) Indemnification by Purchaser. The Purchaser agrees to
indemnify and hold the Sellers harmless against and in respect of (i) any
damage, claim, liability, deficiency, loss, cost or expense (including
reasonable attorney's fees) sustained by the Sellers arising out of or
resulting from (a) any misrepresentation by the Purchaser contained in this
Agreement (or any collateral documents), in any exhibits attached hereto or
thereto or in a certificate to be delivered at the Closing, or (b) the breach
of or default under any
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<PAGE> 18
warranty or representation, or the nonfulfillment of or default under any
agreement or covenant, of the Purchaser contained in this Agreement (or
collateral documents), exhibits or certificates hereto, (c) post-closing
activities of Purchaser which involve the use by Purchaser of those assets
purchased hereby to the extent not materially caused or contributed to by
pre-closing actions or omissions of Sellers and (ii) all reasonable costs and
expenses (including reasonable attorneys' fees) incurred by the Sellers in
connection with any action, suit, proceeding, demand, assessment or judgment
incident to any of the matters indemnified against in this Section; (iii) to
the extent reflected on the Closing Date Balance Sheet, any claim made against
Sellers by a creditor of the Company pursuant to the Bulk Sales Laws of the
States of Maryland or California and such other jurisdictions applicable to
Company's operations. If Purchaser fails to meet its obligations of indemnity
hereunder, Containment Solutions, Inc. shall fulfill this obligation. The
procedure for making a claim under this Paragraph shall be the same as that
set forth in Paragraph 10(b) of this Agreement.
(d) Liability Limitation. Purchaser shall have no right to make
any claim under this Agreement except for the amount by which the aggregate of
all unreimbursed claims hereunder that Purchaser would have been entitled to
assert against Sellers absent this Section 10(d) exceeds $100,000.00, and then
only to the extent that such unreimbursed claims are presented to Sellers
within the applicable time periods prescribed in this Section 10, other than
warranty claims as provided under Section 1(i); provided however, that such
limitations shall not apply with respect to (a) liability or obligation of
Sellers to perform any covenants contained herein or (b) liabilities and
obligations of Sellers set forth at Section 1(g).
11. Termination.
(a) Best Efforts to Satisfy Conditions. The Sellers agree to use
all reasonable and proper efforts to bring about the satisfaction of the
conditions specified in Section 7 hereof and the Purchaser agrees to use its
best efforts to bring about the satisfaction of the conditions specified in
Section 8 hereof.
(b) Termination. This Agreement may be terminated by:
(i) The mutual consent of the Sellers and the
Purchaser;
(ii) The Purchaser if a material default shall be
made by the Sellers in the observance of or in the due and timely performance
by the Sellers of any of the covenants of the Sellers herein contained, or if
there shall have been a material breach by the Sellers of any of the warranties
and representations of the Sellers herein contained, or if the conditions of
this Agreement to be complied with or performed by the Sellers at or before the
Closing shall not have been complied with or performed at the time required for
such compliance or performance and such noncompliance or nonperformance shall
not have been waived by the Purchaser; or
(iii) The Sellers if a material default shall be
made by the Purchaser in the observance of or in the due and timely performance
by the Purchaser of any of the
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<PAGE> 19
covenants of the Purchaser herein contained, or if there shall have been a
material breach by the Purchaser of any of the warranties and representations
of the Purchaser herein contained, or if the conditions of this Agreement to be
complied with or performed by the Purchaser at or before the Closing shall not
have been complied with or performed at the time required for such compliance
or performance and such noncompliance or nonperformance shall not have been
waived by the Sellers.
In the event of termination of this Agreement as provided above, written
notice thereof shall be given to the other party within five (5) business days.
No termination pursuant to paragraphs (ii) and (iii) hereunder shall relieve
any party hereto from any liability in respect of such party's breach or
indemnification obligations hereunder.
12. Exhibits. If any exhibit recited to be attached hereto is not so
attached at the time of the execution hereof, the same may be prepared after
execution of this Agreement and, upon approval by notation of said exhibit by a
representative of the Sellers and a representative of the Purchaser, shall
become a part of this Agreement.
13. Miscellaneous.
(a) Expenses. Whether or not the transactions contemplated
hereby shall be consummated, each of the parties will pay all costs and
expenses (including Closing costs) of its performance of and compliance with
this Agreement.
(b) Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been given if
personally delivered or mailed, first class, registered or certified mail,
postage prepaid:
If to Sellers: William D. Wentz
Hoover Group, Inc.
2001 Westside Parkway, Suite 155
Alpharetta, GA. 30201
With a copy to: Fred L. Levy
Sonnenschein Nath & Rosenthal
1301 K Street N.W.
Suite 600, East Tower
Washington, D.C. 20005
If to Purchaser: Stephen T. Harcrow
Hoover Containment, Inc.
1360 Post Oak Blvd., Suite 2470
Houston, Texas 77056
With a copy to: Cathy L. Smith, Esq.
P.O. Box 3693
Park City, UT 84060
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<PAGE> 20
Or at such other address as shall be given in writing by any person
identified above to each of the other such persons.
(c) Assignment. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties.
(d) Successors Bound. Subject to the provisions of Paragraph
13(c), this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
(e) Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
(f) Amendment. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
(g) Entire Agreement. This Agreement, the exhibits hereto, and
the documents specifically referred to herein constitute the entire agreement,
understanding, representations and warranties of the parties hereto.
(h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one of the same instrument.
(i) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
AGREED TO BY SELLERS:
Hoover Group, Inc.
/S/ WILLIAM D. WENTZ
------------------------------
By: WILLIAM D. WENTZ
Title: VP & CFO
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<PAGE> 21
Hoover Containment Systems, Inc.
/s/ JOSEPH P. ALLWEIN
------------------------------
By: Joseph P. Allwein
Title: President
AGREED TO BY PURCHASER:
Hoover Containment, Inc.
/s/ STEPHEN T. HARCROW
------------------------------
By: Stephen T. Harcrow
Title: President
AGREED TO BY CONTAINMENT SOLUTIONS, INC.
for the obligation set forth in Section 10(c) only
/s/ STEPHEN T. HARCROW
------------------------------
By: Stephen T. Harcrow
Title: President
-21-
<PAGE> 1
Exhibit 10.05
GLASS FIBER REINFORCEMENT PRODUCTS
PURCHASE AGREEMENT
This Glass Fiber Reinforcement Products Purchase Agreement (this
"Agreement") made this 23rd day of December, 1994, by and between OWENS-CORNING
FIBERGLAS CORPORATION, a Delaware corporation, with offices at Fiberglas Tower,
Toledo, Ohio 43659 ("Seller") and OCTANS, INC. (TO BE RENAMED FLUID
CONTAINMENT, INC.), a Nevada corporation, with offices at Route 20, Box 1380,
Conroe, Texas 77301 ("Buyer").
W I T N E S S E T H
WHEREAS, Seller manufactures, sells, and delivers products known as
glass fiber reinforcements (collectively the "Products") for use in the
manufacture of fiberglass reinforced plastic products, the Products and the
specifications for the Products (the "Product Specifications") being more fully
described in Exhibit A, attached hereto and made a part hereof, and is willing
to manufacture, sell and deliver the Products to Buyer; and,
WHEREAS, Buyer is a manufacturer of fiberglass reinforced plastic
products; and,
WHEREAS, Buyer desires to purchase and accept quantities of the
Products from Seller according to the terms and conditions set forth herein;
<PAGE> 2
2
NOW, THEREFORE, Seller and Buyer agree:
1. SALE AND PURCHASE OF PRODUCTS
1.1 QUANTITIES OF THE PRODUCTS FOR CONTRACT YEAR 1995 Subject to
the terms and conditions herein set forth, Seller agrees to manufacture, sell
and deliver, and Buyer agrees to purchase and accept during Contract Year 1995
("Contract Year" defined hereinafter), for internal use and not for resale, (a)
100% of Buyer's requirements for the Products during the period commencing
January 1, 1995 and ending June 30, 1997 and (b) 80% of Buyer's requirements
for the Products during the period commencing July 1, 1997 and ending December
31, 1999 (provided that, at Seller's election upon at least 30 days' notice to
Buyer, the foregoing percentage shall be 100% if and for so long as Buyer has
failed to pay two or more installments of interest in cash when due under that
certain Junior Subordinated Promissory Note dated as of the date hereof, issued
to Seller); provided, however, notwithstanding Buyer's requirements, Seller
shall not be required to manufacture, sell and deliver to Buyer, during
Contract Year 1995, a quantity of the Products, in the aggregate, greater than
the quantity of the Products delivered to and used by Seller's underground tank
<PAGE> 3
3
manufacturing division during calendar year 1994, plus four percent (4%) of the
quantity delivered and used during calendar year 1994, without Seller's
consent. As soon as practicable after December 31, 1994, Seller shall advise
Buyer of the quantity of the Products delivered to and used by Seller's
underground tank manufacturing division during calendar year 1994.
1.2 METHOD OF DETAINING THE QUANTITIES OF THE PRODUCTS FOR
SUBSEQUENT CONTRACT YEARS On or before October 1, 1995, and each succeeding
October 1 during the remaining term of this Agreement, Buyer shall deliver to
Seller its estimate of its requirements, for internal use and not for resale,
for the Products, by type, for the next succeeding Contract Year. On or before
November 1, 1995, and each succeeding November 1 during the remaining term of
this Agreement, Seller shall advise Buyer of the portion of Buyer's estimated
requirements for the Products, by type, which Seller is willing to manufacture,
sell and deliver during the next succeeding Contract Year. Buyer acknowledges
and understands Seller may not be willing to manufacture, sell and deliver,
during any Contract Year during the term of this Agreement, all of Buyer's
estimated
<PAGE> 4
4
requirements for the Products during a Contract Year; provided, however, Buyer
agrees that it shall purchase and accept from Seller at least the quantities of
the Products which Seller is willing to manufacture, sell and deliver during
each Contract Year of this Agreement; provided, further however,
notwithstanding the preceding, in no event shall Buyer be required to purchase
and accept from Seller any quantities of the Products during any Contract Year
greater than its requirements for the Products for the affected Contract Year.
1.3 QUANTITIES OF THE PRODUCTS REQUIRED BY BUYER GREATER THAN THE
QUANTITIES SELLER IS WILLING TO DELIVER If and to the extent Buyer shall have
requirements for the Products during any Contract Year which is greater than
the quantities of the Products which Seller is willing to manufacture, sell and
deliver to Buyer during the affected Contract Year, Buyer may purchase such
additional requirements for the Products from other suppliers.
1.4 QUANTITIES OF FIBERGLAS(R) WOVEN ROVING Seller has ceased
manufacturing Fiberglas Woven Roving and is transferring and shipping its
equipment for such manufacture to its joint venture, Knytex Company L.L.C.
("Knytex"). Seller has
<PAGE> 5
5
reserved, in inventory exclusively for sale to Buyer hereunder, (a) 16,000
pounds of Fiberglas Woven Roving in addition to (b) Seller's January 1995
forecasted requirements of Fiberglas Woven Roving for its OC Tanks Division.
Seller will use its best efforts to transfer its U.L. listing for Fiberglas
Woven Roving to Knytex, and to assist Buyer in obtaining such U.L. listing for
its products. Seller also agrees that it will nevertheless continue to supply,
or cause Knytex to supply, the amount of Fiberglas Woven Roving required to be
supplied to Buyer hereunder at the price and subject to the other terms and
conditions of this Agreement; and if Knytex agrees to do so pursuant to a
written agreement satisfactory to Buyer in its reasonable judgment, Fiberglas
Woven Roving shall thereupon be deleted as a Product from this Agreement.
2. TERM CONTRACT YEAR
2.1 ORIGINAL TERM This Agreement shall be effective as of January
1, 1995 and, unless earlier terminated as provided herein, shall continue in
full force and effect through and including December 31, 1999 (the "Original
Term").
<PAGE> 6
6
2.2 CONTRACT YEAR For purposes of this Agreement, a "Contract
Year" shall commence on January 1, 1995 and end on December 31, 1995 and shall
include each succeeding 12 month period thereafter during the term of this
Agreement. A partial Contract Year shall contain less than 12 months.
3. ESTIMATES; RELEASES
3.1 CONTRACT YEAR ESTIMATES OF BUYER'S REQUIREMENTS FOR THE
PRODUCTS For planning purposes and not as a requirement to purchase, on or
before December 1 of each Contract Year during the term of this Agreement,
Buyer shall provide Seller with estimates of Buyer's requirements for the
Products, by type, by month, for the next succeeding Contract Year. As soon as
practicable after the effective date of this Agreement, Buyer shall deliver an
estimate of its requirements for the Products, by type, by month, for Contract
Year 1995. Notwithstanding the preceding, the aggregate quantity of the
Products set forth on the Contract Year estimates of Buyer's requirement for
the Products for the affected Contract Year shall not exceed the maximum
quantities of the Products which Seller has committed
<PAGE> 7
7
to manufacture, sell and deliver to Buyer during the affected Contract Year
pursuant to paragraph 1 of this Agreement.
3.2 QUARTERLY ESTIMATES OF BUYER'S REQUIREMENTS FOR THE PRODUCTS
In addition to Contract Year estimates delivered pursuant to paragraph 3.1,
Buyer shall also provide to Seller quarterly estimates of Buyer's requirements
for the Products, by type, by month. The quarterly estimates shall be delivered
to Seller at least 30 days prior to the first day of the affected calendar
quarter. As soon as practicable after full execution of this Agreement, Buyer
shall deliver its quarterly estimate of its requirements for the Products for
the calendar quarter commencing January 1, 1995. In each quarterly estimate of
Buyer's requirements for the Products, by type, Buyer may vary its requirements
for any calendar month in the calendar quarter by not more than plus or minus
20% from the quantities of the Products set forth in the Contract Year
estimates for the Contract Year delivered pursuant to paragraph 3.1, hereof.
3.3 ORDERS FOR THE PRODUCTS Orders for the Products shall be made,
at Buyer's discretion, by written or oral releases issued to Seller. The
releases shall be submitted by authorized personnel of Buyer at least 30 days
prior to the
<PAGE> 8
8
delivery date for the quantity ordered and shall set forth the following: a
statement identifying the release with this Agreement; the number by which the
release shall be identified; the quantity of the Products, by type, to be
delivered; the date of delivery; the place of delivery; and, invoicing
instructions. There shall be no limitation on the number of releases issued
hereunder. In case of a conflict between any of the terms of any release of
Buyer or any acknowledgement by Seller of the release and any of the terms set
forth in this Agreement, the terms of this Agreement shall control. No
additional terms or conditions of sale other than those contained in this
Agreement shall be effective unless approved in writing by an authorized
officer of Seller and Buyer.
4. PRICE FOR THE PRODUCTS
The price for the Products, firm for each Contract Year, in full
truckload quantities, to Buyer's manufacturing facilities in the continental
United States shall be Seller's published list price for the Products in effect
as of January 1 of each Contract Year, unless Seller otherwise agrees. The
parties have agreed the price for the Products, firm for
<PAGE> 9
9
Contract Year 1995, is set forth on Exhibit B, attached hereto and made a part
hereof. On or before December 1, 1995, Seller shall advise Buyer of the price
for the Products for Contract Year 1996. On or before each succeeding December
1 during the term of this Agreement, Seller shall advise Buyer of the price for
the Products for the next succeeding Contract Year.
In all events, the Products shall be shipped, at Seller's expense, to
Buyer's manufacturing facilities in the continental United States via Seller's
routing. Additional costs for transportation incurred at the request of Buyer
shall be for Buyer's account.
The price and terms and conditions of sale for the Products in less
than full truckload quantities or to Buyer's manufacturing facilities other
than in the continental United States shall be negotiated by the parties prior
to acceptance of the order by Seller.
5. DELIVERY OBLIGATIONS
Buyer shall use its best efforts to take delivery of the Products each
Contract Year in the quantities set forth in the
<PAGE> 10
10
quarterly estimates. In no event shall Seller be required to deliver in any
calendar month during the term hereof, a quantity of the Products greater than
20% greater than the quantity of the Products set forth in Buyer's Contract
Year estimate for the affected calendar month without Seller's consent. In no
event shall Seller be required to deliver a quantity of the Products during any
Contract Year greater than the quantity of the Products committed by Seller
pursuant to paragraph 1 hereof.
6. CHANGED, MODIFIED, SUBSTITUTED PRODUCTS
6.1 CHANGE OR MODIFICATION OF BUYER'S PRODUCT If, during the term
of this Agreement, Buyer shall make changes to or modifies the design of its
fiberglass reinforced plastic products such that additional or different glass
fiber reinforcements may be required, Buyer shall notify Seller of the
specifications for the additional or different glass fiber reinforcements Buyer
requires. Seller shall have a period of 60 days from the date of receipt of
Buyer's notice of its changes in requirement for glass fiber reinforcements to
notify Buyer whether Seller desires to manufacture, deliver and sell
<PAGE> 11
11
to Buyer the additional or different glass fiber reinforcements. If Seller does
not desire to sell the additional or different glass fiber reinforcements,
Buyer shall be released from its requirements to purchase its requirements for
the additional or different glass fiber reinforcements from Seller but this
Agreement shall otherwise be unaffected as to Buyer's requirements for the
remaining Products hereunder.
If Seller notifies Buyer it is willing to sell the additional or
different glass fiber reinforcements, Seller shall have a reasonable period,
not to exceed three months, to qualify the additional or different glass fiber
reinforcements in Buyer's manufacturing process. When qualified, the additional
or different glass fiber reinforcements shall become Products hereunder, the
specification for the additional or different glass fiber reinforcement shall
be added to the Product Specifications and the price for the additional or
different glass fiber reinforcements shall be determined pursuant to the
provisions of paragraph 4, hereof.
6.2 MODIFICATION OF SELLER'S PRODUCTS Buyer understands and
acknowledges that Seller, from time to time, to improve the efficiency in the
manufacture or use of the Products, makes
<PAGE> 12
12
changes to, modifies, makes improvements to the Products, or substitutes newly
designed products for the Products. If during the term of this Agreement Seller
shall make changes, modifications or improvements to the Products or
substitutes newly designed products for any of the Products, Seller shall
advise Buyer that the change, improvement, modification or substitution is
contemplated. As soon as practicable thereafter, Seller shall provide Buyer,
free of charge, samples of the proposed changed, modified, improved or
substitute product in sufficient quantity to enable Buyer to test and qualify
such product in Buyer's manufacturing process. If Seller commences commercial
manufacture of the changed, modified, improved or substitute product, the
product shall become a Product hereunder. Seller warrants that subsequent
shipments of the new Product shall conform in all material respects to the
samples provided to Buyer hereunder.
7. TAXES, EXCISES AND OTHER CHARGES
Unless otherwise provided by law, in addition to the price, Buyer
shall pay to Seller any and all taxes, excises or other charges (other than
taxes on or measured by Seller's net
<PAGE> 13
13
income) Seller may be required to pay to or collect for any government, whether
local, state, or federal, and which are based upon or measured by the
production, sale, transportation, delivery or use of the Products sold and
delivered hereunder.
8. TERMS OF PAYMENT
Seller shall invoice Buyer for each delivery of the Products
hereunder. Unless Seller otherwise agrees, payment is of each invoice shall be
made by Buyer in accordance with Seller's published payment terms in effect on
the date of shipment of the Products. Seller's current payment terms are net,
30 days, measured from the date of Seller's invoice. Seller permits a one
percent (1%) discount on the value of the Products on the invoice (total
invoice less cost of transportation of the Products) if the invoice is paid
within 15 days of the date of the invoice.
9. TITLE AND RISK OF LOSS
The Products sold pursuant to this Agreement shall be delivered to
Buyer: for Products manufactured by Seller in the United States, F.O.B.
Seller's manufacturing facilities; and,
<PAGE> 14
14
for Products manufactured by Seller in countries other than the United States,
F.O.B. Buyer's manufacturing facilities.
10. SELLER'S WARRANTY
Seller warrants the Products when delivered to Buyer shall conform to
the Product Specifications and shall be free and clear of all liens and
encumbrances. Seller further warrants that it shall have complied with all
applicable laws, regulations, ordinances and codes and Seller shall have
obtained those permits, licenses, approvals and certificates, reasonably
necessary for the manufacture, packaging, storing and handling the Products at
Seller's manufacturing facilities.
SELLER MAKES NO OTHER WARRANTY OF ANY KIND WITH RESPECT TO THE PRODUCT
DELIVERED HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR USE OR PURPOSE, EVEN
IF DISCLOSED TO SELLER.
11. LIMITATION OF LIABILITY
11.1 WARRANTY Buyer's sole and exclusive remedy for Products proven
to be other than as warranted shall be the
<PAGE> 15
15
replacement of the defective Products, without charge, F.O.B. Buyer's
manufacturing facility, but only within the continental United States. To
effect this sole and exclusive remedy, Buyer must make its claim for Products
proven to be other than as warranted within six months of the date of shipment
of the Products.
11.2 ALL CLAIMS Seller's sole liability for any and all loss or
damage to Buyer resulting from any cause whatsoever, including Seller's
negligence, or damaged or defective goods, irrespective of whether such defects
are discoverable or latent, warranty, express or implied, tort, strict
liability, breach of contract, if Seller's warranty shall fail of its essential
purpose, or any other claim, damage, expense or cost, shall in no event exceed
the purchase price of the particular Products with respect to which losses or
damages are claimed.
THE FOREGOING IS THE ENTIRE OBLIGATION OF SELLER. IN NO EVENT,
INCLUDING A CLAIM OF NEGLIGENCE, OR SHOULD SELLER'S WARRANTY FAIL OF ITS
ESSENTIAL PURPOSE, SHALL SELLER BE LIABLE FOR BUYER OR BUYER'S CUSTOMERS'
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, HOWEVER ARISING.
<PAGE> 16
16
No statement or recommendation made or assistance given by Seller, or
its representatives, either sell or in its literature, to Buyer, its
representatives or its customers in connection with the use or installation, by
Buyer or its customers, of any Products sold hereunder, shall constitute a
waiver by Seller of any provision hereof or affect Seller's liability as herein
defined.
12. PATENTS AND TRADEMARKS
Anything in paragraph 10 and 11 hereof to the contrary
notwithstanding, Seller shall indemnify, defend and save Buyer harmless from
all costs, including reasonable attorneys' fees, damages, liabilities, and
expenses, arising out of any claim, action or suit brought against Buyer based
upon an allegation the Products, as delivered to Buyer, infringe any patents,
trademarks or other third party property rights. This indemnification does not
extend to any use by Buyer of the Products other than in their original form
subsequent to delivery.
As soon as practicable after receipt, Buyer shall forward any claim,
action or suit to Seller and permit Seller to defend
<PAGE> 17
17
the claim, action or suit. Buyer shall provide reasonable assistance to Seller
in the defense of the claim, action or suit.
13. FORCE MAJEURE
Neither party shall be liable for delay or failure to perform in whole
or in part, by reason of contingencies beyond the reasonable control of the
party affected, whether herein specifically enumerated or not. These
contingencies include, among others, act of God, act of war, revolution, riot,
acts of public enemies, delays of carriers, car shortage, fire, explosion,
breakdown of plant, strike, lockout, labor dispute, casualty or accident,
earthquake, flood, cyclone, tornado, hurricane or other windstorm,
contingencies interfering with the production or with customary or usual means
of transportation of the Products, or of any raw materials of which the
Products are a product or which may be used in its manufacture, delays of
vendors, or by reason of any law, order, proclamation, regulation, ordinance,
demand, requisition or requirement or any other act of any governmental
authority, foreign or domestic, local, state or federal, or any other
<PAGE> 18
18
cause whatsoever, whether similar or dissimilar to those enumerated. However,
the party so affected shall promptly give written notice to the other party
whenever such contingency or other act becomes reasonably foreseeable, and
shall use its best efforts to overcome the effects of the contingency as
promptly as possible, and shall promptly give written notice to the other party
of the cessation of such contingency. Neither party, however, shall be required
to resolve a strike, lockout or other labor problem in a manner which it alone
does not deem proper and advisable.
If Seller, by reason of a contingency referred to above, is unable to
supply products the same as or similar to the Products to all of its customers,
including Buyer, in the quantities contracted for, Seller shall, during the
continuance of such contingency, allocate its capacity to produce and/or
deliver the Products first to fulfill its internal requirements, then to
buyers, including Buyer, having contracts for the delivery of glass fiber
reinforcements on a ratable basis, and its remaining capacity to produce and/or
deliver the Products to its other customers on such basis as Seller shall
determine.
<PAGE> 19
19
Deliveries omitted due to any excused contingency affecting Seller or
Buyer shall, without liability, reduce by an equivalent quantity the quantity
of Products to be sold and delivered during the Contract Year(s) in which such
contingency occurred.
If Seller is unable to deliver Buyer's requirements for the Products
due to a contingency referred to above, Buyer may purchase from other sellers
such quantities of its requirements for the Products greater than the
quantities delivered by Seller.
14. MEET OR RELEASE
If Buyer is offered a product of quality similar to one or all of the
Products, in a quantity equal to 60% of the quantity of the Product(s) to be
manufactured, sold and delivered by Seller during the then current Contract
Year, for delivery over the next succeeding 12 month period, at a delivered
price for the next succeeding 12 months which is lower than the price,
including the cost of delivery to Buyer, then in effect under this Agreement,
Seller shall, upon receipt of satisfactory evidence from Buyer of terms and
conditions of the competitive
<PAGE> 20
20
price, within ten days of delivery of the evidence, either meet such lower
price or permit Buyer to accept the offer. If Seller elects to meet the lower
price, Seller shall so notify Buyer, in which event the price of the Product(s)
shall be revised to such lower price for a period of time equal to that in
which the competitive price would have remained in effect.
If Seller elects not to meet the lower price, Buyer is released for
the 12 month period to purchase the quantities of the Product(s) offered by the
competitive source and any quantity of product purchased in response to the
competitive offer shall be in satisfaction of the requirement to purchase an
equivalent quantity of the Product(s) hereunder.
15. SAFETY AND HEALTH COMMUNICATIONS
Seller shall furnish to Buyer Material Safety Data Sheets which
include health, safety and other hazard communication information on the
Products consistent with the Occupational Safety and Health Administration's
Hazard Communications Standard. Seller will also furnish other health or safety
information as available. Buyer shall disseminate appropriate health and safety
information to all persons Buyer foresees may
<PAGE> 21
21
be exposed to the Products (including but not limited to Buyer's employees,
contractors and customers). If the Products are further processed, mixed or
incorporated into another product, Buyer will likewise disseminate appropriate
health and safety information to all persons Buyer foresees may be exposed to
the Products.
16. LIABILITIES - CLAIMS - INDEMNIFICATION
Buyer shall indemnify, defend and hold Seller harmless from and
against any liability (whether strict or otherwise) for any claim, loss or
expense on account of any injury, disease or death of persons (including
Buyer's employees) or damage to property (including Buyer's) arising out of:
A. Buyer or Buyer's customers unloading, storage, handling, sale
or use of the Products (except to the extent caused solely by
Seller's negligence); and,
B. Any failure by Buyer to disseminate safety and health
information as provided in Paragraph 15.
<PAGE> 22
22
17. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, as applied to contracts executed in and
performed wholly within the State of New York.
18. NON-WAIVER
A waiver by either party of any breach or failure to enforce any term
or condition of this Agreement shall not in any way affect, limit or waive such
party's right at any time to enforce strict compliance with that or any other
term or condition of this Agreement.
19. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding of the parties
with respect to the subject matter of this Agreement and supersedes all prior
understandings, negotiations, and dealings between the parties hereto with
respect to this subject matter. No agreement or understanding, oral or written,
in any way purporting to modify the terms hereof shall be binding on either
party hereto unless contained in a written
<PAGE> 23
23
document expressly described as an amendment to or extension of this Agreement
and duly executed by both parties.
20. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and shall inure to the benefit of
both parties and their respective successors and assigns. Neither party shall
assign this Agreement without the written consent of the other; provided, this
Agreement may be assigned by either party, without consent, to any entity or an
affiliate (a "Successor") which acquires all or substantially all of the assets
of the party related to the party's performance under this Agreement, provided
the Successor shall assume all of the party's obligations under this Agreement
to be performed from and after the date of such assignment. Upon assignment to
a Successor, the assignor shall thereupon be relieved of its obligations under
this Agreement upon the Successor's agreement to assume such obligations.
<PAGE> 24
24
21. NOTICES
Any notice, request, demand or other communication given under this
Agreement shall be in writing and shall be deemed sufficiently given:
1. Upon the date received by the intended recipient if delivered
by hand, nationally recognized courier or facsimile (and
followed by a notice in writing as provided by subparagraph 2,
below); or
2. If the sender so elects, upon the date deposited in the United
States mails, certified with return receipt requested, postage
prepaid, addressed to the intended recipient, as follows:
- To Seller: Owens-Corning Fiberglas Corporation
Fiberglas Tower
Toledo, Ohio 43659
Attention: Vice President, Sales and
Marketing, Composites.
Telephone: 419-248-8000
Facsimile: 419-248-7420
<PAGE> 25
25
- To Buyer: OCTANS, INC. (to be replaced by Octans, Inc.
(to be renamed Fluid Containment, Inc.))
Route 20, Box 1380
Conroe, Texas 77301
Attention: Operations Manager
Telephone: 409-756-7731
Facsimile: 409-756-7793
- To such other address or addresses as either party may hereinafter
designate in writing.
22. CAPTIONS
The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
23. SEVERABILITY
If any provision in this Agreement is determined by any court having
jurisdiction over the parties to be unenforceable, the provision shall be
amended to become enforceable or, at the
<PAGE> 26
26
election of the parties, severed from this Agreement, and this Agreement shall
otherwise remain in full force and effect for the remaining term.
24. DEFAULT
Except as otherwise specifically provided in this Agreement, if either
party fails to perform any of the terms of this Agreement, or the terms and
conditions of any other agreement between the parties, the other party may
defer its performance under this Agreement until the default is cured by the
defaulting party, or at its option, the party may treat such default as a
breach of the entire Agreement and, if such default is not cured within 30
days, except for the payment of monies which shall be cured within five
business days, after the giving of notice thereof to the defaulting party,
immediately terminate this Agreement.
A termination of this Agreement by a party shall not be construed a
waiver of any other legal remedies which may be available to the party, all
such remedies being cumulative.
The waiver by a party of a default hereunder, or under any other
agreement between the parties, shall not constitute a
<PAGE> 27
27
continuing waiver of the particular default or a waiver of any subsequent
default.
25. ARBITRATION
Any dispute or controversy between the parties arising out of or
relating to this Agreement, including without limitation, a dispute or
controversy relating to the construction of any provision or the validity or
enforceability of any term or condition (including this paragraph) or of the
entire Agreement, or any claim that all or any part of this Agreement
(including this provision) is void or voidable, shall be submitted to
arbitration before a single arbitrator in accordance with the Commercial Rules
of Arbitration of the American Arbitration Association then in effect. The
arbitration shall be held in Toledo, Ohio. Each party shall bear his or its own
costs in any such proceeding. The decision of the arbitrator shall be final and
binding upon the parties and may be enforced in any court of competent
jurisdiction. To the fullest extent permitted by law, the parties irrevocably
submit to the jurisdiction of such forum and waive any objection it may have to
either the jurisdiction or venue of
<PAGE> 28
28
such forum.
26. TECHNICAL SUPPORT
Seller shall provide Buyer with reasonable access to Seller's
technical library at no cost to Buyer. Upon reasonable request by Buyer,
Seller, at Seller's standard costs and to the extent Seller's qualified
employees are reasonably available, shall provide to Buyer technical,
structural and engineering support to Buyer.
* * *
<PAGE> 29
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
OCTANS, INC.
By: /s/ STEPHEN T. HARCROW
----------------------------------
Title: President
-------------------------------
OWENS-CORNING FIBERGLAS CORPORATION
By: /s/ MAURICE LUNDUGIN
----------------------------------
Title: VICE PRESIDENT
-------------------------------
<PAGE> 1
Exhibit 10.06
LEASE
between
BAYMEADOW LIMITED PARTNERSHIP
and
HOOVER CONTAINMENT, INC.
<TABLE>
<CAPTION>
Section Page
----
<S> <C>
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Use of Promises . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Insurance and indemnification . . . . . . . . . . . . . . . . . . . . 8
7. Public utility charges . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Improvements to Premises . . . . . . . . . . . . . . . . . . . . . . . 10
9. Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . 13
10. Landlord's right of entry . . . . . . . . . . . . . . . . . . . . . . 13
11. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13. Assignment and subletting . . . . . . . . . . . . . . . . . . . . . . 22
14. Net lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
15. Subordination; attornment . . . . . . . . . . . . . . . . . . . . . . 24
16. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
17. Estoppel certificate . . . . . . . . . . . . . . . . . . . . . . . . . 27
18. Condition of title and Premises . . . . . . . . . . . . . . . . . . . 28
19. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
20. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21. Renewal Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibits
A Description of Land and Improvements
B Plans and Specifications for Expansion
</TABLE>
<PAGE> 2
LEASE
THIS LEASE, made this 22 day of November, 1996, by and between BAYMEADOW
LIMITED PARTNERSHIP, a Maryland partnership having an address at 2 Reservoir
Circle, Suite 104, Baltimore, Maryland 21208 ("Landlord"), and HOOVER
CONTAINMENT, INC., a Delaware corporation having an address at 8215 Veterans
Highway, Suite 7A, Millersville, Maryland 21108 ("Tenant"),
WITNESSETH, THAT IN CONSIDERATION of the entry into this Lease by the
parties hereto, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged by each party hereto, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord that parcel of land
("the Land") known as 6740 Baymeadow Drive, Glen Burnie, Maryland which is
described in Exhibit A, together with (1) all buildings, structures, parking
facilities, roads, walkways, terraces, truck-loading and dockage facilities,
fencing, utility lines and other improvements existing on the Land on the date
hereof, and all alterations and additions thereto and replacements thereof
hereafter made, including but not limited to the Building and the Building
Equipment, as those terms are defined herein (collectively, "the
Improvements"), and (2) all rights, alleys, ways, waters, privileges,
appurtenances and advantages belonging or in any way appurtenant to the Land or
the Improvements (all of which Land, Improvements and appurtenances are
referred to collectively herein as "the Premises"),
SUBJECT TO THE OPERATION AND EFFECT of all instruments and matters of
record or in fact on the date hereof,
TO HAVE AND TO HOLD the Premises unto Tenant and its successors and
assigns, for the term of years set forth herein,
ON THE TERMS AND SUBJECT TO THE CONDITIONS set forth herein:
SECTION 1. Definitions.
1.1. Certain terms. As used in this Lease, the following terms have
the meanings given them in the Sections, subsections or paragraphs listed next
to them:
<TABLE>
<S> <C>
Additional Rent 3.1
Alteration 8.1
Base Rent 3.1
Commencement Date 2.1
Condemnation 12.2
Control 13.1.3
Net Condemnation Proceeds 12.1
Notice 19
Security Deposit 3.5
Taxes 5.1.1
Term 2.1
Termination Date 2.1
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Default 16.1
Event of Default 16.1
Expansion 8.1.1
Insurance Requirements 4.2.1
Legal Requirements 4.2.1
Transfer 13.1
Utility Service 7
Vesting Date 12.1.1
</TABLE>
1.2. As used in this Lease, the following terms have the following
meanings:
"Building" means (a) the existing two-story building having a leasable
floor area of approximately 48,000 square feet ("Existing Premises") and (b)
the Expansion, when completed which will contain approximately 12,500 square
feet ("Expansion"), which is located on the Land, and all replacements thereof,
and Alterations and additions thereto, hereafter made.
"Building Equipment" means all apparatus, machinery, devices, fixtures,
appurtenances, equipment and personal property owned by Landlord (expressly
excluding, however, any property owned by Tenant), and now located on the
Premises or hereafter installed or placed therein by either party hereto
pursuant to this Lease, including but not limited to any and all awnings,
shades, screens and blinds; asphalt, vinyl, composition and other floor, wall
and ceiling coverings; partitions, doors and hardware; heating and ventilating
apparatus; gas, electric and steam fixtures; chutes, ducts and tanks; oil
burners, furnaces, heaters and boilers; air-cooling and air-conditioning
equipment; washroom, toilet and lavatory fixtures and equipment; engines,
pumps, motors, generators, electrical wiring and equipment; tools; building
supplies; incinerators; lobby decorations; elevators, escalators and hoists;
and all additions thereto and replacements thereof.
"Hazardous Materials" (a) means any "hazardous substance", as defined in
(i) section 9601 of the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as codified in 42 U.S.C. sections 9601 et
seq. (including but not limited to those amendments thereto made by the
Superfund Amendments and Reauthorization Act of 1986 ("SARA")), (ii) the
Resource Conservation and Recovery Act ("RCRA"), as codified in 42 U.S.C.
sections 6901 et seq., (iii) the Federal Water Pollution Control Act (the Clean
Water Act) ("CWA"), as codified in 33 U.S.C. sections 1251 et seq., (iv) the
clear Air Act ("CAA"), as codified in 42 U.S.C. sections 7401 et seq. , (v)
the Toxic Substances Control Act ("TSCA"), as codified in 15 U.S.C. sections
2601 et seq., and (vi) all federal, state or other local laws, regulations,
statutes or ordinances respecting Hazardous Materials; and (b) shall include
any other hazardous substance, environmentally dangerous condition or dangerous
asbestos condition, and anything included within the meanings of the term
"Hazardous Materials" given such term in
-2-
<PAGE> 4
CERCLA, SARA, RCRA, CWA, CAA and TSCA and under the laws of Maryland respecting
environmentally hazardous materials.
"Improvements" has the meaning given it above.
"Land" has the meaning given it above.
"Landlord" means the Person named as such above and its successors and
assigns.
"Mortgage" means any mortgage or deed of trust at any time encumbering
the fee simple estate in any or all of the Premises, and any other security
interest therein existing at any time under any other form of security
instrument or arrangement used from time to time in the locality of the
Premises (including but not limited to any such other form of security
arrangement arising under any deed of trust, sale-and-leaseback documents,
lease-and-leaseback documents, security deed or conditional deed, or any
financing statement, security agreement or other documentation used pursuant to
the Uniform Commercial Code or any successor or similar statute), provided that
such mortgage, deed of trust or other form of security instrument, and an
instrument evidencing any such other form of security arrangement, has been
recorded among the Land Records or in such other place as is, under applicable
law, required for such instrument to give constructive notice of the matters
set forth therein.
"Mortgagee" means the Person secured by a Mortgage.
"Person" means a natural person, a trustee, a corporation, a
partnership, a limited liability company and any other form of legal entity.
"Premises" has the meaning given it above, except that if at any time
hereafter any portion of the Premises becomes no longer subject to this Lease,
"the Premises" shall thereafter mean so much thereof as remains subject to this
Lease.
"Rent" means all Base Rent and Additional Rent.
"Substantial Completion" shall be defined as the Expansion having been
(a) constructed in accordance with the Plans and Specifications, (b) completed
other than for punchlist items which do not substantially interfere with
Tenant's use and occupancy, and (c) Landlord having received a use and
occupancy permit from Anne Arundel County for the Building as expanded with the
Expansion.
"Tenant" means the person named as such above and its successors and
permitted assigns in interest hereunder.
-3-
<PAGE> 5
1.3. Any other term to which meaning is expressly given by this Lease
shall have such meaning.
SECTION 2. Term.
2.1. Length. This Lease shall be for a term (the "Term") consisting of
(a) the Interim Term as defined in Section 2.1.1. hereof and (b) the Regular
Term as defined in Section 2.1.2. hereof and shall run for an initial term of
(x) the Interim Term, plus (y) 7 full years, plus (z) the fractional portion of
such month, if any, at the commencement of the Regular Term. The Lease
terminate at 11:59 p.m. on the date on which said termination shall occur
("Termination Date"). Landlord and Tenant shall, at Landlord's request after
the expiration of the Term or any earlier termination of this Lease, by action
of law or in any other manner, confirm in writing that respectively, such
commencement or such termination has occurred, setting forth therein the
Termination Date.
2.1.1. The Interim Term shall commence on February 1, 1997
("Commencement Date"), at which time Landlord shall have delivered the Existing
Premises to Tenant in the condition required hereunder for the Existing
Premises, and shall run until the commencement of the Regular Term.
2.1.2. The Regular Term shall commence on the latter to occur of (a) May
1, 1997 or (b) that date which is not less than thirty (30) days after written
notice from Landlord to Tenant that Landlord will deliver the Expansion to
Tenant on such date substantially completed (completed other than punchlist
items which do not unreasonably interfere with Tenant's use and occupancy of
the Expansion.
2.2. Delay in Commencement. If Landlord, due to delay in construction
of the Existing Premises or for any other reason whatsoever is unable to
deliver possession of the Existing Premises to Tenant on the Commencement Date,
this Lease shall remain in full force and effect, but the Commencement Date
shall be postponed for such period of time as may be requisite until Landlord
shall have delivered possession of the Existing Premises to Tenant. In such
event, Landlord and Tenant shall confirm in writing the actual Commencement
Date and Termination Date of this Lease. Notwithstanding the above, if Landlord
shall have failed to deliver possession of the Existing Premises by April 1,
1997, Landlord, and Tenant provided Tenant is in compliance with its
obligations hereunder shall have the right by written notice to the other at
any time until the possession of the Existing Premises has been delivered to
Tenant, to terminate this Lease. Furthermore, in the event that the Expansion
shall not have been delivered to the Tenant by Landlord by June 30, 1997, in
addition to and not in limitation of any other remedy available at law or
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in equity because of the default of a party hereunder, the nondefaulting party,
or both parties if there shall have not been a default, shall have the right to
terminate this Lease by written notice to the other party at any time until
possession of the Expansion shall have been delivered to Tenant.
2.3. Surrender. Tenant shall, at its expense, at the expiration of the
Term or any earlier termination of this Lease, (a) promptly surrender to
Landlord possession of the Premises (including any fixtures or other
improvements which, under Section 8, are owned by Landlord) in good order and
to the extent required under Section 9.2 hereof, repair (ordinary wear and
tear, and damage by fire or other insured casualty excepted) and broom clean,
(b) remove therefrom all signs, goods, effects, machinery, fixtures and
equipment used in conducting Tenant's trade or business which are neither part
of the Building Equipment nor owned by Landlord, and (c) repair any damage to
the Improvements, the Building Equipment or the rest of the Premises caused by
such removal.
2.4. Holding over. If Tenant continues to occupy the Premises after
the expiration of the Term or any earlier termination of this Lease without
having obtained Landlord's express, written consent thereto, then without
altering or impairing any of Landlord's rights under this Lease or applicable
law, (a) Tenant shall pay to Landlord, immediately on demand by Landlord, (i)
Base Rent for the Premises for each day after such expiration of the Term or
such earlier termination of this Lease, as aforesaid, until Tenant surrenders
possession of the Premises to Landlord, in a sum equalling one 30th of 150
percent of the monthly Base Rent under paragraph 3.3.1, plus (ii) any
Additional Rent which would have been due and payable under this Lease had the
Lease been extended to include such day, and (b) Tenant shall surrender
possession of the Premises to Landlord immediately on demand by Landlord.
Nothing in this Lease shall be deemed in any way to give Tenant any right to
remain in possession of the Promises after such expiration or termination,
regardless of whether Tenant has paid any such Rent to Landlord.
SECTION 3. Rent.
3.1. Amount. As rent for the Premises Tenant, commencing on the
Commencement Date, shall pay to Landlord all of the following:
3.1.1. Interim Base Rent. Rent (the "Interim Base Rent") shall be
in the annual amount of Seventy-Two Thousand Dollars ($72,000.00) payable in
equal monthly installments of Six Thousand Dollars ($6,000.00). The interim
Base Rent shall be due only during the Interim Term and the Existing Premises
BASE Rent
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as defined in Section 3.1.2. hereof shall commence on the first day of the
Regular Term.
3.1.2. Existing Premises Rent (the Existing Premises Base Rent)
shall be due and payable in equal monthly installments as follows;
3.1.2.1. For the first two years of the Regular Term
(and for any fractional portion of a month pro rata at the beginning of the
Regular Term) after the end of the interim Term, in the annual amount of
$206,400 payable in equal monthly installments of $17,200;
3.1.2.2. For the third year of the Regular Term in
the amount of $211,560 payable in equal monthly installments of $17,630; and
3.1.2.3. For each year of the Regular Term thereafter
in an amount equal to the Existing Promises Base Rent for the immediately
preceding year multiplied by 102.5% thereof, payable in equal monthly
installments.
3.1.3. Expansion Base Rent. Rent (the Expansion Base Rent) shall
be due and payable in equal monthly installments as follows:
3.1.3.1. For the first two years of the Regular Term
(and for any fractional portion of a month pro rata at the beginning of the
Term) in the annual amount of $55,000 payable in equal monthly installments of
$4,583.33;
3.1.3.2. For the third year of the Regular Term in
the amount of $56,375 payable in equal monthly installments of $4,698; and
3.1.3.3. For each year of the Regular Term thereafter
in an amount equal to the Expansion Base Rent for the immediately preceding
year multiplied by 102.5% thereof, payable in equal monthly installments.
3.1.4. Expansion Base Rent Adjustment. The parties hereto have
agreed that the agreed upon amount to be expanded by Landlord for construction
of the Expansion and the other items specified in subsection 8.1.1 hereof will
be in the amount of $400,000 (herein "the Agreed Costs"). Landlord and Tenant
further have agreed that in the event the actual costs expended by Landlord
("Actual Costs") differ from the Agreed Costs, the Expansion Base Rent for each
year of the original Lease Term only, but not for any renewal term, shall be
adjusted such that for each whole $1,000 by which the Actual Costs differ from
the Agreed Costs, the Expansion Base Rent shall be adjusted
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by $.01 per square foot per annum. For example, if the Actual Costs are
$410,500, the Expansion Base Rent shall be increased by $.10 per square foot
per annum, and if the actual costs are $389,500, the Expansion Base Rent shall
decrease by $.10 per square foot per annum.
3.1.5. For purposes of this Lease the term "Base Rent" expressly
shall mean collectively the Existing Premises Base Rent (or the Interim Base
Rent during the interim Term) and the Expansion Base Rent.
3.1.6. Additional Right. Additional rent ("Additional Rent") in
the amount of any item referred to as such in this Lease which accrues while
this Lease is in effect (which Additional Rent shall include any and all
charges or other amounts which Tenant is obligated to pay to Landlord under
this Lease, other than the Base Rent).
3.1.7. Landlord shall have the right, at its sole election, to
require Tenant to include with each payment of its Base Rent, payment of an
amount equal to 1/12th of the estimated Taxes and of the estimated cost of
insurance, such that at the time tax and insurance payments are due, Landlord
shall have on hand an amount sufficient to make timely payment of said amounts.
Landlord shall provide Tenant with an estimate of the amount of such payments,
and shall recompute said payments annually so as to reflect the estimated
amount due for the next succeeding year. In the event Landlord shall have on
hand after payment thereof an amount in excess of the actual amount due, Tenant
shall be entitled to a credit against the next succeeding estimated payments
until such excess shall have been applied in full. In the event there is any
shortfall in the amount required to make said timely payments, Landlord shall
provide written notice thereof to Tenant and Tenant shall make payment to
Landlord of said amount within ten (10) days after written demand therefore.
Tenant shall have the right, upon prior written request of not less than
fifteen (15) days, to review at Landlord's office or such other place
designated by Landlord, Landlord's records which shall provide reasonable
detail of such passed through expenses.
3.2. When due and payable.
3.2.1. The Base Rent shall be due and payable in advance on the
first day of each month during the Term (and on the Commencement Date if same
does not fall on the first day of a month), and on the first day of each
succeeding month.
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3.2.2. Any Additional Rent accruing under this Lease shall,
except as is otherwise set forth herein, be due and payable when the
installment of Base Rent next falling due after such Additional Rent accrues
becomes due and payable, unless Landlord makes written demand on Tenant for
payment thereof at any earlier time, in which event such Additional Rent shall
be due and payable at such time.
3.2.3. Each such payment shall be made promptly when due, without
any deduction or setoff whatsoever, and without notice or demand, failing which
Tenant shall pay to Landlord as Additional Rent, for each day after the 10th
day on which such payment is due but unpaid, a late charge equalling one 365th
of 20 percent of such payment. Any payment made by Tenant to Landlord on
account of Rent may be credited by Landlord to the payment of any Rent then
past due before being credited to Rent currently falling due. Any such payment
which is less than the amount of Rent then due shall constitute a payment made
on account thereof, the parties hereto hereby agreeing that Landlord's
acceptance of such payment (whether or not with or accompanied by an
endorsement or statement that such lesser amount or Landlord's acceptance
thereof constitutes payment in full of the amount of Rent then due) shall not
alter or impair Landlord's rights hereunder to be paid all of such amount then
due, or in any other respect.
3.3. Where payable. Tenant shall pay the Rent, in lawful
currency of the United States of America, to Landlord by delivering or mailing
it to Landlord's address which is set forth hereinabove, or to such other
address or in such other manner as Landlord from time to time specifies by
Notice to Tenant.
3.4. Tax on Lease. If federal, state or local law now or hereafter
imposes any tax, assessment, levy or other charge (other than any income,
inheritance or estate tax) directly or indirectly upon (a) Landlord with respect
to this Lease or the value thereof, (b) Tenant's use or occupancy of the
Premises, (c) the Base Rent, Additional Rent or any other sum payable under this
Lease, or (d) this transaction, then Tenant shall pay the amount thereof as
Additional Rent to Landlord on demand unless Tenant is prohibited by law from
doing so, in which event Landlord may, at its election terminate this Lease by
giving Notice thereof to Tenant.
3.5. Security Deposit. Landlord herewith acknowledges receipt from
tenant of the sum of $25,000.00, which sum represents a security deposit for the
faithful performance of tenant's obligations hereunder. Tenant agrees that
landlord shall have the right, but not the obligation, to apply such security
deposit or any portion thereof to cure or remedy any default by Tenant
hereunder, including default in payment of
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rent. Tenant agrees that in the event Landlord shall apply any portion of the
security deposit during the term, Tenant will replace the security deposit
within 10 days after written request therefore by Landlord. Tenant further
agrees that Landlord shall be entitled to co-mingle said security deposit with
its own funds, that any mortgagee or holder of a Deed of Trust on the Premises,
any successor thereto and/or any purchaser of the Premises at foreclosure shall
not have any liability to Tenant for Tenant's security deposit, and that
Landlord shall have no further liability therefore in the event that Landlord
assigns its interest hereunder and said assignee assumes Landlord's interest.
The security deposit, if not sooner applied and provided Tenant is in
compliance with its obligations hereunder, shall be returned to Tenant within 5
days after the termination of this Lease.
SECTION 4. Use of Premises.
4.1. Nature of use. Tenant shall use and operate the Premises only for
the following improvements and uses:
4.1.1. A manufacture, warehouse and distribution facility
including appurtenant offices therefore;
4.1.2. Such other uses as are reasonably and customarily
attendant to such uses so long as such other uses are not unlawful; but
4.1.3. For no use other than those permitted by this subsection.
4.2. Compliance with law and covenants. Tenant, throughout the Term
and at its sole expense, in its use and possession of the Premises,
4.2.1. shall comply promptly and fully with (a) all laws,
ordinances, notices, orders, rules, regulations and requirements of all
federal, state and municipal governments and all departments, commissions,
boards and officers thereof relating to Tenant's specific use of the Premises
or any Alteration or change made to the Premises by Tenant (but not as to
matters generally applicable to the Premises) (all of which are referred to
collectively herein as "Legal Requirements"); and (b) all requirements (i) of
the National Board of Fire Underwriters (or any other body now or hereafter
constituted exercising similar functions) which are applicable to any or all of
the Premises, or (ii) imposed by any policy of insurance covering any or all of
the Premises and required by Section 6 to be maintained by Tenant (all of which
are referred to collectively herein as "Insurance Requirements"), all if and to
the extent that any Legal Requirements or the Insurance
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Requirements relate to any or all of the Premises, the Building Equipment, the
fixtures and other equipment on the Premises, or the use or manner of use
thereof, whether any of the foregoing are foreseen or unforeseen, or are
ordinary or extraordinary.
4.2.2. (without limiting the generality of the foregoing
provisions of this subsection) shall keep in force throughout the Term all
licenses, consents and permits necessary for the lawful use of the Premises for
the purpose herein provided.
4.2.3. shall pay when due all personal property taxes, income
taxes, license fees and other taxes assessed, levied or imposed on Tenant or
any other Person in connection with the operation of its business on the
Premises or its Use thereof in any other manner.
4.2.4. shall not take or fail to take any action, as the result
of which action or failure to act Landlord's estate, right, title or interest
in and to any or all of the Premises or the rest of the Property is impaired.
4.2.5. shall not (either with or without negligence) (a) cause or
permit the escape, disposal or release of any Hazardous Materials on the
Premises, or (b) allow the storage or use of any Hazardous Materials in any
manner not permitted by law or by the highest standards prevailing in the
industry for the storage and use of such Hazardous Materials, or (c) allow any
Hazardous Materials to be brought onto the Property except to use in the
ordinary course of Tenant's business, and then only after Notice is given to
Landlord of the identity of such Hazardous Materials. If any lender or
governmental agency ever requires testing to ascertain whether or not there has
been any release of Hazardous Materials on the Premises while this Lease is in
effect, then the reasonable costs thereof shall be reimbursed by Tenant to
Landlord on demand as additional charges if such requirement applies to the
Premises, as a result of matters which occur during the Term. Tenant shall
execute affidavits, representations and the like from time to time at
Landlord's request concerning Tenant's best knowledge and belief regarding the
presence of Hazardous Materials on the Premises. Tenant shall defend, indemnify
and hold harmless Landlord against and from any liability, claim of liability,
loss or expense arising out of any release of Hazardous Materials on the
Premises occurring while Tenant is in possession thereof, or elsewhere if
caused by Tenant or any Person acting under Tenant. The foregoing covenants
shall survive the expiration or earlier termination of this Lease. The
provisions of this Section 4.2.5 do not apply to Hazardous Materials existing
on the Premises prior to the Commencement Date of this Lease.
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4.3. Landlord's Representation and Indemnification. Landlord has
received no notices that the Premises are not in compliance with law and has no
knowledge to cause it to believe that the Premises are not in such compliance.
Landlord shall defend, indemnify and hold harmless Tenant against and from any
liability, claim of liability, loss or expense arising out of any release of
Hazardous Materials on the Premises prior to the Commencement Date of this
Lease.
4.4. Signs. Tenant shall not erect any sign either (a) on the Premises
outside of the Building, or (b) on the exterior of the Building, or (c) within
the Building in any place where such sign is visible primarily from the
exterior of the Building, unless Landlord has given its express, written
consent thereto, which consent shall not be unreasonably withheld or delayed.
Any sign shall be constructed at the sole cost and expense of Tenant, shall be
in full compliance with all applicable laws, and at Landlord's request, shall
be removed on the Termination Date and all damage to the Premises occurring as
a result thereof being restored at Tenant's sole cost and expense. Subject to
compliance with the preceding sentences, Tenant shall be permitted to utilize
the monument sign at the front of the Premises to advertise its business and
mount other signs in and around the Premises for instructions, directions and
identification.
SECTION 5. Taxes.
5.1. Tenant obligation. Tenant (a) shall bear the full expense of all
real property or other related taxes, metropolitan district charges or other
amortized assessments or charges levied against any or all of the Premises and
payable for any calendar or tax year or other period falling wholly or partly
within the Term (all of which are referred to collectively herein as "Taxes"),
except that if any such Taxes are levied for a period beginning before the
Commencement Date or ending after the Termination Date, Tenant shall bear the
full expense of only that percentage thereof equalling the percentage of such
period falling within the Term; (b) shall pay such portion of the Taxes to
Landlord as Additional Rent within 10 days after Landlord makes written demand
therefor, accompanied by a copy of the bill for such Taxes rendered by the
taxing authority; and (c) shall on the Commencement Date reimburse Landlord
that portion of the Taxes paid by Landlord for the current tax year. Provided
Tenant is not in default, pays current Taxes due and bears the full cost
thereof, Tenant may protest Taxes and shall be entitled to a refund of Taxes
paid by Tenant to the extent same is so awarded and paid by the appropriate
taxing authority.
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SECTION 6. Insurance and indemnification.
6.1. Increase in risk. Except as permitted by subsection 4.1, Tenant
(a) shall not do or permit to be done any act or thing as a result of which
either (i) any policy of insurance of any kind covering any or all of the
Premises or any liability of Landlord in connection therewith may become void
or suspended, or (ii) the insurance risk under any such policy would (in the
opinion of the insurer thereunder) be made greater (unless Tenant has paid such
additional premium, promptly on demand by Landlord); and (b) shall pay as
Additional Rent the amount of any increase in any premium for such insurance
resulting from any breach of such covenant, within 10 days after Landlord
notifies Tenant in writing of such increase.
6.2. Types of insurance. Tenant shall maintain at its expense,
throughout the Term and whenever Tenant is in possession of any or all of the
Premises before or after the Term,
6.2.1. insurance against loss or liability in connection with
bodily injury, death, property damage or destruction, occurring on the Premises
or arising out of the use thereof by Tenant or its agents, employees, officers,
subtenants, invitees, visitors and guests, under one or more policies of public
liability insurance having such limits as to each as are agreed upon by
Landlord and Tenant in writing from time to time, but in any event having a
combined single limit of not less than $3,000,000 or such higher limits as are
required by any Mortgagee.
6.2.2. all-risk or fire and extended coverage insurance covering
the Premises (and any other casualty insurance covering the Premises as may be
agreed upon by the parties hereto), having such limits as are agreed upon by
Landlord and Tenant in writing from time to time (except that such limits shall
in any event be not less than 95 percent of the full insurable replacement cost
of the Building, the Building Equipment and the rest of the Improvements, as
determined without deduction for depreciation). If there is then a Mortgage
covering the Premises, the proceeds of any such all-risk, fire and extended
coverage or other casualty policy which are paid on account of damage to the
Premises shall be payable to the Mortgagee thereunder as an additional insured
if and to the extent that under its Mortgage it is entitled thereto.
6.2.3. workmens' compensation insurance having such limits, and
under such terms and conditions, as are required by applicable law.
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6.3. Policies. Each such policy shall (a) designate as the named
insureds thereunder (i) Tenant, (ii) Landlord, and (iii) at Landlord's written
request, any Mortgages, (b) by its terms, not be cancelable without at least 30
days' prior Notice to Landlord (and, at Landlord's written election, any such
Mortgagee), (c) be issued by an insurer of recognized responsibility licensed
to issue such policy in Maryland, and having a Best's rating of at least A+
XII, and (d) have been approved in writing by Landlord at the time of its
issuance (which approval shall not unreasonably be withheld).
6.4. Evidence. (a) At least five days before the Commencement Date,
Tenant shall deliver to Landlord an original or a signed duplicate copy of each
such policy, and (b) at least 30 days before any such policy expires, Tenant
shall deliver to Landlord an original or a signed duplicate copy of a
replacement policy therefor.
6.5. Waiver of subrogation. If either party hereto has been paid any
proceeds under any policy of insurance naming such party as an insured, on
account of any loss, damage or liability, then such party hereby releases the
other party hereto, to and only to the extent of the amount of such proceeds,
from any and all liability for such loss, damage or liability, notwithstanding
that such loss, damage or liability may arise out of the negligent or
intentionally tortious act or omission of the other party, its agents or
employees; provided, that such release shall be effective only as to a loss,
damage or liability occurring while the appropriate policy of insurance of the
releasing party provides that such release shall not impair the effectiveness
of such policy or the insured's ability to recover thereunder. Each party
hereto shall use reasonable efforts to have a clause to such effect included in
its said policies without any increase in the premium therefor, and shall
promptly notify the other in writing if such clause cannot be included in any
such policy without such increase (in which event such other party shall be
entitled, at its election, to pay any such increase in the amount of such
premium, whereupon the first such party shall have such clause included in its
said policy).
6.6. Indemnification of Landlord. Except if and to the extent that
Tenant has theretofore been released from liability to Landlord pursuant to
subsection 6.5, Tenant shall defend, indemnify and hold harmless Landlord
against and from any and all liability, claim of liability or expense arising
out of (a) the use, occupancy, conduct, operation or management of the Premises
during the Term, or (b) any work or thing whatsoever done or not done on the
Premises during the Term, or (c) any breach or default by Tenant in performing
any of its obligations under this Lease or applicable law, or (d) any
negligent, intentionally tortious or other act or omission of Tenant or any of
its agents,
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contractors, servants, employees, subtenants, licensees or invitees during the
Term, or (e) any injury to or death of any Person or damage to any property
occurring on the Premises during the Term (whether or not such event results in
the termination of this Lease), and from and against all expenses and
liabilities incurred in connection with any such claim or any action or
proceeding brought thereon (including but not limited to the fees of attorneys,
investigators and experts), all regardless of whether such claim is asserted
before or after the expiration of the Term or any earlier termination of this
Lease.
6.7. Indemnification of Tenant. Except if and to the extent that
Landlord has theretofore been released from liability to Tenant pursuant to
Subsection 6.5, Landlord shall defend, indemnify and hold harmless Tenant
against and from any and all liability, claim of liability or expense arising
out of (a) any breach or default by Landlord in performance any of its
obligations under this Lease or applicable law, and (b) any negligent,
intentionally tortious or other act or omission of Landlord or any of its
agents, contractors, servants, employees, subtenants, licensees, or invitees
during the Term, and from and against all expenses and liabilities incurred in
connection with any such claim or any action or proceeding brought thereon
(including but not limited to the fees of attorneys, investigators and
experts), all regardless of whether such claim is asserted before or after the
expiration the Term or any earlier termination of this Lease.
Section 7. Public utility charges. Tenant shall pay all charges for
all gas, electricity, light, heat, steam, power, water and sewerage, telephone
or other communication services used, and other services rendered or supplied,
on or in connection with the Premises during the Term (each of which is
referred to herein as a "Utility Service"), and shall defend, indemnify and
hold harmless Landlord against and from any liability therefor. Landlord shall
not be liable to Tenant for any failure, modification or interruption of any
Utility Service occurring for any reason whatsoever. In the event that any bill
for Utility Service is rendered directly to Landlord, Tenant shall pay to
Landlord within ten (10) days after written demand therefore such amount as
shall be due and payable under said bill, and Landlord agrees promptly upon
receipt of same to make payment for said Utility Service.
SECTION 8. Improvements to Premises.
8.1. Landlord has agreed to provide the following:
8.1.1. Landlord shall construct at its sole cost and expense on
the Premises an expansion area containing three bays and having a total square
footage thereof in the amount of
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approximately 12,500 square feet (herein "Expansion") in the area shown on
Exhibit A. The Expansion shall be constructed in accordance with plans and
specifications ("Plans and Specifications") agreed upon by the parties which,
when agreed, shall be attached hereto as Exhibit B. The Agreed Costs for the
Expansion are in the amount of $400,000, subject to Base Rent adjustments as
set forth in Section 3.1 hereof. Expressly included in the Agreed Costs will be
expenditures incurred by Landlord for the items described in Exhibit B hereto
together with upgrading and additions to electrical service and lighting in the
warehouse, improvement of the outside storage area; and construction of a
concrete platform with a crusher run surface in the area shown on Exhibit A.
The Agreed Costs also shall include the cost of the repair of the truck apron,
driveways and parking area (collectively "Driveway Costs") but only to the
extent that the Driveway Costs, when added to the other Agreed Costs, do not
exceed $400,000. The amount of any Driveway Costs which cause the Agreed Costs
to exceed $400,000 shall be borne by Landlord and shall not be subject to the
Expansion Base Rent Adjustment pursuant to Section 3.1.4 hereof. In the event
that Tenant shall elect to expand the scope of the Agreed Costs such that they
exceed $400,000, and Landlord approves thereof, Landlord agrees that it will
bear such additional costs to the extent that the Agreed Costs plus such
additional costs do not exceed Actual Costs of $450,000 (exclusive of Driveway
Costs which shall not be included in said cap) and same shall be subject to
said Expansion Base Rent Adjustment. In the event the Actual Costs exceed
$450,000 as a result of a change in the scope of the work by Tenant, Tenant
shall bear the entire cost thereof in excess of $450,000 and to the extent any
portion thereof has been borne by Landlord, Tenant agrees to reimburse Landlord
therefore within five (5) days after written demand by Landlord and failure to
do so shall constitute an event of default under this Lease.
8.1.2. Landlord, at its sole cost and expense shall
8.1.2.1. Deliver the Premises in good, broom clean
condition, free of unsightly vegetation, with all mechanical systems in good
working order and operating condition;
8.1.2.2. Repaint, recarpet and clean the existing
office area using standard grade materials and methods therefore;
8.1.2.3. Repair those portions of the roof where
leakage exists and prior damage caused thereby.
8.1.3. Landlord shall give written notice to Tenant at such time
as Landlord's work shall have progressed to a point where Tenant may enter the
Premises in order to install its
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trade fixtures and equipment and otherwise prepare the space for its occupancy.
Tenant shall be permitted to do so provided (a) Tenant shall not interfere with
any of the work being performed by Landlord, (b) Tenant shall provide and cause
its contractors to provide such insurance as Landlord reasonably shall require,
(c) Tenant shall bear any utility charges incurred in connection with same, (d)
Tenant shall require its contractors to police daily and keep the Premises
clean and free of dirt and debris, and (s) same shall be done at the sole risk
of Tenant.
8.2. Tenant shall not make any structural or material alteration,
improvement or addition to the Building or the rest of the Premises, (each of
which is herein referred to as an "Alteration"), without first presenting to
Landlord plans and specifications therefor and obtaining Landlord's written
consent thereto (which Landlord may give or withhold in its sole and absolute
discretion; provided, however that Landlord will not unreasonably withhold or
delay its consent thereto where (a) the Alteration or material change is
essential to the operation of Tenant's business, (b) Tenant agrees to restore
the Premises to their condition immediately before such Alteration was made, by
not later than the earlier of the date on which Tenant vacates the Premises or
the Termination Date, and (c) Tenant prior to making such Alteration or
material change provides to Landlord at that time such collateral as Landlord
reasonably shall require to fund the full cost of restoration. Landlord shall
not unreasonably withhold its consent to any non-structural or immaterial
changes, and Tenant shall be obligated at its sole expense to remove same if
requested by Landlord and restore the Premises prior to the end of the Term.
8.3. Acceptance of possession by Tenant. By its assumption of
possession of the Premises Tenant shall for all purposes of this Lease be
deemed to have accepted then and to have acknowledged them to be in the
condition called for hereunder. Notwithstanding the above (a) Tenant shall have
a period of two weeks from the Commencement Date in which to submit to Landlord
a punchlist of items within the Expansion that require correction and Landlord
agrees that it will diligently cause said punchlist items to be corrected and
completed within such time as may be reasonable under the circumstances,
(b) for a period of six (6) months from the date of the commencement of the
Term, in the event that the HVAC, plumbing or mechanical systems require repair
or replacement, and the cost thereof exceeds $1,000.00, Landlord shall bear the
cost above said amount; (c) Landlord will assign to Tenant any construction
warranties which it receives from any contractors or suppliers in conjunction
with Landlord's construction of the Expansion or in performing Landlord's work
described in Section 8.1 hereof. Tenant agrees that effective as of the date of
commencement of the Term, it will obtain, at its sole cost and expense, a
Service Maintenance
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Contract for the entire HVAC system for the entire duration of the Term, from a
reputable company reasonably satisfactory to Landlord.
8.4. Mechanics' and other liens.
8.4.1. Without limiting the generality of the foregoing
provisions of this Section, Tenant (a) shall not create or permit to be
created, and if created, filed or claimed shall immediately discharge or have
released (by bonding or otherwise), any mechanics', materialmens' or other lien
for work done or materials furnished to or for the account of Tenant and filed
or claimed against any or all of the Premises and arising while this Lease is
in effect or otherwise arising out of Tenant's use or occupancy of any or all
of the Premises, (b) shall not permit any other matter or thing whereby
Landlord's estate, right and interest in any or all of the Premises might be
impaired, and (c) shall defend, indemnify and hold harmless Landlord against
and from any and all liability, claim of liability or expense (including but
not limited to that of reasonable attorneys' fees) incurred by Landlord on
account of any such lien or claim.
8.4.2. If Tenant fails to bond or discharge any such lien within
15 days after it first becomes effective against any of the Premises, then, in
addition to any other right or remedy held by Landlord on account thereof,
Landlord may (a) discharge it by paying the amount claimed to be due or by
deposit or bonding proceedings, and/or (b) in any such event compel the
prosecution of any action for the foreclosure of any such lien by the lienor
and pay the amount of any judgment in favor or the lienor with interest, costs
and allowances. Tenant shall reimburse Landlord for any amount paid by Landlord
to discharge any such lien and all expenses incurred by Landlord in connection
therewith, together with interest thereon at the rate of 20 percent per annum
from the respective dates of Landlord's making such payments or incurring such
expenses (all of which shall constitute Additional Rent).
8.4.3. Nothing in this Lease shall be deemed in any way (a) to
constitute Landlord's consent or request, express or implied, that any
contractor, subcontractor, laborer or materialman provide any labor or
materials for any alteration, addition, improvement or repair to any or all of
the Premises, or (b) to give Tenant any right, power or authority to contract
for or permit to be furnished any service or materials, if doing so would give
rise to the filing of any mechanics' or materialmens' lien against any or all
of the Premises or Landlord's estate or interest therein, or (c) to evidence
Landlord's consent that the Premises be subjected to any such lien.
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8.5. Fixtures. All Alterations and all other property attached to or
otherwise installed as a fixture within the Premises by Landlord or Tenant
shall, immediately on the completion of their installation, become Landlord's
property without payment therefor by Landlord, except that (a) the equipment
listed in Exhibit B shall remain Tenant's property and may be removed from the
Premises by Tenant at the end of the Term or any earlier expiration of this
Lease (provided, however, that any damage to the Premises caused by such
removal shall be repaired at Tenant's expense); but (b) if any Alteration made
by Tenant which is being removed by Tenant replaced any part of the Premises,
Tenant shall pay to Landlord, on or before such expiration or termination, a
sum equalling to the value of such Alteration (in addition to any other sum to
which Landlord is entitled under this Section).
8.6. Any Alteration made to the Premises by either party hereto shall
be made only in a good and workmanlike manner, using new, first-class
materials, and in accordance with all applicable building codes and other
laws.
SECTION 9. Repairs and maintenance.
9.1. Landlord shall, throughout the Term, and at its expense, make all
necessary repairs to the exterior walls or foundations and footings and to the
roof of the Building, after being notified in writing by Tenant of the need for
such repairs (and shall respond as promptly as reasonably possible in the case
of emergencies); provided, however, that in the event the repairs required are
necessitated as a result of the negligence or misuse by Tenant, its agents,
servants, employees, licensees or guests, or by any contractor engaged by or on
behalf of Tenant, such maintenance and repairs shall be at the sole cost and
expense of Tenant, and Tenant shall reimburse Landlord within ten (10) days
after written demand therefore for any expenses incurred by Landlord in
connection therewith.
9.2. Tenant shall, throughout the Term and at its expense,
9.2.1. take good care of the Building, the rest of the
Improvements, the Building Equipment and the rest of the Promises and keep them
in good order and condition (including but not limited to mowing lawn upon the
Premises and trimming and otherwise caring for any trees, shrubbery or other
landscaping thereon, on a regular basis, and keeping the Premises in a clean
and orderly condition, free of accumulation of dirt and rubbish), clearing of
all ice and snow from the Premises and maintenance and repair of all driveways,
walkways, curbs, gutters, lighting systems and security systems and fencing;
and
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9.2.2. promptly make all repairs to the Building, the rest of the
Improvements, the Building Equipment and the rest of the Premises needed to
maintain them in a first-class condition (including but not limited to any and
all such repairs to the plumbing, heating, ventilating, air-conditioning,
electrical and other systems on the Premises for the furnishing of any Utility
Service to the Premises).
9.3. In the event that Landlord shall fail to maintain or repair the
Premises as required hereunder and shall not cure the same within ten (10) days
after written notice from Tenant of Landlord's failure to do so, or such longer
period as may be necessary in the event that the same cannot reasonably be
accomplished within said ten (10) day period provided Landlord commences to
take such action and thereafter diligently completes the same within such
period as is reasonable under the circumstances, Tenant shall have the right to
undertake and complete said work and may maintain a separate action against the
Landlord to recover from Landlord the reasonable costs thereof incurred by
Tenant should the obligation have been Landlord's in the first instance.
SECTION 10. Landlord's right of entry. Landlord and its authorized
representatives shall be entitled to enter the Premises at any time during
Tenant's business hours and at any other reasonable time (after giving Tenant
at least 24 hours' Notice thereof, except if and to the extent that, due to the
existence of any emergency, giving such Notice is unreasonable under the
circumstances) (a) to inspect the Premises; (b) to exhibit the Premises (i) to
any existing or prospective purchaser or Mortgagee thereof, or (ii) to any
prospective tenant thereof, provided that in doing so Landlord and each such
invitee observe all reasonable safety standards and procedures which Tenant may
require; and (c) to make any repair thereto which Tenant has failed to do after
receiving notice thereof and Tenant's failure promptly and diligently to cure,
and/or take any other action therein which Landlord is permitted to make by
this Lease or applicable law (provided, that in any situation in which, due to
an emergency or otherwise, the physical condition of the Building or any other
part of the Premises would be unreasonably jeopardized unless Landlord were to
take such action immediately, Landlord shall not be required to give such
Notice to Tenant and may enter the same at any time). Nothing in this Section
shall be deemed to impose any duty on Landlord to make any such repair or take
any such action, and Landlord's performance thereof shall not constitute a
waiver of Landlord's right hereunder to have Tenant perform such work. Landlord
may, while taking any such action upon the Promises, store therein any and all
necessary materials, tools and equipment, and Tenant shall have no liability to
Landlord for any damage to or destruction of any such materials, tools and
equipment, except if and to the extent
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that such damage or destruction is proximately caused by the gross negligence
of Tenant or its agents and employees. Landlord shall not in any event be
liable to Tenant for any inconvenience, annoyance, disturbance, loss of
business or other damage sustained by Tenant by reason of Landlord's entry into
the Premises, the making of such repairs, the taking of such action or the
bringing of materials, supplies and equipment upon the Premises during the
course thereof, and Tenant's obligations under this Lease shall not be affected
thereby; provided, however, that Landlord will take reasonable efforts, under
the circumstances, to the minimize interference with the operations of Tenant.
If Landlord undertakes any such action, Tenant shall pay to Landlord all
reasonable costs and expenses incurred by Landlord arising out of or in
connection therewith.
SECTION 11. Damage or Destruction.
11.1. If during the Lease term the Premises hereby leased are damaged
by fire or other casualty, but not to the extent that Tenant is prevented from
carrying on business in the Premises Landlord shall promptly (within 90 days of
the fire or casual cause such damage to be repaired; if such damage renders a
substantial portion of the Premises untenantable, the Base Rent reserved
hereunder shall reduced during the period of its untenantability
proportionately to the amount by which the area so rendered untenantable bears
to entire area leased hereunder, and such reduction shall apportioned from the
date of the casualty to the date when the leased premises are rendered fully
tenantable. Notwithstanding the foregoing, in the event such fire or other
casualty damages destroys any of Tenant's leasehold improvements, alteration
betterments, fixtures or equipment, Tenant shall cause the same be repaired or
restored at Tenant's sole cost and expense and Landlord shall have no liability
for the restoration or repair thereof unless same is Landlord's responsibility
under the terms hereof.
11.2. If during the Lease term the Premises or substantial portion of
the Building in which the Premises are located are rendered wholly untenantable
as a result of fire, the elements, unavoidable accident or other casualty,
Landlord shall have the option either to restore the Premises to their
condition immediately prior to the casualty or to terminate this Lease. In the
event Landlord elects to terminate this Lease, such option shall be exercised
by Landlord by written notice to Tenant within thirty (30) business days after
the fire, accident or casualty. In the event of such termination, the rent
reserved hereunder shall be adjusted as of the date of the fire, accident or
casualty. If Landlord elects to restore the Premises, such restoration shall be
completed within one hundred twenty (120) days of the casualty and the rent
(both Basic Rent and additional rent) reserved hereunder shall abate until the
Premises are again
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rendered tenantable. Notwithstanding the foregoing, if the Promises are
rendered unusable during the last year of the Lease Term, and Landlord elects
to restore the Premises, Tenant shall have the right within fifteen (15)
business days, to terminate the Lease and neither Landlord nor Tenant shall
have any claim against the other for the value of the unexpired term of the
Lease.
SECTION 12. Condemnation.
12.1. Termination of Leases. If any substantial part of the Building
and/or of that part of the Land underlying the Building is taken by the
exercise of any power of eminent domain or is conveyed to or at the direction
of any governmental entity under a threat of any such taking (each of which is
referred to herein as a "Condemnation"), this Lease shall terminate on the date
on which the title to so much of the Building as is the subject of such
Condemnation vests in the condemning authority, unless the parties hereto
otherwise agree in writing. If all or any substantial part of the Land or the
Building is taken or conveyed in a Condemnation, either party shall be
entitled, by giving Notice thereof to the other party, to terminate this Lease
on the date on which the title to so much thereof as is the subject of such
Condemnation vests in the condemning authority. If this lease is not terminated
pursuant to this subsection, Landlord shall restore any of the Premises damaged
by such Condemnation to substantially their condition immediately before such
Condemnation, as soon as is reasonably possible after Landlord's receipt of the
proceeds of such Condemnation. A substantial part of the Building shall be
defined as such portion, the restoration of which will cost in excess of
$250,000 to complete or Tenant is unable reasonably to conduct its business
therein notwithstanding restoration. A substantial part of the Land shall be
defined as the taking of such area that will include more than 15% of the
existing parking areas and Landlord's failure should it so elect, to replace
the same within a reasonable time thereafter.
12.2. Regardless of whether this Lease is terminated under this
Section, Tenant shall have no right in any such Condemnation to make any claim
on account thereof against the condemning authority, except that Tenant may
make a separate claim for Tenant's removal and moving expenses, and diminution
in value of leasehold improvements made by Tenant during the Term at Tenants
expense, provided that (a) such claim does not reduce the sums otherwise
payable by the condemning authority to Landlord, and (b) if any leasehold
improvement made by Tenant replaced any part of the Premises, Landlord shall be
entitled to the value of the said leasehold improvement (in addition to any
other sum to which it is entitled under this Section). Except as aforesaid,
Tenant hereby (a) waives all claims which it may have
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against Landlord or such condemning authority by virtue of such Condemnation,
and (b) assigns to Landlord all such claims (including but not limited to all
claims for leasehold damages or diminution in value of Tenant's leasehold
interest hereunder).
12.3. Effect on Rent. If this Lease is terminated under this Section,
any Base Rent, any Additional Rent and all other sums and charges required to
paid by Tenant hereunder shall be apportioned and paid to the date of such
termination. If this Lease is not so terminated in the event of a Condemnation,
the Base Rent (and each installment thereof) shall be abated from the date on
which the title to so much, if any, of the Premises as is the subject of such
Condemnation vests in the condemning authority, through the Termination Date,
in proportion to the floor area of any part of the Building which is the
subject of such Condemnation.
12.4. Except as otherwise expressly provided in this Section, no total
or partial Condemnation shall entitle either party hereto to surrender or
terminate this Lease, or relieve Tenant from its liability hereunder to pay in
full the Base Rent, any Additional Rent and all other sums otherwise payable by
Tenant hereunder, or from any of its other obligations hereunder, and Tenant
hereby waives any right now or hereafter conferred on it by statute or
otherwise, on account of any such Condemnation, to surrender this Lease, to
quit or surrender any or all of the Premises, or to receive any suspension,
diminution, abatement or reduction of the Base Rent or any Additional Rent or
other sum payable by Tenant hereunder.
SECTION 13. Assignment and subletting.
13.1. Tenant hereby (a) acknowledges that Landlord has entered into
this Lease because of Tenant's financial strength, goodwill, ability and
expertise and that, accordingly, this Lease is one which is personal to Tenant,
and (b) agrees for itself and its successors and assigns in interest hereunder
that it will not (i) assign this Lease or any of its rights under this Lease as
to any or all of the Premises or otherwise, or (ii) make or permit any
voluntary or involuntary total or partial sale, lease, sublease, assignment,
conveyance, mortgage, pledge, encumbrance or other transfer of any or all of
the Premises, or the occupancy or use of any or all of the Premises (each of
which is hereinafter referred to as a "Transfer") (including but not limited to
(i) any sale at foreclosure or by the execution of any judgment of any or all
of Tenant's rights hereunder or (ii) any Transfer by operation of law) without
first obtaining Landlord's written consent thereto. Such consent (a) may be
given or withheld in Landlord's sole, absolute and arbitrary discretion and, if
given, shall not constitute a consent to any subsequent such Transfer, whether
by the Person named above as Tenant or by
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any such transferee, but (b) shall not be deemed to have been given by
Landlord's acceptance of the payment of Rent after such Transfer occurs, with
or without Landlord's knowledge, or by any other act or failure to act by
Landlord, other than the giving of such express, written consent, as aforesaid.
Without limiting the generality of the foregoing, Landlord may, at its sole
discretion, condition such consent on the entry by such Person into an
agreement with (and in form and substance satisfactory to) Landlord, providing
for an assumption by such assignee of all of Tenant's obligations hereunder.
Any Person to whom any Transfer is attempted without such consent shall have no
claim, right or remedy whatsoever hereunder against Landlord, and Landlord
shall have no duty to recognize any Person claiming under or through the same.
13.2. Notwithstanding the terms of subsection 13.1, Tenant may assign
this lease to any subsidiary of Tenant, or any (a) affiliate of Tenant or (b)
other entity in which the beneficial ownership and control of more than 50
percent of the voting stock of Tenant (if Tenant is a corporation), or of more
than 50 percent of the aggregate of any and all of those interests in Tenant
which entitle the controller thereof to participate in its management (if
Tenant is a partnership, joint venture or other unincorporated entity is owned
or controlled by Tenant, but notwithstanding such assignment, Tenant will
remain liable for the payment and performance of all obligations hereunder.
Further notwithstanding the same, Landlord agrees not to unreasonably withhold
its consent in the event that Tenant shall assign this Lease to an unrelated
party provided (a) the Assignee, in Landlord's discretion reasonably exercised
is creditworthy, (b) the use is as permitted hereunder, (c) the Assignee shall
assume in writing all of Tenant's obligations at that time or thereafter
arising under the Lease and (d) Tenant will remain liable for the payment and
performance of all obligations hereunder. In addition, Landlord agrees not to
unreasonably withhold its consent to Tenant's sublease of portions of the
office space within the Premises, and such consent shall be required in each
instance for a sublease to become effective.
13.2. Benefit and burden. Subject to the foregoing provisions of this
Section, this Lease shall bind on and inure to the benefit of the parties
hereto and their respective successors and assigns in interest hereunder.
SECTION 14. Net lease. This Lease shall be deemed and construed to be
a "net lease" and, accordingly, anything in this Lease to the contrary
notwithstanding, Landlord shall receive the Base Rent, the Additional Rent and
all other payments to be made by Tenant hereunder free from any charges,
assessments, impositions, expenses or deductions of any and every kind or
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nature whatsoever. Landlord shall not be required by this Lease to make any
payment, or render any service, of any kind to Tenant or any other Person
except to the extent expressly set forth herein.
SECTION 15. Subordination; attornment. This Lease shall be subject and
subordinate to the lien, operation and effect of each Mortgage in effect on the
date hereof or hereafter becoming effective (and each renewal, modification,
consolidation, replacement or extension thereof), automatically and without the
necessity of any action by either party hereto. Tenant shall, promptly on its
receipt of a written demand therefor from the Mortgagee under any Mortgage,
confirm that Tenant's leasehold estate under this Lease is subject and
subordinate to the lien, operation and effect of such Mortgage (and of each
renewal, modification, consolidation, replacement or extension thereof), by
executing and delivering to such Mortgagee such subordination agreement and/or
other instrument in recordable form to effect the same as such Mortgagee may
reasonably require. Anything in this Lease to the contrary notwithstanding, any
Mortgagee may at any time subordinate its Mortgage to the operation and effect
of this Lease without obtaining Tenant's consent thereto, by giving Tenant
Notice thereof, in which event this Lease shall be deemed to be senior to such
Mortgage without regard to their respective dates of execution, delivery and/or
recordation among the Land Records of the said County.
SECTION 16. Default.
16.1. Definition. For purposes of this Lease, each of the following
events shall constitute a Default and, if not cured within any grace period
applicable thereto under subsection 16.2, or if no such grace period is
applicable thereto, shall constitute an Event of Default:
16.1.1. If Tenant fails (a) to pay any Base Rent,
Additional Rent or other sum which it is obligated to pay under this Lease,
when and as due and payable hereunder and without demand therefor, or (b) to
perform any of its other obligations under this Lease; or
16.1.2. If Tenant (a) applies for or consents to the
appointment of a receiver, trustee or liquidator of Tenant or of all or a
substantial part of its assets, (b) files a voluntary petition in bankruptcy or
admits in writing its inability to pay its debts as they come due, (c) makes an
assignment for the benefit of its creditors, (d) files a petition or an answer
seeking a reorganization or any arrangement with creditors, or seeks to take
advantage of any insolvency law, (e) performs any other act of bankruptcy, or
(f) files an answer admitting the
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material allegations of a petition filed against Tenant in any bankruptcy,
reorganization or insolvency proceeding; or
16.1.3. if (a) an order, judgment or decree is entered by
any court of competent jurisdiction adjudicating Tenant a bankrupt or an
insolvent, approving a petition seeking such a reorganization, or appointing a
receiver, trustee or liquidator of Tenant or of all or a substantial part of
its assets, or (b) there otherwise commences as to Tenant or any of its assets
any proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment, receivership or similar law, and if such order, judgment, decree
or proceeding continues unstayed for more than 60 consecutive days after any
stay thereof expires.
16.2. Notice to Tenant; grace period. Anything in this Section to the
contrary notwithstanding, if a Default occurs Landlord shall not exercise any
right or remedy on account thereof which it holds under this Lease or
applicable law unless and until
16.2.1. Landlord has given Notice thereof to Tenant, and
Tenant has failed, (a) if such Default consists of a failure to pay money,
within 10 days after Landlord gives such notice to pay all of such money, or
(b) if such Default consists of something other than a failure to pay money,
within 30 days after Landlord gives such Notice to cure such Default (or, if
and only if such Default is not reasonably curable within such 30-day period,
to proceed within such 30-day period actively, diligently and in good faith to
begin to cure such Default, continues thereafter to do so and within 90 days
same is fully cured); provided, that
16.2.2. anything in this Lease to the contrary
notwithstanding, no such Notice of default shall be required to be given, and
(even if Landlord gives such Notice) Tenant shall be entitled to no such grace
period, (a) in any emergency situation in which, in Landlord's reasonable
judgment, it is necessary for Landlord to act to cure such Default without
giving such notice, or (b) in the case of a Default listed in paragraphs 16.1.2
or 16.1.3.
16.3. Landlord's rights on Event of Default.
16.3.1. If an Event of Default occurs, Landlord may take
any or all of the following actions:
(a) Re-enter and repossess the Premises (including the
Building and any or all of the rest of the Improvements and the Building
Equipment).
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(b) Declare the entire balance of the Base Rent for the
remainder of the Term to be due and payable immediately, and collect such
balance in any manner not inconsistent with applicable law, except that if
Landlord elects to relet any or all of the Premises after such acceleration of
Rent, the provisions of subparagraph 16.3.1(d) shall be applicable to the
rights of Landlord and Tenant. Accelerated payments payable hereunder shall not
constitute a penalty or forfeiture or liquidated damages, but shall merely
constitute payment of Rent in advance.
(c) Terminate this Lease by giving Notice of such
termination to Tenant, which termination shall be effective as of the date of
such Notice or any later date therefor specified by Landlord therein (except
that without limiting the generality of the foregoing provisions of this
subparagraph 16.3.1(c), Landlord shall not be deemed to have accepted any
abandonment or surrender by Tenant of any or all of the Premises or Tenant's
leasehold estate under this Lease unless Landlord has so advised Tenant
expressly and in writing, regardless of whether Landlord has reentered or relet
any or all of the Premises or exercised any or all of Landlord's other rights
under this Section or applicable law).
(d) Cure such Event of Default in any other manner.
(e) Pursue any combination of such remedies and/or any
other right or remedy available to Landlord on account of such Event of Default
under this Lease and/or at law or in equity. Nothing herein shall limit or
prejudice Landlord's right to prove for and obtain as damages, by reason of
such termination, an amount equal to the maximum allowed by any statute or rule
of law in effect at the time when, and governing the proceedings in which, such
damages are to be proved.
16.3.2. No such expiration or termination of this Lease, or
summary dispossession proceedings, abandonment, reletting, bankruptcy, re-entry
by Landlord or vacancy, shall relieve Tenant of any of its liabilities and
obligations under this Lease (whether or not any or all of the Premises are
relet), and Tenant shall remain liable to Landlord for all damages resulting
from any Event of Default, including but not limited to any damage resulting
from Tenant's breach of any of its obligations under this Lease to pay Rent and
any other sums which it is obligated to pay hereunder.
16.3.3. If any or all of the Premises are relet by Landlord
for any or all of the unexpired Term of this Lease, the amount of rent reserved
upon such reletting shall be deemed to be
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the fair and reasonable rental value for the part or the whole of the Premises
so relet during the term of the reletting.
16.3.4. If an Event of Default occurs, Tenant shall,
immediately on its receipt of a written demand therefor from Landlord,
reimburse Landlord for (a) all expenses (including but not limited to any and
all repossession costs, management expenses, operating expenses, legal expenses
and attorneys' fees) incurred by Landlord (i) in curing or seeking to cure any
Event of Default and/or (ii) in exercising or seeking to exercise any of
Landlord's rights and remedies under this Lease and/or at law or in equity on
account of any Event of Default, and/or (iii) otherwise arising out of any
Event of Default, and/or (iv) (regardless of whether it constitutes an Event of
Default) in connection with any action, proceeding or matter of the types
referred to in paragraphs 16.1.2 and 16.1.3, plus (b) interest on all such
expenses, at the rate of 20 percent per annum, all of which expenses and
interest shall be Additional Rent and shall be payable by Tenant immediately on
demand therefor by Landlord.
16.3.5. Tenant hereby expressly waives, so far as permitted
by law, the service of any Notice of intention to re-enter provided for in any
statute, and except as is herein otherwise provided, Tenant, for itself and all
Persons claiming through or under Tenant (including any leasehold mortgagee or
other creditors), also waives any and all right of redemption or re-entry or
repossession in case Tenant is dispossessed by a judgment or warrant of any
court or judge or in case of re-entry or repossession by Landlord or in case of
any expiration or termination of this Lease. The terms "enter," "re-enter,"
"entry" or "re-entry" as used in this Lease are not restricted to their
technical legal meanings.
16.3.6. Each party hereto hereby waives any right which it
may otherwise have at law or in equity to a trial by jury in connection with
any suit or proceeding at law or in equity brought by the other against the
waiving party or which otherwise relates to this Lease, as a result of an Event
of Default or otherwise.
SECTION 17. Estoppel certificate. Each party hereto shall, at any time
and from time to time within 30 days after being requested to do so by the
other party in writing, execute, enseal and acknowledge, and address and
deliver to the requesting party (or, at the latter's request, to any existing
or prospective transferee or assignee of the requesting party's interest in the
Premises or under this Lease which acquires such interest in accordance with
this Lease) (or, at Landlord's request, any existing or prospective Mortgagee),
a certificate in recordable form, (a) certifying (i) that this Lease is
unmodified and in full force and effect (or, if there has been any
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modification thereof, that it is in full force and effect as so modified,
stating therein the nature of such modification); (ii) that Tenant has accepted
possession of the Premises, and the date on which the Term commenced; (iii) as
to the dates to which the Base Rent and any Additional Rent and other charges
arising hereunder have been paid; (iv) as to the amount of any prepaid Rent or
any credit due to Tenant hereunder; (v) as to whether, to the best of such
party's knowledge, information and belief, the requesting party is then in
default in performing any of its obligations hereunder (and, if so, specifying
the nature of each such default); and (vi) as to any other fact or condition
reasonably requested by the requesting party; and (b) acknowledging and
agreeing that any statement contained in such certificate may be relied upon by
the requesting party and any such other addressee.
SECTION 18. Condition of title and Premises.
18.1. Tenant hereby acknowledges that it has examined the Premises, the
title thereto, the zoning thereof, the streets, sidewalks, parking areas, curbs
and access ways adjoining them, any surface conditions thereof, and the present
uses and non-uses thereof, if any, and that it accepts each of them in its
present condition or state, without restriction, representation, covenant or
warranty, express or implied, in fact or at law, by Landlord or any other
Person, and without recourse to Landlord, as to the title thereto, any
encumbrances thereon, any appurtenances thereto, the nature, condition or
usability thereof, or the uses to which any or all of the Premises may be put,
subject, however, to Landlord's obligations herein elsewhere in this Lease set
forth.
18.2. Landlord hereby warrants that, as long as all of Tenant's
obligations hereunder are timely performed, Tenant will have during the Term
quiet and peaceful possession of the Premises except if and to the extent that
such possession is terminated pursuant to this Lease. Nothing in this Lease
shall be deemed to impose upon Landlord any liability on account of any act or
failure to act by any Person other than Landlord (or, where expressly so
provided herein, Landlord's agents and employees).
Section 19. Notices. Any notice, demand, consent, approval, request or
other communication or document to be provided hereunder to Landlord or Tenant
(each of which is referred to herein as a "Notice") (a) shall be in writing,
and (b) shall be deemed to have been provided on the earlier of (i) (1) the
third business day after being sent as certified or registered mail in the
United States mails, Postage prepaid, return receipt requested, or (2) the next
business day after being deposited (in time for delivery by such service on
such
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<PAGE> 30
business day) with Federal Express or another national courier service, or (3)
(if such Party's receipt thereof is acknowledged in writing) on being sent by
telefax or another means of immediate electronic communication, in each case to
the address of such party set forth above or to such other address in the
United States of America as such party may designate from time to time by
Notice to each other party hereto, or (ii) (if such party's receipt thereof is
acknowledged in writing) its hand or other delivery to such party. If given to
Tenant, it shall be addressed to the address of the Premises. If given to
Landlord or Tenant, it shall be addressed to the address hereinbefore set
forth. A copy of any Notice given to Landlord shall simultaneously therewith be
given to its attorneys, Ronald P. Fish, Esquire at Ballard Spahr Andrews &
Ingersoll, Suite 1900, 300 East Lombard Street, Baltimore, Maryland 21202-3268,
and a copy of any Notice given to Tenant shall simultaneously therewith be
given to its attorney, Cathy Smith, Esquire, 2078 Prospector Avenue, P.O. Box
3693, Park City, Utah, 84060.
SECTION 20. General.
20.1. Effect. This Lease (a) shall become effective on and only on its
execution and delivery by each party hereto; and (b) represents the complete
understanding between or among the parties hereto as to the subject matter
hereof, the Premises, the Building, the rest of the Improvements, the Building
Equipment, or the rights and obligations of the parties hereto as to the same,
and supersedes all prior written or oral negotiations, representations,
guaranties, warranties, promises, statements or agreements between or among the
parties hereto as to the same. No inducements, representations, understandings
or agreements have been made or relied on in entering into this Lease, except
those specifically set forth in this Lease. Neither party hereto has any right
to rely on any other prior or contemporaneous representations made by anyone
concerning this Lease which is not set forth herein. No determination by any
court, governmental body or otherwise that any provision hereof is invalid or
unenforceable in any instance shall affect the validity or enforceability of
(a) any other provision hereof, or (b) such provision in any circumstance not
controlled by such determination. Without limiting the generality of the
foregoing, no action taken or not taken by Landlord under this Section or any
other provision of this Lease (including but not limited to Landlord's
acceptance of the payment of Rent after an Event of Default occurs) shall
operate as a waiver of any right to be paid a late charge or any other right or
remedy which Landlord would otherwise have against Tenant on account of such
Event of Default under this Lease or applicable law (Tenant hereby
acknowledging that, in the interest of maintenance of good relations between
Landlord and Tenant, there may be instances in which Landlord chooses not
immediately to exercise some or all of its rights on
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<PAGE> 31
the occurrence of an Event of Default). Each provision of this Lease shall be
valid and enforceable to the fullest extent allowed by, and be construed
wherever possible as being consistent with, applicable law. No party hereto
shall be deemed to have waived the exercise of any right which it holds
hereunder unless such waiver is made expressly and in writing (and, without
limiting the generality of the foregoing, no delay or omission by any party
hereto in exercising any such right shall be deemed a waiver of its future
exercise). No such waiver made in any instance involving the exercise of any
such right shall be deemed a waiver as to any other such instance or right.
20.2. Amendment. This Lease may be amended by and only by an instrument
executed and delivered by each party hereto.
20.3. Applicable law. This Lease shall be given effect and construed
by application of the law of Maryland (without regard to the principles thereof
governing conflicts of laws), and any action or proceeding arising hereunder
shall be brought in the courts of Maryland, except that if it arises under the
Constitution, laws or treaties of the United States of America, or if there is
a diversity of citizenship between the parties thereto, so that it is to be
brought in a United States District Court, it shall be brought in the United
States District Court for the District of Maryland and or any successor federal
court having original jurisdiction.
20.4. Construction. As used herein, all references made (a) in the
neuter, masculine or feminine gender shall be deemed made in all such genders,
(b) in the singular or plural number shall be deemed made, respectively, in the
plural or singular number as well, and (c) to any Section, subsection,
paragraph or subparagraph shall, unless expressly stated to the contrary
therein, be deemed made to such Section, subsection, paragraph or subparagraph
of this Lease. The headings of such Sections, subsections, paragraphs and
subparagraphs are provided herein only for convenience of reference, and shall
not be considered in construing their contents. Any writing or plat referred to
herein as being attached hereto as an exhibit or otherwise designated herein as
an exhibit hereto is hereby made a part hereof. This Lease may be executed in
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument.
20.5. Assignment. Subject to subsection 13.1, this Lease shall bind on
and inure to the benefit of the parties hereto and their respective successors
and assigns hereunder.
20.6. Time of essence. Time shall be of the essence of this Lease,
except that, whenever the last day for a party's exercise of any right or
discharge of any obligation hereunder is
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<PAGE> 32
a Saturday, Sunday or statutory holiday, such party shall have until the next
day other than a Saturday, Sunday or statutory holiday to exercise such right
or discharge such obligation.
20.7. Disclaimer of partnership status. Nothing in this Lease shall be
deemed in any way to create between the parties hereto any relationship of
partnership, joint venture or association, and the parties hereto hereby
disclaim the existence of any such relationship.
20.8. Commissions. Each party hereto hereby represents and warrants to
the other that, in connection with the leasing of the Premises hereunder, the
party so representing and warranting has not dealt with any real estate broker,
agent or finder, other than CB Commercial and there is no commission, charge or
other compensation due on account thereof except to CB Commercial, the payment
of which commission shall be the sole responsibility of Landlord. Each party
hereto shall defend, indemnify and hold harmless the other against and from any
liability, claim of liability or expense arising out of any inaccuracy in such
party's representation.
20.9. Sale of Premises. In the event that Landlord shall elect to
market the Premises for sale, Landlord will make a reasonable effort to notify
Tenant thereof; provided, however, that no such notice shall be required in the
event that same represents in Landlord's discretion reasonably exercised an
impediment to Landlord's marketing efforts and, furthermore, Landlord's failure
to give such notice shall not be deemed a violation of Landlord's obligations
hereunder or vest in Tenant any rights with respect thereto.
20.10. Authority. Each of the parties hereto warrant and represent that
they have full power and authority to execute and deliver this Lease.
21. Renewal Option. Provided that both (a) Tenant is then in
possession of the Premises and doing business therefrom and (b) no event of
default has occurred which remains uncured either when the notice referred to
hereinbelow is given or on the date on which such renewal term would otherwise
commence (subject to any then applicable grace period), the Tenant shall be
entitled to renew this Lease for an additional term ("the renewal term") of
five (5) years, commencing on the day immediately after the date on which (but
for such renewal) the term would have expired and terminating on the fifth
(5th) anniversary of such day (which anniversary shall, if this Lease is so
renewed, thereafter be the Termination Date for all purposes of the provisions
of this Lease as applicable thereafter), by and only by giving to the Landlord
express, written notice of such renewal by not less than six (6) months before
the date on which the
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<PAGE> 33
renewal term is to commence (in which event the term shall automatically be
deemed to have been extended by the length of the Renewal Term, and all
references to "the term" in the provisions of this Lease shall thereafter mean
the term as so extended). The terms and conditions for such renewal term shall
all be as set forth in the body of this Lease, other than the annual Base Rent,
which Base Rent, for the first year of the Renewal Term, and for each year
thereafter, shall be in an amount equal to the Base Rent for the immediately
preceding year multiplied by 103% thereof, same to be paid in equal monthly
installments in advance.
IN WITNESS WHEREOF, each party hereto has executed and ensealed this
Lease or caused it to be executed and ensealed on its behalf by its duly
authorized representatives, the day and year first above written.
WITNESS: BAYMEADOW LIMITED PARTNERSHIP
By: CHESAPEAKE BAY CAPITAL CORP. , its
-----------------------------
GENERAL PARTNER
/s/ JOYCE KIRK By: /s/ IVAN STERN
- ------------------------------ ------------------------- (SEAL)
President
LANDLORD
HOOVER CONTAINMENT, INC.
/s/ JOYCE KIRK By /s/ R. M. TIROCCHI
- ------------------------------ ------------------------------ (SEAL)
TENANT
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<PAGE> 1
Exhibit 10.07
FIRST AMENDMENT OF LEASE
THIS FIRST AMENDMENT OF LEASE is made this 19 day of August, 1997,
effective as of August 1, 1997, by and between BAYMEADOW LIMITED PARTNERSHIP
("Landlord") and HOOVER CONTAINMENT, INC. ("TENANT").
EXPLANATORY STATEMENT
1. By Lease Agreement (herein "Original Lease") dated November
22, 1996, Landlord leased unto Tenant the property known as 6740 Baymeadow
Drive, together with certain of the improvements thereon.
2. Under the terms of the Lease, Tenant occupied the existing
Premises and Landlord agreed to construct thereon the Expansion, with the Rent
for the Expansion to he calculated as set forth in the Original Lease.
3. Landlord has completed construction of the Expansion, Tenant
has accepted possession thereof and Landlord and Tenant wish to confirm various
matters resulting therefrom.
NOW THEREFORE, WITNESSETH, for good and valuable consideration,
receipt whereof is acknowledged by both Landlord and Tenant, the original Lease
is amended as follows:
1. Landlord and Tenant agree that subject to the matters
hereinafter set forth, Landlord has completed construction of the Expansion,
has delivered possession thereof to Tenant, and Tenant has accepted possession
thereof subject, however, to the fulfillment by Landlord of its obligations set
forth in paragraph 2 hereof and in Section 8.3 of the Original Lease.
2. Notwithstanding that Tenant has accepted possession of the
Expansion, Landlord agrees, at its sole cost and expense, to (a) resurface the
hatch-marked portion of the parking area as shown on Exhibit A hereto and (b)
replace as and when necessary, the three complete roof top air conditioning
units within the Premises (Landlord already has replaced the fourth complete
roof top air conditioning unit therein),
3. Landlord and Tenant agree that the actual space of the
Expansion is in the amount of 15,208 square feet rather than the original
estimated amount of 12,500 square feet and that the Actual Costs incurred by
Landlord for construction of the Expansion have resulted in the Expansion Base
Rent for the first
<PAGE> 2
two years being adjusted to equal the sum of $6.45 per square foot.
4. As a result of paragraph 3 above, the parties agree that
Section 3.1.3.1, 3.1.3.2 and 3.1.3.3 of the Original Lease are modified to
provide that the Expansion Base Rent shall be as follows:
"3.1.3.1. For the first two years of the Regular Term (and for any
fractional portion of a month pro rata at the beginning of the Term),
in the annual amount of $98,091.60 payable in equal monthly
installments of $8,174.30; and
3.1.3.2. For the third year of the Reglular Term in the amount of
$100,543.90 payable in equal monthly installments of $8,378.66; and
3.1.3.3. For each year of the Regular Term thereafter in an amount
equal to the Expansion Base Rent for the immediately preceding year
multiplied by 102.5% thereof, payable in equal monthly installments."
5. Landlord and Tenant agree that although the Agreed Costs have
exceeded $450,000, Tenant shall not be obligated to reimburse Landlord for the
excess cost thereof borne by Landlord, the same having been accomplished as a
result of (a) the increase in the Expansion Base Rent specified in paragraph 2
hereof and (b) during the Renewal Term, if any, the Base Rent for the Expansion
for each year will equal the Expansion Base Rent for the immediately preceding
year multiplied by 103% thereof, payable in equal monthly installments in
advance.
6. Each of the terms capitalized herein shall have the meaning
ascribed to them in the Original Lease.
7. Except to the extent modified as set forth in this First
Amendment, Landlord and Tenant expressly ratify and confirm all of the terms,
covenants and conditions of the original Lease.
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<PAGE> 3
IN WITNESS WHEREOF, each party hereto has executed and ensealed this
First Amendment of Lease or caused it to be executed and ensealed on its behalf
by its duly authorized representatives, on the day and year first above
written.
WITNESS: BAYMEADOW LIMITED PARTNERSHIP
By: CHESAPEAKE BAY CAPITAL CORP.,
its general partner
/S/ R. M. TIROCCHI By /S/ IVAN STERN (SEAL)
- ------------------------- -------------------------
Ivan Stern, President
LANDLORD
WITNESS: HOOVER CONTAINMENT, INC.
/S/ IVAN STERN By /S/ R. M. TIROCCHI (SEAL)
- ------------------------- ------------------------------
TENANT
- 3 -
<PAGE> 1
Exhibit 10.08
SALARY CONTINUATION AGREEMENT
THIS AGREEMENT is entered into this the 5th day of September,
1997, by and between STEPHEN T. HARCROW, "Employee," and DENALI HOLDINGS, INC.,
"Company."
PREMISES
The services of the Employee, his experience and knowledge of
the affairs of the Company, and his reputation in the industry are extremely
valuable to the Company.
The Company desires the Employee to remain in its service and
wishes to receive the benefit of his knowledge, experience and reputation.
The Company is willing to retain the Employee's services by
offering certain benefits to the Employee's wife after his disability or death.
In consideration of the premises and the mutual covenants and
agreements herein contained, the Company and the Employee agree as follows:
ARTICLE I
Continuation of Employment
The Employee shall continue in the employ of the Company, upon
the same terms as currently engaged, subject to the provisions hereof.
ARTICLE II
Payments Upon Death or Disability of the Employee
Commencing with the date of disability or death of the
Employee, the Company shall pay the Employee's wife an annual sum equal to
Employee's annual salary (not including annual or incentive bonus) at the date
of his disability or death to be payable in monthly installments upon the last
business day of each month. The Company shall continue to make such payments
to Employee's wife for a period of three years; subject, however, to the
following:
(a) Upon the death of the Employee's wife, the Company shall have
no liability to continue any payments beyond the last business day of the month
in which she dies.
(b) If the Employee dies or is disabled and his wife is not then
living, the Company shall not be required to make any payments hereunder.
<PAGE> 2
ARTICLE III
Insurance Upon Death or Disability of the Employee
Commencing with the date of disability or death of the
Employee, the Company shall offer to Employee's wife and family health
insurance comparable to employee's health insurance at the date of his
disability or death. The Company shall continue to make available such
insurance to Employee's wife for a period of three years and, to the extent not
precluded by law or the terms of the policy, shall pay all premiums related
thereto; subject, however, to the following:
(a) Upon the death of the Employee's wife, the Company shall have
no liability to continue any insurance beyond the last business day of the
month in which she dies.
(b) If the Employee dies or is disabled and his wife is not then
living, the Company shall not be required to make available such insurance.
ARTICLE IV
Termination of Employment
In the event that the Employee leaves the employ of the
Company for reason other than his death or physical or mental disability, this
agreement shall terminate.
ARTICLE V
Term
This agreement shall expire on August 31, 1999, unless the
same is renewed, extended or modified from and after that date by the Board of
Directors of the Company. On termination of this Agreement pursuant to this
Article, the benefits and other provision contained in Article II and Article
III hereof shall remain in force and effect thereafter, provided that the three
year period for benefits shall be amended to provide for benefits from the date
of disability or death of the Employee to September 5, 2002.
ARTICLE VI
Nonassignability
This agreement and the rights, interest, and benefits hereunder
shall not be assigned, transferred, pledged, sold, conveyed, or encumbered in
any way by the Employee, his wife, or his widow, and shall not be subject to
execution, attachment or similar process. Any attempted sale, conveyance,
transfer, assignment, pledge or encumbrance of this agreement or
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<PAGE> 3
of such rights, interest and benefits contrary to the foregoing provisions or
the levy of any attachment or similar process thereupon shall be null and void
and without effect.
ARTICLE VII
Binding Effect
This agreement shall be binding upon and inure to the benefit
of any successor of the Company, and any such successor shall be deemed
substituted for the Company under the terms of this agreement. As used in this
agreement, the term "successor" shall include any person, firm, corporation, or
other business entity which at any time, whether by merger, purchase or
otherwise, acquires all or substantially all of the assets or business of the
Company.
Executed by the Company and the Employee as of the day and the
year first above written.
DENALI HOLDINGS, INC.
By: /s/ J. TAFT SYMONDS
------------------------------
J. Taft Symonds
/s/ STEPHEN T. HARCROW
----------------------------------
Stephen T. Harcrow, Employee
-3-
<PAGE> 1
Exhibit 10.9
[DENALI HOLDINGS, INC. LETTERHEAD]
March 31, 1997
PERSONAL AND CONFIDENTIAL
Mr. Lee Orr
10061 Granite Crest Lane
Sandy, UT 84092
Dear Lee:
I am pleased to offer you the position of President of Ershigs, Inc. located in
the Bellingham, Washington office. You will report directly to the President
of Specialty Solutions, Inc. The elements of your compensation package are as
follows:
1. Your base salary shall be $125,000 per year, paid semimonthly as
earned, effective May 1, 1997.
2. Your bonus shall be based on achieving the following goals: 40% E.V.
and 60% O.A. effective of July 1 fiscal year 1998.
3. You will receive a 5 year stock option of $50,000 for 5% equity in
Ershigs, Inc. This option will be fully vested at the completion of
one year of employment.
4. The Company shall reimburse you for the relocation of your household
goods from Salt Lake City to Bellingham. In addition, the Company
will reimburse your realtor fee for the sale of your house in Salt
Lake City and will pay you the equivalent of one month's salary for
miscellaneous relocation costs.
5. You will be entitled to six months severance upon termination of your
employment with Ershigs.
6. You will be entitled to Ershigs' standard benefits.
7. As partial consideration for your employment, you agree to sign the
attached Employee's Agreement Relating to Inventions, Confidential
Information and the Like; upon termination of employment, agree that
you will abide by same.
<PAGE> 2
If you have any questions regarding this Offer, please do not hesitate to
contact me. Please acknowledge your acceptance of this offer by signing in the
space provided below and returning one original copy to me. The additional
copy is for your records.
Sincerely,
/s/ STEPHEN T. HARCROW
Stephen T. Harcrow
Chairman
Ershigs, Inc.
AGREED AND ACCEPTED:
/s/ LEE ORR
- ------------------------------
Lee Orr
Date: April 2, 1997
------------------------
Enclosures
Employee's Agreement Relating to Inventions,
Confidential Information and the Like
Notice Letter
<PAGE> 1
EXHIBIT 10.10
CONSULTING AGREEMENT
This Consulting Agreement ("the Agreement"), effective April 1, 1997, is for
the rendering of consulting services by Edward de Boer ("Consultant"), having a
mailing address of 311 Don Ore Rd. Salt Spring Island, B.C. Canada V8K 2H5, to
Ershigs, Inc. ("Company") having a mailing address of 742 Marine Dr., P.O. Box
1707, Bellingham, WA. 98227-1707.
WHEREAS, Company is engaged in Engineered FRP Composites for the chemical,
mining, pulp & paper and power industries;
WHEREAS, Consultant possesses certain knowledge, experience, and good will in
these industries relating to process equipment, marketing and manufacturing;
and
WHEREAS, Company is desirous of utilizing Consultant's expertise and Consultant
is willing to assist Company in its ongoing efforts:
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
conditions contained herein, the parties agree as follows:
1. SERVICES. Consultant will render consulting services to the Company
useful in the restructuring of Company as may be requested from time to time by
an authorized Company representative. Specifically, Consultant shall achieve
the milestones set forth on Attachment "A" hereto, and shall therefore be
entitled to his fee as set forth in Section 4 of this Agreement.
2. TERM OF AGREEMENT. Subject to the provisions of Article 8 hereof,
this agreement shall continue in force from the above date until December 31,
1997.
3. INDEPENDENT CONTRACTOR. Consultant agrees he is an independent
contractor, and while providing services under this Agreement, is not an agent
or employee of Company, and has no authority to obligate or bind Company in any
way to third parties without the express written permission of an appropriate
officer of the Company or of its Board of Directors.
Except as otherwise expressly agreed in writing by the parties, Consultant
shall not be eligible for or claim any benefits or perquisites which the
Company provides to its employees including, but not limited to, medical and
dental coverage, life insurance, bonuses, stock purchase plan, pension plan, or
thrift plan.
4. FEES. In consideration for the rendering of Consultant's services,
Company will pay Consultant $13,318.00 per month. Company shall not be
responsible for withholding any federal, state or other taxes with respect to
fees payable hereunder. Consultant shall be
<PAGE> 2
responsible for payment of any and all applicable social security and personal
income taxes which may become due as a result of any payments made by Company
to Consultant hereunder and shall indemnify and hold Company harmless in this
regard.
Consultant shall furnish all transportation and personal incidentals necessary
for the performance of this Agreement. Company will reimburse Consultant only
for those travel and other expenses incurred as a result of a written request
by Company in rendering the services hereunder, according to the defined
Company expense reimbursement policy. Expenses will be reimbursed in a timely
manner upon presentation by Consultant of completed expense reports on Company
forms with supporting receipts. All reimbursed travel by Consultant must be
approved in advance by Company.
5. CONFIDENTIAL AND PROPRIETARY INFORMATION. Consultant recognizes and
acknowledges he will have access to certain confidential information (written
or otherwise) of Company, and that such information constitutes valuable,
special, and unique property of Company. Consultant further acknowledges that
Consultant's work hereunder will involve proprietary confidential information,
and thus also will be subject to the terms of this paragraph. Consultant will
not, during or after the term of the Agreement, disclose any of such
confidential information to any person or firm, corporation, association, or
other entity for any reason or purpose whatsoever (except to authorized
representatives of Company and its affiliated corporations) without the express
written permission of Company.
6. NON-COMPETITION. Consultant warrants this Agreement will not conflict
with any of his existing obligations or obligations under any other contract.
During the term of his Agreement, Consultant will not own or acquire any
portion of the ownership of, be employed by or provide services for any person,
business corporation or other entity in competition with Company.
7. FULL DISCLOSURE. Consultant shall promptly and freely disclose to
Company all conceptions, inventions, improvments, suggestions for improvement
and valuable discoveries, whether patentable or not, which are conceived or
made by Consultant solely or jointly with another or others during the term of
this Agreement and which are related to Company's business. Consultant hereby
assigns, and agrees to assign all his interest therein to the Company.
8. TERMINATION. This Agreement shall terminate on December 31, 1997,
unless terminated earlier by either party for cause. The covenants of
Consultant in Articles 5, 6 and 7 shall survive termination.
Upon termination, at Company's request, Consultant will promptly deliver to
Company all drawings, manuals, letters, notes, reports, customer lists, and all
other material and records of any kind whatsoever, including copies thereof,
that were acquired from Company or created in conjunction with the business of
Company.
<PAGE> 3
9. ENTIRE AGREEMENT. This Agreement supersedes all previous oral and
written agreements and constitutes the entire Agreement between Consultant and
Company and may only be amended by mutual written consent of both parties
hereto.
10. JURISDICTION. The rights and obligations of the parties to this
Agreement shall be construed in accordance with the laws of Washington.
11. NOTICE. All notices or other communications to be given pursuant to
this Agreement must be in writing and may be given or served by mail, fax or
personal delivery to the addresses first written above. Notices shall be
effective upon receipt by the party notified.
12. SEVERABILITY. If any of the term and conditions of this Agreement are
held by any court of competent jurisdiction to contravene or to be invalid
under the laws of any political body having jurisdiction over the subject
matter hereof, such contravention or invalidity shall not invalidate the entire
Agreement, but instead, the Agreement shall be construed as if not containing
the particular provision or provisions held to be invalid, the rights and
obligations of the parties shall be construed and enforced accordingly, and
this Agreement shall thereupon remain in full force and effect. The parties
agree to cooperate in any revision of the Agreement which may be necessary to
meet the requirements of law.
13. NON-ASSIGNABILITY. This Agreement shall not be assigned voluntarily,
involuntarily or by operation of law without Company's prior written consent,
and in the event of such assignment, Company may terminate this Agreement
immediately without any further liability hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this ____
day of March, 1997.
Edward de Boer
------------------------------
Ershigs, Inc.
------------------------------
<PAGE> 4
ATTACHMENT "A"
April 15, 1997: Fourth Quarter stub period financial plan to be reviewed and
revised as necessary
May 1, 1997: Resolve over 90 days Accounts Receivable problems.
June 1, 1997: Plant closure at Gatesville to be complete. Recruiting of new
President of Ershigs to be complete.
July 1, 1997: Renegotiate Herb Ershigs' Agreement. FY98 plan to be complete
for presentation to Board. Redundancies to be completed. Put in place new
company benefits, i.e., medical, dental, 401k.
July 15, 1997-October 15, 1997: Growth Opportunities Plan, both internal and
external to be in place.
December 31, 1997: Sales and Marketing issues FCI/Ershigs to be resolved and
action plan in place. Complete Management transition.
<PAGE> 1
EXHIBIT 10.11
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (the "Agreement") is
made as of September 5, 1997, by and between R. Kevin Andrews ("Employee") and
Denali Holdings, Inc., a Texas corporation and its affiliates as hereinafter
defined (collectively referred to as the "Company").
W I T N E S S E T H:
WHEREAS, Denali Holdings, Inc. is the parent of a consolidated group
of corporations including 3DM, Inc., Containment Solutions, Inc., Fluid
Containment, Inc., Hoover Containment, Inc., Specialty Solutions, Inc.,
Ershigs, Inc., and Fluid Containment Property, Inc., each of which maintains
its own trade secrets and confidential information as hereinafter described and
each of which are an integral part of the business of the consolidated group as
hereinafter described, and, accordingly, each of which, together with any other
entities hereinafter created or acquired as a part of the consolidated group
shall be jointly referred to as the "Company"; and
WHEREAS, Employee is an executive officer of the Company; and
WHEREAS, because of, among other matters, Employee's intimate
knowledge of the business of the Company and their respective Trade Secrets and
Confidential Information, and his reputation and relationships with, among
others, the clients, customers, subcontractors, suppliers, employees and other
agents of the Company, Employee and the Company recognize and acknowledge (i)
the detrimental effect on the business and the substantially decreased value of
the Company and the business which would result if Employee were to disclose or
use any of the Company's trade secrets or confidential information or to enter
into competition with the business within a reasonable period of time after
Employees' termination of service with the Company and (ii) that the agreements
and covenants in this Agreement are essential to protect the business of the
Company and (iii) that Employee is receiving compensation commensurate with a
position of executive responsibility to the Company.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein and in consideration of the
employment of Employee by Company, Company and Employee agree as follows:
1. Employee agrees and acknowledges that he is intimately
familiar with the business of the Company, including without limitation, its
Trade Secrets and Confidential Information. As used herein. "Trade Secrets and
Confidential Information" includes without limitation the following: its
plans, strategies, costs, prices, sources of supply, customers and customer
information, formulas, methods, processes, computer software, products and
product manufacturing techniques, financial information, blueprints, technical
data, and the like which are not generally made available. Employee shall
maintain all such Trade Secrets and Confidential Information in strict
confidence and shall not use or disclose any of same except to the extent
reasonably necessary for Employee to perform his employment obligations to the
Company.
<PAGE> 2
2. Employee agrees that commencing on the date of this Agreement
and continuing for a period of one year from termination of employment,
Employee will not directly or indirectly engage in any Competitive Activities
(as hereinafter defined). The term "Competitive Activities" as used herein
shall mean:
(a) directly or indirectly engaging in, continuing in or
carrying on the business or operations previously conducted by Company
(including without limitation the business of providing economically
and environmentally better solutions for containing, monitoring and
separating critical fluids) as of the date of this Agreement (the
"Business"), including owning, controlling, participating in, joining,
operating, or managing or being a partner, stockholder, member or
owner of any business which competes with the Company in the Business;
(b) consulting with, advising or assisting in any way,
whether or not for consideration, any corporation, partnership, firm
or other business organization regarding the Business which at the
time of such consultation, advice or assistance is or proposes to
become a competitor of the Business, including, but not limited to,
advertising or otherwise endorsing the products or services of any
such competitor that is competing with the Company; soliciting clients
or customers of the Business for services or products competitive with
the Business (or persons or entities from which the Company have
solicited orders for the sale of any Business service within the three
years immediately preceding the date of this Agreement) or otherwise
serving as an intermediary for any such competitor for services or
products competitive with the Business; loaning money or rendering any
other form of financial assistance to any such competitor;
(c) inducing or attempting to induce any director,
officer, employee, agent, or customer, supplier or lessor of the
Company to terminate such position or relationship with the Company or
its subsidiaries; or
(d) operating any business or offering any goods or
services under any name that incorporates the word "Containment" or
mark that is similar to any name or mark of the Company, or any
variation of the marks;
provided, however, that the term "Competitive Activities" shall not include (i)
the ownership of securities of corporations which are listed on a national
securities exchange or traded in the national over-the-counter market in an
amount which shall not exceed 5% of the outstanding shares of any such
corporation or (ii) any activities performed by Employee on behalf of the
Company. The parties agree that, since the scope of the Business conducted by
or through the Company and its affiliates and subsidiaries, is carried out
through-out the United States.
3. If Employee commits a breach, or overtly threatens to commit a
breach, of any of the provisions of Paragraphs 1 or 2, Company shall have the
right and remedy to have the provisions of Paragraphs 1 or 2 of this Agreement
specifically enforced by any court having jurisdiction, it being acknowledged
and agreed that any such breach or threatened breach will cause irreparable
injury and continuing damage to Company, and that the exact amount of which
-2-
<PAGE> 3
would be difficult to ascertain and that in any event money damages will not
provide an adequate remedy and Company shall be entitled to injunctive relief
restraining any violation of Paragraphs 1 and 2.
The rights and remedies enumerated above shall be independent, and in
addition to, and not in lieu of, any other rights and remedies available to
Company, at law or in equity.
The provisions of this Section 3 will not be subject to arbitration as
set forth in Section 13.
4. The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Paragraph 1 upon the courts of any state or
foreign jurisdiction within the geographical scope of such covenants. If the
courts of any one or more of such states or jurisdictions shall fail to hold
such covenants wholly enforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect Company's right to the relief provided above in
the courts of any other states or jurisdictions within the geographical scope
of such covenants, as to breaches of such covenants as they relate to each
state being, for this purpose, severable at Company's sole option into diverse
and independent covenants.
5. If any action, suit or other proceedings at law or in equity
is brought to enforce the covenants contained in Paragraphs 1 or 2, or to
obtain money damages for the breach thereof, and such action results in the
award of a judgment for money damages or in the granting of any injunction in
favor of Company, all expenses (including reasonable attorneys' fees and
expenses) of Company, in such action, suit or other proceeding shall (on demand
of Company) be paid by Employee; provided, that, if in any such action, suit or
proceeding, Employee is the prevailing party, then Company shall, upon demand,
pay all expenses (including reasonable attorneys' fees) incurred by Employee in
connection therewith.
6. Employee understands that the foregoing restrictions may limit
his ability to engage in a business similar to the Business, but acknowledges
that he is receiving sufficiently high benefits from Company to justify such
restriction. It is expressly understood and agreed that Employee and Company
consider the restrictions contained in this Agreement to be reasonable and
necessary for the purposes of preserving and protecting the Trade Secrets and
Confidential Information of Company. Based upon the nature of the business in
which the Company is engaged, including the geographic scope of its operations
and the general nature of the industry, the restrictions placed on Employee as
to duration of this Agreement, the geographic scope of the covenants, and the
scope of activity restrictions are reasonable and necessary for the purpose of
preserving and protecting the Trade Secrets and Confidential Information of
Company. The restrictions are drawn as narrowly as possible so as to minimize
the burden on Employee while maintaining protection of Company's legitimate
interests in trade secrets, good will, reputation and protection of customer
base. Employee acknowledges that the restrictions contained in this Agreement
are reasonable. Furthermore, Employee represents and warrants that Employee is
capable of compliance with the restrictions and that the restrictions
-3-
<PAGE> 4
will not unreasonably harm or interfere with Employee's ability to earn a
living. Nevertheless, if any of the aforesaid restrictions are found by a
court having jurisdiction to be unreasonable, or over broad, as to the scope of
activity to be restrained, geographic area or time, or otherwise unenforceable,
the parties intend for the restrictions therein set forth to be modified by
such court so as to be reasonable and enforceable and as so modified by the
court to be fully enforced.
7. No failure by either party hereto at any time to give notice
of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
8. Neither this Agreement nor any interest herein may be assigned
by Employee. Company may freely assign this Agreement and any and all interest
herein to any "Affiliate" thereof or in connection with a transfer, directly or
indirectly, of all or substantially all of its interest in the Company and its
subsidiaries or the assets or business thereof but may not otherwise assign
this Agreement. "Affiliate" means for any Person, (i) any other Person that
directly or indirectly through one or more intermediaries controls, or is under
common control with, or is controlled by, such Person, and (ii) any other
Person owning beneficially or controlling ten percent (10%) or more of the
equity interests in such Persons. As used in this definition, "control" means
the power, directly or indirectly, to direct or cause the direction of
management or policies of a Person (through ownership of voting securities or
other equity interest, by contract or otherwise). "Person" means an
individual, partnership, corporation, limited liability company, association,
trust, unincorporated organization or any other entity or organization
including a government or any agency or political subdivision thereof.
9. If any portion of this Agreement or the application thereof to
any person or circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision to other
persons or circumstances is not affected thereby and that provision shall be
enforced to the greatest extent permitted by applicable law.
10. No modification or amendment of any provisions of this
Agreement shall be effective, unless such modification or amendment shall be in
writing and signed by a duly authorized officer of Company and by Employee.
This Agreement may be executed by the parties hereto in one or more
counterparts, each of which shall be an original and all of which shall
together constitute the Agreement. This Agreement constitutes the sole and
entire agreement of the parties hereto with respect to the matters covered
hereby and supersedes all prior negotiations and written, oral or implied
representations, warranties, commitments, offers, contracts and understandings
between the parties with respect to such matters.
11. All notices, demands, consents or other communications
required or permitted hereunder shall be in writing (which shall include
materials sent and received via facsimile) and shall be deemed to have been
given when personally delivered, sent by facsimile or sent by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
-4-
<PAGE> 5
If to Company: Denali Holdings, Inc.
1360 Post Oak Blvd., Suite 2470
Houston, Texas 77056-3023
Attention: Ms. Cathy Smith
If to Employee: at the address shown on the signature page
of this Agreement
or to such other person and place as a party shall furnish by notice to the
other party hereto if given in the manner required above. Any notice, demand,
consent or other communication given hereunder in the manner required above
shall be deemed to have been effected and received as of the date hand
delivered or, if mailed, three days after the date so mailed.
12. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof.
13. Except for the matters set forth in Section 3 and the rights
and remedies granted to Company in Section 4 which will not be subject to this
Section 13, any controversy or claim arising out of or relating to this
Agreement or any breach thereof, any transaction covered hereby, the subject
matter related hereto or the enforceability hereof, whether based in whole or
in part or written or oral communications, and including but not limited to,
any claims based in whole or in part on negligence, fraud or similar statutes,
laws or regulations, shall be resolved by binding arbitration in accordance
with the provisions of this Section 13.
(i) Except as provided herein to the contrary, the arbitration
shall be conducted in accordance with the then applicable Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon any
award rendered by the arbitrator may be entered and a confirmation order sought
in any court having jurisdiction thereof; provided, however, that the
arbitrator shall have no power to make any award of or for punitive damages nor
shall the arbitrator amend, supplement or reform in any regard any of the
rights, remedies or obligations of any party hereunder, or the enforceability
of any of the terms hereof. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding. Any attorney-client
privilege and other protection against disclosure of privileged or confidential
information including, without limitation, any protection afforded the
work-product of any attorney, that could otherwise be claimed by any party
shall be available to, and may be claimed by, any such party in any arbitration
proceeding. No party waives any attorney-client privilege or any other
protection against disclosure of privileged or confidential information by
reason of anything contained in, or done pursuant to, the arbitration
provisions of this Agreement. Any arbitration shall be conducted in Houston,
Texas, before a single arbitrator appointed in the manner provided below. To
the extent and only to the extent that any controversy or claim arising out of
or relating hereto is determined to be a non-arbitrable issue, claim or
controversy under applicable law, the parties hereto agree to stay any
litigation or suit relating to such non-arbitrable cause of action, controversy
or claim until all other arbitrable controversies, claims and issues are
resolved by binding arbitration in accordance with this Section 13. All
parties hereto agree that any findings, judgments, or awards rendered by the
arbitrator shall be
-5-
<PAGE> 6
binding on all parties and may not be resubmitted or litigated in any
litigation, suit or proceeding relating to nonarbitrable issues.
(ii) Any party who desires to submit an issue(s) to arbitration
shall notify the other party in writing of the issue(s) to be arbitrated and a
brief statement of the matter in controversy. If the parties are unable to
resolve their differences within ten business days of the receipt of such
notice then either party may submit that issue(s) to arbitration.
(iii) Within 10 days of the submission of issue(s) to arbitration
the parties shall meet and attempt to agree on the selection and appointment of
an arbitrator. If agreement is reached as to the arbitrator within ten days
after such 10-day period, then the arbitrator shall be notified of his
appointment and instructed to proceed with determining the issues to be
arbitrated. If the parties are unable to agree upon a single arbitrator within
such ten day period, then as soon as practicable thereafter either party shall
have the right to request such appointment be made by the American Arbitration
Association through its Houston, Texas office in accordance with the then
applicable Commercial Arbitration Rules of the American Arbitration Association
and the arbitrator appointed in such manner shall be the arbitrator hereunder.
If the arbitrator fails, refuses or is unable to act as an arbitrator pursuant
hereto, then a substitute arbitrator shall be appointed in his stead, which
appointment shall be made in the same manner as the appointment of the
arbitrator so failing, refusing or unable to act.
(iv) Any party to this Agreement may bring as summary proceedings
(including, without limitation, a plea in abatement or motion to stay further
proceedings) an action in court to compel arbitration of any issues, claims and
controversies in accordance with this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date and year first above written.
COMPANY: DENALI HOLDINGS, INC.
By: /s/ STEPHEN T. HARCROW
-----------------------------------------
Name: Stephen T. Harcrow
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
EMPLOYEE:
/s/ R. KEVIN ANDREWS
--------------------------------------------
R. Kevin Andrews
Address: 2727 Elmslide #123
Houston, Texas 77042
-6-
<PAGE> 1
EXHIBIT 10.12
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (the "Agreement") is
made as of September 5, 1997, by and between Melford S. Carter ("Employee") and
Denali Holdings, Inc., a Texas corporation and its affiliates as hereinafter
defined (collectively referred to as the "Company").
W I T N E S S E T H:
WHEREAS, Denali Holdings, Inc. is the parent of a consolidated group
of corporations including 3DM, Inc., Containment Solutions, Inc., Fluid
Containment, Inc., Hoover Containment, Inc., Specialty Solutions, Inc.,
Ershigs, Inc., and Fluid Containment Property, Inc., each of which maintains
its own trade secrets and confidential information as hereinafter described and
each of which are an integral part of the business of the consolidated group as
hereinafter described, and, accordingly, each of which, together with any other
entities hereinafter created or acquired as a part of the consolidated group
shall be jointly referred to as the "Company"; and
WHEREAS, Employee is an executive officer of the Company; and
WHEREAS, because of, among other matters, Employee's intimate
knowledge of the business of the Company and their respective Trade Secrets and
Confidential Information, and his reputation and relationships with, among
others, the clients, customers, subcontractors, suppliers, employees and other
agents of the Company, Employee and the Company recognize and acknowledge (i)
the detrimental effect on the business and the substantially decreased value of
the Company and the business which would result if Employee were to disclose or
use any of the Company's trade secrets or confidential information or to enter
into competition with the business within a reasonable period of time after
Employees' termination of service with the Company and (ii) that the agreements
and covenants in this Agreement are essential to protect the business of the
Company and (iii) that Employee is receiving compensation commensurate with a
position of executive responsibility to the Company.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein and in consideration of the
employment of Employee by Company, Company and Employee agree as follows:
1. Employee agrees and acknowledges that he is intimately
familiar with the business of the Company, including without limitation, its
Trade Secrets and Confidential Information. As used herein. "Trade Secrets and
Confidential Information" includes without limitation the following: its
plans, strategies, costs, prices, sources of supply, customers and customer
information, formulas, methods, processes, computer software, products and
product manufacturing techniques, financial information, blueprints, technical
data, and the like which are not generally made available. Employee shall
maintain all such Trade Secrets and Confidential Information in strict
confidence and shall not use or disclose any of same except to the extent
reasonably necessary for Employee to perform his employment obligations to the
Company.
<PAGE> 2
2. Employee agrees that commencing on the date of this Agreement
and continuing for a period of one year from termination of employment,
Employee will not directly or indirectly engage in any Competitive Activities
(as hereinafter defined). The term "Competitive Activities" as used herein
shall mean:
(a) directly or indirectly engaging in, continuing in or
carrying on the business or operations previously conducted by Company
(including without limitation the business of providing economically
and environmentally better solutions for containing, monitoring and
separating critical fluids) as of the date of this Agreement (the
"Business"), including owning, controlling, participating in, joining,
operating, or managing or being a partner, stockholder, member or
owner of any business which competes with the Company in the Business;
(b) consulting with, advising or assisting in any way,
whether or not for consideration, any corporation, partnership, firm
or other business organization regarding the Business which at the
time of such consultation, advice or assistance is or proposes to
become a competitor of the Business, including, but not limited to,
advertising or otherwise endorsing the products or services of any
such competitor that is competing with the Company; soliciting clients
or customers of the Business for services or products competitive with
the Business (or persons or entities from which the Company have
solicited orders for the sale of any Business service within the three
years immediately preceding the date of this Agreement) or otherwise
serving as an intermediary for any such competitor for services or
products competitive with the Business; loaning money or rendering any
other form of financial assistance to any such competitor;
(c) inducing or attempting to induce any director,
officer, employee, agent, or customer, supplier or lessor of the
Company to terminate such position or relationship with the Company or
its subsidiaries; or
(d) operating any business or offering any goods or
services under any name that incorporates the word "Containment" or
mark that is similar to any name or mark of the Company, or any
variation of the marks;
provided, however, that the term "Competitive Activities" shall not include (i)
the ownership of securities of corporations which are listed on a national
securities exchange or traded in the national over-the-counter market in an
amount which shall not exceed 5% of the outstanding shares of any such
corporation or (ii) any activities performed by Employee on behalf of the
Company. The parties agree that, since the scope of the Business conducted by
or through the Company and its affiliates and subsidiaries, is carried out
through-out the United States.
3. If Employee commits a breach, or overtly threatens to commit a
breach, of any of the provisions of Paragraphs 1 or 2, Company shall have the
right and remedy to have the provisions of Paragraphs 1 or 2 of this Agreement
specifically enforced by any court having jurisdiction, it being acknowledged
and agreed that any such breach or threatened breach will cause irreparable
injury and continuing damage to Company, and that the exact amount of which
-2-
<PAGE> 3
would be difficult to ascertain and that in any event money damages will not
provide an adequate remedy and Company shall be entitled to injunctive relief
restraining any violation of Paragraphs 1 and 2.
The rights and remedies enumerated above shall be independent, and in
addition to, and not in lieu of, any other rights and remedies available to
Company, at law or in equity.
The provisions of this Section 3 will not be subject to arbitration as
set forth in Section 13.
4. The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Paragraph 1 upon the courts of any state or
foreign jurisdiction within the geographical scope of such covenants. If the
courts of any one or more of such states or jurisdictions shall fail to hold
such covenants wholly enforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect Company's right to the relief provided above in
the courts of any other states or jurisdictions within the geographical scope
of such covenants, as to breaches of such covenants as they relate to each
state being, for this purpose, severable at Company's sole option into diverse
and independent covenants.
5. If any action, suit or other proceedings at law or in equity
is brought to enforce the covenants contained in Paragraphs 1 or 2, or to
obtain money damages for the breach thereof, and such action results in the
award of a judgment for money damages or in the granting of any injunction in
favor of Company, all expenses (including reasonable attorneys' fees and
expenses) of Company, in such action, suit or other proceeding shall (on demand
of Company) be paid by Employee; provided, that, if in any such action, suit or
proceeding, Employee is the prevailing party, then Company shall, upon demand,
pay all expenses (including reasonable attorneys' fees) incurred by Employee in
connection therewith.
6. Employee understands that the foregoing restrictions may limit
his ability to engage in a business similar to the Business, but acknowledges
that he is receiving sufficiently high benefits from Company to justify such
restriction. It is expressly understood and agreed that Employee and Company
consider the restrictions contained in this Agreement to be reasonable and
necessary for the purposes of preserving and protecting the Trade Secrets and
Confidential Information of Company. Based upon the nature of the business in
which the Company is engaged, including the geographic scope of its operations
and the general nature of the industry, the restrictions placed on Employee as
to duration of this Agreement, the geographic scope of the covenants, and the
scope of activity restrictions are reasonable and necessary for the purpose of
preserving and protecting the Trade Secrets and Confidential Information of
Company. The restrictions are drawn as narrowly as possible so as to minimize
the burden on Employee while maintaining protection of Company's legitimate
interests in trade secrets, good will, reputation and protection of customer
base. Employee acknowledges that the restrictions contained in this Agreement
are reasonable. Furthermore, Employee represents and warrants that Employee is
capable of compliance with the restrictions and that the restrictions
-3-
<PAGE> 4
will not unreasonably harm or interfere with Employee's ability to earn a
living. Nevertheless, if any of the aforesaid restrictions are found by a
court having jurisdiction to be unreasonable, or over broad, as to the scope of
activity to be restrained, geographic area or time, or otherwise unenforceable,
the parties intend for the restrictions therein set forth to be modified by
such court so as to be reasonable and enforceable and as so modified by the
court to be fully enforced.
7. No failure by either party hereto at any time to give notice
of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
8. Neither this Agreement nor any interest herein may be assigned
by Employee. Company may freely assign this Agreement and any and all interest
herein to any "Affiliate" thereof or in connection with a transfer, directly or
indirectly, of all or substantially all of its interest in the Company and its
subsidiaries or the assets or business thereof but may not otherwise assign
this Agreement. "Affiliate" means for any Person, (i) any other Person that
directly or indirectly through one or more intermediaries controls, or is under
common control with, or is controlled by, such Person, and (ii) any other
Person owning beneficially or controlling ten percent (10%) or more of the
equity interests in such Persons. As used in this definition, "control" means
the power, directly or indirectly, to direct or cause the direction of
management or policies of a Person (through ownership of voting securities or
other equity interest, by contract or otherwise). "Person" means an
individual, partnership, corporation, limited liability company, association,
trust, unincorporated organization or any other entity or organization
including a government or any agency or political subdivision thereof.
9. If any portion of this Agreement or the application thereof to
any person or circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision to other
persons or circumstances is not affected thereby and that provision shall be
enforced to the greatest extent permitted by applicable law.
10. No modification or amendment of any provisions of this
Agreement shall be effective, unless such modification or amendment shall be in
writing and signed by a duly authorized officer of Company and by Employee.
This Agreement may be executed by the parties hereto in one or more
counterparts, each of which shall be an original and all of which shall
together constitute the Agreement. This Agreement constitutes the sole and
entire agreement of the parties hereto with respect to the matters covered
hereby and supersedes all prior negotiations and written, oral or implied
representations, warranties, commitments, offers, contracts and understandings
between the parties with respect to such matters.
11. All notices, demands, consents or other communications
required or permitted hereunder shall be in writing (which shall include
materials sent and received via facsimile) and shall be deemed to have been
given when personally delivered, sent by facsimile or sent by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
-4-
<PAGE> 5
If to Company: Denali Holdings, Inc.
1360 Post Oak Blvd., Suite 2470
Houston, Texas 77056-3023
Attention: Ms. Cathy Smith
If to Employee: at the address shown on the signature page
of this Agreement
or to such other person and place as a party shall furnish by notice to the
other party hereto if given in the manner required above. Any notice, demand,
consent or other communication given hereunder in the manner required above
shall be deemed to have been effected and received as of the date hand
delivered or, if mailed, three days after the date so mailed.
12. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof.
13. Except for the matters set forth in Section 3 and the rights
and remedies granted to Company in Section 4 which will not be subject to this
Section 13, any controversy or claim arising out of or relating to this
Agreement or any breach thereof, any transaction covered hereby, the subject
matter related hereto or the enforceability hereof, whether based in whole or
in part or written or oral communications, and including but not limited to,
any claims based in whole or in part on negligence, fraud or similar statutes,
laws or regulations, shall be resolved by binding arbitration in accordance
with the provisions of this Section 13.
(i) Except as provided herein to the contrary, the arbitration
shall be conducted in accordance with the then applicable Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon any
award rendered by the arbitrator may be entered and a confirmation order sought
in any court having jurisdiction thereof; provided, however, that the
arbitrator shall have no power to make any award of or for punitive damages nor
shall the arbitrator amend, supplement or reform in any regard any of the
rights, remedies or obligations of any party hereunder, or the enforceability
of any of the terms hereof. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding. Any attorney-client
privilege and other protection against disclosure of privileged or confidential
information including, without limitation, any protection afforded the
work-product of any attorney, that could otherwise be claimed by any party
shall be available to, and may be claimed by, any such party in any arbitration
proceeding. No party waives any attorney-client privilege or any other
protection against disclosure of privileged or confidential information by
reason of anything contained in, or done pursuant to, the arbitration
provisions of this Agreement. Any arbitration shall be conducted in Houston,
Texas, before a single arbitrator appointed in the manner provided below. To
the extent and only to the extent that any controversy or claim arising out of
or relating hereto is determined to be a non-arbitrable issue, claim or
controversy under applicable law, the parties hereto agree to stay any
litigation or suit relating to such non-arbitrable cause of action, controversy
or claim until all other arbitrable controversies, claims and issues are
resolved by binding arbitration in accordance with this Section 13. All
parties hereto agree that any findings, judgments, or awards rendered by the
arbitrator shall be
-5-
<PAGE> 6
binding on all parties and may not be resubmitted or litigated in any
litigation, suit or proceeding relating to nonarbitrable issues.
(ii) Any party who desires to submit an issue(s) to arbitration
shall notify the other party in writing of the issue(s) to be arbitrated and a
brief statement of the matter in controversy. If the parties are unable to
resolve their differences within ten business days of the receipt of such
notice then either party may submit that issue(s) to arbitration.
(iii) Within 10 days of the submission of issue(s) to arbitration
the parties shall meet and attempt to agree on the selection and appointment of
an arbitrator. If agreement is reached as to the arbitrator within ten days
after such 10-day period, then the arbitrator shall be notified of his
appointment and instructed to proceed with determining the issues to be
arbitrated. If the parties are unable to agree upon a single arbitrator within
such ten day period, then as soon as practicable thereafter either party shall
have the right to request such appointment be made by the American Arbitration
Association through its Houston, Texas office in accordance with the then
applicable Commercial Arbitration Rules of the American Arbitration Association
and the arbitrator appointed in such manner shall be the arbitrator hereunder.
If the arbitrator fails, refuses or is unable to act as an arbitrator pursuant
hereto, then a substitute arbitrator shall be appointed in his stead, which
appointment shall be made in the same manner as the appointment of the
arbitrator so failing, refusing or unable to act.
(iv) Any party to this Agreement may bring as summary proceedings
(including, without limitation, a plea in abatement or motion to stay further
proceedings) an action in court to compel arbitration of any issues, claims and
controversies in accordance with this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date and year first above written.
COMPANY: DENALI HOLDINGS, INC.
By: /s/ STEPHEN T. HARCROW
-----------------------------------------
Name: Stephen T. Harcrow
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
EMPLOYEE:
/s/ MELFORD S. CARTER
--------------------------------------------
Melford S. Carter
Address: 2209 W. Main
Houston, Texas 77098
-6-
<PAGE> 1
EXHIBIT 10.13
CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (the "Agreement") is
made as of September 5, 1997, by and between Cathy Smith ("Employee") and
Denali Holdings, Inc., a Texas corporation and its affiliates as hereinafter
defined (collectively referred to as the "Company").
W I T N E S S E T H:
WHEREAS, Denali Holdings, Inc. is the parent of a consolidated group
of corporations including 3DM, Inc., Containment Solutions, Inc., Fluid
Containment, Inc., Hoover Containment, Inc., Specialty Solutions, Inc.,
Ershigs, Inc., and Fluid Containment Property, Inc., each of which maintains
its own trade secrets and confidential information as hereinafter described and
each of which are an integral part of the business of the consolidated group as
hereinafter described, and, accordingly, each of which, together with any other
entities hereinafter created or acquired as a part of the consolidated group
shall be jointly referred to as the "Company"; and
WHEREAS, Employee is an executive officer of the Company; and
WHEREAS, because of, among other matters, Employee's intimate
knowledge of the business of the Company and their respective Trade Secrets and
Confidential Information, and her reputation and relationships with, among
others, the clients, customers, subcontractors, suppliers, employees and other
agents of the Company, Employee and the Company recognize and acknowledge (i)
the detrimental effect on the business and the substantially decreased value of
the Company and the business which would result if Employee were to disclose or
use any of the Company's trade secrets or confidential information or to enter
into competition with the business within a reasonable period of time after
Employees' termination of service with the Company and (ii) that the agreements
and covenants in this Agreement are essential to protect the business of the
Company and (iii) that Employee is receiving compensation commensurate with a
position of executive responsibility to the Company.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein and in consideration of the
employment of Employee by Company, Company and Employee agree as follows:
1. Employee agrees and acknowledges that she is intimately
familiar with the business of the Company, including without limitation, its
Trade Secrets and Confidential Information. As used herein. "Trade Secrets and
Confidential Information" includes without limitation the following: its
plans, strategies, costs, prices, sources of supply, customers and customer
information, formulas, methods, processes, computer software, products and
product manufacturing techniques, financial information, blueprints, technical
data, and the like which are not generally made available. Employee shall
maintain all such Trade Secrets and Confidential Information in strict
confidence and shall not use or disclose any of same except to the extent
reasonably necessary for Employee to perform her employment obligations to the
Company.
<PAGE> 2
2. Employee agrees that commencing on the date of this Agreement
and continuing for a period of one year from termination of employment,
Employee will not directly or indirectly engage in any Competitive Activities
(as hereinafter defined). The term "Competitive Activities" as used herein
shall mean:
(a) directly or indirectly engaging in, continuing in or
carrying on the business or operations previously conducted by Company
(including without limitation the business of providing economically
and environmentally better solutions for containing, monitoring and
separating critical fluids) as of the date of this Agreement (the
"Business"), including owning, controlling, participating in, joining,
operating, or managing or being a partner, stockholder, member or
owner of any business which competes with the Company in the Business;
(b) consulting with, advising or assisting in any way,
whether or not for consideration, any corporation, partnership, firm
or other business organization regarding the Business which at the
time of such consultation, advice or assistance is or proposes to
become a competitor of the Business, including, but not limited to,
advertising or otherwise endorsing the products or services of any
such competitor that is competing with the Company; soliciting clients
or customers of the Business for services or products competitive with
the Business (or persons or entities from which the Company have
solicited orders for the sale of any Business service within the three
years immediately preceding the date of this Agreement) or otherwise
serving as an intermediary for any such competitor for services or
products competitive with the Business; loaning money or rendering any
other form of financial assistance to any such competitor;
(c) inducing or attempting to induce any director,
officer, employee, agent, or customer, supplier or lessor of the
Company to terminate such position or relationship with the Company or
its subsidiaries; or
(d) operating any business or offering any goods or
services under any name that incorporates the word "Containment" or
mark that is similar to any name or mark of the Company, or any
variation of the marks;
provided, however, that the term "Competitive Activities" shall not include (i)
the ownership of securities of corporations which are listed on a national
securities exchange or traded in the national over-the-counter market in an
amount which shall not exceed 5% of the outstanding shares of any such
corporation or (ii) any activities performed by Employee on behalf of the
Company. The parties agree that, since the scope of the Business conducted by
or through the Company and its affiliates and subsidiaries, is carried out
through-out the United States.
3. If Employee commits a breach, or overtly threatens to commit a
breach, of any of the provisions of Paragraphs 1 or 2, Company shall have the
right and remedy to have the provisions of Paragraphs 1 or 2 of this Agreement
specifically enforced by any court having jurisdiction, it being acknowledged
and agreed that any such breach or threatened breach will cause irreparable
injury and continuing damage to Company, and that the exact amount of which
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<PAGE> 3
would be difficult to ascertain and that in any event money damages will not
provide an adequate remedy and Company shall be entitled to injunctive relief
restraining any violation of Paragraphs 1 and 2.
The rights and remedies enumerated above shall be independent, and in
addition to, and not in lieu of, any other rights and remedies available to
Company, at law or in equity.
The provisions of this Section 3 will not be subject to arbitration as
set forth in Section 13.
4. The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Paragraph 1 upon the courts of any state or
foreign jurisdiction within the geographical scope of such covenants. If the
courts of any one or more of such states or jurisdictions shall fail to hold
such covenants wholly enforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect Company's right to the relief provided above in
the courts of any other states or jurisdictions within the geographical scope
of such covenants, as to breaches of such covenants as they relate to each
state being, for this purpose, severable at Company's sole option into diverse
and independent covenants.
5. If any action, suit or other proceedings at law or in equity
is brought to enforce the covenants contained in Paragraphs 1 or 2, or to
obtain money damages for the breach thereof, and such action results in the
award of a judgment for money damages or in the granting of any injunction in
favor of Company, all expenses (including reasonable attorneys' fees and
expenses) of Company, in such action, suit or other proceeding shall (on demand
of Company) be paid by Employee; provided, that, if in any such action, suit or
proceeding, Employee is the prevailing party, then Company shall, upon demand,
pay all expenses (including reasonable attorneys' fees) incurred by Employee in
connection therewith.
6. Employee understands that the foregoing restrictions may limit
her ability to engage in a business similar to the Business, but acknowledges
that she is receiving sufficiently high benefits from Company to justify such
restriction. It is expressly understood and agreed that Employee and Company
consider the restrictions contained in this Agreement to be reasonable and
necessary for the purposes of preserving and protecting the Trade Secrets and
Confidential Information of Company. Based upon the nature of the business in
which the Company is engaged, including the geographic scope of its operations
and the general nature of the industry, the restrictions placed on Employee as
to duration of this Agreement, the geographic scope of the covenants, and the
scope of activity restrictions are reasonable and necessary for the purpose of
preserving and protecting the Trade Secrets and Confidential Information of
Company. The restrictions are drawn as narrowly as possible so as to minimize
the burden on Employee while maintaining protection of Company's legitimate
interests in trade secrets, good will, reputation and protection of customer
base. Employee acknowledges that the restrictions contained in this Agreement
are reasonable. Furthermore, Employee represents and warrants that Employee is
capable of compliance with the restrictions and that the restrictions will not
unreasonably harm or interfere with Employee's ability to earn a living.
Nevertheless,
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<PAGE> 4
if any of the aforesaid restrictions are found by a court having jurisdiction
to be unreasonable, or over broad, as to the scope of activity to be
restrained, geographic area or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be modified by such court so
as to be reasonable and enforceable and as so modified by the court to be fully
enforced.
7. No failure by either party hereto at any time to give notice
of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
8. Neither this Agreement nor any interest herein may be assigned
by Employee. Company may freely assign this Agreement and any and all interest
herein to any "Affiliate" thereof or in connection with a transfer, directly or
indirectly, of all or substantially all of its interest in the Company and its
subsidiaries or the assets or business thereof but may not otherwise assign
this Agreement. "Affiliate" means for any Person, (i) any other Person that
directly or indirectly through one or more intermediaries controls, or is under
common control with, or is controlled by, such Person, and (ii) any other
Person owning beneficially or controlling ten percent (10%) or more of the
equity interests in such Persons. As used in this definition, "control" means
the power, directly or indirectly, to direct or cause the direction of
management or policies of a Person (through ownership of voting securities or
other equity interest, by contract or otherwise). "Person" means an
individual, partnership, corporation, limited liability company, association,
trust, unincorporated organization or any other entity or organization
including a government or any agency or political subdivision thereof.
9. If any portion of this Agreement or the application thereof to
any person or circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision to other
persons or circumstances is not affected thereby and that provision shall be
enforced to the greatest extent permitted by applicable law.
10. No modification or amendment of any provisions of this
Agreement shall be effective, unless such modification or amendment shall be in
writing and signed by a duly authorized officer of Company and by Employee.
This Agreement may be executed by the parties hereto in one or more
counterparts, each of which shall be an original and all of which shall
together constitute the Agreement. This Agreement constitutes the sole and
entire agreement of the parties hereto with respect to the matters covered
hereby and supersedes all prior negotiations and written, oral or implied
representations, warranties, commitments, offers, contracts and understandings
between the parties with respect to such matters.
11. All notices, demands, consents or other communications
required or permitted hereunder shall be in writing (which shall include
materials sent and received via facsimile) and shall be deemed to have been
given when personally delivered, sent by facsimile or sent by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
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<PAGE> 5
If to Company: Denali Holdings, Inc.
1360 Post Oak Blvd., Suite 2470
Houston, Texas 77056-3023
Attention: Ms. Cathy Smith
If to Employee: at the address shown on the signature page
of this Agreement
or to such other person and place as a party shall furnish by notice to the
other party hereto if given in the manner required above. Any notice, demand,
consent or other communication given hereunder in the manner required above
shall be deemed to have been effected and received as of the date hand
delivered or, if mailed, three days after the date so mailed.
12. The laws of the State of Texas will govern the interpretation,
validity and effect of this Agreement without regard to the place of execution
or the place for performance thereof.
13. Except for the matters set forth in Section 3 and the rights
and remedies granted to Company in Section 4 which will not be subject to this
Section 13, any controversy or claim arising out of or relating to this
Agreement or any breach thereof, any transaction covered hereby, the subject
matter related hereto or the enforceability hereof, whether based in whole or
in part or written or oral communications, and including but not limited to,
any claims based in whole or in part on negligence, fraud or similar statutes,
laws or regulations, shall be resolved by binding arbitration in accordance
with the provisions of this Section 13.
(i) Except as provided herein to the contrary, the arbitration
shall be conducted in accordance with the then applicable Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon any
award rendered by the arbitrator may be entered and a confirmation order sought
in any court having jurisdiction thereof; provided, however, that the
arbitrator shall have no power to make any award of or for punitive damages nor
shall the arbitrator amend, supplement or reform in any regard any of the
rights, remedies or obligations of any party hereunder, or the enforceability
of any of the terms hereof. All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding. Any attorney-client
privilege and other protection against disclosure of privileged or confidential
information including, without limitation, any protection afforded the
work-product of any attorney, that could otherwise be claimed by any party
shall be available to, and may be claimed by, any such party in any arbitration
proceeding. No party waives any attorney-client privilege or any other
protection against disclosure of privileged or confidential information by
reason of anything contained in, or done pursuant to, the arbitration
provisions of this Agreement. Any arbitration shall be conducted in Houston,
Texas, before a single arbitrator appointed in the manner provided below. To
the extent and only to the extent that any controversy or claim arising out of
or relating hereto is determined to be a non-arbitrable issue, claim or
controversy under applicable law, the parties hereto agree to stay any
litigation or suit relating to such non-arbitrable cause of action, controversy
or claim until all other arbitrable controversies, claims and issues are
resolved by binding arbitration in accordance with this Section 13. All
parties hereto agree that any findings, judgments, or awards rendered by the
arbitrator shall be
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<PAGE> 6
binding on all parties and may not be resubmitted or litigated in any
litigation, suit or proceeding relating to nonarbitrable issues.
(ii) Any party who desires to submit an issue(s) to arbitration
shall notify the other party in writing of the issue(s) to be arbitrated and a
brief statement of the matter in controversy. If the parties are unable to
resolve their differences within ten business days of the receipt of such
notice then either party may submit that issue(s) to arbitration.
(iii) Within 10 days of the submission of issue(s) to arbitration
the parties shall meet and attempt to agree on the selection and appointment of
an arbitrator. If agreement is reached as to the arbitrator within ten days
after such 10-day period, then the arbitrator shall be notified of his
appointment and instructed to proceed with determining the issues to be
arbitrated. If the parties are unable to agree upon a single arbitrator within
such ten day period, then as soon as practicable thereafter either party shall
have the right to request such appointment be made by the American Arbitration
Association through its Houston, Texas office in accordance with the then
applicable Commercial Arbitration Rules of the American Arbitration Association
and the arbitrator appointed in such manner shall be the arbitrator hereunder.
If the arbitrator fails, refuses or is unable to act as an arbitrator pursuant
hereto, then a substitute arbitrator shall be appointed in his stead, which
appointment shall be made in the same manner as the appointment of the
arbitrator so failing, refusing or unable to act.
(iv) Any party to this Agreement may bring as summary proceedings
(including, without limitation, a plea in abatement or motion to stay further
proceedings) an action in court to compel arbitration of any issues, claims and
controversies in accordance with this Agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date and year first above written.
COMPANY: DENALI HOLDINGS, INC.
By: /s/ STEPHEN T. HARCROW
-----------------------------------------
Name: Stephen T. Harcrow
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
EMPLOYEE:
/s/ CATHY SMITH
--------------------------------------------
Cathy Smith
Address: P. O. Box 3693
Park City, Utah 84060
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<PAGE> 1
EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, made and entered into on the 22nd day of
September, 1997, by and between GL&V/LaValley Industries Inc. ("Seller"), GL&V
LaValley Construction Inc. ("Company"), and Ershigs, Inc., a Washington
corporation, (hereinafter referred to as "Purchaser");
WITNESSETH
WHEREAS, GL&V/LaValley Industries Inc., a Washington corporation, owns
all of the issued and outstanding shares of capital stock (the "Capital Stock")
of the Company;
WHEREAS, GL&V/LaValley Industries Inc. desires to sell to Purchaser,
and Purchaser desires to purchase from Seller, all of the shares of Capital
Stock issued and outstanding on the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
Definitions
(a) Intellectual Property. Shall be defined as any and all (i)
patents (including, without limitation, design patents, industrial designs and
utility models, utility patents and plant patents) and patent applications
(including docketed patent disclosures awaiting filing, reissues, results of
reexaminations, divisions, continuations and extensions), patent disclosure
awaiting filing determination, inventions and improvements thereto; (ii)
trademarks, service marks, trade names, trade dress, logos, business and
product names, slogans and registrations and applications for registration
thereof; (iii) copyrights and registrations thereof and rights and unpublished
works to the extent such rights are not subsumed by copyright; (iv) inventions,
processes, designs, formulae, trade secrets, know-how, software, industrial
models, confidential and technical information, manufacturing, engineering and
technical drawings, product specifications and confidential business
information; and (v) intellectual property rights (including rights as a
licensee, if any) similar to any of the foregoing; in each case, that are
specific to the subject business.
(b) Liens. Shall be defined as all mortgages, deeds of trust, liens,
security interests, pledges, conditional sales contracts, claims, rights of
first refusal, options, charges, liabilities, obligations, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances
of any kind.
1. Purchase and Sale of Shares
(a) Purchase and Sale of Shares. Subject to the terms and conditions
set forth herein, at the Closing, Seller will sell, assign and deliver or cause
to be sold, assigned and delivered to Purchaser, and Purchaser will buy and
accept all right, title and interest in and to, the Capital Stock, free and
clear of all preemptive rights, liens, claims and encumbrances (the
"Acquisition").
(b) Purchase Price and Payment. The purchase price for all the
shares of the Capital Stock shall be $ 3.9 million. At the Closing, Purchaser
will pay $ 3.9 million to Seller or its designee, by wire transfer of
immediately available Federal Reserve funds to an account maintained by Seller
to be designated in writing by Seller at least five (5) business days prior to
the Closing Date.
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(c) Liabilities Not Assumed by Purchaser. Purchaser is not assuming
liability for any costs, expenses, judgments, fines, penalties, or attorney's
fees, arising from any claim, action, suit, proceeding, or investigation set
forth on Exhibit 3(q). Seller shall indemnify and defend Purchaser against any
such claims.
(d) Payment of Net Intercompany Indebtedness. Within 15 days of
Closing, Purchaser shall pay to Seller, in immediately available funds, the
amount by which (i) the aggregate amount as of September 30, 1997 of all
outstanding advances, loans or credits provided to the Company by Seller or any
of its affiliates exceeds (ii) the aggregate amount as of September 30, 1997 of
all outstanding advances, loans or credits provided by the Company to Seller or
any of its affiliates. If this figure is less than zero within 15 days of
Closing, Seller shall pay to Purchaser in immediately available funds the
amount by which clause (ii) exceeds clause (i) of the prior sentence.
The Closing.
(a) The closing of the Acquisition (herein called the "Closing") shall take
place on or before October 31, 1997, to be effective September 30, 1997 at
11:59 p.m. Central Time. The date of the Closing is referred to in this
Agreement as the "Closing Date".
Closing Deliveries.
At the Closing, Purchaser will deliver to Seller:
one copy of the resolutions adopted by the Board of Directors
of Purchaser authorizing the transactions
contemplated hereby, certified by the Secretary or
Assistant Secretary of Purchaser;
certificate to the effect of Article 8(a) executed by
appropriate authorized officers of Purchaser;
$ 3.9 million by wire transfer to Seller's account; and
At the Closing, Seller will deliver to Purchaser:
one copy of the resolutions adopted by the Board of Directors
of Seller, authorizing the transactions contemplated
hereby, certified by the Secretary or Assistant
Secretary of Seller;
certificates to the effect of Article 7(a) and 7(l) hereof
executed by appropriate authorized officers of
Seller;
the duly executed and sealed stock certificates representing
the Capital Stock registered in the name of
Purchaser; and
resignations of all officers and directors of the Company
serving in office immediately prior to the Closing.
3. At the Closing, Purchaser and Seller each will execute,
deliver and acknowledge, or cause to be executed, delivered and acknowledged,
to the other such certificates and other documents related to the consummation
of the transactions contemplated hereby, as may be reasonably requested by the
other.
3. Representations and Warranties of the Seller. The Seller represents
and warrants to the Purchaser, except as set forth on the Exhibits attached
hereto or the documents attached to such Exhibits, that:
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<PAGE> 3
(a) Organization and Existence. Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Mississippi and has full power and authority to carry on its business as now
conducted. Complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company as in effect on the date hereof have been delivered to
the Purchaser. The sole Shareholder of the Company is the Seller. The Company
is qualified in Mississippi and such other states as set forth in Exhibit 3(a)
hereto, which states represent every jurisdiction where such qualification is
required except where failure to be so qualified would not have a material
adverse affect on the business, properties or assets of the Company.
(b) Authority Relative to This Agreement. The transactions
contemplated by this Agreement have been duly authorized by the Board of
Directors of Seller, and no further corporate action is necessary on the part
of the Seller to make this Agreement valid and binding upon the Seller in
accordance with its terms. The execution, delivery and performance of this
Agreement by the Seller will not result in a violation or breach of any term or
provision of, or constitute a default or accelerate the performance required
under the Articles and Bylaws of the Seller or Company, any indenture,
mortgage, deed of trust or other contract or agreement to which the Seller or
Company is a party or by which it or any of their properties are bound, or
violate any order, writ, injunction, decree of any court, administrative agency
or governmental body.
(c) Validity and Enforceability. This Agreement and all related
documents have been duly executed and delivered by Seller and Company and
constitute legal, valid and binding obligations of Seller enforceable in
accordance with their terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, or the laws affecting the enforcement
of creditors' rights generally, and the application of general principles of
equity.
(d) Financial Statements. The Seller has delivered to Purchaser the
adjusted unaudited financial statements of the Company for the period ending
August 16, 1997 (the "Financial Statements"). The financial statements fairly
represent the financial position of the Company as of the date thereof and the
results of operations and changes in financial position for the periods then
ended, provided that such statements are subject to year-end adjustments in
accordance with GAAP, none of which are material.
(e) Absence of Certain Changes or Events. With respect to the
Company, except as contemplated hereby and as listed on Exhibit 3(e) hereto,
and other than in the ordinary course of business, since March 31, 1997 the
Seller has not:
(i) Sold, transferred, or otherwise disposed of, or agreed to
sell, transfer or otherwise dispose of any of the assets of the Company except
in the ordinary course of its business;
(ii) Entered or agreed to enter into any agreement or
arrangement granting any preferential rights to purchase any of the assets, or
requiring the consent of any party to the transfer and assignment of any of
such assets, property or rights;
(iii) Waived any rights of value with respect to the Company;
(iv) Made or permitted any amendment or termination of any
contract, agreement or license to which Company is a party or by which Company
is subject;
(v) To its knowledge, incurred or become subject to any material
claim or liability for any damages or alleged damages for any actual or alleged
negligence or other tort or breach of contract which might in any fashion
adversely affect the value of the Company;
(vi) Made any capital expenditure (or commitments therefor),
aggregating in excess of $5000.00 and relating to the Company;
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<PAGE> 4
(vii) Entered into any other material transaction of which
Purchaser has not been formally notified in writing; or
(viii) Changed its management practices, operations or policies
with respect to (a) the standard terms and conditions of sale of products or
services; (b) the method of accounting for sale of products or services; (c)
the policy regarding maintenance of inventory levels; or (d) the conduct of
accounts receivable collection and accounts payable payment activities.
(f) Consents. The consummation of the Acquisition contemplated
herein by the Seller or Company shall not require the consent, approval or
authorization of any third party.
(g) Organizational Instruments. Seller has made available to
Purchaser complete and accurate copies of the Certificate of Incorporation and
Bylaws of Company, as amended. Company is not in violation of any provision of
its Certificate of Incorporation or Bylaws. Except for this Agreement, there
are no agreements or commitments which obligate or require Seller or Company to
amend or authorize an amendment of the Certificate of Incorporation or Bylaws
of the Company. Seller has made available or caused to be made available to
Purchaser complete and accurate copies of the minute books and stock books of
the Company. Such minute books contain complete and accurate copies of all
records of all meetings and consents in lieu of meetings of the Board of
Directors and Shareholder of the Company.
(h) Capital Stock. The authorized, issued and outstanding Capital
Stock consists of 30,000 shares of common stock at $10 par value, fully paid
and non-assessable. There are no outstanding subscriptions, options, warrants,
rights, convertible or exchangeable securities, agreements or commitments which
obligate or require Seller or Company to issue, sell or transfer any shares of
Capital Stock.
(i) Subsidiaries. Company does not directly or indirectly own or
have the power to vote shares of the capital stock or other ownership interests
of any corporation or entity such that it has voting power to elect a majority
or a specified number of the directors of such entity. Company is neither a
partner of any partnership nor a member of any joint venture or other business
entity.
(j) Title to Owned Properties. Company has good and valid title to
all of the material properties owned by it, free and clear of all liens, claims
and encumbrances other than:
liens, claims and encumbrances reflected in the Financial
Statements;
liens for taxes, charges and assessments not yet due and payable
or which are being contested in good faith;
mechanics', suppliers', installment sales and similar liens for
services rendered or materials furnished, the charges for
which are not yet due and payable or which are being
contested in good faith by appropriate proceedings;
conditions, restrictions, covenants and easements of record,
zoning ordinances, and building and use restrictions.
(k) Prepayments and Deposits. There are no prepayments or deposits
which have been received and are being held by the Company and the Company has
made no prepayment or deposit other than those prepayments and deposits set
forth in Exhibit 3(k).
(l) Absence of Undisclosed Liabilities. Except as disclosed to the
Purchaser on Exhibit 3(l), To Seller's or Company's knowledge, after due
inquiry, none of the assets are subject to any liabilities or obligations
(accrued, absolute, contingent or otherwise), or will be subject to any such
liability or obligation arising from the actions of the Seller or Company on or
before the Closing Date, whether or not such liability would normally be shown
or reflected on a balance sheet prepared in a manner consistent with generally
accepted accounting principles. Except as disclosed to the Purchaser in an
exhibit hereto, to Seller's and
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<PAGE> 5
Company's knowledge, after due inquiry, there are no facts in existence on the
date hereof which might reasonably serve as the basis for any liabilities or
obligations of the Company and which would adversely affect the value of the
Company.
(m) Tax Matters. All federal, state, county, local and other taxes,
including, without limitation, income taxes, corporate franchise taxes, payroll
taxes, customs fees and duties, sales taxes and ad valorem taxes, due and
payable by the Company on or before the date of this Agreement have been timely
paid, and all tax returns and reports required to be filed by the Company have
been timely filed with all such taxing authorities. No assessments or
deficiencies have been made against the Company and no extensions of time are
in effect for the assessment of deficiencies. There is no material dispute or
claim concerning any tax liability of the Company as to which the Seller, its
affiliates, their directors and officers have knowledge.
(n) Patents, Etc. The Seller has delivered to the Purchaser a true
and complete Exhibit (Exhibit 3(n)) setting forth all Intellectual Property
patents, inventions, trademarks, tradenames, brand names or copyrights owned or
used by or licensed to or by the Company (if any), and relating to the Company,
together with a summary description and full information in respect of the
filing, registration or issuance and the status thereof, except for rights to
intellectual property arising under common law. Except as disclosed in Exhibit
3(n), the operations of the Company do not infringe upon the patent, trademark
or other similar rights of any other person or entity. Except as disclosed in
Exhibit 3(n), the Company has asserted no claim that the operations of any
other entity infringe upon the Intellectual Property of the Company.
(o) Insurance. Attached hereto as Exhibit 3(o) is an Exhibit setting
forth a list and brief description of all policies of insurance, held by the
Company or on its behalf. There is no material inaccuracy in any application
for any such policy which would form a basis for termination of any such
policy.
(p) Licenses, Permits, Etc. Attached hereto as Exhibit 3(p) is a
list and brief description of all licenses and permits held by the Company,
copies of which licenses and permits have been furnished to the Purchaser.
Except as noted on Exhibit 3(p), such licenses and permits constitute all
licenses and permits necessary to own the assets or conduct the business of
Company, and each is in full force and effect. Except as set forth on Exhibit
3(p), there is no violation that would adversely affect the value of the
Company, and no proceeding is pending or threatened seeking the revocation or
limitation of any such license or permit.
(q) Litigation. Except as set forth on Exhibit 3(q) hereto, there
are no claims, actions, suits, proceedings or investigations pending or
threatened against or affecting the Company or any of its properties, at law or
in equity or before or by any court or federal, state, municipal or other
governmental department, commission, board, agency or instrumentality. Neither
Seller nor Company are subject to any court or administrative order, injunction
or similar decree, the enforcement of which would adversely affect the value of
the Company.
(r) Compliance with Laws. Except as disclosed on Exhibit 3(r)
hereto, the operations of the Company do not violate any federal, state or
local law, ordinance, rule or regulation, (including, without limitation, any
laws or regulations relating to the environment or the handling, treatment or
disposal of wastes or products of Company) the violation of which would
adversely affect the value of the Company.
(s) Brokers. The Seller is not a party to or in any way obligated
under any contract or other agreement, and there are no outstanding claims
against it, for the payment of any broker's or finder's fee in connection with
the origin, negotiation, execution or performance of this Agreement.
(t) No Default. Company is not in default in any respect of any
obligation to be performed by the Company under any material contract, lease,
agreement, commitment or undertaking which default would adversely affect the
value the Company is a party or by which the Company is bound, nor has Company
waived any right under any such contract, lease, agreement, commitment or
undertaking.
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(u) Product Liability. Except as listed on Exhibit 3(u), the Seller
has no knowledge after reasonable inquiry of any state of facts or the
occurrence of any event forming the basis of any present claim against the
Company for product liability or on account of any express or implied warranty.
Warranty work over the last three years has not been material to the Company.
(v) Disclosure. The representations and warranties contained in the
Articles and the Exhibits hereto, do not and shall not, when taken as a whole,
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein or herein not misleading in
view of the circumstances under which they were made. To the extent that
Purchaser (or its officers or agents) has actual knowledge of any discrepancy,
statement or statement of facts, the applicable representation or warranty
known to be untrue or misleading shall be unenforceable to the extent of the
knowledge of such discrepancy, statement or state of facts. In all other
respects, the representations and warranties of Seller shall remain unaffected.
Disclosures made in any of the Exhibits or exhibits to this Agreement are
hereby deemed to be made for purposes of all other schedules or exhibits.
(w) Contracts, Leases, Licenses. Exhibit 3(w) lists all contracts,
agreements and commitments having values in excess of $20,000 to which Company
is a party. All are legal, valid and binding obligations of Company and are in
full force and effect (except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights generally and the application of general
principles of equity).
(x) Environmental. Except as disclosed at Article 12, Seller has no
knowledge, after due inquiry that: (i) There are hazardous substances on or in
the Company's real property, whether contained in barrels, tanks, equipment
(movable or fixed) or other containers; deposited or located in land, waters,
sumps or in any other part of the Company's real property; incorporated into
any structure on the Company's real property; or otherwise existing thereon;
(ii) The Company's real property (and, to the best of Seller's knowledge,
nearby property) has ever been used for industrial or commercial operation
involving any hazardous substance, including but not limited to any sort of
manufacturing, processing or refining; equipment, machinery, part or component,
cleaning or degreasing; the sale, storage or transport of hazardous substances;
any aspect of the provision of services which utilize hazardous substances;
drilling, mining or production of oil, gas, minerals or their naturally
occurring products; or any agricultural activities involving the use or storage
of fertilizers or pesticides; (iii) Spills, discharges, releases, deposits or
emplacements of any hazardous substances have ever occurred on or near the
Company's real property; (iv) Tanks, trucks or other vehicles, containing
hazardous substances have traveled over, stopped at, or been loaded or unloaded
at or near the Company's real property at any time before or during Seller's
ownership thereof; (v) Asbestos- containing materials have been installed in or
affixed to the structures on Company's real property at any time before or
during Seller's ownership thereof; no such materials have been stored or
disposed of anywhere on the Company's real property; (vi) Electrical
transformers, fluorescent light fixtures or other electrical equipment
containing PCBs are or have been installed in, affixed to or located on the
Company's real property at any time before or during Seller's ownership
thereof; (vii) Storage tanks for gasoline or any other substance have been
located on the Company's real property, whether above ground, underground or
within a structure at any time before or during Seller's ownership thereof,
except with respect to hazardous substances or materials which have been
brought onto or used on the property in compliance with applicable laws or
which have not created any material liability of the Company.
(y) Real Property.
(i) Exhibit 3(y) identifies all real property owned
by Company, to all of which Company has good, marketable and valid title, free
and clear of all liens, claims and encumbrances, except as addressed in Section
3(j); all leased real property; all leases and subleases pertaining to the real
property; all actions, suits, proceedings, investigations and claims presently
pending or threatened which pertain to the real property owned or leased, as
well as all final orders, writs, judgments, awards, edicts and decrees of any
court of competent jurisdiction presently outstanding against Company which
pertain to the real property.
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(ii) Company does not own, hold, is neither obligated under
nor a party to any option, right of first refusal or other contractual right to
purchase, acquire, sell or dispose of the real property;
(iii) To Seller's knowledge, after due inquiry, the
components of the buildings, structures and other improvements which are
located on the real property are in reasonable working order and repair for the
conduct of Company's business; are supplied with all utilities necessary for
the operation thereof as presently operated by Company, and all associated
"hook-up" fees and other similar charges due and payable through the date
hereof have been paid, except for matters arising in the ordinary course which
do not have a material adverse effect on the Company.
(iv) Neither Company nor Seller have received written notice
of any presently pending, and there is not any pending or threatened
condemnation proceeding affecting the real property, or any sale or other
disposition of their real property or any part thereof in lieu of condemnation.
(z) Owned Personal Property. Except as set forth in Exhibit 3(z)
hereto, all of the material tangible personal property (including, without
limitation, furnishings, furniture, office equipment, vehicles, inventories,
tools, machinery, equipment, structures and movable fixtures) which is
reflected in the March 31, 1997 balance sheet included among the Financial
Statements is owned by Company and in reasonable working order and repair for
use as presently used by Company in connection with Company's business.
(aa) Human Resources.
(i) Exhibit 3 (aa) hereto sets forth a complete and accurate
list of (a) all of the collective bargaining agreements and agreements
with labor unions or associations representing employees to which
Company is a party and (b) as of the dates set forth in the Exhibit,
the total number of employees of Company and the number of such
employees represented by each such agreement. Such numbers of
employees have not changed since such dates except in the ordinary
course of business. Except as set forth on the Exhibit, there are no
organizing efforts, strikes, slowdowns, picketing, work stoppages,
labor troubles or other similar events in which employees of Company
are participating.
(ii) Except as set forth on Exhibit 3(aa) hereto, Company (a)
is not a party to any written consulting or employment contract; and
(b) has neither made any commitment to, nor entered into any written
agreement obligating it to, increase the wages or modify the material
conditions or terms of employment of its employees.
(iii) Exhibit 3(aa) sets forth all of the employee benefit
plans maintained by Company, and all of the severance, termination and
similar programs either established by Company with respect to the
transactions contemplated hereby or otherwise applicable to Company's
employees ("Benefit Plans").
(iv) Other than as indicated on Exhibit 3(aa):
(a) Seller neither maintains, sponsors nor contributes to any
program or arrangement covering employees of Company that is an
"employee pension benefit plan", an "employee welfare benefit plan",
or a "multiemployer plan" as defined in Sections3(2), 3(1) and 3(37)
of ERISA ("ERISA Plans"), or any other incentive or benefit
arrangement ("Non-ERISA Plans").
(b) The present value of the accrued benefits under any and
all ERISA Plans which are defined benefit plans, as defined in Section
3(35) of ERISA, and which are maintained by Seller for employees and
former employees of Company ("Pension Plan") did not, as of the last
annual valuation date for such Pension Plan, exceed the value of
assets of such Pension Plan allocable to such benefits;
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<PAGE> 8
(c) No ERISA Plan (or any trust created thereunder) has
engaged in a "prohibited transaction" within the meaning of Section
406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), which could subject Purchaser or Company to any
tax penalty on prohibited transactions and which has not adequately
been corrected;
(d) Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA plan;
(e) Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA
Plan is qualified thereunder.
(f) No Pension Plan subject to Title IV of ERISA has been
terminated nor has there been any "reportable event" as such term is
defined in Section 4043 of ERISA with respect to any such Pension
Plan;
(g) No Pension Plan has incurred any "accumulated funding
deficiency" as such term is defined in Section 302 of ERISA and
Section 412 of the Code and Seller has made all contributions on a
timely basis;
(h) No liability to the Pension Benefit Guaranty Corporation
("PBGC"), other than for premiums, has been incurred with respect to
any Pension Plan;
(i) No proceeding or other action has been initiated by the
PBGC to terminate any Pension Plan, nor has written notice been given
to Seller of an intention to commence or seek the commencement of any
such proceeding or action;
(j) Seller has not, within the last six years before the
Closing Date, completely or partially withdrawn from a "multiemployer
plan" covering employees; and
(k) Copies of all documents embodying the ERISA Plans have
been delivered or made reasonably available to Purchaser.
(bb) Health and Safety Conditions. Exhibit 3(bb) :
(i) lists all current material safety data sheets relating to
the products currently sold by Company and the chemical substances or
mixtures currently used by Company in the conduct of its business as
presently conducted by Company;
(ii) lists all written internal safety and health audits
conducted since January 1, 1993 by Company; and
(iii) lists all citations, notices of violations, orders and
consent orders issued and administrative or judicial enforcement
proceedings commenced by governmental or agencies, authorities and
instrumentalities (including OSHA, any state occupational safety and
health administration and EPA) with respect to safety and health
matters relating to Company since January 1, 1993.
(cc) Entire Business. Company owns, leases or has licenses or other
contractual rights to use all of the material tangible and intangible assets
used by it in the conduct of the business as presently conducted by it except
for (i) assets used to provide services or goods to Company pursuant to a
contract, agreement or commitment set forth in an Exhibit hereto, and (ii)
pension or other funded employee benefit plan assets. The
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<PAGE> 9
contracts, agreements and commitments under which such contractual rights have
been granted are listed on Exhibits hereto.
All exhibits delivered to the Purchaser by the Seller pursuant to this
Section shall be delivered upon the execution of this Agreement and shall be
signed for identification by Seller.
4. Representations and Warranties of the Purchaser. Purchaser represents
and warrants to the Seller that:
(a) Organization and Existence. The Purchaser is a corporation duly
organized validly existing and in good standing under the laws of the State of
Washington and has all requisite corporate power to enter into and perform this
Agreement.
(b) Authority Relative to This Agreement. The transactions
contemplated by this Agreement have been duly authorized by the Board of
Directors of Purchaser, and no further corporate action is necessary on the
part of the Purchaser to make this Agreement valid and binding upon the
Purchaser in accordance with its terms. The execution, delivery and
performance of this Agreement by the Purchaser will not result in a violation
or breach of any term or provision of, or constitute a default or accelerate
the performance required under, any indenture, mortgage, deed of trust or other
contract or agreement to which the Purchaser is a party or by which it or any
of its properties is bound, or violate any order, writ, injunction or decree of
any court, administrative agency or governmental body.
(c) Validity and Enforceability. This Agreement and all related
documents have been duly executed and delivered by Purchaser and constitute
legal, valid and binding obligations of Purchaser enforceable in accordance
with their terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, or other laws affecting the enforcement of
creditors' rights generally, and the application of general principles of
equity.
(d) Brokers. The Purchaser is not a party to or in any way obligated
under any contract or other agreement and there are no outstanding claims
against it for the payment of any broker's or finder's fee in connection with
the origin, negotiation, execution or performance of this Agreement.
(e) Consents. The consummation of the transactions contemplated
herein by the Purchaser shall not require the consent, approval or
authorization of any third party.
(f) Compliance with Laws. Except as disclosed in an exhibit hereto,
Purchaser's operations do not violate any federal, state or local law,
ordinance, rule or regulation, the violation of which would adversely affect
its ability to perform under this Agreement.
(g) No Default. Purchaser is not in default in any respect of any
obligation to be performed by the Purchaser under any contract, lease,
agreement, commitment or undertaking which default would adversely affect its
ability to perform under this Agreement.
(h) Investment Representation. Purchaser represents that it
understands that: (i) the Capital Stock being acquired by Purchaser pursuant
to this Agreement has not been registered under the Securities Act of 1933, as
amended; (ii) the Capital Stock must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act of 1933, as amended,
or is exempt from such registration; (iii) the Capital Stock will bear a legend
to such affect; and (iv) Company will make a notation on its transfer books to
such effect. Purchaser further represents that : (i) the Capital Stock is
being acquired for investment and without any present view toward distribution
thereof to any other persons; (ii) Purchaser will not sell or otherwise
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<PAGE> 10
dispose of the Capital Stock, except in compliance with the registration
requirements or exemption provisions under the Securities Act of 1933, as
amended, the rules and regulations thereunder, and as otherwise adopted by the
Securities and Exchange Commission; (iii) Purchaser has knowledge and
experience in financial matters and that it is capable of evaluating the risks
and merits of an investment in common stock; (iv) Purchaser has consulted with
counsel, to the extent deemed necessary, as to all matters covered by this
Agreement, and has not relied on Seller or Company for any explanation of the
various federal or state securities laws with regard to the acquisition of the
Capital Stock; (v) Purchaser has investigated and is familiar with the affairs,
financial condition and prospects of Company, and has been given sufficient
access to and has acquired sufficient information about Company to reach an
informed, knowledgeable decision to acquire the Capital Stock; and (vi)
Purchaser is able to bear the economic risks of such an investment. Purchaser
is purchasing the Capital Stock for its own account and investment and not with
a view toward, or for, resale in connection with any distribution thereof.
Covenants of Seller. The Seller covenants with the Purchaser that:
(a) Conduct of Business. From the date of this Agreement to the
Closing Date, the business of the Company will be operated only in the ordinary
course, and in particular, without the prior written consent of the Purchaser,
the Seller will not and will not allow Company to:
(i) Cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) Change the Company's Articles of Incorporation or
Bylaws or the composition of Seller;
(iii) Knowingly be in default under any material contract,
agreement, commitment or undertaking of any kind or under any local, state or
federal permits;
(iv) Knowingly violate or fail to comply with all laws
applicable to it or its properties or business;
(v) Commit any act or permit the occurrence of any event or
the existence of any condition of the type described in Paragraph 3(e) hereof;
or
(vi) Merge, consolidate or agree to merge or consolidate
with or into any other corporation.
(vii) Enter into any new, or amend any existing, Benefit
Plans or any other agreement, program, or arrangement in connection therewith
(including any trust agreement, insurance contract or credit facility) or grant
any increases in compensation, other than in the ordinary course of business or
pursuant to promotions, in each case consistent with past practice.
(viii) Make or revoke any elections with respect to Taxes
other than in the ordinary course of business or as provided in this Agreement.
(b) Access. From and after the date of this Agreement until the
Closing Date, Company and Seller will provide to Purchaser and its respective
counsel, accountants, engineers and other representatives, full and free access
to the records of the Company during normal business hours upon prior
reasonable notice. Expenses of providing such access shall be paid by the
party requesting such access.
(c) Preservation of Business Organization. From and after the date
of this Agreement until the Closing Date, the Seller will use its best efforts
to preserve the business organization of the Company and to
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preserve for the Purchaser the Company's good relations with all customers and
others having business relations with the Company.
(d) Trade Secrets. From and after the Closing Date, Seller will not
use or divulge to any competitor or unauthorized person any confidential
information relating to the Company, and it will use all reasonable and proper
efforts to insure that its agents do not use or divulge any such confidential
information, trade secrets, processes, formulae or know-how relating to the
Company, provided, however, that the limits of this section shall not apply to
any information, trade secrets, processes or know-how that (i) is or becomes
publicly available other than as a result of violation of this section or (ii)
is required to be disclosed by law or legal process.
(e) Product Warranty and Liability. In accordance with Section
6(a)(ii), Seller shall be responsible for all warranty and product liability
obligations on product or services provided by the Company prior to the Closing
Date to the extent each such claim exceeds $10,000. To the extent any such
claim does not exceed $10,000, Purchaser and Company shall be responsible for
the same. If any such claim exceeds $10,000, Purchaser or the Company shall
perform all warranty services in accordance with Section 6(b) below, and shall
charge Seller for such service at Purchaser's or Company's current market rates
at the time the warranty work is performed.
Notwithstanding, for the Cleveland Electric job, the Seller shall be
responsible for warranty based on the economic benefit received prior to
Closing in relation to the total economic benefit upon completion of the
project. The economic benefit shall be calculated utilizing the "percentage of
completion" method of revenue recognition and shall compare gross profit at
Closing compared to final gross profit on the job. The Seller shall have the
right to audit final job cost results. In the event Company requires the
assistance of LaValley Vancouver personnel after Closing, the charge out rate
to Company shall be the rates in effect at the time of Closing.
(f) Transition Issues. Seller shall continue to provide maintenance
of subsidiary ledgers, payroll, cash management and general ledger for a period
of up to six months from Closing Date for an administrative fee of $4000 per
week. Purchaser shall give Seller 30 days' prior written notice of its intent
to cancel the maintenance services of Seller. Seller shall continue to provide
current medical and dental coverage to Company's employees through December 31,
1997. Purchaser agrees to reimburse Seller for the costs of the premiums.
Employees. From the date hereof until the date two years from the Closing
Date, the Seller and its subsidiaries and affiliates shall not directly induce
or encourage any current employee of the Company or Purchaser to terminate or
otherwise interfere with his or her employment relationship with the Company or
Purchaser. Should the current General Manager of the Company choose not to
continue his employment with the Company after Closing yet remain employed by
Seller or its affiliates, Seller will arrange for the current General Manager
to continue to render services to the Company for up to six months after the
Closing, provided that (i) the current General Manager consents to such
arrangement and (ii) Purchaser or the Company pays the current General Manager
for such services.
(h) Confidentiality of Information Furnished by Purchaser. Seller
and Company and their representatives will treat all information related to
these transactions as confidential. Seller and Company agree not to use any of
this information except in connection with this Agreement. Seller and Company
will use their best efforts to keep such information confidential, provided
that the limits of this section shall not apply to any information that (i) is
or becomes publicly available other than as a result of violation of this
section or (ii) is required to be disclosed by law or legal process. If the
transactions contemplated by this Agreement are not consummated, Seller and
Company will return to the Purchaser all information relating to Purchaser (and
all copies thereof) then in their possession.
(i) Name Change. For one year after Closing, the Seller shall
permit Purchaser to use the name
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<PAGE> 12
"LaValley Construction" in the marketplace, provided that (i) neither Purchaser
nor the Company shall use the name "GL&V" in connection with such use and (ii)
Purchaser shall first obtain the consent of Seller to the specific form of such
use, which consent shall not be unreasonably withheld.
(j) Continuity of Remote Salesmen. Seller will make available to
Purchaser the two GL&V/LaValley salesmen to effect a smooth transition of
proposals, leads and key customers of the Company. Seller shall make such
salesmen available for a reasonable period of time, but not to exceed five full
working days per man.
(k) Title V Air Permit. Seller agrees that until the Title V Air
Permit is issued without condition, it will provide Purchaser with active and
full cooperation necessary to the process.
(l) Notification of Untrue Reps and Warranties. Seller will promptly
give written notice to Purchaser upon becoming aware of the occurrence or
failure to occur, or the impending or threatened occurrence or failure to
occur, of any event that would cause or constitute, or would be likely to cause
or constitute, any of the Seller' representations or warranties being or
becoming untrue.
(m) Payment of Debts. Not later than Closing Date, Seller will pay,
assume or cause the release of liabilities, if any, for monies borrowed from
third parties. Except as otherwise set forth in this Agreement, Purchaser will
assume all liabilities of Company described in the Financial Statements, the
Exhibits hereto, and all other liabilities of the Company arising prior to the
Closing in the ordinary course of business. Seller will retain all cash in the
business.
(n) Non-Competition. SELLER AGREES THAT DURING A TWO YEAR PERIOD
COMMENCING ON THE CLOSING DATE, IT WILL NOT DIRECTLY OR INDIRECTLY, FOR IT OWN
ACCOUNT OR FOR THE ACCOUNT OF OTHERS, WHETHER AS PRINCIPAL OR AGENT OR THROUGH
THE AGENCY OF ANY CORPORATION, PARTNERSHIP, ASSOCIATION OR OTHER BUSINESS
ENTITY, ENGAGE IN ANY ACTIVITY SIMILAR TO OR COMPETITIVE WITH FRP FIELD SERVICE
AND CONSTRUCTION OTHER THAN SERVICE ON PARTS MANUFACTURED BY SELLER OR ITS
AFFILIATES. THE FOREGOING AGREEMENT NOT TO COMPETE SHALL NOT BE HELD INVALID OR
UNENFORCEABLE BECAUSE OF THE SCOPE OF THE TERRITORY OR THE ACTIONS RESTRICTED
THEREBY, OR THE PERIOD OF TIME WITHIN WHICH SUCH AGREEMENT IS OPERATIVE; BUT
ANY JUDGMENT OF A COURT OF COMPETENT JURISDICTION MAY DEFINE THE MAXIMUM
TERRITORY AND ACTIONS SUBJECT TO AND RESTRICTED BY THIS PARAGRAPH AND THE
PERIOD OF TIME DURING WHICH SUCH AGREEMENT IS ENFORCEABLE.
6. Covenants of the Purchaser. The Purchaser covenants with the Seller
that:
(a) Product Warranty. (i) Purchaser shall assume warranty
obligations for products or services provided after the Closing Date; (ii)
Purchaser shall assume warranty obligations for products or services provided
by the Company prior to the Closing Date to the extent any such claim does not
exceed $10,000. With respect to any claim exceeding $10,000 for products or
services provided by the Company prior to the
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Closing Date, Purchaser agrees to perform (or shall cause the Company to
perform), in accordance with applicable warranties, all warranty service to
repair or replace defective parts or products sold or manufactured by the
Company or defective services performed by the Company, and shall charge Seller
for such service at Purchaser's or the Company's current market rates at the
time the warranty work is performed, provided that Purchaser shall first obtain
Seller's prior approval for such work, which approval shall not be unreasonably
withheld; (iii) Notwithstanding the foregoing, Purchaser and Seller shall
apportion the costs of all warranty obligations arising out of the Cleveland
Electric project in accordance with Section 7(e) above. The price to Seller
shall be Purchaser's current market rates at the time the warranty work is
performed.
(b) Non-Competition. PURCHASER AGREES THAT DURING A TWO YEAR PERIOD
COMMENCING ON THE CLOSING DATE, IT WILL NOT DIRECTLY OR INDIRECTLY, FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF OTHERS, WHETHER AS PRINCIPAL OR AGENT OR THROUGH
THE AGENCY OF ANY CORPORATION, PARTNERSHIP, ASSOCIATION OR OTHER BUSINESS
ENTITY, ENGAGE IN ANY ACTIVITY SIMILAR TO OR COMPETITIVE WITH SELLER'S DESIGN,
MANUFACTURE AND/OR SALE OF WASHER DRUM CYLINDERS AND THEIR PROPRIETARY
COMPONENTS, ULTRA FLOW SHOWERS, AND ULTRA FLOW DVA AND VERSA VALVE IN THE
UNITED STATES. THE FOREGOING AGREEMENT NOT TO COMPETE SHALL NOT BE HELD
INVALID OR UNENFORCEABLE BECAUSE OF THE SCOPE OF THE TERRITORY OR THE ACTIONS
RESTRICTED THEREBY, OR THE PERIOD OF TIME WITHIN WHICH SUCH AGREEMENT IS
OPERATIVE; BUT ANY JUDGMENT OF A COURT OF COMPETENT JURISDICTION MAY DEFINE THE
MAXIMUM TERRITORY AND ACTIONS SUBJECT TO AND RESTRICTED BY THIS PARAGRAPH AND
THE PERIOD OF TIME DURING WHICH SUCH AGREEMENT IS ENFORCEABLE.
(c) Vat Molds. Seller shall have up to six months after Closing to
choose to take from the Biloxi facility the vat molds, hood molds, associated
tooling (set forth on Exhibit 3(z)) and drawings related thereto, located at
the Biloxi facility at Closing. If Seller chooses to leave the vat molds, hood
molds, associated tooling (set forth on Exhibit 3(z)) and drawings in the
Biloxi facility, Purchaser agrees to limit the use of existing Seller-owned vat
tooling (located at the Biloxi facility) to product sold to Seller.
(d) Notification of Untrue Reps and Warranties. Purchaser will
promptly give written notice to Seller upon becoming aware of the occurrence or
failure to occur, or the impending or threatened occurrence or failure to
occur, of any event that would cause or constitute, or would be likely to cause
or constitute, any of the Purchaser's representations or warranties being or
becoming untrue.
(e) Name. Purchaser will discontinue use of the name "LaValley
Construction" within one year of Closing Date. During the one year period, the
Seller and Purchaser will jointly agree as to the use of the name.
(f) Employees. From the date hereof until the date two years from
the Closing Date, the Purchaser and its subsidiaries and affiliates shall not
directly induce or encourage any current employee of Seller to terminate or
otherwise interfere with his or her employment relationship with the Seller.
7. Conditions to Obligations of the Purchaser. The obligations of the
Purchaser under this Agreement shall be subject to the satisfaction of the
following conditions:
(a) Representations and Warranties of Seller True at Closing. The
Purchaser shall not have discovered any material error, misstatement or
omission in the representations and warranties made by the Seller or Company in
Section 3 hereof; the representations and warranties made by the Seller and
Company shall be deemed to have been made again at and as of the time of
Closing and shall then be true in all material respects, except to the extent
that such representations and warranties shall have been made as of a specified
date;
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<PAGE> 14
(b) Seller shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by them
at or prior to Closing.
(c) Seller shall provide Purchaser with all certificates and other
documents, in form and substance reasonably satisfactory to Purchaser, required
to be delivered to Purchaser at or before the Closing pursuant to this
Agreement, duly executed by all necessary persons.
(d) Purchaser will have received the stock certificates described in
Article 2(b) hereof.
(e) Purchaser will have received the resignation of officers and
directors described in Article 2(b) hereof.
(f) Company will be relieved of liabilities related to monies
borrowed from third parties or the Seller as set forth in Article 5(m) hereof.
(g) Approval of Counsel. All actions, proceedings, instruments and
documents reasonably required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related matters shall have
been approved by counsel for the Purchaser, which approval shall not be
unreasonably withheld or delayed, and such counsel shall have been furnished
with such certified copies of actions and proceedings and other such
instruments and documents as such counsel shall have reasonably requested.
(h) Changes in Business. Prior to the Closing, there shall have been
no changes in the business, properties or operations of the Company since the
date of this Agreement which would have a material adverse effect on the value
of the Company.
(i) Absence of Restraint. No order to restrain, enjoin or otherwise
prevent the consummation of this Agreement or transactions in connection
herewith shall have been entered and, on the Closing Date, there shall not be
any pending or threatened litigation in any court, or any proceeding by or
before any governmental commission, board or agency, seeking to restrain or
prohibit consummation of the transactions contemplated hereby or in which
divestiture, rescission or significant damages are sought in connection with
the transactions contemplated hereby, and no investigation by any governmental
agency shall be pending or threatened which might result in any such litigation
or other proceeding.
(j) Approval. The Shareholder of the Company shall have approved the
transactions contemplated by the Agreement and such approval shall not have
been rescinded.
(k) Governmental Consents. Any and all necessary consents of and
filings with any governmental authority or agency relating to the consummation
of the transactions contemplated by this Agreement shall have been obtained or
accomplished, and no action, proceeding, inquiry or investigation by any
private or governmental agency shall have been brought or threatened which
questions the validity or legality of the transactions contemplated by this
Agreement.
(l) Charter; Good Standing Incumbency. There shall have been
delivered to Purchaser (i) a certificate dated within ten (10) days of Closing
Date from the Secretary of State of Mississippi with respect to the
incorporation and good standing of, and the payment of franchise taxes by
Company, (ii), copies of Articles, Bylaws and all amendments and the
resolutions of the Board of Directors of Seller and Company approving these
transactions, and (iii) a certificate dated Closing Date with respect to the
incumbency and signatures of all officers of Seller and Company signing this
Agreement and any certificate, agreement or instrument delivered on behalf of
Seller or Company in connection with this Agreement.
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Conditions to Obligations of the Seller. The obligations of the Seller under
this Agreement shall be subject to the satisfaction of the following
conditions:
(a) Representations and Warranties of Purchaser True at Closing. The
Seller has not discovered any material error, misstatement or omission in the
representations and warranties made by Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser shall be deemed to have
been made again at and as of the time of Closing and shall then be true in all
material respects, except to the extent that such representations and
warranties shall have been made as of a specified date; and the Purchaser shall
have performed or complied with by it at or prior to Closing; and Purchaser
shall provide Seller with a Certificate from Purchaser's President dated as of
Closing that the above conditions have been fulfilled.
(b) Approval of Counsel. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental thereto and all other related legal matters shall have been
approved by counsel for the Seller, which approval shall not be unreasonably
withheld or delayed.
(c) Absence of Restraint. No order to restrain, enjoin or otherwise
prevent the consummation of this Agreement or transactions in connection
herewith shall have been entered and, on the Closing Date, there shall not be
any pending or threatened litigation in any court, or any proceeding by or
before any governmental commission, board or agency, with a view to seeking to
restrain or prohibit consummation of the transactions contemplated hereby or in
which divestiture, rescission or significant damages are sought in connection
with the transactions contemplated hereby, and no investigations by any
governmental agency shall be pending or threatened with might result in any
such litigation or other proceeding.
(d) Changes in Business. Prior to Closing, there shall have been no
changes in the business, properties or operation of Purchaser since the date of
this Agreement which would have a material affect on Purchaser's ability to
perform under this Agreement.
(e) Government Consents. Any and all necessary consents of and
filings with any governmental authority or agency relating to the consummation
of the transactions contemplated by this Agreement shall have been obtained or
accomplished, and no action, proceeding, inquiry or investigation by any
private or governmental agency shall have been brought or threatened which
questions the validity or legality of the transactions contemplated by this
Agreement.
(f) Seller will have received all certificates and other documents,
in form and substance reasonably satisfactory to Seller, required to be
delivered to Seller at or before Closing pursuant to this Agreement, duly
executed by all necessary persons.
(g) Seller will have received payment of the Purchase Price in
accordance with this Agreement.
9. Tax Matters - Post Closing
9.1 Transactional Taxes and Costs.
(a) Purchaser and Company will be responsible for all transfer,
conveyance, excise, stamp, documentary and other governmental taxes, duties,
charges, fees, imposts and assessments (other than taxes, duties, charges,
fees, imposts, and assessments on or measured by the net income of Seller,
Seller's subsidiaries or Company) and all interest and penalties thereon,
imposed at any time by any taxing authority with respect to this Agreement, the
transfer, assignment, conveyance or delivery of the Capital Stock or the
consummation of the transactions contemplated hereby (the "Transactional
Taxes").
(b) Purchaser and Company will be responsible for all filing fees,
notaries fees and other similar fees and costs incurred with respect to this
Agreement or the transactions contemplated hereby (the "Transactional Costs").
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9.2 Records Retained By Seller. Seller will deliver to Company
within six months after the Closing Date, all books, records and files which
pertain (i) to the business conducted by Company; (ii) to the Company; or (iii)
to any of the properties owned , leased or used by Company, to the extent such
books and records relate solely to the Company and do not contain any
information pertaining to Seller ("Business Records"). Business Records which
contain information relating to Seller may be retained by Seller and copies of
the information pertinent to the company will be delivered to the Company.
Before the end of such six month period, Seller agrees to deliver to Company as
soon as reasonably practical any Business Records specifically identified in
writing by Purchaser.
9.3 Assumption of Certain Tax Liabilities; Indemnification by Seller.
(a) Except as otherwise provided in Article 9.1, upon, from and after
Closing, Seller shall absolutely and irrevocably assume and become solely
liable for:
(i) all US federal income taxes of Company, or for which
Company would otherwise be responsible, for periods which end on or before
Closing;
(ii) all US state and local income or franchise taxes of
Company, or for which Company would otherwise be responsible, for periods which
end on or before Closing;
(iii) all interest, additions to tax and penalties with
respect to taxes described in clauses (i) and (ii) of this Article 9.3;
regardless of when they arose or arise or whether the facts on which they are
based occurred prior or subsequent to the Closing, and regardless of where or
against whom they are asserted or determined or whether they are asserted or
determined prior or subsequent to the Closing, and regardless of whether they
are reflected in any Exhibit attached hereto, and regardless of whether they
are known or unknown, fixed or contingent, asserted or unasserted (the "Assumed
Tax Liabilities"); provided, however, that (x) in the case of clauses (i) and
(ii) of this Article 9.3(a), amounts payable to taxing authorities with respect
to periods beginning after the Closing Date shall not be considered a "tax" or
"taxes" for periods ending on or prior to the Closing Date even if such amounts
were taken into account in the calculation of "deferred income taxes"
reflected on the Financial Statements for a period ending on or prior to the
Closing Date, and (y) in the case of this clause (iii), a "tax" or "taxes"
shall not include timing differences taken into account in the calculation of
deferred income taxes reflected on any financial statements of Company as at
any date or for any period. The Assumed Tax Liabilities shall include, without
limitation, (a) any liability of Company by reason of its being severally
liable, in whole or part, for any tax of any affiliated group of which Company
may be or have been an includible corporation for any period through and
including the end of the taxable year of such an affiliated group that includes
the Closing Date, and (b) any tax liability that arises because Company ceases
on the day of the Closing to be a member of such an affiliated group.
(b) Seller shall have the right to all refunds related to the Assumed
Tax Liabilities. After Closing, Purchaser shall not, and shall not permit
Company to, without the prior written consent of Seller, claim, use or apply
any carryback from periods beginning on or after the Closing to periods ending
on or before the Closing. If Seller gives consent, Seller shall have sole
control over such claim, use or application (the "Carryback Refund Claim").
Upon Seller's receipt of any cash amount (or credit for overpaid taxes)
resulting from a Carryback Refund Claim, Seller shall pay to Purchaser such
cash amount together with any interest received by Seller thereon.
(c) Seller shall prepare and file all consolidated, combined or
unitary Tax Returns that are required to be filed after the date hereof with
respect to the Assumed Tax Liabilities. Seller shall include in such Tax
Returns the income, activities, operations and transactions of Company for all
taxable periods ending up to and including the Closing, including, without
limitation, any pension contributions made after the Closing in respect of
periods ending on or before Closing. In connection
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therewith, Seller shall file a consolidated federal income tax return and
include and reflect thereon the income, activities, operations and transactions
of Seller and Seller's subsidiaries for all taxable periods ending up to and
including Closing.
(d) All Tax Returns of the Company filed after the date hereof and on
or prior to Closing shall, in each case, be prepared and filed in a manner
consistent with the Tax Returns most recently filed in the relevant
jurisdiction prior to the date hereof. All such Tax Returns (other than sales,
payroll, property and similar tax returns) shall be subject to the prior review
of Purchaser and shall be submitted by Seller to Purchaser for review at least
twenty days prior to the filing date. Seller shall cause Company to take into
account all reasonable comments of Purchaser.
(e) After Closing, Seller and Purchaser shall cooperate, and shall
cause their respective subsidiaries to cooperate, with each other in connection
with the filing of any Tax Return which is required to be filed by Seller,
Company or their respective subsidiaries and which covers a period that ends
prior to or on the Closing Date, and all such information shall be treated as
confidential by the parties. Seller and Purchaser shall also cooperate fully
in connection with any audit, litigation or other proceeding with respect to
taxes, however, the primary responsibility and total cost of defending such
actions arising out of periods ending before or up to Closing shall be
Sellers'.
(f) Any and all tax sharing agreements between or among Company and
Seller or any of its subsidiaries shall be terminated as of the Closing and,
from and after the Closing, neither Company nor Seller or its subsidiaries
shall have any further rights or liabilities thereunder.
(g) At the Closing, Seller shall provide Purchaser an affidavit of an
officer of Seller, sworn to under penalties of perjury, setting forth (in the
form set forth in section 1.14452(b) of the Treasury Regulations promulgated
under the Code) Seller's name, address and federal tax identification number
and stating that Seller is not a "foreign person" within the meaning of section
1445 of the Code.
(h) No Tax Return (other than sale, payroll, property or similar tax
return) which relates to the period prior to Closing shall be filed unless
Seller has previously approved such Tax Return; and shall be submitted for
Seller's review at least twenty days prior to filing. Seller shall not
unreasonably withhold any such approval.
(i) Purchaser shall have the right to review any consolidated tax
returns of Seller which are filed after the Closing Date but which include
income of the Company for periods ending up to and including the Closing Date.
Purchaser may request, with Seller's approval, changes to such returns, such
approval not to be unreasonably withheld.
9.4 Tax Elections.
(a) If Purchaser desires to have an election made under Section
338(h)(10) of the Code with respect to the purchase of the Company, it shall
notify Seller by March 31, 1998, and Seller shall make the joint election on
IRS Form 8023A upon request of Purchaser. Purchaser shall be responsible for
the preparation and filing of such election. The allocation of purchase price
among the assets of Company shall be made in accordance with Sections 338 and
1060 of the Code and any comparable provisions of state, local or foreign law,
as appropriate, and shall be subject to Seller's approval, prior to filing.
Purchaser shall be responsible for, and shall pay any income, franchise, sales,
use, transfer or similar taxes arising as a result of, any Section 338(h)(10)
election or any comparable or resulting election under state law filed by
Seller, or by Purchaser with the consent of Seller, provided, however, Seller
must notify Purchaser of any such taxes arising out of the Section 338(h)(10)
election as soon as practical but in no event later than 45 days from receiving
Purchaser's notice of election Purchaser shall have the right to examine
Seller's calculations that arrive at the tax liability and Purchaser and Seller
shall reasonably cooperate to resolve any disputes with respect to same.
Within 45 days of resolving the liability owed,
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Purchaser shall pay the amount due to Seller in immediately available funds;
provided, however, that Seller shall not be required to sign any document
agreeing to make the election, make any filing recognizing such election, or
agree to any allocation of purchase price in connection with such election
until a reasonable estimate of any additional obligation to Seller is
calculated and paid by Purchaser to Seller.
(b) Seller may elect to structure the conveyance, transfer and/or
assignment of all or an applicable portion of the Company's assets as one or
more deferred like kind exchanges pursuant to Section 1031 of the Internal
Revenue Code of 1986, as amended and the regulations thereunder, provided that
Seller gives notice of such election to Purchaser at least five days prior to
Closing. Seller shall enter into one or more exchange agreements with one or
more third party intermediaries to effect such a deferred like kind exchange or
otherwise complete said exchanges in such a manner so as to avoid any
involvement in such exchanges by Purchaser, Seller shall have the right to
assign this Agreement to a third party intermediary to effect such exchanges,
and Purchaser shall have no right to object to such assignment, provided that
Seller shall not be released from its obligations and liabilities hereunder.
9.5 Survival of Tax Representations and Warranties. Notwithstanding
the limitation set forth at Section 10(b) and regardless of any investigation
at any time made by or on behalf of any party hereto or of any information any
party may have in respect thereof, all covenants, agreements, representations
and warranties made by the parties hereto in this Article 9 or Section 3(m)
shall survive the Closing and continue in full force and effect forever
thereafter, subject to any applicable statute of limitations.
10. Nature and Survival of Representations and Warranties.
(a) Nature of Statements. All statements contained in any exhibit
hereto or in any certificate delivered by or on behalf of the Seller or the
Purchaser pursuant to this Agreement shall be deemed representations and
warranties by the Seller or the Purchaser, as the case may be.
(b) Survival of Representations and Warranties. Regardless of any
investigation at any time made by or on behalf of any party hereto or of any
information any party may have in respect thereof, but subject to the
provisions of Sections 9 and 12 hereof, all covenants, agreements,
representations and warranties made hereunder or pursuant hereto or in
connection with the transactions contemplated hereby shall survive the Closing
and remain effective for a period of three years from the Closing Date;
provided, however, that any bona fide claim for indemnification made during
such three year period shall continue in effect until such time as such claim
has been resolved or settled and the covenants in Sections 11(a) and (c) shall
survive in accordance with their term.
11. Indemnification.
(a) Indemnification by Seller. Subject to the conditions hereinafter
set forth, for a 3 year period, the Seller shall indemnify and hold harmless
the Purchaser and Company against any loss, damage or expense (including
reasonable attorney's fees)("Losses") incurred by the Purchaser and Company and
caused by or arising out of (i) any claim made against the Purchaser or Company
by a third party in respect of any liabilities or obligations of the Company
arising prior to the Closing not disclosed by Company or Seller under this
Agreement, the Exhibits hereto, or the Financial Statements (except for the
items disclosed in Exhibit 3(q)) or assumed by the Purchaser or Company; (ii)
any breach or default in the performance by the Seller of any covenant or
agreement of the Seller contained in this Agreement; (iii) any breach of a
warranty or representation made by the Seller pursuant to this Agreement, or in
any certificate required to be delivered pursuant to this Agreement, or any
material misstatement or omission in any exhibit attached or to be delivered
pursuant to this Agreement.
If any third party shall assert any claim or bring any action against
the Purchaser or Company which,
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if successful, might result in a right of indemnification hereunder, the Seller
shall be given written notice thereof in accordance with the provisions of
Article 11(b) of this Agreement. Thereafter, the Sellers shall defend such
claim or action at its own expense. Seller will not be liable to Purchaser or
Company for any legal expenses subsequently incurred by Purchaser or Company in
connection with the defense of such claim, provided, however, Seller's defense
is adequate to protect the rights of Purchaser or Company. Purchaser agrees it
will not admit any liability with respect to, or settle, compromise or
discharge, any such claim without Seller's prior written consent. Purchaser
and Company shall be entitled to participate in, but not control, the defense
of such claim. If Seller fails or refuses to provide a defense to any third
party claim, the Purchaser shall have the right to undertake the defense,
compromise or settlement of such claims, through counsel of its own choice, on
behalf of and for the account and at the risk of Seller and Seller shall be
obligated to pay the costs, expenses, and attorneys' fees incurred by Purchaser
in connection with such third party claim. In any event, Purchaser, Company
and Seller shall fully cooperate with each other and their respective counsel
in connection with any such litigation, defense, settlement, or other attempted
resolution.
Purchaser and Company agree that Seller's obligations to indemnify
pursuant to this section shall only arise in the event that aggregate Losses
from all indemnification items (not including warranty obligations) incurred by
Purchaser or Company exceed $40,000, provided, however, that once this $40,000
is exceeded, Purchaser and Company shall have the right to receive
dollar-for-dollar indemnification from Seller for all Losses incurred prior to
reaching this $40,000 amount as well as for Losses after reaching this $40,000
amount. The aggregate liability of Seller under Seller's indemnification
obligations under this section shall not exceed $390,000. The indemnification
provisions set forth in this section constitute the exclusive remedy of
Purchaser and Company for any and all claims against Seller in connection with
the transactions described in this Agreement, including but not limited to,
claims for breaches of representations, warranties, covenants and agreements
set forth in this Agreement and any and all agreements, instruments, papers,
certificates and other writings delivered in connection herewith, provided,
however, that this limitation shall not apply to any action or omission that
constitutes an intentional breach or criminal conduct under applicable state or
federal law. In connection with any claim subject to indemnification under
this section, the parties shall first pursue the remedies of Company and Seller
under their insurance policies and Purchaser shall cooperate with Seller in
connection with same. The total amount of any indemnity payment owed by
Seller to Purchaser or Company shall be reduced by the net proceeds received by
Purchaser or Company from Seller's or Company's insurance.
(b) Procedure for Making Claims. If and when the Purchaser or
Company desires to claim indemnification by the Seller pursuant to the
provisions of this Section, the Purchaser shall deliver to the Seller within 30
days of its receipt of a claim, a certificate signed by the President or any
Vice President of the Purchaser (the "Notice of Claim") (i) stating that the
Purchaser or Company has paid or properly accrued or anticipated that it may be
required to accrue losses, damages or expenses to which the Purchaser is
entitled to indemnification pursuant to this Section, and (ii) specifying the
individual items of loss, damage or expense included in the amount so stated,
the date each such item was paid or properly accrued, if any, and the nature of
the misrepresentation, breach of warranty or claim to which such item is
related. If Seller objects to such claim or needs more information, he may
deliver written notice of objection (the "Notice of Objection") to the
Purchaser within thirty (30) days after the Purchaser's delivery of the Notice
of Claim to Seller. The Notice of Objection shall set forth the grounds upon
which the objection is based. If no Notice of Objection shall have been so
delivered within such thirty (30) day period, the Seller shall be deemed to
have acknowledged the
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correctness of the claim or claims specified in the Notice of Claim for the
full amount thereof, and shall thereupon pay to the Purchaser, on demand, in
cash, an amount equal to the amount of such claim or claims.
(c) Indemnification by Purchaser. The Purchaser agrees to indemnify
and hold the Seller harmless against and in respect of (i) any damage, claim,
liability, deficiency, loss, cost or expense(including reasonable attorney's
fees) sustained by the Seller arising out of or resulting from (a) any
misrepresentation by the Purchaser contained in this Agreement (or any
collateral documents), in any exhibits attached hereto or thereto or in a
certificate to be delivered at the Closing, or (b) the breach of or default
under any warranty or representation, or the nonfulfillment of or default under
any agreement or covenant, of the Purchaser contained in this Agreement (or
collateral documents), exhibits or certificates hereto, (c) the failure, after
the Closing Date, of Purchaser or Company to pay or otherwise discharge when
due any contractual or other obligation relating to the Company, and (d) the
Transactional Costs, Transactional Taxes or Taxes for which Purchaser or
Company is responsible; provided that indemnification as to Transactional Costs
shall be on an after-tax basis.
12. Environmental Indemnification. Notwithstanding the provisions of Article
11, the following provisions will apply to the matters addressed therein.
12.1 Time Limitation. The obligation of the parties with respect to
the following indemnity obligations shall terminate and be of no further force
or effect upon the following date, except with respect of any claim for
indemnification properly brought by any party prior to expiration of such
period:
Section 12.2 August 22, 2003
Section 12.3 August 22, 2003
Section 12.4 Unlimited
Section 12.5 August 22, 2002
12.2 Indemnification by Seller for Environmental Matters.
(a) General. Purchaser acknowledges receipt of those documents
entitled "Environmental Site Assessment; LaValley Industries, Inc., 200 Fifth
Street, Biloxi, Mississippi", dated August 7, 1996, prepared by ERM-West, Inc.,
and "Phase I Environmental Site Assessment of LaValley Industries, Inc.,
Biloxi, Mississippi", dated July 1996, prepared by ERM-West, including earlier
reports by ERM and other consultants to LaValley Industries, and "Environmental
Site Assessment LaValley Industries, Inc., 200 Fifth Street, Biloxi,
Mississippi", dated September 12, 1996 ("Reports"). The parties acknowledge
and agree that the agreements contained in this Article12 shall be the sole
and exclusive remedy under this Agreement with respect to any matters relating
to the protection of human health or the environment or to any Hazardous
Materials, and under no circumstances shall Seller or Company, or any of their
respective directors, officers, employees and agents (collectively, the
"Environmental Indemnitees") be entitled to indemnification with respect to
such matters under or pursuant to any other provision of this Agreement, be it
in connection with a representation, warranty, covenant, agreement, indemnity
or certification, or entitled to any other recovery or remedy, whether at law,
in equity, by contribution, by subrogation, under this Agreement or otherwise.
(b) Known Environmental Conditions. With respect to the
environmental conditions set forth and described in the Reports and that are
described below (collectively the "Known Environmental Conditions"), the
parties agree as follows:
(i) With respect to the DSI site, the on-site and off-site
local potential landfill issues, the on- site soil and groundwater issues, the
railspur issues and the non-contact cooling water from the acetone still all
identified in the Reports, Seller and its affiliates (the "Environmental
Indemnitors") shall perform
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Required Remedial Activities, subject to Negotiation.
(ii) With respect to any of the Known Environmental
Conditions, if the Environmental Indemnitors breach their agreement under
12.2(b)(i) above, they shall indemnify, defend and hold harmless the
Environmental Indemnitees from and against any Loss suffered or incurred with
respect thereof. For purposes of this subsection, "Loss" shall not include any
consequential damages resulting from the closure of operations at the Facility,
except if such closure is caused by the gross negligence or willful misconduct
of the Environmental Indemnitors or their agents.
12.3 Unknown Environmental Conditions. With respect to Hazardous
Materials in existence as of the Closing Date on, in or under the Real Property
or property near the Real Property and which are not Known Environmental
Conditions, the Environmental Indemnitors shall indemnify, defend, and hold
harmless the Environmental Indemnitees from and against any Loss suffered or
incurred with respect to the presence of Hazardous Materials on, in, or under
the Real Property or property near the Real Property which, if known as of
August 23, 1996, constitutes a violation of applicable Environmental Law or
creates a liability to the Company or any of the nearby property owners or
operators under applicable Environmental Law.
12.4 Near Real Property Defense Costs. If any Proceeding is brought
as the result of Hazardous Materials on, in or under property near the Real
Property (whether known or unknown), including but not limited to the DSI and
railspur sites in Biloxi, the Environmental Indemnitors, on the one hand, and
the Environmental Indemnitees on the other hand, shall apportion equally
between them the costs incurred by the Environmental Indemnitors to defend such
Proceedings up to a cumulative amount of $35,000 of such defense (the
Environmental Indemnitees' responsibility being limited to an aggregate of
$17,500 of such defense cost). Thereafter, the Environmental Indemnitors
shall, subject to the other terms, conditions, covenants, agreements,
provisions and limitations set forth in this Article 12, be responsible for
(and shall indemnify, defend, and hold harmless the Environmental Indemnitees
from and against) all other defense costs.
12.5 Non-Compliance with Environmental Laws. To the extent that the
Company was not in compliance as of the Closing Date with any Environmental
Law, and subject to all of the other terms, conditions, covenants, agreements,
provisions and limitations set forth in this Article 12, the Environmental
Indemnitors shall indemnify, defend, and hold harmless the Environmental
Indemnitees from and against any Loss they may suffer or incur with respect of
any such non- compliance.
12.6 Remediation Procedures. (a) In connection with Required
Remedial Activities with respect to any Known Environmental Condition, Seller
shall (i) prepare after the Closing Date, investigation, removal or remedial
action plans (the "Remediation Plans") and afford Purchaser a reasonable
opportunity to review and comment on such Post-Closing Plans, and (ii) obtain
all necessary permits and governmental approvals necessary for the performance
of Required Remedial Activities.
(b) The Environmental Indemnitors shall have control over the
performance of Required Remedial Activities and the implementation of the
Remediation Plans and shall have authority to negotiate with governmental
authorities concerning the nature and extent of any Required Remedial
Activities or Remediation Plans, and to reach agreement with governmental
authorities specifying the timetables and details for such Required Remedial
Activities or Remediation Plans, provided, however, if the Environmental
Indemnitees request, the Environmental Indemnitors shall first consult with the
Environmental Indemnitees regarding the same (but the Environmental Indemnitees
shall not thereby have any right of approval with respect thereto).
(c) The Environmental Indemnitees agree to cooperate with the
Environmental Indemnitors and the Environmental Indemnitors' agents in
connection with the performance of Required Remedial Activities and the
implementation of the Remediation Plans including, but not limited to, (i)
giving reasonable assistance to the Environmental Indemnitors or their agents
in obtaining any permits required to perform such Required
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Remedial Activities or implement any Remediation Plan, (ii) advising the
Environmental Indemnitors a soon as reasonably practical of all communications
concerning Required Remedial Activities, Remediation Plans or Known
Environmental Conditions from any Person, including any governmental or
responsible authority, (iii) taking no action with respect to the Known
Environmental Conditions, except in case of emergency, without the prior
written approval of Seller, which approval shall not be unreasonably withheld,
(iv) as far as reasonably practical, providing an on-site work area for the
exclusive use of the Environmental Indemnitors or their agents in the
performance of Required Remedial Activities or implementation of any
Remediation Plan, (v) as far as reasonably practical, providing the same level
of security for the Environmental Indemnitors' on-site work area and any areas
of the Facility where Required Remedial Activities are to be performed as the
Environmental Indemnitees customarily provide for the remainder of the relevant
area of the Facility and (vi) not unreasonably hindering the Environmental
Indemnitors' activities hereunder.
(d) The Environmental Indemnitees specifically acknowledge that, in
order for Environmental Indemnitors to perform Required Activities or implement
any Remediation Plan at the Facility, the Environmental Indemnitees must
provide the Environmental Indemnitors and their agents with such access to the
Facility as may reasonably be required to perform such activities. Upon the
Environmental Indemnitees' failure or refusal to provide such access, the
Environmental Indemnitors shall provide written notice of such failure to the
Environmental Indemnitees and the Environmental Indemnitees shall have the
opportunity to cure such failure within thirty days after receiving such
notice. If, after such thirty days have run, the Environmental Indemnitees
still have failed to cure, the Environmental Indemnitors' obligation to perform
any activities hereunder with respect to the Facility shall cease.
(e) Within a reasonable time after receipt, the Environmental
Indemnitors shall furnish the Environmental Indemnitees with copies of any test
results, environmental reports and investigations, and correspondence between
the Environmental Indemnitors and the applicable government agencies prepared
in connection with Required Remedial Activities.
(f) The Environmental Indemnitees specifically acknowledge that
performance of any Required Remedial Activities or implementation of any
Remediation Plan may involve activities such as excavation of soil or pumping
of water, that may interfere with use of the Facility. Notwithstanding any
provision herein to the contrary, no Environmental Indemnitor, nor its agents,
shall in any event be liable for consequential, incidental, indirect, or
exemplary damages, specifically including, but not limited to, any damages
arising from or relating to any interruption of the operations of Purchaser or
any interference with the use of the Facility property in connection with the
performance of the Required Remedial Activities or the implementation of any
Remediation Plan unless caused by the gross negligence or willful misconduct of
the Environmental Indemnitors or their agents; provided, however, that
Environmental Indemnitors shall use their respective reasonable best efforts
not to interrupt the Company's operations or interfere with the use of the
Facility property.
(g) No Environmental Indemnitor shall in any event be responsible for
remediation or other activities under this Article 12 that may be necessary to
the extent that such remediation or activities result from acts or omissions
after the Closing Date of Purchaser or Company, their respective agents,
employees or others acting on their behalf, to the extent such acts or
omissions increase the scope of Required Remedial Activities required hereunder
or otherwise increase the liability of the Environmental Indemnitors under this
Article 12, including, but not limited to, (i) the failure of any Environmental
Indemnitee to inform the Environmental Indemnitors as soon as reasonably
practical of Purchaser's or the Company's communications with any Person,
including any governmental or other responsible authority, in connection with
any Required Remedial Activities, Remediation Plans or Known Environmental
Conditions, (ii) action taken by Purchaser or Company with respect to any Known
Environmental Condition without the prior written approval of the Environmental
Indemnitors, except in case of emergency, or (iii) Purchaser's or Company's
failure to grant the Environmental Indemnitors or their agents such access as
may reasonably be required to perform such activities, or (iv) Purchaser's or
Company's failure to cooperate with the Environmental Indemnitors or their
agents in the
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performance of Required Remedial Activities or the implementation of any
Remediation Plan.
(h) With respect to the Known Environmental Conditions, (i) the
Environmental Indemnitees shall have no right to require the Environmental
Indemnitors to perform Required Remedial Activities if (A) after implementation
and completion of a Remediation Plan, a governmental agency having jurisdiction
over such condition determines that no further action is required to address
such condition, (B) in the case of a condition covered by an enforceable final
judgment or a settlement agreement, consent agreement or decree in each case as
agreed upon with a governmental agency, the Environmental Indemnitors have
fully complied with said judgment, agreement or decree or (C) the Environmental
Indemnitors have remediated such condition to the extent necessary to bring
such condition into compliance with Environmental Laws and (ii) upon
satisfaction of the condition contained in any one of clause (i) (A), (B), or
(C) hereof with respect to each of the Known Environmental Conditions, the
Environmental Indemnitors shall be relieved of any and all liabilities and
shall have no obligations whatsoever under this Article 12 or otherwise.
12.7 Off-Site Disposal. The Environmental Indemnitors shall
indemnify, defend, and hold harmless the Environmental Indemnitees from and
against any Loss suffered or incurred by any of them related to the off-site
disposal by or on behalf of the Company at any time prior to the Closing Date
of any Hazardous Materials.
12.8 Former Properties. (a) The Environmental Indemnitors shall
indemnify, defend, and hold harmless the Environmental Indemnitees from and
against any Loss suffered or incurred by any of them (i) arising from the
presence of Hazardous Material on, in or under any properties that were not
owned or leased by the Company on Closing Date but which were, at some point
prior to the Closing Date, owned, operated or leased by Company or any
predecessor in interest of the Company, including, without limitation, any
corporation or business acquired by or merged into Company prior to the Closing
Date (the "Former Properties"), or (ii) arising out of a violation or alleged
violation of any Environmental Law in connection with a Former Property,
including the performance of such remediation as a governmental authority
having jurisdiction over such Former Property may lawfully require. No
Environmental Indemnitor shall be responsible for any Loss to the extent that
acts or omissions of any Environmental Indemnitee, their respective agents,
employees or others acting on their behalf after the Closing Date increase the
liability of any Environmental Indemnitor including but not limited to, (A) an
Environmental Indemnitee's failure, as soon as reasonably possible after
receipt by such Person, to inform the Environmental Indemnitors of any
complaint, order, citation, notice or written communication from any Person
with respect to the Former Properties or (B) any action taken by any
Environmental Indemnitee after the Closing Date in connection with the Former
Properties without the prior written approval of the Environmental Indemnitors
(which shall not be unreasonably withheld), except in the case of an emergency.
(b) The Environmental Indemnitees shall (i) provide to the
Environment Indemnitors any complaint, order, citation, notice or written
communication from any Person, including any governmental or responsible
authority or governmental agency, with respect to the Former Properties as soon
as reasonably possible after receipt thereof, and (ii) notify the Environmental
Indemnitors of any civil or criminal litigation, suit, action, claim or
administrative proceeding actually pending or threatened by any Person,
including any governmental or responsible authority or governmental agency,
with respect to the Former Properties as soon as reasonably possible after
receipt of any written information, written communication or written knowledge
relating thereto by any Environmental Indemnitee; provided, however, that the
failure to so deliver such notice or so notify shall not relieve the
Environmental Indemnitors from any liability hereunder, except to the extent
that the Environmental Indemnitors are prejudiced thereby.
12.9 Procedures. (a) In connection with any suit, action or
proceeding with respect of which indemnity may be sought under this Article 12,
the Environmental Indemnitees agree to give notice to the Environmental
Indemnitors of the assertion of any claim made to any Environmental Indemnitee
in writing, or the commencement of any suit, action or Proceeding as soon as
reasonably possible after such assertion or commencement; provided, however,
that the failure to so deliver such notice shall not relieve the
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Environmental Indemnitors from any liability hereunder, except to the extent
that the Environmental Indemnitors are prejudiced thereby. The Environmental
Indemnitors shall assume, and have sole control over, the defense of any such
claim, suit, action or proceeding, including, without limitation, the sole
authority to negotiate with governmental authorities or other third parties,
provided however, if the Environmental Indemnitees request, the Environmental
Indemnitors shall first consult with the Environmental Indemnitees regarding
the same (but the Environmental Indemnitees shall not thereby have any right of
approval with respect thereto. Subject to Article 12.9 (b), the Environmental
Indemnitees shall not, without the prior written consent of the Environmental
Indemnitors, effect any settlement of, or admit any liability in connection
with, any claim, suit, action or proceeding with respect of which indemnity may
be sought under this Article 12. Subject to 12.9(b) the Environmental
Indemnitors shall not be liable under this Article 12 for any such settlement
effected of, or liability admitted in connection with, any claim, suit, action
or proceeding with respect of which indemnity may be sought under this Article
12 without its prior written consent, which shall not be unreasonably withheld.
(b) If the Environmental Indemnitors do not assume the defense of, or
if after so assuming, fail to defend, any such suit, action or proceeding
referenced in (a) above, then Environmental Indemnitees may defend against such
suit, action or proceeding in such manner as they may reasonably deem
appropriate, and the Environmental Indemnitees may settle such suit, action or
proceeding on such terms as they may reasonably deem appropriate, and the
Environmental Indemnitors shall pay on demand to the Environmental Indemnitees
all Losses incurred by them in connection with such suit, action or proceeding
(including, without limitation, the defense, any settlement and any judgment or
award), provided that the Environmental Indemnitees shall provide written
notice as soon as reasonably possible of such failure to assume the defense of,
or to defend, any such suit, action or proceeding to the Environmental
Indemnitors and the Environmental Indemnitors shall have the opportunity to
cure such failure within thirty days after receiving such notice, unless a
shorter time is necessary for the Environmental Indemnitees to respond under
applicable laws or to assume the defense of such suit, action or proceeding.
(c) The Environmental Indemnitees shall take all reasonable steps to
allow the Environmental Indemnitors to recover any Losses or costs suffered or
incurred by the Indemnitors in connection with any matter for which the
Environmental Indemnitors provide indemnity under this Article 12, including,
without limitation, any Remediation Costs, from all other reasonably related
sources, including, without limitation, insurance policies and third parties.
If permitted by law and applicable contracts, to the extent the Environmental
Indemnitors provide indemnity under this Article, the Environmental Indemnitees
shall assign to the Environmental Indemnitors all of their respective rights to
recover such Losses or costs or to obtain such performance from all other
reasonably related sources. The preceding sentence shall not, however, impose
a duty on the Environmental Indemnitees to first pursue their remedies under
insurance policies or against third parties in lieu of indemnification under
this Article 12.
12.10 Definitions. The following terms used herein have the following
respective meanings:
"Facility" means the Real Property owned or leased by Company
on the Closing Date.
"Negotiation" means the Environmental Indemnitors' sole right
to propose, negotiate, challenge, contest, appeal or settle, the
nature, extent or timing of Required Remedial Activities or
implementation of Remediation Plans with any governmental or other
responsible authority or any third party, and to stay any Required
Remedial Activities or implementation of any Remediation Plan pending
the outcome of such Negotiation.
"Remediation Costs" means those reasonable costs and expenses
incurred by any Environmental Indemnitor, Purchaser or Company in
responding to a notice, order or other mandate received from a
governmental authority requiring the clean-up or remediation of the
Facility, or any portion thereof, including, but not limited to, the
cost of investigation, testing, monitoring, remediation, clean-up,
treatment, disposal or removal of Hazardous Materials (including the
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reasonable costs and expenses of environmental consultants and similar
technical personnel, reasonable attorneys' fees and expenses and
reasonable transaction costs); provided that in no event shall
Remediation Costs include any costs relating to (i) financial
assurance requirements or (ii) time expended by any employee or
management of the Purchaser or Company.
"Environmental Laws" shall mean all present federal, state and
local laws (whether under common law, statute, rule or regulation),
Permits, and other lawful requirements of Governmental Authorities
relating to the protection of human health or the environment or to
any Hazardous Materials. Such laws include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act;
Resource Conservation and Recovery Act; Clean Water Act; Clean Air
Act; Hazardous Materials Transportation Act; Toxic Substances Control
Act; Occupational Safety and Health Act; and their state and local
counterparts.
"Governmental Authority" shall mean any US federal, state or
municipal entity, any foreign government, and any political
subdivision or other executive, legislative, administrative, judicial,
quasi-judicial or other governmental department, commission, court,
board, bureau, agency or instrumentality, domestic or foreign.
"Hazardous Materials" shall mean materials that, because of
their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to
human health or the environment when improperly used, treated, stored,
disposed of, generated, manufactured, transported or otherwise
handled. "Hazardous Materials" shall include, but is not limited to,
any and all hazardous or toxic substances, materials or wastes as
defined or listed under any of the Environmental Laws. "Hazardous
Materials" shall specifically include, but not be limited to,
petroleum or petroleum products, including crude oil and any fraction
thereof.
"Real Property" shall mean all real property now owned,
leased or occupied by Company (or any entity which was merged with or
into the Company), or in which the Company (or any entity which was
merged with or into the Company) now has any interest, together with
(i) all buildings and improvements located thereon and (ii) all
rights, privileges, interests, easements, hereditaments and
appurtenances relating thereto.
"Permit" shall mean any permit, license, franchise, consent,
variance, exemption, or approval issued or granted by, or
authorization of, or filing, registration, qualification, declaration
or designation with, any Governmental Authority.
"Remediation Plans" means any investigation, removal or
remediation plan in connection with any Required Remedial Activities.
"Required Remedial Activities" shall mean all Remediation
Plans and the investigation, testing, assessment, clean up, removal,
containment, isolation, treatment, or monitoring of a condition to the
extent such activities are required by a governmental agency having
jurisdiction over such condition, but only to the extent such
activities are required to comply with Environmental Laws (provided
that any future modification to Environmental Laws that would have the
effect of increasing the requirements thereunder will not relieve the
Environmental Indemnitors of their obligations hereunder, but will not
increase the obligations of the Environmental Indemnitors hereunder.
"Person" shall mean any individual or corporation, company,
general partnership, limited partnership, limited liability company,
limited liability partnership, trust, incorporated or unincorporated
association, joint venture, Governmental Authority or other entity of
any kind.
"Proceeding" shall mean any claim, suit, action, arbitration,
investigation or proceeding.
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12.11 Performance By Sunds. Seller has advised Purchaser that Sunds
Defibrator, Inc. and Sunds Defibrator Industries AB (collectively "Sunds") have
agreed to perform certain remedial activities and to indemnify and defend
Seller and Company for certain matters discussed in this Article 12. Purchaser
and Company agree and consent that, to the extent of satisfaction by Sunds of
the items described in Article 12 as obligations of Seller, Purchaser shall not
pursue Seller for same. Purchaser and Company agree to reasonably cooperate
with Seller to allow Seller to enforce such obligations by Sunds in favor of
Seller. To the extent that the remediation or indemnification by Sunds does
not satisfy Purchaser's or Company's liability for same, Seller shall perform
to satisfy all such liability.
12.12 Limitation. The aggregate liability of Seller under the Seller's
indemnification obligations of this Article 12 shall not exceed $625,000.
13. Termination.
(a) Best Efforts to Satisfy Conditions. The Seller agrees to use all
reasonable and proper efforts to bring about the satisfaction of the conditions
specified in Section 7 hereof and the Purchaser agrees to use its best efforts
to bring about the satisfaction of the conditions specified in Section 8
hereof.
This Agreement may be terminated by:
(i) The mutual consent of the Seller and the Purchaser;
(ii) The Purchaser if a material default shall be made by the
Seller in the observance of or in the due and timely performance by the Seller
of any of the covenants of the Seller herein contained, or if there has been a
material breach by Seller of any of the warranties and representations of the
Seller herein contained, or if the conditions of this Agreement to be complied
with or performed by the Seller at or before the Closing shall not have been
complied with or performed at the time required for such compliance or
performance and such noncompliance or nonperformance shall not have been waived
by the Purchaser;
(iii) The Seller if a material default shall be made by the
Purchaser in the observance of or in the due and timely performance by the
Purchaser of any of the covenants of the Purchaser herein contained, or if
there shall have been a material breach by the Purchaser of any of the
warranties and representations of the Purchaser herein contained, or if the
conditions of this Agreement to be complied with or performed by the Purchaser
at or before the Closing shall not have been complied with or performed at the
time required for such compliance or performance and such noncompliance or
nonperformance shall not have been waived by the Seller; or
(iv) Either Purchaser or Seller if the Closing shall not have
occurred on or before October 31, 1997.
In the event of termination of this Agreement as provided above,
written notice thereof shall be given to the party within five (5) business
days. No termination pursuant to paragraphs (ii) and (iii) hereunder shall
relieve any party hereto from any liability in respect of such party's breach
or indemnification obligations hereunder.
14. Exhibits. If any exhibit recited to be attached hereto is not so
attached at the time of the execution hereof, the same may be prepared after
execution of this Agreement and, upon approval by notation of said exhibit by a
representative of the Seller and a representative of the Purchaser, shall
become a part of this Agreement.
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15. Miscellaneous.
(a) Expenses. Whether or not the transactions contemplated hereby
shall be consummated, each of the parties will pay all costs and expenses
(including Closing costs) of its performance of and compliance with this
Agreement.
(b) Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been given if
personally delivered or mailed, first class, registered or certified mail,
postage prepaid:
If to Seller: GL&V LaValley Industries Inc.
7600 NE 47th Ave.
Vancouver, WA 98661
Attn: General Manager
With a copy to: Fred Coccodrilli, Esq.
Ater Wynne Hewitt Dodson & Skerritt, LLP
222 SW Columbia, Suite 1800
Portland, Oregon 97201
If to Purchaser: Ershigs, Inc.
742 Marine Dr.
Bellingham, WA 98225
Attn: President
With a copy to: Cathy L. Smith, Esq.
1360 Post Oak Blvd., Suite 2470
Houston, TX 77056
Or at such other address as shall be given in writing by any person
identified above to each of the other such persons.
(c) Assignment. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties.
(d) Successors Bound. Subject to the provisions of Paragraph 15(c),
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
(e) Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
(f) Amendment. This Agreement may be amended only by an instrument
in writing executed by the parties hereto.
(g) Entire Agreement. This Agreement, the exhibits hereto, and the
documents specifically referred to herein constitute the entire agreement,
understanding, representations and warranties of the parties hereto.
(h) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute
one of the same instrument.
(i) Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware.
(j) Publicity. No party will or will permit its affiliates or
subsidiaries to issue any publicity, release or announcement concerning the
execution and delivery of this Agreement, the provisions hereof or the
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<PAGE> 28
transaction contemplated hereby without the prior written approval of the form,
mode and content of such publicity, release or announcement by the other party.
The parties intend to issue an initial joint release as well as communication
to Company's customers.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
AGREED TO BY SELLER:
GL&V/LaValley Industries Inc.
/s/ GREG BRUYEA
---------------------------------
By: Greg Bruyea
Title: Vice President
AGREED TO BY COMPANY:
GL&V/LaValley Construction Inc.
/s/ GREG BRUYEA
---------------------------------
By: Greg Bruyea
Title: Vice President
AGREED TO BY PURCHASER:
Ershigs, Inc.
/s/ LEE ORR
---------------------------------
By: Lee Orr
Title: President
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<PAGE> 1
EXHIBIT 10.15
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, made and entered into on the 19th day of
September, 1997, by and between Craig T. Sutton Revocable Trust, Cedric I.
Sutton and Charlotte A. Shnurman ("Sellers"), SEFCO, Inc., an Oklahoma
corporation, ("Company"), and Specialty Solutions, Inc., a Delaware corporation,
(hereinafter referred to as "Purchaser");
WITNESSETH
WHEREAS, Sellers own all of the issued and outstanding shares of
capital stock (the "Capital Stock") of the Company;
WHEREAS, Sellers desire to sell to Purchaser, and Purchaser desires to
purchase from Sellers, all of the shares of Capital Stock issued and outstanding
on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
Definitions
(a) Intellectual Property. Shall be defined as any and all (i)
patents (including, without limitation, design patents, industrial designs and
utility models, utility patents and plant patents) and patent applications
(including docketed patent disclosures awaiting filing, reissues, results of
reexaminations, divisions, continuations and extensions), patent disclosure
awaiting filing determination, inventions and improvements thereto; (ii)
trademarks, service marks, trade names, trade dress, logos, business and product
names, slogans and registrations and applications for registration thereof;
(iii) copyrights and registrations thereof and rights and unpublished works to
the extent such rights are not subsumed by copyright; (iv) inventions,
processes, designs, formulae, trade secrets, know-how, software, industrial
models, confidential and technical information, manufacturing, engineering and
technical drawings, product specifications and confidential business
information; and (v) intellectual property rights (including rights as a
licensee, if any) similar to any of the foregoing; in each case, that are
specific to the Subject Business.
(b) Liens. Shall be defined as all mortgages, deeds of trust,
liens, security interests, pledges, conditional sales contracts, claims, rights
of first refusal, options, charges, liabilities, obligations, easements,
rights-of-way, limitations, reservations, restrictions and other encumbrances
of any kind.
(c) Net Working Capital. Shall be defined as assets commonly
defined as Current Assets (including but not limited to cash and cash
equivalents, certificates of deposit, accounts receivable, costs and estimated
earnings in excess of billings, inventory, prepaid expense and deferred income
taxes) less liabilities commonly construed as Current Liabilities (including
but not limited to accounts payable, accrued expense, warranty reserve, accrued
income taxes, billings in excess of costs and estimated earnings on uncompleted
contracts, and current deferred income taxes), consistent in all material
respects with historical Company accounting practices and with GAAP.
1. Purchase and Sale of Shares/Other Assets
__________________________
(a) Purchase and Sale of Shares. Subject to the terms and
conditions set forth herein, at the Closing, Sellers will sell, assign and
deliver or cause to be sold, assigned and delivered to Purchaser, and Purchaser
will buy and accept all right, title and interest in and to, the Capital Stock,
free and clear of all preemptive rights,
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<PAGE> 2
liens, claims and encumbrances (the "Acquisition").
(b) Working Capital Adjustment. Within 15 days of Closing, but in
no event later than October 31, 1997, the Company will present to the Sellers a
balance sheet prepared in all material respects in accordance with GAAP and
consistent with prior practices and financial assumptions ("Closing Balance
Sheet"). This Closing Balance Sheet will be the basis for a purchase price
adjustment, to consist of the difference between Net Working Capital as of
September 30, 1997 and Net Working Capital as shown on the Company balance
sheet dated July 31, 1997 ($1,394,604). If Net Working Capital shown on the
Closing Balance Sheet is greater than that shown at July 31, 1997, then the
Purchaser shall remit, within 15 days of presentation of the balance sheet, the
difference to the Sellers. If Net Working Capital shown on the Closing Balance
Sheet is less than that shown at July 31, 1997, then the Sellers shall remit,
within 15 days of presentation of the balance sheet, the difference to
Purchaser.
(c) Purchase Price and Payment. The purchase price for all the
shares of the Capital Stock shall be $ 6,250,000. At the Closing, Purchaser
will pay $ 6,250,000 to Sellers (to be adjusted in accordance with 1(b)
above), by wire transfer of immediately available Federal Reserve funds to
accounts maintained by Sellers to be designated in writing by Seller at least
five (5) business days prior to the Closing Date. The purchase price allocation
shall be as follows:
Craig T. Sutton Revocable Trust 70%
Cedric I. Sutton 15%
Charlotte A. Shnurman 15%
(d) Liabilities Not Assumed by Purchaser. Purchaser is not assuming
liability for any costs, expenses, judgments, fines, penalties, or attorney's
fees, arising from any claim, action, suit, proceeding, or investigation,
arising out of events set forth on Exhibit 3(q). Sellers shall indemnify and
defend Purchaser against any such claims. Sellers and Company agree that all
life insurance and deferred compensation arrangements will be settled by Company
prior to Closing. Sellers and Company agree that Mr. and Mrs. Roy Sutton will
be terminated prior to Closing and Sellers shall assume any and all severance
obligations and other expenses in connection therewith.
(e) Assets Not Included. The following assets are not included in
the purchase and sale of Capital Stock:
1. 1997 Lincoln Continental VIN 1LNLM97VIVY604541
2. 1995 Ford Bronco VIN 1FMEU15H25LA90909
3. 1996 Chevy Suburban VIN 16NFK16RXTJ399375
4. 1996 Chevy Crew Cab VIN 16CEK14R3TZ141319
4. Four Wheelers and Trailer
(f) Employment Agreement. Included as part of the consideration for
the Purchase Price, Craig Sutton shall enter into that certain Employment
Agreement with Purchaser dated as of Closing Date.
(g) Formerly Leased Assets. In connection with this Agreement,
Sellers have agreed to transfer to the Company all real property and equipment
which have previously been leased to the Company by Sellers or related parties,
including Mr. and Mrs. Roy Sutton and the family partnership, and as more
particularly set forth in Schedule 1(g) hereto.
(h) Deposit. Purchaser shall provide a $250,000 deposit in a form
satisfactory to Sellers, to be applied as follows:
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<PAGE> 3
(i) If the Closing Date occurs on or before September 30, 1997,
the full amount of the deposit shall be applied toward the purchase price;
(ii) If the Closing Date occurs between October 1, 1997 and October
31, 1997, $200,000 shall be applied toward the purchase price and Sellers shall
retain the additional $50,000;
(iii) If the Closing Date does not occur on or before October 31,
1997, Sellers shall retain the entire $250,000 deposit.
The Closing.
(a) The closing of the Acquisition (herein called the "Closing")
shall take place on or before October 31, 1997 by mail, to be effective at
11:59 p.m. Central Time on the date on which Sellers receive the funds referred
to in Section 2.b.1(iii) below. The date of the Closing is referred to in this
Agreement as the "Closing Date".
Closing Deliveries.
At the Closing, Purchaser will deliver to Sellers:
one copy of the resolutions adopted by the Board of Directors of
Purchaser authorizing the transactions contemplated hereby,
certified by the Secretary or Assistant Secretary of
Purchaser;
certificate to the effect of Article 8(a) executed by
appropriate authorized officers of Purchaser;
$ 6,250,000 by wire transfer to Sellers' account; and
the deposit referenced at Article 11(f).
At the Closing, Sellers will deliver to Purchaser:
one copy of the resolutions adopted by the Sellers, authorizing
the transactions contemplated hereby, certified by the
Sellers;
(i) certificates to the effect of Article 7(a) and 7(l) hereof
executed by appropriate the Sellers;
(ii) the duly executed and sealed stock certificates
representing the Capital Stock registered in the name of
Purchaser; and
(iii) resignations of all officers and directors of the Company
serving in office immediately prior to the Closing.
3. At the Closing, Purchaser and Sellers will execute, deliver and
acknowledge, or cause to be executed, delivered and acknowledged, to the other
such certificates and other documents related to the consummation of the
transactions contemplated hereby, as may be reasonably requested by the other.
3. Representations and Warranties of the Sellers. The Sellers represent
and warrant to the Purchaser that:
(a) Organization and Existence. Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Oklahoma and has full power and authority to carry on its business as now
conducted. Complete and correct copies of the Certificate of Incorporation and
Bylaws of the Company as in effect on the date hereof have been delivered to
the Purchaser. The Sellers own all of the Capital Stock of the Company. The
Company is qualified in Oklahoma and such other states as set forth in Exhibit
3(a) hereto, which states represent every jurisdiction where such qualification
is required except where failure to be so qualified would not have a material
adverse affect on the business, properties or assets of the
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<PAGE> 4
Company.
(b) Authority Relative to This Agreement. The transaction
contemplated by this Agreement have been duly authorized by the Sellers, and
no further corporate action is necessary on the part of the Sellers to make
this Agreement valid and binding upon the Sellers in accordance with its terms.
The execution, delivery and performance of this Agreement by the Sellers will
not result in a violation or breach of any term or provision of, or constitute
a default or accelerate the performance required under the Articles and Bylaws
of the Company, any indenture, mortgage, deed of trust or other contract or
agreement to which the Sellers or Company is a party or by which it or any of
their properties are bound, or violate any order, writ, injunction, decree of
any court, administrative agency or governmental body.
(c) Validity and Enforceability. This Agreement and all related
documents have been duly executed and delivered by Sellers and Company and
constitute legal, valid and binding obligations of Sellers enforceable in
accordance with their terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, or the laws affecting the enforcement
of creditors' rights generally, and the application of general principles of
equity.
(d) Financial Statements. The Sellers have delivered to Purchaser
the adjusted unaudited financial statements of the Company for the period ending
July 31, 1997, attached hereto as Schedule 3(d) (the "Financial Statements").
The financial statements fairly represent the financial position of the Company
as of the date thereof and the results of operations and changes in financial
position for the periods then ended, provided that such statements are subject
to year-end adjustments in accordance with GAAP, none of which are material.
(e) Absence of Certain Changes or Events. With respect to the
Company, except as contemplated hereby and as listed on Exhibit 3(e) hereto, and
other than in the ordinary course of business, since July 31, 1997, neither the
Sellers nor Company have:
(i) Sold, transferred, or otherwise disposed of, or agreed
to sell, transfer or otherwise dispose of any of the assets of the Company
except in the ordinary course of its business;
(ii) Entered or agreed to enter into any agreement or
arrangement granting any preferential rights to purchase any of the assets, or
requiring the consent of any party to the transfer and assignment of any of
such assets, property or rights;
(iii) Waived any rights of value with respect to the Company;
(iv) Made or permitted any amendment or termination of any
contract, agreement or license to which Company is a party or by which Company
is subject;
(v) To its knowledge, incurred or become subject to any
material claim or liability for any damages or alleged damages for any actual
or alleged negligence or other tort or breach of contract which might in any
fashion adversely affect the value of the Company;
(vi) Made any capital expenditure (or commitments therefor),
aggregating in excess of $5000.00 and relating to the Company;
(vii) Entered into any other material transaction of which
Purchaser has not been formally notified in writing; or
(viii) Changed its management practices, operations or policies
with respect to (a) the standard terms and conditions of sale of products or
services; (b) the method of accounting for sale of products or services; (c) the
policy regarding maintenance of inventory levels; or (d) the conduct of accounts
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<PAGE> 5
receivable collection and accounts payable payment activities.
(f) Consents. The consummation of the Acquisition contemplated
herein by the Sellers and Company shall not require the consent, approval or
authorization of any third party.
(g) Organizational Instruments. Sellers have made available to
Purchaser complete and accurate copies of the Certificate of Incorporation and
Bylaws of Company, as amended. Company is not in violation of any provision of
its Certificate of Incorporation or Bylaws. Except for this Agreement, there
are no agreements or commitments which obligate or require Sellers or Company
to amend or authorize an amendment of the Certificate of Incorporation or Bylaws
of the Company. Sellers have made available or caused to be made available to
Purchaser complete and accurate copies of the minute books and stock books of
the Company. Such minute books contain complete and accurate copies of all
records of all meetings and consents in lieu of meetings of the Board of
Directors and shareholders of the Company.
(h) Capital Stock. The authorized, issued and outstanding Capital
Stock consists of 1000 shares of common stock at $1.00 par value, fully paid
and non-assessable. There are no outstanding subscriptions, options, warrants,
rights, convertible or exchangeable securities, agreements or commitments which
obligate or require Sellers or Company to issue, sell or transfer any shares of
Capital Stock.
(i) Subsidiaries. Except as set forth on Schedule 3(i), Company does
not directly or indirectly own or have the power to vote shares of the Capital
Stock or other ownership interests of any corporation or entity such that it
has voting power to elect a majority or a specified number of the directors of
such entity. Company is neither a partner of any partnership nor a member of
any joint venture or other business entity.
(j) Title to Owned Properties. Company has good and valid title to
all of the material properties owned by it, free and clear of all liens, claims
and encumbrances other than:
liens, claims and encumbrances reflected in the Financial
Statements;
liens for taxes, charges and assessments not yet due and payable
or which are being contested in good faith;
mechanics', suppliers', installment sales and similar liens for
services rendered or materials furnished, the charges for
which are not yet due and payable or which are being
contested in good faith by appropriate proceedings;
easements and restrictions of record and zoning ordinances;
(v) As of the Closing Date, Company has good and marketable
title to the real property and equipment formerly leased
by Sellers and related parties as set forth in Schedule
1(g), free and clear of all liens, encumbrances, etc.
(k) Prepayments and Deposits. There are no prepayments or deposits
which have been received and are being held by the Company and the Company has
made no prepayment or deposit other than those prepayments and deposits set
forth in Exhibit 3(k).
(l) Absence of Undisclosed Liabilities. Except as disclosed to the
Purchaser on Exhibit 3(l), none of the assets are subject to any liabilities or
obligations (accrued, absolute, contingent or otherwise), or will be subject to
any such liability or obligation arising from the actions of the Sellers or
Company on or before the Closing Date, whether or not such liability would
normally be shown or reflected on a balance sheet prepared in a manner
consistent with generally accepted accounting principles. Except as disclosed
to the Purchaser in an exhibit hereto, there are no facts in existence on the
date hereof which might reasonably serve as the basis for any liabilities or
obligations of the Company and which would adversely affect the value of the
Company.
(m) Tax Matters. All federal, state, county, local and other taxes,
including, without limitation, income taxes, corporate franchise taxes, payroll
taxes, customs fees and duties, sales taxes and ad valorem taxes, due and
payable by the Company on or before the date of this Agreement have been timely
paid,
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and all tax returns and reports required to be filed by the Company have been
timely filed with all such taxing authorities. No assessments or deficiencies
have been made against the Company and no extensions of time are in effect for
the assessment of deficiencies. Except as set forth on Schedule 3(m), there is
no material dispute or claim concerning any tax liability of the Company as to
which the Sellers have knowledge.
(n) Patents, Etc. The Sellers have delivered to the Purchaser a
true and complete Exhibit (Exhibit 3(n)) setting forth all Intellectual Property
patents, inventions, trademarks, tradenames, brand names or copyrights owned or
used by or licensed to or by the Company (if any), and relating to the Company,
together with a summary description and full information in respect of the
filing, registration or issuance and the status thereof, except for rights to
intellectual property arising under common law. Except as disclosed in Exhibit
3(n), the operations of the Company do not infringe upon the patent, trademark
or other similar rights of any other person or entity. Except as disclosed in
Exhibit 3(n), the Company has asserted no claim that the operations of any other
entity infringe upon the Intellectual Property of the Company.
(o) Insurance. Attached hereto as Exhibit 3(o) is an Exhibit
setting forth a list and brief description of all policies of insurance, held
by the Company or on its behalf. There is no material inaccuracy in any
application for any such policy which would form a basis for termination of any
such policy.
(p) Licenses, Permits, Etc. Attached hereto as Exhibit 3(p) is a
list and brief description of all licenses and permits held by the Company,
copies of which licenses and permits have been furnished to the Purchaser.
Except as noted on Exhibit 3(p), such licenses and permits constitute all
licenses and permits necessary to own the assets or conduct the business of
Company, and each is in full force and effect. Except as set forth on Exhibit
3(p), there is no violation that would adversely affect the value of the
Company, and no proceeding is pending or threatened seeking the revocation or
limitation of any such license or permit.
(q) Litigation. Except as set forth on Exhibit 3(q) hereto, there
are no claims, actions, suits, proceedings or investigations pending or
threatened against or affecting the Company or any of its properties, at law or
in equity or before or by any court or federal, state, municipal or other
governmental department, commission, board, agency or instrumentality. Neither
Sellers nor Company are subject to any court or administrative order, injunction
or similar decree, the enforcement of which would adversely affect the value of
the Company.
(r) Compliance with Laws. Except as disclosed on Exhibit 3(r)
hereto, the operations of the Company, either historically or as now conducted,
do not violate any federal, state or local law, ordinance, rule or regulation,
(including, without limitation, any laws or regulations relating to the
environment or the handling, treatment or disposal of wastes or products of
Company) the violation of which would adversely affect the value of the Company.
(s) No Default. Company is not in default in any respect of any
obligation to be performed by the Company under any material contract, lease,
agreement, commitment or undertaking which default would adversely affect the
value the Company is a party or by which the Company is bound, nor has Company
waived any right under any such contract, lease, agreement, commitment or
undertaking.
(t) Product Liability. Except as listed on Exhibit 3(t), the
Sellers have no knowledge after reasonable inquiry of any state of facts or the
occurrence of any event forming the basis of any present claim against the
Company for product liability or on account of any express or implied warranty.
Warranty work over the last three years has not been material to the Company.
(u) Disclosure. The representations and warranties contained in the
Articles and the Exhibits hereto, do not and shall not, when taken as a whole,
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein or herein not misleading in
view of the circumstances under which they were made. To the extent that
Purchaser (or its officers or agents) has actual knowledge of any discrepancy,
statement or statement of facts, the applicable representation or warranty
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<PAGE> 7
known to be untrue or misleading shall be unenforceable to the extent of the
knowledge of such discrepancy, statement or state of facts. In all other
respects, the representations and warranties of Sellers shall remain unaffected.
Disclosures made in any of the Exhibits or exhibits to this Agreement are hereby
deemed to be made for purposes of all other schedules or exhibits.
(v) Contracts, Leases, Licenses. Exhibit 3(v) lists all contracts,
agreements and commitments having values in excess of $20,000 to which Company
is a party. All are legal, valid and binding obligations of Company and are in
full force and effect.
(w) Environmental. Except as disclosed at Schedule 3(w): (i) There
are no hazardous substances on or in the Company's real property, whether
contained in barrels, tanks, equipment (movable or fixed) or other containers;
deposited or located in land, waters, sumps or in any other part of the
Company's real property; incorporated into any structure on the Company's real
property; or otherwise existing thereon; (ii) The Company's real property (and,
to the best of Sellers' knowledge, nearby property) has never been used for
industrial or commercial operation involving any hazardous substance, including
but not limited to any sort of manufacturing, processing or refining; equipment,
machinery, part or component, cleaning or degreasing; the sale, storage or
transport of hazardous substances; any aspect of the provision of services
which utilize hazardous substances; drilling, mining or production of oil, gas,
minerals or their naturally occurring products; or any agricultural activities
involving the use or storage of fertilizers or pesticides; (iii) No spills,
discharges, releases, deposits or emplacements of any hazardous substances have
ever occurred on or near the Company's real property; (iv) No
asbestos-containing materials have been installed in or affixed to the
structures on Company's real property at any time before or during Sellers'
ownership thereof. No such materials have been stored or disposed of anywhere
on the Company's real property; (vi) No electrical transformers, fluorescent
light fixtures or other electrical equipment containing PCBs are or have been
installed in, affixed to or located on the Company's real property at any time
before or during Seller's ownership thereof; (vii) No storage tanks for
gasoline or any other substance have been located on the Company's real
property, whether above ground, underground or within a structure at any time
before or during Sellers' ownership thereof.
(x) Real Property.
(i) Exhibit 3(x) identifies all real property owned by
Company, to all of which Company has good, marketable and valid title, free and
clear of all liens, claims and encumbrances, subject to easements and
restrictions of record and zoning ordinances; all leased real property; all
leases and subleases pertaining to the real property; all actions, suits,
proceedings, investigations and claims presently pending or threatened which
pertain to the real property owned or leased, as well as all final orders,
writs, judgments, awards, edicts and decrees of any court of competent
jurisdiction presently outstanding against Company which pertain to the real
property.
(ii) Company does not own, hold, is neither obligated under
nor a party to any option, right of first refusal or other contractual right to
purchase, acquire, sell or dispose of the real property;
(iii) The components of the buildings, structures and other
improvements which are located on the real property are in reasonable working
order and repair for the conduct of Company's business; are supplied with all
utilities necessary for the operation thereof as presently operated by Company,
and all associated "hook-up" fees and other similar charges due and payable
through the date hereof have been paid.
(iv) Neither Sellers nor Company have received written notice
of any presently pending, and there is not any pending or threatened
condemnation proceeding affecting the real property, or any sale or other
disposition of their real property or any part thereof in lieu of condemnation.
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<PAGE> 8
(y) Owned Personal Property. All of the material tangible personal
property (including, without limitation, furnishings, furniture, office
equipment, vehicles, inventories, tools, machinery, equipment, structures and
movable fixtures) which is reflected in the July 31, 1997 balance sheet included
among the Financial Statements (and that formerly leased property described on
Schedule 1(g) hereto) is owned by Company and in reasonable working order and
repair for use as presently used by Company in connection with Company's
business.
(z) Human Resources.
(i) Exhibit 3 (z) hereto sets forth a complete and accurate
list of (a) all of the collective bargaining agreements and agreements with
labor unions or associations representing employees to which Company is a party
and (b) as of the dates set forth in the Exhibit, the total number of employees
of Company and the number of such employees represented by each such agreement.
Such numbers of employees have not changed since such dates except in the
ordinary course of business. Except as set forth on the Exhibit, there are no
organizing efforts, strikes, slowdowns, picketing, work stoppages, labor
troubles or other similar events in which employees of Company are
participating.
(ii) Except as set forth on Exhibit 3(z) hereto, Company (a)
is not a party to any written consulting or employment contract; and (b) has
neither made any commitment to, nor entered into any written agreement
obligating it to, increase the wages or modify the material conditions or terms
of employment of its employees.
(iii) Exhibit 3(z) sets forth all of the employee benefit plans
maintained by Company, and all of the severance, termination and similar
programs either established by Company with respect to the transactions
contemplated hereby or otherwise applicable to Company's employees ("Benefit
Plans").
(iv) Other than as indicated on Exhibit 3(z):
(a) Sellers neither maintain, sponsor nor
contribute to any program or arrangement covering employees of
Company that is an "employee pension benefit plan", an "employee
welfare benefit plan", or a "multiemployer plan" as defined in
Sections3(2), 3(1) and 3(37) of ERISA ("ERISA Plans"), or any
other incentive or benefit arrangement ("Non-ERISA Plans").
(b) The present value of the accrued benefits
under any and all ERISA Plans which are defined benefit plans, as
defined in Section 3(35) of ERISA, and which are maintained by
Sellers for employees and former employees of Company ("Pension
Plan") did not, as of the last annual valuation date for such
Pension Plan, exceed the value of assets of such Pension Plan
allocable to such benefits;
(c) No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"), which could
subject Purchaser or Company to any tax penalty on prohibited
transactions and which has not adequately been corrected;
(d) Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the
Code and ERISA as they relate to any such ERISA plan;
(e) Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan
which is intended to comply with Code Section 401(a), stating
that such ERISA Plan is qualified thereunder.
(f) No Pension Plan subject to Title IV of
ERISA has been terminated nor has there
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<PAGE> 9
been any "reportable event" as such term is defined in Section
4043 of ERISA with respect to any such Pension Plan;
(g) No Pension Plan has incurred any
"accumulated funding deficiency" as such term is defined in
Section 302 of ERISA and Section 412 of the Code and Seller has
made all contributions on a timely basis;
(h) No liability to the Pension Benefit
Guaranty Corporation ("PBGC"), other than for premiums, has been
incurred with respect to any Pension Plan;
(i) No proceeding or other action has been
initiated by the PBGC to terminate any Pension Plan, nor has
written notice been given to Seller of an intention to commence
or seek the commencement of any such proceeding or action;
(j) Seller has not, within the last six years
before the Closing Date, completely or partially withdrawn from a
"multiemployer plan" covering employees; and
(k) Copies of all documents embodying the
ERISA Plans have been delivered or made reasonably available to
Purchaser.
(aa) Health and Safety Conditions. Exhibit 3(aa):
(i) lists all current material safety data sheets relating to
the products currently sold by Company and the chemical substances or mixtures
currently used by Company in the conduct of its business as presently
conducted by Company;
(ii) lists all written internal safety and health audits
conducted since January 1, 1993 by Company; and
(iii) lists all citations, notices of violations, orders and
consent orders issued and administrative or judicial enforcement proceedings
commenced by governmental or agencies, authorities and instrumentalities
(including OSHA, any state occupational safety and health administration and
EPA) with respect to safety and health matters relating to Company since
January 1, 1993.
(bb) Entire Business. Company owns, leases or has licenses or other
contractual rights to use all of the material tangible and intangible assets
used by it in the conduct of the business as presently conducted by it except
for (i) assets used to provide services or goods to Company pursuant to a
contract, agreement or commitment set forth in an Exhibit hereto, and (ii)
pension or other funded employee benefit plan assets. The contracts, agreements
and commitments under which such contractual rights have been granted are listed
on Exhibits hereto.
(cc) Subsidiaries. With respect to the subsidiaries listed at
Schedule 3(i), Sellers' representations, warranties and covenants found in this
Article 3 shall apply.
All exhibits delivered to the Purchaser by the Sellers pursuant to
this Section shall be delivered upon the execution of this Agreement and shall
be signed for identification by Seller.
4. Representations and Warranties of the Purchaser. Purchaser represents
and warrants to the Sellers that:
(a) Organization and Existence. The Purchaser is a corporation duly
organized, validly existing and
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<PAGE> 10
in good standing under the laws of the State of Delaware and has all requisite
corporate power to enter into and perform this Agreement.
(b) Authority Relative to This Agreement. The transactions
contemplated by this Agreement have been duly authorized by the Board by
Directors of Purchaser, and no further corporate action is necessary on the
part of the Purchaser to make this Agreement valid and binding upon the
Purchaser in accordance with its terms. The execution, delivery and performance
of this Agreement by the Purchaser will not result in a violation or breach of
any term or provision of, or constitute a default or accelerate the performance
required under, any indenture, mortgage, deed of trust or other contract or
agreement to which the Purchaser is a party or by which it or any of its
properties is bound, or violate any order, writ, injunction or decree of any
court, administrative agency or governmental body.
(c) Validity and Enforceability. This Agreement and all related
documents have been duly executed and delivered by Purchaser and constitute
legal, valid and binding obligations of Purchaser enforceable in accordance
with their terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, or other laws affecting the enforcement of
creditors' rights generally, and the application of general principles of
equity.
(d) Brokers. The Purchaser is not a party to or in any way
obligated under any contract or other agreement and there are no outstanding
claims against it for the payment of any broker's or finder's fee in connection
with the origin, negotiation, execution or performance of this Agreement.
(e) Consents. The consummation of the transactions contemplated
herein by the Purchaser shall not require the consent, approval or authorization
of any third party.
(f) Compliance with Laws. Except as disclosed in an exhibit hereto,
Purchaser's operations, either historically or as now conducted, do not violate
any federal, state or local law, ordinance, rule or regulation, the violation
of which would adversely affect its ability to perform under this Agreement.
(g) No Default. Purchaser is not in default in any respect of any
obligation to be performed by the Purchaser under any contract, lease,
agreement, commitment or undertaking which default would adversely affect its
ability to perform under this Agreement.
(h) Investment Representation. Purchaser represents that it
understands that: (i) the Capital Stock being acquired by Purchaser pursuant
to this Agreement has not been registered under the Securities Act of 1933, as
amended; (ii) the Capital Stock must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act of 1933, as amended,
or is exempt from such registration; (iii) the Capital Stock will bear a legend
to such affect; and (iv) Company will make a notation on its transfer books to
such effect. Purchaser further represents that : (i) the Capital Stock is
being acquired for investment and without any present view toward distribution
thereof to any other persons; (ii) Purchaser will not sell or otherwise dispose
of the Capital Stock, except in compliance with the registration requirements
or exemption provisions under the Securities Act of 1933, as amended, the rules
and regulations thereunder, and as otherwise adopted by the Securities and
Exchange Commission; (iii) Purchaser has knowledge and experience in financial
matters and that it is capable of evaluating the risks and merits of an
investment in common stock; (iv) Purchaser has consulted with counsel, to the
extent deemed necessary, as to all matters covered by this Agreement, and has
not relied on Sellers or Company for any explanation of the various federal or
state securities laws with regard to the acquisition of the Capital Stock; (v)
Purchaser has investigated and is familiar with the affairs, financial condition
and prospects of Company, and has been given sufficient access to and has
acquired sufficient information about Company to reach an informed,
knowledgeable decision to acquire the Capital Stock; and (vi) Purchaser is able
to bear the economic risks of such an investment.
(i) Disclosure. The representations and warranties contained in the
Articles and the Exhibits hereto, do not and shall not, when taken as a whole,
contain any untrue statement of a material fact or omit any
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<PAGE> 11
material fact necessary to make the statements contained therein or herein not
misleading in view of the circumstances under which they were made. To the
extent that Sellers (or their officers or agents) have actual knowledge of any
discrepancy, statement or statement of facts, the applicable representation or
warranty known to be untrue or misleading shall be unenforceable to the extent
of the knowledge of such discrepancy, statement or state of facts. In all
other respects, the representations and warranties of Purchaser shall remain
unaffected. Disclosures made in any of the Exhibits or exhibits to this
Agreement are hereby deemed to be made for purposes of all other schedules or
exhibits.
5. Covenants of Sellers. The Sellers covenant with the Purchaser that:
(a) Conduct of Business. From the date of this Agreement to the
Closing Date, the business of the Company will be operated only in the ordinary
course, and in particular, without the prior written consent of the Purchaser,
the Sellers will not and will not allow Company to:
(i) Cancel or permit any insurance to lapse or terminate,
unless renewed or replaced by like coverage;
(ii) Change the Company's Articles of Incorporation or Bylaws
or the composition of Sellers;
(iii) Be in default under any material contract, agreement,
commitment or undertaking of any kind or under any local, state or federal
permits;
(iv) Knowingly violate or fail to comply with all laws
applicable to it or its properties or business;
(v) Commit any act or permit the occurrence of any event or
the existence of any condition of the type described in Paragraph 3(e) hereof;
or
(vi) Merge, consolidate or agree to merge or consolidate with
or into any other corporation.
(vii) Enter into any new, or amend any existing, Benefit Plans
or any other agreement, program, or arrangement in connection therewith
(including any trust agreement, insurance contract or credit facility) or grant
any increases in compensation, other than in the ordinary course of business or
pursuant to promotions, in each case consistent with past practice.
(viii) Make or revoke any elections with respect to Taxes other
than in the ordinary course of business or as provided in this Agreement.
(b) Access. From and after the date of this Agreement, Company and
Sellers will provide to Purchaser and its respective counsel, accountants,
engineers and other representatives, full and free access to the records of the
Company during normal business hours upon prior reasonable notice. Expenses of
providing such access shall be paid by the party requesting such access. At
the request of Company, Purchaser agrees to inspect such records at a location
away from the Company offices.
(c) Preservation of Business Organization. The Sellers will
use their best efforts to preserve the business organization of the Company and
to preserve for the Purchaser the Company's good relations with all customers
and others having business relations with the Company.
(d) Trade Secrets. From and after the Closing Date, Sellers will
not use or divulge to any competitor or unauthorized person any confidential
information, and it will use all reasonable and proper efforts to insure that
its agents do not use or divulge any confidential information, trade secrets,
processes, formulae or know-how relating to the Company.
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(e) Product Warranty and Liability. Subject to Section 6(b),
Sellers shall be responsible for all warranty and product liability obligations
on product or services provided by the Company prior to the Closing Date, to the
extent such cumulative costs exceed the warranty accrual per the Closing Balance
Sheet.
(f) Brokers. Sellers shall pay all broker's fees or finder's fees
(if employed by Sellers) in connection with the origin, negotiation, execution
or performance of this Agreement. Such fees will not be paid out of Company
assets.
(g) Confidentiality of Information Furnished by Purchaser. Sellers
and their representatives will treat all information related to these
transactions as confidential. Sellers agree not to use any of this information
except in connection with this Agreement. Sellers will use their best efforts
to keep such information confidential. If the transactions contemplated by
this Agreement are not consummated, Sellers and Company will return to the
Purchaser all information relating to Purchaser (and all copies thereof) then
in their possession.
(h) Notification of Untrue Reps and Warranties. Sellers will
promptly give written notice to Purchaser upon becoming aware of the occurrence
or failure to occur, or the impending or threatened occurrence or failure to
occur, of any event that would cause or constitute, or would be likely to cause
or constitute, any of the Sellers' representations or warranties being or
becoming untrue.
(i) Payment of Debts. Not later than Closing Date, Sellers will
pay, assume or cause the release of liabilities for monies borrowed from third
parties or the Sellers. Purchaser will assume all liabilities in the ordinary
course of business. .
(j) Employment Agreement. Craig Sutton, one of the Sellers, agrees
to enter into the terms of the Employment Agreement with Purchaser, dated as
of Closing.
(k) Non-Competition. SELLERS AGREE THAT DURING A FIVE-YEAR PERIOD
COMMENCING ON THE CLOSING DATE, THEY WILL NOT DIRECTLY OR INDIRECTLY, FOR THEIR
OWN ACCOUNT OR FOR THE ACCOUNT OF OTHERS, WHETHER AS PRINCIPLE OR AGENT OR
THROUGH THE AGENCY OF ANY CORPORATION, PARTNERSHIP, ASSOCIATION OR OTHER
BUSINESS ENTITY, ENGAGE IN ANY ACTIVITY SIMILAR TO OR COMPETITIVE WITH THE
COMPANY'S BUSINESS AS CONDUCTED AS OF THE CLOSING DATE IN THE UNITED STATES. IN
THE EVENT PURCHASER CEASES PAYING CRAIG T. SUTTON'S SALARY UNDER THE EMPLOYMENT
AGREEMENT DATED AS OF CLOSING DATE FOR REASONS OTHER THAN SUTTON REFUSING
PAYMENT, THIS NONCOMPETE WITH SUTTON SHALL TERMINATE. THE FOREGOING AGREEMENT
NOT TO COMPETE SHALL NOT BE HELD INVALID OR UNENFORCEABLE BECAUSE OF THE SCOPE
OF THE TERRITORY OR THE ACTIONS RESTRICTED THEREBY, OR THE PERIOD OF TIME
WITHIN WHICH SUCH AGREEMENT IS OPERATIVE; BUT ANY JUDGMENT OF A COURT OF
COMPETENT JURISDICTION MAY DEFINE THE MAXIMUM TERRITORY AND ACTIONS SUBJECT TO
AND RESTRICTED BY THIS PARAGRAPH AND THE PERIOD OF TIME DURING WHICH SUCH
AGREEMENT IS ENFORCEABLE.
6. Covenants of the Purchaser. The Purchaser covenants with the Sellers
that:
(a) Product Warranty. (i) Purchaser shall assume warranty obligations
for products or services provided after the Closing Date; (ii) Subject to the
limitation in Article 11(d), Purchaser agrees to perform, in accordance with
applicable warranties, all warranty services to repair or replace defective
parts or products sold or manufactured by the Company or defective services
performed by the Company prior to the Closing Date. The price to Sellers shall
be Purchaser's current rates (without profit) at the time the warranty work is
performed.
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(b) Notification of Untrue Reps and Warranties. Purchaser will
promptly give written notice to Sellers upon becoming aware of the occurrence
or failure to occur, or the impending or threatened occurrence or failure to
occur, of any event that would cause or constitute, or would be likely to cause
or constitute, any of the Purchaser's representations or warranties being or
becoming untrue.
(c) Release from Bonds. Purchaser will use its best efforts to be
substituted as guarantor on the open bonds listed at Schedule 6(c), in place of
Roy and Craig Sutton.
7. Conditions to Obligations of the Purchaser. The obligations of the
Purchaser under this Agreement shall be subject to the satisfaction of the
following conditions:
(a) Representations and Warranties of Sellers and Company True at
Closing. The Purchaser shall not have discovered any material error,
misstatement or omission in the representations and warranties made by the
Sellers or Company in Section 3 hereof; the representations and warranties
made by the Sellers and Company shall be deemed to have been made again at and
as of the time of Closing and shall then be true in all material respects,
except to the extent that such representations and warranties shall have been
made as of a specified date;
(b) Sellers shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied with by
them at or prior to Closing.
(c) Sellers shall provide Purchaser with all certificates and other
documents, in form and substance reasonably satisfactory to Purchaser, required
to be delivered to Purchaser at or before the Closing pursuant to this
Agreement, duly executed by all necessary persons.
(d) Purchaser will have received the stock certificates described in
Article 2(b) hereof.
(e) Purchaser will have received the resignation of directors and
officers described in Article 2(b) hereof.
(f) Company will be relieved of liabilities related to monies
borrowed from third parties or the Sellers as set forth in Article 5(j) hereof.
(g) Approval of Counsel. All actions, proceedings, instruments and
documents reasonably required to carry out the transactions contemplated by
this Agreement or incidental thereto and all other related matters shall have
been approved by counsel for the Purchaser, which approval shall not be
unreasonably withheld or delayed, and such counsel shall have been furnished
with such certified copies of actions and proceedings and other such
instruments and documents as such counsel shall have reasonably requested.
(h) Changes in Business. Prior to the Closing, there shall have
been no changes in the business, properties or operations of the Company since
the date of this Agreement which would have a material adverse effect on the
value of the Company.
(i) Absence of Restraint. No order to restrain, enjoin or otherwise
prevent the consummation of this Agreement or transactions in connection
herewith shall have been entered and, on the Closing Date, there shall not be
any pending or threatened litigation in any court, or any proceeding by or
before any governmental commission, board or agency, seeking to restrain or
prohibit consummation of the transactions contemplated hereby or in which
divestiture, rescission or significant damages are sought in connection with
the transactions contemplated hereby, and no investigation by any governmental
agency shall be pending or threatened which might result in any such litigation
or other proceeding.
(j) Approval. The Sellers of the Company shall have approved the
transactions contemplated by the Agreement and such approval shall not have
been rescinded.
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(k) Governmental Consents. Any and all necessary consents of and
filings with any governmental authority or agency relating to the consummation
of the transactions contemplated by this Agreement shall have been obtained or
accomplished, and no action, proceeding, inquiry or investigation by any private
or governmental agency shall have been brought or threatened which questions
the validity or legality of the transactions contemplated by this Agreement.
(l) Charter; Good Standing; Incumbency. There shall have been
delivered to Purchaser (i) a certificate dated within ten (10) days of Closing
Date from the Secretary of State of Oklahoma with respect to the incorporation
and good standing of, and the payment of franchise taxes by Company, (ii),
copies of Articles, Bylaws and all amendments and the resolutions of the Board
of Directors of Company approving these transactions, and (iii) a certificate
dated Closing Date with respect to the incumbency and signatures of all officers
of Company signing this Agreement and any certificate, agreement or instrument
delivered on behalf of Sellers in connection with this Agreement.
(m) Employment Agreement. Purchaser shall have received the
Employment Agreement between Purchaser and Craig Sutton in a form satisfactory
to Purchaser.
8. Conditions to Obligations of the Sellers. The obligations of the
Sellers under this Agreement shall be subject to the satisfaction of the
following conditions:
(a) Representations and Warranties of Purchaser True at Closing.
The Sellers have not discovered any material error, misstatement or omission in
the representations and warranties made by Purchaser in Section 4 hereof; the
representations and warranties made by the Purchaser shall be deemed to have
been made again at and as of the time of Closing and shall then be true in all
material respects, except to the extent that such representations and warranties
shall have been made as of a specified date; and the Purchaser shall have
performed or complied with by it at or prior to Closing; and Purchaser shall
provide Sellers with a Certificate from Purchaser's President dated as of
Closing that the above conditions have been fulfilled.
(b) Approval of Counsel. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
or incidental thereto and all other related legal matters shall have been
approved by counsel for the Sellers, which approval shall not be unreasonable
withheld or delayed.
(c) Absence of Restraint. No order to restrain, enjoin or otherwise
prevent the consummation of this Agreement or transactions in connection
herewith shall have been entered and, on the Closing Date, there shall not be
any pending or threatened litigation in any court, or any proceeding by or
before any governmental commission, board or agency, with a view to seeking to
restrain or prohibit consummation of the transactions contemplated hereby or in
which divestiture, rescission or significant damages are sought in connection
with the transactions contemplated hereby, and no investigations by any
governmental agency shall be pending or threatened with might result in any
such litigation or other proceeding.
(d) Government Consents. Any and all necessary consents of and
filings with any governmental authority or agency relating to the consummation
of the transactions contemplated by this Agreement shall have been obtained or
accomplished, and no action, proceeding, inquiry or investigation by any
private or governmental agency shall have been brought or threatened which
questions the validity or legality of the transactions contemplated by this
Agreement.
(e) Sellers will have received all certificates and other documents,
in form and substance reasonably satisfactory to Sellers, required to be
delivered to Sellers at or before Closing pursuant to this Agreement, duly
executed by all necessary persons.
(f) Sellers will have received payment of the Purchase Price in
accordance with this Agreement.
14
<PAGE> 15
9. Tax Matters
9.1 Records Retained By Sellers. Sellers will deliver to Company
within sixty days after the Closing Date, all books, records and files which
pertain (i) to the business conducted by Company; (ii) to the Company; or (iii)
to any of the properties owned , leased or used by Company, to the extent such
books and records relate solely to the Company and do not contain any
information pertaining to Sellers ("Business Records"). Business Records which
contain information relating to Sellers may be retained by Sellers and copies
of such Business Records will be delivered to Company.
9.2 Tax Representation
(a) All Tax Returns of the Company filed after the date hereof
and on or prior to Closing shall, in each case, be prepared and filed in a
manner consistent with the Tax Returns most recently filed in the relevant
jurisdiction prior to the date hereof. All such Tax Returns (other than sales,
payroll, property and similar tax returns) shall be subject to the prior review
of Purchaser and shall be submitted by Seller to Purchaser for review at least
twenty days prior to the filing date. Sellers shall cause Company to take into
account all reasonable comments of Purchaser. Notwithstanding, Purchaser shall
file the tax return for the period beginning January 1, 1997 through Closing
Date, subject to prior review by Sellers if requested, to be submitted to
Sellers for review at least twenty days prior to the filing date.
9.3 Cooperation. After Closing, Sellers and Purchaser shall
cooperate, and shall cause their respective subsidiaries to cooperate, with
each other in connection with the filing of any Tax Return which is required to
be filed by Sellers, Company or their respective subsidiaries and which covers
a period that ends prior to or on the Closing Date, and all such information
shall be treated as confidential by the parties. Sellers and Purchaser shall
also cooperate fully in connection with any audit, litigation or other
proceeding with respect to taxes, however, the primary responsibility and total
cost of defending such actions arising out of periods ending before or up to
the Closing shall be Sellers'.
9.4 Tax Sharing Agreements. Any and all tax sharing agreements
between or among Company and Sellers shall be terminated as of the Closing and,
from and after the Closing, neither Company nor Sellers or its subsidiaries
shall have any further rights or liabilities thereunder.
9.5 Foreign Person. At the Closing, Sellers shall provide Purchaser
an affidavit of Sellers, sworn to under penalties of perjury, setting forth (in
the form set forth in section 1.14452(b) of the Treasury Regulations promulgated
under the Code) Seller's name, address and federal tax identification number and
stating that Seller is not a "foreign person" within the meaning of section 1445
of the Code.
15
<PAGE> 16
10. Nature and Survival of Representations and Warranties.
(a) Nature of Statements. All statements contained in any exhibit
hereto or in any certificate delivered by or on behalf of the Sellers or the
Purchaser pursuant to this Agreement shall be deemed representations and
warranties by the Sellers or the Purchaser, as the case may be.
(b) Survival of Representations and Warranties. Except with respect
to matters addressed at Article 11(b), all covenants, agreements,
representations and warranties made hereunder or pursuant hereto or in
connection with the transactions contemplated hereby shall survive the Closing
and remain effective for a period of three years from the Closing Date;
provided, however, that any bona fide claim shall continue in effect until such
time as such claim has been resolved or settled and the covenants in Sections
11(a) and (c) shall survive in accordance with their term.
11. Indemnification.
(a) General indemnity by Sellers. Subject to the conditions
hereinafter set forth, for a 3 year period, the Sellers, in proportion to their
share of the purchase price set forth in Section 1(c), shall indemnify and hold
harmless the Purchaser and Company against any loss, damage or expense
(including reasonable attorneys' fees) incurred by the Purchaser and Company
and caused by or arising out of (i) any claim made against the Purchaser or
Company by a third party in respect of any liabilities or obligations of the
Company not assumed by the Purchaser or Company; (ii) any breach or default in
the performance by any of the Sellers of any covenant or agreement of any of
the Sellers contained in this Agreement; (iii) any breach of a warranty or
representation made by any of the Sellers pursuant to this Agreement, or in any
certificate required to be delivered pursuant to this Agreement, or any
material misstatement or omission in any exhibit attached or to be delivered
pursuant to this Agreement; and (iv) all costs and liabilities associated with
the cleanup of any contaminated soil or materials spilled, disposed of or
buried by Company or located on the property operated by Company prior to
Closing Date.
(b) Tax Indemnity by Sellers. Upon the terms and subject
to the conditions set forth in Section 11(b), Sellers, to the proportion of
their share of purchase price set forth at Section 1(c), shall indemnify and
hold harmless the Purchaser and Company against and will reimburse Purchaser or
Company for:
(i) any and all tax deficiencies in respect of
federal, state, and local and foreign sales, use, income or franchise
tax or taxes based on or measured by income, including any interest or
penalties thereon, and legal fees and expenses incurred by Company or
Purchaser with respect to December 31, 1996, and all prior taxable
years; and
(ii) any and all such taxes, penalties, interest
and legal fees and expenses in respect of the period from January 1,
1997, up to and including the Closing Date, but only to the extent that
such deficiencies, taxes, interest, penalties and legal fees and
expenses exceed, in the aggregate, the amount of the aggregate reserves
for such taxes, if any, shown as liabilities on the Closing Balance
Sheet.
This indemnity for taxes, penalty and interest and legal fees and
expenses shall be independent of and in addition to any other indemnity
provision of this Agreement and shall survive until the expiration of the
applicable statute of limitations for assessment for the taxes referred to
herein. The above tax indemnity provisions shall apply regardless of any
investigation at any time made by or on behalf of Purchaser or any
16
<PAGE> 17
information Purchaser may have in respect thereof.
(c) Procedure for Making Claims. If and when the Purchaser or
Company desires to claim indemnification by the Sellers pursuant to the
provisions of this Section, the Purchaser shall deliver to the Sellers within
30 days of its receipt of a claim, a certificate signed by the President or any
Vice President of the Purchaser (the "Notice of Claim") (i) stating that the
Purchaser or Company has paid or properly accrued or anticipated that it may be
required to accrue losses, damages or expenses to which the Purchaser is
entitled to indemnification pursuant to this Section, and (ii) specifying the
individual items of loss, damage or expense included in the amount so stated,
the date each such item was paid or properly accrued, if any, and the nature of
the misrepresentation, breach of warranty or claim to which such item is
related. If Sellers object to such claim or needs more information, he may
deliver written notice of objection (the "Notice of Objection") to the
Purchaser within thirty (30) days after the Purchaser's delivery of the Notice
of Claim to Sellers. The Notice of Objection shall set forth the grounds upon
which the objection is based. If no Notice of Objection shall have been so
delivered within such thirty (30) day period, the Sellers shall be deemed to
have acknowledged the correctness of the claim or claims specified in the
Notice of Claim for the full amount thereof, and shall thereupon pay to the
Purchaser, on demand, in cash, an amount equal to the amount of such claim or
claims.
If any third party shall assert any claim or bring any action against
the Purchaser or Company which, if successful, might result in a right of
indemnification hereunder, the Sellers shall be given written notice thereof in
accordance with the provisions of this Article 11(c). Thereafter, the Sellers
shall have the right to defend such claim or action at its own expense, and
through counsel of its own choice (which counsel shall be reasonably
satisfactory to Purchaser). If Sellers fail or refuse to provide a defense to
any third party claim, the Purchaser shall have the right to undertake the
defense, compromise or settlement of such claims, through counsel of its own
choice, on behalf of and for the account and at the risk of Sellers and Sellers
shall be obligated to pay the costs, expenses, and attorneys' fees incurred by
Purchaser in connection with such third party claim. Purchaser agrees that it
will not compromise or settle any claim without the consent of Sellers, which
consent shall not be unreasonably withheld. In any event, Purchaser, Company
and Sellers shall fully cooperate with each other and their respective counsel
in connection with any such litigation, defense, settlement, or other attempted
resolution.
(d) Sellers' Indemnification Limits. Sellers shall have no
obligation to indemnify Purchaser with respect to any claim described in Section
11(a) or (b) if (i) the sum of all claims by Purchaser for indemnification plus
warranty costs for labor and material incurred with respect of Company
contracts completed within one year before the Closing Date are less than the
warranty reserve in the Closing Balance Sheet; (ii) Purchaser fails to give
the notice of claim for general claims described in Section 11(a) within three
years; or (iii) Purchaser fails to give the notice of claim for tax related
claims described in Section 11(b) within the applicable statute of limitations
for assessment for the taxes described Section 11(b). Except as otherwise
stated at Article 11(b), to the extent Purchaser has actual knowledge of any
discrepancy, statement or state of facts, the applicable representation or
warranty known to be untrue or misleading shall be unenforceable to the extent
of the knowledge of such discrepancy, statement or state of facts.
17
<PAGE> 18
(e) General Indemnification by Purchaser. The Purchaser agrees to
indemnify and hold the Sellers harmless against and in respect of (i) any
damage, claim, liability, deficiency, loss, cost or expense (including
reasonable attorney's fees) sustained by the Sellers arising out of or
resulting from (a) any misrepresentation by the Purchaser contained in this
Agreement (or any collateral documents), in any exhibits attached hereto or
thereto or in a certificate to be delivered at the Closing, or (b) the breach
of or default under any warranty or representation, or the nonfulfillment of or
default under any agreement or covenant, of the Purchaser contained in this
Agreement (or collateral documents), exhibits or certificates hereto, (c) the
failure, after the Closing Date, of Purchaser or Company to pay or otherwise
discharge when due any contractual or other obligation relating to the
Company, (d) the Transactional Costs, Transactional Taxes or Taxes for which
Purchaser or Company is responsible; provided that indemnification as to
Transactional Costs shall be on an after-tax basis.
(f) Indemnification For Bond Guarantees. Purchaser agrees to
indemnify and hold Craig Sutton and Roy Sutton harmless against and in respect
of any liability as guarantors of open bonds listed at Schedule 6(c) hereto.
In addition, if Craig and Roy Sutton are not released as guarantors of the
bonds as of the Closing Date, Purchaser will provide to Craig and Roy Sutton on
the Closing Date, a $1,000,000 deposit in a form satisfactory to them, ensuring
this indemnification. This deposit shall remain in place until such time as
the release of Craig and Roy Sutton as guarantors or until the release of the
bonds by the Company's customers in the normal course of business.
(g) Agent for Indemnification. The Sutton Company, LLC shall act
as the agent of Sellers with respect to any indemnification obligations of
Sellers to Purchaser. A side letter of even date herewith shall set forth the
specific agreement of Sellers and Purchaser with respect to this agency.
12. Termination.
(a) Best Efforts to Satisfy Conditions. The Sellers agree to use
all reasonable and proper efforts to bring about the satisfaction of the
conditions specified in Section 7 hereof and the Purchaser agrees to use its
best efforts to bring about the satisfaction of the conditions specified in
Section 8 hereof.
Termination. This Agreement may be terminated by:
(i) The mutual consent of the Sellers and the Purchaser;
(ii) The Purchaser if a material default shall be made by the
Sellers in the observance of or in the due and timely performance by the
Sellers of any of the covenants of the Seller herein contained, or if there has
been a material breach by Sellers of any of the warranties and representations
of the Sellers herein contained, or if the conditions of this Agreement to be
complied with or performed by the Sellers at or before the Closing shall not
have been complied with or performed at the time required for such compliance
or performance and such noncompliance or nonperformance shall not have been
waived by the Purchaser; or
(iii) The Sellers if a material default shall be made by the
Purchaser in the observance of or in the due and timely performance by the
Purchaser of any of the covenants of the Purchaser herein contained, or if
there shall have been a material breach by the Purchaser of any of the
warranties and representations of the Purchaser herein contained, or if the
conditions of this Agreement to be complied with or performed by the Purchaser
at or before the Closing shall not have been complied with or performed at the
time required for such compliance or performance and such noncompliance or
nonperformance shall not have been waived by the Sellers.
(iv) Purchaser or Sellers if Closing shall not occur on or
before October 31, 1997.
18
<PAGE> 19
In the event of termination of this Agreement as provided above,
written notice thereof shall be given to the party within five (5) business
days. No termination pursuant to paragraphs (ii) and (iii) hereunder shall
relieve any party hereto from any liability in respect of such party's breach
or indemnification obligations hereunder.
14. Exhibits. If any exhibit recited to be attached hereto is not so
attached at the time of the execution hereof, the same may be prepared after
execution of this Agreement and, upon approval by notation of said exhibit by
each of the Sellers and a representative of the Purchaser, shall become a part
of this Agreement.
15. Miscellaneous.
(a) Expenses. Whether or not the transactions contemplated hereby
shall be consummated, each of the parties will pay all costs and expenses
(including Closing costs) of its performance of and compliance with this
Agreement.
(b) Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been given if
personally delivered or mailed, first class, registered or certified mail,
postage prepaid:
If to Sellers: Craig T. Sutton, Trustee
421 Ridge Oak Lane
Sapulpa, OK 74066
Charlotte A. Shnurman
Route 1/3331 Hwy 92
Prole, IA 50229
Cedric I. Sutton
12227 S. 245th W. Ave.
Sapulpa, OK 74066
With a copy to: Robert Y. Cohen II
Harper, Young, Smith & Maurras, PLC
510 N. Greenwood Ave.
P.O. Box 10205
Fort Smith, AR 72917-0205
19
<PAGE> 20
If to Purchaser: Specialty Solutions, Inc.
1360 Post Oak Blvd. Suite 2470
Houston, TX 77056
With a copy to: Cathy L. Smith, Esq.
If to Agent: Sutton Company, LLC
Craig T. Sutton
421 Ridge Oak Lane
Sapulpa, OK 74066
Or at such other address as shall be given in writing by any person
identified above to each of the other such persons.
(c) Assignment. This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties.
(d) Successors Bound. Subject to the provisions of Paragraph 15(c),
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
(e) Section and Paragraph Headings. The section and paragraph
headings in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
(f) Amendment. This Agreement may be amended only by an instrument
in writing executed by the parties hereto.
(g) Entire Agreement. This Agreement, the exhibits hereto, and the
documents specifically referred to herein constitute the entire agreement,
understanding, representations and warranties of the parties hereto.
(h) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute
one of the same instrument.
(i) Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Oklahoma.
(j) Publicity. No party will or will permit its affiliates or
subsidiaries to issue any publicity, release or announcement concerning the
execution and delivery of this Agreement, the provisions hereof or the
transaction contemplated hereby without the prior written approval of the form,
mode and content of such publicity, release or announcement by the other party.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
AGREED TO BY SELLERS:
/s/ CRAIG T. SUTTON, TRUSTEE
------------------------------------
By: Craig T. Sutton
Title: Trustee - Craig T. Sutton Revocable Trust
20
<PAGE> 21
/s/ CEDRIC I. SUTTON
------------------------------------
By: Cedric I. Sutton
Title: Stockholder
/s/ CHARLOTTE A. SHNURMAN
------------------------------------
By: Charlotte A. Shnurman
Title: Stockholder
SEFCO, Inc.
/s/ CRAIG T. SUTTON
------------------------------------
By: Craig T. Sutton
Title: President
AGREED TO BY PURCHASER:
Specialty Solutions, Inc.
/s/ LEE ORR
------------------------------------
By: Lee Orr
Title: President
AGREED TO BY AGENT:
Sutton Company, LLC
/s/ CRAIG T. SUTTON
------------------------------------
By: Craig T. Sutton
Its:
21
<PAGE> 1
EXHIBIT 11.01
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS OF DENALI INCORPORATED
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 19, 1994
----------------------- (DATE OF INCEPTION)
JUNE 28 JUNE 29 TO JULY 1,
1997 1996 1995
---------- ---------- -------------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding........................... 2,184,910 2,184,910 2,078,491
Net effect of dilutive stock options -- based on the
treasury stock method using average market price... 12,627 -- --
---------- ---------- ----------
Total...................................... 2,197,537 2,184,910 2,078,491
========== ========== ==========
Net income (loss).................................... $ (165,000) $ (248,000) $ (43,000)
Preferred stock dividends............................ (120,000) (120,000) (60,000)
Company's interest in subsidiary's earnings
(losses)(A)........................................ 472,400 (586,000) (B)
---------- ---------- ----------
Net income (loss) available for common
shareholders....................................... $ 187,400 $ (954,000) $ (103,000)
========== ========== ==========
Per share amount..................................... $ 0.09 $ (0.44) $ (0.05)
========== ========== ==========
</TABLE>
- ---------------
(A) Company's proportionate interest in subsidiary's earnings (losses) is
presented separately only for subsidiaries in which the Company does not own
100% of common stock and common stock equivalents of the subsidiary.
(B) During this period the Company owned 100% of the common stock and common
stock equivalent of the subsidiary.
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 19, 1994
----------------------- (DATE OF INCEPTION)
JUNE 28 JUNE 29 TO JULY 1,
1997 1996 1995
---------- ---------- -------------------
<S> <C> <C> <C>
FULLY DILUTED
Average shares outstanding........................... 2,184,910 2,184,910 2,078,491
Net effect of dilutive stock options -- based on the
treasury stock method using average market price... 12,627 -- --
---------- ---------- ----------
Total...................................... 2,197,537 2,184,910 2,078,491
========== ========== ==========
Net income (loss).................................... $ (165,000) $ (248,000) $ (43,000)
Preferred stock dividends............................ (120,000) (120,000) (60,000)
Company's interest in subsidiary's earnings
(losses)(A)........................................ 472,400 (586,000) (B)
---------- ---------- ----------
Net income (loss) available for common
shareholders....................................... $ 187,400 $ (954,000) $ (103,000)
========== ========== ==========
Per share amount..................................... $ 0.09 $ (0.44) $ (0.05)
========== ========== ==========
</TABLE>
- ---------------
(A) Company's proportionate interest in subsidiary's earnings (losses) is
presented separately only for subsidiaries in which the Company does not own
100% of common stock and common stock equivalents of the subsidiary.
(B) During this period the Company owned 100% of the common stock and common
stock equivalent of the subsidiary.
<PAGE> 1
EXHIBIT 21.01
Denali Incorporated
Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction Date Created
Subsidiary Name* of Incorporation or Acquired
--------------- ---------------- -----------
<S> <C> <C>
New CSI, Inc. Delaware Sept. 1997
Fluid Containment, Inc. Delaware Dec. 1994
Hoover Containment, Inc. Delaware Oct. 1995
Specialty Solutions, Inc. Delaware Aug. 1996
Ershigs, Inc. Washington Feb. 1997
Separation Solutions, Inc. Delaware Nov. 1995
Instrumentation Solutions, Inc. Delaware Sept. 1997
</TABLE>
- -----------------
* All subsidiaries are, directly or indirectly, owned 100% by Denali
Incorporated.
<PAGE> 1
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts", "Summary
Consolidated Financial Data" and "Selected Consolidated Financial Data" and to
the use of our reports dated August 27, 1997 (except for Note 18 as to which the
date is September 29, 1997), with respect to the consolidated financial
statements of the Company, dated September 12, 1997 with respect to the
financial statements of Hoover Containment Systems, Inc., dated September 22,
1997 with respect to the financial statements of Ershigs, Inc., and dated
September 9, 1997 with respect to the financial statements of GL&V/LaValley
Construction, Inc. included in the Registration Statement (Form S-1 No.
333-00000) and related Prospectus of Denali Incorporated.
ERNST & YOUNG LLP
Houston, Texas
September 29, 1997
<PAGE> 1
Exhibit 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 5, 1996 relating to the financial statements
of SEFCO, Inc. in the Registration Statement (Form S-1 No. 333-00000) and
related Prospectus of Denali Incorporated for the registration of
shares of its common stock.
GAYNOR AND FAWCETT, INC.
Tulsa, Oklahoma
September 25, 1997
<PAGE> 1
Exhibit 23.03
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 22, 1997 relating to the financial statements
of SEFCO, Inc. in the Registration Statement (Form S-1 No. 333-00000) and
related Prospectus of Denali Incorporated for the registration of
shares of its common stock.
LEMING, SCHALLNER & CO.
Tulsa, Oklahoma
September 25, 1997
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
The undersigned directors and officers of Denali Incorporated do hereby
constitute and appoint Stephen T. Harcrow and R. Kevin Andrews, or either of
them, our true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, to do any and all acts and things in our name
and behalf in our capacities as directors or officers or both, and to execute
any and all instruments for us and in our names in the capacities indicated
below which such person or persons may deem necessary or advisable to enable
Denali Incorporated to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for us, or any of
us, in the capacities indicated below, any and all amendments (including
post-effective amendments) hereto and we do hereby ratify and confirm all that
such person or persons shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN T. HARCROW Chairman of the Board, September 18, 1997
- ----------------------------------------------------- Chief Executive Officer and
Stephen T. Harcrow Director (Principal
Executive Officer)
/s/ R. KEVIN ANDREWS* Chief Financial Officer September 18, 1997
- ----------------------------------------------------- (Principal Financial
R. Kevin Andrews Officer and Principal
Accounting Officer)
/s/ ERNEST H. COCKRELL* Director September 18, 1997
- -----------------------------------------------------
Ernest H. Cockrell
/s/ THOMAS D. SIMMONS, JR.* Director September 18, 1997
- -----------------------------------------------------
Thomas D. Simmons, Jr.
/s/ J. TAFT SYMONDS* Director September 18, 1997
- -----------------------------------------------------
J. Taft Symonds
/s/ STEPHEN M. YOUTS* Director September 18, 1997
- -----------------------------------------------------
Stephen M. Youts
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> JUN-28-1997
<CASH> 330
<SECURITIES> 0
<RECEIVABLES> 17,981
<ALLOWANCES> 605
<INVENTORY> 6,686
<CURRENT-ASSETS> 26,279
<PP&E> 9,858
<DEPRECIATION> 2,163
<TOTAL-ASSETS> 41,084
<CURRENT-LIABILITIES> 17,688
<BONDS> 21,758
0
1,200
<COMMON> 22
<OTHER-SE> (563)
<TOTAL-LIABILITY-AND-EQUITY> 41,084
<SALES> 71,101
<TOTAL-REVENUES> 71,101
<CGS> 57,268
<TOTAL-COSTS> 69,142
<OTHER-EXPENSES> (598)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,058
<INCOME-PRETAX> 610
<INCOME-TAX> 293
<INCOME-CONTINUING> 317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 317
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
